SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-Q
(Mark One)
(X) Quarterly report pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended February 24, 1995 or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-10843
CSP Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2441294
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
40 Linnell Circle, Billerica, Massachusetts
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(Address of principal executive offices)
Registrant's telephone number, including area code: (508)663-7598
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NONE
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(Former name, former address, former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding April 3, 1995
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Common stock, $.01 par value 2,766,620 shares
1
INDEX
PAGE NUMBER
PART 1. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets.............................3
Consolidated Statements of Operations...................4
Consolidated Statements of Cash Flows...................5
Notes to Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation......................8
PART II. OTHER INFORMATION:
Item 6. Exhibits & Reports on Form 8-K.........................12
2
CSP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands) February 24, August 26,
1995 1994
ASSETS (Unaudited)
- --------------------------------- ------------- ------------
Current Assets:
Cash and cash equivalents $11,141 $8,556
Marketable securities 6,364 7,055
Accounts receivable (Net of 3,405 5,084
allowance for doubtful
accounts of $103)
Inventories (Note 2) 2,476 3,192
Deferred income taxes 381 381
Prepaid expenses 669 708
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Total Current Assets 24,436 24,976
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Property, equipment and improvements
(Net of accumulated
depreciation of $7,510 and
$6,421 respectively) 3,506 3,276
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Other Assets:
Land held for future
development 163 163
Deferred income taxes 375 323
Other assets 1,043 1,198
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1,581 1,684
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Total Assets $29,523 $29,936
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LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------
Current Liabilities:
Accounts payable and accrued
expenses $1,522 $1,689
Income taxes payable 135 202
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Total Current Liabilities 1,657 1,891
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Deferred compensation and retirement
plans 1,866 1,804
Shareholders' Equity:
Common stock, $.01 par value:
authorized 7,500,000 shares;
issued 2,922,034 and
2,877,609 shares 29 29
Paid-in capital 10,187 10,136
Retained earnings 16,547 16,839
Equity adjustment foreign currency
translation 65 65
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26,828 27,069
Less: treasury stock at cost,
155,414 shares 828 828
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Total Shareholders' Equity 26,000 26,241
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Total Liabilities and Shareholders'
Equity $29,523 $29,936
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See accompanying notes to consolidated financial statements.
3
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands, Except For Per Share Data)
(Unaudited)
/-For The Three Months Ended-/ /---For The Six Months Ended--/
February 24, February 25, February 24, February 25,
1995 1994 1995 1994
------------ ------------ ------------ ------------
Sales $4,747 $5,061 $ 9,366 $9,264
Costs and Expenses, net:
Cost of sales 2,154 2,053 4,390 3,625
Engineering and development 698 659 1,438 1,332
Marketing and sales 1,250 1,114 2,647 2,183
General and administrative 607 544 1,129 1,029
Restructuring Costs (note 4) --- --- 409 ---
------------ ------------ ------------ ------------
Total costs and expenses, net 4,709 4,370 10,013 8,169
------------ ------------ ------------ ------------
Operating income (loss) 38 691 (647) 1,095
Interest income 215 116 350 223
Dividend income 3 2 5 11
Interest expense (11) (7) (24) (16)
Foreign exchange adjustment (1) 0 (1) 0
Net realized and unrealized gains(losses) on
marketable securities (2) (13) (7) 11
------------ ------------ ------------- ------------
Income before income taxes 242 789 (324) 1,324
Income tax expense (benefit) 102 325 (32) 526
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Net income (loss) $140 $464 ($292) $798
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Primary earnings (loss) per share $0.05 $0.16 ($0.10) $0.28
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Weighted Average Shares Outstanding
Primary 2,805 2,816 2,812 2,815
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See accompanying notes to consolidated financial statements.
4
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
/-For The Three Months Ended--/ /----For The Six Months Ended--/
February 24, February 25, February 24, February 25,
1995 1994 1995 1994
----------- ------------ ------------ -------------
Net Income (loss) $140 $464 ($292) $798
Adjustments to reconcile net income (loss) to
net cash from(used for) operating activities:
Unreal. (gain)loss on mktble securities 2 (10) 7 (8)
Depreciation and amortization 192 170 376 317
(Gain) Loss on sale of fixed assets 0 (4) 0 (4)
Deferred compensation and retirement plans 33 (38) 62 (9)
Deferred income taxes (52) 3 (52) 1
Changes in operating assets and liablities:
(Increase) decrease in accounts receivable,
net 279 (404) 1,679 (1,297)
(Increase) decrease in inventories 633 111 716 (397)
(Increase) decrease in prepaid expenses (30) (136) 39 (244)
Increase(decrease) in accounts payable
and accrued expenses (341) 467 (167) 26
Increase (decrease) in income taxes
payable 151 (62) (67) 136
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Total adjustments 867 97 2,593 (1,479)
Net cash from (used for) operating activities 1,007 561 2,301 (681)
Cash flows from (used for) investing activities:
Purchase of marketable securities (37,921) (38,189) (68,003) (63,614)
Sale of marketable securities 39,792 37,961 68,687 62,488
Property, equipment and improvements (93) (109) (606) (379)
Other assets 130 (223) 155 (223)
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Net cash provided from (used for) investing
activities 1,908 (560) 233 (1,728)
Cash flows from financing activities:
Proceeds from stock options 5 22 51 166
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Net cash from financing activities 5 22 51 166
Net increase(decrease) in cash 2,920 23 2,585 (2,243)
Cash, beginning of period 8,221 10,155 8,556 12,421
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Cash, end of period $11,141 $10,178 $11,141 $10,178
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Supplementary information:
Income taxes paid , net $26 $417 $106 $420
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Interest paid $50 $29 $50 $29
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See accompanying notes to consolidated financial statements.
5
CSP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company,
without audit, and reflect all adjustments which in the opinion of management,
are necessary for a fair statement of the results of the interim periods
presented. All adjustments were of a normal recurring nature. Certain
information and footnote disclosures normally included in the annual financial
statements which are prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Accordingly, the Company believes
that although the disclosures are adequate to make the information presented
not misleading, the financial statements should be read in conjunction with
the footnotes contained in the Company's Annual Report on Form 10-K for the
fiscal year ended August 26, 1994.
2. Inventories:
Inventories consist of the following:
February 24, August 26,
1995 1994
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($000's)
Raw materials $ 720 $1,248
Work-in-process 1,151 1,272
Finished goods 605 672
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Total $2,476 $3,192
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3. Asset Acquisition:
On March 1, 1994, the Company purchased the majority of assets of
a bio-instrumentation manufacturer, AMBIS, Inc. for approximately
$500,000. The assets purchased include inventory, manufacturing
fixtures, customer and vendor lists, assembly and test drawings and
the use of the AMBIS name. Key AMBIS employees in manufacturing,
customer support and sales have joined CSPI to smooth the technology
transfer.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
4. Restructure Charges:
The Company recorded restructure charges of $409,000 against
operations which was based on the best information available at
the time the decision was made to take the action of a work-force
reduction, moving the San Diego, California manufacturing operation
to Billerica and restruct and move the French subsidiary. The
Company will have terminated a total of twenty-two (22) employees,
or 18% of the entire labor force. Listed below is the summary of
the restructure charges.
Work-force related................................$290,000
Cost of relocating San Diego...................... 85,000
Moving cost of French office and restructure...... 34,000
Total restructure costs.......................$409,000
7
CSP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
A summary of the period to period changes in principal items included in the
Statement of Operations is shown in Schedule I and II ( page 13 and 14 ).
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994:
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Sales revenue of $9,366,000 for the six month period ended February 24, 1995
represents a slight increase of approximately 2% over the prior comparable
period of fiscal year 1994, whereas sales revenue of $4,747,000 for the quarter
ended February 24, 1995 represents a 6% decline from the prior comparable
period. Sales of the machine code reader to United Parcel Service ( UPS )
accounted for approximately 37% and 15% total sales for the six and three months
ended February 24, 1995 compared to only 1% and 0% for the prior comparable
periods in fiscal 1994. The contract to supply machine code readers to UPS has
essentially been completed and the units are expected to go on line at the UPS
Chicago, Illinois facility next month. Preliminary results have been very
encouraging and other potential customers have shown interest in the use of this
technology. The SuperCard family of products accounted for 34% and 21% of total
sales for the six and three month periods representing a decline of
approximately 44% and 26% from the prior comparable periods. This decline is
mainly delays in procurements by some of the COTS( commercial - off - the -
shelf )programs, decline in the procurements of the old SuperCard products (SC-1
and SC-2), and the new the SuperCard 4/4XL generation of product is still in
its early stage of procurements by the OEM and volume end users. The SuperCard
is currently being sold to a wide variety of customers primarily in the VMEbus
market. The largest customers continue to be COTS based military programs
around the world , primarily in the United States with varied applications in
aerospace, imaging, and military ( i.e. radar and sonar ). Sales of older
attached processor products such as the MAP-4000 and MiniMAP remained consistent
at approximately 5% and 3% of total sales for the six and three month periods.
These older products are sold only to existing customers. The RTS-860 product
represented 8% and 6% of total sales for the six and three month periods, which
increased by 5% and 6% from the prior comparable periods. The Scanalytics
Division , which develops bio-instrumentation-scientific-imaging products,
accounted for approximately 12% and 9% of total sales for the six and three
month periods compared to 8% and 6% for the comparable periods of fiscal 1994.
This increase is mainly attributable to the addition of the Ambis product line
which was purchased in March 1994. Sales generated from the Ambis product line
accounted for approximately $354,000 or 31% of the Scanalytics division year
8
to date sales. The majority of this revenue was generated from the RIS 4000, a
radio-isotopic imager used in gel electrophoresis experiments. Revenue
recognized from Scanalytics service contracts accounted for 16% of the
Scanalytics division year to date sales, an 11% increase from the prior
comparable period. This was mainly attributable to service contract relating to
the Ambis product line. MasterScan and CellScan products accounted for
approximately 6% and 28% of division sales for the six month period which is a
decline from the prior comparable period of 41% and 32%, respectively.
North American sales were approximately 86% and 88% of total sales for the six
and three month periods ended February 24, 1995 which is fairly consistent with
the prior comparable periods of 85% and 88%, respectively. European sales
remained depressed and relatively consistent with the same periods of the prior
fiscal year at approximately 6% and 2%, respectively. Sales in the Far East
also remained consistent at approximately 5% and 4% of total sales for the six
and three month periods.
Cost of sales as a percentage of sales was approximately 47% and 45% for the six
and three month periods compared to 39% and 41% for the same periods of the
prior fiscal year. This increase was primarily due to the mix of business,
increasing competitive pressures and aggressive introductory pricing for new
products. The machine code readers units cost of sales as a percentage of sales
are higher than either the Scanalytics or Embedded Computer products. The
increased volume of shipment to UPS accounted for a major portion of the
increase for the period. SuperCard shipments have been under competitive
pressures and have accounted for about 10 % of the increased cost of sales. We
also had some additional expenses related to the closing and relocation of our
San Diego manufacturing (Ambis product) operation which was closed in February,
1995.
Engineering and development expenses as a percentage of sales for the six and
three month periods ended February 24, 1995 remained fairly consistent with the
same periods of the prior fiscal year at approximately 15% of sales. The
increase in the amount of expenditures over the prior fiscal year was due to the
addition of a software engineer for the EC division and added maintenance costs
for capital equipment purchased for the development activity. The Scanalytics
division accounted for approximately 18% of the total engineering and
development expenses compared to approximately 20% for the comparable period of
fiscal 1994.
Sales and marketing expenses as a percentage of sales increased by approximately
4% for the six and three month periods compared to the same periods of the prior
fiscal year. The increased
9
expenses were primarily due to addition of staff which was hired as part of the
Ambis acquisition and related expenses of the operation needed to sell and
support the new product. This represented 75 % of the increase for the six month
period. The Ambis expenses were not reflected in the Fiscal year 1994 statements
since Ambis was purchased in March ,1994. The remaining increase was due to
added selling and marketing expenses of the Vision System Division which was
established at the end of Fiscal year 1994. This Division was established to
sell and market the machine code reader licensed from UPS.
General and administrative expenses remained consistent at approximately 12% of
sales as compared to the same periods of the prior fiscal year. The increased
expense amount was due to additional legal expenses, and retirement benefits
related to the restructure, and costs related to implementing new accounting
software.
In November, 1994, the Company recorded restructure charges of $409,000 against
operations which was based on the best information available at the time the
decision was made to take the action of a work-force reduction, moving the San
Diego, California manufacturing operation to Billerica, MA and to restructure
and move the French subsidiary. This restructuring is scheduled to be completed
by the end of fiscal 1995.
The Company reported an operating loss of ($647,000) and operating income of
$38,000 for the six and three month periods ending February 24, 1995, compared
to operating income of $1,095,000 and $691,000 for the same six and three month
periods of fiscal 1994. This decrease was due primarily to the restructuring
costs recognized as discussed above, the erosion of the gross margin from 61% to
53%, and the increase in operating expenses as discussed above.
Other income has increased compared to prior years due to the increase in the
rates of investments and the shift from non-taxable investments to taxable
because of current tax status.
The Company continues its conservative investment strategy of maintaining a
short-term liquid position while maximizing revenues on an after-tax basis with
as limited an exposure of principal as possible. The Company believes that as a
result of maintaining a liquid position, it has been able to avoid borrowing for
capital needs as well as augment its operating results, and is well positioned
to make an acquisition or a joint venture if appropriate opportunities arise.
10
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY:
- ----------------------------------------------------
Working capital decreased to $22.8 million at the end of February, 1995 from
$23.1 million at the end of August 1994. Accounts receivable decreased
approximately $1,679,000 from August 26, 1994. This decrease is mainly due to
cash receipts related to billings made at the end of fiscal 1994 and a more even
sales distribution during the recent accounting period . Inventory decreased
$716,000 from the level reported at August 26, 1994. This decrease is mainly
due to the shipment of several DCOR units to UPS which were in work in process
at the end of August 1994 and shipment of SuperCard products.
Management believes that all of the Company's current and foreseeable needs can
be met through working capital generated by operations and investments.
INFLATION AND CHANGING PRICES:
- ------------------------------
Management does not believe that inflation and changing prices had significant
impact on either sales revenues or income from continuing operations during
the six and three month periods ended February 24, 1995. There is no assurance,
however, that the Company's business will not be materially and adversely
affected by inflation and changing prices in the future.
11
Schedule I
CSP INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERCENTAGE OF SALES
(Dollars In Thousands)
(Unaudited)
/--------For The Three Months Ended- /------For The Six Months Ended---/
February 24, % Of February 25, % Of February 24, % Of February 25, % Of
1995 Sales 1994 Sales 1995 Sales 1994 Sales
------------ ------------ ------------ ------------
Sales $4,747 100% $5,061 100% $9,366 100% $9,264 100%
Costs and Expenses, net:
Cost of sales 2,154 45% 2,053 41% 4,390 47% 3,625 39%
Engineering and development 698 15% 659 13% 1,438 15% 1,332 14%
Marketing and sales 1,250 26% 1,114 22% 2,647 28% 2,183 24%
General and administrative 607 13% 544 11% 1,129 12% 1,029 11%
Restructuring costs --- 0% --- 0% 409 4% --- 0%
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Total costs and and expenses
net 4,709 99% 4,370 86% 10,013 107% 8,169 88%
------------ ------------ ------------ ------------
Operating income (loss) 38 1% 691 14% (647) -7% 1,095 12%
Interest income 215 5% 116 2% 350 4% 223 2%
Dividend income 3 0% 2 0% 5 0% 11 0%
Interest expense (11) 0% (7) 0% (24) 0% (16) 0%
Foreign Exchange Adjustment (1) 0% 0 0% (1) 0% 0 0%
Net realized and unrealized
gains(losses) on
marketable securities (2) 0% (13) 0% (7) 0% 11 0%
------------ ------------ ------------ ------------
Income (loss) before income taxes 242 5% 789 16% (324) -3% 1,324 14%
Income tax expense (benefit ) 102 2% 325 6% (32) 0% 526 6%
------------ ------------ ------------ ------------
Net income (loss) $140 3% $464 9% ($292) -3% $798 9%
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12
Schedule II
CSP INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD TO PERIOD DOLLAR AND PERCENTAGE CHANGE
(Dollars In Thousands)
(Unaudited)
/-For the Three Month Periods Ended--/ /--For the Six Month Periods Ended---/
February 24, 1995 vs February 25, 1994 February 24, 1995 vs February 25, 1994
$ Change % Change $ Change % Change
------------ ------------- ------------ ------------
Sales ($314) -6.2% $102 1.1%
Costs and Expenses, net:
Cost of sales 101 4.9% 765 21.1%
Engineering and development 39 5.9% 106 8.0%
Marketing and sales 136 12.2% 464 21.3%
General and administrative 63 11.6% 100 9.7%
Restructuring costs 0 ---- 409 ----
------------ ------------- ------------ ------------
Total costs and expenses, net 339 7.8% 1,844 22.6%
------------ ------------- ------------ ------------
Operating income (loss) (653) -94.5% (1,742) -159.1%
Interest income 99 85.3% 127 57.0%
Dividend income 1 50.0% (6) -54.5%
Interest expense (4) 57.1% (8) 50.0%
Foreign Exchange Adjustment (1) 0.0% (1) 0.0%
Net realized and unrealized gains(losses)on
marketable securities 11 -84.6% (18) -163.6%
------------ ------------- ------------ ------------
Income (loss) before income taxes (547) -69.3% (1,648) -124.5%
Income tax expense (benefit) (223) -68.6% (558) -106.1%
------------ ------------- ------------ ------------
Net income (loss) ($324) -69.8% ($1,090) -136.6%
============ ============= ============ ============
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CSP Inc.
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(Registrant)
Date: By: s/s David S. Botten
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David S. Botten
Chief Executive Officer and
President
Date: By: s/s Gary W. Levine
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Gary W. Levine
Vice President of Finance and
Chief Financial Officer
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CSP Inc.
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(Registrant)
Date:______________________ By: ___________________________
David S. Botten
Chief Executive Officer and
President
Date:______________________ By: ___________________________
Vice President of Finance and
Chief Financial Officer
15
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a vote of Security Holders
The Company held its Annual Meeting of Stockholders
on December 13, 1994. The following matter was approved
at the meeting.
1) Samuel Ochlis and John D. Ingram were elected as Class II members
for a term of three years and C. Shelton James was elected as a
Class III member of the Board of Directors for a one-year term.
Item 6. Exhibit and Reports on Form 8-K
a) Reports on Form 8-K
NONE
b) Exhibits
11.1 Data used in the calculation of net income per
share.
27 Financial Data Schedule
16