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 May 26, 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 July 5, 1995
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Common stock, $.01 par value 2,738,620 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)
May 26 August 26,
1995 1994
ASSETS (Unaudited)
- ------------------------ ----------- ------------
Current Assets:
Cash and cash equivalents $11,507 $8,556
Marketable securities 6,595 7,055
Accounts receivable ( Net of allowance for doubtful 3,556 5,084
accounts of $103)
Inventories ( Note 2 ) 2,239 3,192
Deferred income taxes 381 381
Prepaid expenses 621 708
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Total Current Assets 24,899 24,976
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Property, equipment and improvements (Net of accumulated
depreciation of $7,688 and $6,421 respectively) 3,467 3,276
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Other Assets:
Land held for future development 163 163
Deferred income taxes 409 323
Other assets 1,014 1,198
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1,586 1,684
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Total Assets $29,952 $29,936
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------
Current Liabilities:
Accounts payable and accrued expenses $1,847 $1,689
Income taxes payable 97 202
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Total Current Liabilities 1,944 1,891
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Deferred compensation and retirement plans 1,905 1,804
Shareholders' Equity:
Common stock, $.01 par value: authorized
7,500,000 shares; issued 2,912,304 and
2,877,609 shares 29 29
Paid-in capital 10,187 10,136
Retained earnings 16,867 16,839
Equity adjustment foreign currency translation 65 65
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27,148 27,069
Less: treasury stock at cost, 183,414 and 155,414 shares (Note 5) 1,045 828
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Total Shareholders' Equity 26,103 26,241
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Total Liabilities and Shareholders' Equity $29,952 $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 Nine Months Ended--/
May 26 May 27 May 26 May 27
1995 1994 1995 1994
-------- -------- -------- --------
Sales $4,775 $5,134 $14,142 $14,399
Costs and Expenses, net:
Cost of sales 2,003 1,891 6,393 5,516
Engineering and development 754 753 2,192 2,085
Marketing and sales 1,126 1,240 3,773 3,424
General and administrative 682 583 1,811 1,612
Restructuring Costs (Note 4) --- --- 409 ---
-------- -------- -------- --------
Total costs and expenses, net 4,565 4,467 14,578 12,637
-------- -------- -------- --------
Operating income (loss) 210 667 (436) 1,762
Interest income 239 123 594 351
Dividend income 2 2 8 13
Interest expense (13) (6) (43) (26)
Foreign exchange adjustment 31 0 29 (5)
Gain (loss) on disposal fixed assets (2) 0 (2) 4
Net realized and unrealized gains(losses) on
marketable securities 11 (2) 4 9
-------- -------- -------- --------
Income before income taxes 478 784 154 2,108
Income tax expense 158 224 126 750
-------- -------- -------- --------
Net income $320 $560 $28 $1,358
======== ======== ======== ========
Primary earnings per share $0.11 $0.20 $0.01 $0.48
======== ======== ======== ========
Weighted Average Shares Outstanding
Primary 2,798 2,820 2,806 2,816
======== ======== ======== ========
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 Nine Months Ended--/
May 26 May 27 May 26 May 27
1995 1994 1995 1994
---------- ---------- ---------- ----------
Net Income $320 $560 $28 $1,358
Adjustments to reconcile net income to
net cash from(used for) operating activies:
Unreal. (gain)loss on mktble securities (11) 2 4 (6)
Depreciation and amortization 199 170 575 487
Loss on sale of fixed assets 2 0 2 29
Deferred compensation and retirement plans 39 15 101 6
Deferred income taxes (34) (37) (86) (36)
Changes in operating assets and liablities:
(Increase) decrease in accounts receivable (151) (202) 1,528 (1,499)
(Increase) decrease in inventories 237 (1,305) 953 (1,702)
(Increase) decrease in prepaid expenses 48 17 87 (227)
Increase in accounts payable
and accrued expenses 325 247 158 273
Increase (decrease) in income taxes payable (38) 127 (105) 263
---------- ---------- ---------- ----------
Total adjustments 616 (966) 3,217 (2,412)
Net cash from (used for) operating activities 936 (406) 3,245 (1,054)
Cash flows from (used for) investing activities:
Purchase of marketable securities (46,396) (33,375) (111,343) (96,988)
Sale of marketable securities 46,176 32,422 111,799 94,910
Property, equipment and improvements (162) (290) (768) (703)
Other assets 29 (6) 184 (229)
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Net cash provided from (used for) investing activities (353) (1,249) (128) (3,010)
Cash flows from financing activities:
Proceeds from stock options 0 25 51 191
Purchase of Treasury Stock (217) --- (217) ---
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Net cash from financing activities (217) 25 (166) 191
Net increase(decrease) in cash 366 (1,630) 2,951 (3,873)
Cash, beginning of period 11,141 10,178 8,556 12,421
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Cash, end of year $11,507 $8,548 $11,507 $8,548
========== ========== ========== ==========
Supplementary information:
Income taxes paid , net $214 $67 $631 $487
========== ========== ========== ==========
Interest paid --- $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:
May 26, August 26,
1995 1994
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($000's)
Raw materials $ 783 $1,248
Work-in-process 881 1,272
Finished goods 575 672
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Total $2,239 $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 restructure 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
5. Stock Repurchase:
The Company announced on October 9, 1986 that the Board of Directors
authorized the Company to repurchase up to 10% of the outstanding stock at
current market value. The timing and price of stock purchases under this
repurchase program will be made at the discretion of management. At May 26,
1995, the Company has repurchased 183,414 or 67% of the total authorized.
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 12 and 13 ).
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994:
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Sales revenues of $14,142,000 and $4,775,000 for the nine and three month
periods ended May 26, 1995 represent declines of approximately 2% and 7% from
the prior comparable periods of fiscal year 1994. Sales of the machine code
reader to United Parcel Service ( UPS ) accounted for approximately 28% and 9%
of total sales for the nine and three months ended May 26, 1995 compared to only
9% and 23% for the prior comparable periods in fiscal 1994. The contract to
supply machine code readers to UPS for its Chicago, Illinois facility is
completed and the units are expected to go on line at the UPS Chicago, Illinois
facility within the next few months. 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 44% and 62% of total
sales for the nine and three month periods compared to 70% and 56% for the prior
comparable periods. The year to date decline is mainly due to a decline 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 SuperCard 4/4XL generation of product is still in its early stage of
procurements by the OEM and volume end users. 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 6% of total sales for the nine and
three month periods. These older products are sold only to existing customers.
The RTS-860 product represented 7% and 6% of total sales for the nine and three
month periods, which increased by 4% and 2% from the prior comparable periods.
The Scanalytics Division, which develops bio-instrumentation-scientific-imaging
products, accounted for approximately 12% and 11% of total sales for the nine
and three month periods compared to 9% and 10% 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 $526,000 or 32% of the Scanalytics
division year to date sales. The majority of this revenue was generated from the
RIS 4000, a radio-isotopic imager used in gel electrophoresis experiments.
8
Revenue recognized from Scanalytics service contracts accounted for 15% of the
Scanalytics division year to date sales, compared to 7% for the prior comparable
period. This increase was mainly attributable to service contracts relating to
the Ambis product line. MasterScan and CellScan products accounted for
approximately 6% and 29% of division sales for the nine month period which is a
decline from the prior comparable period of 29% and 27%, respectively.
North American sales were approximately 86% and 85% of total sales for the nine
and three month periods ended May 26, 1995 which represents a slight decline
from the prior comparable periods of 82% and 76%, respectively. European sales
remained depressed and relatively consistent with the same periods of the prior
fiscal year at approximately 7% and 8%, respectively. Sales in the Far East also
remained consistent at approximately 5% of total sales for the nine and three
month periods. Sales in the Middle East accounted for approximately 2% of total
sales for the nine and three month period, representing a slight decline from
the prior comparable periods of 4% and 5%, respectively.
Cost of sales as a percentage of sales was approximately 45% and 42% for the
nine and three month periods compared to 38% and 37% 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 shipments to UPS accounted for a major portion of the
increase for the period. We also incurred additional one time expenses related
to the closing and relocation of our San Diego manufacturing (Ambis product)
operation which was closed during the quarter.
Engineering and development expenses as a percentage of sales for the nine and
three month periods ended May 26, 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 16% of the total engineering and development
expenses compared to approximately 19% for the comparable period of fiscal 1994.
Sales and marketing expenses as a percentage of sales increased by approximately
3% for the nine month period compared to the same period of the prior fiscal
year, whereas the three month period remained consistent. The increased expenses
were primarily due to the addition of sales and support staff which was hired as
part of the Ambis acquisition and related expenses of the
9
operation needed to sell and support the new product. This represented
approximately 75 % of the increase for the nine month period. Only three months
of the Ambis expenses were 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 13% of
sales as compared to the same periods of the prior fiscal year. The increased
expense amount was due to additional legal expenses, retirement benefits related
to the restructure and costs related to implementing a new accounting and Human
Resource systems.
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.
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.
The Company had an effective tax rate for the nine month period ended May 26,
1995 of approximately 80%. This was due to the fact that our wholly-owned French
subsidiary sustained losses of approximately $250,000 (approximately half of the
loss was due to the restructure and relocation of our French Corporate Office)
which have no tax benefit for our U.S. and various state tax provisions. The
effective tax rate, without our French Subsidiary, for the U.S. tax purposes was
approximately 32% of income before tax.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY:
- ----------------------------------------------------
Working capital decreased slightly to $22.9 million at the end of May 1995 from
$23.1 million at the end of August 1994. Accounts receivable decreased
approximately $1,528,000 from August
10
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 $953,000 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.
During the third quarter of Fiscal 1995, the Company repurchased 28,000 shares
of its Common Stock for approximately $217,000 under its stock repurchase
program of October 1986.
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 or revenues or income from continuing operations during
the nine and three month periods ended May 26, 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 Nine Months Ended------/
May 26 % Of May 27 % Of May 26 % Of May 27 % Of
1995 Sales 1995 Sales 1995 Sales 1995 Sales
---------- ---------- ---------- ----------
Sales $4,775 100% $5,134 100% $14,142 100% $14,399 100%
Costs and Expenses, net:
Cost of sales 2,003 42% 1,891 37% 6,393 45% 5,516 38%
Engineering and development 754 16% 753 15% 2,192 15% 2,085 14%
Marketing and sales 1,126 24% 1,240 24% 3,773 27% 3,424 24%
General and administrative 682 14% 583 11% 1,811 13% 1,612 11%
Restructuring costs --- 0% --- 0% 409 3% --- 0%
---------- ---------- ---------- ----------
Total costs and expenses, net 4,565 96% 4,467 87% 14,578 103% 12,637 88%
---------- ---------- ---------- ----------
Operating income 210 4% 667 13% (436) -3% 1,762 12%
Interest income 239 5% 123 2% 594 4% 351 2%
Dividend income 2 0% 2 0% 8 0% 13 0%
Interest expense (13) 0% (6) 0% (43) 0% (26) 0%
Foreign Exchange Adjustment 31 1% 0 0% 29 0% (5) 0%
Gain ( loss ) on disposal fixed assets (2) 0% 0 0% (2) 0% 4 0%
Net realized and unrealized gains(losses) on
marketable securities 11 0% (2) 0% 4 0% 9 0%
---------- ---------- ---------- ----------
Income before income taxes 478 10% 784 15% 154 1% 2,108 15%
Income tax expense 158 3% 224 4% 126 1% 750 5%
---------- ---------- ---------- ----------
Net income $320 7% $560 11% $28 0% $1,358 9%
========== ========== ========== ==========
12
CSP INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS Schedule II
PERIOD TO PERIOD DOLLAR AND PERCENTAGE CHANGE
(Dollars In Thousands)
(Unaudited)
/--For the Three Month Periods Ended---/ /--For the Nine Month Periods Ended---/
May 26, 1995 vs May 27, 1994 May 26, 1995 vs May 27, 1994
$ Change % Change $ Change % Change
------------ ------------ ------------ ------------
Sales ($359) -7.0% ($257) -1.8%
Costs and Expenses, net:
Cost of sales 112 5.9% 877 15.9%
Engineering and development 1 0.1% 107 5.1%
Marketing and sales (114) -9.2% 349 10.2%
General and administrative 99 17.0% 199 12.3%
Restructuring costs 0 ---- 409 ----
------------ ------------ ------------ ------------
Total costs and expenses, net 98 2.2% 1,941 15.4%
------------ ------------ ------------ ------------
Operating income (457) -68.5% (2,198) -124.7%
Interest income 116 94.3% 243 69.2%
Dividend income 0 0.0% (5) -38.5%
Interest expense (7) 116.7% (17) 65.4%
Foreign Exchange Adjustment 31 0.0% 34 0.0%
Gain ( loss ) on disposal fixed assets (2) 0.0% (6) 0.0%
Net realized and unrealized gains(losses) on
marketable securities 13 -650.0% (5) -55.6%
------------ ------------ ------------ ------------
Income before income taxes (306) -39.0% (1,954) -92.7%
Income tax expense (66) -29.5% (624) -83.2%
------------ ------------ ------------ ------------
Net income ($240) -42.9% ($1,330) -97.9%
============ ============ ============ ============
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.
------------
(Registrant)
Date: 7/5/95 By: /s/ David S. Botten
--------------------------
David S. Botten
Chief Executive Officer and
President
Date: 7/5/95 By: /s/ Gary W. Levine
------------------
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
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.
16