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 31, 1996 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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2441294
- --------------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
40 Linnell Circle, Billerica, Massachusetts
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (508)663-7598
- --------------------------------------------------------------------------------
NONE
- --------------------------------------------------------------------------------
(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 11, 1996
- ------------------------------------- -----------------------------------
Common stock, $.01 par value 2,773,870 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 Operations.....................8
PART II. OTHER INFORMATION:
Item 6. Exhibits & Reports on Form 8-K..........................12
2
<TABLE>
<CAPTION>
CSP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS May 31, August 25,
(Dollars In Thousands) 1996 1995
(Unaudited)
----------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $10,559 $11,069
Marketable securities 7,099 6,482
Accounts receivable, net 3,761 3,933
Inventories (Note 2) 2,335 2,150
Deferred income taxes 392 368
Prepaid expenses 391 471
------ -------
Total Current Assets 24,537 24,473
Property, equipment and improvements, net 3,508 3,470
Other Assets:
Land held for future development 163 163
Deferred income taxes 344 355
Other assets 868 818
------ ------
Total Other Assets 1,375 1,336
------- -------
Total Assets $29,420 $29,279
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,616 $ 1,461
Income taxes payable 99 150
------- -------
Total Current Liabilities 1,715 1,611
Deferred compensation and retirement plans 2,090 1,943
Shareholders' Equity:
Common stock, $.01 par value; authorized
7,500,000 shares; issued 2,957,284 and
2,922,034 shares 29 29
Paid-in capital 10,412 10,187
Retained earnings 17,142 17,224
Equity adjustment from foreign
currency translation 65 65
------- ------
27,648 27,505
Less: treasury stock at cost, 301,314 and
273,314 shares (Note 4) 2,033 1,780
------- ------
Total Shareholders' Equity 25,615 25,725
------- -------
Total Liabilities and Shareholders' Equity $29,420 $29,279
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<TABLE>
<CAPTION>
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except For Per Share Data)
(Unaudited)
/-For The Three Months Ended-/ /-For The Nine Months Ended-/
May 31, May 26, May 31, May 26,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales $4,007 $4,775 $12,392 $14,142
Costs and Expenses, net:
Cost of sales 1,802 2,003 5,186 6,393
Engineering and development 982 754 2,443 2,192
Marketing and sales 1,410 1,126 4,083 3,773
General and administrative 349 682 1,450 1,811
Restructuring Expenses (Note 3) --- --- --- 409
------ ------ ------ ------
Total costs and expenses, net 4,543 4,565 13,162 14,578
------ ------ ------ ------
Operating income (loss) (536) 210 (770) (436)
Other Income 222 268 636 590
------ ------ ------ ------
Income (loss) before income taxes (314) 478 (134) 154
Income tax expense (benefit) (147) 158 (52) 126
------ ------ ------ ------
Net income (loss) ($167) $320 ($82) $28
====== ====== ====== ======
Primary earnings (loss) per share ($0.06) $0.11 ($0.03) $0.01
===== ====== ====== ======
Weighted average shares outstanding 2,706 2,798 2,716 2,806
===== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<TABLE>
<CAPTION>
CSP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited) /--For The Three Months Ended--//-For The Nine Months Ended-/
May 31, May 26, May 31, May 26,
1996 1995 1996 1995
------- --------- ------- --------
<S> <C> <C> <C> <C>
Net income (loss) ($167) $320 ($82) $28
Adjustments to reconcile net income to
net cash from(used for) operating activities:
Unreal. (gain) loss on marketable securities 2 (11) 2 4
Depreciation and amortization 256 199 681 575
Loss on sale of fixed assets 10 2 24 2
Deferred compensation and retirement plan 39 39 147 101
Deferred income taxes 7 (34) (13) (86)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 426 (151) 172 1,528
(Increase) decrease in inventories 255 237 (185) 953
Decrease in prepaid expenses 16 48 80 87
Increase in accounts payable and
accrued expenses 31 325 155 158
(Decrease) in income taxes payable (142) (38) (51) (105)
------ ------ ------ ------
Total adjustments 900 616 1,012 3,217
------ ------ ------ ------
Net cash from operating activities 733 936 930 3,245
Cash flows from (used for) investing activities:
Purchase of marketable securities (41,163) (46,396) (148,973) (111,343)
Sale of marketable securities 40,286 46,176 148,354 111,799
Property, equipment and improvements (351) (162) (743) (768)
Other assets (49) 29 (50) 184
------- ------- ------ ------
Net cash (used for) investing activities (1,277) (353) (1,412) (128)
Cash flows from (used for)financing activities:
Proceeds from stock options 11 --- 225 51
Purchase of Treasury Stock --- (217) (253) (217)
------- ------- ------ ------
Net cash from (used for) financing activities 11 (217) (28) (166)
------- ------- ------ ------
Net increase(decrease) in cash (533) 366 (510) 2,951
Cash, beginning of period 11,092 11,141 11,069 8,556
------- ------- ------ ------
Cash, end of period $10,559 $11,507 $10,559 $11,507
======= ======= ====== ======
Supplementary information:
Income taxes paid, net --- $214 --- $631
==== ==== ==== ====
Interest paid --- --- --- $50
==== ==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements
5
CSP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated 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
consolidated 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 consolidated 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 25, 1995.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company's fiscal year end is on the last Friday in August. Fiscal year 1996
is 53 weeks, with the first quarter being 14 weeks in length, and the remaining
three quarters each 13 weeks in length.
2. Inventories:
Inventories consist of the following:
May 31, August 25,
1996 1995
--------- ----------
($000's)
Raw materials $1,068 $ 851
Work-in-process 855 822
Finished goods 412 477
------ ------
Total $2,335 $2,150
====== ======
3. Restructuring Expenses:
In November 1994 the Company accrued approximately $409,000 of the estimated
costs to be incurred in consolidating its manufacturing operations and reducing
its work force. These costs are comprised of severance costs of $288,000 and
$121,000 for closing the San Diego manufacturing operation.
6
4. Stock Repurchase:
On October 9, 1986 the Board of Directors authorized the Company to repurchase
up to 282,723 of the outstanding stock at market prices. On September 28, 1995,
the Board of Directors authorized the Company to repurchase up to 150,000
additional shares of the outstanding stock at market prices. The timing of stock
purchases are made at the discretion of management. Through May 31,1996 the
Company has repurchased 301,314 or 70% of the total authorized.
7
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 Schedules I and II ( pages 12 and 13 ).
RESULTS OF OPERATIONS - 1996 COMPARED TO 1995:
Sales revenues of $4,007,000 and $12,392,000 for the three and nine month
periods ended May 31, 1996 represent a decline of 16% and 13%, respectively,
from the prior comparable periods of fiscal year 1995.
Sales of the CSP division,(formerly known as the Embedded Computing division)
were approximately $3,015,000 and $9,328,687 for the three and nine month
periods ended May 31, 1996. This represents a decline of approximately 21% and
10% from the prior comparable periods of fiscal year 1995. A major portion of
this decline is due to decreased shipments of older products such as the
MAP-4000, MiniMap, and RTS, which are only sold to existing customers. These
products represented approximately 7% and 2% of division sales for the three and
nine month periods ended May 31, 1996 compared to 16% and 22% in the prior
comparable periods. The Supercard family of products represented approximately
87% and 92% of division sales for the three and nine month periods ended May 31,
1996 compared to 78% and 73% in the prior comparable periods. This increase is
mainly due to increased shipments to various U.S. based COTS programs and our
current OEM customers. Service revenue for the division accounted for
approximately 2% of divisional revenue for the nine month periods ended May 31,
1996 and May 26, 1995.
The Scanalytics division (bio-instrumentation for molecular and cell biology)
sales were $563,000 and $2,234,000 for the three and nine month periods ended
May 31, 1996 compared to $522,000 and $1,649,000 for the prior comparable
periods. This increase is primarily attributable to shipments of the CellScan
product which represented approximately $195,000 and $1,216,000 for the three
and nine months ended May 31, 1996 compared to $171,000 and $481,000 for prior
comparable periods. Sales of the Ambis product line for the three and nine
months ended May 31, 1996 were approximately $106,000 and $333,000 compared to
$172,000 and $542,000 for the prior comparable periods. Revenue generated from
service contracts and software sales for the three and nine month periods ended
8
May 31, 1996 accounted for 45% and 31% of divisional revenue, compared to
approximately 27% and 32% in the prior comparable periods.
Vision Systems division sales were approximately $429,000 and $829,000 for the
three and nine month periods ended May 31, 1996 compared to $453,000 and
$3,948,000 in the prior comparable periods. The decline in revenue occurred
because no significant orders were received from UPS or other customers for the
machine code readers during the current three and nine month periods ended May
31, 1996.
North American sales represented 90% of total year to date sales compared to 86%
for the prior comparable nine month period. Sales in the Far East accounted for
approximately 7% for the nine month period ended May 31, 1996 compared to 5% of
total sales for the comparable period of fiscal 1995. European and Middle East
sales declined to 4% of total sales compared to 12% in the prior comparable
period.
Cost of sales as a percentage of sales was approximately 45% and 42% for the
three and nine month periods ended May 31, 1996 compared to 42% and 46% for the
prior comparable periods. The improvement in year to date gross margin was
primarily due to a change in sales mix towards large shipments of CSP division
products which tend to carry more favorable gross profit margins. A significant
portion of the prior comparable period sales were derived from sales of machine
code reader units which yield lower gross margins than either the Scanalytics or
CSP products.
Total engineering and development expense increased approximately 31% and 12%
for the three and nine month periods ended May 31, 1996 compared to the prior
comparable fiscal periods. The increase in CSP division engineering and
development efforts announced on October 27, 1995 have resulted in an increase
of 15% over the first quarter of fiscal 1996 and will be increasing
significantly over the next four to five quarters to complete the new product
offering on Motorola's PowerPC and Analog Devices' 21060. Approximately $79,000
and $144,000 of the increase from the prior comparable three and nine month
periods is attributable to the expanded effort to upgrade the Lightning 500
machine code reader.
Sales and marketing expenses as a percentage of sales for the three and six
months ended May 31, 1996 increased to 36% and 33% from 24% and 27% for the
9
prior comparable periods. Total sales and marketing expense increased
approximately $284,000 and $310,000 for the three and nine month periods ended
May 31, 1996 compared to the three and nine month periods ended May 26, 1995.
This increase is mainly attributable to the reclassification of expenses of CSP
division sales and marketing personnel which were reported in the first quarter
as general and administrative expenses, increased sales commissions expense, and
increased labor expense due to the addition of new staff in the Scanalytics
customer support and sales areas. These increase were partially offset by a
reduction in expense due to employee reductions and for the restructure of our
Paris, France operation made in November 1994.
General and administrative expenses as a percentage of sales decreased to 9% and
12% for the three and nine month periods ended May 31, 1996 compared to the same
periods of fiscal 1995. Total general and administrative expense decreased
$333,000 and $361,000 for the three and nine month periods ended May 31, 1996
compared to the same periods of 1995. Included in the year to date fiscal 1996
expense is approximately $220,000 for the one-time charges related to the
departure of the Chief Executive Officer. This increase was partially offset by
the reclassification in expense of CSP division sales and marketing expense and
a decline of other administrative expense related to the vacant C.E.O. position.
The decline is also attributed to a decrease in legal expense of approximately
$72,000 related to a one time charge for the Department of Commerce settlement
in fiscal 1995.
Other income has increased compared to the prior year due to the change in the
mix of investments from non-taxable securities to fully taxable which have
higher rates of return.
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.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY:
10
Working capital decreased to $22.8 million at May 31, 1996 from $22.9 million at
the end of August 1995. Net accounts receivable decreased approximately $172,000
from August 25, 1995 due to an increase in collection efforts. Inventory
increased $185,000 from the level reported at August 25, 1995. This increase is
mainly due the purchase of long-lead time items and the anticipated fourth
quarter sales.
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 three and nine month periods ended May 31, 1996. 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
<TABLE>
<CAPTION>
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS SCHEDULE I
PERCENTAGE OF SALES
(Dollars In Thousands)
(Unaudited)
/---For The Three Months Ended---/ /----For The nine Months Ended----/
May 31, % of May 26, % of May 31, % of May 26, % of
1996 Sales 1995 Sales 1996 Sales 1995 Sales
------- ----- ------- ----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 4,007 100% $ 4,775 100% $12,392 100% $14,142 100%
Costs and expenses, net:
Cost of sales 1,802 45% 2,003 42% 5,186 42% 6,393 46%
Engineering and development 982 25% 754 16% 2,443 20% 2,192 16%
Marketing and sales 1,410 36% 1,126 24% 4,083 33% 3,773 27%
General and administrative 349 9% 682 15% 1,450 12% 1,811 13%
Restructuring Expenses --- 0% --- 0% --- 0% 409 3%
------ ----- ----- -----
Total costs and expenses,
net 4,543 114% 4,565 96% 13,162 107% 14,578 103%
------ ----- ----- -----
Operating income (loss) (536) (14%) 210 5% (770) (7%) (436) (3%)
Other Income 222 6% 268 6% 636 6% 590 45
----- ----- ----- -----
Income (loss) before income taxes (314) (8%) 478 10% (134) (1%) 154 1%
Income tax expense (benefit) (147) (4%) 158 4% (52) (1%) 126 1%
----- ----- ----- -----
Net income (loss) ($167) (5%) $320 7% ($82) (1%) $28 1%
===== ====== ===== =====
</TABLE>
12
<TABLE>
<CAPTION>
CSP INC. AND SUBSIDIARIES SCHEDULE II
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD TO PERIOD DOLLAR AND PERCENTAGE CHANGE
(Dollars In Thousands)
(Unaudited)
/----For the Three Months Ended---//--For The Nine Months Ended----/
May 31,1996 vs. May 26,1995 May 31, 1996 vs. May 26,1995
$ Change % Change $ Change % Change
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales ($768) (16.1)% ($1,750) (12.4%)
Costs and expenses, net:
Cost of sales (201) (10.0)% (1,207) (18.9%)
Engineering and development 228 30.2 % 251 11.5%
Marketing and sales 284 25.2 % 310 8.2%
General and administrative (333) (48.8)% (361) (19.9%)
Restructuring Expenses --- --- (409) (100.0%)
------ ------
Total costs and expenses, net (22) (.05)% (1,416) (9.7%)
------- ------
Operating income (loss) (746) (355.2)% (334) (76.6%)
Other income (46) (17.2)% 46 7.8%
------- ------
Income (loss) before income taxes (792) (165.7)% (288) (187.0%)
Income tax expense (benefit) (305) (193.0)% (178) (141.3%)
------- ------
Net income (loss) ($487) (152.2)% ($110) (392.9%)
======= ======
</TABLE>
13
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a vote of Security Holders
None
Item 6. Exhibit and Reports on Form 8-K
a) Reports on Form 8-K
NONE
b) Exhibits
11.0 Data used in the calculation of net income
per share.
27.0 Financial Data Schedule
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.
- ------------
(Registrant)
Date: July 15, 1996 By: s/s Gary W. Levine
-------------------------
Gary W. Levine
Chief Executive Officer and
President, Acting
Date: July 15, 1996 By: s/s Gary W. Levine
------------------
Gary W. Levine
Vice President of Finance and
Chief Financial Officer
15
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: By:
---------------------- --------------------------------
Gary W. Levine
Chief Executive Officer
and President, Acting
Date: By:
---------------------- --------------------------------
Vice President of Finance
and Chief Financial Officer
16
<TABLE>
<CAPTION>
CSP, INC. AND SUBSIDIARIES Exhibit 11.0
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For the Three and Nine Month Periods Ended May 31, 1996 and May 26, 1995
(In thousands except for per share data)
(Unaudited)
/-For The Three Months Ended-//-For the Six Months Ended-/
May 31, May 26, May 31, May 26,
1996 1995 1996 1995
--------- --------- ------- ----------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) PER COMMON SHARE - (PRIMARY)
- ----------------------------------------------
Net income (loss) ($167) $320 ($82) $28
====== ====== ====== ======
Average common shares outstanding 2,706 2,798 2,716 2,806
====== ====== ====== ======
Reported net income (loss) per common share ($0.06) $0.11 ($0.03) $0.01
====== ====== ====== ======
NET INCOME (LOSS)PER COMMON SHARE - (FULL DILUTION)
- ---------------------------------------------------
Net income (loss) ($167) $320 ($82) $28
====== ====== ====== ======
Average common shares outstanding 2,706 2,798 2,716 2,806
====== ====== ====== ======
Net income (loss) per common share-(Full Dilution) ($0.06) $0.11 ($0.03) $0.01
====== ====== ====== ======
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> AUG-30-1996 AUG-30-1996
<PERIOD-START> MAR-02-1996 SEP-02-1995
<PERIOD-END> MAY-31-1996 MAY-31-1996
<CASH> 10,559 10,559
<SECURITIES> 7,099 7,099
<RECEIVABLES> 3,864 3,864
<ALLOWANCES> 103 103
<INVENTORY> 2,335 2,335
<CURRENT-ASSETS> 24,537 24,537
<PP&E> 12,055 12,055
<DEPRECIATION> 8,547 8,547
<TOTAL-ASSETS> 29,420 29,420
<CURRENT-LIABILITIES> 1,715 1,715
<BONDS> 0 0
0 0
0 0
<COMMON> 29 29
<OTHER-SE> 25,586 25,586
<TOTAL-LIABILITY-AND-EQUITY> 29,420 29,420
<SALES> 4,007 12,392
<TOTAL-REVENUES> 4,007 12,392
<CGS> 1,802 5,186
<TOTAL-COSTS> 4,543 13,162
<OTHER-EXPENSES> (222) (636)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4 23
<INCOME-PRETAX> (314) (134)
<INCOME-TAX> (147) (52)
<INCOME-CONTINUING> (167) (82)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (167) (82)
<EPS-PRIMARY> (.06) (.03)
<EPS-DILUTED> (.06) (.03)
</TABLE>
