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 March 1, 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 April 3, 1996
Common stock, $.01 par value 2,654,470 shares
1
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
CSP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS March 1, August 25,
(Dollars In Thousands) 1996 1995
(Unaudited)
----------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $11,092 $11,069
Marketable securities 6,224 6,482
Accounts receivable, net 4,187 3,933
Inventories (Note 2) 2,590 2,150
Deferred income taxes 359 368
Prepaid expenses 407 471
------ -------
Total Current Assets 24,859 24,473
Property, equipment and improvements 3,423 3,470
Other Assets:
Land held for future development 163 163
Deferred income taxes 384 355
Other assets 819 818
------ ------
Total other assets 1,366 1,336
------- -------
Total Assets $29,648 $29,279
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,585 $ 1,461
Income taxes payable 241 150
------- -------
Total Current Liabilities 1,826 1,611
Deferred compensation and retirement plans 2,051 1,943
Shareholders' Equity:
Common stock, $.01 par value; authorized
7,500,000 shares; issued 2,955,534 and
2,922,034 shares 29 29
Paid-in capital 10,401 10,187
Retained earnings 17,309 17,224
Equity adjustment from foreign
currency translation 65 65
------- ------
27,804 27,505
Less: treasury stock at cost, 301,314 and
273,314 shares (Note 4) 2,033 1,780
------- ------
Total Shareholders' Equity 25,771 25,725
------- -------
Total Liabilities and Shareholders' Equity $29,648 $29,279
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<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 Six Months Ended-/
March 1, February 24, March 1, February 24,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales $4,015 $4,747 $8,384 $9,366
Costs and Expenses, net:
Cost of sales 1,629 2,154 3,383 4,390
Engineering and development 757 698 1,460 1,438
Marketing and sales 1,472 1,250 2,673 2,647
General and administrative 579 607 1,102 1,129
Restructuring Expenses (Note 3) --- --- --- 409
------ ------ ------ ------
Total costs and expenses, net 4,437 4,709 8,618 10,013
------ ------ ------ ------
Operating income (loss) (422) 38 (234) (647)
Other Income 191 204 414 323
------ ------ ------ ------
Income (loss) before income taxes (231) 242 180 (324)
Income tax expense (benefit) (98) 102 95 (32)
------ ------ ------ ------
Net income (loss) ($133) $140 $85 ($292)
====== ====== ====== ======
Primary earnings (loss) per share ($0.05) $0.05 $0.03 ($0.10)
===== ====== ====== ======
Weighted average shares outstanding 2,715 2,805 2,721 2,812
===== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CSP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited) /--For The Three Months Ended--//-For The Six Months Ended-/
March 1, February 24, March 1, February 24,
1996 1995 1996 1995
------- --------- ------- --------
<S> <C> <C> <C> <C>
Net income (loss) ($133) $140 $85 ($292)
Adjustments to reconcile net income to
net cash from(used for) operating activities:
Unreal. loss on marketable securities --- 2 --- 7
Depreciation and amortization 188 192 425 376
Loss on sale of fixed assets 14 --- 14 ---
Deferred compensation and retirement plan 50 33 108 62
Deferred income taxes (7) (52) (20) (52)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (608) 279 (254) 1,679
(Increase) decrease in inventories (247) 633 (440) 716
(Increase) decrease in prepaid expenses 10 (30) 64 39
Increase (decrease) in accounts payable and
accrued expenses 113 (341) 124 (167)
Increase (decrease) in income taxes payable (96) 151 91 (67)
------ ------ ------ ------
Total adjustments (583) 867 112 2,593
------ ------ ------ ------
Net cash from (used for) operating activities (716) 1,007 197 2,301
Cash flows from (used for) investing activities:
Purchase of marketable securities (52,656) (37,921) (107,810) (68,003)
Sale of marketable securities 51,326 39,792 108,068 68,687
Property, equipment and improvements (193) (93) (392) (606)
Other assets --- 130 (1) 155
------- ------- ------ ------
Net cash provided from (used for) investing
activities (1,523) 1,908 (135) 233
Cash flows from (used for)financing activities:
Proceeds from stock options 5 5 214 51
Purchase of Treasury Stock --- --- (253) ---
------- ------- ------ ------
Net cash from (used for) financing activities 5 5 (39) 51
------- ------- ------ ------
Net increase(decrease) in cash (2,234) 2,920 23 2,585
Cash, beginning of period 13,326 8,221 11,069 8,556
------- ------- ------ ------
Cash, end of period $11,092 $11,141 $11,092 $11,141
======= ======= ======= =======
Supplementary information:
Income taxes paid, net --- $26 --- $106
==== ==== ==== ====
Interest paid --- $50 --- $50
==== ==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
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:
<TABLE>
<CAPTION>
March 1, August 25,
1996 1995
--------- ----------
($000's)
<S> <C> <C>
Raw materials $1,272 $ 851
Work-in-process 874 822
Finished goods 444 477
------ ------
Total $2,590 $2,150
====== ======
</TABLE>
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
<PAGE>
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 March 1, 1996, the
Company has repurchased 301,314 or 70% of the total authorized.
7
<PAGE>
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 $4,015,000 and $8,384,000 for the three and six months periods
ended March 1, 1996 represent a decline of 15.4% and 10.5%, respectively, from
the prior comparable periods of fiscal year 1995 of $4,747,000 and $9,366,000.
Sales of the Computer Signal Processing division (CSP),(formerly known as the
Embedded Computing division) represented approximately 76% of total sales
revenue for the three and six month periods ended March 1, 1996. This represents
an increase of approximately 5% and 33% from the prior comparable three and six
month periods sales,respectively. The Supercard family of products represented
94% of current year division sales compared to 68% in the prior year. A major
portion of this increase is due mainly to increased shipments to various U.S.
based COTS programs and our current OEM customers. Sales of older attached
processor products continue to decline with the MAP-4000, MiniMap, and RTS,
which are only sold to existing customers. These products represented less than
1% of total division sales compared to 27% in the prior comparable six month
period.
The Scanalytics division (bio-instrumentation for molecular and cell biology)
sales represented $595,000 and $1,671,000 of total sales for the three and six
month periods ended March 1, 1996 compared to $412,000 and $1,128,000 for the
prior comparable periods. This increase is primarily attributable to shipments
of the CellScan product which increased to $954,000 for the six months ended
March 1, 1996 compared to $311,000 for the six months ended February 24, 1995,
an increase of over 200%. Sales of the Ambis product line for the six months
ended March 1, 1996 remained consistent with the prior comparable period,
accounting for approximately 4% of total sales. Revenue generated from service
contracts and software sales for the six month period ended March 1, 1996
remained consistent at 2% and 3%, respectively.
8
<PAGE>
Vision Systems division sales of $378,000 and $400,000 accounted for
approximately 10% and 5% of total sales for the three and six month periods
ended March 1, 1996 compared to $1,417,000 and $3,495,000, or 30% and 38%,
respectively, in the prior fiscal year. The decline in revenue occurred because
no significant orders were received from UPS or other customers for the machine
code readers.
North American sales represented 90% of total year to date sales compared to 86%
for the prior comparable six month period. Sales in the Far East accounted for
approximately 7% for the six month period ended March 1, 1996 compared to 5% of
total sales for the comparable period of fiscal 1995. European sales declined to
3% of total sales compared to 6% in the prior comparable period. Sales in the
Middle East declined from 2% of total sales for the six month period ended
February 24, 1995 to less than 1% for the six month period ended March 1, 1996.
Cost of sales as a percentage of sales was approximately 41% and 40% for the
three and six month periods ended March 1, 1996 compared to 45% and 47% for the
prior comparable periods. The improvement in gross margin was primarily due to a
change in sales mix towards large shipments of CSP division products which tend
to carry more favorable 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 9% and 2% for
the three and six month periods ended March 1, 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. Scanalytics
Engineering and development expense decreased 2% and 1%, to 17% of the total
expense for the three and six month periods ended March 1, 1996 compared to the
prior comparable periods of fiscal 1995. Vision Systems engineering and
development expense increased 3% and 4% from the prior comparable three and six
month periods. This increase is mainly attributable to the expanded effort to
upgrade the Lightning 500 machine code reader.
9
<PAGE>
Total sales and marketing expense increased approximately $222,000 and $26,000
for the three and six month periods ended March 1, 1996 compared to the three
and six month periods ended February 24, 1995. CSP division sales and marketing
expense accounted for approximately 59% and 57% of total sales and marketing
expense for the three and six month periods ended March 1, 1996. The CSP
division sales and marketing expense increased $158,000 (23%) and decreased
$138,000 (9%) for the three and six month periods ended March 1, 1996 compared
to the prior comparable periods. The increase for the three month period is
mainly attributable to the reclassification of expenses of sales and marketing
personnel which were reported in the first quarter as general and administrative
expenses. This represents 66% of the increase. The decrease for the six month
period was due to employee reductions and for the restructure of our Paris,
France operation made in November 1994. The Scanalytics division sales and
marketing expense accounted for approximately 29% and 30% of the total sales and
marketing expense for the three and six months periods ended March 1, 1996
compared to 31% and 28% for the prior comparable periods. The total Scanalytics
sales and marketing expense increased $35,000 and $78,000 to $415,000 and
$804,000 for the three and six month periods ended March 1, 1996 compared to
$380,000 and $726,000 for the prior comparable periods. This increase is
primarily attributable to sales commissions and the addition of new staff in the
customer support and sales areas. Vision Systems sales and marketing expense
accounted for approximately 13% and 14% of the total sales and marketing expense
for the three and six month periods ended March 1, 1996 compared to 13% and 11%
for the prior comparable periods. The increase for the six month period is
mainly due to an increase in trade show and travel expenses.
Total general and administrative expense decreased $28,000 and $27,000 for the
three and six month periods ended March 1, 1996 compared to the prior comparable
periods. 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.
10
<PAGE>
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:
Working capital increased to $23.0 million at March 1, 1996 from $22.9 million
at the end of August 1995. Net accounts receivable increased approximately
$254,000 from August 25, 1995. This increase is mainly due to a temporary lag in
collection efforts due to the holiday season and sales to international
customers which are invoiced on 45 day payment terms, and not to collection
problems. During the period from March 2, 1996 to April 3, 1996 collection
efforts have been increased and approximately 40% of the outstanding accounts
receivable balance at March 1, 1996 has been collected. Inventory increased
$440,000 from the level reported at August 25, 1995. This increase is mainly due
to the purchase of long-lead time items.
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 six month periods ended March 1, 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
<PAGE>
<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 Six Months Ended----/
March 1, % of February 24, % of March 1, % of February 24, % of
1996 Sales 1995 Sales 1996 Sales 1995 Sales
------- ----- ------- ----- ------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 4,015 100% $ 4,747 100% $8,384 100% $9,366 100%
Costs and expenses, net:
Cost of sales 1,629 41% 2,154 45% 3,383 40% 4,390 47%
Engineering and development 757 19% 698 15% 1,460 17% 1,438 15%
Marketing and sales 1,472 37% 1,250 26% 2,673 32% 2,647 28%
General and administrative 579 14% 607 13% 1,102 13% 1,129 12%
Restructuring Expenses --- --- --- --- --- --- 409 4%
------ ----- ----- -----
Total costs and expenses, net 4,437 111% 4,709 99% 8,618 103% 10,013 107%
------ ----- ----- -----
Operating income (loss) (422) (11%) 38 1% (234) (3%) (647) (7%)
Other Income 191 5% 204 4% 414 5% 323 3%
----- ----- ----- -----
Income (loss) before income taxes (231) (6%) 242 5% 180 2% (324) (3%)
Income tax expense (benefit) (98) (2%) 102 2% 95 1% (32) (1%)
----- ----- ----- -----
Net income (loss) ($133) (3%) $140 3% $85 1% ($292) (3%)
===== ====== ===== =====
</TABLE>
12
<PAGE>
<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 Six Months Ended----/
March 1,1996 vs. Feb. 24,1995 March 1, 1996 vs. Feb. 24,1995
$ Change % Change $ Change % Change
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales ($732) (15.4)% ($982) (10.5%)
Costs and expenses, net:
Cost of sales (525) (24.4)% (1,007) (22.9%)
Engineering and development 59 8.5 % 22 1.5%
Marketing and sales 222 17.8 % 26 1.0%
General and administrative (28) (4.6)% (27) (2.4%)
Restructuring Expenses --- --- (409) 100.0%
------ ------
Total costs and expenses, net (272) (5.8)% (1,395) (13.9%)
------- ------
Operating income (loss) (460) (1,210.5)% 413 (63.8%)
Other income (13) (6.4)% 91 28.6%
------- ------
Income (loss) before income taxes (473) (195.5)% 504 (155.6%)
Income tax expense (benefit) (200) (196.1)% 127 (396.9%)
------- ------
Net income (loss) ($273) (195.0)% $377 (129.1%)
======= ======
</TABLE>
13
<PAGE>
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 12, 1995. The following matter was approved at the
meeting.
1) David S. Botten, Stanford A. Fingerhood, and C. Shelton
James were elected as Class III members of the Board of
Directors for a term of three years.
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
<PAGE>
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: April 12, 1996 By: s/s Gary W. Levine
-------------------------
Chief Executive Officer and
President, Acting
Date: April 12, 1996 By: s/s Gary W. Levine
------------------
Vice President of Finance and
Chief Financial Officer
15
Exhibit 11.0
<TABLE>
<CAPTION>
CSP, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For the Three and Six Month Periods Ended March 1, 1996 and February 24, 1995
(In thousands except for per share data)
(Unaudited)
/-For The Three Months Ended-//-For the Six Months Ended-/
March 1, February 24, March 1, February 24,
1996 1995 1996 1995
--------- --------- ------- ----------
NET INCOME (LOSS) PER COMMON SHARE - (PRIMARY)
- ----------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) ($133) $140 $85 ($292)
====== ====== ====== ======
Average common shares outstanding 2,715 2,805 2,721 2,812
====== ====== ====== ======
Reported net income (loss) per common share ($0.05) $0.05 $0.03 ($0.10)
====== ====== ====== ======
NET INCOME (LOSS)PER COMMON SHARE - (FULL DILUTION)
- ---------------------------------------------------
Net income (loss) ($133) $140 $85 ($292)
====== ====== ====== ======
Average common shares outstanding 2,715 2,805 2,721 2,812
====== ====== ====== ======
Net income (loss) per common share-(Full Dilution) ($0.05) $0.05 $0.03 ($0.10)
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q QTR
ENDED 3/1/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> AUG-30-1996 AUG-30-1996
<PERIOD-START> DEC-02-1995 AUG-26-1995
<PERIOD-END> MAR-01-1996 MAR-01-1996
<CASH> 11,092 11,902
<SECURITIES> 6,224 6,224
<RECEIVABLES> 4,290 4,290
<ALLOWANCES> 103 103
<INVENTORY> 2,590 2,590
<CURRENT-ASSETS> 24,859 24,859
<PP&E> 11,738 11,738
<DEPRECIATION> 8,315 8,315
<TOTAL-ASSETS> 29,648 29,648
<CURRENT-LIABILITIES> 1,826 1,826
<BONDS> 0 0
0 0
0 0
<COMMON> 29 29
<OTHER-SE> 25,742 25,742
<TOTAL-LIABILITY-AND-EQUITY> 29,648 29,648
<SALES> 4,015 8,384
<TOTAL-REVENUES> 4,015 8,384
<CGS> 1,629 3,383
<TOTAL-COSTS> 4,437 8,618
<OTHER-EXPENSES> (191) (414)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8 19
<INCOME-PRETAX> (231) 180
<INCOME-TAX> (98) 95
<INCOME-CONTINUING> (133) 85
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (133) 85
<EPS-PRIMARY> (.05) .03
<EPS-DILUTED> (.05) .03
</TABLE>
