13
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 27, 1998 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:(978)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 9, 1998
Common stock, $.01 par value shares 2,954,595
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................7
PART II. OTHER INFORMATION:
Item 4. Submissions of Matters to a vote of Security
Holders...11
Item 6. Exhibits & Reports on Form 8-
K.........................11
CSP INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
February 27, August 29,
1998 1997
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $3,098 $4,344
Marketable securities 7,681 5,581
Accounts receivable, net 8,359 8,584
Income tax receivable -- 37
Inventories (Note 1) 6,026 6,227
Deferred income taxes 570 504
Prepaid expenses 1,308 1,301
Total current assets 27,042 26,578
Property, equipment and improvements, net 3,506 3,856
Other assets:
Land held for future development 163 163
Deferred income taxes 887 880
Goodwill, net 1,302 1,562
Other assets 1,987 1,960
Total other assets 4,339 4,565
Total assets $34,887 $34,999
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $5,115 $7,738
Income taxes payable 843 --
Total current liabilities 5,958 7,738
Deferred compensation and retirement 3,400 2,240
plans
Shareholders' equity:
Common stock, $.01 par, authorized
7,500,000 shares; issued 2,991,059
and 2,987,684 shares 30 30
Paid in capital 10,608 10,593
Retained earnings 17,279 16,676
Equity adj.from foreign currency trans (321) (211)
27,596 27,088
Less treasury stock, at cost, 306,314
shares (Note 2) 2,067 2,067
Total shareholders' equity 25,529 25,021
Total liabilities and shareholders' equity $34,887 $34,999
See notes to consolidated financial
statements
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
/-For the three months-/-For the
six months-/
February February February February
27, 28, 27, 28,
1998 1997 1998 1997
Sales
Systems $4,823 $3,303 $8,092 $6,943
Software 967 367 2,115 602
Service 13,937 95 26,326 229
Total sales 19,727 3,765 36,533 7,774
Cost of sales
Systems 2,475 1,478 3,808 3,165
Software 257 74 751 102
Service 10,657 3 21,365 13
Total cost of sales 13,389 1,555 25,924 3,280
Gross Profit 6,338 2,210 10,609 4,494
Operating Expenses
Engineering and development 994 995 1,975 1,837
Sales,general &
administration 4,244 1,433 7,423 3,070
Total Operating Expenses 5,238 2,428 9,398 4,907
Operating income (loss) 1,100 1,211 (413)
(218)
Other income 74 216 289 414
Income (loss) before income 1,174 1,500 1
taxes (2)
Income tax expense (benefit) 732 898
(4) (8)
Net income $442 $2 $602 $9
Earnings per share
Basic $0.16 $0.00 $0.21 $0.00
Diluted $0.15 $0.00 $0.20 $0.00
Weighted average shares
Basic 2,950 2,959 2,931 2,926
Diluted 2,999 2,979 2,981 2,946
See accompanying notes to consolidated financial statements.
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
/---For the three-----/ /---For the six---/
months ended months ended
February February February February
27, 28, 27, 28,
1998 1997 1998 1997
Cash flows from operating
activities:
Net income $442 $2 $602 $9
Adjustments to reconcile net income
to
net cash provided by operating
activities:
Unreal.(gain)loss on mark. sec. 5 (3) 6
Depreciation and amortization 312 280 761 566
Deferred compensation and
retirement
plans 1,094 46 1,160 106
Deferred income taxes (9) (36) (73) (34)
Changes in current assets and
liab.:
(Increase)decrease in accounts
receivable 4,243 (257) 242 972
(Increase)decrease in inventories (72) 301 201 88
Decrease in prepaid expenses (101) (747) (7) (829)
Decrease in accounts payable
and accrued expenses (7,102) (412) (2,603) (434)
Increase(decrease) in income
taxes payable 474 (44) 844 (165)
Net cash provided by(used (719) (862) 1,124 285
in)operating activities
Cash flows from investing
activities:
Purchase of marketable securities (6,147) (45,679) (12,720) (105,200
)
Sale of marketable securities 6,850 47,376 10,623 105,590
Property, equipment and (93) (234) (151) (420)
improvements
Other assets 138 (87) (27) (88)
Net cash provided by (used in)
investing
activities 748 1,376 (2,275) (118)
Cash flows from financing activity:
Proceeds from stock options 15 21 15 33
Net cash provided by financing
activity 15 21 15 33
Effect of exchange rate on cash (166) (110)
Net increase (decrease) in cash (122) 535 (1,246) 200
Cash and cash equivalents, beg. of 3,220 10,593 4,344 10,928
year Cash and cash equivalents, end of $3,098 $11,128 $3,098 $11,128
year
See accompanying notes to consolidated financial statements.
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 29, 1997.
Certain reclassifications were made to the 1997 financial
statements to conform to the 1998 presentation.
All shares adjusted to reflect common stock dividend of 10%
recorded March 24, 1998.
1. Inventories:
Inventories consist of the following:
February 27, August 29,
1998 1997
Raw materials $2,208 $3,922
Work in process 966 918
Finished goods 2,852 1,387
Total $6,026 $6,227
2. Stock Repurchase:
On October 9, 1986 the Board of Directors authorized the Company
to repurchase up to 310,995 shares of the outstanding stock at
market prices. On September 28, 1995, the Board of Directors
authorized the Company to repurchase up to an additional 165,000
shares of the outstanding stock at market prices. The timing of
stock purchases are made at the discretion of management.
Through February 27, 1998 the Company has repurchased 336,945, or
71% of the total authorized.
Management's Discussion and Analysis of Financial Condition and
Results of Operations:
A summary of the percentage of sales for the Statements of
Operation is shown on Schedule I (page 12).
Results of Operation - 1998 Compared to 1997:
The Company's sales for the second quarter, increased from
$3,765,000 to $19,727,000 in the second quarter of fiscal 1998,
compared to fiscal 1997. This was the highest quarterly sales
achieved in the history of the Company. Sales for the six month
period increased from $7,774,000 in fiscal 1997 to $36,533,000 in
fiscal 1998. The increase in revenue was primarily due to the
recent acquisition (June 27, 1997) of MODCOMP, which represented
approximately 82% and 83% of the total revenue for the three and
six month periods ended February 27, 1998. The CSP MultiComputer
products group, which now includes Vision Systems, or machine
bar code readers, accounted for 15% and 14% of total revenue for
the three and six month periods of fiscal year 1998. Scanalytics
represented 3% of the revenue for the three and six month
periods. Services and systems integration sales continue to
represent the major source of revenue accounting for
approximately 71% and 72% of total sales for the three and six
month periods ended February 27, 1998. Most of this revenue was
generated by MODCOMP. During the second quarter of fiscal 1998, a
significant outsourcing shipment of approximately $5,800,000 was
sold by MODCOMP's German subsidiary to ARCOR Mannesmann, a German
Telecommunications company. The system sale included the sale of
equipment, software and integration services to build an IP
(Internet Protocol) backbone network to provide intranet and
internet services in 10 locations in Germany. ARCOR is one of the
new telecommunication companies which started doing business on
January 1, 1998 when Germany deregulated the telecommunication
market. During the quarter, CSP MultiComputer Group revenues
decreased by 4% and 13% for the three and six month periods
compared to the prior fiscal year. The decrease in sales was due
to the reduction in shipments of machine code readers for United
Parcel Service (UPS), which was less than 1% of sales for both
the three and six month periods, compared to 25% of total sales
for the same periods of fiscal year 1997. While UPS continues to
utilize machine code readers in their systems, the quantities and
deployment of units are still under review by UPS management.
CSP MultiComputer SuperCard products sales increased by 20% and
9% for the three and six month periods compared to sales of the
prior fiscal year. The increase in sales was due, in part, to
continued procurement of SuperCards by the various COTS
(commercial-off-the-shelf) programs and shipments to existing
commercial customers. Sales of SuperCards accounted for 10% of
the total revenue for the three and six month periods. The new
2000 system series of products accounted for 3% of revenue for
both the three and six month periods ended February 27, 1998.
The initial shipments of 2000 series was in the fourth quarter
of fiscal 1997. The series 2000 systems are based on the Power
PC from IBM/Motorola and Myrinet networking technology from
Myricom Inc. These systems have been purchased for use in radar,
sonar and surveillance signal processing.
European sales represented 68% and 69% of sales for the three and
six month periods. The increased revenue from Europe is due to
MODCOMP's wholly-owned subsidiaries in Germany, France and United
Kingdom. North American sales represent 31% and 27% of total
sales for the three and six month periods of fiscal 1998. Sales
to the other geographic areas, primarily Japan, were 1% and 4% of
total sales for the three and six month periods.
Cost of sales as a percentage of sales increased to 68% and 71%
respectively for the three and six month periods. The increased
cost of sales was due to the change in the mix of business. The
cost of sales by sales category for the three and six month
periods were 76% and 81% for service and systems integration, 51%
and 47% for systems and 27% and 36% for software. MODCOMP systems
integration and service products are sold at lower gross profit
margins than the CSP MultiComputer systems and Scanalytics
software products. This is due to the purchase of third party
hardware and software products which are a large part of the
integration services sales. The Company attempts to purchase
hardware and software at the best pricing. The purchasing is
done primarily on an order by order basis. The Company will
continue to take steps to lower the manufacturing overhead and
to improve the overall operations efficiency to lower the cost of
goods sold. The future cost of sales as a percent of sales will
fluctuate based on the mix of products sold.
Engineering and development expenditures were approximately the
same as the prior year's second quarter and increased by 8% over
the prior fiscal year for the six month period. The major reason
for the increase was due to the acquisition of MODCOMP, which
represented approximately 36% and 31% of the total expense for
three and six month period. The actual engineering and
development expenses for CSP MultiComputer Group decreased by 33%
and 15%. This was due to reduction in outside and consulting
services needed to complete the 2640 system. The MultiComputer
group is continuing to working on the next generation of series
2000 systems of products and recently announced the 2316 product.
Scanalytics expenses for engineering and development were also
down by 20% and 44% as compared to the prior year due to staff
reductions. Scanalytics represented 8% and 9% of the total
expense for the three and six month period ended February 27,
1998.
Sales, general and administration expenses increased by
$2,811,000 and $4,352,000 for the three and six month periods
ended February 27, 1998 compared to the comparable period of the
prior fiscal year. MODCOMP expenses represented 61% and 58% of
the total expenses and represented 92% and 99% of the increased
expenses for the three and six month periods. CSP MultiComputer
group's expenses increased by 29% and 13% compared with the prior
fiscal year for the three and six month periods. The increase in
expenses was due to increase in staff for sales and marketing,
and the additional administrative expenses for the expanded
organization which included additional legal, audit, tax and
shareholder's services. The Scanalytics sales, marketing &
administration expenses decrease by approximately 13% and 24% for
the three and six month period due to the reduction in staff and
promotional activity. Scanalytics represented 9% and 10% of the
total expenses for the three and six month periods in the current
year.
Other income decreased fiscal year 1997 from $142,000 in the
quarter and $125,000 for the six month period due, in part, to
the reduction in investment income. Income from investments had
decreased from the last year due primarily to the lower amount of
cash and marketable securities utilized for the purchase of the
two subsidiaries in June 1997.
The Company's effective tax rate was approximately 62% due to the
large amount of foreign source income. The countries of Germany
and France, which had the largest amount of sales and income for
MODCOMP, have high effective tax rates. The income was all
foreign source and had no United States content to provide any
offset at lower tax rates.
Financial Positions, Capital Resources and Liquidity:
The Company's working capital of $21.1 million at February 27,
1998 was increased by $2.3 million from the end of the fiscal
year. The Company accounts receivable decreased from August 29,
1997 by $225,000 to $8,359,000 even with an increase in revenue
of $2,921,000 between the first and second quarter of fiscal
1998. The Company's inventory decreased to $6.0 million from
$6.2 million at the end of the fiscal year.
The Company spent $151,000 on capital equipment during the six
month period of fiscal 1998.
Management believes that all 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 sales, revenues or income from
continued operations during fiscal 1998. 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.
Factors That May Affect future Performance:
This document contains forward-looking statements based on
current expectations that involve a number of risks and
uncertainties. The factors that could cause actual results to
differ materially include the following: general economic
conditions and growth rates in the peripherals and computer
products, biological imaging software and instruments and machine
code readers industries; competitive factors and pricing
pressures; changes in products mix; the timely development and
acceptance of new products; inventory risks due to shifts in
market demand; and component constraints and shortages.
Management has reviewed the Company's systems relating to the
year 2000 concerns and believes that the costs for compliance
will not be material to the Company.
CSP, INC. AND SUBSIDIARIES SCHEDULE I
CONSOLIDATED STATEMENTS OF OPERATIONS
PERCENTAGE OF SALES
(Dollars in thousands)
(Unaudited)
/--For the three months---/ /--For the six months--/
ended ended
Feb. Feb. Feb. Feb.
27 28, 27 28
1998 % 1997 % 1998 1997
Sales 19,727 100% 3,765 100% 36,533 100% 7,774 100%
Costs and expenses:
Cost of sales 13,389 68% 1,555 41% 25,924 71% 3,280 42%
Engineering and
development 994 5% 995 26% 1,975 5% 1,837 24%
Sales,general &
administrative 4,244 21% 1,433 38% 7,423 21% 3,070 40%
Total costs and
expenses 18,627 94% 3,983 106% 35,322 97% 8,187 105%
Operating income
(loss) 1,100 6% (218) -6% 1,211 3% (413) -5%
Other income 74 0% 216 6% 289 1% 414 5%
Income before income
taxes 1,174 6% (2) 0% 1,500 4% 1 0%
Income tax expense
(benefit) 732 4% (4) 0% 898 2% (8) 0%
Net income $442 2% $2 0% 602 2% 9 0%
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a vote of Security
Holders
The Company held a special meeting in lieu of
an Annual Meeting on January 8, 1998. The
following matters were approved by shareholders:
1. Dr. John Ingram and J. David Lyons were
elected as Class II directors for a term of
three years.
2. Approved the 1997 Stock Option Plan covering
165,000 shares of the Company's common stock.
3. Approved the CSP Inc. 1997 Employee Stock
Purchase Plan covering 275,000 shares of the
Company's common stock.
4. Approved the amendment to the Company's
by-laws changing the date and time of the
Annual Meeting from the second Tuesday of
December in each year to the second Tuesday
of January.
The amendment to the Company's by-laws of
changing the location of the Annual Meeting to
anywhere in the United States did not receive
the necessary statutory votes and was not
approved.
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
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 9, 1998 By: /s/Alexander R. Lupinetti
Chief Executive Officer
and President
Date: April 9, 1998 By: /s/Gary W. Levine
Vice President of Finance
and Chief Financial Officer
EXHIBIT 11.0
CSP, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For the three and six month periods ended February 27,1998
and February 28,1997
(Dollars in thousands except for per share data)
(Unaudited)
/-For the three months--/ /-For the six months-
/
February February Februar February
27, 28, 27, 28,
1998 1997 1998 1997
NET INCOME PER COMMON SHARE-
(BASIC)
Net income $442 $2 $602 $9
Average common shares
outstanding 2,950 2,959 2,931 2,929
Net income per common shares
$0.16 $0.00 $0.21 $0.00
NET INCOME PER COMMON SHARE-
(FULL DILUTION)
Net income $442 $2 $602 $9
Average common shares
outstanding 2,999 2,979 2,981 2,946
Net income per common share $.15 $.00 $.20 $.00
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This schedule contains summary financial informtion extracted from Form-10Q
and is qualified in its entirety by reference to such financial statements
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