This paper document is being filed pursuent to Rule 902(g) of
Regulation S-T
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996March 31, 1997
Commission file number 0-26596
Computational Systems, Incorporated
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Tennessee 62-1198047
- --------------------------------- --------------------------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer ofIdentification No.)
Incorporation or Organization) Indentification No.)
835 Innovation Drive
Knoxville, Tennessee 37932
- --------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code: (423) 675-2110
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
Common Stock outstanding - 4,864,2775,003,845 shares at November 11, 1996
March 31, 1997
Page of pages.
Exhibit Index on page .
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
- -------------------------------------------------------------------------------Statements.
Consolidated Condensed Balance Sheets
3
Consolidated Condensed Statements of Income 4Operations
Consolidated Condensed Statements of Cash Flows
5
Notes to Consolidated Condensed Financial Statements
6 - 7
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $7,642,238 $8,824,332
Accounts receivable, less allowance for
doubtful accounts 9,876,754 9,980,006
Inventories 3,695,237 3,623,124
Other current assets 1,160,690 1,102,369
------------- ------------
Total current assets 22,374,919 23,529,831
------------- ------------
Property, plant and equipment:
Land 729,204 729,204
Building and improvements 5,414,512 4,488,421
Equipment and furniture 11,138,964 6,850,428
------------- ------------
17,282,680 12,068,053
Less accumulated depreciation (5,243,632) (4,129,812)
------------- ------------
Total property, plant and equipment, net 12,039,048 7,938,241
------------- ------------
Other assets, including intangibles 881,757 682,701
------------- ------------
Total assets 35,295,724 32,150,773
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt 17,887 18,377
Accounts payable and other current liabilities 3,434,190 2,610,363
Accrued liabilities 3,473,100 4,469,251
------------- ------------
Total current liabilities 6,925,177 7,097,991
Long-term debt, less current maturities 0 13,172
Deferred maintenance contract revenue 628,492 512,159
------------- ------------
Total liabilities 7,553,669 7,623,322
------------- ------------
Shareholders' equity:
Common stock, no par value, 50,000,000
shares authorized, 4,852,479 and 4,743,209
shares issued and outstanding in 1996 and
1995, respectively 16,037,270 15,459,192
Additional paid-in capital 815,862 815,862
Retained earnings 10,888,923 8,252,397
------------- ------------
Total shareholders' equity 27,742,055 24,527,451
------------- ------------
Total liabilities and shareholders' equity $35,295,724 $32,150,773
============= ============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 30, September 29, September 30, September 29,MARCH 31, DECEMBER 31,
1997 1996
1995 1996 1995
------------- ------------- ------------- -------------(Unaudited) (Audited)
----------- -----------
Revenues, net:
Product $8,097,196 $7,910,124 $24,384,835 $22,363,593
Services 3,136,994 2,516,779 8,790,040 7,096,406
------------- ------------- ------------- -------------
11,234,190 10,426,903 33,174,875 29,459,999
CostASSETS
Current assets:
Cash and cash equivalents $ 692,174 $ 4,576,801
Trade accounts receivable, less
allowance for doubtful accounts 16,062,089 15,656,516
Inventories 3,144,321 3,190,964
Prepaid expenses and other current assets 903,485 906,733
----------- -----------
Total current assets 20,802,069 24,331,014
----------- -----------
Property, plant and equipment:
Land 729,204 729,204
Building and improvements 7,812,000 6,714,979
Equipment and furniture 12,008,329 10,625,614
Construction-in-Progress ------- 1,293,587
----------- -----------
20,549,533 19,363,384
Less accumulated depreciation (6,479,637) (5,879,464)
----------- -----------
Property, plant and equipment, net 14,069,896 13,483,920
----------- -----------
Other assets
Other assets 826,226 552,777
Goodwill 6,194,663 6,292,490
Other intangible assets 664,288 612,646
----------- -----------
Total assets $42,557,142 $45,272,847
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,193,819 $ 2,598,425
Accrued liabilities 3,975,925 7,222,579
Income taxes payable (31,938) 1,026,110
Deferred maintenance contract revenue 2,329,947 2,070,411
Line of revenues:
Product 2,012,988 2,212,571 6,343,710 6,801,265
Services 2,588,260 1,816,964 7,067,769 5,279,079
------------- ------------- ------------- -------------
4,601,248 4,029,535 13,411,479 12,080,344
Gross margin 6,632,942 6,397,368 19,763,396 17,379,655
------------- ------------- ------------- -------------
Costscredit 519,000 -------
----------- -----------
Total current liabilities 8,986,753 12,917,525
Deferred maintenance contract revenue 612,661 668,862
----------- -----------
Total liabilities 9,599,414 13,586,387
----------- -----------
Shareholders' equity:
Common stock,no par value, 50,000,000 shares authorized, 18,508,561 18,034,208
5,003,845 and expenses
Selling , general4,991,618 shares issued and administrative 3,830,679 4,176,240 12,410,321 11,318,332
Research & development 1,062,254 1,177,261 3,593,907 3,407,089
------------- ------------- ------------- -------------
4,892,933 5,353,501 16,004,228 14,725,421
------------- ------------- ------------- -------------
Income from operations 1,740,009 1,043,867 3,759,168 2,654,234
Other income (expense)
Interest expense (579) (82,058) (1,945) (372,702)
Interest income 132,794 52,705 385,254 97,032
Other income (expense), net (21,386) (10,833) (22,898) (9,626)
------------- ------------- ------------- -------------
110,829 (40,186) 360,411 (285,296)
------------- ------------- ------------- -------------
Income before taxes 1,850,838 1,003,681 4,119,579 2,368,938
------------- ------------- ------------- -------------
Provision for taxes 666,302 361,429 1,483,050 852,922
------------- ------------- ------------- -------------
Net Income $1,184,536 $642,252 $2,636,529 $1,516,016
============= ============= ============= =============
Earnings per share $0.24 $0.16 $0.52 $0.40
Weighted average shares outstanding
5,026,920 4,137,284 5,061,429 3,819,753in 1997 and 1996, respectively
Additional paid-in capital 951,230 865,805
Retained earnings 13,497,937 12,786,447
----------- -----------
Total shareholders' equity 32,957,728 31,686,460
----------- -----------
Total liabilities and shareholders' equity $42,557,142 $45,272,847
=========== ===========
The accompanying notes are an integral part of these consolidated
condensed
financial statements.
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSEDSTATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended
March 31, March 31,
1997 1996
----------- -----------
Revenues, net:
Product $ 8,721,280 $ 7,932,848
Services 5,753,268 2,798,445
----------- -----------
14,474,548 10,731,293
Cost of revenues:
Product 2,178,165 2,316,055
Services 4,018,907 2,180,255
----------- -----------
6,197,072 4,496,310
Gross margin 8,277,476 6,234,983
Costs and expenses:
Selling, general and administrative 5,634,274 4,355,000
Research & development 1,611,124 1,206,196
----------- -----------
7,245,398 5,561,196
----------- -----------
Income from operations 1,032,078 673,787
Other income (expense)
Interest expense (10,477) (1,146)
Interest income 48,173 117,589
Other income (expense), net 8,242 (5,859)
----------- -----------
45,938 110,584
----------- -----------
Income before taxes 1,078,016 784,371
Provision for income taxes 366,526 282,375
----------- -----------
Income after taxes $711,490 $501,996
=========== ===========
Earnings per share $0.14 $0.10
=========== ===========
Weighted average shares and
equivalents outstanding 5,266,400 5,018,945
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(unaudited)
NineThree Months Ended
September 30, September 29,March 31, March 31,
1997 1996
1995
------------- ----------------------- ----------
Cash flows from operating activities:
Net income $2,636,529 $1,516,016$711,490 $501,996
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 1,366,637 544,831732,395 403,656
Deferred income taxes 2,000 (176,000) (131,000)
Changes in operating assets and liabilities:
Accounts receivable 103,252 (1,351,885)(396,535) 553,405
Income taxes refundable (payable) 447,500 0(981,661) (72,073)
Inventories (319,162) (230,468)37,334 (264,864)
Prepaids (56,341) (23,476)& other current assets 3,248 71,587
Other assets (315,448) 05,697 (40,703)
Accounts payable 156,749 (18,804)(399,763) (16,760)
Accrued liabilities (1,142,634) 1,224,368(428,359) (516,951)
Deferred maintenance contract revenue 783,411 243,753
------------- -------------203,335 347,497
---------- ----------
Net cash (used) provided by operating activities 3,484,493 1,773,335
------------- -------------(510,819) 790,790
---------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (5,086,003) (1,020,943)
Notes receivable from shareholders 0 245,756
Deposits (other assets) 0 132,666
------------- -------------(1,184,973) (1,108,041)
Purchase of business (2,385,250)
Investment in other assets (359,050) ------
---------- ----------
Net cash used in investing activities (5,086,003) (642,521)
------------- -------------(3,929,273) (1,108,041)
---------- ----------
Cash flows from financing activities:
Net borrowings under (repayments on) line of credit 0 (3,193,664)519,000 ------
Repayments of long-term debt (13,662) (3,562,610)(4,843) (5,821)
Proceeds from issuance of common stock 433,078 14,448,257
Purchases of common stock 0 (28,840)
Checks outstanding in excess of bank balances 0 (43,388)
------------- -------------41,308 59,610
---------- ----------
Net cash provided by financing activities 419,416 7,619,755
------------- -------------555,465 53,789
---------- ----------
Net increase (decrease) in cash and cash equivalents (1,182,094) 8,750,569(3,884,627) (263,462)
Cash and cash equivalents, at beginning of period 4,576,801 8,824,332
0
------------- ----------------------- ----------
Cash and cash equivalents, at end of period $7,642,238 $8,750,569
============= =============$692,174 $8,560,870
========== ==========
The accompanying notes are an integral part of these consolidated condensed
financial
statements.
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS:
Information in the accompanying financial statements and notes
to the financial statements for the interim periods is unaudited. The
accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the ninethree
months ended September 30, 1996,March 31, 1997, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996.1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Form 10-K for December 31, 1995.1996.
2. INVENTORIES:
Inventories consist of the following:
September 30,March 31, December 31,
1997 1996
1995
------------- ------------
(Unaudited) (Audited)
----------- -----------
Raw Materials $1,733,691 $1,835,8851,428,088 $1,406,893
Work in-process 717,143 736,109574,127 649,589
Finished goods, net 1,244,403 1,051,130
------------- ------------
$3,695,237 $3,623,1241,142,106 1,134,482
----------- -----------
$3,144,321 $3,190,964
=========== ===========
3. CASH FLOW INFORMATION:
September 30, September 29,March 31, March 31,
1997 1996
1995
------------- -------------------- --------
(Unaudited) (Unaudited)
Supplemental disclosures of cash flows:
Interest paid $ 2,079362 $ 267,2291,473
Income taxes paid, net $ 1,293,000 $ 370,000
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
4. ACQUISITION:$609,000 $461,899
On October 28, 1996 the Company acquired Maintenance & Diagnostics, LLC
(M&D),and the rights to use certain technology from a third party, for
approximately $7.6 million payable in a combination of cash and stock. The
purchase price consisted of $3.88 million payable in cash to owners of M&D (a
portion of which was paid at closing and a portion of which will be paid on January 2, 1997). The purchase price also consisted of an aggregate of 51,047
shares of1997 CSI commonissued the remaining stock to the former owners of
M&D and 49,805 shares toMaintenance & Diagnostic L.L.C. per the third
party (for the rights to use certain technology and other rights).purchase agreement dated October 28,
1996. The Company
also repaid $1.48 million for amounts owed under M&D's line of credit agreement
with one of its owners. CSI also issued options to acquire an aggregate of
150,000 shares of CSI common stock at current fair market value to certain of the ownersstock transferred was $433,045.
4. RESEARCH AND DEVELOPMENT:
The majority of M&D. M&D operatesresearch and development costs are expensed as incurred.
Other research and development costs incurred in developing a research, serviceproduct during
the period that begins when the product's prototype has been established and
training centerending when the product is available for general release are capitalized and
are amortized over the electric power industry.
economic life of the product. Such costs capitalized
in the three months ended March 31, 1997 amounted to $281,146. These costs
will be amortized on a per unit sold basis.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30,March 31, 1997 and March 31, 1996 and September 29, 1995
Revenues, Net. TotalNet revenues increased 7.7%34.9% in the three months ended
September 30,March 31, 1997 ("the 1997 quarter") to $14.5 million, compared to $10.7
million during the three months ended March 31, 1996 ("the 1996 period") to $11.2 million, compared to $10.4
million in the three months ended September 29, 1995 ("the 1995 period"quarter").
RevenuesRevenue from the sale of products increased 2.4%9.9% to $8.1$8.7 million in the 1996
period1997
quarter from $7.9 million in the 1995 period. An underlying reason for the small1996 quarter. The increase in product
revenues wasis due primarily to significant increases in the significant increase in backlog orders.
The2120 two channel
vibration analysis product backlog asline, the latest version of September 30, 1996 increased $920,000 to $2.5 million
as compared to $1.6 million as of September 29, 1995.the Company's original
product line. Service revenues increased 24.6%105.6% to $3.1$5.8 million in the 1997
quarter from $2.8 million in the 1996 period from $2.5 million in the 1995
periodquarter primarily as a result of the
increased emphasisacquisition of Maintenance and Diagnostics LLC ("M&D"), an operator
of research, service and training centers for the electric power industry,
late in maintenance contracts1996 and consultingincreases in technical and customer services due to greater sales support.driven by the
increase in product sales.
Cost of Revenue. Total costs of revenues increased 14.2%37.8% to $4.6$6.2
million in the 1997 quarter from $4.5 million in the 1996 period from $4.0 million in the 1995 period.quarter. As a
percentage of net revenues, total cost of revenue increased from 38.6% in the 1995 period to 41.0%41.9% in the
1996 period.quarter to 42.8% in the 1997 quarter due to the increase in the level of
services activity which has a lower gross margin than product revenues.
Product costs decreased 9.0%6.0% to $2.0$2.2 million in the 1997 quarter from $2.3
million in the 1996 period, downquarter primarily due to favorable pricing that resulted
from purchasing negotiations and improved efficiencies in the
manufacturing process. Service costs increased 84.3% to $4.0 million in the
1997 quarter from $2.2 million in the 1995 period. This is1996 quarter primarily due to a
three hundred basis pointthe
acquisition of M&D as well as the increase in the overall product gross margin
percentage, which resulted from favorable pricing resulting from the use of
blanket purchase orders. Evidence of the favorable pricing is the reduction of
standard costs for 1996. A reduction in the labor hours required to assemble
an item also contributed to the decrease in product costs. Service costs
increased 42.4% to $2.6 million in the 1996 period from $1.8 million in the 1995
period. As a percentage of service revenues, service costs increased 10.3 basis
points from 72.2% in 1995 to 82.5% in 1996. This is due primarily to the
addition of thirteen field service reps and the increased costsactivity associated with the
increased consulting serviceoverall increase in services revenues. Costs associated with the Company's
service business are accounted for almost entirely in cost of revenue.
Selling, General and Administrative. SG&A expense decreased 8.3%increased 29.4% to
$3.8$5.6 million in the 1997 quarter from $4.4 million in the 1996 period from $4.2 million in the 1995 period.quarter. The
decreaseincrease was due primarily to favorable experiences with bad debts, health self insurance
claims and other miscellaneous expensesan increase in comparisoninvestments in market development
related to the prior year.corresponding increase in net revenues. SG&A expense, as a
percentage of net revenues, decreased to 34.1%38.9% in the 1997 quarter from 40.6%
in the 1996 period from 40.1% in the 1995 period.quarter.
Research and Development. Research and development expenses decreasedincreased
by $115,000$404,928 or 9.8%33.6% to $1.1$1.6 million in the 1996 period1997 quarter from $1.2 million in
the 1995 period.1996 quarter, reflecting increases in the level of support of a more
diverse product line as well as expenditures for the development of new
products. As a percentage of net product revenues, research and development
expenses declinedincreased to 13.1%18.5% in the 1997 quarter from 15.2% in the 1996
period from 14.9% in the 1995 period. A
significant portion of the decrease in research and development is due to the
capitalization of the costs incurred to develop new products.quarter.
Income from Operations. Income from operations for the 1996 period1997 quarter
increased 66.7%53.2% to $1.7$1.0 million, or 15.4%7.1% of net revenue, from $1.0 million,$674,000, or
10.0%6.3% of net revenue, in the 1995 period.1996 quarter. Total operating expenses decreasedincreased
by 8.6%.$1,684,202 or 30.3% to $7.2 million in the 1997 quarter from $5.6 million
in the 1996 quarter.
Interest Expense/Income. Interest expense decreased from approximately
$82,000increased in the 1995 period1997
quarter to less than $1,000$10,477 from $1,146 in the 1996 period,quarter, primarily as a result of
draws on the retirement of debt and borrowings under theCompany's bank line of credit from
the proceeds of the Company's Initial Public Offering (IPO) in August 1995.to finance continuing growth.
Interest income increased 152.0%decreased 59.0% in the 1997 quarter to $48,173 from $117,589
in the 1996 period to $133,000 from $53,000 in
the 1995 periodquarter due to proceeds from the IPOlower cash levels being invested in short-term
government securities that bear interest at approximately 5% per anum.
available for investment.
Income Taxes. The Company's effective tax rate for the 1995 and 1996
periods1997 quarter
was approximately 36%.
Comparison of Nine Months Ended September 30, 1996 and September 29, 1995
Revenues, Net. Total revenues increased 12.6% in the nine months ended
September 30, 1996 ("34% versus the 1996 period") to $33.2 million, compared to $29.5
million in the nine months ended September 29, 1995 ("the 1995 period")quarter rate of approximately 36%. Revenues from the sale of products increased 9.0% to $24.4 million in the 1996
period from $22.4 million in the 1995 period. The
increase in product revenues
israte has improved due primarily to the introductionutilization of the Company's two-channel 2120 analyzer
in early 1996. Service revenues increased 23.9% to $8.8 million in the 1996
period from $7.1 million in the 1995 period primarily as a result of an
increased emphasis in the maintenance contracts area, consulting servicesavailable research and an increased number of predictive maintenance service contracts due to greater
sales support.
Cost of Revenue. Total costs of revenues increased 11.0% to $13.4 million
in the 1996 period from $12.1 million in the 1995 period. As a percentage of
net revenues, total cost of revenue decreased from 41.0% in the 1995 period to
40.4% in the 1996 period. Product costs decreased 6.7% to $6.3 million in the
1996 period from $6.8 million in the 1995 period primarily due to favorable
pricing that resulted from the use of blanket purchase orders causing a
reduction of standard costs, decreased labor hours required in the manufacturing
process due to improved technologies, while other efficiencies and improvements
were derived from the Company's ISO 9002 processes. Service costs increased
33.9% to $7.1 million in the 1996 period from $5.3 million in the 1995 period.
As a percentage of service revenues, service costs increased 6.0 basis points
from 74.4% in 1995 to 80.4% in 1996. This is due primarily to the front-end
loaded cost of establishing an increased number of field service locations
through mid-year 1996, costs associated with support of our consulting
contracts,development
tax credits as well as a general increase in services costs associated with
higher services revenues. Costs associated with the Company's service business
are accounted for almost entirely in cost of revenue.
Selling, General and Administrative. SG&A expense increased 9.6% to
$12.4 million in the 1996 period from $11.3 million in the 1995 period. The
increase was due primarily to additional market development expenditures such
as an addition in the number offoreign sales and administration personnel and the
higher commission expense due to increased sales, partially offset by favorable
experiences with bad debts, health self insurance claims and other miscellaneous
expenses in comparison to the prior year. SG&A expense, as a percentage
of net revenues, decreased to 37.5% in the 1996 period from 38.4% in the 1995
period.
Research and Development. Research and development expenses increased by
$187,000 or 5.5% to $3.6 million in the 1996 period from $3.4 million in the
1995 period, reflecting net additions to the Company's staff in support of a
more diverse product line. As a percentage of net product revenues, research
and development expenses declined to 14.7% in the 1996 period from 15.2% in the
1995 period.
Income from Operations. Income from operations for the 1996 period
increased 41.6% to $3.8 million or 11.3% of net revenue, from $2.7 million, or
9.0% of net revenue, in the 1995 period. Total operating expenses increased by
8.7%.
Interest Expense/Income. Interest expense decreased from $373,000 in the
1995 period to approximately $2,000 in the 1996 period, primarily as a result of
the retirement of debt and borrowings under the line of credit from the proceeds
of the Company's Initial Public Offering (IPO) in August 1995. Interest income
increased 297.0% in the 1996 period to $385,000 from $97,000 in the 1995 period
due to proceeds from the IPO being invested in short-term government securities
that bear interest at approximately 5% per anum.
Income Taxes. The Company's effective tax rate for the 1995 and 1996
periods was approximately 36%.corporation.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations through a
combination of cash flow from operations, bank borrowings and equity capital.
The Company's capital requirements have arisen primarily in connection with
purchases of fixed and intangible assets, including acquisitions, and the
Company makes significant expenditures each year for research and development
and market development.
Net cash providedutilized by operating activities in the first nine months of 1996
increased to $3.5 million from $1.8 million1997 quarter was
$510,819. Net cash provided by operating activities was $790,790 in the first nine months1996
quarter. The change was caused primarily by the payment of 1995
primarily due to an increase in net income that reflectsaccrued expenses
from the higher level of
business activity and a higher level of deferred revenue that is evidence of the
increased activity in the maintenance contract area.previous year. Investing activities primarily include additions to
property, plant and equipment.
On October 28,equipment and cash payments made to close the acquisition
of M&D.
The Company maintains bank lines of credit that provide for borrowings
of up to $12.0 million based on a minimum current ratio of 1.25 or better and
bearing interest at the lender's base rate or the adjusted LIBOR rate plus the
applicable LIBOR margin at the Company's discretion.
The Company's total liabilities decreased to $9.6 million as of March
31,1997 as compared to $13.6 million as of December 31, 1996 reflecting
payments on obligations incurred in connection with the acquisition of M&D as
well as the payment of outstanding tax liabilities.
Although the Company acquired Maintenance & Diagnostics, LLC
(M&D) for approximately $7.6 million payable withpresently has neither acquisition agreements nor
arrangements, the Company may in the future make strategic acquisitions of
other providers of maintenance products or services using stock, cash, debt or
a combination of cash and
stock. The purchase price consisted of $1.48 million paid to a partial owner
for amounts owed under a line of credit agreement, $1.49 million paid to ownersthereof. Depending on the terms of the company for their ownership interest, $2.4 million in promissory notes
that mature January 2, 1997acquisition, the Company
may need to owners of the company, 73,146 shares of CSI
Common Stock issuedincur additional indebtedness or issue equity securities to certain owners and a related party at the time of
closing and 27,706 shares of CSI Common Stock to be issued to the owners on
January 2, 1997. In addition to the cash paid and stock issued above, CSI
issued options to the owners of M&D valued at approximately $750,000. M&D is a
research, service and training center which services the electric power
industry.make
any such acquisition.
The Company routinely engages in transactions in foreign countries.
Substantially all of the Company's transactions are denominated in U.S.
currency, thereby limiting the Company's exposure to fluctuations in foreign
currency exchange rates.
In February 1997, the FASB issued Statement of Accounting Standards No.
128, Earnings Per Share (EPS). The Statement simplifies the standards for
computing earnings per share by replacing the presentation of primary earnings
per share with a presentation of basic earnings per share. Additionally, the
Statement requires dual presentation of basic and diluted EPS on the face of
the income statement and requires a reconciliation of the numerator and
denominator of the diluted EPS calculation. The Company plans to adopt the
provisions of Statement 128 in fiscal year 1997 and the impact on the
Company's financial statements has not been determined.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(11) Statement re: computation of per share
earnings
(27) Financial data schedule
(b) No reports on Form 8-K were filed for the quarter ended
September 30,March 31, 1996.
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.
COMPUTATIONAL SYSTEMS, INCORPORATED
Date: NovemberMay 13, 19961997 By: /s/ Ronald G. Canada
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Ronald G. Canada, Chairman and
Chief Executive Officer
By: /s/ Bryan J. Collier
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Bryan J. Collier, Vice President of
Finance and Chief Financial Officer
Exhibit Index
Sequential
Item
No. Description
-------- --------------------------------------------------------- ------------------------------------------------
(11) Statement re: computationComputation of per share earnings
(27) Financial data schedule
EXHIBIT 11 - EARNINGS PER SHARE
THREE MONTHS ENDED
NINE MONTHS ENDED
September 30, September 29, September 30, September 29,MARCH 31, MARCH 31,
1997 1996
1995 1996 1995
------------- ------------- ------------- ---------------------- ---------
PRIMARY:
Weighted average number of common shares outstanding 4,836,294 3,851,044 4,795,673 3,513,6935,000,064 4,752,611
Net effect of dilutive stock options based on the treasury
stock method using the average market price 190,626 286,240 241,841 306,060
---------- ---------- ---------- ----------266,336 266,334
--------- ---------
Weighted average number of common and common
equivalent shares outstanding 5,026,920 4,137,284 5,037,514 3,819,7535,266,400 5,018,945
Net income $1,184,536 $642,252 $2,636,529 $1,516,016$711,490 $501,996
--------- ---------
Primary net income per common share as reported $0.24 $0.16 $0.52 $0.40$0.14 $0.10
FULLY DILUTED:
Weighted average number of common shares outstanding 4,836,294 3,851,044 4,795,673 3,513,6935,000,064 4,752,611
Net effect of dilutive stock options based on the treasury
stock method using the period-end market price if higher
than average price 190,626 299,684 241,841 324,565
---------- ---------- ---------- ----------266,336 272,174
--------- ---------
Weighted average number of common and common
equivalent shares outstanding 5,026,920 4,150,728 5,037,514 3,838,2585,266,400 5,024,785
Net income $1,184,536 $642,252 $2,636,529 $1,516,016$711,490 $501,996
--------- ---------
Fully diluted net income per common share as reported $0.24 $0.15 $0.52 $0.39$0.14 $0.10
The difference between fully diluted earnings per share and primary earnings per
share is immaterial. Therefore, fully diluted earnings per share have not been
disclosed in the financial statements.