1
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 JuneSeptember 30, 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 (I.R.S. Employer Identification No.)
of Incorporation or Organization)
835 Innovation Drive
Knoxville, Tennessee 37932
- --------------------------------------- ---------------------------
(Address of Principal Executive Office)Office (Zip Code)
RegistrantsRegistrant=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 - 5,023,0235,070,767 shares at June 30,November 10, 1997
Page 1 of 14 pages.
Exhibit Index on page 13 .
2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
- --------------------------------------------------------------------------------------------------------------------------------------
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
3
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNESeptember 30, DECEMBERDecember 31,
1997 1996
---------- ----------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 816,516521,156 $ 4,576,801
Trade accounts receivable, less
allowance for doubtful acccounts 15,399,795accounts 17,611,150 15,656,516
Inventories 3,504,9183,745,943 3,190,964
Prepaid expenses and other current assets 935,326867,371 906,733
---------- ----------
Total current assets 20,656,55522,745,620 24,331,014
---------- ----------
Property, plant and equipment:
Land 729,204 729,204
Building and improvements 7,829,1437,853,771 6,714,979
Equipment and furniture 13,071,97813,274,656 10,625,614
Construction-in-Progress -------882,472 1,293,587
---------- ----------
21,630,32522,740,103 19,363,384
Less accumulated depreciation (7,061,724)(7,683,609) (5,879,464)
---------- ----------
Property, plant and equipment, net 14,568,60115,056,494 13,483,920
---------- ----------
Other assets
Capitalized R&D and other assets 1,187,2261,532,581 552,777
Goodwill 6,109,8476,060,121 6,292,490
Other intangible assets 646,480737,313 612,646
---------- ----------
Total assets $43,168,709$46,132,129 $45,272,847
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,522,4711,719,355 $ 2,598,425
Accrued liabilities 4,219,2074,939,716 7,222,579
Income taxes payable (415,536)134,428 1,026,110
Deferred maintenance contract revenue 2,337,3622,288,335 2,070,411
Line of credit 1,438,0001,500,000 -------
---------- ----------
Total current liabilities 9,101,50410,581,834 12,917,525
Deferred maintenance contract revenue 694,090864,438 668,862
---------- ----------
Total liabilities 9,795,59411,446,272 13,586,387
---------- ----------
Shareholders' equity:
Common stock,no par value,
50,000,000 shares authorized,
5,023,0235,051,673 and 4,991,618 shares issued and
outstanding in 1997 and 1996, respectively 18,639,00618,735,221 18,034,208
Additional paid-in capital 951,230 865,805
Retained earnings 13,782,87914,999,406 12,786,447
---------- ----------
Total shareholders' equity 33,373,11534,685,857 31,686,460
---------- ----------
Total liabilities and shareholders' equity $43,168,709$46,132,129 $45,272,847
========== ==========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30, JuneSeptember 30, JuneSeptember 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Revenues, net:
Product $9,035,800 $8,354,790 $17,757,080 $16,287,638$11,015,364 $8,097,196 $28,772,444 $24,384,835
Services 5,411,240 2,854,602 11,164,508 5,653,0475,439,168 3,136,994 16,603,676 8,790,040
----------- ----------- ----------- -----------
14,447,040 11,209,392 28,921,588 21,940,685---------- ---------- ----------
16,454,532 11,234,190 45,376,120 33,174,875
Cost of revenues:
Product 2,254,134 2,014,666 4,432,299 4,330,7212,611,263 2,012,988 7,043,562 6,343,710
Services 4,188,659 2,299,255 8,207,566 4,479,510
----------- ----------- ----------- -----------
6,442,793 4,313,921 12,639,865 8,810,2313,884,132 2,588,260 12,091,698 7,067,769
---------- ---------- ---------- ----------
6,495,395 4,601,248 19,135,260 13,411,479
Gross margin 8,004,247 6,895,471 16,281,723 13,130,454
----------- ----------- ----------- -----------9,959,137 6,632,942 26,240,860 19,763,396
Costs and expenses:
Selling, general and administrative 5,888,239 4,224,642 11,522,513 8,579,6426,625,545 3,830,679 18,148,058 12,410,321
Research & development 1,640,549 1,325,457 3,251,673 2,531,653
----------- ----------- ----------- -----------
7,528,788 5,550,099 14,774,186 11,111,295
----------- ----------- ----------- -----------1,515,941 1,062,254 4,767,614 3,593,907
--------- --------- ---------- ----------
8,141,486 4,892,933 22,915,672 16,004,228
--------- --------- ---------- ----------
Income from operations 475,459 1,345,372 1,507,537 2,019,159
----------- ----------- ----------- -----------1,817,651 1,740,009 3,325,188 3,759,168
Other income (expense)
Interest expense (41,345) (221) (51,822) (1,366)(46,400) (579) (98,222) (1,945)
Interest income (9,488) 134,872 38,685 252,4607,226 132,794 45,911 385,254
Other income (expense), net 7,053 4,347 15,295 (1,512)
----------- ----------- ----------- -----------
(43,780) 138,998 2,158 249,582
----------- ----------- ----------- -----------10,532 (21,386) 25,827 (22,898)
---------- ---------- ---------- ----------
(28,642) 110,829 (26,484) 360,411
---------- --------- ---------- ----------
Income before taxes 431,679 1,484,370 1,509,695 2,268,7411,789,009 1,850,838 3,298,704 4,119,579
Provision for income taxes 146,736 534,374 513,262 816,749
----------- ----------- ----------- -----------572,483 666,302 1,085,745 1,483,050
---------- ---------- ---------- ----------
Income after taxes $284,943 $949,996 $996,433 $1,451,992
----------- ----------- ----------- -----------$1,216,526 $1,184,536 $2,212,959 $2,636,529
---------- ---------- ---------- ----------
Earnings per share $0.06 $0.19 $0.19 $0.29$0.24 $0.24 $0.43 $0.52
Weighted average shares and equivalents outstanding 5,169,688 5,068,388 5,191,375 5,047,363
----------- ----------- ----------- -----------5,174,506 5,026,920 5,188,165 5,061,429
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
COMPUTATIONAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
SixNine Months Ended
-------------------------
June--------------------------
September 30, JuneSeptember 30,
1997 1996
---------- ----------
--------------- -------------
Cash flows from operating activities:
Net income $996,433 $1,451,992$2,212,959 $2,636,529
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,484,383 1,120,0842,222,466 1,366,637
Deferred income taxes ----------- (176,000)
Changes in operating assets and liabilities:
Accounts receivable 265,759 701,078(1,945,596) 103,252
Income taxes refundable (payable) (1,365,259) 66,306refundable(payable) (815,295) 447,500
Inventories (327,394) (374,029)(574,419) (319,162)
Prepaids (28,593) 32,58739,362 (56,341)
Other assets 4,410 (170,062)(3,067) (315,448)
Accounts payable (1,067,802) (323,789)(865,923) 156,749
Accrued liabilities (185,077) (68,756)(1,849,818) (1,142,634)
Deferred maintenance contract revenue 292,179 477,876
---------- ----------413,500 783,411
------------ -----------
Net cash provided by operating activities 69,039 2,737,287
---------- ----------(1,165,831) 3,484,493
------------ -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,301,956) (2,965,297)
Purchase of business (2,385,250)(3,448,013) (5,086,003)
Investment in other assets (743,719)(1,196,623) ------
---------- --------------------- -----------
Net cash used in investing activities (5,430,925) (2,965,297)
---------- ----------(4,644,636) (5,086,003)
----------- -----------
Cash flows from financing activities:
Net borrowings under line of credit 1,438,0001,500,000 ------
Repayments of long-term debt (8,152) (8,994)(13,146) (13,662)
Proceeds from issuance of common stock 171,753 279,757
---------- ----------267,968 433,078
--------- -------
Net cash provided by financing activities 1,601,601 270,763
---------- ----------1,754,822 419,416
--------- --------
Net increase (decrease) in cash and cash equivalents (3,760,285) 42,753(4,055,645) (1,182,094)
Cash and cash equivalents, at beginning of period 4,576,801 8,824,332
------------------- ----------
Cash and cash equivalents, at end of period $816,516 $8,867,085
---------- ----------$ 521,156 $7,642,238
The accompanying notes are an integral part of these consolidated condensed
financial statements. 6
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 sixnine months ended JuneSeptember 30, 1997, are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for December 31, 1996.
2. INVENTORIES:
Inventories consist of the following:
JuneSeptember 30, 1997 December 31,
1997 1996
(Unaudited) (Audited)
----------- ---------------------------- -----------------
Raw Materials $1,561,539$1,923,319 $1,406,893
Work-in-process 748,962Work-in-Process 587,496 649,589
Finished goods,Goods, net 1,194,4171,235,128 1,134,482
----------- ---------- $3,504,918----------
$3,745,943 $3,190,964
=========== ==========
3. CASH FLOW INFORMATION:
June 30, JuneSeptember 30, 1997 September 30, 1996
----------- -----------
(Unaudited) (Unaudited)
------------------- ------------------
Supplemental disclosures of cash
flows:
Interest paid $ 38,638 $ 1,693Paid $94,419 $2,079
Income taxes paid, net $904,000 $857,894$20,000 $1,293,000
The Company entered into the following noncash transaction
to purchase M&D:transaction: common stock
valued at $433,045.$433,045 to purchase M&D.
4. RESEARCH AND DEVELOPMENT:
The majority of research and development costs are expensed as
incurred. Costs incurred in developing a product during the period that
begins when the product's prototype has been established and ending when
the product is available for general release are capitalized and are
amortized over the economic life of the product. Such costs capitalized
7
4. RESEARCH AND DEVELOPMENT (CONTINUED):
in the sixnine months ended JuneSeptember 30, 1997 amounted to $638,860.$1,061,065.
These costs will be amortized on a per unit sold basis.
5. SUBSEQUENT EVENT
On October 17, 1997, the Company announced that it had signed an
agreement and plan of merger with Emerson Electric Co. and upon
completion of the merger will become a wholly owned subsidiary of
Emerson.
The agreement, which is subject to certain conditions, including
regulatory and CSI's stockholders' approval, calls for Emerson to pay
$29.65 a share for each share of CSI's outstanding common stock, of which
$5.93 per share is payable in cash, and the remaining $23.72 per share is
payable in Emerson common stock in a tax free exchange. The Emerson
common stock will be valued based on the average of its closing prices
over the ten trading days ending one day prior to the merger. In
addition, Ronald G. Canada, Chairman and Chief Executive Officer of CSI,
who owns approximately 22% of CSI's outstanding stock, has granted an
option to Emerson relating to his CSI shares.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Three Months Ended JuneSeptember 30, 1997 and JuneSeptember 30, 1996
Revenues, Net. Net revenues increased 28.9%46.5% in the three months ended
JuneSeptember 30, 1997 (the(Athe 1997 quarter)period@) to $14.4$16.5 million, compared to
$11.2 million during the three months ended JuneSeptember 30, 1996
(the(Athe 1996 quarter)period@). Revenue from the sale of products increased 8.2%36.0%
to $9.0$11.0 million in the 1997 quarterperiod from $8.4$8.1 million in the 1996 quarter. The increase in product revenues isperiod
due primarily to significant increases in the vibration analysis,
motor, and correctiveoil product lines, offset slightly by sales
decreasesincreases in other operating divisions.the
domestic and international customer base, and the successful introduction
of the MotorStatus unit. Service revenues increased 89.6%73.4% to $5.4 million
in the 1997 quarterperiod from $2.9$3.1 million in the 1996 quarterperiod primarily as a
result of athe fourth quarter, 1996, acquisition of a services company based
in Philadelphia, Pennsylvania as well as increases in other services
driven by continuing investments in sales and marketing. Although
net revenues increased significantly, the level of net revenues reached
was not sufficient to support investments made to increase revenues.Pennsylvania.
Cost of Revenue. Total costs of revenues increased 49.3%41.2% to $6.4$6.5 million in
the 1997 quarterperiod from $4.3$4.6 million in the 1996 quarter.period. As a percentage of net
revenues, total cost of revenue increaseddecreased from 38.5%41.0% in the 1996 quarterperiod to
44.6%39.5% in the 1997 quarter due to the increaseperiod. Product costs as a percentage of product sales
decreased from 24.9% in the level of services activity
that has a lower gross margin than product revenues. Product
costs increased 11.9%1996 period to $2.3 million23.7% in the 1997 period. The
automation of assembly processes has increased efficiency which in turn
has lowered costs. Services costs as a percentage of service revenues
decreased 14.1 basis points from 85.2% in 1996 to 71.1% in 1997. Prior year
costs included a third quarter from
$2.0 millionstaff increase which was not duplicated in
the 1996 quarter primarily due to the increased
level of product sales. Service costs increased 82.2% to $4.2
million in the 1997 quarter from $2.3 million in the 1996 quarter
primarily due to the aforementioned acquisition as well as the
increase in activity associated with the overall increase in
services revenues.current year.
Selling, General and Administrative. SG&A expense increased 39.4%73.0% to $5.9$6.6
million in the 1997 quarterperiod from $4.2$3.8 million in the 1996 quarter.period while the
8
year-to-date increase was more consistent with sales increases as outlined
in the nine month comparison on the following page. The increase was due
primarily to an increasethe previously mentioned acquisition, increases in investments in market development as well ascommission
costs related to obtaining higher levels of sales, and the costamortization of
administrative supportprior year capitalized costs related to the corresponding
increase in net revenues. Also,development of the company completed a staff
restructuring late in the second quarter which generated
additional severance costs.new MotorStatus
product line. SG&A expense,expenses, as a percentage of net revenues increased to
40.8%40.3% in the 1997 quarterperiod from 37.7%34.1% in the 1996 quarter.period.
Research and Development. Research and development expenses increased by
23.8%$454,000 or 42.7% to $1.6$1.5 million in the 1997 quarterperiod from $1.3$1.1 million in the
1996 quarter, reflecting increases in
the required level of support of a more diverse product line as
well as continued expenditures for the development of new
products.period. As a percentage of net product revenues, research and development
expenses increased to 18.2%13.8% in the 1997 quarterperiod from 15.9%13.1% in the 1996 quarter.period.
New product development and existing product support continue to drive the
increase in research and development costs.
Income from Operations. Income from operations for the 1997 quarter decreased 64.7%period increased
4.5% to $475,000,$1.8 million or 3.3%11.0% of net revenue, from $1.3$1.7 million, or 12.0%15.5%
of net revenue, in the 1996 quarter.
As stated in the net revenues section above, investments were made
early in the year to attain a higher level of sales throughout the
Company. Due to net revenues falling short of those levels, operating
income was negatively impacted when compared to the second quarter of
1996. In an effort to improve operating income, the Company has taken a
number of steps including the following: total staffing was reduced by
approximately 10% in an effort to reduce overall costs and, in divisions
where sales were below expectations, management has taken corrective
actions to bring costs in line with sales, as well as, to grow sales.period.
Other Expense/Income. Other expense increased to $29,000 in the 1997 quarter to $43,000period
compared to other income of $139,000$111,000 in the 1996 quarter due to the useperiod primarily as a result
of available cash andinterest expense incurred on draws made on the Company's bank line of credit
to finance continuing growth.in 1997. The Company internally financed operations in 1996 using available
cash balances which were invested on a short-term basis.
Income Taxes. The Company's effective tax rate for the 1997 quarterperiod was
approximately 34% compared to32% versus a rate of 36% in the 1996 quarter
rate of approximately 36%.period. The rate has
improved due to the
utilization of available research and development tax credits,
the establishment of
a foreign sales corporation, and the completion
of an internal analysis of the appropriate tax levels.
Comparison of SixNine Months Ended JuneSeptember 30, 1997 and JuneSeptember 30, 1996
Revenues, Net. Net revenues increased 31.8%36.8% in the sixnine months ended
JuneSeptember 30, 1997 (the(Athe 1997 period)period@) to $28.9$45.4 million compared to $21.9$33.2
million during the sixnine months ended JuneSeptember 30, 1996 (the(Athe 1996 period)period@).
Revenue from the sale of products increased 9.0%18.0% to $17.8$28.8 million in the
1997 period from $16.3$24.4 million in the 1996 period. The increase in product
revenues is due primarily to significant increases in the vibration analysis,
motor, and correctiveoil product lines offset by sales decreases in
certain other operating divisions.as well as the successful introduction of the
new MotorStatus unit. Service revenues increased 97.5%88.9% to $11.2$16.6 million in
the 1997 period from $5.7$8.8 million in the 1996 period primarily as a result of
a fourth quarter, 1996, acquisition of a services company based in
Philadelphia, Pennsylvania as well as increases in other services driven by
continuing investments in sales and marketing.
Although net
revenues increased significantly, the level of net revenues reached
was not sufficient to support investments made to increase revenues.
Specific measures are being taken to address the aforementioned
challenges as stated in the applicable sections covering the three
months ended June 30, 1997.
Cost of Revenue. Total costs of revenues increased 43.5%42.7% to $12.6$19.1 million in
the 1997 period from $8.8$13.4 million in the 1996 period. As a percentage of net
revenues, total cost of revenue increased from 40.2%40.4% in the 1996 period to 43.7%42.2%
in the 1997 period due to the increase in the level of services activity which
has a lower gross margin than product revenues as well asand lower than desired margins
onin certain services business lines.operating divisions. Product costs increased 2.3%11.0% to $4.4$7.0 million
in the 1997 period from $4.3$6.3 million in the 1996 period due to the increased
level of product sales offset bysales. However, higher margins on certain product lines and
a favorable sales mix towards higher margin products.products minimized the impact of the
increase in product activity and lead to higher overall product margins.
Service costs increased 83.2%71.1% to $8.2$12.1 million in the 1997 period from $4.5$7.1
million in the 1996 period primarily due to the aforementioned 1996 fourth 9
quarter acquisition and the cost associated with the overall increase in
services revenues.
Selling, General and Administrative. SG&A expense increased 34.3%46.2% to $11.5$18.1
million in the 1997 period from $8.6$12.4 million in the 1996 period. The increase
was due primarily to an increase in investments in market development as well
as the cost of administrative support related to the corresponding increase in
net revenues. Also, the Company incurred severance costs in conjunction with a
staff restructuring late in the second quarter. SG&A expense, as a percentage
of net revenues, increased to 39.8%40.0% in the 1997 period from 39.1%37.4% in the 1996
period.
Research and Development. Research and development expenses increased by
28.4%32.7% to $3.3$4.8 million in the 1997 period from $2.5$3.6 million in the 1996 period.
This increase reflects changes in the required level of support of a more
diverse product line as well as expenditures for the development of new
products, some of which are scheduled for release during the
third and fourth quarters of 1997.products. As a percentage of net product revenues, research and development
expenses increased to 18.3%16.6% in the 1997 period from 15.5%14.7% in the 1996 period.
Income from Operations. Income from operations for the 1997 period decreased
25.3%11.5% to $1.5$3.3 million, or 5.2%7.3% of net revenue, from $2.0$3.8 million, or 9.2%11.3% of
net revenue, in the 1996 period. Operating income decreased due to an
increasing level of investments required to increase revenues. Operating
income was also negatively impacted by higher growth rates in services business
lines which generate lower gross margin than product lines. During the aforementioned
problems notedsecond
quarter of 1997, net revenues did not reach the required levels needed to
provide a positive return on the investments made to increase sales. Therefore,
the Company was required to take specific steps to improve operating income.
Overall staffing was reduced and, in divisions where sales were below
expectations, management has taken corrective actions to bring costs in line
with sales and to increase sales. These actions enabled the Company to increase
operating income in the discussion onthird quarter of 1997 when compared to the three months ended June
30,second
quarter of 1997.
Other Expense/Income. Other incomeexpense in the 1997 period was $2,000$26,000 versus
other income of $249,000$360,000 in the 1996 period due to the use of available cash
balances and draws made on the Company's line of credit to finance
continuing growth.
Income Taxes. The Company's effective tax rate for the 1997 quarterperiod was
approximately 34%33% versus the 1996 quarterperiod rate of approximately 36%. The rate
has improved due to the utilization of available research and development tax
credits, the
establishment of a foreign sales corporation, and the completion of an internal
analysis of appropriate tax levels.
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 theacquisitions. The
Company also makes significant expenditures each year for research and
development and market development.
Net cash providedused by operating activities during the first sixnine months of 1997 was
$69,000$1.3 million while net cash provided by operating activities during the first
sixnine months of 1996 was $2.7$3.5 million. The decrease in net cash provided by
operating activities was caused by decreases in the level of net income,
refunds due from the recognition and
payment of estimated income tax liabilities, and a decrease in accounts payable.payable,
10
and an increase in accounts receivable associated with sales increases.
Net cash used by investing activities increaseddecreased from $2.9$5.1 million for the sixnine
months ended JuneSeptember 30, 1996 to $5.4$4.5 million for the sixnine months ended
JuneSeptember 30, 1997. Investing activites for the 1996 period included a
significant building addition that was completed late in that year. Capital
expenditures during the first sixnine months of 1997 included final payments
to complete a fourth quarter 1996 services business acquisition and the
capitalization of certain types of research and development costs which did not occur during the same period in 1996.costs.
The Company maintains bank lines of credit that provide for borrowings of up to
$12.0 million based on a borrowing formula and a minimum current ratio of 1.25
or better. The bank lines of credit bear interest at the lender's base rate or
the adjusted LIBOR rate plus the applicable LIBOR margin at the Company'sCompany=s
discretion.
The Company's total liabilities decreased to $9.8$11.4 million as of JuneSeptember 30,
1997 as compared to $13.6 million as of December 31, 1996 due to payments made
in the first half of 1997 to close a fourth quarter acquisition, a decrease in
the level of income taxes payable due to payments made for prior year tax
liabilities, and refunds due from the recognition and payment of estimated
tax liabilities. Draws were made on the Company's line of credit to finance
continuing operations in 1997.
On October 17, 1997, the Company announced the signing of a merger agreement
with Emerson Electric Company pending regulatory and shareholder approval. For
further information on this agreement, see the Subsequent Event footnote to the
Consolidated Condensed Financial Statements. Although the Company has presently neitherno other
acquisition or merger 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 thereof. Depending on the terms of the
acquisition, the Company may need to incur additional indebtedness or issue
equity securities to 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.
11
PART II - OTHER INFORMATION
ItemITEM 6. Exhibits and Reports on Form 8-K
(a)Exhibits:
(11) Statement re: computation of per share earnings
(b)No reports on Form 8-K were filed for the quarter ended June 30,September 31, 1997.
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: August 11, 1997 By: /s/ Ronald G. Canada
--------------------------------------
Ronald G. Canada, Chairman and
Chief Executive Officer
By: /s/ Tomas A. Valunas
--------------------------------------
Tomas A. Valunas, Vice President of
Finance and Chief Financial Officer
Exhibit Index
Item Description
---------- ----------------------------------------------
(11) Statement re: Computation of per share earnings
EXHIBIT 11 - EARNINGS PER SHARE
THREE MONTHS ENDED SIXNINE MONTHS ENDED
----------------------- -----------------------
June-------------------------- ------------------------
September 30, JuneSeptember 30, JuneSeptember 30, JuneSeptember 30,
1997 1996 1997 1996
--------- --------- --------- ---------------------- ------------- ------------- -------------
PRIMARY:
Weighted average number of
common shares outstanding 5,015,466 4,798,001 5,007,429 4,781,5015,048,261 4,836,294 5,020,126 4,795,673
Net effect of dilutive stock
options based on the treasury
stock method using the average
market price 154,222 270,387 183,946 265,862126,245 190,626 168,039 265,756
---------- --------- --------- --------- -------------------
Weighted average number of common
and common equivalent shares
outstanding 5,169,688 5,068,388 5,191,375 5,047,363
--------- --------- --------- ---------5,174,506 5,026,920 5,188,165 5,061,429
---------- ---------- ---------- ----------
Net income $284,943 $949,996 $996,433 $1,451,992$1,216,526 $1,184,536 $2,212,959 $2,636,529
Primary net income per common
share as reported $0.06 $0.19 $0.19 $0.29$0.24 $0.24 $0.43 $0.52
FULLY DILUTED:
Weighted average number of
common shares outstanding 5,015,466 4,798,001 5,007,429 4,781,5015,048,261 4,836,294 5,020,126 4,795,673
Net effect of dilutive stock
options based on the treasury
stock method using the period-end
market price if higher than
average price 154,222 270,387 183,946 284,453146,173 190,626 188,266 265,756
--------- --------- --------- ---------
Weighted average number of common
and common equivalent shares
outstanding 5,169,688 5,068,388 5,191,375 5,065,9545,194,434 5,026,920 5,208,392 5,061,429
--------- --------- --------- ---------
Net income $284,943 $949,996 $996,433 $1,451,992$1,216,526 $1,184,536 $2,212,959 $2,636,529
12
Fully diluted net income per
common share as reported $0.06 $0.19 $0.19 $0.29$0.23 $0.24 $0.42 $0.52
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.