SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
_X_ Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended September 30, 1995 or
___ Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
to .
Commission file number 0-2387
RESEARCH, INCORPORATED
(Exact name of the Company as specified in its charter)
Minnesota 41-0908058
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
P.O. Box 24064, Minneapolis, Minnesota 55424
(Address of principal executive office) (Zip Code)
(The Company's telephone number, including area code) (612) 941-3300
Title of each class Name of each exchange on which registered
Securities registered pursuant
to Section 12(b) of the Act:
None
Securities registered pursuant
to Section 12(g) of the Act:
Common Stock with a par value NASDAQ Symbol RESR
of $.50 per share
Indicate by check mark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Paragraph 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the Company's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ___
The aggregate market value of the common shares held by nonaffiliates was
approximately $ 8.6 million based upon the closing sale price of the Company's
common stock as of December 19, 1995.
As of December 19, 1995; 1,152,368 common shares were outstanding.
Documents incorporated by reference:
1) Portions of the Proxy Statement dated December 12, 1995, for the Annual
Meeting of Shareholders to be held on January 18, 1996, are incorporated by
reference into Part III.
RESEARCH, INCORPORATED
PART I
Item 1. Business
(a) General Development of the Business
Research, Incorporated (the "Company") was organized as a Minnesota
corporation in October 1966, and prior to that date, operated as the
R-I Controls Division of a predecessor company which was formed in
1952. The Company is engaged in the design, manufacturing and sale of
control instrumentation and heating devices that solve a broad range
of customer problems. Applications for the Company's products include
control of environmental chambers, crystal growing and glass furnaces,
assembly of surface mount printed circuit boards and specialized
heating systems for tube shrinking materials testing, ink drying and
curing/finishing.
The global market for the Company's products includes the United
States, Canada, Europe, the Far East, Australia and South America.
Sales are made through independent sales representatives and
distributors. The Company currently operates as one business segment
through three operating divisions: Radiant Energy and Control
Products, Control Systems and Assembly Automation. Company operations
are located in Eden Prairie, Minnesota, a suburb of Minneapolis, with
a subsidiary, Research Incorporation Limited, operating as a
manufacturing site and European sales office in Humberside, England.
During the past year, the Company has continued to operate in
substantially the same mode of operations. The Company is engaged in
the manufacture of industrial electronic controls and radiant heating
equipment. On November 8, 1995 the Company established a FSC (Foreign
Sales Corporation) to obtain export incentives related to Research
Incorporated's increasing international sales activities.
(b) Financial Information About Industry Segments
The Company operates in a single industry segment, industrial
electronic instruments and systems. Financial information concerning
its operations has been presented in the financial statements referred
to under Item 8.
(c) Narrative Description of the Business
(1) (i) Products and Markets - The Company is currently engaged in
the design, manufacture, and sale of two product classes, process
control instruments and radiant heating devices.
Process control instruments are used primarily for the automated
programming and control of industrial heating processes and
laboratory testing. Applications are found in several basic
industries such as aerospace, metals, glass, electronics, and
automotive. Either individual instruments or complete systems are
supplied in accordance with customer requirements. This
capability includes computer-based supervisory control systems
and microprocessor- based and analog control instruments.
Radiant heating devices are applied to a variety of process
heating applications, such as soldering, brazing, drying, curing,
stress relieving, surface mount technologies, and thermal
testing. Individual heating devices and complete systems are
supplied to the basic industries noted above which use process
control instruments.
The markets for the Company's product lines are located
throughout the United States and Canada, as well as
internationally -- Europe, the Far East, Australia, and South
America. Field sales are conducted primarily through independent
sales representatives and distributors who are located throughout
the market areas served.
The breakdown of sales by the two product classes is as follows:
(Amounts expressed in thousands)
Year Ended Process Control Radiant Heating
September 30 Instruments Devices Total
Year Amount Percent Amount Percent Amount Percent
1995 $5,342 25.5% $15,581 74.5% $20,923 100.0%
1994 4,707 25.9 13,456 74.1 18,163 100.0
1993 5,046 32.3 10,567 67.7 15,613 100.0
(ii) Product Investment - Ongoing research and development with
respect to new related products and improvements to existing
products are carried on to maintain state-of-the-art capabilities
and to meet customer requirements. The Company does not believe
that any new product or products are being developed or acquired
which would require a material amount of the assets of the
Company or which otherwise are material.
(iii) Sources and Availability of Raw Materials - Raw materials
essential to the business of the Company are generally readily
available from a number of sources.
(iv) Patents and Trademarks - The Company has a number of patents and
is a party to certain license agreements which, while deemed
important, are not deemed material to the business of the Company
in the aggregate.
(v) Seasonality - The business of the Company is not seasonal.
(vi) Working Capital Requirements - The practices of the Company
relating to working capital items are not considered unusual.
(vii) Customers - The Company had sales to one customer which amounted
to 13% of net sales during fiscal 1995.
(viii) Backlog - The dollar amount of the Company's backlog of orders
from operations believed to be firm at September 30, 1995, was
$4,150,000; at September 30, 1994, it was $4,087,000. In both
cases, it was or is anticipated that almost the entire backlog
would or will be shipped in the subsequent 12-month period.
Backlog has no unusual significance to the business of the
Company.
(ix) Government Contracts - Government contracts which may be subject
to renegotiation of profits or termination do not constitute a
material portion of the Company's business.
(x) Competition - The Company's business is highly competitive,
particularly in the areas of price, service and product
performance. Competition involves hundreds of companies --
ranging from companies which are much smaller than the Company to
large companies in the electronics industry.
(xi) Research and Development - The Company incurred expenses of
approximately $1,682,000, $1,309,000 and $1, 240,000 in fiscal
years 1995, 1994, and 1993, respectively, on Company-sponsored
research activities related to the development of new related
products and to the improvement of existing products. No material
funds were expended for customer-sponsored research activities.
(xii) Environmental Regulations - Compliance with federal, state and
local provisions regulating the discharge of materials into the
environment or otherwise relating to the protection of the
environment is not expected to have a material effect upon the
capital expenditures, earnings or competitive position of the
Company.
(xiii) Employees - At September 30, 1995, the Company had 170
employees.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
(1) The Company has a subsidiary in the United Kingdom. The results
of its operations were not material to the Company. Export sales
involve sales to customers primarily in Europe, Canada, the Far
East, Australia, and South America. See Note 6, "Foreign Sales"
of the Notes to Consolidated Financial Statements.
(2) Not applicable.
(3) Not applicable.
Executive Officers
None of the executive officers of the Company has any family
relationship with any other officer, and all officers serve at the
pleasure of the Board of Directors. The following table sets forth
other information regarding the Company's executive officers:
NAME AGE POSITION OFFICER SINCE
B.E. Bailey 47 Vice President 1992
D.G. Brady 53 Vice President 1990
C.C. Johnson 51 President, CEO, CFO, and Director 1984
G.E. Magnuson 65 Secretary and Director; 1975
Of Counsel, Lindquist & Vennum P.L.L.P.
K.M. O'Rourke 38 Vice President 1993
G.W. Sangster 66 Vice President 1976
There are no arrangements or understandings between any of the
officers and any other person pursuant to which any of them was
selected as an officer.
Messrs. Johnson and Sangster have each been employed by the Company
for more than five years. Mr. Johnson became President and Chief
Executive Officer in July of 1992; previously he was Vice President of
Finance and Chief Financial Officer. Mr. Magnuson was a partner with
Lindquist & Vennum P.L.L.P until January 1995, at which time he became
Of Counsel for Lindquist & Vennum P.L.L.P. Mr. Magnuson has been a
director and secretary of the Company for more than five years. Mr.
Brady became Vice President in November 1990; previously Mr. Brady was
General Manager for the Assembly Automation Division. Mr. Bailey
became Vice President in November 1991; previously Mr. Bailey was
General Manager for the Radiant Energy Division. Ms. O'Rourke became
Vice President in November 1993; previously Ms. O'Rourke was Manager
of Human Resources. She was hired in 1985.
Item 2. Properties
The Company's plant and office, which are owned in fee, are located on
approximately 25 acres of property at 6425 Flying Cloud Drive, Eden
Prairie, Minnesota. The facilities consist of 90,000 square feet of
completely air-conditioned space deemed suitable for light manufacturing
and office use. Management considers these facilities to be in good
condition, well-maintained, and adequate for its current operations. The
Company's subsidiary in the U.K. is operated in a 3,500 square foot leased
facility.
Item 3. Legal Proceedings
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1995.
PART II
Item 5. Market for The Company's Common Stock and Related Stockholder Matters
(a) & (c) Market Information and Dividends
Dividends paid and price range per share of common stock is as
follows:
Stock is traded on the over-the-counter market, NASDAQ symbol (RESR)
<TABLE>
<CAPTION>
Bid Price Range
Dividends Paid 1995 1994
During Quarter Ended 1995 1994 High Low High Low
<S> <C> <C> <C> <C> <C> <C>
December 31 $.055 $.055 7 5-1/4 5-1/2 4-1/2
March 31 $.055 $.055 6-3/4 4-1/2 6-1/4 4-1/2
June 30 $.055 $.055 6-3/4 5-3/4 5-3/4 4
September 30 $.055 $.055 12 5-3/4 6-1/8 4-1/2
TOTAL $.220 $.220
</TABLE>
(b) Holders
The number of holders of record of the Company's common stock as of
December 6, 1995, was 690 (excluding beneficial owners of shares held
in street names).
Item 6. Selected Financial Data
CONSOLIDATED FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(In thousands, except per share data)
Year ended September 30 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Consolidated Operations:
Net sales $20,923 $18,163 $15,613 $11,687 $ 12,470
Gross profit 9,019 7,947 6,989 4,609 4,931
Percent of sales 43.1% 43.8% 44.8% 39.4% 39.5%
Income (loss) before income taxes 952 725 620 167 (387)
Percent of sales 4.6% 4.0% 4.0% 1.4% (3.1)%
Income (loss) 627 497 403 373 (260)
Percent of sales 3.0% 2.7% 2.6% 3.2% (2.1)%
Discontinued Operation:
Income, net of tax $ -- $ -- $ -- $ 57 $ 64
Percent of sales -- -- -- 0.5% 0.5%
Total:
Net income (loss) $ 627 $ 497 $ 403 $ 430 $ (196)
Percent of sales 3.0% 2.7% 2.6% 3.7% (1.6)%
Earnings (Loss) per Share:
Continuing Operations $ .56 $ .44 $ .36 $ .33 $ (.23)
Discontinued Operation -- -- -- .05 .06
Total $ .56 $ .44 $ .36 $ .38 $ (.17)
Cash Dividends Paid per Share $ .22 $ .22 $ .22 $ .22 $ .44
Weighted Average Number of
Shares Outstanding 1,129 1,125 1,125 1,143 1,149
As of September 30 1995 1994 1993 1992 1991
Consolidated Financial Condition:
Net working capital $ 5,195 $ 4,952 $ 4,902 $ 4,957 $ 4,619
Current ratio 2.5 to 1 2.5 to 1 2.9 to 1 3.3 to 1 2.8 to 1
Property and Equipment, Net $ 1,876 $ 1,695 $ 1,570 $ 1,339 $ 1,486
Total Assets 10,593 10,080 9,132 8,474 8,729
Total Stockholders' Equity 7,195 6,762 6,498 6,339 6,231
Book Value per Share $ 6.31 $ 6.01 $ 5.78 $ 5.64 $ 5.42
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of this consolidated financial summary.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CONSOLIDATED OPERATIONS
1995-1994 COMPARISON
Sales for fiscal 1995 were $20,923,000, an increase of 15.2% from 1994. The
increased sales were principally due to new products and an increase in
international sales. Sales of new products introduced in the last three
years accounted for 46% of sales.
The gross profit margin on sales was 43.1% compared to 43.8% in 1994. The
decrease in the gross profit margin was due to product mix.
Total operating expenses were $8,115,000 in 1995 compared to $7,286,000 in
1994. On a percentage basis, these expenses represented 38.8% of 1995
sales, down from 40.1% in 1994. Selling expenses were $5,674,000 (27.1% of
sales) in 1995 compared to $5,312,000 (29.2% of sales) in 1994. These
expenses reflect an increase in product promotion offset by expense
reductions in the Controls Division during the second half of fiscal 1995.
Expenditures for research and development increased to $1,682,000 (8.0% of
sales) in 1995 from $1,309,000 (7.2% of sales) in 1994 due to the Company's
increased investment in product development and fewer customer funded
engineering projects. General and administrative expense increased from
$664,000 (3.7% of sales) in 1994 to $759,000 (3.6% of sales) in 1995 due to
the cost of the implementation phase of process improvement programs.
Interest income was $49,000 in 1995 and $64,000 in 1994. Interest income in
fiscal 1995 decreased due to lower investment balances.
The effective tax rate for 1995 was 34%, compared to 31% in 1994. The
comparison of the two years is illustrated in Note 3 in the Notes to
Consolidated Financial Statements.
CONSOLIDATED OPERATIONS
1994-1993 COMPARISON
Sales for fiscal 1994 were $18,163,000, an increase of 16.3% from 1993. The
increased sales were principally due to continued successful new product
introductions and penetrating key customer accounts. Sales of new products
introduced in the last three years accounted for 48% of sales.
The gross profit margin on sales was 43.8% compared to 44.8% in 1993. The
decrease in the gross profit margin was due to initial production costs
related to new products and cost overruns on custom system jobs, offset by
favorable product mix.
Total operating expenses were $7,286,000 in 1994 compared to $6,456,000 in
1993. On a percentage basis, these expenses represented 40.1% of 1994
sales, down from 41.4% in 1993. Selling expenses were $5,312,000 (29.2% of
sales) in 1994 compared to $4,549,000 (29.1% of sales) in 1993. These
expenses reflect both an increase in product promotion and control of
administrative selling expenses. Expenditures for research and development
increased to $1,309,000 (7.2% of sales) in 1994 from $1,240,000 (7.9% of
sales) in 1993. These expenditure levels reflect the Company's aggressive
approach to product development. General and administrative expense
decreased from $667,000 (4.3% of sales) in 1993 to $664,000 (3.7% of sales)
in 1994 due principally to controlling expenses.
Interest income was $64,000 in 1994 and $87,000 in 1993. Interest income in
fiscal 1994 decreased due to lower interest rates and lower cash and
investment balances.
The effective tax rate for 1994 was 31% compared to 35% in 1993. The
comparison of the two years is illustrated in Note 3 in the Notes to
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $5,195,000 at the end of 1995 as compared
to $4,952,000 in 1994. The Company's current ratio at September 30, 1995
and 1994 was 2.5 to 1. The working capital increased due to the Company's
profitable operating results. For further information regarding the current
year items impacting cash flows, see the Company's Consolidated Statements
of Cash Flows.
The Company has an unsecured bank line of credit of $3,000,000. The Company
did not borrow against the line or have any long-term debt in 1995 or 1994.
INFLATION
In the past three years, inflation has not had a significant effect on
operations.
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board (FASB) has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which is effective for fiscal years beginning
after December 15, 1995. The Company believes adoption of the new standard
will not have a material effect on the Company's consolidated financial
position or results of operations.
In addition, the FASB has issued SFAS No. 123, "Accounting for Stock-Based
Compensation" (Statement No. 123) which is effective for fiscal years
beginning after December 15, 1995. Statement No. 123 encourages, but does
not require, a fair value based method of accounting for employee stock
options or similar equity instruments. The Company believes the effect of
the adoption of the new standard will have no impact on the Company's
consolidated results of operations or financial position because the
Company intends to continue to measure compensation cost under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
and present pro forma disclosures of net income and net income per share as
if the fair value based method of accounting had been applied.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements, together with the report
of the Company's independent auditors, Arthur Andersen LLP, are included in
Item 14.
Item 9. Changes in and Disagreements with Accountants and Accounting and
Financial Disclosures
None.
PART III
Items 10., Pursuant to General Instruction G (3), the information required by
11., 12., Item 10 - Directors and Executive Officers of the Company,
and 13. Item 11 - Executive Compensation,
Item 12 - Security Ownership of Certain Beneficial Owners and
Management, and
Item 13 - Certain Relationships and Related Transactions, except that
portion of Item 10 relating to executive officers of the Company,
which is set forth in Part I of this report, is hereby incorporated
by reference from the Company's definitive Proxy Statement, dated
December 12, 1995 which was filed with the Commission.
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
<TABLE>
<CAPTION>
Page #
<S> <C>
(a) (1) Financial Statements: The following consolidated financial
statements of Research, Incorporated and the Report of the
Independent Public Accountants thereon, are filed as part of
this Form 10-K.
(i) Report of Independent Public Accountants 13
(ii) Consolidated Balance Sheets as of September 30, 1995 and
1994 14
(iii) Consolidated Statements of Operations and Consolidated
Statements of Stockholders' Equity for the years ended
September 30, 1995, 1994, and 1993 15, 16
(iv) Consolidated Statements of Cash Flows for the years ended
September 30, 1995, 1994, and 1993 17
(v) Notes to Consolidated Financial Statements 18-22
(2) Financial Statement Schedule
The following financial statement schedule is filed with this
report:
(i) Schedule II -Valuation and qualifying accounts 23
All schedules except those listed above are omitted because they
are not applicable or not required, or because the required
information is included in the financial statements or note
thereto.
(3) Exhibits Page #
(3.1) Articles of Incorporation - Incorporated by reference to
Exhibit (3.1) of the Company's Form 10-K for the period
ended September 30,1994.
(3.2) Bylaws - Incorporated by reference to Exhibit (3.2) of
the Company's Form 10-K for the period ended September
30,1994
(4.1) Line of Credit Agreement between Norwest Bank Minnesota
N.A. and the Company dated October 26, 1995 24, 25
(10.1) 1981 Employee Incentive Stock Option Plan - Incorporated
by reference to registration statement on Form S-8, file
No. 2-75497 (filed May 27, 1988)
(10.2) 1991 Stock Plan - Incorporated by reference to
registration statement on Form S-8, file No. 33-75256
(filed February 14, 1994)
(10.4) Amendment to Employment Agreement between the Company
and Claude C. Johnson, made as of April 22, 1988 -
Incorporated by reference to Exhibit (10.4) of the
Company's Form 10-K for the period ended September
30,1994
(10.5) Amendment to Employment Agreement between the Company
and Gordon W. Sangster, made as of April 22, 1988 -
Incorporated by reference to Exhibit (10.5) of the
company's Form 10-K for the period ended September
30,1994
(21.1) Subsidiaries of the Company 26
(23.1) Consent of Arthur Andersen LLP 27
(27.0) Financial Data Schedule 28
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Company during the fourth
quarter of its fiscal year ended September 30, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RESEARCH, INCORPORATED
By /s/ Claude C. Johnson
Claude C. Johnson *,
President, CEO, CFO, and Director
Date: December 12, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated:
Signature Title Date
/s/ A. E. Abramson Director December 12, 1995
Andrew E. Abramson
/s/ J. R. Anderson Director December 12, 1995
James R. Anderson
/s/ K. G. Anderson Director December 12, 1995
Kenneth G. Anderson
/s/ G. E. Magnuson Director December 12, 1995
Gerald E. Magnuson
/s/ C. G. Schiefelbein Director December 12, 1995
Charles G. Schiefelbein
* Principal executive officer and financial officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Research, Incorporated:
We have audited the accompanying consolidated balance sheets of RESEARCH,
INCORPORATED (a Minnesota corporation) and subsidiary as of September 30, 1995
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Research, Incorporated and
subsidiary as of September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed as a part of Item 14 in this
Form 10-K is presented for purposes of complying with the Securities and
Exchange Commissions rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly state
in all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
October 27, 1995
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of September 30
ASSETS 1995 1994
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,307,564 $ 614,351
Short-term investments -- 701,679
Accounts receivable, net of reserves of $150,000 4,147,907 3,997,416
Inventories 2,722,446 2,597,232
Prepayments, primarily deferred income taxes 415,109 311,010
Total current assets 8,593,026 8,221,688
PROPERTY AND EQUIPMENT, at cost:
Land and land improvements 212,852 212,852
Building 1,972,234 1,698,970
Machinery and equipment 3,841,923 4,074,488
Less accumulated depreciation (4,151,031) (4,291,629)
Net property and equipment 1,875,978 1,694,681
OTHER ASSETS 124,068 163,507
Total assets $ 10,593,072 $ 10,079,876
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,417,719 $ 1,450,188
Accrued liabilities:
Salaries and benefits 505,436 586,466
Profit sharing contribution 268,000 188,000
Warranty reserve 150,000 150,000
Real estate taxes 215,000 215,000
Other 215,073 268,782
Federal and state income taxes 627,055 459,608
Total current liabilities 3,398,283 3,318,044
STOCKHOLDERS' EQUITY:
Common stock, $.50 par value, 5,000,000
shares authorized, 1,139,618 and
1,125,118 shares issued and outstanding
at September 30, 1995, and 1994, respectively 569,809 562,559
Additional paid-in capital 197,315 145,440
Foreign currency translation 8,953 13,656
Retained earnings 6,418,712 6,040,177
Total stockholders' equity 7,194,789 6,761,832
Total liabilities and stockholders' equity $ 10,593,072 $ 10,079,876
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated balance sheets.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended September 30 1995 1994 1993
<S> <C> <C> <C>
Net Sales $20,922,505 $18,163,119 $15,613,210
Cost of Sales 11,904,004 10,216,097 8,623,900
Gross profit 9,018,501 7,947,022 6,989,310
Expenses:
Selling 5,674,288 5,312,486 4,548,648
Research and development 1,681,779 1,309,146 1,239,998
General and administrative 759,385 663,872 667,450
Total expenses 8,115,452 7,285,504 6,456,096
Income From Operations 903,049 661,518 533,214
Interest Income 49,060 63,741 86,755
Income Before Income Tax Provision 952,109 725,259 619,969
Income Tax Provision 325,000 228,000 217,000
Net Income $ 627,109 $ 497,259 $ 402,969
Net Income Per Common Share $ .56 $ .44 $ .36
Weighted Average Common Shares Outstanding 1,128,848 1,125,118 1,124,743
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Foreign
Common Stock Paid-In Currency Retained
Shares Amount Capital Translation Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balances,
September 30, 1992 1,124,118 $562,059 $141,939 $ -- $ 5,634,955 $ 6,338,953
Options exercised 1,000 500 3,501 -- -- 4,001
Net income -- -- -- -- 402,969 402,969
Dividends -- -- -- -- (247,475) (247,475)
Balances,
September 30, 1993 1,125,118 562,559 145,440 -- 5,790,449 6,498,448
Foreign currency
translation -- -- -- 13,656 -- 13,656
Net income -- -- -- -- 497,259 497,259
Dividends -- -- -- -- (247,531) (247,531)
Balances,
September 30, 1994 1,125,118 562,559 145,440 13,656 6,040,177 6,761,832
Options exercised 14,500 7,250 51,875 -- -- 59,125
Foreign currency
translation -- -- -- (4,703) -- (4,703)
Net income -- -- -- -- 627,109 627,109
Dividends -- -- -- -- (248,574) (248,574)
Balances,
September 30, 1995 1,139,618 $569,809 $197,315 $ 8,953 $ 6,418,712 $ 7,194,789
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended September 30 1995 1994 1993
<S> <C> <C> <C>
Operating Activities:
Net income $ 627,109 $ 497,259 $ 402,969
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 433,376 386,761 347,779
Deferred income taxes (12,196) 57,732 (47,630)
Changes in current operating elements:
Accounts receivable, net (150,491) (1,734,319) (1,019,245)
Inventories (125,214) (936,955) (57,777)
Prepayments, primarily deferred income taxes (104,099) (37,759) 32,736
Accounts payable and accrued liabilities (87,208) 613,115 452,563
Federal and state income taxes 179,643 23,154 46,002
Net cash provided by (used in) operating activities 760,920 (1,131,012) 157,397
Investing Activities:
Purchases of short-term investments -- (700,000) (1,839,225)
Maturities of short-term investments 701,679 2,079,065 258,962
Property and equipment additions, net (569,908) (477,379) (578,028)
Discontinued operation -- -- 369,741
Purchase of net assets of business acquired -- (165,000) --
Other (5,326) (32,938) --
Net cash provided by (used in) investing activities 126,445 703,748 (1,788,550)
Financing Activities:
Cash dividends paid (248,574) (247,531) (247,475)
Issuance of common stock 59,125 -- 4,001
Net cash used in financing activities (189,449) (247,531) (243,474)
Foreign Currency Translation (4,703) 13,656 --
Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents 693,213 (661,139) (1,874,627)
Beginning of year 614,351 1,275,490 3,150,117
End of year $ 1,307,564 $ 614,351 $ 1,275,490
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The Company's significant
accounting policies not elsewhere set forth in the accompanying consolidated
financial statements are as follows:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
Research, Incorporated and its wholly owned subsidiary (the Company). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
FOREIGN CURRENCY TRANSLATION - The assets and liabilities of the Company's
subsidiary are translated into U.S. dollars using current exchange rates at the
end of the period. Statements of operations items are translated at average
exchange rates prevailing during the period.
CASH & CASH EQUIVALENTS - Cash equivalents represent money market investments
that have an original maturity of three months or less. Cash and cash
equivalents are recorded at cost, which approximates fair value.
ACCOUNTS RECEIVABLE - Accounts receivable consisted of the following components
as of September 30:
1995 1994
Trade receivable, net $3,449,375 $3,466,971
Costs in excess of billings
on percentage-of-completion
contracts 698,532 530,445
Total $4,147,907 $3,997,416
INVENTORIES - Inventories are stated at the lower of first-in, first-out, cost
or market and include direct labor costs, materials and overhead. Inventories
consisted of the following components as of September 30:
1995 1994
Manufactured subassemblies
and purchased parts $2,104,382 $1,881,080
Work in process 618,064 716,152
Total $2,722,446 $2,597,232
DEPRECIATION - Depreciation of property and equipment is computed principally
using accelerated methods for both financial and income tax reporting purposes.
Depreciation is charged to operations over the estimated useful lives of the
property and equipment as follows:
Years
Land improvements 20
Building 33
Machinery and equipment 5 to 10
REVENUE RECOGNITION - Sales and related cost of sales are recorded at the time
of shipment, except for system contracts which are recognized on a
percentage-of-completion basis. Revenues on such contracts are recognized as the
work progresses based on the estimated gross profit for each contract.
SIGNIFICANT CUSTOMER - The Company has one customer which accounted for 13% of
net sales during 1995.
WARRANTIES - The Company's products are generally under warranty against defects
in material and workmanship for a one-year period. Estimated warranty costs are
accrued in the same period as products are shipped.
INCOME TAXES - Deferred income tax assets or liabilities are recognized for the
differences between financial and income tax reporting bases of assets and
liabilities based on enacted tax rates and laws.
NET INCOME PER COMMON SHARE - Net income per common share is computed by
dividing net income by the weighted average number of common shares outstanding
during each period presented. Shares reserved for employee stock options are not
considered because the shares are not material to the weighted average common
shares outstanding.
RECLASSIFICATIONS - Certain reclassifications have been made in the 1994 and
1993 financial statements to conform with the 1995 presentation. These
reclassifications had no effect on net income or total stockholders' equity as
previously reported.
2
LINE OF CREDIT: For 1995, the Company had a $3,000,000 unsecured bank line of
credit which carried an interest rate equal to the bank's base (prime) rate with
no compensating balance requirements. Subsequent to September 30, 1995, the line
of credit has been renewed with similar terms. During 1995, 1994 and 1993, the
Company had no borrowings against the line of credit.
3
INCOME TAXES: The income tax provision consisted of the following:
1995 1994 1993
Current federal $315,000 $163,000 $122,000
Current state 27,000 15,000 12,000
Foreign 3,000 (4,000) --
Total 345,000 174,000 134,000
Deferred income taxes (20,000) 54,000 83,000
Income tax provision $325,000 $228,000 $217,000
A reconciliation of the statutory federal rate to the effective tax rate is as
follows:
1995 1994 1993
Statutory federal rate 34% 34% 34%
State taxes, net of
federal income tax
provision 2 1 2
Other, net (2) (4) (1)
Effective tax rate 34% 31% 35%
Income taxes paid
(received), net $212,000 $143,000 $(8,000)
The Company has recorded the following net current and noncurrent deferred
taxes:
As of September 30 1995 1994
Current deferred taxes:
Gross assets $203,000 $279,000
Gross liabilities (10,000) (13,000)
Total current deferred taxes 193,000 266,000
Noncurrent deferred taxes:
Gross assets 115,000 65,000
Gross liabilities (79,000) (114,000)
Total noncurrent
deferred taxes 36,000 (49,000)
Net deferred taxes $229,000 $217,000
The tax effect of significant temporary differences representing deferred tax
assets and liabilities is as follows:
As of September 30 1995 1994
Depreciation and amortization $(86,000) $(73,000)
Tax refunds 85,000 85,000
Inventory reserves 66,000 58,000
Accounts receivable reserves 51,000 51,000
Accruals and other, net 113,000 96,000
Net deferred taxes $229,000 $217,000
The Company did not record any valuation allowance against deferred tax assets
at September 30, 1995 or 1994.
4
STOCKHOLDERS' EQUITY: A total of 210,000 shares of common stock were reserved
for issuance to directors, officers and key employees on the exercise of options
granted pursuant to the 1991 Stock Option Plan. With the adoption of the 1991
Stock Option Plan, all options available for grant under the 1981 Stock Option
Plan were canceled. Information concerning the 1981 and 1991 Stock Option Plans
for 1995, 1994 and 1993 is as follows:
1995 1994 1993
Outstanding, beginning of year 119,500 135,000 100,000
Exercised (ranging from
$3.50 to $5.00) (14,500) - (1,000)
Granted (ranging from
$4.75 to $6.25) 23,500 8,500 41,500
Canceled or expired
(ranging from $3.50 to $8.75) (16,000) (24,000) (5,500)
Outstanding, end of year 112,500 119,500 135,000
Exercisable, end of year 57,250 53,125 47,375
Available for grant, end of year 99,000 113,500 20,000
The options under the above plans expire five years after the date of grant and
are exercisable at a rate of 25% per year on a cumulative basis, beginning one
year after the date of grant. At the end of fiscal 1995, the outstanding options
under the above plans had exercise prices ranging from $3.50 to $6.25.
5
PROFIT SHARING PLAN: The Company has a profit sharing retirement plan which
provides deferred compensation benefits for eligible employees. The annual
contribution to the plan is discretionary and is determined in accordance with
policies established by the Board of Directors. The Board of Directors
authorized contributions of $268,000, $188,000 and $105,000 for 1995, 1994 and
1993, respectively.
6
FOREIGN SALES: Export sales to customers in various foreign countries totaled
$6,762,000, $4,673,000, and $3,881,000 in 1995, 1994 and 1993, respectively.
7
ACQUISITION: In February 1994, the Company acquired the net assets of Unifab
Electronics, a manufacturer of the Quantum product line in the United Kingdom,
for $165,000. This transaction was accounted for by the purchase method of
accounting and, accordingly, the results of operations have been included in the
consolidated financial statements from the date of acquisition. In a related
event, the Company established a subsidiary in the United Kingdom, Research
Incorporation Limited.
8
DISCONTINUED OPERATION: On August 2, 1990, the Board of Directors approved a
plan to discontinue the Company's Teleray operation. The Company disposed of
this operation during 1993.
9
NEW ACCOUNTING PRONOUNCEMENTS: The Financial Accounting Standards Board (FASB)
has issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," which is effective for fiscal years
beginning after December 15, 1995. The Company believes the effect of adoption
of the new standard will not be material to the Company's consolidated financial
position or results of operations.
In addition, the FASB has issued SFAS No. 123, "Accounting for Stock-Based
Compensation" (Statement No. 123) which is effective for fiscal years beginning
after December 15, 1995. Statement No. 123 encourages, but does not require, a
fair value based method of accounting for employee stock options or similar
equity instruments. The Company believes the effect of the adoption of the new
standard will have no impact on the Company's consolidated results of operations
or financial position because the Company intends to continue to measure
compensation costs under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and present pro forma disclosures of net income
and net income per share as if the fair value based method of accounting had
been applied.
10
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED): Summarized quarterly financial data for 1995
and 1994 is as follows.
1995 Quarterly Results
1st 2nd 3rd 4th 1995
(In thousands, except net income per share) Quarter Quarter Quarter Quarter Total
<S> <C> <C> <C> <C> <C>
Consolidated Operations:
Net sales $ 4,993 $ 4,584 $ 5,380 $ 5,966 $ 20,923
Gross profit 2,289 2,007 2,404 2,319 9,019
Income before income taxes 214 38 348 352 952
Net Income $ 132 $ 24 $ 233 $ 238 $ 627
Earnings per Share:
Weighted average common shares outstanding 1,126 1,126 1,129 1,136 1,129
Net Income per Share $ .12 $ .02 $ .21 $ .21 $ .56
1994 Quarterly Results
1st 2nd 3rd 4th 1994
(In thousands, except net income per share) Quarter Quarter Quarter Quarter Total
Consolidated Operations:
Net sales $ 3,889 $ 3,899 $ 4,602 $ 5,773 $ 18,163
Gross profit 1,751 1,776 1,999 2,421 7,947
Income before income taxes 93 75 195 362 725
Net Income $ 58 $ 44 $ 133 $ 262 $ 497
Earnings per Share:
Weighted average common shares outstanding 1,125 1,125 1,125 1,125 1,125
Net Income per Share $ .05 $ .04 $ .12 $ .23 $ .44
</TABLE>
RESEARCH, INCORPORATED
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance, Balance,
Beginning End of
of Period Additions Deductions Period
Allowance for doubtful accounts (1):
<S> <C> <C> <C> <C>
Year ended September 30, 1993 $ 145,000 $ 8,182 $ (3,182) $ 150,000
Year ended September 30, 1994 150,000 172 (172) 150,000
Year ended September 30, 1995 150,000 10,305 (10,305) 150,000
Reserve for product warranties:
Year ended September 30, 1993 $ 148,000 $ 184,747 $ (182,747) $ 150,000
Year ended September 30, 1994 150,000 261,663 (261,663) 150,000
Year ended September 30, 1995 150,000 401,547 (401,547) 150,000
Reserve for inventory obsolescence:
Year ended September 30, 1993 $ 130,000 $ 332,000 $ (135,000) $ 327,000
Year ended September 30, 1994 327,000 90,000 (247,156) 169,844
Year ended September 30, 1995 169,844 146,737 (122,386) 194,195
</TABLE>
(1) Deductions represent amounts determined to be uncollectible and charged
against the reserve net of collections on accounts previously written off.
Exhibit 4.1
October 26, 1995
Mr. Claude Johnson, President
Research, Incorporated
6425 Flying Cloud Drive
Eden Prairie, MN 55344
Dear Claude:
We are pleased to advise you that Norwest Bank Minnesota, National Association
(the "Bank") has approved an unsecured, revolving, Conditional Credit Line (the
"Line") for Research, Incorporated (the "Borrower") in an amount not to exceed
$3,000,000.00, including any outstanding letters of credit. You may prepay and
re-borrow as long as no borrowing causes that dollar limit to be exceeded.
The Line is subject to the terms and conditions outlined below:
- Credit Advances. Loans will be at the Bank's sole discretion, and
nothing herein should be interpreted as an obligation to make any one
or more loans.
- The Note. Your obligation to repay all loans made by us under the Line
will be evidenced by a single promissory note (the "Note") due on
demand.
- Interest Rate. The Note will bear interest (computed on the basis of
actual days elapsed and a 360-day year) on the principal balance
outstanding. Interest will accrue from the date of the initial advance
until the Note is paid in full at a floating rate equal to the Bank's
Base Rate. The rate of interest shall be adjusted with each change in
the Base Rate.
- Compensating Balances. The Borrower is not required to maintain a
compensating balance.
- Adverse Conditions. The Line may be terminated at any time by the Bank
by written notice to the Borrower, and shall terminate automatically,
without notice, if materially adverse conditions develop at any time,
whether before or after acceptance of this letter. If the Line is
terminated, each and every note evidencing loans, if any, made under
the Line will be immediately due and payable.
- Default. The Note contains events of default and remedies available to
the Bank, all of which are incorporated herein by reference.
Additionally, the breach of any covenant or warranty contained in this
letter agreement, shall also constitute an event of default hereunder.
Upon the occurrence of any one or more events of default, the Bank may
(i) terminate the Line, (ii) accelerate the indebtedness evidenced by
the Note, and (iii) exercise any other rights or remedies available to
it at law, in equity or by agreement.
The following outlines the mutual understanding of agreement between the Bank
and the Borrower:
1. So long as the Line is in effect or any indebtedness remains outstanding
under the Note, the Borrower will:
- Maintain all depository accounts at the Bank;
- Maintain a tangible net worth of not less than $5,800,000 at each
quarter-end and at the Borrower's fiscal year-end;
- Maintain a debt-to-tangible-net-worth ratio of no greater than 1.0:1
at each quarter-end and at the Borrower's fiscal year-end;
- Achieve positive net earnings annually on an ongoing basis;
- Maintain a current ratio of not less than 1.5:1 at each quarter-end
and at the Borrower's fiscal year-end.
2. So long as the Line is in effect or any indebtedness remains outstanding
under the Note, and without the written consent of the Bank, the Borrower
will not:
- Consolidate with, or merge into, any other corporation, or permit any
other corporation to merge into it; nor will it convey, lease, or sell
all or a material portion of is assets business, except in the
ordinary course of business; nor will it lease, purchase, or acquire
all or a material portion of the assets or business of any other
corporation or entity.
3. So long as the line is in effect or any indebtedness remains outstanding
under the Note, the Borrower will provide financial information to the Bank
as described below:
- Annual audited financial statement and 10K report within 90 days of
the Borrower's fiscal year end;
- Quarterly 10Q reports within 45 days of each quarter's end;
- Projected balance sheet, income statement, and statement of cash flow
for the upcoming fiscal year within 90 days of the most recent year
end; and
- Periodic updates of business conditions.
If the foregoing is agreeable to you, please sign the attached copy of this
letter and return it to me. If you have any questions regarding the letter,
please call me at 667-2750. We appreciate your business. Thanks for banking with
Norwest.
Sincerely,
/s/ Laurie J. Schmelz
Laurie J. Schmelz
Vice President
Accepted this 26 day of October, 1995.
Research, Incorporated
By /s/ Claude C. Johnson
Its Claude C. Johnson
President
Exhibit 21.1
SUBSIDIARY OF THE COMPANY
Research Incorporation Limited is incorporated in the United Kingdom as a
Private Limited Company. Research International Inc. is incorporated in
Barbados, West Indies as a Foreign Sales Corporation.
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statement File No. 33-21699, File No. 33-45386,
and File No. 33-75256.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
December 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE 10-K FOR THE YEAR
ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,308
<SECURITIES> 0
<RECEIVABLES> 4,298
<ALLOWANCES> 150
<INVENTORY> 2,722
<CURRENT-ASSETS> 8,593
<PP&E> 6,027
<DEPRECIATION> 4,151
<TOTAL-ASSETS> 10,593
<CURRENT-LIABILITIES> 3,398
<BONDS> 0
0
0
<COMMON> 570
<OTHER-SE> 6,625
<TOTAL-LIABILITY-AND-EQUITY> 10,593
<SALES> 20,923
<TOTAL-REVENUES> 20,923
<CGS> 11,904
<TOTAL-COSTS> 11,904
<OTHER-EXPENSES> 8,066
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 952
<INCOME-TAX> 325
<INCOME-CONTINUING> 627
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 627
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
