SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996 or
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-2387
RESEARCH, INCORPORATED
(Exact name of registrant as specified in its charter)
Minnesota 41-0908058
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 24064, Minneapolis, Minnesota 55424
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (612) 941-3300
Former name, former address, and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
As of May 8, 1996, 1,160,993 common shares were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
RESEARCH, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
March 31 March 31
---------- ---------- ---------- ----------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $5,257,644 $4,583,615 $9,638,193 $9,576,202
Cost of Sales 3,128,482 2,576,245 5,704,914 5,280,089
---------- ---------- ---------- ----------
Gross profit 2,129,162 2,007,370 3,933,279 4,296,113
---------- ---------- ---------- ----------
Expenses:
Selling 1,431,390 1,389,342 2,610,295 2,872,389
Research and development 458,975 416,663 850,048 817,716
General and administrative 182,063 163,221 368,985 353,954
---------- ---------- ---------- ----------
Total expenses 2,072,428 1,969,226 3,829,328 4,044,059
---------- ---------- ---------- ----------
Income before Taxes 56,734 38,144 103,951 252,054
Provision for Income Taxes 18,367 13,713 38,285 95,982
---------- ---------- ---------- ----------
Net Income $ 38,367 $ 24,431 $ 65,666 $ 156,072
========== ========== ========== ==========
Earnings Per Share $ 0.03 $ 0.02 $ 0.06 $ 0.14
---------- ---------- ---------- ----------
Weighted Average Shares Outstanding 1,197,261 1,126,151 1,184,018 1,125,818
Dividends Paid Per Share $ 0.07 $ 0.055 $ 0.125 $ 0.11
---------- ---------- ---------- ----------
</TABLE>
Theaccompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
<TABLE>
<CAPTION>
RESEARCH, INCORPORATED
Consolidated Balance Sheets
(Unaudited)
March 31 September 30
Assets 1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 341,394 $ 1,307,564
Accounts receivable, net of reserves of $150,000 2,995,952 4,147,907
Inventories 3,738,531 2,722,446
Other current assets 451,337 415,109
------------ ------------
Total current assets 7,527,214 8,593,026
------------ ------------
Property and Equipment
Land and land improvements 212,852 212,852
Building 1,988,895 1,972,234
Machinery and equipment 4,073,289 3,841,923
Less-accumulated depreciation (4,252,571) (4,151,031)
------------ ------------
Net property and equipment 2,022,465 1,875,978
------------ ------------
Other Assets 101,122 124,068
------------ ------------
Total assets $ 9,650,801 $ 10,593,072
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,208,144 $ 1,417,719
Accrued liabilities -
Salaries and benefits 321,704 505,436
Profit sharing contribution 78,186 268,000
Warranty reserve 150,000 150,000
Real estate taxes 221,387 215,000
Other 162,995 215,073
Federal and state income taxes 308,338 627,055
------------ ------------
Total current liabilities 2,450,754 3,398,283
------------ ------------
Stockholders' Equity
Common stock, $.50 par value, 5,000,000 shares
authorized, 1,159,868 and 1,139,618
shares issued and outstanding at
March 31, 1996 and September 30, 1995 579,934 569,809
Additional paid-in capital 269,314 197,315
Foreign currency translation 10,860 8,953
Retained earnings 6,339,939 6,418,712
------------ ------------
Total stockholders' equity 7,200,047 7,194,789
------------ ------------
Total liabilities and stockholders' equity $ 9,650,801 $ 10,593,072
============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated balance sheets.
<TABLE>
<CAPTION>
RESEARCH, INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended March 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Operating Activities:
Net income $ 65,666 $ 156,072
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 222,563 229,101
Changes in current operating items:
Accounts receivable 1,151,955 1,612,063
Inventories (1,016,085) (348,948)
Other current assets (36,228) (68,068)
Accounts payable and accrued liabilities (628,812) (884,637)
Federal and state income taxes (318,717) (45,569)
----------- -----------
Net cash provided by (used in) operating activities (559,658) 650,014
----------- -----------
Investing Activities:
Maturity of marketable securities -- 701,679
Property and equipment additions, net (352,910) (357,140)
Other 8,713 (1,679)
----------- -----------
Net cash provided by (used in) investing activities (344,197) 342,860
----------- -----------
Financing Activities:
Cash dividends paid (144,439) (123,874)
Issuance of common stock 82,124 7,000
----------- -----------
Net cash used in financing activities (62,315) (116,874)
----------- -----------
Net increase (decrease) in cash and cash equivalents (966,170) 876,000
Cash and cash equivalents, at beginning of year 1,307,564 614,351
----------- -----------
Cash and cash equivalents, at end of period $ 341,394 $ 1,490,351
=========== ===========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
RESEARCH, INCORPORATED
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:
Consolidated Financial Statements -
The consolidated balance sheet as of March 31, 1996, the consolidated statements
of operations for the three and six month periods ended March 31, 1996 and 1995
and the consolidated statements of cash flows for the six months ended March 31,
1996 and 1995 have been prepared by the Company, without audit. In the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
changes in cash flows at March 31, 1996 and for all periods presented have been
made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's September 30,
1995 Form 10-K. The results of operations for the period ended March 31, 1996
are not necessarily indicative of the operating results for the full fiscal
year.
Inventories -
Inventories are stated at the lower of first-in, first-out cost or market and
include direct labor, material and overhead costs. Inventories consist of the
following components at:
March 31 September 30
1996 1995
----------- -----------
Raw materials and
purchased parts $ 2,569,576 $ 2,104,382
Work in process and
finished goods 1,168,955 618,064
----------- -----------
Total $ 3,738,531 $ 2,722,446
=========== ===========
Earnings per Share -
Earnings per share are based on the weighted average number of common and, where
dilutive, common equivalent shares outstanding. The number of common shares
outstanding increased by 7,500 shares during the second quarter of fiscal 1996
due to the exercise of employee stock options.
2. Line of Credit:
The Company has a $3,000,000 unsecured bank line of credit which carries an
interest rate equal to the bank's base (prime) rate with no compensating balance
requirements. The Company had no borrowing against the line of credit during the
six months ended March 31, 1996.
3. Stockholders' Equity:
Employee Stock Options -
During fiscal 1992, the Company adopted the 1991 Stock Plan (1991 Plan). The
1991 Plan has 210,000 shares of the Company's common stock reserved for issuance
pursuant to the exercise of options. Options for 115,875 shares under the 1991
Plan were outstanding at March 31, 1996 at prices ranging from $3.50 to $7.75
per share.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Sources of Capital
The Company's working capital was $5,076,460 at March 31, 1996, relatively
unchanged from $5,194,743 at September 30, 1995. The current ratio at March 31,
1996 was 3.1 to 1 compared to 2.5 to 1 at September 30, 1995.
The Company has an unsecured bank line of credit for $3,000,000. There were no
borrowings against the line of credit during the six months ended March 31,
1996. The Company has no long-term debt.
Operations
Sales for the second quarter of fiscal 1996 (the quarter ended March 31, 1996)
were $5,257,644. This was 14.7% higher than sales of $4,583,615 reported for the
same period of the preceding year. Sales for the first six months of fiscal 1996
were $9,638,193 compared to $9,576,202 for the first half of last year.
Gross profit on sales for the quarter ended March 31, 1996 was 40.5% compared to
44.9% for the same quarter last year and 40.8% compared to 44.9% for the six
month period ended March 31, 1996 and 1995, respectively. The decrease in gross
profit percentage for fiscal 1996 was primarily due to product mix and the
impact of new product introduction costs.
Selling expenses were 27.2% and 30.3% of sales in the quarters ended March 31,
1996 and 1995, respectively and 27.1% and 30.0% of sales for the six months
ended March 31, 1996 and 1995, respectively. The reduction in selling expenses
is the result of the Company's efforts in March of 1995 to reduce it's annual
operating expenses in our Controls Division.
Expenditures for research and development decreased to 8.7% of sales for the
quarter ended March 31, 1996 from 9.1% of sales for the quarter ended March 31
1995. Research and development expenses were 8.8% and 8.5% of sales for the six
month periods ended March 31, 1996 and 1995 respectively.
General and administrative expenses were 3.5% and 3.6% of sales for the quarters
ended March 31, 1996 and 1995, respectively and 3.8% and 3.7% of sales for the
six months ended March 31, 1996 and 1995, respectively.
As a result of the above, there was a consolidated net profit before income
taxes of $56,734 for the second quarter of fiscal 1996 as compared to $38,144
for the same quarter last year. The net profit for the first six months of
fiscal 1996 was $103,951 as compared to $252,054 for the same period last year.
Other Events
In April, the Company took steps which it expects will reduce it's annual
operating expenses by $700,000 and which should favorably impact the second half
of 1996. This will bring expenses in line with our expected sales volume and
improve our earnings level for the second half over the results of the first six
months of 1996.
The Company announced that effective March 15th, it received ISO 9001
certification at it's Eden Prairie site.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of the shareholders of Research,
Incorporated was held on January 18, 1996. There were
1,151,868 shares of common stock entitled to vote at the
meeting and a total of 1,031,010 shares were represented at
the meeting.
(b) Six directors were elected at the meeting to serve for one
year or until their successors are elected and qualified.
Shares were voted as follows:
For Against
Andrew E. Abramson 1,027,716 3,294
James R. Anderson 1,021,116 9,894
Kenneth G. Anderson 1,028,016 2,994
Claude C. Johnson 1,028,016 2,994
Gerald E. Magnuson 1,013,116 17,894
Charles G. Schiefelbein 1,025,219 5,791
(c) A proposal was made to ratify and approve the appointment
of Arthur Andersen as the Company's independent auditors
for 1996. Shares were voted as follows:
For Against Abstain
---------------- ------- -------
1,022,039 2,570 6,401
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
[27] Financial Data Schedule
(b) Reports on Form 8-K
None filed during the quarter
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.
RESEARCH, INCORPORATED
(Registrant)
Date /s/ Claude C. Johnson
Claude C. Johnson
President,
Chief Executive Officer,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED IN THE 10-Q FOR THE QUARTER ENDED MARCH
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 341
<SECURITIES> 0
<RECEIVABLES> 3,146
<ALLOWANCES> 150
<INVENTORY> 3,739
<CURRENT-ASSETS> 7,527
<PP&E> 6,275
<DEPRECIATION> 4,253
<TOTAL-ASSETS> 9,651
<CURRENT-LIABILITIES> 2,451
<BONDS> 0
0
0
<COMMON> 580
<OTHER-SE> 6,620
<TOTAL-LIABILITY-AND-EQUITY> 9,651
<SALES> 9,638
<TOTAL-REVENUES> 9,638
<CGS> 5,705
<TOTAL-COSTS> 5,705
<OTHER-EXPENSES> 3,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 104
<INCOME-TAX> 38
<INCOME-CONTINUING> 66
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
