SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 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 (IRS 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 August 9, 1996, 1,161,243 common shares were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESEARCH, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
----------------------- ------------------------
1996 1995 1996 1995
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net Sales $5,792,896 $5,379,813 $15,431,089 $14,956,015
Cost of Sales 3,499,273 2,976,264 9,204,187 8,256,353
---------- ---------- ----------- -----------
Gross profit 2,293,623 2,403,549 6,226,902 6,699,662
---------- ---------- ----------- -----------
Expenses:
Selling 1,530,553 1,434,181 4,140,848 4,306,570
Research and development 396,654 443,862 1,246,702 1,261,578
General and administrative 165,143 177,829 534,128 531,783
---------- ---------- ----------- -----------
Total expenses 2,092,350 2,055,872 5,921,678 6,099,931
---------- ---------- ----------- -----------
Income before Taxes 201,273 347,677 305,224 599,731
Provision for Income Taxes 80,246 114,557 118,531 210,539
---------- ---------- ----------- -----------
Net Income $ 121,027 $ 233,120 $ 186,693 $ 389,192
========== ========== =========== ===========
Earnings Per Share $ 0.10 $ 0.21 $ 0.16 $ 0.35
---------- ---------- ----------- -----------
Weighted Average Shares Outstanding 1,196,936 1,128,674 1,198,934 1,126,675
Dividends Paid Per Share $ 0.07 $ 0.055 $ 0.195 $ 0.165
---------- ---------- ---------- -----------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
RESEARCH, INCORPORATED
Consolidated Balance Sheets
(Unaudited)
June 30 September 30
Assets 1996 1995
------------ ------------
Current Assets:
Cash and cash equivalents $ 579,985 $ 1,307,564
Accounts receivable, net 3,275,804 4,147,907
Inventories 3,453,211 2,722,446
Other current assets 480,479 415,109
------------ ------------
Total current assets 7,789,479 8,593,026
------------ ------------
Property and Equipment:
Land and land improvements 212,852 212,852
Building 2,036,206 1,972,234
Machinery and equipment 4,082,422 3,841,923
Less-accumulated depreciation (4,195,301) (4,151,031)
------------ ------------
Net property and equipment 2,136,179 1,875,978
------------ ------------
Other Assets 93,045 124,068
------------ ------------
Total assets $ 10,018,703 $ 10,593,072
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,557,891 $ 1,417,719
Accrued liabilities -
Salaries and benefits 183,677 505,436
Profit sharing contribution 135,000 268,000
Warranty reserve 150,000 150,000
Real estate taxes 183,548 215,000
Other 171,553 215,073
Federal and state income taxes 388,240 627,055
------------ ------------
Total current liabilities 2,769,909 3,398,283
------------ ------------
Stockholders' Equity:
Common stock, $.50 par value, 5,000,000
shares authorized, 1,161,243 and 1,139,618
shares issued and outstanding at
June 30, 1996 and September 30, 1995 580,622 569,809
Additional paid-in capital 275,470 197,315
Foreign currency translation 13,006 8,953
Retained earnings 6,379,696 6,418,712
------------ ------------
Total stockholders' equity 7,248,794 7,194,789
------------ ------------
Total liabilities and stockholders' equity $ 10,018,703 $ 10,593,072
============ ============
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated balance sheets.
RESEARCH, INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1996 1995
----------- ---------
<S> <C> <C>
Operating Activities:
Net income $ 186,693 $ 389,192
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 345,471 325,838
Changes in current operating items:
Accounts receivable 872,103 293,787
Inventories (730,765) (316,807)
Other current assets (65,370) (57,089)
Accounts payable and accrued liabilities (389,559) (468,690)
Federal and state income taxes (238,815) 27,225
----------- -----------
Net cash provided by (used in) operating activities (20,242) 193,456
----------- -----------
Investing Activities:
Maturity of marketable securities -- 701,679
Property and equipment additions, net (578,630) (531,437)
Other 8,034 (2,933)
----------- -----------
Net cash provided by (used in) investing activities (570,596) 167,309
----------- -----------
Financing Activities:
Cash dividends paid (225,709) (185,757)
Issuance of common stock 88,968 16,500
----------- -----------
Net cash used in financing activities (136,741) (169,257)
----------- -----------
Net increase (decrease) in cash and cash equivalents (727,579) 191,508
Cash and cash equivalents, at beginning of year 1,307,564 614,351
----------- -----------
Cash and cash equivalents, at end of period $ 579,985 $ 805,859
=========== ===========
</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 June 30, 1996, the consolidated statements
of operations for the three and nine month periods ended June 30, 1996 and 1995
and the consolidated statements of cash flows for the nine months ended June 30,
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 June 30, 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 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 June 30, 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:
June 30 September 30
1996 1995
----------- -----------
Raw materials and
purchased parts $ 2,439,447 $ 2,104,382
Work in process and
finished goods 1,013,764 618,064
----------- -----------
Total $ 3,453,211 $ 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 21,625 shares during the nine months ended June 30,
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
nine months ended June 30, 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 112,750 shares under the 1991
Plan were outstanding at June 30, 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 $5,019,570 at June 30, 1996, relatively
unchanged from $5,194,743 at September 30, 1995. The current ratio at June 30,
1996 was 2.8 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 nine months ended June 30,
1996. The Company has no long-term debt.
On June 27, 1996, the Company entered into a binding purchase agreement for the
sale of 12.5 acres of undeveloped land adjacent to its 12 acre corporate site.
Management anticipates that the transaction will result in a gain to the Company
with estimated gross cash proceeds of $1,350,000 and will close by the middle of
October if all of the conditions to the purchase agreement are met.
Operations
Sales for the third quarter of fiscal 1996 (the quarter ended June 30, 1996)
were $5,792,896. This was 7.7% higher than sales of $5,379,813 reported for the
same period of the preceding year. Although sales were down 27% in the Surface
Mount Technology (SMT) market, sales were up 35% in our other markets from the
same quarter one year ago. Sales for the first nine months of fiscal 1996 were
$15,431,089 compared to $14,956,015 for the nine months of last year.
Gross profit on sales for the quarter ended June 30, 1996 was 39.6% compared to
44.7% for the same quarter last year and 40.4% compared to 44.8% for the nine
month periods ended June 30, 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 26.4% and 26.7% of sales for the quarters ended June 30,
1996 and 1995, respectively and 26.8% and 28.8% of sales for the nine months
ended June 30, 1996 and 1995, respectively. The reduction in selling expenses
for the nine month periods is the result of the Company's efforts in March 1995
to reduce its annual operating expenses in our Controls Division.
Expenditures for research and development decreased to 6.8% of sales for the
quarter ended June 30, 1996 from 8.3% of sales for the quarter ended June 30,
1995. Research and development expenses were 8.1% and 8.4% of sales for the nine
month periods ended June 30, 1996 and 1995, respectively. Research and
development expenses were relatively unchanged for the nine month periods ended
June 30, 1996 and 1995, however, the impact of volume resulted in a decrease of
.3%.
General and administrative expenses were 2.9% and 3.3% of sales for the quarters
ended June 30, 1996 and 1995, respectively and 3.5% and 3.6% of sales for the
nine months ended June 30, 1996 and 1995, respectively.
As a result of the above, there was a consolidated net profit before income
taxes of $201,273 for the third quarter of fiscal 1996 as compared to $347,677
for the same quarter last year. The net profit for the first nine months of
fiscal 1996 was $305,224 as compared to $599,731 for the same period last year.
We anticipate softness in the SMT market for the balance of the fiscal year. As
a result of this and our low June 30, 1996 backlog of $2,295,357, down from
$4,661,297 at this time last year, fiscal 1996 will not be a year of sales
growth or improved profitability. However, during the second half of 1996 a
number of new products are being introduced which we expect will enhance future
growth prospects.
Other Events
Andrew (Ed) E. Abramson, co-founder and retired Chairman of the Board, passed
away in June. Until his death, Ed served as a member of the Board of Directors.
Kenneth G. Anderson, also a co-founder, has announced his intention of not
seeking re-election to the Board of Directors at the next Annual Meeting in
January of 1997. Ken will actively continue as a director until the Annual
Meeting.
Forward-Looking Information
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. Some of the
factors that could affect results are the effectiveness of new product
introductions, the product mix of our sales and the amount of sales generated in
the SMT market.
Part II - Other Information
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
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