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, 1997 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, 1997, 1,205,943 common shares were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESEARCH, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 5,816,058 $ 5,257,644 $10,689,454 $ 9,638,193
Cost of Sales 3,136,415 3,128,482 5,947,190 5,704,914
----------- ----------- ----------- -----------
Gross profit 2,679,643 2,129,162 4,742,264 3,933,279
----------- ----------- ----------- -----------
Expenses:
Selling 1,510,595 1,431,390 2,930,588 2,610,295
Research and development 666,977 458,975 1,148,901 850,048
General and administrative 258,589 182,063 478,548 387,076
----------- ----------- ----------- -----------
Total expenses 2,436,161 2,072,428 4,558,037 3,847,419
----------- ----------- ----------- -----------
Income From Operations 243,482 56,734 184,227 85,860
Other Income 5,913 6,791 1,166,906 18,091
----------- ----------- ----------- -----------
Income before Taxes 249,395 63,525 1,351,133 103,951
Provision for Income Taxes 96,341 18,367 512,202 38,285
----------- ----------- ----------- -----------
Net Income $ 153,054 $ 45,158 $ 838,931 $ 65,666
=========== =========== =========== ===========
Earnings Per Share $ 0.13 $ 0.04 $ 0.70 $ 0.06
=========== =========== =========== ===========
Dividends Paid Per Share $ 0.07 $ 0.07 $ 0.14 $ 0.125
=========== =========== =========== ===========
Weighted Average Shares Outstanding (Note 1) 1,209,579 1,197,261 1,205,082 1,184,018
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated financial statements.
RESEARCH, INCORPORATED
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
March 31, September 30,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,774,343 $ 1,841,147
Accounts receivable, net 3,670,561 2,366,814
Inventories 4,058,679 3,474,488
Other current assets 458,936 471,310
------------ ------------
Total current assets 9,962,519 8,153,759
------------ ------------
Property and Equipment:
Land and land improvements 54,660 212,852
Building 2,073,024 2,073,024
Machinery and equipment 4,123,510 3,863,381
Less-accumulated depreciation (4,173,092) (4,048,814)
------------ ------------
Net property and equipment 2,078,102 2,100,443
Other Assets 72,227 84,214
------------ ------------
Total assets $ 12,112,848 $ 10,338,416
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,836,277 $ 1,277,805
Accrued liabilities:
Salaries and benefits 515,157 314,040
Profit sharing contribution 51,150 160,000
Warranty reserve 350,000 250,000
Real estate taxes 189,800 125,000
Other 455,681 463,650
Federal and state income taxes 802,322 472,467
------------ ------------
Total current liabilities 4,200,387 3,062,962
------------ ------------
Stockholders' Equity:
Common stock, $.50 par value, 5,000,000 shares
authorized, 1,203,943 and 1,161,243 shares issued
and outstanding at March 31, 1997 and September 30, 1996 601,972 580,622
Additional paid-in capital 419,070 275,470
Foreign currency translation 56,510 17,816
Retained earnings 6,834,909 6,401,546
------------ ------------
Total stockholders' equity 7,912,461 7,275,454
------------ ------------
Total liabilities and stockholders' equity $ 12,112,848 $ 10,338,416
============ ============
</TABLE>
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>
Six months ended March 31
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Operating Activities:
Net income $ 838,931 $ 65,666
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 255,475 222,563
Gain on sale of land (1,147,094) --
Changes in current operating items:
Accounts receivable (1,303,747) 1,151,955
Inventories (684,191) (1,016,085)
Other current assets 12,374 (36,228)
Accounts payable and accrued liabilities 525,121 (628,812)
Federal and state income taxes 329,855 (318,717)
----------- -----------
Net cash used in operating activities (1,173,276) (559,658)
----------- -----------
Investing Activities:
Proceeds from sale of land, net 1,529,543 --
Property and equipment additions, net (212,672) (352,910)
Other 30,219 8,713
----------- -----------
Net cash provided by (used in) investing activities 1,347,090 (344,197)
----------- -----------
Financing Activities:
Cash dividends paid (405,568) (144,439)
Issuance of common stock 164,950 82,124
----------- -----------
Net cash used in financing activities (240,618) (62,315)
----------- -----------
Cash and Cash Equivalents:
Net decrease in cash and cash equivalents (66,804) (966,170)
Cash and cash equivalents at beginning of year 1,841,147 1,307,564
----------- -----------
Cash and cash equivalents at end of period $ 1,774,343 $ 341,394
=========== ===========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated financial 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, 1997, the consolidated statements
of operations for the three and six month periods ended March 31, 1997 and 1996
and the consolidated statements of cash flows for the six months ended March 31,
1997 and 1996 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, 1997 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,
1996 Form 10-K. The results of operations for the period ended March 31, 1997
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,
1997 1996
---------- ----------
Manufactured
sub-assemblies and
purchased parts $2,876,659 $2,406,077
Work in process and
finished goods 1,182,020 1,068,411
---------- ----------
Total $4,058,679 $3,474,488
========== ==========
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 40,500 shares during the second quarter of fiscal 1997
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, 1997.
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 128,000 shares under the 1991
Plan were outstanding at March 31, 1997 at prices ranging from $3.50 to $7.75
per share.
4. New Accounting Pronouncement:
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128), which
changes the way companies calculate their earnings per share (EPS). SFAS 128
replaces primary EPS with basic EPS. Basic EPS is computed by dividing reported
earnings by weighted average shares outstanding, excluding potentially dilutive
securities. Fully diluted EPS, termed diluted EPS under SFAS 128, is also to be
disclosed. The Company is required to adopt SFAS 128 during 1998, at which time
all prior year EPS data is to be restated in accordance with SFAS 128. If the
Company had previously adopted the pronouncement, the effect of this accounting
change on reported earnings per share data would have been substantially
unchanged from what was reported.
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 $5,762,132 at March 31, 1997, compared to
$5,090,797 at September 30, 1996. The current ratio at March 31, 1997 was 2.4 to
1 compared to 2.7 to 1 at September 30, 1996. The increase in working capital
was due to proceeds received from the sale of land in October 1996.
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,
1997. The Company has no long-term debt.
Overview
In 1996, the Company shifted from a product-driven to a market-driven strategy,
to leverage its engineering expertise and to concentrate and invest resources on
customers and markets that offer the best potential return. The Company
identified four key markets in which it has the potential to be a dominant
player: SMT (Surface Mount Technology), Graphic Arts, Glass and Infrared. In
each area, the Company identified key customers and strategic partners with whom
it will work closely to meet their respective needs. The Company also identified
key geographic markets, particularly Asia, where it will make additional
investments to capitalize on the enormous growth potential. The Company believes
the SMT and Graphic Arts markets have the greatest potential for growth. In the
SMT market, the Company plans to gain market share by dedicating additional
resources to key customers that have ongoing needs for high quality products and
excellent customer service. In the Graphic Arts market, the Company plans to
increase its in-house sales staff and reduce its reliance on independent sales
representatives who work with a variety of products and industries. The Company
will retain relationships with representatives who are knowledgeable and focused
on this market.
Strategic partnerships and high levels of customer service will be key
components of the Company's market-driven strategy. While the breath of its
product line will probably decrease as it focuses efforts on selected markets,
the Company will invest in new product development at levels that will support
its goal of achieving 50% of sales from products developed in the last three
years.
The Company has implemented these changes and believes that this commitment of
additional resources will result in increased future sales and profitability.
Operations
Sales for the second quarter of fiscal 1997 (the quarter ended March 31, 1997)
were $5,816,058. This was 10.6% higher than sales of $5,257,644 reported for the
same period of the preceding year. Sales for the first six months of fiscal 1997
were $10,689,454 compared to $9,638,193 for the first half of last year. The
overall increase in sales is due to the Company's focus on key customers,
product acceptance and the electronic industry's increased market demand. Sales
in the SMT market increased 53% over the prior year. The sales increase in the
SMT market was partially offset by the loss of approximately $800,000 of sales
in the Dimension Product Line which was sold in September 1996. Management
believes there will continue to be quarter to quarter fluctuations in the SMT
market with the electronics industry overall projected to grow 20% per year.
Gross profit on sales for the quarter ended March 31, 1997 was 46.1% compared to
40.5% for the same quarter last year and 44.4% compared to 40.8% for the six
month period ended March 31, 1997 and 1996, respectively. The increase in gross
margin for the quarter ended March 31, 1997 was primarily due to increased sales
volume and the product mix of sales in the SMT products. The increase in gross
margin for the six months ended March 31, 1997 is due to sales of new products
in the Graphic Arts and SMT product lines. In addition, warranty costs are lower
for both the three and six months ended March 31, 1997.
Selling expenses were 26.0% and 27.2% of sales for the quarters ended March 31,
1997 and 1996, respectively and 27.4% and 27.1% of sales for the six months
ended March 31, 1997 and 1996, respectively. Selling expenses were lower than
the same quarter last year as a percentage of sales due to reduced reliance on
independent sales representatives in the Graphic Arts market. Selling expenses
for the six months ended March 31, 1997 compared to last year increased due to
additional resources added as a result of the market-driven strategy. This was
offset by the reduction in reliance on Graphic Arts independent sales
representatives.
Expenditures for research and development increased to 11.5% of sales for the
quarter ended March 31, 1997 from 8.7% of sales for the quarter ended March 31,
1996. Research and development expenses were 10.7% and 8.8% of sales for the six
month periods ended March 31, 1997 and 1996, respectively. These expenses
increased due to the Company's plan to invest in new product development in all
four of its chosen markets.
General and administrative expenses were 4.4% and 3.6% of sales for the quarters
ended March 31, 1997 and 1996, respectively and 4.5% and 4.0% of sales for the
six months ended March 31, 1997 and 1996, respectively. General and
administrative expenses increased due to costs associated with hiring and
training additional personnel to support business growth.
As a result of the above, there was a consolidated net profit before income
taxes of $249,395 for the second quarter of fiscal 1997 as compared to $56,734
for the same quarter last year. The net profit for the first six months of
fiscal 1997 was $1,351,133, which includes a one time gain on sale of land, as
compared to $103,951 for the same period last year.
Forward-Looking Information
The statements included in this report which are not historical or current facts
are "forward-looking statements" made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. There are certain
important factors that could cause actual 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 future results are the effectiveness of new product
introductions, the product mix of sales, the amount of sales generated,
volatility in the major markets, competition and general economic conditions.
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 16, 1997. There were
1,161,443 shares of common stock entitled to vote at the
meeting and a total of 1,006,130 shares were represented at
the meeting.
(c) A proposal was made to amend the Company's bylaws to decrease
the number of members on the Board of Directors from six to
five. Shares were voted as follows:
For Against Abstain
--------- ------- -------
958,777 36,755 10,598
(b) Five 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
------- -------
James R. Anderson 993,407 12,723
Claude C. Johnson 994,117 12,013
Edward L. Lundstrom 993,417 12,713
Gerald E. Magnuson 994,340 11,790
Charles G. Schiefelbein 994,417 11,713
(c) A proposal was made to ratify and approve the appointment of
Arthur Andersen as the Company's independent auditors for
1997. Shares were voted as follows:
For Against Abstain
--------- ------- -------
971,952 25,616 8,562
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 5/13/97 /s/ Claude C. Johnson
------------- -----------------------------------
Claude C. Johnson
President,
Chief Executive Officer
Date 5/13/97 /s/ Richard L. Grose
------------- -----------------------------------
Richard L. Grose
Treasurer
<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 SIX MONTHS ENDED
MARCH 31, 1997 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-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,774
<SECURITIES> 0
<RECEIVABLES> 3,821
<ALLOWANCES> 150
<INVENTORY> 4,059
<CURRENT-ASSETS> 9,963
<PP&E> 6,251
<DEPRECIATION> 4,173
<TOTAL-ASSETS> 12,113
<CURRENT-LIABILITIES> 4,200
<BONDS> 0
0
0
<COMMON> 602
<OTHER-SE> 7,310
<TOTAL-LIABILITY-AND-EQUITY> 12,113
<SALES> 10,689
<TOTAL-REVENUES> 10,689
<CGS> 5,947
<TOTAL-COSTS> 5,947
<OTHER-EXPENSES> 4,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,351
<INCOME-TAX> 512
<INCOME-CONTINUING> 839
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 839
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
