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 December 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 February 6, 1997, 1,178,318 common shares were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESEARCH, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31
1996 1995
----------- -----------
Net Sales $ 4,873,396 $ 4,380,549
Cost of Sales 2,810,775 2,576,432
----------- -----------
Gross profit 2,062,621 1,804,117
----------- -----------
Expenses:
Selling 1,419,993 1,178,905
Research and development 481,924 391,073
General and administrative 219,959 198,222
----------- -----------
Total expenses 2,121,876 1,768,200
----------- -----------
Income (Loss) From Operations (59,255) 35,917
Other Income 1,160,993 11,300
----------- -----------
Income Before Taxes 1,101,738 47,217
Income Tax Provision 415,861 19,918
----------- -----------
Net Income $ 685,877 $ 27,299
=========== ===========
Earnings Per Share $ 0.58 $ 0.02
=========== ===========
Dividends Paid per Share $ 0.07 $ 0.055
=========== ===========
Weighted Average Shares Outstanding (Note 1) 1,181,475 1,199,491
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
<TABLE>
<CAPTION>
RESEARCH, INCORPORATED
Consolidated Balance Sheets
(Unaudited)
December 31 September 30
1996 1996
------------ -------------
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,297,590 $ 1,841,147
Accounts receivable, net 3,360,008 2,366,814
Inventories 3,331,236 3,474,488
Other current assets 481,864 471,310
------------ ------------
Total current assets 9,470,698 8,153,759
------------ ------------
Property and Equipment:
Land and land improvements 54,660 212,852
Building 2,073,024 2,073,024
Machinery and equipment 3,940,046 3,863,381
Less-accumulated depreciation (4,057,901) (4,048,814)
------------ ------------
Net property and equipment 2,009,829 2,100,443
Other Assets 80,421 84,214
------------ ------------
Total assets $ 11,560,948 $ 10,338,416
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,500,143 $ 1,277,805
Accrued liabilities:
Salaries and benefits 289,241 314,040
Profit sharing contribution 9,000 160,000
Warranty reserve 350,000 250,000
Real estate taxes 157,400 125,000
Other 499,626 463,650
Federal and state income taxes 807,443 472,467
------------ ------------
Total current liabilities 3,612,853 3,062,962
------------ ------------
Stockholders' Equity:
Common stock, $.50 par value, 5,000,000 shares
authorized, 1,163,443 and 1,161,243 shares issued
and outstanding at December 31, and September 30, 1996 581,722 580,622
Additional paid-in capital 282,070 275,470
Foreign currency translation 78,181 17,816
Retained earnings 7,006,122 6,401,546
------------ ------------
Total stockholders' equity 7,948,095 7,275,454
------------ ------------
Total liabilities and stockholders' equity $ 11,560,948 $ 10,338,416
============ ============
</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)
For the three months ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
Operating Activities:
Net income $ 685,877 $ 27,299
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 137,817 105,822
Gain on sale of land (1,147,094) --
Changes in current operating items:
Accounts receivable (993,194) 1,590,318
Inventories 43,252 (600,197)
Other current assets (10,554) (107,461)
Accounts payable and accrued liabilities (67,534) (767,298)
Federal and state income taxes 334,976 (177,745)
----------- -----------
Net cash provided by (used in) operating activities (1,016,454) 70,738
----------- -----------
Investment Activities:
Proceeds from sale of land, net 1,529,543 --
Property and equipment additions, net (26,718) (236,630)
Other 43,673 (4,351)
----------- -----------
Net cash provided by (used in) investing activities 1,546,498 (240,981)
----------- -----------
Financing Activities:
Cash dividends paid (81,301) (63,354)
Issuance of common stock 7,700 52,499
----------- -----------
Net cash used in financing activities (73,601) (10,855)
----------- -----------
Cash and Cash Equivalents:
Net increase (decrease) in cash and
cash equivalents 456,443 (181,098)
Cash and cash equivalents at beginning of year 1,841,147 1,307,564
----------- -----------
Cash and cash equivalents at end of period $ 2,297,590 $ 1,126,466
=========== ===========
</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 December 31, 1996, the consolidated
statements of operations and cash flows for the three months ended December 31,
1996 and December 31, 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 December 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,
1996 Form 10-K. The results of operations for the period ended December 31, 1996
are not necessarily indicative of the operating results for the full fiscal year
or for future interim periods.
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:
December 31 September 30
1996 1996
----------- ------------
Manufactured
sub-assemblies and
purchased parts $ 2,279,938 $ 2,406,077
Work in process and
finished goods 1,051,298 1,068,411
----------- -----------
Total $ 3,331,236 $ 3,474,488
=========== ===========
Earnings per Share -
Earnings per share are based on the weighted average number of common and common
equivalent shares (where dilutive) outstanding. The number of common shares
outstanding increased by 2,200 shares during the first 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
quarter ended December 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 166,800 shares under the 1991
Plan were outstanding at December 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 of $5,857,845 at December 31, 1996, increased from
$5,090,797 at September 30, 1996. This was due to the proceeds from the sale of
undeveloped land on October 4, 1996. The current ratio at December 31, 1996 was
2.6 to 1 compared to 2.7 to 1 at September 30, 1996.
At a meeting on January 16, 1997, the Board of Directors of Research,
Incorporated declared a regular quarterly dividend of 7 cents per share payable
April 1, 1997 to shareholders of record February 28, 1997. In addition, the
Board of Directors declared a special dividend of 20 cents per share, to
distribute a portion of the gain recorded from the sale of the Dimension product
line in September and the sale of undeveloped land in the first quarter of
fiscal 1997. This special dividend will be payable on May 1, 1997 to
shareholders of record on March 28, 1997.
The Company has an unsecured bank line of credit for $3,000,000. There were no
borrowings against the line of credit during the three months ended December 31,
1996. The Company has no long-term debt.
Operations
Sales for the first three months of fiscal 1997 (the quarter ended December 31,
1996) amounted to $4,873,396. This was 11.3% higher than sales of $4,380,549
reported for the same period of the preceding year. The higher sales volume for
the first quarter of fiscal 1997 was primarily due to the improvement in the
electronics market, primarily SMT (Surface Mount Technology).
Gross profit on sales for the quarter ended December 31, 1996 was 42.3% compared
to 41.2% for the first quarter last year. The increase in gross profit
percentage for the first quarter of fiscal 1997 was primarily due to increased
volume and product mix. Selling expenses increased to $1,419,993 (29.1% of
sales) in the current quarter compared to $1,178,905 (26.9% of sales) in the
first quarter of fiscal 1996, due to investments incurred in connection with the
company shift from a product driven strategy to a market driven strategy and
selling expenses related to the increased volume.
Expenditures for research and development increased to $481,924 (9.9% of sales)
in the current quarter compared to $391,073 (8.9% of sales) for the same quarter
a year ago, due to our investments in new product introductions.
General and administrative expenses were $219,959 (4.5% of sales) in the current
quarter compared to $198,222 (4.5% of sales) for the same quarter a year ago.
There was a net loss from operations of $59,255 for the first quarter of fiscal
1997 as compared to a net profit from operations of $35,917 for the same quarter
last year.
The first quarter of fiscal 1997 reflects a one time gain of $1,147,000 from the
sale of our undeveloped land. This sale was completed on October 4, 1996. The
Company continues to own 12 acres at its corporate headquarters which adequately
meets its future needs.
As a result of the above, there was a net profit before income taxes of
$1,101,738 for the first quarter of fiscal 1997 as compared to $47,217, in the
first quarter of fiscal 1996.
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 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, the amount of sales generated or
volatility in the major markets, competition and general economic conditions.
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
Form 8-K Report dated 10-4-96, filed on 10-21-96,
discussed in Item 2. (sale of land).
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 2/10/97 /s/ Claude C. Johnson
-------------- -------------------------------------
Claude C. Johnson
President,
Chief Executive Officer
Date 2/10/97 /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 QUARTER ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
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<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,298
<SECURITIES> 0
<RECEIVABLES> 3,510
<ALLOWANCES> 150
<INVENTORY> 3,331
<CURRENT-ASSETS> 9,471
<PP&E> 6,068
<DEPRECIATION> 4,058
<TOTAL-ASSETS> 11,561
<CURRENT-LIABILITIES> 3,613
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0
0
<COMMON> 582
<OTHER-SE> 7,366
<TOTAL-LIABILITY-AND-EQUITY> 11,561
<SALES> 4,873
<TOTAL-REVENUES> 4,873
<CGS> 2,811
<TOTAL-COSTS> 2,811
<OTHER-EXPENSES> 2,122
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,102
<INCOME-TAX> 416
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<NET-INCOME> 686
<EPS-PRIMARY> .58
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</TABLE>