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, 2000 or
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
Commission file number 0-2387
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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
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- --------------------------------------------------------------------------------
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 12, 2000, 1,318,282 common shares were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESEARCH, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
------------------------------- ---------------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 7,504,594 $ 5,545,119 $ 14,352,273 $ 10,938,825
Cost of Sales 4,674,762 3,122,052 8,990,429 6,376,512
----------- ----------- ------------ ------------
Gross Profit 2,829,832 2,423,067 5,361,844 4,562,313
----------- ----------- ------------ ------------
Expenses:
Selling 1,391,665 1,316,935 2,460,341 2,549,853
Research and Development 818,433 602,497 1,609,084 1,076,592
General and Administrative 280,001 226,570 514,619 450,719
----------- ----------- ------------ ------------
Total Expenses 2,490,099 2,146,002 4,584,044 4,077,164
----------- ----------- ------------ ------------
Income from Operations 339,733 277,065 777,800 485,149
Interest Expense (67,834) (116,680) (159,938) (201,275)
Other Income 131,284 - 187,484 -
----------- ----------- ------------ ------------
Income Before Income Taxes 403,183 160,385 805,346 283,874
Income Tax Provision 128,595 54,652 281,871 96,612
----------- ----------- ------------ ------------
Net Income $ 274,588 $ 105,733 $ 523,475 $ 187,262
=========== =========== ============ ============
Net Income Per Common Share:
Basic $ 0.21 $ 0.08 $ 0.40 $ 0.15
Diluted 0.20 0.08 0.39 0.15
Weighed Average Shares Outstanding:
Basic 1,300,291 1,274,657 1,296,002 1,270,451
Diluted 1,356,873 1,274,805 1,346,268 1,270,525
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
RESEARCH, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
As of March 31, As of September 30,
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,134,572 $ 350,487
Accounts receivable 4,292,553 5,244,383
Inventories 3,745,461 3,448,701
Deferred income tax benefit 551,378 789,249
Prepayments 469,895 482,812
------------ ------------
Total current assets 11,193,859 10,315,632
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 3,177,325 3,836,960
Less accumulated depreciation (2,432,372) (3,015,989)
------------ ------------
Net property and equipment 744,953 820,971
------------ ------------
DEFERRED INCOME TAX BENEFIT 733,000 733,000
------------ ------------
Total assets $ 12,671,812 $ 11,869,603
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 2,152,943 $ 681,988
Accounts payable 2,319,157 2,340,345
Deferred revenues 447,430 989,490
Short-term deferred gain 315,089 315,089
Accrued liabilities:
Salaries and benefits 576,698 607,253
Warranty reserve 300,000 300,000
Restructuring reserve - 298,065
Other 465,504 434,945
------------ ------------
Total current liabilities 6,576,821 5,967,175
------------ ------------
Long-term debt 92,413 376,660
Long-term deferred gain 1,732,989 1,890,534
STOCKHOLDERS' EQUITY:
Common stock, $.50 par value, 5,000,000 shares authorized,
1,317,782 and 1,290,144 shares issued and outstanding 658,891 645,072
Additional paid-in capital 772,760 646,858
Accumulated other comprehensive income 50,871 61,963
Retained earnings 2,787,067 2,281,341
------------ ------------
Total stockholders' equity 4,269,589 3,635,234
------------ ------------
Total liabilities and stockholders' equity $ 12,671,812 $ 11,869,603
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
BALANCE SHEETS.
<PAGE>
RESEARCH, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Operating Activities:
Net income $ 523,475 $ 187,262
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 167,384 287,632
Gain on disposal of assets (190,024) -
Changes in current operating items:
Accounts receivable, net 951,830 (1,416,708)
Inventories (296,760) 892,594
Prepayments 12,917 (93,380)
Accounts payable and accrued liabilities (21,184) (17,203)
Deferred revenue (542,060) 341,772
Deferred gain (157,545) -
Restructuring reserve (298,065) (503,720)
Income taxes payable 237,871 572,604
----------- -----------
Net cash provided by operating activities 387,839 250,853
----------- -----------
Investing Activities:
Property and equipment additions, net (112,587) (33,594)
Proceeds from sale of assets 211,245 -
----------- -----------
Net cash provided by (used in) investing activities 98,658 (33,594)
----------- -----------
Financing Activities:
Proceeds from (payments on) line of credit, net 1,470,955 (2,413,255)
Proceeds from long-term debt - 2,243,333
Payments on long-term debt (284,247) (45,278)
Issuance of common stock 121,972 36,905
----------- -----------
Net cash provided by (used in) financing activities 1,308,680 (178,295)
----------- -----------
Foreign Currency Translation (11,092) (13,595)
Cash and cash equivalents:
Net increase in cash and cash equivalents 1,784,085 25,369
Beginning of year 350,487 108,647
----------- -----------
End of Period $ 2,134,572 $ 134,016
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
RESEARCH, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The Company's significant accounting policies not elsewhere set forth in the
accompanying condensed consolidated financial statements are as follows:
Consolidated Financial Statements -
The condensed consolidated balance sheet as of March 31, 2000, and September 30,
1999, the condensed consolidated statements of operations for the three and six
months ended March 31, 2000 and 1999 and the condensed consolidated statements
of cash flows for the six months ended March 31, 2000 and 1999 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, 2000 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,
1999 Form 10-K. The results of operations for the period ended March 31, 2000
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:
March 31, September 30,
2000 1999
---------- ----------
Manufactured subassemblies
and purchased parts $2,733,033 $2,457,783
Work in Process 1,012,428 990,918
---------- ----------
Total $3,745,461 $3,448,701
========== ==========
<PAGE>
Warranty Reserve -
The surface mount technology (SMT) products are under warranty against defects
in material and workmanship for a two-year period with an extended warranty on
certain components. The Company's other products are generally under warranty
for a one-year period. Estimated warranty costs are accrued in the same period
as products are shipped. An analysis of reserves for product warranties is
performed on a quarterly basis by reviewing the status of new product
introductions, trends of warranty expense by product, and internal management
information to identify known or potential defects and the estimated warranty
exposure.
Earnings per Share -
Earnings per share are computed by dividing net income by the weighted average
shares outstanding. Basic weighted average shares outstanding includes common
shares outstanding. Diluted weighted average shares outstanding includes the
basic weighted average shares outstanding and dilutive common stock equivalents.
The number of common shares outstanding increased by 25,316 shares during the
second quarter of fiscal 2000 due to the issuance of shares through the employee
stock purchase plan and the employee stock option plan.
2. Debt Obligations
Credit Facility -
The Company has a credit facility with a bank. The facility provides for total
borrowings of up to $8 million, subject to lending formulas based on eligible
receivables, inventories, certain long-term assets and other terms specified in
the agreement. This credit facility consists of a line of credit with interest
charged at 2.25% above prime and four term-loans with interest charged initially
at 2.75% above prime. The agreement contains certain restrictive covenants and
outstanding borrowings are secured by substantially all of the Company's assets.
The Company was in compliance with all of the covenants as of March 31, 2000.
<PAGE>
3. Stockholders' Equity:
Employee Stock Options -
On January 15, 1998, the shareholders of Research, Inc. ratified and approved an
amendment to the 1991 Stock Plan to increase the number of shares of common
stock available under the plan by 100,000 shares to 362,500 shares. Options for
183,469 shares under the 1991 Plan were outstanding at March 31, 2000 at prices
ranging from $3.375 to $6.625 per share.
Employee Stock Purchase Plan -
On January 15, 1998, the shareholders of Research, Inc. ratified and approved
the Research, Inc. Employee Stock Purchase Plan and set aside 100,000 shares of
common stock for issuance under the plan. As of March 31, 2000, 52,224 shares
have been issued.
4. Comprehensive Income:
Other comprehensive income (loss) was comprised of the effect of changes in
foreign currency exchange rates in translating assets, liabilities and the
results of operations of the Company's foreign subsidiary. Comprehensive income
(loss) for the following three and six month periods were:
Three Months Ended Six Months Ended
March 31 March 31
--------------------------- --------------------------
2000 1999 2000 1999
--------------------------- --------------------------
Net Income $274,588 $105,733 $ 523,475 $ 187,262
Other Comprehensive
Income (Loss) - 63,784 (11,092) (13,595)
--------------------------- --------------------------
Comprehensive
Income $274,588 $169,517 $ 512,383 $ 173,667
=======================================================
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operations
Sales for the current quarter were $7,505,000 compared to $5,545,000 for the
same period in 1999, an increase of 35.3%. Sales for the six months ended March
31, 2000 were $14,352,000 compared to $10,939,000 for the same period in 1999,
an increase of 31.2%. The growth was due to higher sales in both the printing
market and the surface mount technology (SMT) market.
Gross margin on sales for the quarter and six-month period were down 6.0% and
4.3% compared to the same periods of fiscal 1999. Margins were down due to the
severance costs paid to discontinue internal sheet metal operators, product mix,
and higher content of purchased product.
Selling expenses were $1,392,000 for the current quarter compared to $1,317,000
for the same quarter in 1999. Selling expenses were $2,460,000 for the six-month
period compared to $2,550,000 for the same period last year. These expenses
decreased 5.2% as a percentage of sales for the quarter and decreased 6.2% for
the six-month period of fiscal 2000 compared to the same periods in fiscal 1999.
The cost decreased as a percentage of sales due to higher sales volume and the
Company's efforts to leverage expenses.
Expenditures for research and development for the current quarter were $818,000
compared to $602,000 for the same quarter in 1999 or 10.9% of sales for the both
quarters. Research and development expenses for the six months periods ended
March 31, 2000 and 1999 were $1,609,000 and $1,077,000 respectively. They were
11.2% of sales for the six-month period of fiscal 2000 compared to 9.8% in the
same period of fiscal 1999. The increase in percentage was due to decreased
customer research and development funding of projects in the first half of
fiscal 2000.
General and administrative expenses for the second quarter were $280,000 or 3.7%
of sales compared to $227,000 or 4.1% for the same quarter in fiscal 1999. For
the six months ended March 31, 2000, general and administrative expenses were
$515,000 or 3.6% of sales compared to $451,000 or 4.1% for the six-month period
of the prior fiscal year. The decrease in percentage of sales is a result of the
increase in sales.
<PAGE>
Net interest expense was $68,000 for the quarter ended March 31, 2000 compared
to $117,000 for the same quarter one year ago. This decrease was due to the
impact of positive investing of available cash.
Other income of $131,000 for the second quarter and $187,000 for the six-month
period of fiscal 2000 related primarily from the gain on the sale of sheet metal
equipment.
Liquidity and Sources of Capital
The Company's working capital of $4,617,000 at March 31, 2000 increased from
$4,348,000 at September 30, 1999. The Company's current ratio at March 31, 2000
and September 30, 1999 was 1.7. The increase in working capital is due mainly to
improvement in Company operations.
Accounts receivable decreased due to aggressive collection efforts in the
quarter. Inventories increased due to the increase in business levels. The
positive cash flow from operations during the first half of fiscal 2000 resulted
from an increase in net income, and a reduction of accounts receivables offset
by increases in inventories, and payments of restructuring costs.
The Company has a credit facility with a bank. The facility provides for total
borrowings of up to $8 million subject to lending formulas based on eligible
receivables, inventories, certain long-term assets, and other terms specified in
the agreement. This new credit facility consists of a line of credit with
interest charged at 2.25% above prime and four available term loans with
interest charged initially at 2.75% above prime. The agreement contains certain
restrictive covenants and outstanding borrowings are secured by substantially
all of the Company's assets.
The Company's management believes its cash flow from operations and borrowing
facilities will be sufficient to meet the Company's financing requirements for
the foreseeable future. The Company believes that success in its industries
requires substantial financial flexibility due to customer expectations and
rapidly changing technologies.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not believe it has any material market risk exposure other than
what may be referred to in Item 2 herein.
Forward-Looking Information
The statements included herein that 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 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, currency fluctuations,
availability of labor, general economic conditions, market cycles, dependence on
capital expenditures of contract manufacturers in SMT, product cancellations or
rescheduling, and loss of a significant customer.
<PAGE>
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 February 1, 2000. There were
1,292,466 shares of common stock entitled to vote at the
meeting and a total of 1,072,766 shares were represented at
the meeting.
(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
--------- -------
Claude C. Johnson 1,059,961 12,805
John G. Colwell, Jr. 991,411 81,355
Edward L. Lundstrom 991,411 81,355
Gerald E. Magnuson 993,911 78,855
Charles G. Schiefelbein 1,043,961 28,805
(c) A proposal was made to ratify and approve the appointment
of Arthur Andersen LLP as the Company's independent
auditors for fiscal 2000. Shares were voted as follows:
For Against Abstain
--------- ------- -------
1,065,819 2,355 4,592
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
<PAGE>
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 5/12/2000 /s/ Claude C. Johnson
----------------- ------------------------------
Claude C. Johnson
President,
Chief Executive Officer
Date 5/12/2000 /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 MARCH
31, 2000 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-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,135
<SECURITIES> 0
<RECEIVABLES> 4,393
<ALLOWANCES> 100
<INVENTORY> 3,745
<CURRENT-ASSETS> 11,194
<PP&E> 3,177
<DEPRECIATION> 2,432
<TOTAL-ASSETS> 12,672
<CURRENT-LIABILITIES> 6,577
<BONDS> 92
0
0
<COMMON> 659
<OTHER-SE> 3,611
<TOTAL-LIABILITY-AND-EQUITY> 12,672
<SALES> 14,352
<TOTAL-REVENUES> 14,352
<CGS> 8,990
<TOTAL-COSTS> 8,990
<OTHER-EXPENSES> 4,584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160
<INCOME-PRETAX> 805
<INCOME-TAX> 282
<INCOME-CONTINUING> 523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 523
<EPS-BASIC> .40
<EPS-DILUTED> .39
</TABLE>
