UNITED STATES
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 Quarter Ended September 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
Commission File Number 0-9273
MODERN CONTROLS, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0903312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7500 Boone Avenue North, Minneapolis, Minnesota 55428
(Address of principal executive offices) (Zip code)
(612) 493-6370
(Registrant's telephone number, including area code)
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 ___
4,541,609 Common Shares were outstanding as of September 30, 1995
MODERN CONTROLS, INC.
Quarterly Report on Form 10-Q
INDEX
Page
Number
PART I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 1995 and December 31, 1994 1
Condensed Consolidated Statements of Income (Unaudited)
Three months and nine months ended September 30, 1995 and 1994 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1995 and 1994 3
Notes to Condensed Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 5-6
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 7
EXHIBIT 11 Computation of Net Income Per Common Share 8
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
ASSETS
Current Assets
Cash and Temporary Cash Investments $551,092 $246,265
Marketable Securities, Current 5,278,792 5,664,849
Accounts Receivable 1,430,768 1,511,700
Other Receivables 147,778 151,480
Inventories 1,552,874 1,733,760
Prepaid Expenses 266,167 177,061
Deferred Income Taxes 358,000 358,000
------------- ------------
Total Current Assets 9,585,471 9,843,115
------------- ------------
Marketable Securities, Noncurrent 4,222,778 2,367,003
------------- ------------
Property and Equipment 1,863,406 1,827,421
Less: Accumulated Depreciation
and Amortization 1,448,697 1,310,824
------------- ------------
Net Property and Equipment 414,709 516,597
------------- ------------
Other Assets 456,755 401,656
------------- ------------
TOTAL ASSETS $14,679,713 $13,128,371
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $403,123 $347,121
Accrued Liabilities 1,383,985 1,238,203
------------- ------------
Total Current Liabilities 1,787,108 1,585,324
------------- ------------
Deferred Income Taxes 29,000 29,000
------------- ------------
Stockholders' Equity
Common Stock - $.10 Par Value 454,161 452,623
Capital in Excess of Par Value 46,484 -
Retained Earnings 12,362,960 11,171,424
Net Unrealized Loss on Noncurrent
Marketable Equity Securities - (110,000)
------------- ------------
Total Stockholders' Equity 12,863,605 11,514,047
------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $14,679,713 $13,128,371
============= ============
Note: The condensed consolidated balance sheet at December 31, 1994 has been
summarized from the Company's audited consolidated balance sheet at that
date.
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
-------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $3,465,229 $2,700,244 $9,362,912 $7,822,310
Cost of Sales 1,165,180 981,205 3,222,250 2,913,158
---------- ---------- ---------- ----------
Gross Profit 2,300,049 1,719,039 6,140,662 4,909,152
---------- ---------- ---------- ----------
Selling, General & Admin. Expenses 1,008,832 847,929 2,835,583 2,505,601
Research & Development Expenses 303,902 223,980 774,693 641,690
---------- ---------- ---------- ----------
1,312,734 1,071,909 3,610,276 3,147,291
---------- ---------- ---------- ----------
Operating Income 987,315 647,130 2,530,386 1,761,861
Investment Income 100,289 89,996 284,525 270,266
---------- ---------- ---------- ----------
Income Before Income Taxes 1,087,604 737,126 2,814,911 2,032,127
Income Taxes 367,610 246,937 951,440 680,762
---------- ---------- ---------- ----------
Net Income $ 719,994 $ 490,189 $1,863,471 $1,351,365
========== ========== ========== ==========
Net Income Per Common Share $ 0.16 $ 0.10 $ 0.41 $ 0.28
========== ========== ========== ==========
Weighted Average Shares
Outstanding 4,568,601 4,694,420 4,546,395 4,757,537
========== ========== ========== ==========
</TABLE>
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
--------------------------
1995 1994
----------- -----------
Cash Flows from Operating Activities:
Net Income $ 1,863,471 $ 1,351,365
Total Adjustments to Reconcile
Net Income to Net Cash Provided
by Operating Activities 577,937 307,785
----------- -----------
Net Cash Provided by Operating Activities 2,441,408 1,659,150
----------- -----------
Cash Flows from Investing Activities:
Purchases of Marketable Securities (9,151,403) (4,276,793)
Proceeds from Sales of Marketable Securities 7,791,685 4,148,094
Other (145,429) (79,206)
----------- -----------
Net Cash Used in Investing Activities (1,505,147) (207,905)
----------- -----------
Cash Flows from Financing Activities:
Purchase and Retirement of Common Stock 0 (1,035,255)
Dividends Paid (679,456) (717,439)
Other 48,022 10,167
----------- -----------
Net Cash Used in Financing Activities (631,434) (1,742,527)
----------- -----------
Net Increase (Decrease) in Cash and
Temporary Cash Investments $ 304,827 ($ 291,282)
=========== ===========
MODERN CONTROLS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of September 30, 1995, the condensed
consolidated statements of income for the three and nine month periods ended
September 30, 1995 and 1994, and the condensed consolidated statements of cash
flows for the nine month periods ended September 30, 1995 and 1994 have been
prepared by the Company, without audit. However, all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of management,
necessary to present fairly the financial position, results of operations and
cash flows at September 30, 1995, and for all periods presented, have been made.
The results of operations for the period ended September 30, 1995 are not
necessarily indicative of operating results for the full year.
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 financial
statements and notes thereto included in the Company's December 31, 1994 annual
report to shareholders.
Note 2 - Inventories
Inventories consist of the following:
September 30, December 31,
1995 1994
Finished Products $ 197,832 $ 250,603
Work in Process 673,803 661,282
Raw Materials 681,239 821,875
$ 1,552,874 $ 1,733,760
Note 3 - Net Income Per Common Share
Net Income per common share is computed by dividing net income by the weighted
average of common and common equivalent shares outstanding during the period.
Stock options are considered common stock equivalents for purposes of this
computation.
MODERN CONTROLS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
Sales for the quarter ended September 30, 1995 were $3,465,229 up 28 percent
from third quarter 1994 sales of $2,700,244. The increase in third quarter sales
is primarily due to an increase in the total domestic and foreign sales volume
of the Company's permeation and weighing products, and to a lesser extent
general price increases.
Total sales for the nine month period ended September 30, 1995 were up 20
percent to $9,362,912 compared with $7,822,310 for the first nine months of
1994. The increase is primarily due to an increase in the domestic and foreign
sales volume of the Company's permeation and weighing products, and to a lesser
extent general price increases.
The Company's permeation product group sales totaled $2,253,664 in the third
quarter of 1995, compared with $1,690,159 in the third quarter of 1994. The
group accounted for 65 percent of the Company's total third quarter 1995 sales,
compared with 63 percent in the third quarter of 1994. Permeation product group
sales for the nine month period ended September 30, 1995 were $6,224,741 or 66
percent of total sales, versus $5,103,508 or 65 percent of sales for the same
period in 1994.
Gross profit as a percentage of sales was 66 percent for both the quarter and
the nine month period ended September 30, 1995. This compares with 64 and 63
percent for the quarter and the nine month periods ended September 30, 1994. The
increase in the 1995 third quarter and nine month gross profit margin
percentages are due primarily to the increase in sales volume for these periods.
Research and development expenses for the three month and the nine month periods
ended September 30, 1995 were 9 and 8 percent of sales respectively, compared
with 8 percent for the three and nine month periods ended September 30, 1994.
Continued research and development expenditures are necessary as the Company
develops new and improved products to expand in its niche markets. Historically,
the Company's annual research and development expenditures have been in a range
from 7 to 9 percent of sales. The Company expects its annual 1995 research and
development expenses to be on the upper end of the historical range.
Selling, general and administrative expenses were 29 percent of sales in the
third quarter of 1995 compared to 31 percent for the third quarter of 1994.
Selling, general and administrative expenses were 30 percent and 32 percent for
the nine month periods ending September 30, 1995 and 1994 respectively. The
increase in the total gross dollar amount of selling, general and administrative
expenses for the three months and nine month periods ended September 30, 1995
was due primarily to increases in commission expenses due to the increased
sales. The decrease in selling, general and administrative expenses as a
percentage of sales is due primarily to a decrease in general and administrative
expenses as a percentage of sales.
Investment income increased approximately $10,000 in the third quarter of 1995
as compared to the third quarter of 1994. This increase is the result of
increased average investment balances in the third quarter of 1995 and a higher
average yield on investments. For the nine months ended September 30, 1995,
investment income increased approximately $14,000. The increase for the nine
month period ending September 30, 1995 is the net result of higher average
yields on investments offset somewhat by lower average investment balances.
The Company's provision for income taxes was 33.8 percent of income before
income taxes for the three and nine month periods ending September 30, 1995. The
Company reviews the tax rate quarterly and could make adjustments to reflect
changing estimates. Based on current operating conditions and income tax laws
the Company expects the effective tax rate for all of 1995 to be in a range of
33 to 35 percent.
Liquidity and Capital Resources
The Company continues to maintain a strong financial position. Cash, temporary
cash investments and current marketable securities totaled $5,829,884 as of
September 30, 1995. This is a decrease of $81,230 compared to the total of
$5,911,114 as of December 31, 1994. Long-term marketable securities increased
$1,855,775 to $4,222,778 during the same period. The Company paid dividends of
approximately $679,000 in the first nine months of 1995.
The Company has no long-term debt and has no material commitments for capital
expenditures as of September 30, 1995. The Company's plant and equipment do not
require any major expenditures to accommodate a significant increase in
operating demands. The Company anticipates that a combination of its existing
cash, temporary cash investments and marketable securities, plus an expected
continuation of cash flow from operations, will continue to be adequate to fund
operations, capital expenditures and dividend payments in the foreseeable
future.
MODERN CONTROLS, INC.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. The following is a listing of the exhibits contained in this
Form 10-Q filing:
Exhibit No. Description
11 Earnings per share
27 Financial Data Schedule
b. There were no reports on Form 8-K filed for the quarter ended
September 30, 1995.
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.
MODERN CONTROLS, INC.
Registrant
DATE: November 1, 1995 /s/ William N. Mayer
William N. Mayer,
Chairman and CEO
DATE: October 31, 1995 /s/ Ronald A. Meyer
Ronald A. Meyer,
Vice President and Treasurer
MODERN CONTROLS, INC.
EXHIBIT INDEX TO FORM 10-Q
For the Quarter Ended September 30, 1995
Exhibit No. Description Location
11 Earnings per share Filed herewith.
27 Financial Data Schedule Filed herewith.
EXHIBIT 11
MODERN CONTROLS, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 4,533,920 4,693,099 4,528,794 4,753,723
Net effect of dilutive stock
options - based on the
treasury stock method 34,681 1,321 17,601 3,814
---------- ---------- ---------- ----------
Total 4,568,601 4,694,420 4,546,395 4,757,537
========== ========== ========== ==========
Net income $ 719,994 $ 490,189 $1,863,471 $1,351,365
========== ========== ========== ==========
Primary per share amounts $ 0.16 $ 0.10 $ 0.41 $ 0.28
========== ========== ========== ==========
FULLY DILUTED
Average shares outstanding 4,533,920 4,693,099 4,528,794 4,753,723
Net effect of dilutive stock
options - based on the
treasury stock method 33,295 2,811 22,776 2,660
---------- ---------- ---------- ----------
Total 4,567,215 4,695,910 4,551,570 4,756,383
========== ========== ========== ==========
Net income $ 719,994 $ 490,189 $1,863,471 $1,351,365
========== ========== ========== ==========
Fully diluted per share amounts $ 0.16 $ 0.10 $ 0.41 $ 0.28
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statements of income and the condensed consolidated
balance sheets and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 551,092
<SECURITIES> 5,278,792
<RECEIVABLES> 1,560,120
<ALLOWANCES> 129,352
<INVENTORY> 1,552,874
<CURRENT-ASSETS> 9,585,471
<PP&E> 1,863,406
<DEPRECIATION> 1,448,697
<TOTAL-ASSETS> 14,679,713
<CURRENT-LIABILITIES> 1,787,108
<BONDS> 0
<COMMON> 454,161
0
0
<OTHER-SE> 12,409,444
<TOTAL-LIABILITY-AND-EQUITY> 14,679,713
<SALES> 9,362,912
<TOTAL-REVENUES> 9,362,912
<CGS> 3,222,250
<TOTAL-COSTS> 3,222,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,814,911
<INCOME-TAX> 951,440
<INCOME-CONTINUING> 1,863,471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,863,471
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
