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 June 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 ___
4,526,231 Common Shares were outstanding as of June 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
June 30, 1995 (Unaudited) and December 31, 1994 1
Condensed Consolidated Statements of Income (Unaudited)
Three months and six months ended June 30, 1995 and 1994 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 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 4. Submission of Matters to a Vote of Security Holders 7
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
June 30, December 31,
1995 1994
(Unaudited)
ASSETS
Current Assets
Cash and Temporary Cash Investments $ 584,127 $ 246,265
Marketable Securities, Current 6,164,377 5,664,849
Accounts Receivable 1,587,578 1,511,700
Other Receivables 158,662 151,480
Inventories 1,739,028 1,733,760
Prepaid Expenses 258,680 177,061
Deferred Income Taxes 358,000 358,000
Total Current Assets 10,850,452 9,843,115
Marketable Securities, Noncurrent 2,165,458 2,367,003
Property and Equipment 1,817,314 1,827,421
Less: Accumulated Depreciation
and Amortization 1,409,435 1,310,824
Net Property and Equipment 407,879 516,597
Other Assets 443,537 401,656
TOTAL ASSETS $ 13,867,326 $ 13,128,371
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 318,614 $ 347,121
Accrued Liabilities 1,237,218 1,238,203
Total Current Liabilities 1,555,832 1,585,324
Deferred Income Taxes 29,000 29,000
Stockholders' Equity
Common Stock - $.10 Par Value 452,623 452,623
Retained Earnings 11,869,871 11,171,424
Net unrealized loss on noncurrent
marketable equity securities (40,000) (110,000)
Total Stockholders' Equity 12,282,494 11,514,047
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 13,867,326 $ 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 Six Months
Ended Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales $3,069,162 $2,683,587 $5,897,683 $5,122,066
Cost of Sales 1,048,681 1,060,986 2,057,070 1,931,953
Gross Profit 2,020,481 1,622,601 3,840,613 3,190,113
Selling, General & Admin. Expenses 918,397 825,046 1,826,751 1,657,672
Research & Development Expenses 243,267 209,664 470,791 417,710
1,161,664 1,034,710 2,297,542 2,075,382
Operating Income 858,817 587,891 1,543,071 1,114,731
Investment Income 94,012 87,599 184,236 180,270
Income Before Income Taxes 952,829 675,490 1,727,307 1,295,001
Income Taxes 322,057 226,289 583,830 433,825
Net Income $ 630,772 $ 449,201 $1,143,477 $ 861,176
Net Income Per Common Share $ 0.14 $ 0.09 $ 0.25 $ 0.18
Weighted Average Shares
Outstanding 4,540,298 4,749,127 4,535,292 4,789,096
</TABLE>
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
1995 1994
Cash Flows from Operating Activities:
Net Income $ 1,143,477 $ 861,176
Total Adjustments to Reconcile
Net Income to Net Cash Provided
by operating Activities (47,865) (68,510)
Net Cash Provided by Operating Activities 1,095,612 792,666
Cash Flows from Investing Activities:
Purchases of Marketable Securities (5,204.091) (2,093,259)
Proceeds from Sales of Marketable Securities 4,976,107 2,526,701
Other (77,143) (46,650)
Net Cash Provided by (Used in) Investing Activities (305,127) 386,792
Cash Flows from Financing Activities:
Purchase and Retirement of Common Stock 0 (825,255)
Dividends Paid (452,623) (482,034)
Other 0 10,167
Net Cash Used in Financing Activities (452,623) (1,297,122)
Net Increase (Decrease) in Cash and
Temporary Cash Investments $ 337,862 $ (117,664)
MODERN CONTROLS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of June 30, 1995, the condensed
consolidated statements of income for the three month and six month periods
ended June 30, 1995 and 1994, and the condensed consolidated statements of cash
flows for the six month periods ended June 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 June 30, 1995, and for all periods presented, have been made. The results of
operations for the period ended June 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:
June 30, December 31,
1995 1994
Finished Products $ 241,498 $ 250,603
Work in Process 744,090 661,282
Raw Materials 753,440 821,875
$ 1,739,028 $ 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 June 30, 1995 were $3,069,162, up 14 percent from
second quarter 1994 sales of $2,683,587. The increase in second quarter sales is
primarily attributable to an increase in the total domestic and foreign sales
volume of the Company's permeation products and to general price increases.
Sales for the six month period ended June 30, 1995 increased 15 percent to
$5,897,683, compared with $5,122,066 for the first six months of 1994. The 15
percent increase is primarily due to an increase in the sales volume of the
Company's permeation and weighing products, and to general price increases.
The Company's permeation product group sales totaled $2,146,248 in the second
quarter of 1995, compared with $1,779,681 in the second quarter of 1994. The
group accounted for 70 percent of the Company's total second quarter 1995 sales,
compared with 66 percent in the second quarter of 1994. Permeation product group
sales for the six month period ended June 30, 1995 were $3,971,077, or 67
percent of total sales, versus $3,413,349 or 67 percent of sales for the same
period in 1994.
Gross profit for the quarter and the six month period ended June 30, 1995 was 66
and 65 percent of sales, respectively. This compares with 60 and 62 percent for
the quarter and the six month periods ended June 30, 1994. Factors affecting the
increase in gross profit margin include the increased sales volume and the
pricing increases.
Research and development expenses as a percent of sales were 8 percent for the
quarter and for the six month period ended June 30, 1995 as compared to 8
percent for the same periods in 1994. Continued research and development
expenditures are necessary as the Company develops new products to expand in its
niche markets. For the foreseeable future, the Company expects to allocate on an
annual basis approximately 7 to 9 percent of sales to research and development.
Selling, general and administrative expenses were 30 percent of sales in the
second quarter of 1995. This percentage is comparable with the 31 percent for
the second quarter of 1994. Selling, general and administrative expenses were 31
percent and 32 percent for the six month periods ending June 30, 1995 and 1994
respectively. The overall dollar increase in selling, general and administrative
expenses for the quarter and the six month period ending June 30, 1995 is
primarily the result of increased commission expenses caused by the increase in
sales. The decrease in selling, general and administrative expenses as a
percentage of sales is due primarily to a decline in general and administrative
expenses as a percentage of sales.
Investment income increased approximately $6,000 in the second quarter of 1995
as compared to the second quarter of 1994. For the six months ended June 30,
1995, investment income increased approximately $4,000. The increase is the
result of higher average investment yields in 1995 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 six month periods ending June 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 $6,748,504 as of June
30, 1995. This is an increase of $837,390, compared to the total of $5,911,114
as of December 31, 1994. Long-term marketable securities decreased $201,545 to
$2,165,458 during the same period. The Company paid dividends of approximately
$453,000 in the first six months of 1995.
The Company has no long-term debt and has no material commitments for capital
expenditures as of June 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 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of Modern Controls, Inc. on May 16, 1995,
the nominees for election as Directors of the Company were elected without
opposition as follows:
Director-Nominee Votes For Votes Withheld/Against
William N. Mayer 3,833,098 150,410
Dean B. Chenoweth 3,603,886 379,622
Howard L. Demorest 3,829,611 153,897
Robert L. Demorest 3,833,498 150,010
J. Leonard Frame 3,830,398 153,110
Wallace W. Lindemann 3,832,486 151,022
Richard A. Proulx 3,833,398 150,110
Paul L. Sjoquist 3,833,298 150,210
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
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
June 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: 7/20/95 /s/ William N. Mayer
William N. Mayer,
Chairman and CEO
DATE: 7/20/95 /s/ Ronald A. Meyer
Ronald A. Meyer,
Vice President and Treasurer
EXHIBIT INDEX
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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
PRIMARY
<S> <C> <C> <C> <C>
Average shares outstanding 4,526,231 4,747,932 4,526,231 4,784,035
Net effect of dilutive stock
options--based on the
treasury stock method 14,067 1,195 9,061 5,061
Total 4,540,298 4,749,127 4,535,292 4,789,096
Net income $ 630,772 $ 449,201 $1,143,477 $ 861,176
Primary per share amounts $ 0.14 $ 0.09 $ 0.25 $ 0.18
FULLY DILUTED
Average shares outstanding 4,526,231 4,747,932 4,526,231 4,784,035
Net effect of dilutive stock
options--based on the
treasury stock method 29,993 3,506 17,516 2,585
Total 4,556,224 4,751,438 4,543,747 4,786,620
Net Income $ 630,772 $ 449,201 $1,143,477 $ 861,176
Fully diluted per share amounts $ 0.14 $ 0.09 $ 0.25 $ 0.18
</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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 584,127
<SECURITIES> 6,164,377
<RECEIVABLES> 1,732,754
<ALLOWANCES> 145,176
<INVENTORY> 1,739,028
<CURRENT-ASSETS> 10,850,452
<PP&E> 1,817,314
<DEPRECIATION> 1,409,435
<TOTAL-ASSETS> 13,867,326
<CURRENT-LIABILITIES> 1,555,832
<BONDS> 0
<COMMON> 452,623
0
0
<OTHER-SE> 11,829,871
<TOTAL-LIABILITY-AND-EQUITY> 13,867,326
<SALES> 5,897,683
<TOTAL-REVENUES> 5,897,683
<CGS> 2,057,070
<TOTAL-COSTS> 2,057,070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,727,307
<INCOME-TAX> 583,830
<INCOME-CONTINUING> 1,143,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,143,477
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
