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, 1996
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 ____
4,273,080 Common Shares were outstanding as of June 30, 1996
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)
June 30, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Income (Unaudited)
Three months and six months ended June 30, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 1996 and 1995 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
(Unaudited)
June 30, December 31,
1996 1995
----------- ------------
ASSETS
Current Assets
Cash and Temporary Cash Investments $ 802,188 $ 1,396,718
Marketable Securities, Current 3,589,601 4,133,397
Accounts Receivable 2,242,534 1,777,521
Other Receivables 90,239 116,210
Inventories 1,762,208 1,560,360
Prepaid Expenses 145,626 250,968
Deferred Income Taxes 320,000 320,000
----------- -----------
Total Current Assets 8,952,396 9,555,174
----------- -----------
Marketable Securities, Noncurrent 3,342,174 4,285,868
----------- -----------
Property and Equipment 2,344,055 1,947,060
Less: Accumulated Depreciation
and Amortization 1,561,531 1,492,224
----------- -----------
Net Property and Equipment 782,524 454,836
----------- -----------
Other Assets 452,628 474,533
----------- -----------
TOTAL ASSETS $13,529,722 $14,770,411
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 416,756 $ 591,982
Accrued Liabilities 1,294,621 1,513,516
----------- -----------
Total Current Liabilities 1,711,377 2,105,498
----------- -----------
Deferred Income Taxes 191,000 168,000
----------- -----------
Stockholders' Equity
Common Stock - $.10 Par Value 427,308 444,108
Capital in Excess of Par Value 346 --
Retained Earnings 10,865,191 11,757,805
Net Unrealized Gain on Noncurrent
Marketable Equity Securities 334,500 295,000
----------- -----------
Total Stockholders' Equity 11,627,345 12,496,913
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,529,722 $14,770,411
=========== ===========
Note: The condensed consolidated balance sheet at December 31, 1995 has been
summarized from the Company's audited consolidated balance sheet at that
date.
<TABLE>
<CAPTION>
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months
Ended Ended
---------------------- -----------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Sales $3,647,332 $3,069,162 $7,211,497 $5,897,683
Cost of Sales 1,139,449 1,048,681 2,339,105 2,057,070
---------- ---------- ---------- ----------
Gross Profit 2,507,883 2,020,481 4,872,392 3,840,613
---------- ---------- ---------- ----------
Selling, General & Admin. Expenses 1,120,096 918,397 2,272,702 1,826,751
Research & Development Expenses 305,527 243,267 579,349 470,791
---------- ---------- ---------- ----------
1,425,623 1,161,664 2,852,051 2,297,542
---------- ---------- ---------- ----------
Operating Income 1,082,260 858,817 2,020,341 1,543,071
Investment Income 84,674 94,012 204,368 184,236
---------- ---------- ---------- ----------
Income Before Income Taxes 1,166,934 952,829 2,224,709 1,727,307
Income Taxes 398,873 322,057 756,401 583,830
---------- ---------- ---------- ----------
Net Income $ 768,061 $ 630,772 $1,468,308 $1,143,477
========== ========== ========== ==========
Net Income Per Common Share $ 0.18 $ 0.14 $ 0.34 $ 0.25
========== ========== ========== ==========
Weighted Average Shares
Outstanding 4,298,968 4,540,298 4,351,902 4,535,292
========== ========== ========== ==========
</TABLE>
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
--------------------------
1996 1995
----------- -----------
Cash Flows from Operating Activities:
Net Income $ 1,468,308 $ 1,143,477
Total Adjustments to Reconcile
Net Income to Net Cash Provided
by Operating Activities (798,646) (47,865)
----------- -----------
Net Cash Provided by Operating Activities 669,662 1,095,612
----------- -----------
Cash Flows from Investing Activities:
Purchases of Marketable Securities (1,374,875) (5,204,091)
Proceeds from Sales of Marketable Securities 2,924,865 4,976,107
Other (422,644) (77,143)
----------- -----------
Net Cash Provided by (Used in)
Investing Activities 1,127,346 (305,127)
----------- -----------
Cash Flows from Financing Activities:
Purchase and Retirement of Common Stock (1,871,591) 0
Dividends Paid (522,146) (452,623)
Other 2,199 0
----------- -----------
Net Cash Used in Financing Activities (2,391,538) (452,623)
----------- -----------
Net Increase (Decrease) in Cash and
Temporary Cash Investments ($ 594,530) $ 337,862
=========== ===========
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, 1996, the condensed
consolidated statements of income for the three and six month periods ended June
30, 1996 and 1995, and the condensed consolidated statements of cash flows for
the six month periods ended June 30, 1996 and 1995 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, 1996, and for all periods presented, have been made. The results of
operations for the period ended June 30, 1996 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, 1995 annual
report to shareholders.
Note 2 - Inventories
Inventories consist of the following:
June 30, December 31,
1996 1995
----------- -----------
Finished Products $ 259,354 $ 176,910
Work in Process 778,602 699,070
Raw Materials 724,252 684,380
----------- -----------
$ 1,762,208 $ 1,560,360
----------- -----------
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, 1996 were $3,647,332, up 19 percent from
second quarter 1995 sales of $3,069,162. The increase in second quarter sales is
primarily attributable to an increase in the total foreign sales volume of the
Company's permeation products and to a lesser extent general price increases.
Sales for the six month period ended June 30, 1996 increased 22 percent to
$7,211,497, compared with $5,897,683 for the first six months of 1995. The 22
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 $2,669,881 in the second
quarter of 1996, compared with $2,235,404 in the second quarter of 1995. The
group accounted for 73 percent of the Company's total second quarter 1996 sales,
compared with 73 percent in the second quarter of 1995. Permeation product group
sales for the six month period ended June 30, 1996 were $4,903,589, or 68
percent of total sales, versus $4,197,855 or 71 percent of sales for the same
period in 1995.
Gross profit for the quarter and the six month period ended June 30, 1996 was 69
and 68 percent of sales, respectively. This compares with 66 and 65 percent for
the quarter and the six month periods ended June 30, 1995. Factors affecting the
increase in gross profit margin include the increased sales volume, product mix
and price 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, 1996 as compared to 8
percent for the same periods in 1995. 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 31 percent of sales in the
second quarter of 1996. This percentage is comparable with the 30 percent for
the second quarter of 1995. Selling, general and administrative expenses were 32
percent and 31 percent for the six month periods ending June 30, 1996 and 1995
respectively. The overall dollar increase in selling, general and administrative
expenses for the quarter and the six month period ending June 30, 1996 is
primarily due to an increase in selling expenses.
Investment income decreased approximately $9,000 in the second quarter of 1996
as compared to the second quarter of 1995. For the six months ended June 30,
1996, investment income increased approximately $20,000. The decrease for the
second quarter is the result of lower average investment balances offset by
higher average investment yields in 1996. The increase in investment income for
the six month period ended June 30, 1996 is primarily the result of a gain
realized on the sale of land and an increase the average yield earned on
investments in 1996, offset somewhat by lower average investment balances in
1996.
The Company's provision for income taxes was 34 percent of income before income
taxes for the six month period ending June 30, 1996. 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 1996 to be in a range of 33 to 35 percent.
Net income increased 22 percent to $768,061 or $.18 per share for the second
quarter, compared with $630,772 or $.14 per share in the second quarter of 1995.
For the six month period ended June 30, 1996 net income increased 28 percent to
$1,468,308 or $.34 per share, compared to $1,143,477 or $.25 per share in the
same period of 1995.
Liquidity and Capital Resources
The Company continues to maintain a strong financial position. Total cash,
temporary cash investments and marketable securities decreased approximately
$2,082,000 during the six months ended June 30, 1996. This decrease is primarily
due to repurchases of the Company's common stock during the period totaling
approximately $1,872,000.
The Company has no long-term debt and has no material commitments for capital
expenditures as of June 30, 1996. 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 21,
1996, 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 4,175,690 27,946
Dean B. Chenoweth 4,166,650 36,986
Howard L. Demorest 4,166,978 36,658
Robert L. Demorest 4,182,440 21,196
J. Leonard Frame 4,165,113 38,523
Wallace W. Lindemann 4,166,888 36,748
Richard A. Proulx 4,179,328 24,308
Paul L. Sjoquist 4,178,903 24,733
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, 1996.
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: August 9, 1996 /s/ William N. Mayer
William N. Mayer,
Chairman, CEO and President
DATE: August 9, 1996 /s/ Ronald A. Meyer
Ronald A. Meyer,
Vice President and Treasurer
<TABLE>
<CAPTION>
EXHIBIT 11
MODERN CONTROLS, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
PRIMARY
<S> <C> <C> <C> <C>
Average shares outstanding 4,273,054 4,526,231 4,322,531 4,526,231
Net effect of dilutive stock
options - based on the
treasury stock method 25,914 14,067 29,371 9,061
---------- ---------- ---------- ----------
Total 4,298,968 4,540,298 4,351,902 4,535,292
========== ========== ========== ==========
Net income $ 768,061 $ 630,772 $1,468,308 $1,143,477
========== ========== ========== ==========
Primary per share amounts $ 0.18 $ 0.14 $ 0.34 $ 0.25
========== ========== ========== ==========
FULLY DILUTED
Average shares outstanding 4,273,054 4,526,231 4,322,531 4,526,231
Net effect of dilutive stock
options - based on the
treasury stock method 27,856 29,993 26,641 17,516
---------- ---------- ---------- ----------
Total 4,300,910 4,556,224 4,349,172 4,543,747
========== ========== ========== ==========
Net income $ 768,061 $ 630,772 $1,468,308 $1,143,477
========== ========== ========== ==========
Fully diluted per share amounts $ 0.18 $ 0.14 $ 0.34 $ 0.25
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND THE CONDENSED 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-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 802,188
<SECURITIES> 3,589,601
<RECEIVABLES> 2,392,534
<ALLOWANCES> 150,000
<INVENTORY> 1,762,208
<CURRENT-ASSETS> 8,952,396
<PP&E> 2,344,055
<DEPRECIATION> 1,561,531
<TOTAL-ASSETS> 13,529,722
<CURRENT-LIABILITIES> 1,711,377
<BONDS> 0
0
0
<COMMON> 427,308
<OTHER-SE> 11,200,037
<TOTAL-LIABILITY-AND-EQUITY> 13,529,722
<SALES> 7,211,497
<TOTAL-REVENUES> 7,211,497
<CGS> 2,339,105
<TOTAL-COSTS> 2,339,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,224,709
<INCOME-TAX> 756,401
<INCOME-CONTINUING> 1,468,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,468,308
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
