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 March 31, 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 ___
4,273,027 Common Shares were outstanding as of March 31, 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)
March 31, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Income (Unaudited)
Three months ended March 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 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 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)
March 31, December 31,
1996 1995
----------- -----------
ASSETS
Current Assets
Cash and Temporary Cash Investments $ 436,852 $ 1,396,718
Marketable Securities, Current 3,844,407 4,133,397
Accounts Receivable 2,050,648 1,777,521
Other Receivables 93,635 116,210
Inventories 1,618,544 1,560,360
Prepaid Expenses 162,941 250,968
Deferred Income Taxes 320,000 320,000
----------- -----------
Total Current Assets 8,527,027 9,555,174
----------- -----------
Marketable Securities, Noncurrent 3,447,196 4,285,868
----------- -----------
Property and Equipment 2,267,494 1,947,060
Less: Accumulated Depreciation
and Amortization 1,525,609 1,492,224
----------- -----------
Net Property and Equipment 741,885 454,836
----------- -----------
Other Assets 448,323 474,533
----------- -----------
TOTAL ASSETS $13,164,431 $14,770,411
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 392,115 $ 591,982
Accrued Liabilities 1,518,052 1,513,516
----------- -----------
Total Current Liabilities 1,910,167 2,105,498
----------- -----------
Deferred Income Taxes 176,000 168,000
----------- -----------
Stockholders' Equity
Common Stock - $.10 Par Value 427,303 444,108
Retained Earnings 10,343,961 11,757,805
Net Unrealized Gain on Noncurrent
Marketable Equity Securities 307,000 295,000
----------- -----------
Total Stockholders' Equity 11,078,264 12,496,913
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,164,431 $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.
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months
Ended
-----------------------
March 31, March 31,
1996 1995
---------- ----------
Sales $3,564,165 $2,828,521
Cost of Sales 1,199,656 1,008,389
---------- ----------
Gross Profit 2,364,509 1,820,132
---------- ----------
Selling, General & Admin. Expenses 1,152,606 908,354
Research & Development Expenses 273,822 227,524
---------- ----------
1,426,428 1,135,878
---------- ----------
Operating Income 938,081 684,254
Investment Income 119,694 90,224
---------- ----------
Income Before Income Taxes 1,057,775 774,478
Income Taxes 357,528 261,773
---------- ----------
Net Income $ 700,247 $ 512,705
========== ==========
Net Income Per Common Share $ 0.16 $ 0.11
========== ==========
Weighted Average Shares
Outstanding 4,404,836 4,530,285
========== ==========
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 700,247 $ 512,705
Total Adjustments to Reconcile
Net Income to Net Cash Provided
by Operating Activities (374,609) 493,598
----------- -----------
Net Cash Provided by Operating Activities 325,638 1,006,303
Cash Flows from Investing Activities:
Purchases of Marketable Securities (665,320) (4,059,134)
Proceeds from Sales of Marketable Securities 1,812,982 3,661,179
Other (297,659) (44,831)
----------- -----------
Net Cash Provided by (Used in) Investing Activities 850,003 (442,786)
Cash Flows from Financing Activities:
Purchase and Retirement of Common Stock (1,871,591) 0
Dividends Paid (265,764) (226,311)
Other 1,848 0
----------- -----------
Net Cash Used in Financing Activities (2,135,507) (226,311)
----------- -----------
Net Increase (Decrease) in Cash and
Temporary Cash Investments ($ 959,866) $ 337,206
=========== ===========
</TABLE>
MODERN CONTROLS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of March 31, 1996, the condensed
consolidated statements of income for the three-month periods ended March 31,
1996 and 1995, and the condensed consolidated statements of cash flows for the
three-month periods ended March 31, 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
March 31, 1996, and for all periods presented, have been made. The results of
operations for the period ended March 31, 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:
March 31, December 31,
1996 1995
------------ ------------
Finished Products $ 214,030 $ 176,910
Work in Process 694,906 699,070
Raw Materials 709,608 684,380
------------ ------------
$ 1,618,544 $ 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 March 31, 1996 were $3,564,165, up 26 percent from
first quarter 1995 sales of $2,828,521. The increase in first quarter sales is
primarily the result of an increase in the domestic sales volume of the
Company's weighing products, increases in the sales volume of the Company's
permeation products and to a lesser extent general price increases.
The Company's permeation product group sales totaled $2,233,708 in the first
quarter of 1996, compared with $1,962,451 in the first quarter of 1995. The
group accounted for 63 percent of the Company's total first quarter 1996 sales,
compared with 69 percent in the first quarter of 1995.
The gross profit margin was 66 percent of sales for the first quarter of 1996
and 64 percent for the first quarter of 1995. The increase in gross profit
margin as a percentage of sales is due primarily to increased sales volume which
resulted in manufacturing efficiencies.
Research and development expenses increased approximately $46,000 in the first
quarter of 1996 compared to the first quarter of 1995, reflecting the Company's
continued commitment to growth through new products. Research and development
expenses were 8 percent of sales in both the first quarter of 1995 and 1996.
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 increased approximately $244,000 or
27 percent for the first quarter of 1996 compared to the first quarter of 1995.
As a percentage of sales, selling, general and administrative expenses were 32
percent for both the first quarter of 1996 and 1995. The overall dollar increase
in selling, general and administrative expenses is primarily due to an increase
in selling expenses, particularly commission expenses which increased due to the
increased sales.
Investment income increased approximately $30,000 in the first quarter of 1996
as compared to the first quarter of 1995. The increase is primarily the result
of a gain realized on the sale of land and an increase in the average interest
rate earned on investments in 1996, offset somewhat by lower average investment
balances in 1996.
The Company's effective tax rate was 33.8 percent for both the first quarter of
1996 and 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 1996
to be in a range of 33 to 35 percent.
Net income increased 37 percent to $700,247 or $.16 per share for the first
quarter, compared with $512,705 or $.11 per share in the first quarter of 1995.
Liquidity and Capital Resources
Total cash, temporary cash investments and marketable securities decreased
approximately $2,088,000 in the three months ended March 31, 1996. This decrease
is primarily the result of repurchases by the Company of shares of its common
stock during the quarter totaling approximately $1,872,000.
The Company has no long-term debt and has no material commitments for capital
expenditures as of March 31, 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 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
March 31, 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: May 7, 1996 /s/ William N. Mayer
William N. Mayer,
Chairman and CEO
DATE: May 7, 1996 /s/ Ronald A. Meyer
Ronald A. Meyer,
Vice President and Treasurer
MODERN CONTROLS, INC.
EXHIBIT INDEX TO FORM 10-Q
For the Quarter Ended March 31, 1996
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
Three Months Ended
March 31,
-----------------------
1996 1995
---------- ----------
PRIMARY
Average shares outstanding 4,372,008 4,526,231
Net effect of dilutive stock
options - based on the
treasury stock method 32,828 4,054
---------- ----------
Total 4,404,836 4,530,285
========== ==========
Net income $ 700,247 $ 512,705
========== ==========
Primary per share amounts $ 0.16 $ 0.11
========== ==========
FULLY DILUTED
Average shares outstanding 4,372,008 4,526,231
Net effect of dilutive stock
options - based on the
treasury stock method 25,425 5,039
---------- ----------
Total 4,397,433 4,531,270
========== ==========
Net income $ 700,247 $ 512,705
========== ==========
Fully diluted per share
amounts $ 0.16 $ 0.11
========== ==========
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 436,852
<SECURITIES> 3,844,407
<RECEIVABLES> 2,185,875
<ALLOWANCES> 135,227
<INVENTORY> 1,618,544
<CURRENT-ASSETS> 8,527,027
<PP&E> 2,267,494
<DEPRECIATION> 1,525,609
<TOTAL-ASSETS> 13,164,431
<CURRENT-LIABILITIES> 1,910,167
<BONDS> 0
0
0
<COMMON> 427,303
<OTHER-SE> 10,650,961
<TOTAL-LIABILITY-AND-EQUITY> 13,164,431
<SALES> 3,564,165
<TOTAL-REVENUES> 3,564,165
<CGS> 1,199,656
<TOTAL-COSTS> 1,199,656
<OTHER-EXPENSES> 1,306,734
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,057,775
<INCOME-TAX> 357,528
<INCOME-CONTINUING> 700,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 700,247
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
