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, 1997
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 ____
4,276,085 Common Shares were outstanding as of June 30, 1997
MODERN CONTROLS, INC.
INDEX TO FORM 10-Q
For the Quarter Ended June 30, 1997
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Income (Unaudited)
Three months and six months ended June 30, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 1997 and 1996 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 9
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
ASSETS 1997 1996
----------- -----------
Current Assets
Cash and Temporary Cash Investments $ 459,510 $ 1,352,991
Marketable Securities, Current 5,200,184 4,186,066
Accounts Receivable 2,189,052 1,632,960
Other Receivables 153,988 118,469
Inventories 1,699,202 1,572,329
Prepaid Expenses 103,198 190,198
Deferred Income Taxes 310,000 310,000
----------- -----------
Total Current Assets 10,115,134 9,363,013
----------- -----------
Marketable Securities, Noncurrent 4,228,962 4,077,957
----------- -----------
Property and Equipment 2,579,307 2,635,521
Less: Accumulated Depreciation
and Amortization 1,605,448 1,645,365
----------- -----------
Net Property and Equipment 973,859 990,156
----------- -----------
Other Assets 387,886 450,118
----------- -----------
TOTAL ASSETS $15,705,841 $14,881,244
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 542,984 $ 563,953
Accrued Liabilities 1,425,333 1,631,625
----------- -----------
Total Current Liabilities 1,968,317 2,195,578
----------- -----------
Deferred Income Taxes 0 92,000
----------- -----------
Stockholders' Equity
Common Stock - $.10 Par Value 427,609 427,398
Capital in Excess of Par Value 12,593 5,457
Retained Earnings 13,297,322 11,965,811
Net Unrealized Gain on Noncurrent
Marketable Equity Securities 0 195,000
----------- -----------
Total Stockholders' Equity 13,737,524 12,593,666
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $15,705,841 $14,881,244
=========== ===========
Note: The condensed consolidated balance sheet at December 31, 1996 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 Ended Six Months Ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $4,189,050 $3,647,332 $8,253,052 $7,211,497
Cost of Sales 1,341,973 1,139,449 2,665,674 2,339,105
---------- ---------- ---------- ----------
Gross Profit 2,847,077 2,507,883 5,587,378 4,872,392
---------- ---------- ---------- ----------
Selling, General & Admin. Expenses 1,303,617 1,120,096 2,577,975 2,272,702
Research & Development Expenses 316,711 305,527 671,222 579,349
---------- ---------- ---------- ----------
1,620,328 1,425,623 3,249,197 2,852,051
---------- ---------- ---------- ----------
Operating Income 1,226,749 1,082,260 2,338,181 2,020,341
Investment Income 117,326 84,674 465,251 204,368
---------- ---------- ---------- ----------
Income Before Income Taxes 1,344,075 1,166,934 2,803,432 2,224,709
Income Taxes 459,675 398,873 958,775 756,401
---------- ---------- ---------- ----------
Net Income $ 884,400 $ 768,061 $1,844,657 $1,468,308
========== ========== ========== ==========
Net Income Per Common Share $ 0.21 $ 0.18 $ 0.43 $ 0.34
========== ========== ========== ==========
Weighted Average Shares Outstanding 4,311,217 4,298,968 4,306,358 4,351,902
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,844,657 $ 1,468,308
Total Adjustments to Reconcile
Net Income to Net Cash Provided
by Operating Activities (928,435) (798,646)
----------- -----------
Net Cash Provided by Operating Activities 916,222 669,662
----------- -----------
Cash Flows from Investing Activities:
Purchases of Marketable Securities (4,076,155) (1,374,875)
Proceeds from Sales of Marketable Securities 2,841,017 2,924,865
Other (68,857) (422,644)
----------- -----------
Net Cash Provided by (Used in) Investing Activities (1,303,995) 1,127,346
----------- -----------
Cash Flows from Financing Activities:
Purchase and Retirement of Common Stock 0 (1,871,591)
Dividends Paid (513,056) (522,146)
Other 7,348 2,199
----------- -----------
Net Cash Used in Financing Activities (505,708) (2,391,538)
----------- -----------
Net Decrease in Cash and Temporary Cash Investments (893,481) (594,530)
----------- -----------
Cash and Temporary Cash Investments:
Beginning of Year 1,352,991 1,396,718
----------- -----------
End of Six Month Period $ 459,510 $ 802,188
=========== ===========
</TABLE>
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, 1997, the condensed
consolidated statements of income for the three- and six-month periods ended
June 30, 1997 and 1996, and the condensed consolidated statements of cash flows
for the six-month periods ended June 30, 1997 and 1996 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, 1997, and for all periods presented, have been made. The results of
operations for the period ended June 30, 1997 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, 1996 annual
report to shareholders.
Note 2 - Inventories
Inventories consist of the following:
June 30, December 31,
1997 1996
----------- -----------
Finished Products $ 170,261 $ 169,921
Work in Process 775,413 653,300
Raw Materials 753,528 749,108
----------- -----------
$ 1,699,202 $ 1,572,329
=========== ===========
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, 1997, were $4,189,050, up 15 percent from
second quarter 1996 sales of $3,647,332. The increase in second quarter sales is
primarily the result of an increase in the foreign sales volume of the Company's
permeation products, an increase in the domestic sales volume of the Company's
weighing products, and to a lesser extent, general price increases, offset
somewhat by a decrease in sales of the Company's packaging products.
Sales for the six-month period ended June 30, 1997, increased 14 percent to
$8,253,052, compared to $7,211,497 for the first six months of 1996. The 14
percent increase is primarily due to an increase in the sales volume of the
Company's permeation products and to general price increases, offset somewhat by
a decrease in the foreign sales volume of the Company's weighing products.
The Company's permeation product group sales totaled $2,920,507 in the second
quarter of 1997, compared to $2,669,881 in the second quarter of 1996. The group
accounted for 70 percent of the Company's total second quarter 1997 sales,
compared with 73 percent in the second quarter of 1996. Permeation product group
sales for the six-month period ended June 30, 1997, were $6,071,755, or 74
percent of total sales, versus $4,903,589, or 68 percent of sales for the same
period in 1996.
Gross profit for both the quarter and the six-month period ended June 30, 1997,
was 68 percent of sales. This compares with 69 and 68 percent for the quarter
and six-month periods ended June 30, 1996.
Selling, general and administrative expenses were 31 percent of sales for both
the second quarter of 1997 and 1996. Selling, general and administrative
expenses were 31 percent and 32 percent for the six-month periods ending June
30, 1997 and 1996, respectively. The increase in the dollar amount of selling,
general and administrative expenses is due primarily to increases in commission
and other selling expenses as a result of increased sales.
Research and development expenses as a percent of sales were 8 percent for the
quarter and the six-month period ended June 30, 1997, compared to 8 percent for
the same periods in 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.
Investment income increased approximately $33,000 in the second quarter of 1997
as compared to the second quarter of 1996. For the six months ended June 30,
1997, investment income increased approximately $261,000. The increase for the
second quarter is primarily the result of higher average investment balances in
1997. The increase in investment income for the six-month period is primarily
the result of a one-time gain realized on the sale of equity securities.
The Company's provision for income taxes was 34.2 percent of income before
income taxes for the six-month period ending June 30, 1997. 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 1997 to be in a range of 33 to 35 percent.
Net income increased 15 percent to $884,400 or $.21 per share for the second
quarter of 1997, compared to $768,061 or $.18 per share in the second quarter of
1996. For the six-month period ended June 30, 1997, net income increased 26
percent to $1,844,657 or $.43 per share, compared to $1,468,308 or $.34 per
share in the same period of 1996.
Liquidity and Capital Resources
The Company continues to maintain a strong financial position. Total cash,
temporary cash investments and marketable securities increased approximately
$272,000 during the six months ended June 30, 1997. The Company used cash
resources to pay dividends of approximately $513,000 during the first six months
of 1997.
The Company has no long-term debt or material commitments for capital
expenditures as of June 30, 1997. 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.
Effect of Changes in Accounting Principles
The Company will adopt Statement of Financial Accounting Standards 128 (SFAS
128), EARNINGS PER SHARE, and SFAS 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL
STRUCTURE, for financial statements issued after December 15, 1997. The adoption
of these standards is not expected to materially impact the Company's reporting
of earnings per share or footnote disclosures.
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
20, 1997, 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 3,772,103 46,599
Dean B. Chenoweth 3,771,128 47,574
J. Leonard Frame 3,769,928 48,774
Wallace W. Lindemann 3,770,278 48,424
Paul J. Sjoquist 3,770,153 48,549
Richard A. Proulx 3,770,278 48,424
Robert L. Demorest 3,671,853 46,849
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, 1997.
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: July 31, 1997 /s/ William N. Mayer
William N. Mayer,
Chairman and CEO
DATE: July 31, 1997 /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,
------------------------ -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 4,275,777 4,273,054 4,275,250 4,322,531
Net effect of dilutive stock
options - based on the
treasury stock method 35,440 25,914 31,108 29,371
---------- ---------- ---------- ----------
Total 4,311,217 4,298,968 4,306,358 4,351,902
========== ========== ========== ==========
Net income $ 884,400 $ 768,061 $1,844,657 $1,468,308
========== ========== ========== ==========
Primary per share amounts $ 0.21 $ 0.18 $ 0.43 $ 0.34
========== ========== ========== ==========
FULLY DILUTED
Average shares outstanding 4,275,777 4,273,054 4,275,250 4,322,531
Net effect of dilutive stock
options - based on the
treasury stock method 52,817 27,856 37,897 29,371
---------- ---------- ---------- ----------
Total 4,328,594 4,300,910 4,313,147 4,351,902
========== ========== ========== ==========
Net income $ 884,400 $ 768,061 $1,844,657 $1,468,308
========== ========== ========== ==========
Fully diluted per share amounts $ 0.20 $ 0.18 $ 0.43 $ 0.34
========== ========== ========== ==========
</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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 459,510
<SECURITIES> 5,200,184
<RECEIVABLES> 2,350,052
<ALLOWANCES> 161,000
<INVENTORY> 1,699,202
<CURRENT-ASSETS> 10,115,134
<PP&E> 2,579,307
<DEPRECIATION> 1,605,448
<TOTAL-ASSETS> 15,705,841
<CURRENT-LIABILITIES> 1,968,317
<BONDS> 0
0
0
<COMMON> 427,609
<OTHER-SE> 13,309,915
<TOTAL-LIABILITY-AND-EQUITY> 15,705,841
<SALES> 4,189,050
<TOTAL-REVENUES> 4,189,050
<CGS> 1,341,973
<TOTAL-COSTS> 1,341,973
<OTHER-EXPENSES> 1,503,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,344,075
<INCOME-TAX> 459,675
<INCOME-CONTINUING> 884,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 884,400
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
