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, 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 ___
4,275,469 Common Shares were outstanding as of March 31, 1997
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, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Income (Unaudited)
Three months ended March 31, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 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 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,
1997 1996
----------- ------------
ASSETS
Current Assets
Cash and Temporary Cash Investments $ 621,702 $ 1,352,991
Marketable Securities, Current 4,630,849 4,186,066
Accounts Receivable 1,781,858 1,632,960
Other Receivables 170,614 118,469
Inventories 1,680,794 1,572,329
Prepaid Expenses 159,934 190,198
Deferred Income Taxes 310,000 310,000
----------- -----------
Total Current Assets 9,355,751 9,363,013
----------- -----------
Marketable Securities, Noncurrent 4,506,877 4,077,957
----------- -----------
Property and Equipment 2,530,330 2,635,521
Less: Accumulated Depreciation
and Amortization 1,561,606 1,645,365
----------- -----------
Net Property and Equipment 968,724 990,156
----------- -----------
Other Assets 452,287 450,118
----------- -----------
TOTAL ASSETS $15,283,639 $14,881,244
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 451,107 $ 563,953
Accrued Liabilities 1,723,311 1,631,625
----------- -----------
Total Current Liabilities 2,174,418 2,195,578
----------- -----------
Deferred Income Taxes 0 92,000
----------- -----------
Stockholders' Equity
Common Stock - $.10 Par Value 427,547 427,398
Capital in Excess of Par Value 12,224 5,457
Retained Earnings 12,669,450 11,965,811
Net Unrealized Gain on Noncurrent
Marketable Equity Securities 0 195,000
----------- -----------
Total Stockholders' Equity 13,109,221 12,593,666
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $15,283,639 $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.
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
------------------------
1997 1996
---------- ----------
Sales $4,064,002 $3,564,165
Cost of Sales 1,323,701 1,199,656
---------- ----------
Gross Profit 2,740,301 2,364,509
---------- ----------
Selling, General and Administrative Expenses 1,274,358 1,152,606
Research and Development Expenses 354,511 273,822
---------- ----------
1,628,869 1,426,428
---------- ----------
Operating Income 1,111,432 938,081
Investment Income 347,925 119,694
---------- ----------
Income Before Income Taxes 1,459,357 1,057,775
Income Taxes 499,100 357,528
---------- ----------
Net Income $ 960,257 $ 700,247
========== ==========
Net Income Per Common Share $ 0.22 $ 0.16
========== ==========
Weighted Average Shares Outstanding 4,301,499 4,404,836
========== ==========
<TABLE>
<CAPTION>
MODERN CONTROLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months
Ended March 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 960,257 $ 700,247
Total Adjustments to Reconcile
Net Income to Net Cash Provided
by Operating Activities (444,864) (374,609)
----------- -----------
Net Cash Provided by Operating Activities 515,393 325,638
----------- -----------
Cash Flows from Investing Activities:
Purchases of Marketable Securities (2,457,655) (665,320)
Proceeds from Sales of Marketable Securities 1,513,937 1,812,982
Other (53,353) (297,659)
----------- -----------
Net Cash Provided by (Used in) Investing Activities (997,071) 850,003
----------- -----------
Cash Flows from Financing Activities:
Purchase and Retirement of Common Stock 0 (1,871,591)
Dividends Paid (256,528) (265,764)
Other 6,917 1,848
----------- -----------
Net Cash Used in Financing Activities (249,611) (2,135,507)
----------- -----------
Net Decrease in Cash and Temporary Cash Investments (731,289) (959,866)
----------- -----------
Cash and Temporary Cash Investments:
Beginning of Year 1,352,991 1,396,718
----------- -----------
End of Three Month Period $ 621,702 $ 436,852
=========== ===========
</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, 1997, the condensed
consolidated statements of income for the three-month periods ended March 31,
1997 and 1996, and the condensed consolidated statements of cash flows for the
three-month periods ended March 31, 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
March 31, 1997, and for all periods presented, have been made. The results of
operations for the period ended March 31, 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:
March 31, December 31,
1997 1996
---------- ----------
Finished Products $ 148,189 $ 169,921
Work in Process 743,057 653,300
Raw Materials 789,548 749,108
---------- ----------
$1,680,794 $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 March 31, 1997 were $4,064,002, up 14 percent from
first quarter 1996 sales of $3,564,165. The increase in first quarter sales is
primarily attributable to an increase in the sales volume of the Company's
permeation products and to a lesser extent general price increases, offset
somewhat by a decrease in sales of the Company's weighing products.
The Company's permeation product group sales totaled $3,151,248 in the first
quarter of 1997, compared to $2,233,708 in the first quarter of 1996. The group
accounted for 78 percent of the Company's total first quarter 1997 sales,
compared with 63 percent in the first quarter of 1996.
Gross profit was 67 percent of sales for the first quarter of 1997 and 66
percent for the first quarter of 1996. Factors affecting the increase in gross
profit margin include the increased sales volume, product mix and price
increases.
Selling, general and administrative expenses increased approximately $122,000 or
11 percent in the first quarter of 1997 compared to the first quarter of 1996.
As a percentage of sales, selling, general and administrative expenses were 31
percent of sales for the first quarter of 1997, compared to 32 percent in the
first quarter of 1996. The increase in the dollar amount of selling, general and
administrative expenses is due primarily to an increase in commission expense as
a result of increased sales; the decrease in selling, general and administrative
expenses as a percentage of sales is primarily the result of the increased sales
volume in 1997 being accommodated without an increase in general and
administrative staffing levels.
Research and development expenses increased approximately $81,000 in the first
quarter of 1997 compared to the first quarter of 1996, reflecting the Company's
continued commitment to growth through new products. Research and development
expenses were 9 percent of sales in the first quarter of 1997, compared to 8
percent for the same period 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 $228,000 in the first quarter of 1997
as compared to the first quarter of 1996. The increase 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 first quarter of 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 37 percent to $960,257 or $.22 per share for the first
quarter of 1997, compared to $700,247 or $.16 per share in the first quarter 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
$142,000 during the three months ended March 31, 1997. The Company used cash
resources to pay dividends of approximately $257,000 in the first quarter of
1997.
The Company has no long-term debt or material commitments for capital
expenditures as of March 31, 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 the standards is not expected to materially impact the Company's reporting of
earnings per share.
MODERN CONTROLS, INC.
Part II. Other Information
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 March 31,
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: May 5, 1997 /s/ William N. Mayer
William N. Mayer,
Chairman and CEO
DATE: May 5, 1997 /s/ Ronald A. Meyer
Ronald A. Meyer,
Vice President and Treasurer
EXHIBIT 11
MODERN CONTROLS, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
Three Months Ended
March 31,
------------------------
1997 1996
---------- ----------
PRIMARY
Average shares outstanding 4,274,723 4,372,008
Net effect of dilutive stock
options - based on the
treasury stock method 26,776 32,828
---------- ----------
Total 4,301,499 4,404,836
========== ==========
Net income $ 960,257 $ 700,247
========== ==========
Primary per share amounts $ 0.22 $ 0.16
========== ==========
FULLY DILUTED
Average shares outstanding 4,274,723 4,372,008
Net effect of dilutive stock
options - based on the
treasury stock method 26,776 32,828
---------- ----------
Total 4,301,499 4,404,836
========== ==========
Net income $ 960,257 $ 700,247
========== ==========
Fully diluted per share amounts $ 0.22 $ 0.16
========== ==========
<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> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 621,702
<SECURITIES> 4,630,849
<RECEIVABLES> 1,939,858
<ALLOWANCES> 158,000
<INVENTORY> 1,680,794
<CURRENT-ASSETS> 9,355,751
<PP&E> 2,530,330
<DEPRECIATION> 1,561,606
<TOTAL-ASSETS> 15,283,639
<CURRENT-LIABILITIES> 2,174,418
<BONDS> 0
0
0
<COMMON> 427,547
<OTHER-SE> 12,681,674
<TOTAL-LIABILITY-AND-EQUITY> 15,283,639
<SALES> 4,064,002
<TOTAL-REVENUES> 4,064,002
<CGS> 1,323,701
<TOTAL-COSTS> 1,323,701
<OTHER-EXPENSES> 1,280,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,459,357
<INCOME-TAX> 499,100
<INCOME-CONTINUING> 960,257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 960,257
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
