-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T4SK+Ay4g2nmD4/zyvsAHrzXwuR2p1H3B6BjxI/I8C2q+UJ5B3FksCb+u8cRmJuy 4pRI5bH7OHzh8TflVYVJEw== 0000897101-00-000492.txt : 20000512 0000897101-00-000492.hdr.sgml : 20000512 ACCESSION NUMBER: 0000897101-00-000492 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MTS SYSTEMS CORP CENTRAL INDEX KEY: 0000068709 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 410908057 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-02382 FILM NUMBER: 625324 BUSINESS ADDRESS: STREET 1: 14000 TECHNOLOGY DR CITY: EDEN PRAIRIE STATE: MN ZIP: 55344-2290 BUSINESS PHONE: 6129374000 MAIL ADDRESS: STREET 1: 14000 TECHNOLOGY DR CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 FORMER COMPANY: FORMER CONFORMED NAME: RESEARCH INC DATE OF NAME CHANGE: 19670216 10-Q 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period ended March 31, 2000 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 0-2382 MTS SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) MINNESOTA 41-0908057 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14000 Technology Drive, Eden Prairie, Minnesota 55344 (Address of principal executive offices) (Zip Code) Registrants telephone number: (952)-937-4000 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. __X__ Yes _____ No The number of shares outstanding of the Registrant's common stock as of May 1, 2000 was 20,787,938 shares. - -------------------------------------------------------------------------------- MTS SYSTEMS CORPORATION AND SUBSIDIARIES SECOND QUARTER REPORT ON FORM 10-Q FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2000 TABLE OF CONTENTS Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets March 31, 2000 and September 30, 1999 2 Consolidated Statements of Income Three and six months ended March 31, 2000 and 1999 3 Consolidated Statements of Cash Flows Six months ended March 31, 2000 and 1999 4 Notes to Consolidated Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8-11 Item 3. Quantitative and Qualitative Disclosures About Market Risks 11 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 1 MTS SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (expressed in thousands, except share data)
MARCH 31 SEPTEMBER 30 ASSETS 2000 1999 ------------ ------------ Current Assets: Cash and cash equivalents $ 12,424 $ 18,083 Accounts receivable 101,904 98,307 Unbilled contracts and retainage receivable 29,097 42,332 Inventories- Customer jobs-in-process 8,013 3,625 Components, assemblies and parts 54,441 53,323 Prepaid expenses 9,654 7,981 ------------ ------------ Total current assets 215,533 223,651 ------------ ------------ Property and Equipment: Land 3,247 3,247 Buildings and improvements 44,409 42,332 Machinery and equipment 105,227 101,140 Accumulated depreciation (78,311) (73,086) ------------ ------------ Total property and equipment, net 74,572 73,633 ------------ ------------ Other assets 32,869 36,063 ------------ ------------ Total assets $ 322,974 $ 333,347 ============ ============ LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Notes payable to banks $ 24,304 $ 10,071 Current maturities of long-term debt 839 1,308 Accounts payable 15,698 21,062 Accrued compensation and benefits 20,730 28,662 Advance billings to customers 23,807 25,943 Other accrued liabilities 16,051 17,667 ------------ ------------ Total current liabilities 101,429 104,713 Deferred income taxes 5,358 5,517 Long-term debt, less current maturities 62,048 60,258 ------------ ------------ Commitments and contingencies Shareholders' Investment: Common stock, $.25 par; 64,000,000 shares authorized: 20,786,767 and 20,883,639 shares issued and outstanding 5,197 5,221 Additional paid-in capital 7,405 8,122 Retained earnings 140,442 147,615 Accumulated other comprehensive income 1,095 1,901 ------------ ------------ Total shareholders' investment 154,139 162,859 ------------ ------------ Total liabilities and shareholders' investment $ 322,974 $ 333,347 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements 2 MTS SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (expressed in thousands, except per share data)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED MARCH 31 MARCH 31 -------------------------- ------------------------- 2000 1999 2000 1999 ---------- ----------- ---------- ---------- NET REVENUE $ 95,291 $ 93,262 $ 182,505 $ 189,404 COST OF REVENUE 60,821 56,837 125,249 115,265 ---------- ---------- ---------- ---------- Gross profit 34,470 36,425 57,256 74,139 OPERATING EXPENSES: Selling 15,372 15,127 30,494 30,731 General and administrative 8,384 8,053 15,328 14,802 Research and development 6,684 6,910 13,363 13,625 Restructuring -- -- -- 2,596 ---------- ---------- ---------- ---------- Total operating expenses 30,440 30,090 59,185 61,754 INCOME (LOSS) FROM OPERATIONS 4,030 6,335 (1,929) 12,385 Interest expense 1,648 1,145 3,004 2,397 Interest income (161) (121) (279) (172) Other (income) and expense, net 331 645 2,354 (228) ---------- ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES 2,212 4,666 (7,008) 10,388 PROVISION (BENEFIT) FOR INCOME TAXES 841 1,520 (2,340) 3,516 ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ 1,371 $ 3,146 $ (4,668) $ 6,872 ========== ========== ========== ========== BASIC NET INCOME (LOSS) PER SHARE $ 0.07 $ 0.15 $ (0.22) $ 0.33 BASIC - COMMON SHARES OUTSTANDING 20,836 20,701 20,858 20,687 DILUTED NET INCOME (LOSS) PER SHARE $ 0.07 $ 0.15 $ (0.22) $ 0.33 DILUTED - COMMON SHARES OUTSTANDING 20,928 21,148 20,858 21,160
The accompanying notes to consolidated financial statements are an integral part of these statements 3 MTS SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (expressed in thousands)
FOR THE SIX MONTHS ENDED MARCH 31 ------------------------- 2000 1999 ---------- ---------- OPERATING ACTIVITIES Net income(loss) $ (4,668) $ 6,872 Adjustments to reconcile net income(loss) to net cash provided by (used in) operating activities: Depreciation and amortization 7,549 6,697 Deferred income taxes 20 (117) Changes in operating assets and liabilities: Receivables, including accounts, unbilled contracts and retainages 7,163 17,047 Inventories (6,146) (3,551) Prepaid expenses (1,895) (2,278) Advance billings to customers (1,548) 4,383 Accounts payable and accrued liabilities (13,369) (11,230) ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (12,894) 17,823 ---------- ---------- INVESTING ACTIVITIES Property and equipment, net (7,764) (8,436) Other assets 1,200 (377) ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (6,564) (8,813) ---------- ---------- FINANCING ACTIVITIES Net borrowings (payments) on notes payable 14,198 1,826 Proceeds from issuance of long-term debt 2,330 -- Payments on long-term borrowings (449) (421) Cash dividends (2,505) (2,233) Payments to purchase and retire common stock (751) (85) Proceeds from exercise of stock options 10 368 ---------- ---------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 12,833 (545) ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 966 456 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,659) 8,921 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,083 12,589 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,424 $ 21,510 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements 4 MTS SYSTEMS CORPORATION AND SUBSIDIARIES (UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Consolidation The consolidated financial statements include the accounts of MTS SYSTEMS CORPORATION and its wholly owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated. The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments necessary for the fair presentation of such consolidated financial statements have been reflected in the interim periods presented. The significant accounting policies and certain financial information which are normally included in financial statements prepared in accordance with generally accepted accounting principles, but which are not required for interim reporting purposes, have been condensed or omitted. The accompanying consolidated financial statements of the Company should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K. Reclassifications Certain amounts included in the consolidated financial statements have been reclassified in prior years to conform with the second quarter of fiscal 2000 financial statement presentation. These amounts had no effect on the previously reported shareholders' investment or net income. New Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The Company anticipates that the effect of adopting SFAS No. 133 will not have a material impact on the Company's financial statements. 5 2. NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted net income (loss) per share includes the dilutive effect of potential common shares. All stock options outstanding during the six month period ended March 31, 2000 were anti-dilutive due to the year-to-date net loss. A reconciliation of the weighted average common shares used in the computation of basic and diluted net income (loss) per share is as follows:
Three Months Ended Six Months Ended MARCH 31 March 31 MARCH 31 March 31 - -------------------------------------------------------------------------------------- 2000 1999 2000 1999 - -------------------------------------------------------------------------------------- Basic - common shares outstanding 20,836 20,701 20,858 20,687 Dilutive potential common shares 92 447 -- 473 - -------------------------------------------------------------------------------------- Diluted - common shares outstanding 20,928 21,148 20,858 21,160 - -------------------------------------------------------------------------------------- Basic net income (loss) per share $0.07 $0.15 $(0.22) $0.33 Diluted net income (loss) per share $0.07 $0.15 $(0.22) $0.33 ======================================================================================
3. RESTRUCTURING CHARGES In the first quarter of fiscal 1999, the Company took a series of actions to better align its organizational structure with market elements, improve operational performance and reduce costs. These actions resulted in a restructuring charge during the first quarter of fiscal year 1999 of $2.1 million ($1.5 million after tax, or $.07 per share). This charge relates principally to a workforce reduction and $0.3 million for other costs. Also in the first quarter of fiscal 1999, DSP Technology, Inc. announced its strategic decision to relocate its corporate headquarters and consolidate its Transportation Group operations in Ann Arbor, Michigan from Freemont, California. This decision resulted in a restructuring charge of $0.5 million ($0.3 million after tax or $.01 per share). This charge relates to employee severance cost of $0.3 million and $0.2 million in idle facility and winding down costs. All of the restructuring charges taken in the first quarter of fiscal 1999 have been paid. In the fourth quarter of fiscal 1999, the Company identified actions necessary to rationalize certain of its business capacity. These actions resulted in a restructuring charge during the fourth quarter of fiscal 1999 of $3.1 million ($2.1 million after tax, or $.10 per share). This charge relates to employee severance costs of $2.8 million and $0.3 million of other costs. Of the total restructuring charges taken in the fourth quarter of fiscal 1999, $0.3 million has been paid for severance related costs. 4. COMPREHENSIVE INCOME For the Company, comprehensive income represents net income adjusted for foreign currency translation adjustments and unrealized loss on investment. Comprehensive income (loss) was $1.3 million and $1.1 million for the three months ended March 31, 2000 and 1999, respectively and ($5.5) million and $6.1 million for the six-month period ended March 31, 2000 and 1999. 6 5. BUSINESS SEGMENT INFORMATION The Company evaluated its business activities that are regularly reviewed by the Chief Executive Officer for which discrete financial information is available. As a result of this evaluation, the Company has determined that it has five operating segments: Vehicle Testing Systems, Material Testing Systems, Advanced Systems, Automation and Sensors. The Vehicle Testing Systems business manufactures and markets systems for vehicle and component manufacturers to aid in the acceleration of design development work and decrease the cost to manufacture their products. The Material Testing Systems business manufacturers and markets systems to aid their customers in product development and quality control to improve the design and manufacture of materials and products. The Advanced Systems business offers highly customized systems for simulation and testing. The Automation business manufactures and markets high performance products for challenging factory automation applications in a wide range of industries. The Sensors business manufactures and markets displacement and liquid level sensors used in various applications to monitor and automate industrial processes. The economic characteristics, nature of products and services, production processes, type or class of customer, method of distribution and regulatory environments are similar for the Vehicle Testing Systems, Material Testing Systems and Advanced Systems business segments. As a result of these similarities, these segments have been aggregated into one reportable segment called Mechanical Testing and Simulation (MT&S) for financial statement purposes. Also, the economic characteristics, nature of products and services, production processes, type or class of customer, method of distribution and regulatory environments are similar for the Automation and Sensors business segments. As a result, these segments have been aggregated into one reportable segment called Factory Automation (FA). The accounting policies of the business segments are the same as those described in Note 1. In evaluating the segment performance, management focuses on income (loss) from operations. This measurement excludes special charges (e.g. restructuring charges, acquisition expenses, etc.), interest expense, interest income, income tax expense and other non-operating income or expense. Corporate expenses are allocated to segments primarily on the basis of revenue. This allocation includes expenses for various support functions such as human resources, information technology and finance. Financial information by reportable segment follows:
Three Months Ended Six Months Ended March 31 March 31 2000 1999 2000 1999 ---------- ---------- ---------- ---------- (expressed in thousands) NET REVENUE BY SEGMENT: Mechanical Testing and Simulation $ 71,294 $ 73,597 $ 140,404 $ 150,441 Factory Automation 23,997 19,665 42,101 38,963 ---------- ---------- ---------- ---------- Total Net Revenue 95,291 93,262 182,505 189,404 INCOME (LOSS) FROM OPERATIONS BY SEGMENT: Mechanical Testing and Simulation: Before Restructuring 836 4,554 (6,670) 11,320 Restructuring -- -- -- (2,395) ---------- ---------- ---------- ---------- Total Mechanical Testing and Simulation 836 4,554 (6,670) 8,925 Factory Automation: Before Restructuring 3,194 1,781 4,741 3,661 Restructuring -- -- -- (201) ---------- ---------- ---------- ---------- Total Factory Automation 3,194 1,781 4,741 3,460 Total Income (Loss) from Operations $ 4,030 $ 6,335 $ (1,929) $ 12,385 ========== ========== ========== ==========
7 MTS SYSTEMS CORPORATION AND SUBSUBSIDIARIES (UNAUDITED) MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NEW ORDERS AND BACKLOG THREE MONTHS ENDED 3/31/00 COMPARED TO THREE MONTHS ENDED 3/31/99 New orders for the second quarter of fiscal 2000 increased to $101.2 million compared to $83.3 million, a 21.5% increase, when compared to the same period one year ago. Orders for the Mechanical Testing and Simulation (MT&S) segment increased 12.7% to $75.5 million from $67.0 million for the prior year. The MT&S segment accounted for 74.6% of total orders compared to 80.4% one year ago. Orders for the Factory Automation segment (FA) increased 57.7% to $25.7 million from $16.3 million one year ago. The FA segment accounted for 25.4% of total orders compared to 19.6% one year ago. SIX MONTHS ENDED 3/31/00 COMPARED TO SIX MONTHS ENDED 3/31/99 New orders for the first half of fiscal 2000 increased to $204.5 million compared to $174.6 million, a 17.1% increase, when compared to the same period one year ago. Orders for the Mechanical Testing and Simulation (MT&S) segment increased 8.9% to $153.5 million from $140.9 million for the prior year. The MT&S segment accounted for 75.1% of total orders compared to 80.7% one year ago. Orders for the Factory Automation segment (FA) increased 51.3% to $51.0 million from $33.7 million one year ago. The FA segment accounted for 24.9% of total orders compared to 19.3% one year ago. Backlog of undelivered orders at March 31, 2000 was $168.8 million, an increase of 15.0% from September 30, 1999, but a decrease of 2.0% from the backlog at March 31, 1999. RESULTS OF OPERATIONS THREE MONTHS ENDED 3/31/00 COMPARED TO THREE MONTHS ENDED 3/31/99 NET REVENUE for the second quarter of fiscal 2000 was $95.3 million, an increase of $2.0 million or 2.2% over the same three months of fiscal 1999. International revenue represented 52.4% of total revenues compared to 49.8% for the second quarter ended March 31, 1999. The increase in net revenues was largely due to the increased business activity in the factory automation segment offset by lower activity in our DSP Technology division. GROSS PROFIT for the second quarter of fiscal 2000 decreased 5.4% to $34.5 million compared to $36.4 million for the same period one year ago. Gross profit as a percentage of revenue decreased to 36.2% from 39.1% for the three-month periods ending March 31, 2000 and 1999, respectively. The decrease in margin percentage was a result of changes in mix from higher revenues in product oriented businesses and our DSP Technology division in 1999 to a higher content of lower margin project activity in fiscal 2000. SELLING EXPENSES increased by 1.6% to $15.4 million compared to $15.1 million for the three months ending March 31, 2000 and 1999 respectively. Selling expense as a percentage of revenue decreased to 16.1% compared to 16.2% for the same period one year ago. 8 GENERAL AND ADMINISTRATIVE EXPENSES increased by 4.1% to $8.4 million compared to $8.1 million for the three months ending March 31, 2000 and 1999 respectively. General and administrative expense as a percentage of revenue increased to 8.8% compared to 8.6% for the same period one year ago. The increase in total expense primarily relates to $0.3 million of severance related payments made in the second quarter of fiscal 2000. RESEARCH AND DEVELOPMENT EXPENSES decreased by 3.3% to $6.7 million compared to $6.9 million for the three months ending March 31, 2000 and 1999 respectively. Research and development expense as a percentage of revenue decreased to 7.0% compared to 7.4% for the same period one year ago. INTEREST (INCOME) AND EXPENSE increased to $1.5 million compared to $1.0 million for the three months ending March 31, 2000 and 1999 respectively. Interest expense increased mainly due to higher average short-term balances and slightly higher interest rates during the second quarter of fiscal 2000 as compared to the same period one year ago. Net interest expense as a percentage of revenue increased to 1.6% from 1.1% for the same period one year ago. OTHER (INCOME) AND EXPENSE, which includes gains and losses from foreign currency translations, decreased to $0.3 million from $0.6 million for the three months ending March 31, 2000 and 1999 respectively. The primary difference was due to higher currency losses in the same period one year ago. NET INCOME (LOSS) decreased 56.4% to $1.4 million compared to $3.1 million for the three months ending March 31, 2000 and 1999 respectively. Net income as a percentage of revenue decreased to 1.4% from 3.4% for the same period one year ago. The effective tax rate for the second quarter of fiscal 2000 increased to 38.0% from 32.6% for the same period one year ago. The change in the effective rate was due to a higher composition of income in foreign locations with higher tax rates. SIX MONTHS ENDED 3/31/00 COMPARED TO SIX MONTHS ENDED 3/31/99 NET REVENUE for the first six months of fiscal 2000 was $182.5 million, a decrease of $6.9 million or 3.6% over the first six months of fiscal 1999. International content of revenue was 47.6% of total revenues compared to 47.2% for the six-month periods ended March 31, 2000 and 1999 respectively. GROSS PROFIT for the first half of 2000 decreased 22.8% to $57.3 million compared to $74.1 million for the same period one year ago. Gross profit as a percentage of revenue was 31.4% compared to 39.1% for the six-month periods ending March 31, 2000 and 1999 respectively. The significant decrease in margins was result of technical and scheduling issues related to two large fixed-fee custom projects and adverse changes in business mix. SELLING EXPENSES decreased by 0.8% to $30.5 million compared to $30.7 million for the six months ending March 31, 2000 and 1999 respectively. Selling expense as a percentage of revenue increased to 16.7% compared to 16.2% for the same period one year ago. GENERAL AND ADMINISTRATIVE EXPENSES increased by 3.6% to $15.3 million compared to $14.8 million for the six months ending March 31, 2000 and 1999 respectively. General and administrative expense as a percentage of revenue increased to 8.4% compared to 7.8% for the same period one year ago. RESEARCH AND DEVELOPMENT EXPENSES decreased by 1.9% to $13.4 million compared to $13.6 million for the six months ending March 31, 2000 and 1999 respectively. Research and development expense as a percentage of revenue increased slightly to 7.3% compared to 7.2% for the same period one year ago. INTEREST (INCOME) AND EXPENSE increased to $2.7 million compared to $2.2 million for the six months ending March 31, 2000 and 1999 respectively. Net interest expense as a percentage of revenue increased to 1.5% from 1.2% for the same period one year ago. Interest expense increased due to higher average short-term balances outstanding and higher interest rates in the first half of fiscal 2000 as compared to the same period one year ago. 9 OTHER (INCOME) AND EXPENSE increased to $2.4 million from ($0.2) million for the six months ending March 31, 2000 and 1999 respectively. The increase was primarily due to currency losses of $1.5 million recognized in the first half of fiscal year 2000 as compared to a small gain in the same period one year ago. NET INCOME (LOSS) was ($4.7) million compared to $6.9 million for the six months ending March 31, 2000 and 1999 respectively. Net income as a percentage of revenue decreased to (2.6%) from 3.6% for the same period one year ago. The effective tax rate for the first half of fiscal 2000 was 33.4% compared to 33.8% for first half of fiscal 1999. See also Note 3 of Notes to Consolidated Financial Statements regarding discussion on restructuring charges. CAPITAL RESOURCES AND LIQUIDITY CASH FLOWS FROM OPERATING ACTIVITIES used $12.9 million in the first six months of 2000 and provided $17.8 million for the same period in 1999. The decrease in cash from operating activities was a direct result of a $4.7 million net loss for the period coupled with $15.8 million used by working capital items, such as payment of accounts payable and accrued liabilities and purchases of inventory offset by the reduction of accounts receivable. CASH FLOWS FROM INVESTING ACTIVITIES required cash totaling $6.6 million in the first six months of 2000 compared to $8.8 million in 1999. The majority of the cash outflows during the first six months of 2000 and 1999 related to net additions to property, plant and equipment. The Company expects future expenditures for property, plant and equipment to be funded with internally generated funds. Capital expenditures budgeted for fiscal 2000 are approximately $18.0 million. CASH FLOWS FROM FINANCING ACTIVITIES provided $12.8 million in the first six months of 2000 compared to cash used of $0.5 million in 1999. Cash flows from financing activities primarily related to increases in short-term borrowings of $14.2 million and an increase in long-term debt of $2.3 million. Offsetting the increases was the payment of dividends of $2.5 million and the repurchase of common stock of $0.8 million. The increase in short-term debt levels was used to fund working capital needs generated during the first half of fiscal 2000. Under the terms of its credit agreements, the Company has agreed to certain financial covenants. At March 31, 2000, the Company was in compliance with the terms and covenants of its credit agreements. The Company believes that the combination of present capital resources, internally generated funds, and unused financing sources will be adequate to finance on-going operations, allow for reinvestment in the business and strategic acquisitions. However, the Company may find it necessary to seek additional sources of financing to support its capital needs, for additional working capital, potential investments or acquisitions or otherwise. YEAR 2000 The following is a Year 2000 Readiness Disclosure pursuant to the Year 2000 Information and Readiness Disclosure Act. This disclosure should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K. The Company evaluated the potential impact of what is commonly referred to as the Year 2000 issue, concerning the inability of certain computer-based products and systems to operate correctly during the year 2000. The Company completed testing and where necessary remediation of any issues by June 30, 1999. The Company has not experienced any major issues related to the Year 2000 issue since completion of its testing. The Company will continue to monitor events and information relevant to Year 2000 issues so that additional action can be taken where necessary. The Company estimates that the costs directly related to its Year 2000 project were $400,000 in fiscal 1999 and $300,000 in fiscal 1998. The Company does not expect to incur any material costs in the future related to the Year 2000 issue. Such costs are expensed as incurred. This Readiness Disclosure is a forward looking statement as defined by the Securities and Exchange Commission and the Company recognizes that, although not expected, there are risks of project delays, costs incurred, vendor 10 compliance, and loss of business related to the Year 2000 issue which are outside the direct control of the Company and/or could prove to be material. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY LANGUAGE Statements included or incorporated by reference in this Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical or current facts are "forward-looking" statements, as defined in the Private Securities Litigation Reform Act of 1995, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those presently anticipated or projected. The following important facts, among others, could affect the Company's actual results in the future and could cause the Company's actual financial performance to differ materially from that expressed in any forward-looking statements: (I) With regard to the Company's new product developments, there may be uncertainties currently known to the Company concerning the expected results. (II) Possible significant volatility in both backlog and quarterly operating results may result from large, individual, fixed price orders in connection with sales of MT&S systems. (III) Export controls based on U.S. initiatives and foreign policy, as well as import controls imposed by foreign governments, may cause delays for certain shipments or the rejection of orders by the Company. Such delays could create material fluctuations in quarterly results and could have a material adverse effect on results of operations. Local political conditions and/or currency restrictions may also affect foreign revenues. (IV) Delays in realization of backlog orders may occur due to technical difficulties, export licensing approval or the customer's preparation of the installation site, any of which can affect the quarterly or annual period when backlog is recognized as revenue and could materially affect the results of any such period. (V) The Company experiences competition on a worldwide basis. Customers may choose to purchase equipment from the Company or from its competitors. (VI) The Company is exposed to market risk from changes in foreign currency exchange rates, which can affect its results from operations and financial condition. (VII) Risks in connection with the Year 2000 issue, including risks of anticipated Year 2000 compliance, greater-than-anticipated costs, or risks of business interruptions due to inability of the Company's vendors to comply. The forgoing list is not exhaustive, and the Company disclaims any obligation to or revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The required disclosures are included in Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 to the Consolidated Financial Statements included in the Company's 1999 Annual Report to Shareholders. This information remains current and is incorporated herein by reference. 11 PART II-------OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders. (a) The Company's Annual Meeting of Shareholders was held January 25, 2000. (b) The following persons were nominated and elected to continue as directors of the Company until the next Annual Meeting of Shareholders. Votes For Votes Against Jean-Lou Chameau 17,762,757 1,773,351 Charles A. Brickman 17,765,886 1,770,222 Bobby I. Griffin 17,764,784 1,771,324 Russell A. Gullotti 17,763,307 1,772,801 Brendan C. Hegarty 17,775,839 1,760,269 Sidney W. Emery 17,469,992 2,066,116 Linda Hall Whitman 17,763,435 1,772,673 No voters abstained or were broker/bank non-votes for any of the directors. (c) Shareholders approved the proposal to amend the Company's 1997 Stock Option Plan to increase the total number of shares of common stock available for issuance from 1,500,000 to 4,000,000 shares with 10,806,575 votes in favor of the proposal, 5,864,451 votes against, 90,849 abstained, and 2,765,887 non-votes by broker/banks. (d) Arthur Andersen LLP was ratified to serve as the Company's independent auditors for fiscal year 2000 with 19,450,653 votes in favor, 37,307 votes against and 129,998 votes abstained. ITEM 5. Other Information Thomas E. Holloran announced his retirement as a director of the Company at the meeting of shareholders held on January 25, 2000. ITEM 6. Exhibits and Reports on Form 8-K. The following are submitted as part of this report. (a) Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended March 31, 2000. 12 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MTS SYSTEMS CORPORATION /s/ Sidney W. Emery, Jr. ----------------------------------------- Sidney W. Emery, Jr. President Chief Executive Officer /s/ David E. Hoffman ----------------------------------------- David E. Hoffman Vice President Chief Financial Officer Dated: May 11, 2000 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS SEP-30-2000 JAN-01-2000 MAR-31-2000 12,424 0 133,177 2,176 62,454 215,533 152,883 78,311 322,974 101,429 62,048 0 0 5,197 148,942 322,974 95,291 95,291 60,821 30,440 1,818 0 0 2,212 841 1,371 0 0 0 1,371 .07 .07
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