-----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, SbE55rKorENdC5RydrF0IqFD2CB66yo+6UcKo5gmtCUaqTR69yJdyQH5RJ3wS2pX AHkV2SFqa8PyPYvH8SA0Xg== 0000897101-96-000624.txt : 19960813 0000897101-96-000624.hdr.sgml : 19960813 ACCESSION NUMBER: 0000897101-96-000624 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-02382 FILM NUMBER: 96608523 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 Quarterly Report Pursuant to Section 13 or 15 (d) or the Securities Exchange Act of 1934 For quarterly period ended June 30, 1996 Commission File Number 0-2382 MTS SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) MINNESOTA (State or other jurisdiction of incorporation or organization) 612-937-4000 (Telephone number of registrant including area code) 41-0908057 (I.R.S. Employer Identification No.) 14000 Technology Drive, Eden Prairie, Minnesota 55344 (Address of principal executive offices) (Zip 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. __X__ Yes _____ No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.25 par value; 9,360,879 shares outstanding. PART I. FINANCIAL INFORMATION MTS SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND SEPTEMBER 30, 1995 June 30 September 30 1996 1995 ASSETS UNAUDITED AUDITED -------- -------- (expressed in $ 000's) Cash and cash equivalents $ 20,570 $ 8,736 Accounts receivable 46,712 65,106 Unbilled contracts and retainage receivable 15,791 19,668 Inventories- Customer jobs-in-process 17,467 13,304 Components, assemblies and parts 24,147 22,365 Prepaid expenses 4,095 2,410 -------- -------- Total current assets 128,782 131,589 Land 3,461 3,461 Buildings and improvements 38,225 38,574 Machinery and equipment 57,268 55,826 Accumulated depreciation (51,624) (49,371) -------- -------- Total property and equipment 47,330 48,490 Other assets 8,815 9,421 -------- -------- $184,927 $189,500 ======== ======== LIABILITIES AND SHAREHOLDERS' INVESTMENT Notes payable to banks 113 10,475 Current maturities of long-term debt 639 1,043 Accounts payable 12,047 11,768 Accrued compensation and benefits 18,789 20,194 Advance billings to customers 18,353 14,784 Other accrued liabilities 9,194 8,475 Accrued income taxes (1,708) 275 -------- -------- Total current liabilities 57,427 67,014 -------- -------- Deferred income taxes 4,258 4,362 Long-term debt, less current maturities 10,718 11,447 -------- -------- Common stock, $.25 par; 32,000,000 shares authorized: 9,360,879 and 4,598,311 shares issued and outstanding 2,340 1,150 Additional paid-in capital 129 255 Retained earnings 105,991 100,443 Cumulative translation adjustment 4,064 4,829 -------- -------- Total shareholders' investment 112,524 106,677 -------- -------- $184,927 $189,500 ======== ======== MTS SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) FOR THE 3 MONTHS ENDED JUNE 30 1996 1995 -------- -------- (expressed in 000's except for per share amounts) NET REVENUES $ 60,630 $ 55,708 COST OF REVENUES 36,256 34,381 -------- -------- Gross profit 24,374 21,327 -------- -------- OPERATING EXPENSES: Selling 11,666 11,690 General and administrative 4,109 3,653 Research and development 4,482 3,176 Interest expense 135 744 Interest income (104) (71) Other (income) and expense (200) 174 -------- -------- Total operating expense 20,088 19,366 -------- -------- INCOME BEFORE INCOME TAXES 4,286 1,961 PROVISION FOR INCOME TAXES 1,372 474 -------- -------- NET INCOME $ 2,914 $ 1,487 ======== ======== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 0.30 $ 0.17 ======== ======== DIVIDENDS PER SHARE $ 0.08 $ 0.07 ======== ======== BACKLOG $126,053 $ 97,899 ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,703 8,993 ======== ======== MTS SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) FOR THE 9 MONTHS ENDED JUNE 30 1996 1995 -------- -------- (expressed in 000's except for per share amounts) NET REVENUES $183,847 $164,125 COST OF REVENUES 107,539 103,541 -------- -------- Gross profit 76,308 60,584 -------- -------- OPERATING EXPENSES: Selling 34,658 33,000 General and administrative 12,170 11,080 Research and development 12,926 9,522 Interest expense 1,037 1,992 Interest income (171) (102) Other (income) and expense, net 2,469 (543) -------- -------- Total operating expense 63,089 54,949 -------- -------- INCOME BEFORE INCOME TAXES 13,219 5,635 PROVISION FOR INCOME TAXES 4,243 1,397 -------- -------- NET INCOME $ 8,976 $ 4,238 ======== ======== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 0.94 $ 0.47 ======== ======== DIVIDENDS PER SHARE $ 0.24 $ 0.21 ======== ======== BACKLOG $126,053 $ 97,899 ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,564 9,007 ======== ======== MTS SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) FOR THE 9 MONTHS ENDED June 30 1996 1995 -------- -------- (expressed in $000's) OPERATING ACTIVITIES Net income $ 8,976 $ 4,238 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 5,536 5,338 Deferred income taxes -- 191 Changes in operating assets and liabilities that provide or (use) cash: Receivables, including accounts, unbilled contracts and retainages 21,014 (2,792) Inventories (6,403) (4,062) Prepaid expenses (1,735) (1,358) Accrued income taxes (2,018) (3,021) Advance billings to customers 4,077 4,888 Other, net 357 (820) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 29,804 2,602 -------- -------- INVESTING ACTIVITIES Property and equipment, net (4,819) (5,511) Purchase of PowerTek, Inc. (4,687) Other assets (105) 116 -------- -------- NET CASH (USED) IN INVESTING ACTIVITIES (4,924) (10,082) -------- -------- FINANCING ACTIVITIES Net borrowings (payments) on notes payable (10,329) 7,179 Proceeds from issuance of long-term debt -- 8,510 Payments on long-term borrowings (396) (1,794) Cash dividends (2,255) (1,885) Proceeds from employee stock option and stock purchase plans 3,387 663 Payments to purchase and retire common stock (3,495) (3,612) -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (13,088) 9,061 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 42 1,506 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 11,834 3,087 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,736 4,919 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,570 $ 8,006 ======== ======== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION AND TRANSLATION. The consolidated financial statements include the accounts of MTS SYSTEMS CORPORATION (the Company) and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. All balance sheet accounts of foreign subsidiaries are translated at the current exchange rate as of the end of the accounting period. Income statement items are translated at average currency exchange rates. The resulting translation adjustment is recorded as a separate component of shareholders' investment. Gains and losses resulting from foreign currency transactions are included in "Other (income) and expense, net" in the consolidated Statements of Income. REVENUE RECOGNITION. Revenue is recognized upon shipment of equipment when the customer's order can be manufactured, delivered and installed in less than nine months. Revenue on contracts requiring longer delivery periods (long-term contracts) and other customized orders which permit progress billings is recognized using the percentage-of-completion method based on the cost incurred to date relative to estimated total cost of the contract (cost-to-cost method). The cumulative effects of revisions of estimated total contract costs and revenues are recorded in the period in which the facts become known. When a loss is anticipated on a contract, the amount thereof is provided currently. LONG-TERM CONTRACTS. The Company enters into long-term contracts for customized equipment sold to its customers. Under terms of certain contracts, revenue recognized using the percent-of-completion method may not be invoiced until completion of contractual milestones, upon shipment of the equipment, or upon installation and acceptance by the customer. Unbilled amounts for such contracts appear in the consolidated balance sheets as unbilled contracts and retainage receivable. Amounts unbilled or retained at June 30, 1996 are expected to be invoiced over the next 12 months. STOCK SPLIT. On January 30, 1996 the Company's Board of Directors declared a two-for-one stock split in the form of a one hundred percent stock dividend. The record date of the split was March 8, 1996 , and the payment date was April 1, 1996. Earnings per share in this quarterly report have been restated to give effect to the split as of March 31, 1996. OTHER FINANCIAL STATEMENT DISCLOSURE. The Notes to Consolidated Financial Statements appearing in the Company's September 30, 1995 Annual Report to Shareholders on pages 20 through 27 are incorporated herein by reference. MANAGEMENT'S INTERIM FINANCIAL STATEMENT REPRESENTATION. The unaudited interim financial statements furnished herein reflect all adjustments which are, in the opinion of management, necessary to fairly state the results of the interim periods presented. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS New Orders and Backlog New orders for the third quarter of fiscal 1996, ended June 30, 1996, were $59 million, a 2% increase over the comparable quarter in fiscal 1995. Order activity in the Mechanical Testing and Simulation (MT&S) sector was about the same as the prior year. However, new orders from Europe showed unexpected strength. A $4 million commitment for a seismic system is not included in the quarter's orders pending receipt of written confirmation. The Company expects confirmation before the end of the fiscal year. Order activity in the Measurement and Automation (M&A) sector was up 11% from the same quarter in fiscal 1995. This improvement affirms management's prediction that orders would resume growth in the fourth quarter. New orders for the nine months ended June 30, 1996 were $211 million compared to $175 million for the same period one year ago, a 21% increase. Orders in both sectors increased over levels reported for the previous year. Orders in the Mechanical Testing and Simulation sector have increased 25% while the Measurement and Automation sector increased 6% over the orders reported for the same period one year ago. International orders were 49% of the 1996 year-to-date orders compared to 45% for 1995. Backlog of undelivered orders at June 30, 1996 was $126 million compared to $98 million at June 30, 1995 and $99 million at September 30, 1995. Results of Operations THIRD QUARTER Revenues for the third quarter were $61 million a 9% increase from the same quarter one year ago. International content of revenue was 46% and 44% for the quarters ended June 30, 1996 and 1995, respectively. Revenues in both sectors increased over levels reported in 1995. Income before income taxes increased 119% to $4.3 million compared to $2.0 million for the third quarter ended a year ago. The increase in pretax earnings results primarily from improved manufacturing margins in the MT&S sector leveraged by increased revenue volume. Consolidated gross margin percents were 40% and 38% for the periods ended June 30, 1996 and 1995, respectively. The improvement reflects completion of pre-1995 MT&S business that contained (i) lower margin system orders accepted during a period of weak demand in Europe and Japan and (ii) custom projects with significant technological challenges resulting in cost overruns. The improvement in gross margins began during the fourth quarter of fiscal 1995. The first three quarters of fiscal 1996 reflect continuation of this trend. Margins in the MT&S sector's current backlog and the mix of projected orders suggest that gross margins achieved in this quarter will continue. The gross margin increase was partially offset by increased operating expenses in development and administrative areas. Research and development expenses increased 41% as development programs were accelerated in both business sectors. Interest expense decreased and interest income increased as a result of changes in the Company's short-term debt and cash position. "Other" expense decreased from the impact of translating international subsidiary account balances and the settlement of specific transactions denominated in foreign currencies during the quarter. Net income for the quarter increased 96% to $2.9 million compared to $1.5 million for the same quarter one year ago. The effective tax rate for the quarter ended June 30, 1996 was 32% compared to 24% for the quarter ended in June, 1995. The current quarter's provision for income taxes excludes any benefit from the Research and Development Tax Credit, which expired in June 1995. NINE MONTHS Revenues for the nine months ended in June, 1996 were $184 million, a 12% increase over the same period a year ago. The MT&S sector produced a 13% increase over 1995 revenues, and the M&A sector increased 9% over 1995. International revenues were 51% of total revenues compared to 47% for the nine month periods ended in June, 1996 and 1995, respectively. Income before income taxes for the first nine months of 1996, increased to $13.2 million from $5.6 reported in 1995. Gross margin increased from 1995 to 1996 due to improved manufacturing margins in the MT&S sector leveraged by increased revenue volume. Gross margins as a percent of sales were 42% in 1996 compared to 40% in 1995. The improvement in margin percentage is discussed, above. Increases in gross margin were offset, in part, by increased operating expenses for development, selling, general and administrative areas. Significant development efforts are underway to convert the company's electronic control systems to a common platform. This undertaking will reduce costs on future deliveries and will simplify the writing of application software. The Company continues investing in Asian markets to expand the international presence of the M&A sector's product lines. "Other" expense increased from the impact of translating international subsidiary account balances and the settlement of specific transactions denominated in foreign currencies. Significant currency gains occurred on settlement of specific transactions in 1995. Such activity was near "breakeven" on translation and transaction settlements in 1996. Total operating expenses as a percent of revenues were 34% compared to 33% for the nine months ended in June, 1996 and 1995, respectively. Net income for the first nine months of 1996 was $9.0 million compared to $4.2 million reported one year ago, a 112% increase. The effective income tax rates were 32% and 25% for the nine months ended in 1996 and 1995, respectively. As discussed above, the current year's provision for income taxes excludes any benefit from the Research and Development Tax Credit, which expired in June, 1995. Financial Condition and Liquidity The ratio of current assets to current liabilities at June 30, 1996 was 2.2 compared to 2.0 at September 30, 1995. Cash and cash equivalents increased 135% to $20.6 million at June 30, 1996 compared to $8.7 million at September 30, 1995. The Company's borrowing under its $55 million lines of credit was less than $.1 million at June 30, 1996 compared to $10.5 million at September 30, 1995. Committed credit lines have been reduced from $70 million reflecting the Company's reduced need for borrowing in the near future. Capital expenditures, net of retirements for the nine months totalled $4.8 million. The Company's total debt to equity ratio decreased to 10% at June 30, 1996 from 22% at September 30, 1995 evidencing near elimination of short-term notes. The Company's increasing profitability and conversion of receivables provided the cash to repay the short-term debt. The Company's past financial performance, the availability of credit under its borrowing facilities, available cash and cash equivalents provide sufficient resources for growth, expansion and diversification. PART II-------OTHER INFORMATION 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 June 30, 1996. 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/ D.M. Sullivan D.M. Sullivan Chairman, President and Chief Executive Officer /s/ M.L. Carpenter M.L. Carpenter Vice President Chief Financial Officer Dated: August 12, 1996 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS SEP-30-1996 JUN-30-1996 20,570 0 64,139 1,636 41,614 128,782 98,954 51,624 184,927 57,427 10,718 0 0 2,340 110,184 184,927 183,847 183,847 107,539 167,122 2,469 17 1,037 13,219 4,243 13,219 0 0 0 8,976 .94 .94
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