-----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, AIX7lIe3scsHm4+F2wdItxh3RFIVcS8FITJ4ttwpDwYMGVA5/rsMEzQaBEOBqe6C jJ16WbnDK/4Atc/9+oXc5A== 0000897101-98-000820.txt : 19980814 0000897101-98-000820.hdr.sgml : 19980814 ACCESSION NUMBER: 0000897101-98-000820 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 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: SEC FILE NUMBER: 000-02382 FILM NUMBER: 98686116 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) of the Securities Exchange Act of 1934 For quarterly period ended June 30, 1998 Commission File Number 0-2382 _______________ MTS SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) MINNESOTA 612-937-4000 41-0908057 (State or other jurisdiction of (Telephone number of registrant (IRS Employer incorporation or organization) including area code) 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; 18,566,339 shares outstanding. PART I. FINANCIAL INFORMATION MTS SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1998 AND SEPTEMBER 30, 1997 June 30 September 30 1998 1997 ASSETS UNAUDITED AUDITED (expressed in $ 000's) Cash and cash equivalents $ 13,988 $ 10,285 Accounts receivable 65,430 62,023 Unbilled contracts and retainage receivable 33,547 32,653 Inventories- Customer jobs-in-process 14,982 5,559 Components, assemblies and parts 44,081 38,032 Prepaid expenses 5,508 4,253 --------- --------- Total current assets 177,536 152,805 --------- --------- Land 2,437 2,453 Buildings and improvements 40,623 37,779 Machinery and equipment 80,103 68,071 Accumulated depreciation (62,589) (57,884) --------- --------- Total property and equipment 60,574 50,419 --------- --------- Other assets 26,747 12,908 --------- --------- $ 264,857 $ 216,132 ========= ========= LIABILITIES AND SHAREHOLDERS' INVESTMENT Notes payable to banks $ 46,637 $ 4,356 Current maturities of long-term debt 801 920 Accounts payable 14,544 17,771 Accrued compensation and benefits 23,410 25,487 Advance billings to customers 17,310 21,065 Other accrued liabilities 11,538 9,880 --------- --------- Total current liabilities 114,240 79,479 Deferred income taxes 4,452 4,445 Long-term debt, less current maturities 10,200 7,589 --------- --------- Common stock, $.25 par; 64,000,000 shares authorized: 18,414,257and 18,157,080 shares issued and outstanding 4,643 2,284 Additional paid-in capital 2,921 1,438 Retained earnings 127,815 119,167 Cumulative translation adjustment 586 1,730 --------- --------- Total shareholders' investment 135,965 124,619 --------- --------- $ 264,857 $ 216,132 ========= ========= MTS SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED) FOR THE 3 MONTHS ENDED June 30 1998 1997 -------- -------- (expressed in 000's except for per share amounts) NET REVENUES $ 85,826 $ 74,153 COST OF SALES 53,548 44,672 -------- -------- Gross profit 32,278 29,481 OPERATING EXPENSES: Selling 13,170 13,305 General and administrative 5,515 5,114 Research and development 5,655 4,025 -------- -------- INCOME FROM OPERATIONS 7,938 7,037 Interest expense 570 509 Interest income (75) (176) Other (income) expense, net (308) (4,243) -------- -------- INCOME BEFORE INCOME TAXES 7,751 10,947 PROVISION FOR INCOME TAXES 2,664 4,206 -------- -------- NET INCOME $ 5,087 $ 6,741 ======== ======== BASIC EARNINGS PER SHARE $ 0.27 $ 0.37 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 18,520 18,124 DILUTED EARNINGS PER SHARE $ 0.26 $ 0.36 WEIGHTED AVERAGE COMMON SHARES ASSUMING DILUTION 19,334 19,040 DIVIDENDS PER SHARE $ 0.06 $ 0.05 BACKLOG $161,940 $136,472 MTS SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED FOR THE 9 MONTHS ENDED June 30 1998 1997 -------- -------- (expressed in 000's except for per share amounts) NET REVENUES $241,450 $214,874 COST OF SALES 147,320 127,942 -------- -------- Gross profit 94,130 86,932 OPERATING EXPENSES Selling 38,272 37,907 General and administrative 16,488 14,990 Research and development 15,670 12,790 -------- -------- INCOME FROM OPERATIONS 23,700 21,245 Interest expense 1,246 1,279 Interest income (251) (294 Other (income) expense, net 719 (2,430 -------- -------- INCOME BEFORE INCOME TAXES 21,986 22,690 PROVISION FOR INCOME TAXES 7,721 8,086 -------- -------- NET INCOME $ 14,265 $ 14,604 ======== ======== BASIC EARNINGS PER SHARE $0.77 $0.80 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 18,398 18,211 DILUTED EARNINGS PER SHARE $0.74 $0.78 WEIGHTED AVERAGE COMMON SHARES ASSUMING DILUTION 19,176 18,870 DIVIDENDS PER SHARE $0.18 $0.15 BACKLOG $161,940 $136,472 MTS SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
FOR THE 9 MONTHS ENDED June 30 1998 1997 -------- -------- (expressed in $000's) OPERATING ACTIVITIES Net income $ 14,265 $ 14,604 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 7,039 6,285 Changes in operating assets and liabilities that provide or (use) cash: Receivables, including accounts, unbilled contracts and retainages (3,708) (13,391) Inventories (12,429) (9,359) Prepaid expenses (741) 595 Advance billings to customers (3,550) 3,805 Other, net (5,975) 4,222 -------- -------- NET CASH (USED) BY OPERATING ACTIVITIES (5,099) 6,761 -------- -------- INVESTING ACTIVITIES Property and equipment, net (15,706) (4,949) Acquisitions, net of cash acquired (18,976) (5,980) Other assets 696 (211) -------- -------- NET CASH (USED) IN INVESTING ACTIVITIES (33,986) (11,140) -------- -------- FINANCING ACTIVITIES Net borrowings (payments) on notes payable 42,340 9,679 Proceeds from issuance of long-term debt 3,113 -- Payments on long-term borrowings (396) (2,497) Cash dividends (3,317) (2,733) Proceeds from employee stock option and stock purchase plans 2,690 2,921 Payments to purchase and retire common stock (1,149) (7,205) -------- -------- NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES 43,281 165 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (493) (1,003) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 3,703 (5,217) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,285 19,231 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,988 $ 14,014 ======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. 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 denominated currency transactions and from foreign exchange hedge contracts are included in "Other (income) 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 twelve 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 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, 1998 are expected to be invoiced within twelve months. Other Financial Statement Disclosures The Notes to Consolidated Financial Statements appearing in the Company's September 30, 1997 Annual Report to Shareholders on pages 26 through 34 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. Earnings Per Share Data Statement of Financial Accounting Standards No. 128, "Earnings per Share" requires all companies whose capital structure includes convertible securities and options to provide dual presentation of basic and diluted earnings per share. The standard became effective with the quarter ended December 31, 1997. Prior year earnings per share have been restated to conform with the new standard. 2. SUBSEQUENT EVENTS On December 3, 1997 the Company's Board of Directors declared a two-for-one stock split to be effected in the form of a one hundred percent stock dividend to shareholders of record on January 15, 1998. The distribution of stock occurred on February 2, 1998. Earnings per share and share data in the financial statements for the periods ended June 30, 1998 and 1997 have been restated to reflect the split. 3. ACQUISITIONS In December, 1996 the Company acquired a majority of the stock of Bregenhorn-Butow & Co. of Freiburg, Germany (name subsequently changed to Custom Servo Motors Antriebstechnik GmbH & Co. KG), a privately held supplier of low power, electric servo motors and drives. The transaction involved cash and debt and has been accounted for by the purchase method of accounting. In April, 1998 the Company acquired all of the stock of Nano Instruments Inc. of Oak Ridge Tennessee, a privately held manufacturer of instrumented indentation systems for ultra-low-force nanoindentation testing of surfaces and thin films. The transaction involved cash and debt and is expected to have a negligible effect on earnings for the fiscal year ending September 30, 1998. The acquisition has been accounted for by the purchase method of accounting. In April, 1998 the Company acquired all of the stock of Performance Controls, Inc. of Horsham, Pennsylvania, a privately held manufacturer of high performance power amplifiers for factory automation and magnetic resonance machine applications. The transaction involved cash and is expected to have a positive effect on earnings for the fiscal year ending September 30, 1998. The acquisition has been accounted for by the purchase method of accounting. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS New Orders and Backlog New orders for the third quarter of fiscal 1998, ended June 30, 1998, were $77.4 million compared to $77.9 million one year ago. International orders were 39.4% compared to 35.7% for the prior year's quarter. Order activity from Asia-Pacific remains weak. The Company expects that Asian order volumes for the remainder of the fourth quarter of fiscal 1998 will continue to be lower than in prior years. Order activity in the Mechanical Testing and Simulation (MT&S) sector was 73.3% of total orders compared to 81.8% a year ago. The Measurement and Automation (M&A) sector's order volume increased 8.5% to 26.7% of total orders compared to the same quarter in fiscal 1997. New orders for the nine months ended June 30, 1998 were $221.3 million compared to $228.1 million for the same period one year ago. International orders were 43.6% of the 1998 year-to-date orders compared to 44.5% for 1997. Order activity in the Mechanical Testing and Simulation (MT&S) sector was 75.9% of total orders compared to 79.8% for the same period one year ago. The M&A sector grew 3.9% to 24.0% of total orders compared to the same period one year ago. Backlog of undelivered orders at June 30, 1998 was $162 million, an 18.7% increase compared to backlog at June 30, 1997 and a 7.9% decrease from September 30, 1997. Results of Operations THREE MONTHS Revenues for the third quarter were $85.8 million, a 15.7% increase from the same quarter one year ago. Domestic revenues increased to 55.0% from 46.0% for the quarters ended June 30, 1998 and 1997, respectively. Gross margin increased 9.5% due to increased revenue volume in both the MT&S and M&A sectors. Consolidated gross margin as a percentage of revenue decreased to 37.6% from 39.7% for the quarters ended June 30, 1998 and 1997, respectively. The quarter ended in 1998 included a higher content of custom projects with lower margins than those of more standard MT&S business. The decline in margin as a percent of revenue for 1998 was expected and was due to a change in the mix of products sold. Margins in the MT&S sector's current backlog and the mix of projected orders suggest that gross margins percents will improve during the fourth quarter. Operating expenses for selling, administrative and development increased 8.4% over amounts reported for the same period one year ago. As a percent of revenue these expenses were 28.4% compared to 30.3% for the quarters ended June 30, 1998 and 1997, respectively. "Other income and expense" decreased primarily due to a $4.3 million pretax gain from the sale of land, which occurred during the third quarter of fiscal 1997. Other factors affecting "Other income and expense were a reduced negative impact in translating international subsidiary account balances, offset by favorable settlements of specific transactions denominated in foreign currencies. Income before income taxes decreased to $7.8 million compared to $10.9 million for the same quarter one year ago. Excluding the $4.3 million pretax gain from the sale of land during the third quarter of fiscal 1997, income before income taxes increased 18.2%. Net income for the quarter decreased to $5.1 million compared to $6.7 million for the same quarter one year ago. Excluding the $2.7 million after tax gain from the sale of land during the third quarter of fiscal 1997 net income increased 24.5%. The effective tax rate for the quarter ended June 30, 1998 was 34.4% compared to 38.4 for the quarter ended June 30, 1997. The current quarter's provision for income taxes reflects increasing amounts of business being sourced in the U.S. where the statutory rate is lower than that of international tax rates. NINE MONTHS Revenues for the nine month period ended June 30, 1998 were $241.5 million, a 12.4% increase over the same period one year ago. The MT&S sector reflects an 11.3% increase over 1997 revenues, and the M&A sector increased 16.0% over 1997. Domestic revenues increased to 53.0% from 47.0% for the nine-month periods ended June 30, 1998 and 1997, respectively. Gross margin increased 8.3% due to increased revenue volume in both the MT&S and M&A sectors. Consolidated gross margin as a percentage of revenue decreased to 39.0% from 40.5 for the nine-month periods ending June 30, 1998 and 1997. The decline in margin percentage is discussed, above. Operating expenses for selling, administrative and development increased 7.2% over amounts reported for the same period one year ago. As a percent of revenues, these expenses were 29.2% compared to 30.6% for the nine months ended June 30, 1998 and 1997, respectively. "Other income and expense" decreased for the same reasons discussed, above. Income before income taxes for the first nine months of fiscal 1998 decreased 3.0% to $22.0 million compared to $22.7 million for the same period one year ago. Excluding the $4.3 million gain from the sale of land during the same period last year, income before income taxes increased 19.5%. Net income for the first nine months of fiscal 1998 was $14.3 million compared to $14.6 million reported one year ago, a 2.0% decrease. Excluding the $2.7 million after tax gain from the sale of land during the same period last year, net income increased 20.1%. The effective income tax rates were 35.1% and 35.6% for the nine months ended in 1998 and 1997, respectively. As discussed above, the current quarter's provision for income taxes reflects increasing amounts of business being sourced in the U.S. where the statutory rate is lower than that of international tax rates. Financial Condition and Liquidity The ratio of current assets to current liabilities at June 30, 1998 was 1.5 compared to 1.9 at September 30, 1997. Cash and cash equivalents increased 36.0% to $14.0 million at June 30, 1998 compared to $10.3 million at September 30, 1997. The Company's borrowing was $46.6 million at June 30, 1998 compared to $4.4 million at September 30, 1997. The increase in borrowing results from acquisitions, working capital needs and investments in property and equipment. During July of this year the company signed a note with an outside lender for $35 million. The proceeds were used to pay off short-term debt. The loan matures on July 21, 2008. Capital expenditures, net of retirements for the nine months totaled $15.7 million. The Company's total debt to equity ratio increased to 42.4% at June 30, 1998 from 10.3% at September 30, 1997 evidencing increased borrowing on short-term notes. The Company's increasing profitability and conversion of receivables is expected to reduce the short-term debt in future quarters. 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 5. Other Information. Election of New Directors In May 1998 MTS Systems Corporation elected Sidney W. Emery, Jr. and Brendan C. Hegarty to the Board of Directors effective May 26, 1998, increasing the number of directors to 10. Mr. Emery joined MTS in March 1998 as president and chief executive officer, succeeding Donald M. Sullivan who will continue as chairman of the board. Mr. Emery had served 12 years with Honeywell, Inc. in executive division and group level positions in Honeywell's Industrial Controls and Avionics businesses. Most recently, he was Honeywell's area vice president of Western and Southern Europe. His previous employment includes engineering and manufacturing positions with Bendix Corporation and military service in the Office of the Secretary of the Navy. Mr. Hegarty, is executive vice president and chief operating officer of Seagate Technology in charge of its worldwide recording heads operations. Mr. Hegarty received a Ph.D in Solid State Physics from the University of Sussex in England. He worked with IBM for 20 years in England, the Netherlands and the United States in management positions for software and hardware development and manufacturing. In 1988, he joined Control Data Corporation to run its thin film head business, which was subsequently bought by Seagate in 1989. Forward Looking Statements In this report the Company makes forward-looking statements which reflect management's current expectations or beliefs. We caution our shareholders and other readers of this report that actual future results could differ materially from those in the forward looking statements depending upon many factors, some beyond our control, including factors related to Company competitive performance, industry conditions and international economic trends. 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, 1998. 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 /s/ M.L. Carpenter ------------------------------- M.L. Carpenter Vice President Chief Financial Officer Dated: August 14, 1998 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS SEP-30-1998 JUN-30-1998 13,988 0 98,977 2,081 59,063 177,536 123,163 62,589 264,857 115,989 11,001 0 0 4,643 131,322 135,965 85,826 85,826 53,548 24,340 (308) 81 570 7,751 2,664 7,938 0 0 0 5,087 .27 .26
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