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 March 31, 1995
Commission File Number 0-2382
MTS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 612-937-4000
(State or other jurisdiction of (Telephone number of registrant
incorporation or organization) including area code)
41-0908057
(I.R.S. Employer
Identification No.)
14000 Technology Drive, Eden Prairie, Minnesota 55344
(Address/Zip Code of principal executive offices)
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; 4,423,203 shares outstanding.
PART I. FINANCIAL INFORMATION
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
MAR 31 SEPT 30
1995 1994
ASSETS UNAUDITED AUDITED
---------- ---------
(expressed in $ 000's)
<S> <C> <C>
Cash and cash equivalents $10,677 $4,919
Accounts receivable 49,918 44,534
Unbilled contracts and retainage receivable 33,014 35,584
Inventories-
Customer jobs-in-process 16,440 14,336
Components, assemblies and parts 21,028 20,816
Prepaid expenses 4,189 3,017
---------- ---------
Total current assets 135,266 123,206
---------- ---------
Land 3,703 3,703
Buildings and improvements 38,026 36,452
Machinery and equipment 53,066 50,803
Accumulated depreciation (46,556) (43,590)
---------- ---------
Total property and equipment 48,239 47,368
---------- ---------
Other assets 9,059 5,134
---------- ---------
$192,564 $175,708
========== =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Notes payable to banks $26,686 $17,007
Current maturities of long-term debt 1,016 1,516
Accounts payable 9,507 10,969
Accrued compensation and benefits 16,815 18,058
Accrued income taxes (1,281) 981
Other accrued liabilities 10,238 8,170
Advance billings to customers 13,021 9,660
---------- ---------
Total current liabilities 76,002 66,361
---------- ---------
Deferred income taxes 4,141 3,973
Long-term debt, less current maturities 12,716 5,328
---------- ---------
Common stock, $.25 par; 16,000,000 shares
authorized: 4,423,203 and 4,568,374
shares issued and outstanding 1,106 1,142
Additional paid-in capital - 2,928
Retained earnings 92,885 91,762
Cumulative translation adjustment 5,714 4,214
---------- ---------
Total shareholders' investment 99,705 100,046
---------- ---------
$192,564 $175,708
========== =========
</TABLE>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 3 MONTHS ENDED
MARCH 31
1995 1994
-------- --------
(expressed in 000's)
for per share
<S> <C> <C>
NET REVENUES $58,949 $46,357
COST OF REVENUES 37,888 28,978
-------- --------
Gross profit 21,061 17,379
-------- --------
OPERATING EXPENSES:
Selling 11,163 9,669
General and administrative 4,282 3,275
Research and development 3,367 3,357
Interest expense 831 554
Interest income (6) (43)
Other (income) and expense, net
(including $3.7 million gain
from real estate transaction in 1994) (598) (4,448)
-------- --------
Total operating expense 19,039 12,364
-------- --------
INCOME BEFORE INCOME TAXES 2,022 5,015
PROVISION FOR INCOME TAXES 511 1,834
-------- --------
NET INCOME $1,511 $3,181
======== ========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $0.34 $0.68
======== ========
DIVIDENDS PER SHARE $0.14 $0.14
======== ========
BACKLOG $95,738 $86,848
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,463 4,684
======== ========
</TABLE>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 6 MONTHS ENDED
MARCH 31
1995 1994
-------- --------
(expressed in 000's)
for per share
<S> <C> <C>
NET REVENUES $108,416 $93,597
COST OF REVENUES 69,160 56,774
-------- --------
Gross profit 39,256 36,823
-------- --------
OPERATING EXPENSES:
Selling 21,309 18,923
General and administrative 7,427 6,023
Research and development 6,346 6,029
Interest expense 1248 952
Interest income (31) (95)
Other (income) and expense, net
(including $3.7 million gain
from real estate transaction in 1994) (717) (3,550)
-------- --------
Total operating expense 35,582 28,282
-------- --------
INCOME BEFORE INCOME TAXES 3,674 8,541
PROVISION FOR INCOME TAXES 924 3,000
-------- --------
NET INCOME $2,750 $5,541
======== ========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $0.61 $1.19
======== ========
DIVIDENDS PER SHARE $0.28 $0.28
======== ========
BACKLOG $95,738 $86,848
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,507 4,675
======== ========
</TABLE>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 6 MONTHS ENDED
MAR 31 MAR 31
1995 1994
-------- --------
(expressed in $000)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $2,750 $5,541
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 3,540 2,957
Deferred income taxes 168 (607)
Foreign currency translation adjustment 1,500 34
Changes in operating assets and liabilities:
Receivables, including accounts, unbilled
contracts and retainages (2,814) 1,198
Inventories (2,316) (3,966)
Prepaid expenses (1,172) (1,496)
Accrued income taxes (2,262) 720
Advance billings to customers 3,361 (2,276)
Other, net (637) 4,803
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,118 6,908
-------- --------
INVESTING ACTIVITIES
Property and equipment, net (4,086) (11,740)
Excess purchase cost for MTS Power Tek, Inc. (3,683) --
Excess purchase cost for Adamel Lhomargy (38) (40)
Other assets (529) (309)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (8,336) (12,089)
-------- --------
FINANCING ACTIVITIES
Net borrowings (payments) on notes payable 9,679 (556)
Proceeds from issuance of long-term debt 8,510 9,690
Payments on long-term borrowings (1,622) (1,023)
Cash dividends (1,250) (1,277)
Proceeds from employee stock option
and stock purchase plans 113 601
Payments to purchase and retire common stock (3,454) --
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,976 7,435
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,758 2,254
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,919 7,597
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $10,677 $9,851
======= =======
</TABLE>
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 March 31, 1995 are
expected to be invoiced as follows: $28,813,000 in 1995 and $4,201,000 in 1996.
INCOME TAXES -- CHANGE IN ACCOUNTING METHOD. The Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes effective October 1, 1993. The effect of such adoption was not
significant on the Company's financial position or results of operations for
the quarters ended fiscal 1994 or the year ended September 30, 1994.
OTHER FINANCIAL STATEMENT DISCLOSURE. The Notes to Consolidated
Financial Statements appearing in the Company's September 30, 1994 Annual Report
to Shareholders on pages 20 through 25 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 second quarter of fiscal 1995, ended March 31, 1995,
were $65,136,000, a 27% increase over the comparable quarter in fiscal 1994.
Orders were strong in all of the Company's business sectors. The strengthening
of the German Mark and Japanese Yen against the U.S. Dollar account for some of
the increase. Recent acquisitions, MTS Power-Tek (in fiscal 1995) and Adamel
Lhomargy S.A. (in fiscal 1994), contributed 7% of the increase. International
orders represented 45% of the quarter's orders compared to 55% in the same
period for the previous year.
New orders for the six months ended March 31, 1995 were $117,186,000
compared to $90,270,000 for the same period one year ago, a 30% increase. Orders
in all sectors recorded increases over levels reported for the previous year.
Orders in the Mechanical Testing and Simulation sector increased 17% while the
Measurement and Automation sector increased 26% over the order volumes reported
for the same period one year ago. Recent acquisitions accounted for 13% of the
increase. International orders were 45% of the 1995 total compared to 52% for
1994. This change reflects the slow recovery of European and Japanese economies.
Orders for 1995 are expected to exceed the fiscal 1994 total of $195
million. Backlog of undelivered orders at March 31, 1995 was $95,739,000
compared to $86,848,000 at March 31, 1994 and $84,591,000 at September 30, 1994.
Results of Operations
Revenues for the second quarter were $58,949,000 a 27% increase from
the same quarter one year ago. International content of revenue was 53% and 51%
for the quarters ended March 31, 1995 and 1994, respectively. Revenues from all
sectors increased over levels reported in 1994 for the quarter ended in March.
Income before income taxes was $2,022,000 compared to $5,015,000 for
the second quarter ended a year ago. Pretax earnings for second quarter 1994
included a $3.7 million gain (included in "Other income and expense, net") on
the sale of the Company's old Berlin plant. Thus, second quarter 1995 income
from operations increased 54% over the same period in 1994 (after excluding the
gain from the building sale). Gross margin increased on the strength of
increased revenue volume for the March, 1995 quarter as compared to the same
quarter in 1994. The margin increase was partially offset by increased operating
expenses in selling and administrative areas, after excluding the gain on the
building sold in 1994. Operating expenses as a percent of revenues were 32% for
the quarter ended March 31, 1995 compared to 35% for the same quarter in 1994.
Net income for the quarter was $1,511,000 compared to $3,181,000 for
the same quarter one year ago. Net income for the 1994 quarter includes $1.9
million gain from the building sale discussed above. The effective tax rate for
the quarter ended March 31, 1995 was 25% compared to 37% for the quarter ended
in March, 1994.
Revenues for the six months ended in March, 1995 were $108,416,000, a
16% increase over the same period a year ago. Recent acquisitions accounted for
8% of the increase. Less than 5% of the increase was due to translation of
revenues denominated in international currencies which experienced volatility
during the first six months of 1995. International revenues were 48% of total
revenues as compared to 49% for the six month periods ended in March, 1995 and
1994, respectively. Revenues from all sectors increased over levels reported in
1994 for the six months ended in March.
Income before income taxes for the first six months of 1995, decreased
to $3,674,000 from $8,541,000 reported in 1994. The 1994 pretax income includes
the non-operating gain from the sale of the Berlin plant, as discussed above.
Excluding the gain, the decrease in pretax income was 24%. Gross margin
increased from 1994 to 1995 due increased revenue volume for the six months
ended in 1995. However, gross margins as a percent of sales were 36% in 1995
compared to 39% in 1994. The decline in the margin percentage reflects
significant technical challenges on large custom projects which were taken
under competitive price pressures. The decline in pretax income is due in part,
to the reduced leverage from lower gross margin percentages and in part, to
increased operating expenses. Investments in selling, general and
administrative expenses for recent acquisitions and the translation of
operating expenses denominated in Yen and DMark currencies account for most of
the increase. Operating expenses (exclusive of the gain) as a percent of sales
were 33% compared to 34% for the six months ended in March, 1995 and 1994,
respectively.
Net income for the first six months of 1995 was $2,750,000 compared to
$5,541,000 reported one year ago. Excluding the 1994 gain from the plant sale,
the decrease in net income was 25%. The income tax rates were 25% and 35% for
the six months ended in 1995 and 1994, respectively.
The cumulative effect of the Company's change in accounting to adopt
SFAS No. 109 was not significant. The impact of the change on the results of
operations for the quarter and six month periods ended in fiscal 1994 was not
significant.
Financial Condition and Liquidity
The ratio of current assets to current liabilities at March 31, 1995
was 1.8 compared to 1.9 at September 30, 1994. Cash and cash equivalents were
$10,677,000 at March 31, 1995 compared to $4,919,000 at September 30, 1994. The
Company's borrowing under its $70 million lines of credit was $27 million at
March 31, 1995 compared to $28 million at March 31, 1994 and $17 million at
September 30, 1994.
Capital expenditures, net of retirements for the second quarter
totalled $4,086,000. The Company's total debt to equity ratio increased to 42%
at March 31, 1995 from 24% at September 30, 1994 reflecting the use of
short-term notes to finance increases in operating assets, repurchase of the
Company's common stock, the acquisition of MTS Power Tek and the mortgage
placement for the Berlin plant purchased in 1994.
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 4. Submission of Matters to a Vote of Security Holders.
(a) The Company's Annual Meeting of Shareholders was held January 31,
1995. Outstanding shares eligible to vote were 4,540,997. The shares
voted totaled 4,278,208, representing 94% of the outstanding shares.
(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
E. Thomas Binger 4,255,957 22,051
Charles A. Brickman 4,255,945 22,063
Bobby I. Griffin 4,255,315 22,693
Thomas E. Holloran 4,256,015 21,993
Thomas E. Stelson 4,253,799 24,209
Donald M. Sullivan 4,253,948 24,060
No voters abstained or were broker/bank non-votes for any of the
directors.
(c) Arthur Andersen & Co. was ratified as the Company's independent
auditor by 4,266,830 votes for; 6,452 votes against; 4,726 votes
abstained; and zero non-votes by broker/banks.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 27 - Financial Data Schedule for SEC use.
(b) Reports on 8-K:
No reports on Form 8-K were filed during the quarter ended
March 31, 1995.
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: May 15, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 10,677
<SECURITIES> 0
<RECEIVABLES> 82,932
<ALLOWANCES> 1,654
<INVENTORY> 37,468
<CURRENT-ASSETS> 135,266
<PP&E> 94,795
<DEPRECIATION> 46,556
<TOTAL-ASSETS> 192,564
<CURRENT-LIABILITIES> 76,002
<BONDS> 12,716
<COMMON> 1,106
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 192,564
<SALES> 108,416
<TOTAL-REVENUES> 108,416
<CGS> 69,160
<TOTAL-COSTS> 35,582
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 1,248
<INCOME-PRETAX> 3,674
<INCOME-TAX> 924
<INCOME-CONTINUING> 3,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,750
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
