UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER 0-2382
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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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION INCLUDING AREA CODE) IDENTIFICATION NO.)
14000 TECHNOLOGY DRIVE, EDEN PRAIRIE, MINNESOTA 55344-9763
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
-----------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK (PAR VALUE OF 25 CENTS PER SHARE)
INDICATE BY CHECK MARK WHETHER 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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THE FORM 10-K. [X]
AS OF DECEMBER 1, 1995, 4,678,644 SHARES OF THE REGISTRANT'S COMMON
STOCK WERE OUTSTANDING AND THE AGGREGATE MARKET VALUE OF SUCH COMMON STOCK
(BASED UPON THE AVERAGE OF THE HIGH AND LOW PRICES) HELD BY NON-AFFILIATES WAS
$140,110,919.
-----------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
ANNUAL REPORT TO SHAREHOLDERS FOR FISCAL YEAR ENDED SEPTEMBER 30, 1995 - PARTS
I, II AND IV.
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS, STATEMENT DATED PRIOR TO
JANUARY 30, 1996 - PART III.
MTS SYSTEMS CORPORATION
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
PART I
ITEM 1. BUSINESS
MTS Systems Corporation (hereafter called "MTS" or "the Company" or "the
Registrant") designs, manufactures, markets and services computer-based testing
and simulation systems for determining the mechanical behavior of materials,
products and structures (the Mechanical Testing and Simulation sector), and
measurement and control products for measuring process variables and automating
manufacturing processes (the Measurement and Automation sector). MTS's customers
use these systems and products to improve product quality, accelerate product
development, increase machine and worker productivity and protect the
environment.
The Company's systems and products share common technologies: sensors for
measuring machine and process parameters, control technologies for test and
process automation, hydraulic and electric servodrives for precise actuation,
and application software to tailor the test or automation system to the
customer's needs and to analyze results. These technologies offer the customer
solutions to problems in a variety of markets.
CUSTOMERS AND PRODUCTS BY MARKET SECTOR
The Company's operations are organized into two business sectors: 1) Mechanical
Testing and Simulation, and 2) Measurement and Automation. The operational
alignment of the sectors allows the Company to maintain a strategic focus on
markets with different applications of the Company's technologies and with
different competitors.
Mechanical Testing and Simulation Sector: Customers in this sector use MTS's
systems and software for research, product development and quality control in
the design and manufacture of materials, products and structures. Customer
industries (markets, market niches or niches) in this sector include:
Aircraft and aerospace vehicle manufacturers and their suppliers: These
customers use the Company's systems and software for full scale structural tests
on complete vehicles and principle subsystems such as landing gear.
In the aircraft industry, the Company's customers include manufacturers of
commercial, military and general aviation planes and their suppliers such as
engine manufacturers.
The space vehicle industry also utilizes the Company's systems and software for
such applications as solid fuel development and heat shield studies.
Both aircraft and space vehicle manufacturers and their suppliers use the
Company's systems and software to perform research on new materials and control
quality in the manufacturing of materials.
Biomechanics: This market is comprised of university and government research
laboratories and manufacturers of implants, prostheses and other medical and
dental devices and materials.
These organizations use the Company's systems and software to determine the
durability and performance of such products in use, which frequently requires
the Company's systems to replicate conditions within and forces withstood by the
human body.
Civil Engineering: This market is comprised of university and government
laboratories and construction and mineral/petroleum production companies.
Systems sold in this market include seismic (earthquake) simulators, civil
construction component (e.g., beam) testing systems, pavement material testing
systems, and specialized systems for rock and soil studies in construction and
mineral/petroleum production.
Consumer Products/Material Producers: These organizations are grouped together
because they primarily purchase the Company's electromechanical and
servohydraulic material testing systems which are used in research, product
development and extensively for quality control during production.
Typical consumer products are made of textiles, paper products and plastic films
of many types. Material producers include metal, ceramic, composite, paper and
plastic manufacturers.
Ground Vehicle Industry: This market consists of automobile, truck, and off-road
vehicle manufacturers and their suppliers. This market niche is the largest
within the Mechanical Testing and Simulation sector.
Applications of the Company's systems and software include the design and
production testing of engines and drivetrains, suspension and steering
components, body and chassis, tires and wheels, and fuel storage and exhaust
components. Vehicle manufacturers strive to improve performance and durability,
accelerate design development work and decrease the cost to manufacture their
products and components.
Occupant safety is another reason customers use the Company's systems and
software to test vehicle designs and prototypes.
Advanced Systems: Although not an industry niche itself, the Company offers
highly customized systems for simulation and testing through its Advanced
Systems Division. These systems are designed "starting with a clean sheet of
paper" specifically for the given application and frequently embody technology
which is new to the application. Customers of the Advanced Systems Division come
from all industries served by the Mechanical Testing and Simulation sector -
aerospace and defense, biomechanics, civil engineering, material suppliers, and
ground vehicles.
The Advanced Systems Division also works with these customers in the development
of new manufacturing technologies and systems such as welding and material
processing.
Mechanical Testing and Simulation accounted for 81.3% of revenue in 1995, 81.5%
of revenue in 1994 and 84.5% of revenue in 1993. It represents the oldest and is
the principal market for the Company's technology. This sector is responsible
for the Company's traditional corporate image: "a leading supplier of test
equipment to laboratories."
Measurement and Automation Products: Measurement and Automation customers use
MTS products in discrete part and fluid process manufacturing. Product niches in
this sector include:
Displacement Position and liquid-level sensors based on magnetostrictive
technology. Displacement sensors accurately measure position from 3 inches to 50
feet. They are used in discrete (piece part) manufacturing where accurate
positioning is critical. Major applications include injection molding and die
casting machines, printing and packaging machines and presses of all types.
Liquid level sensors accurately measure levels of liquids in containers. These
sensors are sold in three markets: the underground storage tank market (UST),
the process storage tank market (PST) and the large, above-ground inventory
storage tank market (AST).
The UST market consists primarily of retail gas stations. It is served by
original equipment manufacturers (OEMs) who purchase MTS sensing probes and
incorporate them with their proprietary electronic unit to monitor fuel
inventory and detect leaks.
The PST market includes a wide variety of applications in the chemical,
petroleum refining, pharmaceutical, and food industries. This market generally
requires sensors less than 25 feet in length.
The AST market of above ground liquid storage tanks and tank farms is the newest
application for these sensors. This market requires sensors up to 100 feet in
length. MTS also sells controlling and indicating instruments to this market for
use on installations of up to several hundred tanks.
Servo motors and controllers. Customers use high-performance, permanent magnet
brushless servo motors and amplifiers to automate discrete-part manufacturing
machines and systems such as machine tools and converting and packaging
machines. Customers also use the Company's control products for accurate control
of complex, multi-axis, rotary and linear machine motions. These motors,
amplifiers and motion control products create systems that are applied to a wide
variety of automation tasks by both end-users and original equipment
manufacturers.
The MTS Measurement and Automation Sector accounted for 18.7% of revenue in
1995, 18.5% of revenue in 1994 and 15.5% of revenue in 1993.
COMMON TECHNOLOGIES
MTS' systems and products in both sectors are constructed using employees'
application engineering know-how with common technology building block
components generally composed of measuring and actuation devices, electronic
controls and application software. Many of these components are proprietary and
are developed and manufactured within the Company.
MTS employees engineer or configure the components into products and systems to
match the application called for in the customer's order. Frequently,
special-purpose software is developed to meet a customer's unique requirements.
Such software often represents a significant part of the value added by the
Company. Services offered to system customers include on-site installation,
training of customer personnel, technical manuals and continuing maintenance.
Such services are often included in the contract amount charged for completed
systems, but these services may be purchased separately, during and after the
system warranty period.
Certain proprietary products, such as sensors, process controls, motors,
actuators, and process software and firmware are sold as products to end users
and to other companies for incorporation into their systems, machines, or
processes. All products and most systems are sold on fixed-price contracts.
Complex systems and applied research in the Mechanical Testing and Simulation
sector are in some cases undertaken on "cost-plus-fixed-fee" contract basis.
1995 PRODUCT DEVELOPMENT HIGHLIGHTS
The Company funds new application and product development within its market
sectors. Highlights of product development undertaken or completed in 1995 are:
Mechanical Testing and Simulation Sector
* The Company introduced the Flextest(TM) II control/software product line -
which is being used across most of the application niches in the Mechanical
Testing and Simulation sector - featuring improved user programmability.
* The Company completed the first installation of its new kinematic and
compliance test system used by auto/truck manufacturers to design and
evaluate suspension and steering components and systems.
* The Company introduced a new control/software product for engine and
driveline dynamometry applications using the VXI "plug and play"
architecture which is being widely adopted in the field due to its ability
to perform high speed data acquisition and provide customer configuration
flexibility.
Measurement and Automation Sector
* The Company introduced digital signal processor (DSP) based "smart"
amplifiers for its MaxPlus(TM) servo motor products providing an
economically attractive package for applications where the size of the
amplifier/controller package needs to be minimized.
* The Company introduced a new flexible liquid level sensor design for
storage tanks up to 100 feet. The flexible design enables the sensor to be
shipped, handled and installed much more easily - reducing cost and
potential damage.
CHARACTERISTICS OF SALES
The Company's systems are sold and delivered throughout the world and its
customer orders cover a broad spectrum of industries, government agencies,
institutions, applications, and geographic locations. As such, MTS is not
heavily dependent upon any single customer for its business.
Mechanical Testing and Simulation systems range in price from less than $20,000
to as much as $10 million. Large, individual, fixed-price orders, although
important to the Company's image and technical advancement, tend to produce
volatility in both backlog and quarterly operating results. The majority of the
orders received in any one year are based on fixed-price quotations and require
extensive technical communication with potential customers prior to receipt of
an order. The current typical delivery time for a system ranges from one to
twelve months, depending upon the complexity of the system and the availability
of components in the Company's or suppliers' inventories. Larger system
contracts can run as long as three years and cost-plus-fixed-fee contracts have
run longer.
Measurement and Automation products are sold in quantity at unit prices ranging
from $500 to $10,000. Delivery varies from several days to several months.
Approximately 53.7% of revenue in fiscal 1995, 50.7% of revenue in 1994, and
48.6% of revenue in 1993 was from domestic customers. The balance of the
revenue, some of which was sold in currencies other than the U.S. dollar, was to
customers located outside the United States--mainly in Europe, Asia-Pacific,
Latin America, and Canada. The Company's foreign operations and foreign revenues
may be affected by local political conditions, export licensing problems, and/or
currency restrictions.
Sales Channels: MTS approaches its market sectors through a number of sales
channels. The Company sells its Mechanical Testing and Simulation equipment
through an employee sales network, independent sales representatives, and a
direct mail (catalog) operation. Sales personnel are generally graduate
engineers or highly skilled technicians and are specially trained to sell MTS
products and services. Employee salespersons are compensated with salary and
sales incentives, and independent representatives are paid commissions only.
A list of domestic and international offices for the Company's Mechanical
Testing and Simulation Sector follows:
Domestic offices:
Akron Dayton Philadelphia
Austin Denver Raleigh
Baltimore Detroit Pittsburgh
Boston Huntsville San Diego
Chicago Los Angeles San Jose
Dallas Minneapolis Seattle
Washington, D.C.
International offices:
Beijing and other cities, Paris, France
Peoples Republic of China Sao Paulo, Brazil
Berlin and other cities, Seoul, Korea
Germany Torino, Italy
Gothenburg, Sweden Stroud, United Kingdom
Hong Kong Nagoya and Tokyo, Japan
In addition, MTS works with sales and service representative organizations in
nearly all industrialized countries of the world and in the developing countries
of Latin America, Asia, Africa and the Mid-East.
The Company offers a comprehensive mail-order catalog of MTS components,
accessories, and products. The catalog includes products of complementary
vendors and aims to reach a broad range of customers involved in Mechanical
Testing and Simulation.
The Measurement and Automation sector sells its products through sales channels
separate from the Mechanical Testing and Simulation sector. A network of
employees, direct sales, external domestic distributors, representatives, and
system houses market the products of these divisions. International revenue
currently accounts for 28% of this sector's volume. Efforts to expand sales
channels in international markets continue.
International Operations and Export Sales: The sections entitled Geographic
Analysis of New Orders and Geographic Segment Information on pages 12 and 23 of
the Company's 1995 Annual Report to Shareholders, which sections are
incorporated by reference herein, contain information regarding the Company's
operations by geographic area.
Export Licensing: The Company's foreign shipments in fiscal 1995, 1994 and 1993
included sales to Asia-Pacific, European, and other regions that require the
Company to obtain export licenses from the U.S. Department of Commerce, the
granting of which are subject to governmental approval. The Company does not
undertake manufacturing on custom systems or projects until it is assured that a
license will be granted. However, due to the extended time to process and
receive a license, design work is performed on some systems during the licensing
period. Changes in political relations between the U.S. and countries requiring
import licenses, as well as other factors, can adversely affect the Company's
ability to complete a sale should a previously issued license be withdrawn.
While political reform occurring internationally may relax export controls, U.S.
government initiatives on weapons proliferation and foreign policy in other
parts of the world may cause delays for certain shipments or the rejection of
orders by the Company.
BACKLOG
The Company's backlog, which it defines as firm orders remaining unfilled,
totaled $98,757,000 at September 30, 1995; $84,591,000 at September 30, 1994;
and $88,731,000 at September 30, 1993. The Company believes that all of the
backlog at September 30, 1995 will become revenue during fiscal 1996. Delays may
occur due to technical difficulties, export licensing approval or the customer's
preparation of the installation site. Any such delay can affect the period when
backlog is recognized as revenue.
COMPETITION
In the Mechanical Testing and Simulation Sector, customers may choose to buy
equipment from the Company or from major competitors: Instron (U.S. based),
Interlachen (U.S.), SATEC (U.S.), AVL (Austria), Carl Schenck (Germany), Zwick
(Germany), Saganomiya and Shimadzu (Japan). There are also smaller local
competitors in most major countries.
In lieu of buying equipment from the Company or its competitors, customers may
contract with testing laboratories such as EG&G, Peabody, Wyle, or with
universities. Government laboratories also market testing services to the
public.
Finally, customers may choose to construct their own testing equipment from
commercially available components. Customers in the aerospace and automotive
industries and universities sometimes choose this approach, purchasing equipment
from companies such as Parker Hannifin, Moog, and Mannesman (Germany).
In the Measurement and Automation Sector, the Company competes directly with
small to medium-sized specialty suppliers and also with divisions of the large
control system companies such as Rockwell, Emerson Electric, Siemens (Germany)
and Fanuc (Japan).
MANUFACTURING AND ENGINEERING
The Company conducted a significant portion of its fiscal 1995 Mechanical
Testing and Simulation manufacturing and engineering activities in Minneapolis.
Certain engineering, project management, final system assembly and quality
testing may be done in Berlin, Germany and Tokyo, Japan. Electromechanical
material testing systems are assembled in the Raleigh, NC, facility and in the
Paris, France (Adamel Lhomargy) facility. The Company's MTS-PowerTek subsidiary
engineers and assembles dynamometer control systems and provides related
services from Detroit. Manufacturing and engineering activities for the
Automation and Measurement sector occur in Raleigh, NC, in Ludenscheid, Germany,
in New Ulm, MN, and at the Company's majority-owned subsidiary in Nagoya, Japan.
Worldwide expenditures for manufacturing equipment were approximately $6,351,000
in 1995, $5,427,000 in 1994, and $2,723,000 in 1993.
PATENTS AND TRADEMARKS
The Company holds a number of patents, patent applications, licenses,
trademarks, and copyrights which it considers, in the aggregate, to constitute a
valuable asset. The Company's system business is not dependent upon any single
patent, license, trademark, or copyright.
RESEARCH AND DEVELOPMENT
The Company does not do basic research, but does fund significant product,
system and application developments. Costs of these development programs are
expensed as incurred, and amounted to $13,733,000, $12,645,000 and $13,697,000
for fiscal years 1995, 1994 and 1993, respectively. Additionally, the Company
also undertakes "first of their kind" high-technology, customer-funded contracts
which contain considerable technical pioneering. The combination of internally
sponsored product development and system or application innovation on customer
contracts approximates 10% of annual sales volume.
EXECUTIVE OFFICERS OF THE COMPANY
The Corporate Executive Officers of the Registrant on September 30, 1995 were:
<TABLE>
<CAPTION>
Name and Age Position Officer Since
- ------------ -------- -------------
<S> <C> <C>
D. M. Sullivan (60) Chairman, President and 1976
Chief Executive Officer
K. D. Zell (53) Executive Vice President 1979
W. G. Beduhn (54) Vice President 1983
M. L. Carpenter (58) Vice President 1973
and Chief Financial Officer
R. W. Clarke (65) Vice President 1973
K. E. Floren (59) Vice President 1990
W. Ongyert (57) Vice President 1985
J. H. Owens (55) Vice President 1984
M. G. Togneri (58) Vice President 1991
</TABLE>
Officers serve at the discretion of the board, are elected annually by the
directors, and serve until their successors are elected.
EMPLOYEES
MTS employed 1,612 persons as of September 30, 1995, including 293 employees
located in Europe, 47 in Japan, 15 in China, 3 in Canada, 12 in Korea and 4 in
Hong Kong.
None of the Company's U.S. employees are covered by a collective bargaining
agreement, and MTS has experienced no work stoppages at any location.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND COMPONENTS
A major portion of products and systems delivered to a customer may consist of
equipment purchased from vendors. The relationship which the Company promotes
with its vendors is one of close cooperation. The Company is dependent upon
certain computing hardware and software devices and certain raw materials which
have limited sources. However, the Company has not experienced significant
problems in procurement or delivery of any essential materials, parts, or
components in the last several years.
Due to the manner in which the Company sells the majority of its products, on a
fixed-price contract agreed upon at the time the order is obtained, wide
fluctuations up or down in cost of materials and components from order date to
delivery date, if not accurately forecast by the Company at the earlier date,
can change the profitability of any sale. The Company believes that such
fluctuations have not had a material effect on reported earnings, except as
affected by changes in foreign currency rates, which have been reported.
ENVIRONMENTAL MATTERS
Management believes the Company's operations are in compliance with federal,
state, and local provisions relating to the protection of the environment.
ITEM 2. PROPERTIES
Domestic Facilities:
The Company's main plant and corporate headquarters, occupying 380,000 square
feet, is located in Eden Prairie, Minnesota, a suburb of Minneapolis. The
original plant was completed in 1967. Five additions, the most recent of which
was in 1990, have expanded the plant to its present size. Approximately 45% of
the Minneapolis facility is used for manufacturing while the balance of the
facility is used for office space. The plant site is located on 54 acres of land
on Minnesota State Highway 5, approximately one mile west of Interstate Highway
494.
Custom Servo Motors, Inc. occupies a 30,000 square foot plant in New Ulm,
Minnesota (65 miles southwest of Minneapolis). The plant provides light assembly
operations and office space. The facility was constructed in 1993 by the New Ulm
Economic Development Corporation and added onto in 1995. MTS has a five year
operating lease for the facility with provisions to extend the lease, purchase
the property, or terminate the lease. The terms of the lease agreement do not
require capitalization of the asset and the related obligation.
Sensors Division is located near the Research Triangle Park in Cary, North
Carolina, a suburb of Raleigh. A 40,000 square foot plant, constructed in 1988,
provides manufacturing and office space. In 1992, 25,000 square feet was added
to the plant.
SINTECH Division is located adjacent to the Sensors Division site in Cary, North
Carolina. A 25,000 square foot plant, constructed in 1991, provides
manufacturing and office space.
MTS-PowerTek, Inc. occupies 20,000 square feet in Farmington Hills, Michigan, a
suburb of Detroit. Plant and office space in two buildings is rented under
conventional operating lease terms. Capitalization of the asset and the related
obligation is not required.
The Company leases space in other U.S. cities for sales and service offices.
Neither the space nor the rental obligations is significant.
International Facilities:
MTS Systems GmbH (Berlin) is located in a 80,000 square foot facility.
As of September 30, 1995 3,000 square feet has been leased to another company.
The building is situated on land leased by MTS from the city government. The
lease expires in 2069.
Adamel Lhomargy S.A., operates a leased facility in Paris, France, of
approximately 38,000 square feet in size. Approximately 40% of this space is
used for manufacturing with the remainder used as offices. The current lease
expires at the end of the 1998 fiscal year.
MTS Sensors Technologie operates a leased facility in Ludenscheid, Germany on
approximately six acres of land. The manufacturing and office facilities occupy
18,000 square feet at this location.
The Company also leases office and general purpose space for its sales and
service subsidiaries in Stroud, United Kingdom; Paris, France; Torino, Italy;
Seoul, South Korea; Tokyo and Nagoya, Japan; Toronto, Canada; Sao Paulo, Brazil;
Gothenburg, Sweden; Beijing and Shanghai, Peoples Republic of China; and Hong
Kong. No manufacturing is done at these locations.
Expansion Opportunities:
The Company owns approximately 85 acres of land adjacent to its Minneapolis
facility. This site could house expanded manufacturing operations. Also, the
site in Raleigh allows for expansion. Other suitable commercial real property is
available for purchase or lease in metropolitan areas where the Company is
presently located. The Company considers its current facilities adequate to
support anticipated revenues in 1996.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings were pending or threatened against the Company or
its subsidiaries as of September 30, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended September
30, 1995, for a vote by the shareholders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's stock is traded on The Nasdaq Stock Market's National Market
under the symbol MTSC. The following table shows the Company's low and high
closing sale transactions as reported by The Nasdaq.
<TABLE>
Quarter Ended Low * High*
<S> <C> <C>
December 31, 1993 $27.75 $32.00
March 31, 1994 $28.50 $32.50
June 30, 1994 $25.00 $29.50
September 30, 1994 $22.00 $28.50
December 31, 1994 $20.25 $24.75
March 31, 1995 $22.00 $25.75
June 30, 1995 $23.50 $27.75
September 30, 1995 $26.75 $29.00
</TABLE>
*Source: The Nasdaq Stock Market, Inc. Summary of Activity Report
As of December 1, 1995 there were 1,395 holders of record of the Company's $.25
par value common stock. The Company estimates another 1,500 shareholders, whose
stock is held by nominees or broker dealers, are included in the holders of
record.
The Company has a history of paying quarterly dividends and expects to continue
such payments in the future. During 1995, 1994, and 1993, the Company paid
dividends totaling $.56, $.56, and $.48 per share, per year, respectively, to
holders of its common stock.
Under the terms of the Company's credit agreements, certain covenants require
that tangible net worth, as defined, must exceed a defined minimum amount and
limit repurchases of its common stock to a defined maximum amount. As of
September 30, 1995, tangible net worth exceeded the minimum by $17,772,000 and
the Company had $7,404,000 available for repurchases of its common stock. Thus,
the Company may declare and pay future dividends similar to recent dividends
without restriction.
ITEM 6. SELECTED FINANCIAL DATA
A comprehensive summary of selected financial information is presented in the
"Six Year Financial Summary" on page 1 of the Company's 1995 Annual Report to
Shareholders. Data included in the summary is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 12 through 16 of the Company's 1995 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Report of Independent Public Accountants,
Quarterly Financial Information (unaudited), and Six Year Financial Summary
(unaudited) included in the Company's 1995 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
(a) Information concerning the Company's directors may be found in the
Company's Proxy Statement, a definitive copy of which will be filed with
the Securities and Exchange Commission prior to January 30, 1996, and is
incorporated herein by reference.
(b) See Item 1. Business, on page 9 for information on the Company's Executive
Officers.
(c) The Company has no other significant employees requiring disclosure in this
Form 10-K.
(d) There are no family relationships between and among directors or officers.
(e) Business experience of Directors may be found in the Company's Proxy
Statement, a definitive copy of which will be filed with the Securities and
Exchange Commission prior to January 30, 1996, and is incorporated herein
by reference. Business experience of the Executive Officers for at least
the last 5 years (consisting of positions with the Company unless otherwise
indicated) is as follows:
Officer Business Experience
D. M. Sullivan Chairman in 1994. Chief Executive
Officer since 1987. President and Chief
Operating Officer since 1982. Vice
President from 1976 to 1982. Has
extensive prior experience in the
management of technology intensive
businesses.
K. D. Zell Executive Vice President of Mechanical
Testing and Simulation sector in 1993.
Vice President of Materials Testing
Division from 1988 to 1993. Vice
President, Sales and Service from 1984
to 1988. Vice President, Product Group
from 1979 to 1984. Division manager,
Hydro-mechanical Products from 1978 to
1979.
W. G. Beduhn Vice President of Advanced Systems
Division since 1991. Vice President of
Technology Development from 1983 to
1991. Division manager of various
marketing and operating divisions from
1977 to 1983.
M. L. Carpenter Vice President and Chief Financial
Officer since 1991. Vice President and
Treasurer since 1973.
R. W. Clarke Vice President of Simulation Group since
1984. Previous responsibilities include
Vice President of Sales and Service and
various market divisions from 1973 to
1984. Retired on September 30, 1995.
K. E. Floren Vice President of Aerospace and
Engineering Mechanics Division, North
American Sales and Service since 1993.
Vice President of Vehicle Dynamics
Division from 1990 to 1993. Manager of
various marketing and sales units from
1975 to 1990.
W. Ongyert Vice President of European Sales and
Service since 1985. General manager of
European operations from 1977 to 1985.
J. H. Owens Vice President, Minneapolis Operations
since 1988. Vice President, Product
Group from 1986 to 1988. Vice President
of Manufacturing Operations Division
from 1984 to 1986. Division manager of
various product manufacturing units from
1976 to 1984.
M.G. Togneri Vice President of Measurement and
Automation sector since 1991. Prior to
his employment at MTS was V.P. at
Square D Corporation and General
Manager of Crisp Automation. Has
extensive experience in the industrial
instrumentation and control business in
the U.S. and internationally.
(f) Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated herein by reference from the
Company's Proxy Statement, a definitive copy of which will be filed
with the Securities and Exchange Commission prior to January 30, 1996,
pursuant to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
See Item 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Items 11 and 12 is incorporated herein by reference
from the Company's Proxy Statement, a definitive copy of which will be filed
with the Securities and Exchange Commission prior to January 30, 1996, pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Financial Statements:
See accompanying Index to Financial Statements on Page F-1.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of
fiscal 1995.
(c) Exhibits:
3.a Restated Articles of Incorporation, adopted January 31,
1994, incorporated by reference from exhibit 3.a to
Form 10-Q for the quarter ended March 31, 1994.
3.b Restated Bylaws, reflecting amendments through
May 15, 1995.
10.a Management Variable Compensation Plan-Fiscal 1995,
dated November 29, 1994.
10.b 1985 Employee Stock Option Incentive Plan, incorporated
by reference to exhibit 4(a) from Form S-8, File No.
2-99389.
10.c 1987 Stock Option Plan incorporated by reference to
exhibit A from Form S-8, File No. 33-21699.
10.d 1990 Stock Option Plan, incorporated by reference to
exhibit A from Form S-8, File No. 33-35288.
10.e 1994 Stock Plan incorporated by reference to exhibit
4(a) from Form S-8, File No. 33-73880.
10.f Severance Agreement, dated May 1, 1990 between the
registrant and William G. Beduhn, incorporated by
reference to exhibit 10.g of Form 10-K for the fiscal
year ended September 30, 1990.
10.g Severance Agreement, dated May 1, 1990 between the
registrant and Marshall L. Carpenter, incorporated by
reference to exhibit 10.i of Form 10-K for the fiscal
year ended September 30, 1990.
10.h Severance Agreement, dated May 1, 1990 between the
registrant and Richard W. Clarke, incorporated by
reference to exhibit 10.j of Form 10-K for the fiscal
year ended September 30, 1990.
10.i Severance Agreement, dated December 3, 1990 between the
registrant and Kenneth E. Floren, incorporated by
reference to exhibit 10.k of Form 10-K for the fiscal
year ended September 30, 1990.
10.j Severance Agreement, dated May 1, 1990 between the
registrant and Werner Ongyert, incorporated by
reference to exhibit 10.m of Form 10-K for the fiscal
year ended September 30, 1990.
10.k Severance Agreement, dated May 1, 1990 between the
registrant and J. Howell Owens, incorporated by
reference to exhibit 10.n of Form 10-K for the fiscal
year ended September 30, 1990.
10.l Severance Agreement, dated May 1, 1990 between the
registrant and Donald M. Sullivan, incorporated by
reference to exhibit 10.p of Form 10-K for the fiscal
year ended September 30, 1990.
10.m Severance Agreement, dated May 1, 1990 between the
registrant and Richard S. White, incorporated by
reference to exhibit 10.q of Form 10-K for the fiscal
year ended September 30, 1990.
10.n Severance Agreement, dated May 1, 1990 between the
registrant and Keith D. Zell, incorporated by reference
to exhibit 10.r of Form 10-K for the fiscal year ended
September 30, 1990.
10.o Severance Agreement, dated April 1, 1991 between the
registrant and Mauro G. Togneri, incorporated by
reference to exhibit 10.s of Form 10-K for the fiscal
year ended September 30, 1991.
10.p 1992 Employee Stock Purchase Plan, incorporated by
reference to exhibit 4(a) from Form S-8,
File No. 33-45386.
13. Annual Report to Shareholders for the fiscal year ended
September 30, 1995.
21. Subsidiaries of the Company.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule.
(d) Financial Statement Schedules:
See accompanying Index to Financial Statements on page F-1.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MTS SYSTEMS CORPORATION
By: /s/ Donald M. Sullivan
Donald M. Sullivan
Chairman, Chief Executive Officer,
President and Director
By: /s/ Marshall L. Carpenter
Marshall L. Carpenter
Vice President and Chief
Financial Officer
By: /s/ Marvin R. Eckerle
Marvin R. Eckerle
Controller
Date: December 21, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
By: /s/ E. T. Binger
E. T. Binger, December 21, 1995
Director
By: /s/ Charles A. Brickman
Charles A. Brickman, December 21, 1995
Director
By: /s/ Bobby I. Griffin
Bobby I. Griffin, December 21, 1995
Director
By: /s/ Russell A. Gullotti
Russell A. Gullotti, December 21, 1995
Director
By: /s/ Thomas E. Holloran
Thomas E. Holloran, December 21, 1995
Director
By: /s/ Thomas E. Stelson
Thomas E. Stelson, December 21, 1995
Director
By: /s/ Linda Hall Whitman
Linda Hall Whitman, December 21, 1995
Director
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
A. CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the consolidated financial statements in the
Company's 1995 Annual Report to Shareholders which are incorporated by
reference in accordance with Rule 12b-23 under the Securities Exchange
Act of 1934 and attached hereto.
Annual
Report 10-K
Page Page
Quarterly Financial Information (Unaudited) 16 --
Consolidated Balance Sheets - September 30, 1995 17 --
and 1994
Consolidated Statements of Income and Shareholders'
Investment for the Years Ended September 30, 1995,
1994 and 1993 18 --
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1995, 1994 and 1993 19 --
Notes to Consolidated Financial Statements 20 --
Report of Independent Public Accountants 28 --
B. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE --- F-3
C. CONSOLIDATED SCHEDULE
Schedule Description
II Summary of Consolidated Allowances for
Doubtful Accounts --- F-4
All schedules except the one listed above have been omitted as
not required, not applicable, or the information required
therein is contained in the financial statements or the
footnotes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To MTS Systems Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in MTS Systems Corporation's annual
report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated November 21, 1995. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed as a part of Item 14 (page F-4) in this Form 10-K is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
November 21, 1995
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE II - SUMMARY OF CONSOLIDATED ALLOWANCES
FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Balance Provision Amounts Balance
Beginning Charged to Written End of
of Year Operations Off Year
(expressed in thousands)
<C> <C> <C> <C> <C>
1995 $1,439 $620 $(235) $1,824
1994 1,461 110 (132) 1,439
1993 608 981 (128) 1,461
</TABLE>
EXHIBIT INDEX
Exhibit
No. Description
3.b Restated Bylaws
10.a Management Variable Compensation Plan-Fiscal 1995
13. Annual Report to Shareholders for the fiscal year
ended September 30, 1995
21. Subsidiaries of the Company
23. Consent of Independent Public Accountants
27. Financial Data Schedule
EXHIBIT 3.b
RESTATED
BYLAWS
OF
MTS SYSTEMS CORPORATION
(Reflecting amendments through May 15, 1995)
ARTICLE I
Shareholders
Section 1. The annual meeting of the shareholders of this corporation shall
be held on such date in January of each year and at such place as may be
designated by the Board of Directors. A notice setting out the time and place of
the annual meeting shall be mailed, postage prepaid, to each shareholder of
record at his address as it appears on the records of the corporation, or if no
such address appears, at his last known address, at least ten days prior to the
annual meeting, but any shareholder may waive such notice either before, at, or
after such meeting by a signed waiver in writing.
Section 2. At the annual meeting, the shareholders shall elect directors of
the corporation and shall transact such other business as may properly come
before them. To be properly brought before the meeting, business must be of a
nature that is appropriate for consideration at an annual meeting and must be
(i) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (ii) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (iii)
otherwise properly brought before the meeting by a shareholder. In addition to
any other applicable requirements, for business to be properly brought before
the annual meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the secretary of the corporation. To be timely,
each such notice must be given, either by personal delivery or by United States
mail, postage prepaid, to the secretary of the corporation, not less than 45
days nor more than 75 days prior to a meeting date corresponding to the previous
year's annual meeting. Each such notice to the secretary shall set forth as to
each matter the shareholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address of record of the shareholder proposing such business, (c)
the class or series (if any) and number of shares of the corporation which are
owned by the shareholder, and (d) any material interest of the shareholder in
such business. Notwithstanding anything in these Bylaws to the contrary, no
business shall be transacted at the annual meeting except in accordance with the
procedures set forth in this Article; provided, however, that nothing in this
Article shall be deemed to preclude discussion by any shareholder of any
business properly brought before the annual meeting, in accordance with these
Bylaws.
Section 3. A special meeting of the shareholders may be called at any time
by the Chairman of the Board of Directors of the corporation and shall be called
by the Secretary upon the request in writing by two or more members of the Board
of Directors, upon the vote of the Directors, or upon the request in writing of
shareholders holding not less than one-tenth of the outstanding shares of voting
stock. Such meeting shall be called by mailing a notice thereof as above
provided. Such notice shall state the time, place, and object of the meeting.
Section 4. At any shareholders' meeting, each shareholder shall be entitled
to one vote for each share of stock standing in his name on the books of the
corporation as of the date of the meeting. Any shareholder may vote either in
person or by proxy. The presence in person or by proxy of the holders of a
majority of the shares of stock entitled to vote at any shareholders' meeting
shall constitute a quorum for the transaction of business. If no quorum be
present at any meeting, the shareholders present in person or by proxy may
adjourn the meeting to such future time as they shall agree upon without further
notice other than by announcement at the meeting at which such adjournment is
taken.
ARTICLE II
Directors
Section 1. The Board of Directors shall have the general management and
control of all business and affairs of the corporation and shall exercise all
the powers that may be exercised or performed by the corporation under the
statutes, its Articles of Incorporation, and its Bylaws.
Section 2. The Board of Directors of this corporation shall consist of
eight Directors, and five of the Directors then holding office shall constitute
a quorum.
Section 3. Each Director shall be elected for a term of one year, and shall
hold office for that term and until his successor is elected and qualified. If a
vacancy in the Board occurs by reason of death, resignation, or otherwise, the
vacancy may be filled for the unexpired portion of the term in which it occurs
by a majority vote of the remaining Directors.
Section 4. The Board of Directors may meet regularly at such time and place
as it shall fix by resolution, and no notice of regular meetings shall be
required. Special meetings of the Board of Directors may be called by the
President or any two Directors by giving at least three days' notice to each of
the other Directors by mail, telephone, telegraph, or in person, provided that
such notice may be waived either before, at, or after a meeting by any Director
by a signed waiver in writing.
Section 5. Any action which might have been taken at a meeting of the Board
of Directors may be taken without a meeting if done in writing, signed by all of
the Directors, and any such action shall be as valid and effective in all
respects as if taken by the Board at a regular meeting.
Section 6. The Board of Directors shall fix and change as it may from time
to time determine by a majority vote, the compensation to be paid the officers
of the corporation, and, if deemed appropriate, the members of the Board of
Directors.
Section 7. Subject to the provisions of applicable laws and its Articles of
Incorporation, the Board of Directors shall have full power to determine whether
any, and if any, what part of any, funds legally available for the payment of
dividends shall be declared in dividends and paid to the shareholders; the
division of the whole or any part of such funds of this corporation shall rest
wholly within the discretion of the Board of Directors, and it shall not be
required at any time, against such discretion, to divide or pay any part of such
funds among or to the stockholders as dividends or otherwise.
Section 8. Except as otherwise provided in Article III of these Bylaws, the
Board of Directors may, in its discretion, by the affirmative vote of a majority
of the Directors, appoint committees which shall have and may exercise such
powers as shall be conferred or authorized by the resolutions appointing them. A
majority of any such committee, if the committee be composed of more than two
members, may determine its action and fix the time and place of its meetings,
unless the Board of Directors shall otherwise provide. The Board of Directors
shall have power at any time to fill vacancies in, to change the membership of,
or to discharge any such committee.
ARTICLE III
Executive Committee
The Board of Directors may by unanimous affirmative action of the entire
Board designate two or more of their number to constitute an Executive Committee
which, to the extent determined by unanimous affirmative action of the Board,
shall have and exercise the authority of the Board in the management of the
business of the corporation. Such Executive Committee shall act only in the
interval between meetings of the Board and shall be subject at all times to the
control and direction of the Board.
ARTICLE IV
Officers
Section 1. The officers of this corporation shall be a Chairman of the
Board of Directors, a President (one of which may be designated Chief Executive
Officer in the discretion of the Directors), one or more Vice Presidents (any
one of which may be designated as Executive Vice President in the discretion of
the Directors), a Treasurer, a Secretary, and such other and further officers,
including any number of Assistant Secretaries and Assistant Treasurers as may be
deemed necessary from time to time by the Board of Directors, each of whom shall
be elected by the Board of Directors. One person may hold any two offices other
than those of President and Vice President. No more than two offices shall be
held by any one person. Each officer shall serve at the pleasure of the Board of
Directors until the next annual meeting of Directors and until his successor is
dulyelected and qualifies. Notwithstanding the foregoing, the Board of Directors
shall have the power and authority to cause the corporation to enter into
Employment Agreements or Contracts with any of the officers of the corporation
for periods exceeding one year.
Section 2. The Chairman of the Board of Directors shall preside at meetings
of shareholders and Directors.
Section 3. The Chief Executive Officer shall have general and active
management of the business under the supervision and direction of the Board of
Directors and he shall be responsible for carrying into effect all orders and
resolutions of the Board of Directors. He shall also have such other powers and
perform such other duties as the Board of Directors may from time to time
prescribe. The position of Chief Executive Officer shall be filled, at the Board
of Directors' discretion, either by the Chairman or the President.
Section 4. The Board of Directors may also appoint a Chief Operating
Officer with duties to be determined by the Chief Executive Officer. Unless he
is also serving as the Chief Executive Officer, the President would be appointed
as Chief Operating Officer. If the President is also serving as Chief Executive
Officer, the President shall nominate an Executive Vice President to be
appointed by the Board as Chief Operating Officer.
Section 5. The Vice Presidents of the corporation shall each have such
powers and duties as generally pertain to their respective offices as well as
such powers and duties as from time to time may be conferred by the Board of
Directors.
Section 6. The Secretary shall keep a record of the meetings and
proceedings of the Directors and shareholders, have custody of the corporate
seal and of other corporate records specifically entrusted to him by these
Bylaws or by direction of the Board of Directors, and shall give notice of such
meetings as are required by these Bylaws or by the Directors.
Section 7. The Treasurer shall keep accounts of all monies and assets of
the corporation received or disbursed, shall deposit all funds in the name of
and to the credit of the corporation in such banks or depositories or with such
custodians as may be authorized to receive the same by these Bylaws or the Board
of Directors, and shall render such accounts thereof as may be required by the
Board of Directors, the Chairman of the Board of Directors, the Chief Executive
Officer, the President, or the shareholders.
ARTICLE V
Fiscal Year
The fiscal year of the corporation shall be from the first day of October
to the 30th day of September in the succeeding year.
ARTICLE VI
Office
The principal office of this corporation shall be at such place as the
Board of Directors shall fix from time to time. The corporation may also have an
office or offices at such other places and in such other states or countries as
the Board of Directors may from time to time authorize and establish.
ARTICLE VII
Seal
The corporation shall have a corporate seal which shall bear the name of
the corporation and the name of the state of incorporation and the words
"corporate seal". It shall be in such form and bear such other inscription as
the Board of Directors may determine or approve.
ARTICLE VIII
General Provisions
Section 1. Shares of stock in this corporation not exceeding the authorized
number thereof as specified in the Articles of Incorporation may be issued, and
certificates therefore shall be authenticated by the Chairman of the Board of
Directors, or the President or any Vice President and the Secretary or Treasurer
upon authorization by the Board of Directors and receipt by the corporation of
such consideration for such shares as shall be specified by the Board of
Directors. In the event that a bank, trust company or other similarly qualified
corporation is designated and agrees to act as the registrar and/or transfer
agent for the corporation, then the signatures of the officers specified above
and the seal of the corporation may be imprinted upon the stock certificates by
facsimile and said certificates may be authenticated by signature of an
authorized agent of the said registrar and/or transfer agent. The officers of
the corporation may delegate to such transfer agent and/or registrar such of the
duties relating to the recording and maintenance of records relating to shares
of stock and shareholders of the corporation as may be deemed expedient and
convenient and as are assumed by said registrar and/or transfer agent.
Section 2. The Board of Directors may establish reasonable regulations for
recording of transfers of shares of stock in this corporation, and may establish
a date, not earlier than 60 days prior to any shareholders' meeting, as of which
the shareholders entitled to vote and participate in any shareholders' meeting
shall be determined.
Section 3. From time to time as it may deem appropriate and advantageous to
the best interests of this corporation, the Board of Directors may establish
such bonus, pension, profit sharing, stock bonus, stock purchase, stock option,
or other employee incentive plans, as and for the benefit of such of the
corporation's employees as it in its sole discretion shall determine.
Section 4. No certificate or shares of stock in this corporation, or any
other security issued by this corporation, shall be issued in place of any
certificate alleged to have been lost, destroyed or stolen, except on production
of such evidence of such loss, destruction or theft and on delivery to the
corporation, if the Board of Directors shall so require, of a bond of indemnity
in such amount (not exceeding twice the value of the shares represented by such
certificate), upon such terms and secured by such surety as the Board of
Directors may in its discretion require.
Section 5. Any person who at any time shall serve or shall have served as a
director, officer or employee of the corporation, or of any other enterprise at
the request of the corporation, and the heirs, executors and administrators of
such person, shall be indemnified by the corporation in accordance with, and to
the fullest extent permitted by, the provisions of the Minnesota Business
Corporation Act, as it may be amended from time to time.
ARTICLE IX
Adoption and Amendment
Section 1. These Bylaws shall become and remain effective until amended or
superseded as hereinafter provided when they shall have been adopted by the
Board of Directors named in the Articles of Incorporation or in the absence of
such adoption, by the shareholders.
Section 2. The Board of Directors may alter or may amend these Bylaws and
may make or adopt additional Bylaws, subject to the power of the shareholders to
change or repeal the Bylaws; provided the Board of Directors shall not make or
alter any Bylaw fixing their qualifications, classifications, term of office, or
number, except the Board of Directors may make or alter any Bylaw to increase
their number.
Section 3. The shareholder may alter or amend these Bylaws and may make or
adopt additional Bylaws by a majority vote at any annual meeting of the
shareholders or at any special meeting called for that purpose.
EXHIBIT 10.a
REV B, 23 November 1994
Approved by the Board November 29, 1994
MANAGEMENT VARIABLE COMPENSATION PLAN FISCAL '95
1. PURPOSE OF PLAN
To focus efforts on achievement of objectives which are critical to the
success of the Company; to reward the accomplishment at a level above
competition when performance is above that of comparable companies; to
more closely couple total compensation costs (salary plus variable) to
the financial results of the enterprise.
2. RELATIONSHIP TO OTHER COMPENSATION PLANS
2.A SALARY PLAN
The Management Variable Compensation Plan covers objectives related to
the financial and TQM operating objectives of the Company. The midpoint
of a given Salary range will be suppressed by 1/5th of the average
competitive payout potential of participants in that range to conform
to the Company's fixed vs. variable compensation strategy (i.e., if the
participants in a range have an average competitive payout potential of
20%, the midpoint of the range will be suppressed 4%).
2.B RELATION TO U.S. EMPLOYEE PROFIT SHARING AND UNIT GAINSHARING PLAN
The calculations for the Variable Compensation Plan are made after
deductions for Profit Sharing and Gainsharing.
Effective with fiscal 1989, payout to a participant in the Management
Variable Compensation Plan is included in the calculation of the
Company's contribution to that employee's profit sharing.
3. ELIGIBILITY AND PARTICIPATION
* Corporate officers
* Unit vice presidents
* Market and functional unit managers
* Managers, technical supervisors and key marketing or technical
employees who meet certain minimum responsibilities for
profitability, financial/human resource acquisition and
allocation, balance sheet control, and/or market/technical
direction - defined as beginning at SAM 15 and TE 5 or equivalent.
An employee must be in such a position by the November/December Board
of Directors meeting in order to be eligible for the fiscal year plan
beginning the preceding 1 October, unless otherwise authorized by the
CEO.
Certain subsidiaries may have their own variable compensation plans
approved by the cognizant corporate vice president and CEO.
An officer may recommend that an employee, who is otherwise eligible,
not participate but such a recommendation must be agreed to by the CEO.
Participants are eligible for payout in proportion to the % of the
fiscal year the participant is responsible for the qualifying position,
unless otherwise authorized by the CEO.
Employees who work less than full time during a year (e.g., due to a
personal leave, but not due to illness) would earn a proportionately
reduced payout.
In no case will payout be made to employees who work less than 1,000
hours in the year.
The participant must be on MTS' payroll at the end of the fiscal year
for which the objective applies to qualify for a payout. Employees
resigning or terminated before the end, regardless of cause, are not
eligible unless otherwise authorized by the CEO. (An example of an
exception could be early retirement or voluntary separation under a
workforce reduction plan.)
No employment contract is implied by participation in this Plan.
4. ESTABLISHMENT OF OBJECTIVES
a. The Board of Directors sets the CEO's Corporate financial
objective - EPS and Return on Average Net Asset (ROANA) and
revenue growth at their November/December meeting.
b. Financial objectives for other participants (typically pretax
% and/or ROANA and revenue growth) and must be finalized by
the November/December meeting unless otherwise authorized by
the CEO. They are not renegotiable. All other objectives must
be finalized by 30 December.
The cognizant officers and CEO approve the objectives for all
other participants. The purpose of this approval is to:
* Integrate objectives into Company TQM operating plan
* Guard against conflicting objectives
* Help to assure consistency in degree of difficulty
c. Each participant will have a mix of objectives per the
attached Schedule.
d. Payouts under this Plan are considered costs for the
calculation of profit objectives (EPS/ROANA/Pretax %); so
simultaneous equations are used for calculations.
5. CRITERIA FOR OBJECTIVES
The Corporate Financial Objective are set by the Board based on the
current intermediate term plan. Currently they are:
EPS: 15% return on beginning equity/share, + or - 1/3
ROANA: 20% + 1/3
Revenue Growth 8-12%/year
All objectives include all transactions, acquisitions, write-offs, sale
of assets, etc. unless specifically excluded by the Board at the
November/December meeting.
Sector/Divisions/Subsidiary/niche financial growth and TQM objectives
are set as appropriate for the intermediate term plan for the unit.
Other objectives must be stated in equally measurable terms and must
not be activities (i.e. number of sales calls or technical society
presentations).
6. COMPETITIVE PAYOUT POTENTIAL
The competitive payout potential, expressed as a % of the midpoint of
the salary structure, or actual salary in the case of subsidiary
management, is shown below:
<TABLE>
<CAPTION>
POSITION COMPETITIVE PAYOUT POTENTIAL %
<S> <C> <C>
CEO E5 70
Executive Vice President,
MT&SE-4 55
Vice President E-3 25-50, depending on revenue level (profit potential)
Vice President E-2 25-50, depending on revenue level (profit potential)
Vice President (Unit) E-1 15-45, depending on revenue level (profit potential)
Market Division Management SAM17-21 15-35, depending on revenue level (profit potential)
All Other Management/
Leadership SAM18-21 10-35, depending on profit impact
SAM15-17 6-25, depending on profit impact
TE5/5S-9/9S 6-25, depending on profit impact
</TABLE>
7. OVER-RANGING/MAXIMUM POTENTIAL PAYOUT
The objectives are set at challenging but realistic levels which are
used in the overall process of planning and resource allocation. This
is not meant to be a limit to our aspirations, and performance in
excess of those objectives should be rewarded as it is to the benefit
of all stakeholders in the enterprise.
Over-ranging of an objective can earn an additional equal payout if
that objective is exceeded by an amount up to the lower limit span.
Over-ranging is limited to objectives equaling 70% of the competitive
full payout per the attached Schedule. Linear interpolation is used
between the over-ranging amount and the objectives.
The maximum payout potential for all positions, given full
over-ranging, is 1.7 x the competitive payout potential.
8. PAYOUT
Within 90 days of the end of the fiscal year.
9. APPROVAL OF PLAN
The Plan, and participation therein, are subject to annual review and
approval by the Board of Directors.
Attachments: FY '95 MVC Plan Participation and Schedule of Objectives
<TABLE>
<CAPTION>
SIX YEAR FINANCIAL SUMMARY
(September 30)
1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars expressed in thousands, except share data and pretax income per employee)
OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ 234,131 $ 200,550 $189,499 $ 161,013 $157,865 $ 160,159
United States revenue 125,659 101,747 92,153 68,931 72,538 75,901
International revenue 108,472 98,803 97,346 92,082 85,327 84,258
Income before income taxes 14,031 12,629 14,937 6,452 14,350 11,328
Net income 10,461 8,659 10,382 4,915 10,080 8,408
Net income per share, fully diluted basis 2.30 1.85 2.27 1.07 2.25 1.82
Research and development costs 13,733 12,645 13,697 9,999 9,271 11,225
Net interest expense 2,424 1,860 1,207 704 1,061 824
Depreciation and amortization 7,217 6,214 5,648 5,789 5,755 5,617
Total payroll 76,168 61,619 57,784 55,961 49,596 51,777
FINANCIAL POSITION
- -----------------------------------------------------------------------------------------------------------------------------------
Current assets $ 131,589 $ 123,206 $123,445 $ 100,929 $ 91,240 $ 85,043
Current liabilities 67,014 66,361 66,961 50,717 44,183 35,565
Current ratio 2.0:1 1.9:1 1.8:1 2.0:1 2.1:1 2.4:1
Net working capital 64,575 56,845 56,484 50,212 47,057 49,478
Inventories 35,669 35,152 25,009 23,591 22,819 24,656
Property and equipment, net 48,490 47,368 37,254 38,079 35,995 35,204
Total assets 189,500 175,708 165,716 144,650 135,627 $ 126,631
Interest bearing debt 22,965 23,851 33,299 19,335 20,565 18,806
Shareholders' investment 106,677 100,046 93,011 84,992 80,739 74,358
Shareholders' investment per share 23.20 21.90 20.47 19.04 18.17 16.48
Free cash flow(1) 8,845 5,414 9,306 2,653 10,786 7,590
OTHER STATISTICS AND RATIOS
- -----------------------------------------------------------------------------------------------------------------------------------
Fully diluted shares outstanding(2) 4,545 4,668 4,572 4,595 4,477 4,629
Number of shareholders(3) 1,395 1,394 1,400 1,413 1,838 1,850
Number of employees 1,612 1,557 1,447 1,404 1,372 1,410
Pretax income per employee $ 8,704 $ 8,111 $ 10,323 $ 4,595 $ 10,459 $ 8,034
Backlog of orders 98,757 84,591 88,731 99,221 82,404 71,032
New orders 245,919 195,260 178,786 178,178 169,237 157,212
Net income as a percent of net revenue 4.5% 4.3% 5.5% 3.1% 6.4% 5.2%
Research and development costs
as a percent of net revenue 5.9% 6.3% 7.2% 6.2% 5.9% 7.0%
Effective tax rate 25% 31% 30% 24% 30% 26%
Interest bearing debt to equity ratio 22% 24% 36% 23% 25% 25%
Return on average net assets(4) 12.9% 11.6% 16.3% 7.6% 17.4% 14.6%
Return on beginning
shareholders' investment per share 10.5% 9.0% 11.9% 5.9% 13.7% 12.1%
Cash dividends paid per share $ .56 $ .56 $ .48 $ .48 $ .40 $ .40
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Net income plus depreciation and amortization minus property and equipment
expenditures (exclusive of land acquisition and plant construction) minus
cash dividends.
2 Presented on a weighted average basis of common shares assuming conversion
of common stock equivalents during each year after retroactive adjustments
for issued shares, for stock splits and reduction of shares from treasury
stock purchases (in thousands of shares).
3 On December 1, 1995, there were 1,395 common shareholders of record, with
another estimated 1,500 shareholders whose stock is held by nominees or
broker dealers.
4 (Income before income taxes plus net interest expense) divided by (average
quarterly assets minus non-interest bearing liabilities).
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKLOG/NEW ORDERS
1995 1994 1993
- -------------------------------------------------------------------------------
(expressed in thousands)
New Orders:
North American* $ 137,775 $ 101,498 $ 98,019
International 108,144 93,762 80,767
- -------------------------------------------------------------------------------
Total $ 245,919 $ 195,260 $ 178,786
- -------------------------------------------------------------------------------
Backlog $ 98,757 $ 84,591 $ 88,731
- -------------------------------------------------------------------------------
*Includes U.S. and Canada
Record 1995 new orders of $245.9 million were up 26% from the prior year and up
38% from 1993. New orders in 1995 included 67 orders with unit values exceeding
$500,000 compared to 30 orders in this category in 1994 and 38 orders in 1993.
These orders represented 31%, 26%, and 32% of the new order total for these
three years.
In 1995, the Mechanical Test and Simulation sector (MT&S) new orders of $200.3
million increased 27% from 1994 and were up 33% compared to 1993. The
Measurement and Automation sector (M&A) new orders in 1995 of $45.7 million
increased 23% over the prior year and were up 61% from 1993.
North American new orders increased 36% in 1995, 4%
in 1994 and 11% in 1993. The M&A sector was strong in all three years. The
automotive durability simulation systems niche of the MT&S sector strengthened
considerably in 1995 compared to order levels achieved in 1994 and 1993.
International orders increased 15% in 1995 and 16% in 1994, reversing the 11%
decrease experienced in 1993. The 1995 new order increase occurred in Europe and
the Far East except for Japan. Most of the 1994 increase occurred in the Far
East and as a result of the acquisition of Adamel Lhomargy (France). A majority
of the 1993 decline occurred in our automotive durability simulation systems
niche in Europe. See Geographic Analysis of new orders for the percentage
breakdown by geographic area.
The backlog of undelivered orders at September 30, 1995, increased 17% from
1994, the result of new orders received in 1995 and more specifically, the
record fourth-quarter order rate totaling $70.9 million.
REVENUES
1995 1994 1993
- -------------------------------------------------------------------------------
(expressed in thousands)
United States $ 125,659 $101,747 $ 92,153
International 108,472 98,803 97,346
- -------------------------------------------------------------------------------
Total $ 234,131 $200,550 $ 189,499
- -------------------------------------------------------------------------------
Record 1995 revenues of $234.1 million were up 17% from the prior year and up
24% from 1993. For 1995, the Mechanical Test and Simulation sector (MT&S)
revenues of $190.5 million increased 16% from 1994 and were up 18% compared to
1993. The Measurement and Automation sector (M&A) revenues in 1995 of $43.7
million increased 18% over the prior year and were up 53% from 1993. For
geographic and sector revenues and income information, see Note 2 of "Notes to
Consolidated Financial Statements."
U.S. revenues increased 24% in 1995, 10% in 1994 and 34% in 1993, reflecting
strengthening markets for most of the Company's business segments during this
three-year period. The M&A sector revenue growth reflected the increased demand
from original equipment manufacturers (OEMs) as well as acceptance of new
products. The MT&S sector revenue increase in 1995 reflected a stronger
automotive market and the addition of Power-Tek.
International revenues increased 10% in 1995, 2% in 1994, and 6% in 1993.
These growth rates are lower than those in the U.S. which reflect the
recessionary economies of Europe and Japan during these periods. Our customer
base in Europe during 1995 reflected a strengthening market based on new orders
received, and in particular our M&A sector shipments to OEM customers.
A significant portion of the Company's international revenues are contracted
for in foreign currencies. In both 1995 and 1994 the value of the dollar
weakened, particularly against European currencies, increasing dollar values on
foreign currency revenue in those years by $3.9 million and $3.7 million. The
value of the dollar strengthened in 1993, reducing dollar values on translated
foreign currency revenues by $2.4 million.
Selective price increases and decreases were implemented in all three years.
However, the overall impact of pricing changes did not have a material effect on
reported revenue volume.
<TABLE>
<CAPTION>
GEOGRAPHIC ANALYSIS OF NEW ORDERS
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
NORTH AMERICA 57% 52% 55% 49% 46% 48%
- -----------------------------------------------------------------------------------------------------------------------------------
EUROPE/AFRICA/MIDDLE EAST 25 21 20 25 35 31
- -----------------------------------------------------------------------------------------------------------------------------------
ASIA PACIFIC 17 26 23 25 18 18
- -----------------------------------------------------------------------------------------------------------------------------------
SOUTH AMERICA/REST OF THE WORLD 1 1 2 1 1 3
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
GROSS PROFIT
1995 1994 1993
- -------------------------------------------------------------------------------
(expressed in thousands)
Gross Profit $ 91,638 $ 79,840 $ 78,882
- -------------------------------------------------------------------------------
% of Revenues 39.1% 39.8% 41.6%
- -------------------------------------------------------------------------------
The gross profit percentage for 1995 declined from 39.8%
in 1994 to 39.1% reflecting the effect of foreign currency rate changes on
low-margin projects in our Mechanical Testing and Simulation sector. The
majority of these projects were shipped during the first half of 1995 at which
point our gross profit margin began to show improvement. The fourth quarter
gross profit percentage rose to 44.4% due to higher and more profitable
revenues, operating efficiencies, and a more favorable business mix.
The 1994 gross profit percentage declined 1.8 percentage points from 1993,
primarily caused by a higher-than-normal content of development costs in some
large customer projects resulting in much lower than expected gross profit
margins. In 1993, the gross profit percentage had increased 3.1 percentage
points from 1992, due to increased revenues and a better economic climate
domestically for our higher-margin, short-delivery standard products.
RESEARCH AND DEVELOPMENT
1995 1994 1993
- -------------------------------------------------------------------------------
(expressed in thousands)
R & D Expense $ 13,733 $12,645 $ 13,697
- -------------------------------------------------------------------------------
% of Revenues 5.9% 6.3% 7.2%
- -------------------------------------------------------------------------------
The Company does not do basic research, but does fund product, system and
application developments (R&D). The majority of the development expenditures in
all three years was for software, control products, new measurement products,
servo motors and amplifiers, electromechanical load frames and accessories.
The product development spending percentages in 1995 and 1994 are
representative of what the company normally commits to in its annual planning
process. Product development in 1993 included $1.8 million related to a large
complex automotive contract which involved significant software and controls
development.
The Company also undertakes "first of their kind" high technology system
projects which can contain considerable technical pioneering, the cost of which
is reported in cost of sales. The combination of internally funded R&D and
system innovation typically approximates 10% of revenues.
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES
1995 1994 1993
- -------------------------------------------------------------------------------
(expressed in thousands)
Selling/Marketing $ 45,088 $ 40,351 $ 37,103
General &
Administrative 16,053 12,682 10,697
- -------------------------------------------------------------------------------
Total $ 61,141 $ 53,033 $ 47,800
- -------------------------------------------------------------------------------
% of Revenues 26.1% 26.4% 25.2%
- -------------------------------------------------------------------------------
Selling/Marketing and General & Administrative (SG&A) expenses for 1995 as a
percentage of revenues were 26.1% down .3% from 1994 but up .9% from 1993. Full
year spending for 1995 totaled $61.1 million which represented a $8.1 million
(15%) increase over 1994. Acquisitions represented $2.2 million of the expense
increase with the majority of the remaining increase being attributable to
investments by our Measurement and Automation sector to support its strong
growth rate, higher translated European expenses caused by the weak dollar, and
inflation.
All three years were similar in that cost containment and elimination were at
the forefront of the planning process as well as aligning resources with markets
with the greatest potential. The $5.2 million (11%) increase in SG&A expense in
1994 from 1993 was directly related to the acquisition of Adamel Lhomargy. The
1993 SG&A expense increase of $4.0 million (9%) included the acquisition of
Custom Servo Motors, new sales office in Korea, and restructuring costs of our
Machine Controls Division which was merged into Custom Servo Motors.
<PAGE> 13
INCOME
1995 1994 1993
- -------------------------------------------------------------------------------
(expressed in thousands)
Income Before
Income Taxes $ 14,031 $ 12,629 $ 14,937
- -------------------------------------------------------------------------------
% of Revenues 6.0% 6.3% 7.9%
- -------------------------------------------------------------------------------
Net Income $ 10,461 $ 8,659 $ 10,382
- -------------------------------------------------------------------------------
% of Revenues 4.5% 4.3% 5.5%
- -------------------------------------------------------------------------------
Effective Tax Rate 25.4% 31.4% 30.5%
- -------------------------------------------------------------------------------
Return On Beginning
Equity Per Share 10.5% 9.0% 11.9%
- -------------------------------------------------------------------------------
Net Income Per Share $ 2.30 $ 1.85 $ 2.27
- -------------------------------------------------------------------------------
Income before income taxes (pretax income) in 1995 increased $1.4 million (11%)
from 1994 as a result of improving margins in our fourth quarter and higher
revenues. For 1995, the Mechanical Testing and Simulation sector (MT&S) pretax
income of $9.6 million increased 11% from 1994 but was down 30% from 1993. The
Measurement and Automation sector (M&A) pretax income in 1995 of $4.5 million
increased 11% over the prior year and was up 238% from 1993.
Pretax income in 1994 decreased $2.3 million (16%) from 1993 as a
result of significant development costs incurred on specific leading-edge
technology projects affecting gross profit margins, and a $2.1 million charge to
operations for a work-force reduction offset by a non-operating gain of $3.9
million realized from the sale of our Berlin, Germany facility. Pretax income in
1993 increased 132% from a pretax income in 1992 that was well below company
expectations. Several factors affected 1992: lower-than-planned revenues, a
revenue mix with more than normal leading-edge technology projects which also
contained significant development content, under-utilization of plant capacity,
planned accelerated internally funded R&D projects, and charges associated with
employee terminations and early retirements.
Net income in all three years benefited from an effective tax rate that was
lower than the federal statutory tax rate, primarily the result of Research and
Development tax credits and the tax benefit of the Company's Foreign Sales
Corporation. See Note 4 of "Notes to Consolidated Financial Statements" for the
reconciliation between the federal statutory and effective income tax rates and
other related tax information.
FOREIGN CURRENCIES EFFECTS
In 1995, the U.S. dollar was generally weaker in relation
to European economies, specifically in relationship to the German Deutsche Mark,
which increased translated European foreign currency denominated revenues by
$3.9 million. Over the year as a whole, there was little change in translated
yen denominated revenues. A weaker dollar generally has a positive effect on
overseas results because foreign exchange denominated revenues and earnings
translate into more U.S. dollars; a stronger dollar has a negative translation
effect. However, the cost of overseas operations and products sourced for
domestic use, which were not significant, are affected in the opposite
direction.
Throughout 1994, the dollar weakened against all major foreign
currencies, which increased translated foreign currency denominated revenues by
$3.7 million.
In 1993, European currency exchange rates weakened against the dollar while
the Japanese yen continued to strengthen. As a result, translated foreign
currency revenues were reduced by $2.4 million.
The Company recorded foreign currency transaction gains of $1.4 million, $1.1
million, and $564 thousand, for the years 1995, 1994, and 1993, respectively.
The Company's foreign currency risk-management program focuses on foreign
currencies of countries where the Company operates (German Deutsche Mark, French
Franc, English Pound, Swedish Kroner, Italian Lire and Japanese Yen). This
involves entering into forward foreign currency hedge contracts, options, and
foreign currency denominated loans. On September 30, 1995, there were open
currency hedge contracts, primarily denominated in Yen, with various settlement
dates, totaling $2.8 million. Gains under these contracts were not material as
of September 30, 1995. These contracts are targeted to limit transaction
exposures where equipment and services costs are incurred in U.S. dollars and
the customer contracts in a foreign currency.
LIQUIDITY AND CAPITAL RESOURCES
1995 1994 1993
- -------------------------------------------------------------------------------
(expressed in thousands)
Total Interest
Bearing Debt $ 22,965 $ 23,851 $ 33,299
% of Total
Capital 17.7% 19.3% 26.4%
- -------------------------------------------------------------------------------
Shareholders'
Investment $ 106,677 $100,046 $ 93,011
- -------------------------------------------------------------------------------
Per Share $ 23.20 $ 21.90 $ 20.47
- -------------------------------------------------------------------------------
<PAGE> 14
FINANCIAL CONDITION
At September 30, 1995, the Company's capital structure comprised $11.5 million
of current debt, $11.5 million long-term debt and $106.7 million shareholders'
equity. The ratio of total debt to total capital was 17.7%, compared with 19.3%
at September 30, 1994.
Total debt decreased $900 thousand during 1995 to $23.0 million. This
resulted from a $7.0 million reduction in short-term debt, offset by a $6.1
million increase in long-term debt. The 1995 increase in long-term debt financed
the Company's 1994 purchase of a new facility in Berlin, Germany.
Shareholders' equity increased $6.7 million in 1995 to $106.7 million.
Shareholders' investment per share in 1995 increased to $23.20 from $21.90 in
1994. The increase was primarily due to an increase in retained earnings of
$10.5 million from current year net earnings, $900 thousand from employee stock
option and purchase plans, $800 thousand increase from acquisitions accounted
for under the pooling of interests method, and a $600 thousand increase in the
cumulative translation adjustment. These increases were offset by dividends of
$2.5 million and $3.6 million of treasury stock repurchases.
CASH FLOWS
Operating activities generated cash of $23.1 million in 1995 and $20.9 million
in 1994. In 1993, operating activities consumed $9.7 million of cash. The cash
generated in 1995 was largely from earnings, depreciation and amortization, and
advanced billings to customers. These funds supported $6.3 million of capital
expenditures, $2.5 million of dividend payments, $3.6 million of stock
repurchases, and $4.7 million required for the acquisition of Power-Tek, Inc.
Cash and cash equivalents increased $3.8 million during 1995.
Capital expenditures for property, plant and equipment totaled $6.3 million in
1995, compared to $18.2 million in 1994, and $4.7 million in 1993. Capital
spending in 1994 included $11.3 million for a new facility to support the
Company's Berlin, Germany operations. This amount was net of the sale of the
existing facility.
Capital spending in 1996 is planned to be $6.5 million. The Company
anticipates that 1996 capital expenditures will be financed primarily with funds
from operations.
DIVIDENDS
At the end of 1995, the Company revised its dividend practice to target a pay
out ratio of 33% of the average earnings per share of the last two years. This
policy is intended to allow dividends to increase with the long-term growth of
earnings per share, while sustaining dividends in down years. In November, 1995,
the Company's Board of Directors increased the quarterly dividend to 16 cents
per share from 14 cents per share. Annualized, this dividend pay out equates to
31% of the 1994 and 1995 average earnings per share.
SHARE REPURCHASE PLAN
In 1995, the Company repurchased 158,840 shares of common stock on the open
market for $3.6 million, at an average cost of $22.74 per share. The Company
repurchased 40,039 shares in 1994 for $900 thousand, and 51,433 shares in 1993
for $1.2 million. The Company's practice for share repurchases is to offset the
dilutive impact of shares of common stock issued from the Company's stock option
and stock purchase plans, and for other corporate stock based programs. During
this three year period, the Company issued 254,579 shares of its common stock
from these stock option and stock purchase plans.
In January, 1995, the Company's Board of Directors authorized the
repurchase of 250,000 shares of common stock in the open market within the
Securities and Exchange Commission guidelines. At the end of 1995, the Company
had authorizations to repurchase up to 284,631 shares of its common stock
subject to price and market conditions.
The Company believes that its 1996 anticipated cash flows from operations, a
forecast decrease in unbilled contract and retainage receivables, and its
short-term lines of credit will adequately finance ongoing operations, allow for
the possible completion of the common-stock repurchase program and strategic
acquisitions.
QUARTERLY STOCK ACTIVITY(1)
The Company's common shares trade on The Nasdaq Stock Market's National Market
under the symbol MTSC. The following table sets forth the high, low and volume
of shares traded (expressed in thousands) for the periods indicated:
1995 1994
- -------------------------------------------------------------------------------
SHARES SHARES
HIGH LOW TRADED(2) HIGH LOW TRADED(2)
- -------------------------------------------------------------------------------
1st Quarter 24 1/4 20 1/2 551 31 27 3/4 569
2nd Quarter 25 3/4 22 1/2 548 31 3/4 29 5/8 704
3rd Quarter 27 3/4 23 1/2 399 29 25 3/4 332
4th Quarter 29 26 3/4 353 28 1/4 22 3/4 434
- -------------------------------------------------------------------------------
(1) Source: Wall Street Journal
(2) Source: Barron's
<PAGE> 15
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarter-to-quarter revenue and earnings comparisons do not necessarily reflect
changes in the demand for the Company's products or its operating efficiency.
Revenues and earnings in any quarter can be significantly affected by delivery
delays or acceleration of one or more high value systems, not accounted for
using the percentage-of-completion accounting method. The use of the
percentage-of-completion revenue recognition method for large long term projects
helps alleviate this. (See Note 1 of "Notes to Consolidated Financial
Statements"). High value, state-of-the-art custom orders can also contain
leading-edge applications of the Company's technology which in some cases have
resulted in lower than expected gross profit margins. This "system level"
product development is as equally essential to the Company's long term growth as
is company funded research and development. Management believes these orders
have significant long-term benefits for the Company despite their potential
impact on earnings.
Quarterly earnings will also vary based on the use of estimated, effective
income tax rates for providing federal, state, and foreign income taxes. See
Note 4 of "Notes to Consolidated Financial Statements" for the reconciliation
between the statutory and effective income tax rates.
Selected quarterly financial information, for the three fiscal years ended
September 30, 1995, is presented below.
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------------------------------------------------------------------
(expressed in thousands except per share data)
<S> <C> <C> <C> <C> <C>
1995
Revenues $49,468 $ 58,949 $ 55,709 $70,005 $ 234,131
Gross margin 18,195 21,061 21,327 31,055 91,638
Pretax income 1,652 2,022 1,961 8,396 14,031
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,239 $ 1,511 $ 1,488 $ 6,223 $ 10,461
- -----------------------------------------------------------------------------------------------------------------------------------
Income per share $ .27 $ .34 $ .33 $ 1.33 $ 2.30
- -----------------------------------------------------------------------------------------------------------------------------------
1994
Revenues $47,241 $ 46,357 $ 48,468 $58,484 $ 200,550
Gross margin 19,443 17,380 18,902 24,115 79,840
Pretax income 3,526 5,015 1,442 2,646 12,629
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,361 $ 3,181 $ 1,002 $ 2,115 $ 8,659
- -----------------------------------------------------------------------------------------------------------------------------------
Income per share $ .51 $ .68 $ .21 $ .45 $ 1.85
- -----------------------------------------------------------------------------------------------------------------------------------
1993
Revenues $40,016 $ 43,168 $ 48,824 $57,491 $ 189,499
Gross margin 16,705 17,871 20,127 24,179 78,882
Pretax income 2,462 3,373 4,361 4,741 14,937
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,674 $ 2,187 $ 2,864 $ 3,657 $ 10,382
- -----------------------------------------------------------------------------------------------------------------------------------
Income per share $ .37 $ .48 $ .63 $ .79 $ 2.27
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(September 30)
ASSETS 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,736 $ 4,919
Accounts receivable, net of allowance for doubtful accounts of $1,824 and $1,439 65,106 44,534
Unbilled contracts and retainage receivable 19,668 35,584
Inventories 35,669 35,152
Prepaid expenses 2,410 3,017
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 131,589 123,206
- -----------------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Land 3,461 3,703
Buildings and improvements 38,574 36,452
Machinery and equipment 55,826 50,803
Accumulated depreciation (49,371) (43,590)
- -----------------------------------------------------------------------------------------------------------------------------------
Total property and equipment, net 48,490 47,368
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 9,421 5,134
- -----------------------------------------------------------------------------------------------------------------------------------
$ 189,500 $ 175,708
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ 10,475 $ 17,007
Current maturities of long-term debt 1,043 1,516
Accounts payable 11,768 10,969
Accrued compensation and benefits 20,194 18,058
Advance billings to customers 14,784 9,660
Other accrued liabilities 8,475 8,170
Accrued income taxes 275 981
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 67,014 66,361
- -----------------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 4,362 3,973
LONG-TERM DEBT 11,447 5,328
- -----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT:
Common stock, 25 cents par; 16,000,000 shares authorized:
4,598,311 and 4,568,374 shares issued and outstanding 1,150 1,142
Additional paid-in capital 255 2,928
Retained earnings 100,443 91,762
Cumulative translation adjustment 4,829 4,214
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' investment 106,677 100,046
- -----------------------------------------------------------------------------------------------------------------------------------
$ 189,500 $ 175,708
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
<PAGE> 17
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
AND SHAREHOLDERS' INVESTMENT
(For the Years Ended September 30)
INCOME 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
(expressed in thousands except for share data)
<S> <C> <C> <C>
NET REVENUE $ 234,131 $ 200,550 $ 189,499
COST OF REVENUE 142,493 120,710 110,617
- -----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 91,638 79,840 78,882
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling 45,088 40,351 37,103
General and administrative 16,053 12,682 10,697
Research and development 13,733 12,645 13,697
Interest expense 2,670 2,150 1,722
Interest income (246) (290) (515)
Other expense, net 309 (327) 1,241
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 77,607 67,211 63,945
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,031 12,629 14,937
PROVISION FOR INCOME TAXES 3,570 3,970 4,555
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 10,461 $ 8,659 $ 10,382
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 2.30 $ 1.85 $ 2.27
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,545 4,668 4,572
- -----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Additional Cumulative
Shares Paid-In Retained Translation
Issued Amount Capital Earnings Adjustment
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars expressed in thousands)
BALANCE, SEPTEMBER 30, 1992 4,463,303 $1,115 $ 1,673 $ 77,958 $4,246
- -----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 119,749 30 2,112 -- --
Translation adjustment -- -- -- -- (709)
Common stock purchased and retired (51,433) (12) (1,165) -- --
Acquisition through pooling of interests 11,984 3 57 (531) --
Net income -- -- -- 10,382 --
Cash dividends, 48 cents per share -- -- -- (2,148) --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1993 4,543,603 1,136 2,677 85,661 3,537
- -----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 64,810 16 1,187 -- --
Translation adjustment -- -- -- -- 677
Common stock purchased and retired (40,039) (10) (936) -- --
Net income -- -- -- 8,659 --
Cash dividends, 56 cents per share -- -- -- (2,558) --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1994 4,568,374 1,142 2,928 91,762 4,214
- -----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 44,277 11 899 -- --
Translation adjustment -- -- -- -- 615
Common stock purchased and retired (158,840) (39) (3,572) -- --
Acquisitions through pooling of interests 144,500 36 -- 743 --
Net income -- -- -- 10,461 --
Cash dividends, 56 cents per share -- -- -- (2,523) --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1995 4,598,311 $1,150 $ 255 $100,443 $4,829
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
<PAGE> 18
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(For the Years Ended September 30)
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
(expressed in thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 10,461 $ 8,659 $ 10,382
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 7,217 6,214 5,648
Deferred income taxes 278 731 96
Gain from sale of land and building (418) (3,930) (658)
Changes in operating assets and liabilities:
Accounts receivable, unbilled contracts, and retainages (2,625) 8,789 (22,591)
Inventories 1,065 (10,143) (1,418)
Prepaid expenses 718 (1,085) (187)
Accrued income taxes (745) 255 (3,045)
Advance billings to customers 4,629 2,336 (556)
Other assets and liabilities, net 2,494 9,084 2,588
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 23,074 20,910 (9,741)
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment additions, net (6,310) (6,901) (4,576)
Plant purchases and new construction, net -- (11,277) (92)
Proceeds from sale of land and building 671 6,131 750
Purchase of Power-Tek, Inc. (4,687) -- --
Other assets (405) (469) (93)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (10,731) (12,516) (4,011)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net borrowings under notes payable to banks (8,134) (11,595) 16,295
Proceeds from issuance of long-term debt 8,257 4,341 --
Repayments of long-term debt (3,185) (2,194) (2,331)
Cash dividends (2,523) (2,558) (2,148)
Proceeds from employee stock option and stock purchase plans 910 1,203 2,142
Payments to purchase and retire common stock (3,611) (946) (1,177)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,286) (11,749) 12,781
- -----------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (240) 677 (709)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,817 (2,678) (1,680)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,919 7,597 9,277
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,736 $ 4,919 $ 7,597
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest $ 2,615 $ 2,069 $ 1,743
Income taxes 3,317 3,715 7,600
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
<PAGE> 19
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 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 expense, net" in the Consolidated Statements of Income. These
transactions resulted in net exchange gains of $1,401,000 in 1995, $1,058,000 in
1994 and $564,000 in 1993.
The Company has a foreign currency risk management program which principally
involves entering into forward foreign currency hedge contracts, options, and
foreign currency denominated loans to address specific exposures related to
future foreign currency transactions. On September 30, 1995, there were open
hedge and options contracts, with various future settlement dates, totaling
$2,748,000. The net unrealized gain on such contracts was $41,000 at September
30, 1995.
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 that 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 impact on 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 percentage 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 September 30, 1995 are expected to be invoiced
during fiscal 1996.
Long-term contracts consider the duration of the manufacturing and collection
cycles at the time the contract is bid. Accordingly, Accounts Receivable in the
accompanying Consolidated Balance Sheets approximate fair value.
WARRANTY OBLIGATIONS
The Company warrants its products against defects in materials and
workmanship under normal use and service, generally for one year. The Company
maintains reserves for warranty costs based upon its past experience with
warranty claims.
CASH EQUIVALENTS
Cash equivalents represent short-term investments which have an original
maturity of 90 days or less. Accordingly, the amounts shown on the accompanying
Consolidated Balance Sheets approximate fair value.
ACCOUNTS RECEIVABLE
The Company grants credit to customers, but generally does not require
collateral or other security from domestic customers. International receivables,
where deemed necessary, are supported by letters of credit from reputable
banking institutions.
INVENTORIES
Inventories consist of material, labor and overhead and are stated at the lower
of first-in, first-out cost or market. Inventory components as of September 30,
were as follows:
1995 1994
- -------------------------------------------------------------------------------
(expressed in thousands)
Customer projects in
various stages of
completion $ 13,304 $ 14,336
Components,
assemblies and parts 22,365 20,816
- -------------------------------------------------------------------------------
Total $ 35,669 $ 35,152
- -------------------------------------------------------------------------------
<PAGE> 20
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Additions, replacements and
improvements are capitalized at cost, while maintenance and repairs are charged
to operations as incurred. Depreciation is provided over the following estimated
useful lives of the property:
Buildings and improvements: 10 to 40 years.
Machinery and equipment: 5 to 10 years.
Most major building and equipment purchases are depreciated on a
straight-line basis for financial reporting purposes and on an accelerated basis
for income tax purposes.
OTHER ASSETS
Other assets consist principally of patents and excess cost over net assets
acquired, net of accumulated amortization of $7,275,000 and $3,304,000 in 1995
and 1994, respectively. These assets are being amortized over various periods
from 8 to 40 years.
RESEARCH AND DEVELOPMENT
Research and product development costs associated with new products are charged
to operations as incurred.
NET INCOME PER SHARE
Net income per share is computed by dividing net in come by the weighted average
number of shares of common stock and common stock equivalents outstanding in
each period. Fully diluted and primary net income per share amounts are
approximately equivalent for the years presented.
ACQUISITIONS
In April 1994 the Company completed the purchase of 100% of the stock of Adamel
Lhomargy, a French manufacturer of material testing systems, for cash and
assumption of debt. The transaction was accounted for by the purchase method of
accounting.
In November 1994 the Company acquired the stock of Power-Tek, Inc. of
Farmington Hills, Michigan for an initial payment of cash and a contingent
payment. The transaction was accounted for by the purchase method of accounting.
Power-Tek manufactures dynamometers and clean-air testing systems for the auto,
truck and construction equipment industries. The company is a wholly owned
subsidiary conducting business as MTS-PowerTek, Inc.
In May and September 1995 the Company completed transactions to exchange
shares of its common stock for all the outstanding shares of Gull Engineering,
Inc. and Incon Corporation. Both transactions were accounted for as poolings of
interests. The companies manufacture proprietary products used by existing
MTS operating units. MTS was the sole customer of both companies.
Financial data for prior periods have not been restated
for the acquisitions by the pooling of interests as both assets and operations
were not material, individually or in total, to the Company's Consolidated
Financial Statements.
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. INDUSTRY SECTOR AND GEOGRAPHIC INFORMATION:
The Company provides customers with hardware and software products and services
they can use to improve product quality, stimulate innovation, and increase
machine and worker productivity. MTS markets these products and services in two
business sectors--Mechanical Testing and Simulation (MT&S) and Measurement and
Automation (M&A). MT&S customers use the Company's products and services to
determine how their products (materials, vehicles, components or structures)
will perform under actual service conditions. M&A customers use the Company's
instrumentation products to monitor and automate industrial processes and
equipment. Financial information by sector follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C> <C>
NET REVENUE
Mechanical Testing & Simulation $ 190,464 $ 163,502 $ 160,198
Measurement & Automation 43,946 37,276 29,667
Transfers within and between sectors (279) (228) (366)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 234,131 $ 200,550 $ 189,499
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES
Mechanical Testing & Simulation $ 9,550 $ 8,606 $ 13,612
Measurement & Automation 4,481 4,023 1,325
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 14,031 $ 12,629 $ 14,937
- -----------------------------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Mechanical Testing & Simulation $ 161,678 $ 152,763 $ 145,378
Measurement & Automation 36,048 29,558 24,755
Eliminations between sectors (8,226) (6,613) (4,417)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 189,500 $ 175,708 $ 165,716
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER SECTOR DATA
Mechanical Testing & Simulation:
Capital expenditures $ 6,319 $ 16,464 $ 4,199
Depreciation 5,456 4,917 4,634
Amortization 417 108 18
- -----------------------------------------------------------------------------------------------------------------------------------
Measurement & Automation:
Capital expenditures $ 1,243 $ 1,396 $ 1,080
Depreciation 1,086 945 767
Amortization 258 244 229
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
A geographic summary of the Company's operations and related year-end asset
information for each of the three years in the period ended September 30, 1995
follows:
<TABLE>
<CAPTION>
International
------------------------------------------------------------------------
United Elimi- Consoli-
States Far East Europe Other nations dated
- -----------------------------------------------------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS FOR THE YEAR
ENDED SEPTEMBER 30, 1995
Net revenue $125,659 $ 42,032 $54,634 $11,806 $ -- $ 234,131
Transfers between
geographic areas 1,256 16,620 9,998 585 (28,459) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total $126,915 $ 58,652 $64,632 $12,391 $ (28,459) $ 234,131
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 15,046 $ (192) $(1,955) $ 1,132 $ -- $ 14,031
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS FOR THE YEAR
ENDED SEPTEMBER 30, 1994
Net revenue $101,747 $ 45,541 $45,099 $ 8,163 $ -- $ 200,550
Transfers between
geographic areas -- 19,343 15,439 871 (35,653) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total $101,747 $ 64,884 $60,538 $ 9,034 $ (35,653) $ 200,550
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 7,736 $ 4,010 $ 1,242 $ (359) $ -- $ 12,629
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS FOR THE YEAR
ENDED SEPTEMBER 30, 1993
Net revenue $ 92,153 $ 46,490 $43,633 $ 7,223 $ -- $ 189,499
Transfers between
geographic areas 366 16,914 10,815 1,321 (29,416) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 92,519 $ 63,404 $54,448 $ 8,544 $ (29,416) $ 189,499
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 9,340 $ 5,031 $ 956 $ (390) $ -- $ 14,937
- -----------------------------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
AT SEPTEMBER 30:
1995 $164,341 $ 12,895 $51,708 $ 311 $ (39,755) $ 189,500
1994 154,954 $ 19,454 $40,825 $ 791 $ (40,316) $ 175,708
1993 162,090 24,135 24,661 527 (45,697) 165,716
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Transfers between geographic areas are made at prices which allow appropriate
markup to the manufacturing or selling unit.
Individual countries, other than the United States, do not exceed 10% of
consolidated revenues on a recurrent annual basis.
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. FINANCING:
Long-term debt as of September 30 follows:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------
(expressed in thousands)
<C> <C> <C>
7.75% Mortgage, due in October 2015, secured by land and building $ 8,085 $ --
6.69% Note, unsecured, due in August 1997 2,408 2,234
9.5% Note, unsecured, due in August 1996 1,611 1,975
8.3% Note, unsecured, due in September 1996 313 576
3.5% Note, unsecured, paid during 1995 -- 1,685
4.75% Note, unsecured, paid during 1995 -- 370
Other, secured 73 4
- -----------------------------------------------------------------------------------
TOTAL $12,490 $6,844
- -----------------------------------------------------------------------------------
LESS CURRENT MATURITIES (1,043) (1,516)
- -----------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $11,447 $5,328
- -----------------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities of long-term debt for the next five fiscal years are
as follows: 1996--$1,043,000; 1997--$3,461,000; 1998--$436,000; 1999--$228,000;
2000--$244,000 and $7,078,000 thereafter. The carrying value of the Company's
long-term debt at September 30, 1995, approximates the fair value at current
interest rates offered to the Company for debt of the same remaining maturities.
The Company has credit agreements with two domestic banks totaling
$30,000,000. One credit agreement, for $5,000,000, permits the Company to issue
domestic and Euro-currency notes. The other credit agreement, for $25,000,000,
permits the Company to issue domestic notes, Euro-currency notes, and banker's
acceptances. As part of the same credit agreement, and within the $25,000,000
limit, the bank has agreed to issue term loans up to a maximum of $10,000,000
until September 30, 1996. This agreement provides for repayment of these term
loans through September, 1998. The Company compensates both banks with loan
commitment fees on the unused portion of the credit lines. The Company also has
four uncommitted lines of credit with banks that total $40,000,000. In addition,
the Company has standby letter-of-credit lines totaling $15,000,000. At
September 30, 1995, standby letters of credit outstanding totaled $8,989,000.
Under the terms of its credit agreements, the Company has agreed, among other
matters, that (a) its defined cash flow or fixed charge coverage will exceed a
defined minimum level; (b) its interest bearing debt will not exceed a defined
percentage of total capital; (c) its tangible net worth will exceed a defined
minimum amount; and (d) repurchases of its common stock will not exceed a
maximum amount. At September 30, 1995, tangible net worth exceeded the defined
minimum amount by $17,772,000 and the Company had $7,404,000 available for
repurchases of its common stock. The Company was in compliance with the terms of
its credit agreements and its lines of credit at September 30, 1995.
Information on short-term borrowings for the years ended September 30 follows.
1995 1994 1993
- -------------------------------------------------------------------------------
(expressed in thousands)
Balance outstanding at September 30 $10,475 $17,007 $28,602
Average balance outstanding 22,286 23,702 21,409
Maximum balance outstanding 26,642 30,302 29,446
Year-end interest rate 7.0% 5.8% 3.9%
Weighted-average interest rate 6.5% 4.4% 3.9%
- -------------------------------------------------------------------------------
<PAGE> 24
4. INCOME TAXES:
The provision for income taxes for the years ended September 30 consisted of:
1995 1994 1993
- --------------------------------------------------------------------------------
(expressed in thousands)
Currently payable (receivable):
Federal $ 3,211 $ 2,249 $ 2,378
State 662 411 411
Foreign (295) 1,203 1,604
Deferred (8) 107 162
- --------------------------------------------------------------------------------
Total provision $ 3,570 $ 3,970 $ 4,555
- --------------------------------------------------------------------------------
A reconciliation from the Federal statutory income tax rate to the Company's
effective rate for the years ended September 30 follows:
1995 1994 1993
- --------------------------------------------------------------------------------
Statutory rate 35% 35% 35%
Tax benefit of Foreign
Sales Corporation (7) (4) (4)
Foreign provision in
excess of U.S. tax rate -- 5 3
State income taxes, net of
Federal benefit 3 2 2
Research and development
tax credits (7) (4) (4)
Other, net 1 (3) (2)
- --------------------------------------------------------------------------------
Effective rate 25% 31% 30%
- --------------------------------------------------------------------------------
Deferred tax assets and liabilities are recorded for the differences between the
amounts reported for financial reporting and income tax purposes. Components of
the net deferred tax liabilities as of September 30 were as follows:
DEFERRED TAX ASSETS:
1995 1994
- -------------------------------------------------------------------------------
(expressed in thousands)
Accrued payroll/benefits $1,444 $1,547
Inventory reserves 860 1,162
Accounts receivable 216 113
Other assets 21 187
- -------------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSET $2,541 $3,009
- -------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
1995 1994
- -------------------------------------------------------------------------------
Property and equipment $4,362 $4,050
Real estate tax accrual -- 266
Other liabilities -- 23
- -------------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITY $4,362 $4,339
- -------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $1,821 $1,330
- -------------------------------------------------------------------------------
<PAGE> 25
5. STOCK OPTIONS:
The Company has made certain stock-based awards to its officers, non-employee
directors, and key employees under various stock plans. Awards under these plans
can include incentive stock options (qualified), non-qualified stock options,
stock appreciation rights, restricted stock, deferred stock, and other
stock-based and non stock-based awards. At September 30, 1995, the Company had
awarded incentive stock options and non-qualified stock options. These were
granted at exercise prices that are 100% of the fair-market value at the date of
grant. Beginning one year after grant, the options generally can be exercised
proportionately each year for periods of three, four, and six years, as defined
in the respective plans.
Option holders may exercise options by delivering Company stock already owned,
cash, or a combination of stock and cash. The shares tendered in the exchange
are cancelled and, therefore, reduce shares issued. During 1995 and 1994, option
holders exchanged 15,273 and 20,655 shares, respectively, of the Company's
stock in payment of options exercised.
Under the Plans, options for 541,821 shares are outstanding at $13.00 to
$31.75 per share, of which options for 330,222 shares were exercisable at
September 30, 1995. Another 322,881 options remain available for granting
beyond September 30, 1995. During 1995 and 1994, options for 44,157 and 65,927
shares were exercised at prices of $13.00 to $26.75 and $13.00 to $25.38 per
share, respectively.
In January, 1992, the Company's shareholders authorized an Employee Stock
Purchase Plan (the Purchase Plan), whereby 250,000 shares of the Company's
common stock were reserved for sale to employees until April 2002. Participants
in the 1995 phase of the Purchase Plan were granted options to purchase shares
at 85% of the market price of the Company's common stock, and participants in
the 1994 phase of the Purchase Plan were granted options to purchase shares at
95% of the market price of the Company's common stock, all at dates specified in
the Purchase Plan. Participants were issued 15,393 shares in 1995, and 19,538
shares in 1994. During fiscal 1995, participants subscribed to purchase 25,000
shares at 85% of market price for issuance in fiscal 1996.
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" (Statement No. 123), issued in October 1995 and
effective for fiscal years beginning after December 15, 1995, encourages, but
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. It also allows an entity to elect to
continue to measure compensation cost under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), but requires
pro forma disclosures of net income and net income per share as if the fair
value based method of accounting had been applied. The Company expects to adopt
Statement No. 123 in 1996. While the Company is still evaluating Statement No.
123, it currently expects to elect to continue to measure compensation cost
under APB No. 25 and comply with the pro forma disclosure requirements. If the
Company makes this election, this statement will have no impact on the Company's
results of operations or financial position because the Company's plans are
fixed stock option plans which have no intrinsic value at the grant date under
APB No. 25.
6. EMPLOYEE BENEFIT PLANS:
The Company's profit sharing plan functions as a retirement program for most
U.S. and certain international employees. Employees who have completed 1,000
hours of service during the plan year are eligible to participate. The formula
for calculating the Company's contribution is approved annually by the Board of
Directors and is based primarily on operating results for the year, before
management variable compensation. The plan provides for a minimum contribution
of 4% of participant compensation, as defined, up to the social security taxable
wage base, and 8% of participant compensation in excess of the taxable wage
base, so long as this calculation does not exceed pretax income. The
contributions for 1995, 1994, and 1993 were 4.3%, 4.3%, and 4.2% of participant
compensation, respectively. The provisions for profit sharing were $2,132,000 in
1995, $2,281,000 in 1994, and $2,118,000 in 1993, and are distributed among the
various operating expenses shown in the accompanying Consolidated Statements
of Income.
Two of the Company's international subsidiaries have noncontributory, unfunded
retirement plans for eligible employees. These plans provide benefits based on
the employee's years of service and compensation during the years immediately
preceding retirement, early retirement, termination, disability or death, as
defined in the respective plans.
<PAGE> 26
The expenses for these plans consist of the following components:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C> <C>
Service cost-benefit earned during the period $ 395 $ 214 $ 235
Interest cost on projected benefit obligation 278 195 192
Net amortization and deferral 40 (16) 7
- -----------------------------------------------------------------------------------------------------------------------------------
NET PERIODIC PENSION COST $ 713 $ 393 $ 434
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The status of the Company's plans and the amounts recognized in the financial
statements are:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C>
ACTUARIAL PRESENT VALUE:
Accumulated benefit obligation:
Vested $ 3,201 $1,604
Nonvested 778 63
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 3,979 1,667
- -----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 4,968 2,234
Plan assets at fair value -- --
Unrecognized net gain (429) (784)
Unrecognized net liability being amortized 233 74
Adjustment required to recognize minimum liability -- --
- -----------------------------------------------------------------------------------------------------------------------------------
ACCRUED PENSION LIABILITY $ 4,772 $1,524
- -----------------------------------------------------------------------------------------------------------------------------------
Major assumptions at year-end are:
Discount rate 3.5 to 7% 8.0%
Rate of increase in future compensation levels 3% 4.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 27
REPORTS ON CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO MTS SYSTEMS CORPORATION:
We have audited the accompanying consolidated balance sheets of MTS SYSTEMS
CORPORATION (a Minnesota corporation) AND SUBSIDIARIES as of September 30, 1995
and 1994, and the related consolidated statements of income, shareholders'
investment, and cash flows for each of the three years in the period ended
September 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial position of MTS
Systems Corporation and Subsidiaries as of September 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1995 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
November 21, 1995
REPORT OF MANAGEMENT
The management of MTS Systems Corporation is responsible for the integrity and
objectivity of the financial information presented in this Report. The financial
statements have been prepared in accordance with generally accepted accounting
principles and include certain amounts based on management's best estimates
and judgment.
Management is also responsible for establishing and maintaining the Company's
accounting systems and related internal controls, which are designed to provide
reasonable assurance that assets are safeguarded, transactions are properly
recorded, and the policies and procedures are implemented by qualified
personnel.
The Audit Committee of the Board of Directors, which is comprised solely of
outside directors, meets regularly with management and its independent auditors
to review audit activities, internal controls, and other accounting, reporting,
and financial matters. This Committee also recommends independent auditors for
appointment by the full Board, subject to shareholder ratification.
The financial statements included in this annual report have been audited by
Arthur Andersen LLP, independent public accountants. We have been advised that
their audits were conducted in accordance with generally accepted auditing
standards and included such reviews of internal controls and tests of
transactions as they considered necessary in setting the scope of their audits.
Donald M. Sullivan
Chairman and
Chief Executive Officer
/s/ Donald M. Sullivan
Marshall L. Carpenter
Vice President and
Chief Financial Officer
/s/ Marshall L. Carpenter
<PAGE> 28
EXHIBIT 21
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
OF THE COMPANY
Incorporation
Name Jurisdiction
MTS Systems (Hong Kong) Inc. Minnesota, U.S.A.
MTS Testing Systems (Canada) Ltd. Canada
MTS Systems GmbH Germany
MTS Sensors Technologie GmbH and Co. KG Germany
MTS Systems France France
MTS Adamel Lhomargy S.A France
MTS Holdings France, SARL France
MTS (Japan) Ltd. Japan
MTS Sensors Technology K.K Japan
MTS Systems Limited (London) United Kingdom
MTS Systems SRL (Italy) Italy
MTS International, Ltd. West Indies
MTS Systems Norden AB Sweden
MTS Sistemas do Brasil, Ltda Brazil
MTS Systems (China) Inc. Peoples Republic of China
Custom Servo Motors, Inc. Minnesota, U.S.A.
MTS Korea, Inc. Republic of Korea
MTS-PowerTek, Inc. Michigan, U.S.A.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8 (Registration
Nos. 2-99389, 33-21699, 33-35288, 33-45386 and 33-45386) and Form S-3
(Registration No. 33-60485).
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
December 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 8,736
<SECURITIES> 0
<RECEIVABLES> 86,598
<ALLOWANCES> 1,824
<INVENTORY> 35,669
<CURRENT-ASSETS> 131,589
<PP&E> 97,861
<DEPRECIATION> 49,371
<TOTAL-ASSETS> 189,500
<CURRENT-LIABILITIES> 67,014
<BONDS> 12,490
0
0
<COMMON> 1,150
<OTHER-SE> 105,527
<TOTAL-LIABILITY-AND-EQUITY> 189,500
<SALES> 234,131
<TOTAL-REVENUES> 234,131
<CGS> 142,493
<TOTAL-COSTS> 220,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 620
<INTEREST-EXPENSE> 2,670
<INCOME-PRETAX> 14,031
<INCOME-TAX> 3,570
<INCOME-CONTINUING> 14,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,461
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.30
</TABLE>
