UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
or the Securities Exchange Act of 1934
For quarterly period ended June 30, 1995
Commission File Number 0-2382
MTS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
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.)
</TABLE>
14000 Technology Drive, Eden Prairie, Minnesota 55344
(Address/Zip Code of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
_X_ YES ___ NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.25 par value; 4,541,195 shares outstanding.
PART I. FINANCIAL INFORMATION
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND SEPTEMBER 30, 1994
JUNE 30 SEPT 30
1995 1994
ASSETS UNAUDITED AUDITED
(expressed in $ 000's)
Cash and cash equivalents $ 8,006 $ 4,919
Accounts receivable 60,031 44,534
Unbilled contracts and retainage receivable 24,051 35,584
Inventories-
Customer jobs-in-process 17,557 14,336
Components, assemblies and parts 22,638 20,816
Prepaid expenses 4,428 3,017
Total current assets 136,711 123,206
Land 3,714 3,703
Buildings and improvements 38,492 36,452
Machinery and equipment 54,361 50,803
Accumulated depreciation (48,282) (43,590)
Total property and equipment 48,285 47,368
Other assets 9,732 5,134
$ 194,728 $ 175,708
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Notes payable to banks 25,500 17,007
Current maturities of long-term debt 973 1,516
Accounts payable 10,174 10,969
Accrued compensation and benefits 10,068 18,058
Accrued income taxes (2,040) 981
Other accrued liabilities 16,903 8,170
Advance billings to customers 14,552 9,660
Total current liabilities 76,130 66,361
Deferred income taxes 4,164 3,973
Long-term debt, less current maturities 12,587 5,328
Common stock, $.25 par; 16,000,000 shares
authorized: 4,541,195 and 4,568,374
shares issued and outstanding 1,135 1,142
Additional paid-in capital 878 2,928
Retained earnings 94,114 91,762
Cumulative translation adjustment 5,720 4,214
Total shareholders' investment 101,847 100,046
194,728 175,708
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
FOR THE 3 MONTHS ENDED
JUNE 30
1995 1994
(expressed in 000's except
for per share amounts)
NET REVENUES $ 55,708 $ 48,468
COST OF REVENUES 34,381 29,566
Gross profit 21,327 18,902
OPERATING EXPENSES:
Selling 11,690 10,744
General and administrative 3,653 3,406
Research and development 3,176 3,253
Interest expense 744 552
Interest income (71) (116)
Other (income) and expense 174 (379)
Total operating expense 19,366 17,460
INCOME BEFORE INCOME TAXES 1,961 1,442
PROVISION FOR INCOME TAXES 474 440
NET INCOME $ 1,487 $ 1,002
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.33 $ 0.21
DIVIDENDS PER SHARE $ 0.14 $ 0.14
BACKLOG $ 97,899 $ 89,327
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,496 4,686
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
FOR THE 9 MONTHS ENDED
JUNE 30
1995 1994
(expressed in 000's except
for per share amounts)
NET REVENUES $ 164,125 $ 142,065
COST OF REVENUES 103,541 86,340
Gross profit 60,584 55,725
OPERATING EXPENSES:
Selling 33,000 29,667
General and administrative 11,080 9,429
Research and development 9,522 9,282
Interest expense 1992 1,504
Interest income (102) (211)
Other (income) and expense, net
(including $3.7 million gain from
real estate transaction in 1994) (543) (3,929)
Total operating expense 54,949 45,742
INCOME BEFORE INCOME TAXES 5,635 9,983
PROVISION FOR INCOME TAXES 1,397 3,440
NET INCOME $ 4,238 $ 6,543
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.94 $ 1.40
DIVIDENDS PER SHARE $ 0.42 $ 0.42
BACKLOG $ 97,899 $ 86,327
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,503 4,679
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
FOR THE 9 MONTHS ENDED
JUN 30 JUN 30
1995 1994
(expressed in $000's)
OPERATING ACTIVITIES
Net income $ 4,238 $ 6,543
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 5,338 4,492
Deferred income taxes 191 (590)
Foreign currency translation adjustment 1,506 495
Changes in operating assets and liabilities:
Receivables, including accounts, unbilled
contracts and retainages (3,964) 12,584
Inventories (5,043) (7,121)
Prepaid expenses (1,411) (3,423)
Accrued income taxes (3,021) 867
Advance billings to customers 4,892 (811)
Other, net (52) 5,727
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,674 18,763
INVESTING ACTIVITIES
Property and equipment, net (5,747) (14,108)
Excess purchase cost for MTS Power Tek, Inc. (4,003) --
Investment in Gull Engineering, Inc. 891 --
Other assets (1,103) (967)
NET CASH USED IN INVESTING ACTIVITIES (9,962) (15,075)
FINANCING ACTIVITIES
Net borrowings (payments) on notes payable 8,493 (5,285)
Proceeds from issuance of long-term debt 8,510 9,690
Payments on long-term borrowings (1,794) (6,711)
Cash dividends (1,885) (1,923)
Proceeds from employee stock option
and stock purchase plans 663 1,165
Payments to purchase and retire common stock (3,612) (26)
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,375 (3,090)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,087 598
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,919 7,597
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,006 $ 8,195
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND TRANSLATION. The consolidated financial statements
include the accounts of MTS SYSTEMS CORPORATION (the Company) and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated.
All balance sheet accounts of foreign subsidiaries are translated at
the current exchange rate as of the end of the accounting period. Income
statement items are translated at average currency exchange rates. The resulting
translation adjustment is recorded as a separate component of shareholders'
investment. Gains and losses resulting from foreign currency transactions are
included in "Other (income) and expense, net" in the consolidated Statements of
Income.
REVENUE RECOGNITION. Revenue is recognized upon shipment of equipment
when the customer's order can be manufactured, delivered and installed in less
than nine months. Revenue on contracts requiring longer delivery periods
(long-term contracts) and other customized orders which permit progress billings
is recognized using the percentage-of-completion method based on the cost
incurred to date relative to estimated total cost of the contract (cost-to-cost
method). The cumulative effects of revisions of estimated total contract costs
and revenues are recorded in the period in which the facts become known. When a
loss is anticipated on a contract, the amount thereof is provided currently.
LONG-TERM CONTRACTS. The Company enters into long-term contracts for
customized equipment sold to its customers. Under terms of certain contracts,
revenue recognized using the percent-of-completion method may not be invoiced
until completion of contractual milestones, upon shipment of the equipment, or
upon installation and acceptance by the customer. Unbilled amounts for such
contracts appear in the consolidated balance sheets as unbilled contracts and
retainage receivable. Amounts unbilled or retained at June 30, 1995 are expected
to be invoiced as follows: $19,850,000 in 1995 and $4,201,000 in 1996.
INCOME TAXES -- CHANGE IN ACCOUNTING METHOD. The Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes effective October 1, 1993. The effect of such adoption was not
significant on the Company's financial position or results of operations for
the quarters ended in fiscal 1994 or the year ended September 30, 1994.
OTHER FINANCIAL STATEMENT DISCLOSURE. The Notes to Consolidated
Financial Statements appearing in the Company's September 30, 1994 Annual Report
to Shareholders on pages 20 through 25 are incorporated herein by reference.
ACQUISITION. In May, 1995 the Company exchanged shares of its common
stock for all of the outstanding shares of Gull Engineering, Inc. The
transaction was accounted for as a pooling of interests. Financial data for
prior periods have not been restated because Gull operations were not material
to the Company's Consolidated Financial Statements.
MANAGEMENT'S INTERIM FINANCIAL STATEMENT REPRESENTATION. The unaudited
interim financial statements furnished herein reflect all adjustments which are,
in the opinion of management, necessary to fairly state the results of the
interim periods presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
New Orders and Backlog
New orders for the third quarter of fiscal 1995, ended June 30, were
$57,869,000, a 13% increase over the comparable quarter in fiscal 1994. Orders
were strong in all of the Company's business sectors, up 11% in the Mechanical
Testing and Simulation and up 22% in the Measurement and Automation
Instrumentation. International orders represented 45% of the quarter's orders
compared to 52% in the same period for the previous year.
New orders for the nine months ended June 30, 1995 were $175,055,000
compared to $141,512,000 for the same period one year ago, a 24% increase.
Recent acquisitions accounted for 10% of the increase. Orders in all sectors
recorded increases over levels reported for the previous year. Orders in the
Mechanical Testing and Simulation sector increased 16% while the Measurement and
Automation sector increased 25%. International orders were 45% of the 1995 total
compared to 52% for 1994. This change reflects the slow recovery of European and
Japanese economies. Orders for 1995 are expected to exceed the fiscal 1994 total
of $195 million. Backlog of undelivered orders at June 30, 1995 was $97,899,000
compared to $89,327,000 at June 30, 1994 and $84,591,000 at September 30, 1994.
Results of Operations
Revenues for the third quarter were $55,708,000 a 15% increase from the
same quarter one year ago. International content of revenue was 44% and 53% for
the quarters ended June 30, 1995 and 1994, respectively. Revenues from all
sectors increased over levels reported in 1994 for the quarter ended in June.
Income before income taxes was $1,961,000 compared to $1,442,000 for
the third quarter ended a year ago. Gross margin increased on the strength of
increased revenue volume for the June, 1995 quarter as compared to the same
quarter in 1994. The increase was also aided by third quarter deliveries which
shipped at higher gross margins than deliveries shipped in the second quarter of
fiscal 1995. The margin increase was partially offset by increased operating
expenses in selling and administrative areas. However, operating expenses as a
percent of revenues were 35% for the quarter ended June 30, 1995 compared to 36%
for the same quarter in 1994.
Net income for the quarter was $1,487,000 compared to $1,002,000 for
the same quarter one year ago, 48% increase. The effective tax rate for the
quarter ended June 30, 1995 was 24% compared to 31% for the quarter ended in
June, 1994.
Revenues for the nine months ended in June, 1995 were $164,125,000, a
16% increase over the same period a year ago. Recent acquisitions accounted for
6% of the increase. International revenues were 47% of total revenues as
compared to 51% for the nine month periods ended in June, 1995 and 1994,
respectively. Revenues from all sectors increased over levels reported in 1994
for the nine months ended in June.
Income before income taxes for the first nine months of 1995, decreased
to $5,635,000 from $9,983,000 reported in 1994. The 1994 pretax income included
a $3.7 million gain (in "Other income and expense, net") for the sale of the
Company's old Berlin plant. Excluding the gain, the decrease in operating
income was 10%. Total gross margin increased from 1994 to 1995 primarily from
increased revenue volume for the nine months ended in 1995. However, gross
margin as a percent of sales was 37% in 1995 compared to 39% in 1994. The
decline in the margin percentage reflects the impact of technical challenges on
a few large custom projects and performance of other project orders taken under
competitive price pressure. On a positive note, the 37% for the nine months
ended June 30, 1995 represents a 1% point increase from the 36% reported for
the six months ended in March, 1995. The decline in pretax income is due in
part, to the reduced leverage from lower gross margin percentages and in part,
to increased operating expenses. Selling, general and administrative expenses
for recent acquisitions and the translation of operating expenses denominated
in Yen and DMark currencies account for most of the increase. Operating
expenses (exclusive of the gain) as a percent of sales were 33% compared to 35%
for the nine months ended in June, 1995 and 1994, respectively.
Net income for the first nine months of 1995 was $4,238,000 compared to
$6,543,000 reported one year ago. After excluding the gain from the plant sale
from 1994 net income, the 1995 net income increased 49% over the nine months of
1994. The income tax rates were 25% and 34% for the nine months ended in 1995
and 1994, respectively.
The cumulative effect of the Company's change in accounting to adopt
SFAS No. 109 was not significant. The impact of the change on the results of
operations for the quarter and six month periods ended in fiscal 1994 was not
significant.
Financial Condition and Liquidity
The ratio of current assets to current liabilities at June 30, 1995 was
1.8 compared to 1.9 at September 30, 1994. Cash and cash equivalents were
$8,006,000 at June 30, 1995 compared to $4,919,000 at September 30, 1994. The
Company's borrowing under its $70 million lines of credit was $25.5 million at
June 30, 1995 compared to $23.3 million at June 30, 1994 and $17.0 million at
September 30, 1994.
Capital expenditures, net of retirements for the third quarter totalled
$5,747,000. The Company's total debt to equity ratio increased to 38% at June
30, 1995 from 24% at September 30,1994 reflecting the use of short-term notes to
finance increases in operating assets, repurchase of the Company's common stock,
the acquisition of MTS Power Tek, and the mortgage placement for the Berlin
plant purchased in 1994.
The Company's past financial performance, the availability of credit
under its borrowing facilities, available cash and cash equivalents provide
sufficient resources for growth, expansion and diversification.
PART II-------OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27. Financial Data Schedule--For SEC use.
(b) Reports on 8-K:
No reports on Form 8-K were filed during the quarter ended
June 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MTS SYSTEMS CORPORATION
/s/ D.M. Sullivan
D.M. Sullivan
Chairman, President and
Chief Executive Officer
/s/ M.L. Carpenter
M.L. Carpenter
Vice President
Chief Financial Officer
Dated: August 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 8,006
<SECURITIES> 0
<RECEIVABLES> 84,082
<ALLOWANCES> 1,636
<INVENTORY> 40,195
<CURRENT-ASSETS> 136,711
<PP&E> 96,567
<DEPRECIATION> 48,285
<TOTAL-ASSETS> 194,728
<CURRENT-LIABILITIES> 76,130
<BONDS> 12,587
<COMMON> 0
0
1,135
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 194,728
<SALES> 164,125
<TOTAL-REVENUES> 164,125
<CGS> 103,541
<TOTAL-COSTS> 54,949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 197
<INTEREST-EXPENSE> 1,992
<INCOME-PRETAX> 5,635
<INCOME-TAX> 1,397
<INCOME-CONTINUING> 5,635
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,238
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
