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 December 31, 1995
Commission File Number 0-2382
MTS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<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 of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
_X_ Yes ___ No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.25 par value; 4,688,854 shares outstanding.
PART I. FINANCIAL INFORMATION
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1995
December 31 September 30
1995 1995
ASSETS UNAUDITED AUDITED
(expressed in $ 000's)
Cash and cash equivalents $ 11,325 $ 8,736
Accounts receivable 58,766 65,106
Unbilled contracts and retainage receivable 18,923 19,668
Inventories-
Customer jobs-in-process 15,931 13,304
Components, assemblies and parts 23,061 22,365
Prepaid expenses 3,132 2,410
--------- ---------
Total current assets 131,138 131,589
Land 3,461 3,461
Buildings and improvements 38,696 38,574
Machinery and equipment 55,066 55,826
Accumulated depreciation (49,671) (49,371)
--------- ---------
Total property and equipment 47,552 48,490
Other assets 9,238 9,421
--------- ---------
$ 187,928 $ 189,500
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Notes payable to banks $ 8,177 $ 10,475
Current maturities of long-term debt 911 1,043
Accounts payable 9,718 11,768
Accrued compensation and benefits 19,123 20,194
Advance billings to customers 16,569 14,784
Other accrued liabilities 9,249 8,475
Accrued income taxes (1,420) 275
--------- ---------
Total current liabilities 62,327 67,014
--------- ---------
Deferred income taxes 4,351 4,362
Long-term debt, less current maturities 11,342 11,447
--------- ---------
Common stock, $.25 par; 16,000,000 shares
authorized: 4,688,854 and 4,598,311
shares issued and outstanding 1,172 1,150
Additional paid-in capital 1,952 255
Retained earnings 102,123 100,443
Cumulative translation adjustment 4,661 4,829
--------- ---------
Total shareholders' investment 109,908 106,677
--------- ---------
$ 187,928 $ 189,500
========= =========
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 3 MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
FOR THE 3 MONTHS ENDED
DECEMBER 31
1995 1994
(expressed in 000's except
for per share amounts)
NET REVENUES $ 56,135 $ 49,468
COST OF REVENUES 32,268 31,273
--------- ---------
Gross profit 23,867 18,195
OPERATING EXPENSES:
Selling 11,337 10,147
General and administrative 3,703 3,145
Research and development 3,767 2,979
Interest expense 455 416
Interest income (27) (25)
Other (income) and expense, net 1,062 (119)
--------- ---------
Total operating expense 20,297 16,543
--------- ---------
INCOME BEFORE INCOME TAXES 3,570 1,652
PROVISION FOR INCOME TAXES 1,140 413
--------- ---------
NET INCOME $ 2,430 $ 1,239
========= =========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.51 $ 0.27
========= =========
DIVIDENDS PER SHARE $ 0.16 $ 0.14
========= =========
BACKLOG $ 107,672 $ 89,552
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,729 4,551
========= =========
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 3 MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
FOR THE 3 MONTHS ENDED
December 31
1995 1994
-------- ---------
(expressed in $000's)
OPERATING ACTIVITIES
Net income $ 2,430 $ 1,239
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,801 1,623
Deferred income taxes (11) 7
Changes in operating assets and liabilities:
Receivables, including accounts, unbilled
contracts and retainages 7,086 6,286
Inventories (3,323) (1,356)
Prepaid expenses (722) (539)
Accrued income taxes (1,695) (1,734)
Advance billings to customers 1,784 1,906
Other, net (2,347) (4,014)
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,003 3,418
-------- ---------
INVESTING ACTIVITIES
Property and equipment, net (705) (875)
Purchase of PowerTek, Inc. -- (4,687)
Other assets 25 436
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES (680) (5,126)
-------- ---------
FINANCING ACTIVITIES
Net borrowings (payments) on notes payable (2,298) 8,009
Payments on long-term borrowings (237) (220)
Cash dividends (750) (633)
Proceeds from employee stock option
and stock purchase plans 1,719 55
Payments to purchase and retire common stock -- (2,848)
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,566) (4,363)
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (168) 5
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,589 2,660
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,736 4,919
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,325 $ 7,579
======== ========
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 December 31, 1995 are
expected to be invoiced in fiscal 1996.
OTHER FINANCIAL STATEMENT DISCLOSURE. The Notes to Consolidated
Financial Statements appearing in the Company's September 30, 1995 Annual Report
to Shareholders on pages 20 through 27 are incorporated herein by reference.
MANAGEMENT'S INTERIM FINANCIAL STATEMENT REPRESENTATION. The unaudited
interim financial statements furnished herein reflect all adjustments which are,
in the opinion of management, necessary to fairly state the results of the
interim periods presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
New Orders and Backlog
New orders for the first quarter of fiscal 1996, ended December 31,
1995, were $65 million, a 25% increase over the comparable quarter in fiscal
1995. Order activity in the Mechanical Testing and Simulation (MT&S) sector was
31% ahead of the prior year with the most significant increases coming from the
automotive market. International customers accounted for 52% of MT&S sector
orders compared to 49% one year ago. Order activity in the Measurement and
Automation Group (MAG) sector increased 12% over the same period a year ago.
International orders were 23% of the MAG total for both periods. Backlog of
undelivered orders at December 31, 1995 was $108 million, an increase of 9% from
September 30, 1995.
Results of Operations
Revenues for the first quarter exceeded $56 million, a 13% increase
from the same quarter one year ago. MT&S sector revenues increased 12% while MAG
revenues increased 21%. MT&S revenues accounted for 80% of total revenues for
the quarters ended December 31, 1995 and 1994, respectively. International
revenue accounted for 52% and 43% of total revenue for the quarters ended in
1995 and 1994, respectively.
Income before income taxes more than doubled to $3,570,000 compared to
$1,652,000 for the quarter ended a year ago. The increase in pretax earnings
results primarily from improved manufacturing margins in the MT&S sector
leveraged by increased revenue volume. Consolidated gross margin percents were
42% and 37% for the periods ended December 31, 1995 and 1994, respectively. The
improvement reflects completion of fiscal 1994 MT&S business that contained (i)
lower margin system orders accepted during a period of weak demand in Europe and
Japan and (ii) other custom projects with significant technological challenges.
The improvement in gross margins began during the fourth quarter of fiscal 1995,
and this quarter's results reflect continuation of that trend. Margins in the
MT&S sector's current backlog and the mix of projected orders suggest that this
quarter's gross margins will continue in future quarters of fiscal 1996.
Increases in operating expenses offset some of the gross margin
contribution. Selling expenses increased 12% as the Company continued to expand
its sales presence in the Far East. Research and development expenses increased
26% as development programs were accelerated in both business sectors. Other
operating expenses also increased from the impact of translating international
subsidiary financial statements and the settlement of specific transactions
denominated in foreign currencies.
Net income for the quarter increased 96% to $2,430,000 compared to the
comparable quarter one year ago. The effective tax rate for the quarter ended
December 31, 1995 was 32% compared to 25% for the quarter ended in 1994 and the
year ended September 30, 1995. The current quarter's provision for income taxes
excludes any benefit from the Research and Development Tax Credit, which expired
in June 1995. Should the credit be retroactively reinstated, the Company expects
the effective tax rate for the year would become 29% to 30%.
Financial Condition and Liquidity
The ratio of current assets to current liabilities at December 31 was
2.1 compared to 2.0 at September 30, 1995. Cash and cash equivalents increased
30% to $11.3 million at December 31 compared to $8.7 million at September 30,
1995. The Company's borrowing under its $70 million lines of credit was $8.2
million at December 31 compared to $10.5 million at September 30, 1995. The
decrease in borrowing results from increased cashflow from more profitable
operations and collections of September 1995 receivables which arose from record
shipments during the fourth quarter of fiscal 1995.
Capital expenditures, net of retirements for the first quarter totaled
$705,000. The Company's total debt to equity ratio decreased to 19% at December
31 from 22% at September 30, 1995 reflecting the above mentioned reduction in
short-term borrowings.
The Company's past financial performance, the availability of credit
under its borrowing facilities, available cash and cash equivalents provide
sufficient resources for growth, expansion and diversification.
PART II-------OTHER INFORMATION
ITEM 5. Other Information.
On January 30, 1996 the Company's shareholders held the Annual
Shareholders meeting. With shareholders voting 96% of the outstanding shares,
actions passed to re-elect the Board of Directors, ratify the appointment of
Arthur Andersen LLP as the Company's independent public auditors, and amend the
Articles of Incorporation to increase the total number of authorized shares of
common stock from 16 to 32 million.
The Company's Board of Directors declared a two-for-one stock split at
their January 30 board meeting, in the form of a one hundred percent stock
dividend. The Directors also approved a quarterly dividend of $.08 per share on
the new post-split basis. The dividend payment and new shares will have a March
8, 1996 record date, and an April 1, 1996 payment and issue date. Previously, at
their November 1995 board meeting, the Directors had authorized an increase in
the quarterly dividend to $.16 from $.14 per share (split adjusted, $.08 per
share from $.07 per share).
ITEM 6. Exhibits and Reports on Form 8-K.
The following are submitted as part of this report.
(a) Exhibit
27. Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the quarter ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MTS SYSTEMS CORPORATION
/s/ D.M. Sullivan
D.M. Sullivan
Chairman, President and
Chief Executive Officer
/s/ M.L. Carpenter
M.L. Carpenter
Vice President
Chief Financial Officer
Dated: February 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 11,325
<SECURITIES> 0
<RECEIVABLES> 79,530
<ALLOWANCES> 1,841
<INVENTORY> 38,992
<CURRENT-ASSETS> 131,138
<PP&E> 97,223
<DEPRECIATION> 49,671
<TOTAL-ASSETS> 187,928
<CURRENT-LIABILITIES> 62,327
<BONDS> 12,253
0
0
<COMMON> 1,172
<OTHER-SE> 1,952
<TOTAL-LIABILITY-AND-EQUITY> 187,928
<SALES> 56,135
<TOTAL-REVENUES> 56,135
<CGS> 32,268
<TOTAL-COSTS> 52,565
<OTHER-EXPENSES> 1,062
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 455
<INCOME-PRETAX> 3,570
<INCOME-TAX> 1,140
<INCOME-CONTINUING> 3,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,430
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
