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, 1996
Commission File Number 0-2382
MTS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction of
incorporation or organization)
612-937-4000
(Telephone number of registrant
including area code)
41-0908057
(I.R.S. Employer
Identification No.)
14000 Technology Drive, Eden Prairie, Minnesota 55344
(Address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
__X__ Yes _____ No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.25 par value; 9,360,879 shares outstanding.
PART I. FINANCIAL INFORMATION
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
June 30 September 30
1996 1995
ASSETS UNAUDITED AUDITED
-------- --------
(expressed in $ 000's)
Cash and cash equivalents $ 20,570 $ 8,736
Accounts receivable 46,712 65,106
Unbilled contracts and retainage receivable 15,791 19,668
Inventories-
Customer jobs-in-process 17,467 13,304
Components, assemblies and parts 24,147 22,365
Prepaid expenses 4,095 2,410
-------- --------
Total current assets 128,782 131,589
Land 3,461 3,461
Buildings and improvements 38,225 38,574
Machinery and equipment 57,268 55,826
Accumulated depreciation (51,624) (49,371)
-------- --------
Total property and equipment 47,330 48,490
Other assets 8,815 9,421
-------- --------
$184,927 $189,500
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Notes payable to banks 113 10,475
Current maturities of long-term debt 639 1,043
Accounts payable 12,047 11,768
Accrued compensation and benefits 18,789 20,194
Advance billings to customers 18,353 14,784
Other accrued liabilities 9,194 8,475
Accrued income taxes (1,708) 275
-------- --------
Total current liabilities 57,427 67,014
-------- --------
Deferred income taxes 4,258 4,362
Long-term debt, less current maturities 10,718 11,447
-------- --------
Common stock, $.25 par; 32,000,000 shares
authorized: 9,360,879 and 4,598,311
shares issued and outstanding 2,340 1,150
Additional paid-in capital 129 255
Retained earnings 105,991 100,443
Cumulative translation adjustment 4,064 4,829
-------- --------
Total shareholders' investment 112,524 106,677
-------- --------
$184,927 $189,500
======== ========
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
FOR THE 3 MONTHS ENDED
JUNE 30
1996 1995
-------- --------
(expressed in 000's except
for per share amounts)
NET REVENUES $ 60,630 $ 55,708
COST OF REVENUES 36,256 34,381
-------- --------
Gross profit 24,374 21,327
-------- --------
OPERATING EXPENSES:
Selling 11,666 11,690
General and administrative 4,109 3,653
Research and development 4,482 3,176
Interest expense 135 744
Interest income (104) (71)
Other (income) and expense (200) 174
-------- --------
Total operating expense 20,088 19,366
-------- --------
INCOME BEFORE INCOME TAXES 4,286 1,961
PROVISION FOR INCOME TAXES 1,372 474
-------- --------
NET INCOME $ 2,914 $ 1,487
======== ========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.30 $ 0.17
======== ========
DIVIDENDS PER SHARE $ 0.08 $ 0.07
======== ========
BACKLOG $126,053 $ 97,899
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,703 8,993
======== ========
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
FOR THE 9 MONTHS ENDED
JUNE 30
1996 1995
-------- --------
(expressed in 000's except
for per share amounts)
NET REVENUES $183,847 $164,125
COST OF REVENUES 107,539 103,541
-------- --------
Gross profit 76,308 60,584
-------- --------
OPERATING EXPENSES:
Selling 34,658 33,000
General and administrative 12,170 11,080
Research and development 12,926 9,522
Interest expense 1,037 1,992
Interest income (171) (102)
Other (income) and expense, net 2,469 (543)
-------- --------
Total operating expense 63,089 54,949
-------- --------
INCOME BEFORE INCOME TAXES 13,219 5,635
PROVISION FOR INCOME TAXES 4,243 1,397
-------- --------
NET INCOME $ 8,976 $ 4,238
======== ========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.94 $ 0.47
======== ========
DIVIDENDS PER SHARE $ 0.24 $ 0.21
======== ========
BACKLOG $126,053 $ 97,899
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,564 9,007
======== ========
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
FOR THE 9 MONTHS ENDED
June 30
1996 1995
-------- --------
(expressed in $000's)
OPERATING ACTIVITIES
Net income $ 8,976 $ 4,238
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 5,536 5,338
Deferred income taxes -- 191
Changes in operating assets and liabilities
that provide or (use) cash:
Receivables, including accounts, unbilled
contracts and retainages 21,014 (2,792)
Inventories (6,403) (4,062)
Prepaid expenses (1,735) (1,358)
Accrued income taxes (2,018) (3,021)
Advance billings to customers 4,077 4,888
Other, net 357 (820)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,804 2,602
-------- --------
INVESTING ACTIVITIES
Property and equipment, net (4,819) (5,511)
Purchase of PowerTek, Inc. (4,687)
Other assets (105) 116
-------- --------
NET CASH (USED) IN INVESTING ACTIVITIES (4,924) (10,082)
-------- --------
FINANCING ACTIVITIES
Net borrowings (payments) on notes payable (10,329) 7,179
Proceeds from issuance of long-term debt -- 8,510
Payments on long-term borrowings (396) (1,794)
Cash dividends (2,255) (1,885)
Proceeds from employee stock option
and stock purchase plans 3,387 663
Payments to purchase and retire common stock (3,495) (3,612)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (13,088) 9,061
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 42 1,506
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 11,834 3,087
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,736 4,919
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,570 $ 8,006
======== ========
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, 1996 are expected
to be invoiced over the next 12 months.
STOCK SPLIT. On January 30, 1996 the Company's Board of Directors
declared a two-for-one stock split in the form of a one hundred percent stock
dividend. The record date of the split was March 8, 1996 , and the payment date
was April 1, 1996. Earnings per share in this quarterly report have been
restated to give effect to the split as of March 31, 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 third quarter of fiscal 1996, ended June 30, 1996,
were $59 million, a 2% increase over the comparable quarter in fiscal 1995.
Order activity in the Mechanical Testing and Simulation (MT&S) sector was about
the same as the prior year. However, new orders from Europe showed unexpected
strength. A $4 million commitment for a seismic system is not included in the
quarter's orders pending receipt of written confirmation. The Company expects
confirmation before the end of the fiscal year. Order activity in the
Measurement and Automation (M&A) sector was up 11% from the same quarter in
fiscal 1995. This improvement affirms management's prediction that orders would
resume growth in the fourth quarter.
New orders for the nine months ended June 30, 1996 were $211 million
compared to $175 million for the same period one year ago, a 21% increase.
Orders in both sectors increased over levels reported for the previous year.
Orders in the Mechanical Testing and Simulation sector have increased 25% while
the Measurement and Automation sector increased 6% over the orders reported for
the same period one year ago. International orders were 49% of the 1996
year-to-date orders compared to 45% for 1995. Backlog of undelivered orders at
June 30, 1996 was $126 million compared to $98 million at June 30, 1995 and $99
million at September 30, 1995.
Results of Operations
THIRD QUARTER
Revenues for the third quarter were $61 million a 9% increase from the
same quarter one year ago. International content of revenue was 46% and 44% for
the quarters ended June 30, 1996 and 1995, respectively. Revenues in both
sectors increased over levels reported in 1995.
Income before income taxes increased 119% to $4.3 million compared to
$2.0 million for the third 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 40% and 38% for the periods ended June 30, 1996 and 1995, respectively. The
improvement reflects completion of pre-1995 MT&S business that contained (i)
lower margin system orders accepted during a period of weak demand in Europe and
Japan and (ii) custom projects with significant technological challenges
resulting in cost overruns. The improvement in gross margins began during the
fourth quarter of fiscal 1995. The first three quarters of fiscal 1996 reflect
continuation of this trend. Margins in the MT&S sector's current backlog and the
mix of projected orders suggest that gross margins achieved in this quarter will
continue.
The gross margin increase was partially offset by increased operating
expenses in development and administrative areas. Research and development
expenses increased 41% as development programs were accelerated in both business
sectors. Interest expense decreased and interest income increased as a result of
changes in the Company's short-term debt and cash position. "Other" expense
decreased from the impact of translating international subsidiary account
balances and the settlement of specific transactions denominated in foreign
currencies during the quarter.
Net income for the quarter increased 96% to $2.9 million compared to
$1.5 million for the same quarter one year ago. The effective tax rate for the
quarter ended June 30, 1996 was 32% compared to 24% for the quarter ended in
June, 1995. The current quarter's provision for income taxes excludes any
benefit from the Research and Development Tax Credit, which expired in June
1995.
NINE MONTHS
Revenues for the nine months ended in June, 1996 were $184 million, a
12% increase over the same period a year ago. The MT&S sector produced a 13%
increase over 1995 revenues, and the M&A sector increased 9% over 1995.
International revenues were 51% of total revenues compared to 47% for the nine
month periods ended in June, 1996 and 1995, respectively.
Income before income taxes for the first nine months of 1996, increased
to $13.2 million from $5.6 reported in 1995. Gross margin increased from 1995 to
1996 due to improved manufacturing margins in the MT&S sector leveraged by
increased revenue volume. Gross margins as a percent of sales were 42% in 1996
compared to 40% in 1995. The improvement in margin percentage is discussed,
above.
Increases in gross margin were offset, in part, by increased operating
expenses for development, selling, general and administrative areas. Significant
development efforts are underway to convert the company's electronic control
systems to a common platform. This undertaking will reduce costs on future
deliveries and will simplify the writing of application software. The Company
continues investing in Asian markets to expand the international presence of the
M&A sector's product lines. "Other" expense increased from the impact of
translating international subsidiary account balances and the settlement of
specific transactions denominated in foreign currencies. Significant currency
gains occurred on settlement of specific transactions in 1995. Such activity was
near "breakeven" on translation and transaction settlements in 1996. Total
operating expenses as a percent of revenues were 34% compared to 33% for the
nine months ended in June, 1996 and 1995, respectively.
Net income for the first nine months of 1996 was $9.0 million compared
to $4.2 million reported one year ago, a 112% increase. The effective income tax
rates were 32% and 25% for the nine months ended in 1996 and 1995, respectively.
As discussed above, the current year's provision for income taxes excludes any
benefit from the Research and Development Tax Credit, which expired in June,
1995.
Financial Condition and Liquidity
The ratio of current assets to current liabilities at June 30, 1996 was
2.2 compared to 2.0 at September 30, 1995. Cash and cash equivalents increased
135% to $20.6 million at June 30, 1996 compared to $8.7 million at September 30,
1995. The Company's borrowing under its $55 million lines of credit was less
than $.1 million at June 30, 1996 compared to $10.5 million at September 30,
1995. Committed credit lines have been reduced from $70 million reflecting the
Company's reduced need for borrowing in the near future.
Capital expenditures, net of retirements for the nine months totalled
$4.8 million. The Company's total debt to equity ratio decreased to 10% at June
30, 1996 from 22% at September 30, 1995 evidencing near elimination of
short-term notes. The Company's increasing profitability and conversion of
receivables provided the cash to repay the short-term debt.
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.
The following are submitted as part of this report.
(a) Exhibit
27. Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the quarter ended June 30, 1996.
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 12, 1996
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