United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
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, 1996 Commission File Number 0-2382
MTS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0908057
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
612-937-4000
(Telephone number of registrant
including area code)
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 PER SHARE)
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 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 this
Form 10-K. ( )
As of November 29, 1996, 9,151,794 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 $160,148,437.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for Fiscal Year ended September 30, 1996 - Parts
I, II and IV.
Proxy Statement for Annual Meeting of Shareholders, statement dated prior to
January 28, 1997 - 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 Industrial 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) Industrial 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 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 purpose for use of the Company's systems and software
to test vehicle designs and prototypes.
ADVANCED SYSTEMS: The Company also offers highly customized systems for
simulation and testing through its Advanced Systems Division. These systems
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 aids customers in the development of new
manufacturing technologies and systems such as welding and material processing.
Mechanical Testing and Simulation sector accounted for 82% of revenue in 1996,
81% of revenue in 1995 and 82% of revenue in 1994. 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".
Industrial 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 up 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 (UST) market,
the process storage tank (PST) market and the large, above-ground inventory
storage tank (AST) market.
The UST market consists primarily of retail gas stations. It is served by
original equipment manufacturers (OEM's) 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 OEM's.
The Industrial Measurement and Automation sector accounted for 18% of revenue in
1996, 19% of revenue in 1995 and 18% of revenue in 1994.
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.
1996 PRODUCT DEVELOPMENT HIGHLIGHTS
The Company funds new application and product development within its market
sectors. Highlights of product development undertaken or completed in 1996
include:
Mechanical Testing and Simulation Sector
* The Company introduced the Tytron(TM) microforce testing system, our first
testing system designed specifically for very low-force testing and which
can accommodate very small specimens. The microelectronics industry is the
primary target market for this product.
* The Company introduced the Flat-Trac(R) III tire performance testing
system. Tire engineers use this product to research tread wear and rolling
resistance to develop longer lasting, safer tires.
* The Company introduced a twelve-station human hip simulator for use in
testing materials and prosthetic designs. This product offers customers
additional testing capacity at a price comparable to our previous
eight-station hip simulator.
Industrial Measurement and Automation Sector
* The Company completely redesigned the basic elements of its Temposonics(R)
linear displacement sensors. The new, patented design features modular
construction for unprecedented precision and improved configurability and
ruggedness.
* The Company introduced the XDC 720 multi-axis controller, which can control
up to 28 independent machine axes, making it ideal for complex packaging
operations.
* The Company introduced a new, larger (12 inch frame) motor in its Max
Plus(TM) line of permanent magnetic servo motors designed for spindle drive
applications for use primarily in the machine tool industry. The design is
able to operate at full torque over a range of speeds, thereby eliminating
the need for mechanical transmissions on machine tools.
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 was not
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 $20 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 some
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.
Industrial 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 49% of revenue in fiscal 1996, 54% of revenue in 1995, and 51% of
revenue in 1994 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 markets it products using 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
Cincinnati Minneapolis Seattle
Dallas 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
Singapore
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 Middle 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 Industrial 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 31% of this sector's volume.
Efforts continue to expand sales channels in international markets.
International Operations and Export Sales: The sections entitled Geographic
Analysis of New Orders and Geographic Segment Information on pages 17 and 27 of
the Company's 1996 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 1996, 1995 and 1994
included sales to Asia-Pacific, Europe, and other regions that may require the
Company to obtain export permission from the U.S. government. The Company does
not undertake manufacturing on custom systems or projects until it is assured
that permission 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, the U.S. government still maintains multilateral controls in agreement
with allies and unilateral controls based on U.S. initiatives and foreign policy
that 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 $120.5 million at September 30, 1996; $98.8 million at September 30,
1995; and $84.6 million at September 30, 1994. The Company believes that nearly
all of the backlog at September 30, 1996 will become revenue during fiscal 1997.
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 competitors, principally: Instron (U.S.
based), Instron Schenck Testing Systems (U.S.-German joint venture) Interlachen
(U.S.), SATEC (U.S.), AVL (Austria), 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 Industrial 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,
Mannesman (Germany) and Fanuc (Japan).
MANUFACTURING AND ENGINEERING
The Company conducted a significant portion of its fiscal 1996 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 Industrial Measurement and
Automation sector occur in Raleigh, NC, in Ludenscheid, Germany, in New Ulm, MN,
and at the Company's majority-owned subsidiary in Nagoya, Japan.
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 $17.7, $13.7 and $12.6 million for fiscal
years 1996, 1995 and 1994, 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, 1996 were:
Name and Age Position Officer Since
- ------------ -------- -------------
D. M. Sullivan (61) Chairman, President and 1976
Chief Executive Officer
K. D. Zell (54) Executive Vice President 1979
W. G. Beduhn (55) Vice President 1983
M. L. Carpenter (59) Vice President 1973
and Chief Financial Officer
M. G. Togneri (59) Vice President 1991
Officers serve at the discretion of and are elected annually by the board of
directors, and serve until their successors are elected.
EMPLOYEES
MTS employed 1,725 persons as of September 30, 1996, including 286 employees in
Europe, 48 in Japan, 13 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 an early date, can
change the expected 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 on 52 acres of land 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 and
assembly while the balance of the facility is used for office space.
Electronic design and component assembly is conducted in a 57,000 square foot
facility in Chaska, Minnesota, approximately 10 miles west of the headquarters
in Eden Prairie. The building was completed in 1996. MTS has a five year
operating lease with provisions to extend, purchase or terminate at the end of
the lease period.The terms of the lease agreement do not require capitalization
of the asset and the related obligation.
Custom Servo Motors, Inc. occupies a 30,000 square foot plant in New Ulm,
Minnesota (65 miles southwest of Minneapolis). The plant provides assembly
operations and office space. The facility was constructed in 1993 by the New Ulm
Economic Development Corporation and expanded 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 leased under
conventional operating lease terms.
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, 1996 3,000 square feet has been leased to other companies The
building is situated on land leased by MTS from the city government. The lease
expires in 2069.
MTS Adamel Lhomargy S.A., operates in a leased facility in Paris, France, of
approximately 38,000 square feet. Approximately 40% of this space is used for
manufacturing with the remainder used as offices. The current lease expires at
the end of fiscal 1998.
MTS Sensors Technologie operates in 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; Singapore;
and Hong Kong. No manufacturing is conducted at these locations.
Expansion Opportunities:
The Company owns an additional 55 acres of land adjacent to its Minneapolis
facility. This site could house expanded manufacturing operations. Also, the
sites in Cary could be expanded. 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 its operations in 1997.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings were pending or threatened against the Company or
its subsidiaries as of September 30, 1996.
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, 1996, 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. Share prices for 1996 and prior
have been restated retroactively for the two-for-one stock split effected in the
form of a 100% stock dividend effective April 1, 1996.
Quarter Ended Low * High*
------------- ----- -----
December 31, 1994 $10.125 $12.375
March 31, 1995 $11.00 $12.875
June 30, 1995 $11.75 $13.875
September 30, 1995 $13.375 $14.625
December 31, 1995 $13.875 $17.75
March 31, 1996 $14.00 $19.375
June 30, 1996 $17.50 $22.50
September 30, 1996 $18.50 $21.50
*Source: The Nasdaq Stock Market, Inc. Summary of Activity Report
As of November 29, 1996 there were 1,523 holders of record of the Company's $.25
par value common stock. The Company estimates that there are an additional 1,900
shareholders, whose stock is held by nominees or broker dealers.
The Company has a history of paying quarterly dividends and expects to continue
such payments in the future. During 1996, 1995, and 1994, the Company paid
dividends totaling $.32, $.28, and $.28 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, 1996, tangible net worth exceeded the minimum by $17.4 million and
the Company had $3.4 million available for repurchases of its common stock.
Thus, the Company has flexibility to declare and pay dividends in the future
similar to recent dividends.
ITEM 6. SELECTED FINANCIAL DATA
A comprehensive summary of selected financial information is presented in the
"Six Year Financial Summary" on page 16 of the Company's 1996 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 17 through 21 of the Company's 1996 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 1996 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 28, 1997,
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 28, 1997, 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.
M.G. Togneri Vice President of Industrial 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 28, 1997,
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 28, 1997, 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 1996.
(c) Exhibits:
3.a Amended and restated Articles of Incorporation, adopted
January 30, 1996.
3.b Restated Bylaws, reflecting amendments through May 15,
1995, incorporated by reference to exhibit 3.b of Form
10-K for the fiscal year ended September 30, 1995.
10.a Management Variable Compensation Plan-Fiscal 1996,
dated November 20, 1995.
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, as amended.
10.d 1990 Stock Option Plan, as amended.
10.e 1994 Stock Plan, as amended.
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 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.i 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.j 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.k 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.l 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.m 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.n 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.o 1992 Employee Stock Purchase Plan, incorporated by
reference to exhibit 4(a) from Form S-8, File No.
33-45386.
10.p 1997 Stock Option Plan.
10.q Severance Agreement, dated September 30, 1996 between
the registrant and Steven M. Cohoon.
13. Annual Report to Shareholders for the fiscal year ended
September 30, 1996.
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 19, 1996
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 19, 1996
Director
By: /s/ Charles A. Brickman
------------------------------------------
Charles A. Brickman, December 19, 1996
Director
By: /s/ Bobby I. Griffin
------------------------------------------
Bobby I. Griffin, December 19, 1996
Director
By: /s/ Russell A. Gullotti
------------------------------------------
Russell A. Gullotti, December 19, 1996
Director
By: /s/ Thomas E. Holloran
------------------------------------------
Thomas E. Holloran, December 19, 1996
Director
By: /s/ Thomas E. Stelson
------------------------------------------
Thomas E. Stelson, December 19, 1996
Director
By: /s/ Linda Hall Whitman
------------------------------------------
Linda Hall Whitman, December 19, 1996
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 1996 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) 21 ---
Consolidated Balance Sheets - September 30, 1996 22 ---
and 1995
Consolidated Statements of Income and Shareholders'
Investment for the Years Ended September 30, 1996,
1995 and 1994 23 ---
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1996, 1995 and 1994 24 ---
Notes to Consolidated Financial Statements 25 ---
Report of Independent Public Accountants 32 ---
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 22, 1996. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
(page F-4) listed as a part of Item 14 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 22, 1996
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE II - SUMMARY OF CONSOLIDATED ALLOWANCES
FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Balance Provision Amounts Balance
Beginning Charged to Written End of
of Year Operations Off Year
--------- ---------- ------- -------
(expressed in thousands)
1996 $1,824 $ 330 $ (413) $1,742
1995 1,439 620 (235) 1,824
1994 1,461 110 (132) 1,439
EXHIBIT INDEX
Exhibit
No. Description
-------- -----------
3.a Amended and restated Articles of Incorporation,
adopted Janurary 30, 1996.
10.a Management Variable Compensation Plan-Fiscal
1996
10.c 1987 Stock Option Plan, as amended
10.d 1990 Stock Option Plan, as amended
10.e 1994 Stock Plan, as amended
10.p 1997 Stock Option Plan
10.q Severance Agreement Dated September 30, 1996
13. Annual Report to Shareholders for the fiscal year
ended September 30, 1996
21. Subsidiaries of the Company
23. Consent of Independent Public Accountants
27. Financial Data Schedule
EXHIBIT 3.a
AMENDED AND
RESTATED ARTICLES OF INCORPORATION
OF
MTS SYSTEMS CORPORATION
-----------------------
ARTICLE I
The name of this corporation shall be MTS SYSTEMS CORPORATION.
ARTICLE II
The purpose of this corporation shall be:
(a) To engage in the research, experimentation, development, designing,
production, manufacturing, compounding, processing, fabrication, application,
utilization, installation, repair, servicing, buying, selling, distributing, and
dealing in and with test systems, structural loading systems, plastics and
plastic materials, chemicals, paper products, metals, electronic and electrical
components and products, machinery, instruments, equipment, devices, implements,
tools, and all other articles and products of commerce; and to engage in such
incidental, convenient, or necessary functions as may be deemed advisable
therewith, either within or without the State of Minnesota or the United States
of America, or both;
(b) To render consultative, engineering and expert advice and service
to others;
(c) To apply for, prosecute, acquire, own, employ, transfer, sell,
license and otherwise deal in or with patents, trademarks, and copyrights
relating in any manner to the business or activities of the corporation;
(d) To deal in and distribute, either as principal or agent, and either
as manufacturer, jobber, wholesaler or retailer, commodities, goods, wares and
merchandise and other articles of every kind, character and description;
(e) To acquire, own, hold, manage and operate either separately or as
part of the business of this corporation, other businesses, firms, corporations
or enterprises;
(f) To acquire, hold, pledge, vote, sell and dispose of shares, bonds,
securities and other evidences of indebtedness of any person or domestic or
foreign corporation, firm or government, whether for the purpose of investment
of the funds of this corporation or for the purpose of exercising control or
management over the affairs of other persons, firms or corporations, or for both
purposes;
(g) To purchase, lease or otherwise acquire, to own, hold, manage,
operate or employ, to mortgage, pledge, or otherwise encumber, and to sell, let,
exchange or otherwise dispose of real property or personal property or mixed
real and personal property;
(h) To enter into partnerships, joint ventures, and agreements of all
kinds with other persons, firms, partnerships and corporations;
(i) To borrow money and secure credit upon such terms and security as
may be deemed necessary or advantageous, and if deemed necessary or appropriate,
to pledge or mortgage any or all of the assets of the corporation to secure such
loan or credit;
(j) To do any and all other acts and things in addition to those
enumerated and specified above which may be advantageous, necessary, expedient
or convenient to the conduct of the business or the attainment of the purposes
of the corporation.
The foregoing clauses and statement of purposes shall also be a
statement of the powers of this corporation, but the declaration of purposes and
powers herein set forth shall not be deemed to limit or restrict in any manner
the powers of this corporation, which shall possess all of the powers bestowed
upon or permitted to it by law which are not inconsistent with those set forth
herein.
ARTICLE III
The duration of this corporation shall be perpetual.
ARTICLE IV
The location and post office address of this corporation in the State
of Minnesota shall be at such place as may be designated for that purpose by the
Board of Directors from time to time. Until some other place is so designated,
the location and post office address of the office of this corporation is: 14000
Technology Drive, Eden Prairie, Minnesota 55344-2290.
ARTICLE V
The amount of stated capital with which this corporation will begin
business will be not less than $1,000.00.
ARTICLE VI
The number of shares of the total authorized capital stock of the
corporation shall be thirty-two million (32,000,000), all of which are common
shares of capital stock. Each common share of capital stock shall have the par
value of twenty-five cents ($.25). Each share shall entitle the holder thereof
to one vote for each share held by the shareholder, but shareholders shall have
no pre-emptive right to subscribe for or purchase securities of the corporation;
and all shares shall be equal in all respects and shall conver equal rights upon
the holders thereof, including equal rights in and to dividends and
distributions and upon dissolution.
ARTICLE VII
Section 1. The management and conduct of the business of this
corporation shall be vested in a Board of Directors and in such officers and
agents as may be elected or designated by the Board of Directors. Such officers
and agents shall have the authority and duties in the management of the business
of the corporation as may be prescribed in the By-Laws, or, in the absence of a
controlling provision therein, as determined by the Board of Directors.
Section 2. The Board of Directors shall consist of such number of
Directors, not less than three, as shall be stated in the By-Laws, or, in the
absence of a controlling provision therein, as determined by the shareholders at
any annual meeting or meeting called for the purpose of electing a Director or
Directors.
Section 3. The terms of office of the Directors of this corporation
shall be for one year and until their respective successors are elected and
qualified except that the terms of office of the Directors named herein shall be
for the period stated herein subject to the right of the shareholders to remove
any of said Directors in the manner provided by statute prior to the end of
their respective terms and thereupon to elect a new Director or Directors for
the remainder of such term or terms.
Section 4. The Board of Directors shall have the power and authority to
fill any vacancy caused by the death, resignation or inability to serve of any
director. Newly created directorships resulting from an increase in the
authorized number of directors by action of the board of directors may be filled
by a two-thirds vote of the directors serving at the time of such increase.
ARTICLE VIII
Section 1. The Board of Directors shall have the general management and
control of the business and affairs of this corporation and shall exercise all
of the powers that may be exercised or performed by this corporation. The Board
of Directors shall have the power and authority to delegate such duties, power
and authority relating to the management and conduct of the business and affairs
of this corporation to such officers and agents elected or designated by it as
it may deem proper or appropriate, and as may be permitted by the By-Laws or
applicable statutes or laws.
Section 2. The Board of Directors shall have the authority to accept or
reject subscriptions for shares made before or after incorporation, and may
grant rights to convert any securities of this corporation into shares of any
class or classes or grant options to purchase or subscribe for shares or other
securities of the corporation. The Board of Directors shall from time to time
fix and determine the consideration for which the corporation shall issue and
sell its shares, and also the dividends to be paid by the corporation upon its
shares.
Section 3. The Board of Directors shall have the authority to make and
alter the By-Laws, subject to the power of the shareholders to change or repeal
such By-Laws.
ARTICLE IX
The holders of a majority of the outstanding voting shares of capital
stock of this corporation shall have power to authorize the sale, lease,
exchange or other disposition of all or substantially all of the property and
assets of this corporation, including its good will, to amend the Articles of
Incorporation of this corporation, and to adopt or reject an agreement of
consolidation or merger.
ARTICLE X
No director of this Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) under sections 302A.559 or 80A.23 of the Minnesota
Statutes; (iv) for any transaction from which the director derived any improper
personal benefit; or (v) for any act or omission occurring prior to the date
when this provision becomes effective.
The provision of this Article shall not be deemed to limit or preclude
indemnification of a director by the Corporation for any liability of a director
which has not been eliminated by the provisions of this Article.
If the Minnesota Statutes hereafter are amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the amended Minnesota Statutes.
EXHIBIT 10.a
Rev: Nov. 20, 1995
Approved by Board 21 November 1995
MANAGEMENT VARIABLE COMPENSATION (MVC) PLAN
FISCAL '96
1. PURPOSE OF PLAN
To focus efforts on achievement of objectives which are critical to the
success of the Company; to reward 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.
The Plan's payout is primarily related to achievement of
Corporate/Sector/Division/Niche profit objectives. Other measurable
objectives may be included at the discretion of the cognizant officer
with approval by the CEO.
2. RELATIONSHIP TO OTHER COMPENSATION PLANS
2.a SALARY PLAN
The midpoint of a given salary range will be suppressed by 1/4th 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 that range will be suppressed
5%).
2.b "NON MANAGEMENT" VARIABLE COMPENSATION PLAN (NMVC)
Certain units may have a variable compensation plan for certain
employees who are not eligible for the MVC, sales commissions, or other
variable compensation plans. Payout in these NMVC Plans is linked
directly to payout on the unit's vice president's MVC profit
objectives. These non-management plans are subject to the approval of
the unit vice president, corporate Human Resources manager and CEO.
The following is an outline summary to which these NMVC plans must
adhere. They are included in this MVC Plan for reference only.
2.b(1) NMVC Competitive payout potential is 3% of the midpoint of the salary
range in which the employee is placed at the beginning of the fiscal
year.
2.b(2) NMVC payout will be based on the results of the employee's unit vice
president's profit objective(s) for the year. If the unit's vice
president has more than one such objective, the payout will be based on
the weighted average of the officer's objectives.
2.b(3) The entire 3% NMVC payout potential is eligible for overranging for
participating employees. The overranging will be at the same ratio as
the unit officer's profit objective(s) overranging , if any.
2.b(4) Eligibility and participation rules for NMVC will be the same as those
for MVC, where appropriate.
2.c RETIREMENT PLAN
The calculations for the Management Variable Compensation Plan (and
"Non Management") are made after deductions for retirement plans.
Payout to a U.S. based participant in the Management Variable
Compensation Plan (and "Non Management") is included in the calculation
of the Company's contribution to that employee's retirement plan.
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 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 other management variable compensation
plans approved by the cognizant corporate vice president, corporate HR
manager 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.
Unless authorized by the CEO, no payout will be made to employees who
work less than 1,000 hours in the fiscal 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 profit
objectives (Return on Beginning Equity [ROBE]/share and Return
on Average Net Assets [ROANA]) and the revenue growth
objective at their November meeting.
b. Profit objectives for other participants (typically also
ROANA, but may be contribution or pretax for other than
officers) and sector revenue growth objective will also be
finalized by the November Board of Directors' meeting. They
are not renegotiable. All other objectives must be finalized
by 15 December.
The cognizant officers and CEO approve the financial
objectives for other participants. The purpose of these
approvals is to:
* Integrate objectives into Company operating plan
* Guard against conflicting objectives
* Help to assure consistency in degree of difficulty
The CEO approves the sector growth objectives
The cognizant vice president and one other manager approve all
other objectives
c. Each participant will have a mix of objectives per the
attached Schedule.
5. CRITERIA FOR OBJECTIVES
The Corporate Profit Objectives are set by the Board based on the
current 3 Year Business Plan. Currently they are:
ROBE/Share: 15% return on beginning equity/share
(span -1/3 to + 2/3)
ROANA: 21% (span -1/3 to + 2/3)
(Both ROBE and ROANA may be increased in '97-'98 based on an
analysis of comparable company performance and MTS's cost of
capital.)
Revenue Growth 8-12%/year
All objectives include all transactions, acquisitions, write-offs, sale
of assets, etc. unless specifically excluded by the Board in writing.
Sector profit and growth objectives are set as appropriate for the 3
Year Business Plan for the unit. For example, (MT&S + MTS PowerTek +
ASD) ROANA objectives are 16% for '96; 18.5% for '97; and 21% for;'98.
(The 21% may change if the corporate ROANA number changes. In no case
will a sector/division/niche MVC ROANA objective be set higher than the
current Corporate ROANA - even if the sector/division/niche's current
year business plan is higher)
Revenue growth objectives are set on a year-to-year basis.
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, when added to the mid-point of the
salary range is intended to yield total cash compensation somewhat
above that of comparable companies to compensate for the salary
suppression (ref. 2a).
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:
POSITION COMPETITIVE PAYOUT POTENTIAL %
CEO E5 70
Executive Vice President,
MT&S E-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 P&L Mgrs. SAM 17-21 15-35, depending on revenue level
(profit potential)
All Other Management/
Leadership SAM 18-21 10-25, depending on profit impact
SAM 15-17 6-20, depending on profit impact
TE 5/5S -9/9S 6-15, depending on profit impact
7. OVERRANGING/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 above of
those objectives should be rewarded as it is to the benefit of all
stakeholders in the enterprise. Payout above the competitive payout
potential is termed overranging.
Overranging of profit objective can earn an additional payout of equal
to a factor of 2 if that objective is exceeded by an amount up to twice
the lower limit span. Overranging is limited to profit objectives
equaling up to 70% of the competitive full payout per the attached
Schedule. Linear interpolation is used between the overranging amount
and the objectives.
The maximum payout potential for all positions, given full overranging,
is 2.4 x the competitive payout potential [(.7 x 3) + (.3 x 1)].
8. PAYOUT
Payouts under this Plan (and the Non Management Variable Compensation
Plan) are considered costs for the calculation of profit objectives
(EPS/ROANA/Pretax/Contribution); so simultaneous equations are used for
calculations.
Payouts are audited by the manager of internal audit and approved by
the CFO.
Payout will be made 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 '96 MVC Plan Participation and Short Form Schedule of Objectives
EXHIBIT 10.c
MTS SYSTEMS CORPORATION
1987 STOCK OPTION PLAN
1. Purpose. The purpose of the MTS Systems Corporation 1987 Stock
Option Plan is to provide a continuing, long-term incentive to selected eligible
officers and key employees of MTS Systems Corporation (the "Corporation") and of
any subsidiary corporation of the Corporation ("Subsidiary"), as herein defined;
and to non-employee directors of the Corporation, to provide a means of
rewarding outstanding performance; and enable the Corporation to maintain a
competitive position to attract and retain key personnel necessary for continued
growth and profitability.
2. Definitions. The following words and phrases as used herein shall
have the meanings set forth below:
2.1 "Board" shall mean the Board of Directors of the Corporation as it
may be comprised from time to time.
2.2 "Change in Control" shall mean the time at which any entity, person
or group (other than the Corporation, any subsidiary of the Corporation or any
savings, pension or other benefit plan for the benefit of any employees of the
Corporation or its subsidiaries) which prior to such time beneficially owned
less than twenty percent (20%) of the then outstanding Common Stock acquires
such additional shares of Common Stock in one or more transactions, or a series
of transactions, such that following such transaction or transactions such
entity, person or group beneficially owns, directly or indirectly, twenty
percent (20%), or more, of the outstanding Common Stock.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "Committee" shall mean the Committee referred to in Section 4.1 of
the Plan. If at any time no Committee shall be in office, then the functions of
the Committee specified in the Plan shall be exercised by the Board, unless the
Plan specifically states otherwise.
2.5 "Common Stock" shall mean the common Stock, par value $.25 per
share, of the Corporation.
2.6 "Corporation" shall mean MTS Systems Corporation, a Minnesota
corporation.
2.7 "Fair Market Value" of any security on any given date shall be
determined by the Committee as follows: (a) if the security is listed for
trading on one or more national securities exchanges (including the Nasdaq
National Market System), the reported last sales price on the principal such
exchange on the date in question, or if such security shall not have been traded
on such principal exchange on such date, the reported last sales price on such
principal exchange on the first day prior thereto on which such security was so
traded; or (b) if the security is not listed for trading on a national
securities exchange (including the Nasdaq National Market System) but is traded
in the over-the-counter market, the mean of the highest and lowest bid prices
for such security on the date in question, or if there are no such bid prices
for such prices for such security on such date, the mean of the highest and
lowest bid prices on the first day prior thereto on which such prices existed;
or (c) if neither (a) nor (b) is applicable, by any means deemed fair and
reasonable by the Committee, which determination shall be final and binding on
all parties.
2.8 "ISO" shall mean any Option granted pursuant to this Plan and
intended to qualify as an "incentive stock option" within the meaning of Section
422 of the Code.
2.9 "Non-Employee Director" shall mean a "Non-Employee Director" within
the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934.
2.10 "NQO" shall mean any Option granted pursuant to this Plan which is
not an ISO.
2.11 "Option" shall mean any stock Option granted pursuant to this
Plan, whether an ISO or a NQO.
2.12 "Optionee" shall mean any person who is the holder of an Option
granted pursuant to this Plan.
2.13 "Outside Director" means a director who: (a) is not a current
employee of the Company or any member of an affiliated group which include the
Company; (b) is not a former employee of the Company who receives compensation
for prior services (other than benefits under a tax-qualified retirement plan)
during the taxable year; (c) has not been an officer of the Company; (d) does
not receive remuneration from the Company, either directly or indirectly, in any
capacity other than as a director, except as otherwise permitted under Code
Section 162(m) and regulations thereunder. For this purpose, remuneration
includes any payment in exchange for goods or services. This definition shall be
further governed by the provisions of Code Section 162(m) and regulations
promulgated thereunder.
2.14 "Plan" shall mean this 1987 Stock Option Plan of the Corporation.
2.15 "Subsidiary" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the Corporation
if each of the corporations (other than the last corporation in the unbroken
chain) owns stock possession 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain.
3. Shares Available Under Plan. The number of shares which may be
issued pursuant to Options granted under this Plan shall not exceed 600,000
shares (post two-for-one stock split effective April 1, 1996) of the Common
Stock of the Corporation; provided, however, that shares which become available
as a result of cancelled, unexercised, lapsed or terminated Options granted
under this Plan shall be available for issuance pursuant to Options subsequently
granted under this Plan. In the event of any stock dividend or stock split with
respect to the Common Stock of the Corporation, such adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan as may be
determined to be appropriate by the Board. The shares issued upon exercise of
Options granted under this Plan may be authorized and unissued shares or shares
previously acquired or to be acquired by the Corporation.
4. Administration.
4.1 The Plan will be administered by a Committee appointed by the Board
of Directors of the Company consisting of at least two Directors, all of whom
shall be Outside Directors and Non-Employee Directors, who shall serve at the
pleasure of the Board.
4.2 The Committee will have plenary authority, subject to provisions of
the Plan, to determine when and to whom Options will be granted, the term of
each Option, the number of shares covered by it, the participation by the
optionee in other plans, and any other terms or conditions of each Option. The
Committee shall determine with respect to each grant of an Option whether a
participant shall receive an ISO or an NQO. The number of shares the term and
the other terms and conditions of a particular kind of Option need not be the
same, even as to Options granted at the same time. The Committee's
recommendations regarding Option grants and terms and conditions thereof will be
conclusive. No ISO shall be granted under the Plan after November 26, 1996.
4.3 The Committee will have the sole responsibility for construing and
interpreting the Plan, for establishing and amending any rules and regulations
as it deems necessary or desirable for the proper administration of the Plan,
and for resolving all questions arising under the Plan. Any decision or action
taken by the Committee arising out of or about the construction, administration,
interpretation and effect of the plan and of its rules and regulations will, to
the extent permitted by law, be within its absolute discretion, except as
otherwise specifically provided herein, and will be conclusive and binding on
all Optionees, all successors, and any other person, whether that person is
claiming under or through any Optionee or otherwise.
4.4 The Committee will designate one of its members as chairman. It
will hold its meeting at the times and places as it may determine. A majority of
its members will constitute a quorum, and all determinations of the Committee
will be made by a majority of its members. Any determination reduced to writing
and signed by all members will be fully as effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, who need not be a member of the Committee, and may make such rules
and regulations for the conduct of its business as it may deem advisable.
4.5 No member of the Committee will be liable, in the absence of bad
faith, for any act or omission with respect to his service on the Committee.
Service on the Committee will constitute service as a member of the Board, so
that the members of the Committee will be entitled to indemnification and
reimbursement as Board members pursuant to its Bylaws.
4.6 The Committee will regularly inform the Board as to its actions
with respect to all Options granted under the Plan and the terms and conditions
and any such Options in a manner, at any times, and in any form as the Board may
reasonably request.
4.7 Any other provision of the Plan to the contrary notwithstanding,
the Committee is authorized to take such action as it, in its discretion, may
deem necessary or advisable and fair and equitable to Optionees in the event of:
a Change in Control of the Corporation; a tender, exchange or similar offer for
all or any part of the Common Stock made by any entity, person or group (other
than the Corporation, any Subsidiary of the Corporation or its Subsidiaries); a
merger of the Corporation into, a consolidation of the Corporation with, or an
acquisition of the Corporation by another corporation; or a sale or transfer of
all or substantially all of the Corporation's assets. Such action, in the
Committee's discretion, may include (but shall not be deemed limited to),
establishing, amending or waiving the forms, terms, conditions or duration of
Options so as to provide for earlier, later, extended or additional terms for
exercise of the whole, or any installment, thereof; alternate forms of payment,
or other modifications. The Committee may take any such actions pursuant to this
Section 4.7 by adopting rules or regulations of general applicability to all
Optionees, or to certain categories of Optionees, by amending or waiving terms
and conditions in stock option agreements, or by taking action with respect to
individual Optionees. The Committee may take any such actions before or after
the public announcement of any such Change in Control, tender offer, exchange
offer, merger, consolidation, acquisition or sale or transfer of assets.
5. Participants.
5.1 Participation in this Plan shall be limited to key personnel of the
Corporation or of a Subsidiary, who are employees of the Corporation or of a
Subsidiary. Officers will be employees for this purpose, whether or not they are
also members of the Board.
5.2 Subject to other provisions of this Plan, Options may be granted to
the same participants on more than one occasion.
5.3 The Committee's determination under the Plan including, without
limitation, determination of the persons to receive Options, the form, amount
and type of such Options, and the terms and provisions of Options need not be
uniform and may be made selectively among otherwise eligible participants
whether or not the participants are similarly situated.
6. Terms and Conditions.
6.1 Each Option granted under the Plan shall be evidenced by a written
agreement, which shall be subject to the provisions of this Plan and to such
other terms and conditions as the Corporation may deem appropriate.
6.2 Each Option agreement shall specify the period for which the Option
thereunder is granted (which in no event shall exceed ten years from the date of
the grant for options granted pursuant to Section 6.3(a) and 6.3(c) hereof and
five years from the date of grant for Options granted pursuant to 6.3(b) hereof)
and shall provide that the Option shall expire at the end of such period;
provided, however, the term of each Option shall be subject to the power of the
Committee, among other things, to accelerate or otherwise adjust the terms for
exercise of Options pursuant to Section 4.7 hereof in the event of the
occurrence of any of the events set forth therein.
6.3 The exercise price per share shall be determined by the Committee
at the time any Option is granted and shall be determined as follows:
(a) For employees who do not own Stock possessing more than ten
percent (10%) of the total combined voting power of all classes of Stock of the
Corporation or of any Subsidiary, the ISO exercise price per share shall not be
less than one hundred percent (100%) of Fair Market Value of the Common Stock of
the Corporation on the date the option is granted, as determined by the
Committee.
(b) For employees who own Stock possessing more than ten percent
(10%) of the total combined voting power of all classes of Stock of the
Corporation or of any Subsidiary, the ISO exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value of the Common
Stock of the Corporation on the date the Option is granted, as determined by the
Committee.
(c) The NQO exercise price per share shall not be less than one
hundred percent (100%) of the Fair Market Value of the Common Stock of the
Corporation on the date the Option is granted, as determined by the Committee.
6.4 The aggregate Fair Market Value (determined as of the time the
Option is granted) of the Common Stock with respect to which an ISO granted
under this Plan or any other plan of the Corporation or its Subsidiaries is
exercisable for the first time by an Optionee during any calendar year shall not
exceed $100,000.
6.5 An Option shall be exercised at such time or times, and with
respect to such number of shares, as may be determined by the Corporation at the
time of the grant. The Option agreement may require, if so determined by the
Corporation, that no part of the Option may be exercised until the Optionee
shall have remained in the employ of the Corporation or of a Subsidiary for such
period after the date of the Option as the Corporation may specify.
6.6 The Corporation may prescribe the form of legend which shall be
affixed to the Stock certificate representing shares to be issued and the shares
shall be subject to the provisions of any repurchase agreement or other
agreement restricting the sale or transfer thereof. Such agreements or
restrictions shall be noted on the certificate representing the shares to be
issued.
7. Exercise of Option.
7.1 Each exercise of an Option granted hereunder, whether in whole or
in part, shall be by written notice thereof, delivered to the Secretary of the
Corporation (or such other person as he may designate). The notice shall state
the number of shares with respect to which the Options are being exercised and
shall be accompanied by payment in full for the number of shares so designated.
Shares shall be registered in the name of the Optionee unless the Optionee
otherwise directs in his or her notice of election.
7.2 Payment shall be made to the Corporation either (i) in cash,
including certified check, bank draft or money order, (ii) at the discretion of
the Corporation, by delivering Corporation Common Stock already owned by the
participant or a combination of Common Stock and cash, or (iii) at the
discretion of the Corporation by delivering a promissory note, containing such
terms and conditions acceptable to the Corporation, for all or a portion of the
purchase price of the share so purchased. With respect to (ii), the Fair Market
Value of Stock so delivered shall be determined as of the date immediately
preceding the date of exercise.
7.3 Upon notification of the amount due and prior to, or concurrently
with, the delivery to the Optionee of a certificate representing any shares
purchased pursuant to the exercise of an Option, the Optionee shall promptly pay
to the Corporation any amount necessary to satisfy applicable federal, state or
local tax requirements.
8. Adjustments of Option Stock. In case the shares issuable upon
exercise of any Option granted under the Plan at any time outstanding shall be
subdivided into a greater or combined into a lesser number of shares (whether
with or without par value), the number of shares purchasable upon exercise of
such Option immediately prior thereto shall be adjusted so that the Optionee
shall be entitled to receive a number of shares which he or she would have owned
or have been entitled to receive after the happening of such event had such
Option been exercised immediately prior to the happening of such subdivision or
combination or any record date with respect thereto. An adjustment made pursuant
to this paragraph shall become effective immediately after the effective date of
such subdivision or combination retroactive to the record date, if any, for such
subdivision or combination. The option price (as such amount may have
theretofore been adjusted pursuant to the provisions hereof) shall be adjusted
by multiplying the option price immediately prior to the adjustment of the
number of shares purchasable upon the exercise of the Option immediately prior
to such adjustment, and of which the denominator shall be the number of shares
so purchasable immediately thereafter. Substituted shares of Stock shall be
deemed shares under Section 2 of the Plan.
9. Assignments. Any Option granted under this Plan shall be exercisable
only by the Optionee to whom granted during his or her lifetime and shall not be
assignable or transferable otherwise than by will or by the laws of descent and
distribution.
10. Severance; Death; Disability. An Option shall terminate, and no
rights thereunder may be exercised, if the person to whom it is granted ceases
to be employed by the Corporation or by a Subsidiary except that:
10.1 If the employment of the Optionee is terminated by any reason
other than his or her death or disability, the Optionee may at any time within
not more than three months after termination of his or her employment, exercise
his or her Option rights but only to the extent they were exercisable by the
Optionee on the date of termination of his or her employment; provided, however,
that if the employment is terminated by deliberate, willful or gross misconduct
as determined by the Committee, all rights under the Option shall terminate and
expire upon such termination.
10.2 If the Optionee dies while in the employ of the Corporation or a
Subsidiary, or within not more than three months after termination of his or her
employment, the Optionee's rights under the Option may be exercised at any time
within three months following such death by his or her personal representative
or by the person or person to whom such rights under the Option shall pass by
will by the laws of descent and distribution.
10.3 If the employment of the Optionee is terminated because of
permanent disability, the Optionee, or his or her legal representative may at
any time within not more than one (1) year after termination of his or her
employment, exercise his or her Option rights but only to the extent they were
exercisable by the Optionee on the date of termination of his or her employment.
10.4 Notwithstanding anything contained in Sections 10.1, 10.2 and 10.3
to the contrary, no Option rights shall be exercisable by anyone after the
expiration of the term of the Option.
10.5 Transfers of employment between the Corporation and a Subsidiary,
or between Subsidiaries, will not constitute termination of employment for
purposes of any Option granted under this Plan. The Committee may specify in the
terms and conditions of an Option whether any authorized leave of absence or
absence for military or government service or for any other reasons will
constitute a termination of employment for purposes of the Option and the Plan.
11. Rights of Participants. Neither the participant nor the personal
representatives, heirs, or legatees of such participant shall be or have any of
the rights or privileges of a shareholder of the Corporation in respect of any
of the shares issuable upon the exercise of an Option granted under this Plan
unless and until certificates representing such shares shall have been issued
and delivered to the participant or to such personal representatives, heirs or
legatees.
12. Securities Registration. If any law or regulation of the Securities
and Exchange Commission or of any other body having jurisdiction shall require
the Corporation or the participant to take any action in connection with the
exercise of an Option, then notwithstanding any contrary provision of an Option
agreement or this Plan, the date for exercise of such Option and the delivery of
the shares purchased thereunder shall be deferred until the completion of the
necessary action. In the event that the Corporation shall deem it necessary, the
Corporation may condition the grant or exercise of an Option granted under this
Plan upon the receipt of a satisfactory certificate that the Optionee is
acquiring the Option or the shares obtained by exercise of the Option for
investment purposes and not with the view or intent to resell or otherwise
distribute such Option or shares. In such event, the Stock certificate
evidencing such shares shall bear a legend referring to applicable laws
restricting transfer of such shares. In the event that the Corporation shall
deem it necessary to register under the Securities Act of 1933, as amended, or
any other applicable statute, any Options or any shares with respect to which an
Option shall have been granted or exercised, then the participant shall
cooperate with the Corporation and take such action as is necessary to permit
registration or qualification of such Options or shares.
13. Duration and Amendment.
13.1 There is no express limitation upon the duration of the Plan,
except for the requirement of the Code that all ISOs must be granted within ten
years from the date the Plan is adopted by the Board.
13.2 The Board may terminate or may amend the Plan at any time,
provided, however that the Board may not, without approval of the stockholders
of the Corporation, (i) increase the maximum number of shares as to which
Options may be granted under the Plan, (ii) permit the granting of Options at
less than 100% of Fair Market Value at time of grant, (iii) change the class of
employees eligible to receive Options under the Plan, or (iv) grant Options to
Non-Employee Directors.
14. Approval of Shareholders. This Plan is subject to approval of the
Corporation's shareholders, and if it is not so approved on or before one year
after the date of adoption of this Plan by the Board, the Plan shall not come
into effect, and any Options granted pursuant to this Plan shall be deemed
cancelled.
15. Conditions of Employment. The granting of an Option to a
participant under this Plan shall impose no obligation on the Corporation to
continue the employment of any participant and shall not lessen or affect the
right of the Corporation to terminate the employment of the participant.
16. Other Options. Nothing in the Plan will be construed to limit the
authority of the Corporation to exercise its corporate rights and powers,
including, by way of illustration and not by way of limitation, the right to
grant options for proper corporate purposes otherwise than under the Plan to any
employee or any other person, firm, corporation, association, or other entity,
or to grant options to, or assume options of, any person for the acquisition by
purchase, lease, merger, consolidation, or otherwise, of all or any part of the
business and assets of any person, firm, corporation, association, or other
entity.
- -------------------------
Adopted by the Board of Directors on November 26, 1986.
Adopted by the Corporation's Shareholders on January 27, 1987.
Amendment adopted by the Board of Directors November 23, 1987.
Amendment adopted by the Corporation's Shareholders on January 25, 1988.
Amendment adopted by the Board of Directors on January 25, 1988.
Amendment adopted by the Board of Directors on April 19, 1988.
Amended by the Board of Directors on November 22, 1996.
EXHIBIT 10.d
MTS SYSTEMS CORPORATION
1990 STOCK OPTION PLAN
1. Purpose. The purpose of the MTS Systems Corporation 1990 Stock
Option Plan is to provide a continuing, long-term incentive to selected eligible
officers and key employees of MTS Systems Corporation (the "Corporation") and of
any subsidiary corporation of the Corporation ("Subsidiary"), as herein defined;
and to non-employee directors of the Corporation, to provide a means of
rewarding outstanding performance; and enable the Corporation to maintain a
competitive position to attract and retain key personnel necessary for continued
growth and profitability.
2. Definitions. The following words and phrases as used herein shall
have the meanings set forth below:
2.1 "Board" shall mean the Board of Directors of the Corporation as it
may be comprised from time to time.
2.2 "Change in Control" shall mean the time at which any entity, person
or group (other than the Corporation, any subsidiary of the Corporation or any
savings, pension or other benefit plan for the benefit of any employees of the
Corporation or its subsidiaries) which prior to such time beneficially owned
less than twenty percent (20%) of the then outstanding Common Stock acquires
such additional shares of Common Stock in one or more transactions, or a series
of transactions, such that following such transaction or transactions such
entity, person or group beneficially owns, directly or indirectly, twenty
percent (20%), or more, of the outstanding Common Stock.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "Committee" shall mean the Committee referred to in Section 4.1 of
the Plan. If at any time no Committee shall be in office, then the functions of
the Committee specified in the Plan shall be exercised by the Board, unless the
Plan specifically states otherwise.
2.5 "Common Stock" shall mean the common Stock, par value $.25 per
share, of the Corporation.
2.6 "Corporation" shall mean MTS Systems Corporation, a Minnesota
corporation.
2.7 "Fair Market Value" of any security on any given date shall be
determined by the Committee as follows: (a) if the security is listed for
trading on one or more national securities exchanges (including the Nasdaq
National Market System), the reported last sales price on the principal such
exchange on the date in question, or if such security shall not have been traded
on such principal exchange on such date, the reported last sales price on such
principal exchange on the first day prior thereto on which such security was so
traded; or (b) if the security is not listed for trading on a national
securities exchange (including the Nasdaq National Market System) but is traded
in the over-the-counter market, the mean of the highest and lowest bid prices
for such security on the date in question, or if there are no such bid prices
for such prices for such security on such date, the mean of the highest and
lowest bid prices on the first day prior thereto on which such prices existed;
or (c) if neither (a) nor (b) is applicable, by any means deemed fair and
reasonable by the Committee, which determination shall be final and binding on
all parties.
2.8 "ISO" shall mean any Option granted pursuant to this Plan and
intended to qualify as an "incentive stock option" within the meaning of Section
422 of the Code.
2.9 "Non-Employee Director" shall mean a "Non-Employee Director" within
the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934.
2.10 "NQO" shall mean any Option granted pursuant to this Plan which is
not an ISO.
2.11 "Option" shall mean any stock Option granted pursuant to this
Plan, whether an ISO or a NQO.
2.12 "Optionee" shall mean any person who is the holder of an Option
granted pursuant to this Plan.
2.13 "Outside Director" means a director who: (a) is not a current
employee of the Company or any member of an affiliated group which include the
Company; (b) is not a former employee of the Company who receives compensation
for prior services (other than benefits under a tax-qualified retirement plan)
during the taxable year; (c) has not been an officer of the Company; (d) does
not receive remuneration from the Company, either directly or indirectly, in any
capacity other than as a director, except as otherwise permitted under Code
Section 162(m) and regulations thereunder. For this purpose, remuneration
includes any payment in exchange for goods or services. This definition shall be
further governed by the provisions of Code Section 162(m) and regulations
promulgated thereunder.
2.14 "Plan" shall mean this 1990 Stock Option Plan of the Corporation.
2.15 "Subsidiary" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the Corporation
if each of the corporations (other than the last corporation in the unbroken
chain) owns stock possession 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain.
3. Shares Available Under Plan. The number of shares which may be
issued pursuant to Options granted under this Plan shall not exceed 600,000
shares (post two-for-one stock split effective April 1, 1996) of the Common
Stock of the Corporation; provided, however, that shares which become available
as a result of cancelled, unexercised, lapsed or terminated Options granted
under this Plan shall be available for issuance pursuant to Options subsequently
granted under this Plan. In the event of any stock dividend or stock split with
respect to the Common Stock of the Corporation, such adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan as may be
determined to be appropriate by the Board. The shares issued upon exercise of
Options granted under this Plan may be authorized and unissued shares or shares
previously acquired or to be acquired by the Corporation.
4. Administration.
4.1 The Plan will be administered by a Committee appointed by the Board
of Directors of the Company consisting of at least two Directors, all of whom
shall be Outside Directors and Non-Employee Directors, who shall serve at the
pleasure of the Board.
4.2 The Committee will have plenary authority, subject to provisions of
the Plan, to determine when and to whom Options will be granted, the term of
each Option, the number of shares covered by it, the participation by the
optionee in other plans, and any other terms or conditions of each Option. The
Committee shall determine with respect to each grant of an Option whether a
participant shall receive an ISO or an NQO. The number of shares the term and
the other terms and conditions of a particular kind of Option need not be the
same, even as to Options granted at the same time. The Committee's
recommendations regarding Option grants and terms and conditions thereof will be
conclusive. No ISO shall be granted under the Plan after November 27, 1999.
4.3 The Committee will have the sole responsibility for construing and
interpreting the Plan, for establishing and amending any rules and regulations
as it deems necessary or desirable for the proper administration of the Plan,
and for resolving all questions arising under the Plan. Any decision or action
taken by the Committee arising out of or about the construction, administration,
interpretation and effect of the plan and of its rules and regulations will, to
the extent permitted by law, be within its absolute discretion, except as
otherwise specifically provided herein, and will be conclusive and binding on
all Optionees, all successors, and any other person, whether that person is
claiming under or through any Optionee or otherwise.
4.4 The Committee will designate one of its members as chairman. It
will hold its meeting at the times and places as it may determine. A majority of
its members will constitute a quorum, and all determinations of the Committee
will be made by a majority of its members. Any determination reduced to writing
and signed by all members will be fully as effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, who need not be a member of the Committee, and may make such rules
and regulations for the conduct of its business as it may deem advisable.
4.5 No member of the Committee will be liable, in the absence of bad
faith, for any act or omission with respect to his service on the Committee.
Service on the Committee will constitute service as a member of the Board, so
that the members of the Committee will be entitled to indemnification and
reimbursement as Board members pursuant to its Bylaws.
4.6 The Committee will regularly inform the Board as to its actions
with respect to all Options granted under the Plan and the terms and conditions
and any such Options in a manner, at any times, and in any form as the Board may
reasonably request.
4.7 Any other provision of the Plan to the contrary notwithstanding,
the Committee is authorized to take such action as it, in its discretion, may
deem necessary or advisable and fair and equitable to Optionees in the event of:
a Change in Control of the Corporation; a tender, exchange or similar offer for
all or any part of the Common Stock made by any entity, person or group (other
than the Corporation, any Subsidiary of the Corporation or its Subsidiaries); a
merger of the Corporation into, a consolidation of the Corporation with, or an
acquisition of the Corporation by another corporation; or a sale or transfer of
all or substantially all of the Corporation's assets. Such action, in the
Committee's discretion, may include (but shall not be deemed limited to),
establishing, amending or waiving the forms, terms, conditions or duration of
Options so as to provide for earlier, later, extended or additional terms for
exercise of the whole, or any installment, thereof; alternate forms of payment,
or other modifications. The Committee may take any such actions pursuant to this
Section 4.7 by adopting rules or regulations of general applicability to all
Optionees, or to certain categories of Optionees, by amending or waiving terms
and conditions in stock option agreements, or by taking action with respect to
individual Optionees. The Committee may take any such actions before or after
the public announcement of any such Change in Control, tender offer, exchange
offer, merger, consolidation, acquisition or sale or transfer of assets.
5. Participants.
5.1 Participation in this Plan shall be limited to key personnel of the
Corporation or of a Subsidiary, who are employees of the Corporation or of a
Subsidiary. Officers will be employees for this purpose, whether or not they are
also members of the Board.
5.2 Subject to other provisions of this Plan, Options may be granted to
the same participants on more than one occasion.
5.3 The Committee's determination under the Plan including, without
limitation, determination of the persons to receive Options, the form, amount
and type of such Options, and the terms and provisions of Options need not be
uniform and may be made selectively among otherwise eligible participants
whether or not the participants are similarly situated.
6. Terms and Conditions.
6.1 Each Option granted under the Plan shall be evidenced by a written
agreement, which shall be subject to the provisions of this Plan and to such
other terms and conditions as the Corporation may deem appropriate.
6.2 Each Option agreement shall specify the period for which the Option
thereunder is granted (which in no event shall exceed ten years from the date of
the grant for options granted pursuant to Section 6.3(a) hereof and five years
from the date of grant for Options granted pursuant to 6.3(b) hereof) and shall
provide that the Option shall expire at the end of such period; provided,
however, the term of each Option shall be subject to the power of the Committee,
among other things, to accelerate or otherwise adjust the terms for exercise of
Options pursuant to Section 4.7 hereof in the event of the occurrence of any of
the events set forth therein.
6.3 The exercise price per share shall be determined by the Committee
at the time any Option is granted and shall be determined as follows:
(a) For employees who do not own Stock possessing more than ten
percent (10%) of the total combined voting power of all classes of Stock of the
Corporation or of any Subsidiary, the ISO exercise price per share shall not be
less than one hundred percent (100%) of Fair Market Value of the Common Stock of
the Corporation on the date the option is granted, as determined by the
Committee.
(b) For employees who own Stock possessing more than ten percent
(10%) of the total combined voting power of all classes of Stock of the
Corporation or of any Subsidiary, the ISO exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value of the Common
Stock of the Corporation on the date the Option is granted, as determined by the
Committee.
(c) The NQO exercise price per share shall not be less than one
hundred percent (100%) of the Fair Market Value of the Common Stock of the
Corporation on the date the Option is granted, as determined by the Committee.
6.4 The aggregate Fair Market Value (determined as of the time the
Option is granted) of the Common Stock with respect to which an ISO granted
under this Plan or any other plan of the Corporation or its Subsidiaries is
exercisable for the first time by an Optionee during any calendar year shall not
exceed $100,000.
6.5 An Option shall be exercised at such time or times, and with
respect to such number of shares, as may be determined by the Corporation at the
time of the grant. The Option agreement may require, if so determined by the
Corporation, that no part of the Option may be exercised until the Optionee
shall have remained in the employ of the Corporation or of a Subsidiary for such
period after the date of the Option as the Corporation may specify.
6.6 The Corporation may prescribe the form of legend which shall be
affixed to the Stock certificate representing shares to be issued and the shares
shall be subject to the provisions of any repurchase agreement or other
agreement restricting the sale or transfer thereof. Such agreements or
restrictions shall be noted on the certificate representing the shares to be
issued.
7. Exercise of Option.
7.1 Each exercise of an Option granted hereunder, whether in whole or
in part, shall be by written notice thereof, delivered to the Secretary of the
Corporation (or such other person as he may designate). The notice shall state
the number of shares with respect to which the Options are being exercised and
shall be accompanied by payment in full for the number of shares so designated.
Shares shall be registered in the name of the Optionee unless the Optionee
otherwise directs in his or her notice of election.
7.2 Payment shall be made to the Corporation either (i) in cash,
including certified check, bank draft or money order, (ii) at the discretion of
the Corporation, by delivering Corporation Common Stock already owned by the
participant or a combination of Common Stock and cash, or (iii) at the
discretion of the Corporation by delivering a promissory note, containing such
terms and conditions acceptable to the Corporation, for all or a portion of the
purchase price of the share so purchased. With respect to (ii), the Fair Market
Value of Stock so delivered shall be determined as of the date immediately
preceding the date of exercise.
7.3 Upon notification of the amount due and prior to, or concurrently
with, the delivery to the Optionee of a certificate representing any shares
purchased pursuant to the exercise of an Option, the Optionee shall promptly pay
to the Corporation any amount necessary to satisfy applicable federal, state or
local tax requirements. If the terms of an Option permit, an Optionee may elect
by written notice to the Corporation to satisfy part or all of the withholding
tax requirements associated with the exercise of the Option by (i) authorizing
the Corporation to retain from the number of shares of Common Stock that would
otherwise be deliverable to the Optionee, or (ii) delivering to the Corporation
from shares of Common Stock already owned by the Optionee, that number of shares
having an aggregate Fair Market Value equal to part or all of the tax payable by
the Optionee under this Section 7.3. Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
8. Adjustments of Option Stock. In case the shares issuable upon
exercise of any Option granted under the Plan at any time outstanding shall be
subdivided into a greater or combined into a lesser number of shares (whether
with or without par value), the number of shares purchasable upon exercise of
such Option immediately prior thereto shall be adjusted so that the Optionee
shall be entitled to receive a number of shares which he or she would have owned
or have been entitled to receive after the happening of such event had such
Option been exercised immediately prior to the happening of such subdivision or
combination or any record date with respect thereto. An adjustment made pursuant
to this paragraph shall become effective immediately after the effective date of
such subdivision or combination retroactive to the record date, if any, for such
subdivision or combination. The option price (as such amount may have
theretofore been adjusted pursuant to the provisions hereof) shall be adjusted
by multiplying the option price immediately prior to the adjustment of the
number of shares purchasable upon the exercise of the Option immediately prior
to such adjustment, and of which the denominator shall be the number of shares
so purchasable immediately thereafter. Substituted shares of Stock shall be
deemed shares under Section 2 of the Plan.
9. Assignments. Any Option granted under this Plan shall be exercisable
only by the Optionee to whom granted during his or her lifetime and shall not be
assignable or transferable otherwise than by will or by the laws of descent and
distribution.
10. Severance; Death; Disability. An Option shall terminate, and no
rights thereunder may be exercised, if the person to whom it is granted ceases
to be employed by the Corporation or by a Subsidiary except that:
10.1 If the employment of the Optionee is terminated by any reason
other than his or her death or disability, the Optionee may at any time within
not more than three months after termination of his or her employment, exercise
his or her Option rights but only to the extent they were exercisable by the
Optionee on the date of termination of his or her employment; provided, however,
that if the employment is terminated by deliberate, willful or gross misconduct
as determined by the Committee, all rights under the Option shall terminate and
expire upon such termination.
10.2 If the Optionee dies while in the employ of the Corporation or a
Subsidiary, or within not more than three months after termination of his or her
employment, the Optionee's rights under the Option may be exercised at any time
within three months following such death by his or her personal representative
or by the person or person to whom such rights under the Option shall pass by
will by the laws of descent and distribution.
10.3 If the employment of the Optionee is terminated because of
permanent disability, the Optionee, or his or her legal representative may at
any time within not more than one (1) year after termination of his or her
employment, exercise his or her Option rights but only to the extent they were
exercisable by the Optionee on the date of termination of his or her employment.
10.4 If the Optionee retires at or after the age 55, all options held
by the Optionee on his or her last day of employment shall, to the extent not
previously exercised, become immediately exercisable, without regard to any
vesting requirements or periods previously established, and may be exercised by
the Optionee not later than the earlier of the date the option expires or two
(2) years after the date of retirement.
10.5 Notwithstanding anything contained in Sections 10.1, 10.2, 10.3
and 10.4 to the contrary, no Option rights shall be exercisable by anyone after
the expiration of the term of the Option.
10.6 Transfers of employment between the Corporation and a Subsidiary,
or between Subsidiaries, will not constitute termination of employment for
purposes of any Option granted under this Plan. The Committee may specify in the
terms and conditions of an Option whether any authorized leave of absence or
absence for military or government service or for any other reasons will
constitute a termination of employment for purposes of the Option and the Plan.
11. Rights of Participants. Neither the participant nor the personal
representatives, heirs, or legatees of such participant shall be or have any of
the rights or privileges of a shareholder of the Corporation in respect of any
of the shares issuable upon the exercise of an Option granted under this Plan
unless and until certificates representing such shares shall have been issued
and delivered to the participant or to such personal representatives, heirs or
legatees.
12. Securities Registration. If any law or regulation of the Securities
and Exchange Commission or of any other body having jurisdiction shall require
the Corporation or the participant to take any action in connection with the
exercise of an Option, then notwithstanding any contrary provision of an Option
agreement or this Plan, the date for exercise of such Option and the delivery of
the shares purchased thereunder shall be deferred until the completion of the
necessary action. In the event that the Corporation shall deem it necessary, the
Corporation may condition the grant or exercise of an Option granted under this
Plan upon the receipt of a satisfactory certificate that the Optionee is
acquiring the Option or the shares obtained by exercise of the Option for
investment purposes and not with the view or intent to resell or otherwise
distribute such Option or shares. In such event, the Stock certificate
evidencing such shares shall bear a legend referring to applicable laws
restricting transfer of such shares. In the event that the Corporation shall
deem it necessary to register under the Securities Act of 1933, as amended, or
any other applicable statute, any Options or any shares with respect to which an
Option shall have been granted or exercised, then the participant shall
cooperate with the Corporation and take such action as is necessary to permit
registration or qualification of such Options or shares.
13. Duration and Amendment.
13.1 There is no express limitation upon the duration of the Plan,
except for the requirement of the Code that all ISOs must be granted within ten
years from the date the Plan is adopted by the Board.
13.2 The Board may terminate or may amend the Plan at any time,
provided, however that the Board may not, without approval of the stockholders
of the Corporation, (i) increase the maximum number of shares as to which
Options may be granted under the Plan, (ii) permit the granting of Options at
less than 100% of Fair Market Value at time of grant, (iii) change the class of
employees eligible to receive Options under the Plan, or (iv) grant Options to
Non-Employee Directors.
14. Approval of Shareholders. This Plan is subject to approval of the
Corporation's shareholders, and if it is not so approved on or before one year
after the date of adoption of this Plan by the Board, the Plan shall not come
into effect, and any Options granted pursuant to this Plan shall be deemed
cancelled.
15. Conditions of Employment. The granting of an Option to a
participant under this Plan shall impose no obligation on the Corporation to
continue the employment of any participant and shall not lessen or affect the
right of the Corporation to terminate the employment of the participant.
16. Other Options. Nothing in the Plan will be construed to limit the
authority of the Corporation to exercise its corporate rights and powers,
including, by way of illustration and not by way of limitation, the right to
grant options for proper corporate purposes otherwise than under the Plan to any
employee or any other person, firm, corporation, association, or other entity,
or to grant options to, or assume options of, any person for the acquisition by
purchase, lease, merger, consolidation, or otherwise, of all or any part of the
business and assets of any person, firm, corporation, association, or other
entity.
- -------------------------
Adopted by the Board of Directors on November 27, 1989.
Adopted by the Corporation's Shareholders on January 23, 1990.
Amended by the Board of Directors on November 22, 1996.
EXHIBIT 10.e
MTS SYSTEMS CORPORATION
1994 STOCK PLAN
TABLE OF CONTENTS
Page
----
SECTION 1. General Purpose of Plan; Definitions. .......................1
SECTION 2. Administration. .............................................3
SECTION 3. Stock Subject to Plan. ......................................4
SECTION 4. Eligibility. ................................................5
SECTION 5. Stock Options. ..............................................5
SECTION 6. Stock Appreciation Rights. ..................................8
SECTION 7. Restricted Stock. ...........................................9
SECTION 8. Deferred Stock Awards. .....................................11
SECTION 9. Other Awards. ..............................................12
SECTION 10. Transfer, Leave of Absence, etc. .......................12
SECTION 11. Amendments and Termination. ............................13
SECTION 12. Unfunded Status of Plan. ...............................13
SECTION 13. General Provisions. ....................................13
SECTION 14. Effective Date of Plan. ................................15
MTS SYSTEMS CORPORATION
1994 STOCK PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the MTS Systems Corporation 1994 Stock Plan
(the "Plan"). The purpose of the Plan is to enable MTS Systems Corporation (the
"Company") and its Subsidiaries to retain and attract executives and other key
employees and non-employee directors who contribute to the Company's success by
their ability, ingenuity and industry, and to enable such individuals to
participate in the long-term success and growth of the Company by giving them a
proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Agreement" means an agreement by and between the Company and
an optionee or recipient of an award under the Plan setting
forth the terms and conditions of the option or award.
b. "Board" means the Board of Directors of the Company as it may
be comprised from time to time.
c. "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony,
or a participant's willful misconduct or dishonesty, any of
which is directly and materially harmful to the business or
reputation of the Company.
d. "Code" means the Internal Revenue Code of 1986, as amended.
e. "Committee" means the Committee referred to in Section 2 of
the Plan. If at any time no Committee shall be in office, then
the functions of the Committee specified in the Plan shall be
exercised by the Board, unless the Plan specifically states
otherwise.
f. "Company" means the MTS Systems Corporation, a corporation
organized under the laws of the State of Minnesota (or any
successor corporation).
g. "Deferred Stock" means an award made pursuant to Section 8
below of the right to receive Stock at the end of a specified
deferral period.
h. "Disability" means a physical or mental condition resulting
from a bodily injury or disease or mental disorder rendering
such person incapable of continuing to perform the employment
duties of such person at the Company as such duties existed
immediately prior to the bodily injury, disease or mental
disorder.
i. "Fair Market Value" means the value of the Stock on a given
date as determined by the Committee in accordance with the
applicable Treasury Department regulations under Section 422
of the Code with respect to "incentive stock options."
j. "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the
meaning of Section 422 of the Code.
k. "Non-Employee Director" means a "Non-Employee Director" within
the meaning of Rule 16b-3(b)(3) under the Securities Exchange
Act of 1934.
l. "Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option, and is intended to be and is
designated as a "Non-Qualified Stock Option."
m. "Outside Director" means a Director who: (a) is not a current
employee of the Company or any member of an affiliated group
which include the Company; (b) is not a former employee of the
Company who receives compensation for prior services (other
than benefits under a tax-qualified retirement plan) during
the taxable year; (c) has not been an officer of the Company;
(d) does not receive remuneration from the Company, either
directly or indirectly, in any capacity other than as a
director, except as otherwise permitted under Code Section
162(m) and regulations thereunder. For this purpose,
remuneration includes any payment in exchange for goods or
services. This definition shall be further governed by the
provisions of Code Section 162(m) and regulations promulgated
thereunder.
n. "Other Awards" means those awards granted pursuant to Section
9 hereof.
o. "Parent Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the
Company if each of the corporations (other than the Company)
owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations
in the chain.
p. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 7 below.
q. "Retirement" means retirement from active employment with the
Company and any Subsidiary or Parent Corporation of the
Company on or after age 55.
r. "Stock" means the Common Stock, $.25 par value per share, of
the Company.
s. "Stock Appreciation Right" means the right pursuant to an
award granted under Section 6 below to surrender to the
Company all or a portion of a Stock Option in exchange for an
amount equal to the difference between (i) the Fair Market
Value, as of the date such Stock Option or such portion
thereof is surrendered, of the shares of Stock covered by such
Stock Option or such portion thereof, and (ii) the aggregate
exercise price of such Stock Option or such portion thereof.
t. "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5 below.
u. "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company
if each of the corporations (other than the last corporation
in the unbroken chain) owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one
of the other corporations in the chain.
SECTION 2. Administration.
The Plan shall be administered by the Board of Directors or by a
Committee appointed by the Board of Directors of the Company consisting of at
least two Directors, all of whom shall be Outside Directors and Non-Employee
Directors, who shall serve at the pleasure of the Board.
The Committee shall have the power and authority to grant to eligible
employees and Board members, pursuant to the terms of the Plan: (i) Stock
Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Deferred
Stock awards, or (v) Other Awards. The maximum aggregate number of shares which
may be distributed under the Plan in any one calendar year pursuant to grants of
Stock Appreciation Rights, Restricted Stock, Deferred Stock and/or Other Awards
shall be 35,000 shares.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees and Board
Members of the Company and its Subsidiaries to whom Stock
Options, Stock Appreciation Rights, Restricted Stock, Deferred
Stock awards and/or Other Awards may from time to time be
granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock awards and/or Other
Awards, or a combination of the foregoing, are to be granted
hereunder;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder
(including, but not limited to, any restriction on any Stock
Option or other award and/or the shares of Stock relating
thereto), which authority shall be exclusively vested in the
Committee (and not the Board) for purposes of establishing
performance criteria used with Restricted Stock and Deferred
Stock awards and Other Awards; and
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to
an award under this Plan shall be deferred either
automatically or at the election of the participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 1,000,000 (post two-for-one stock split
effective April 1, 1996). Such shares may consist, in whole or in part, of
authorized and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that
have been optioned ceased to be subject to Options, or if any shares subject to
any Restricted Stock or Deferred Stock award or Other Award granted hereunder
are forfeited or such award otherwise terminates without a payment being made to
the participant, such shares shall again be available for distribution in
connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, other change in corporate
structure affecting the Stock, or spin-off or other distribution of assets to
shareholders, such substitution or adjustment shall be made in the aggregate
number of shares reserved for issuance under the Plan, in the number and option
price of shares subject to outstanding options granted under the Plan, and in
the number of shares subject to Restricted Stock or Deferred Stock awards
granted under the Plan as may be determined to be appropriate by the Committee,
in its sole discretion, provided that the number of shares subject to any award
shall always be a whole number. Such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Option.
SECTION 4. Eligibility.
Officers, other key employees of the Company and Subsidiaries and Board
members who are responsible for or contribute to the management, growth and/or
profitability of the business of the Company and its Subsidiaries are eligible
to be granted Stock Options, Stock Appreciation Rights, Restricted Stock or
Deferred Stock awards or Other Awards under the Plan. The optionees and
participants under the Plan shall be selected from time to time by the
Committee, in its sole discretion, from among those eligible, and the Committee
shall determine, in its sole discretion, the number of shares covered by each
award.
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after November 30, 2003.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options (in each
case with or without Stock Appreciation Rights). To the extent that any option
does not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Option as
an Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under an Incentive
Stock Option or a Non-Qualified Stock Option be less than 100% of the Fair
Market Value of the Stock on the date of the grant of the option. If an employee
owns or is deemed to own (by reason of the attribution rules applicable under
Section 424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Parent Corporation or Subsidiary and an
Incentive Stock Option is granted to such employee, the option price shall be no
less than 110% of the Fair Market Value of the Stock on the date the option is
granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time. Notwithstanding the foregoing, unless the Stock Option Agreement
provides otherwise, any Stock Option granted under this Plan shall be
exercisable in full, without regard to any installment exercise provisions, for
a period specified by the Company, but not to exceed sixty (60) days prior to or
subsequent to the occurrence of any of the following events: (i) dissolution or
liquidation of the Company other than in conjunction with a bankruptcy of the
Company or any similar occurrence, (ii) any merger, consolidation, acquisition,
separation, reorganization, or similar occurrence, where the Company will not be
the surviving entity or (iii) the transfer of substantially all of the assets of
the Company or 20% or more of the outstanding Stock of the Company.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by
certified or bank check, or by any other form of legal consideration deemed
sufficient by the Committee and consistent with the Plan's purpose and
applicable law, including promissory notes or a properly executed exercise
notice together with irrevocable instructions to a broker acceptable to the
Company to promptly deliver to the Company the amount of sale or loan proceeds
to pay the exercise price. As determined by the Committee, in its sole
discretion, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee or, in the case of the exercise
of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock subject to
an award hereunder (based, in each case, on the Fair Market Value of the Stock
on the date immediately preceding the date the option is exercised, as
determined by the Committee), provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the form of already owned
shares may be authorized only at the time the option is granted, and provided
further that in the event payment is made in the form of shares of Restricted
Stock or a Deferred Stock award, the optionee will receive a portion of the
option shares in the form of, and in an amount equal to, the Restricted Stock or
Deferred Stock award tendered as payment by the optionee. If the terms of an
option so permit, an optionee may elect to pay all or part of the option
exercise price by having the Company withhold from the shares of Stock that
would otherwise be issued upon exercise that number of shares of Stock having a
Fair Market Value equal to the aggregate option exercise price for the shares
with respect to which such election is made. No shares of Stock shall be issued
until full payment therefor has been made. An optionee shall generally have the
rights to dividends and other rights of a shareholder with respect to shares
subject to the option when the optionee has given written notice of exercise,
has paid in full for such shares.
(e) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(f) Termination by Death. If an optionee's employment by the Company
and any Subsidiary or Parent Corporation terminates by reason of death, the
Stock Option may thereafter be immediately exercised, to the extent then
exercisable (or on such accelerated basis as the Committee shall determine at or
after grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of three years (or such
shorter period as the Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the option, whichever period
is shorter.
(g) Termination by Reason of Disability. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after three years (or such shorter period as
the Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is the shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable at the time of such Retirement, but may not be
exercised after three years (or such shorter period as Committee shall specify
at grant) from the date of such termination of employment or the expiration of
the stated term of the option, whichever period is the shorter. In the event of
termination of employment by reason of Retirement, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee, if
an optionee's employment by the Company and any Subsidiary or Parent Corporation
terminates for any reason other than death, Disability or Retirement, the Stock
Option may be exercised to the extent it was exercisable at such termination for
the lesser of three months or the balance of the option's term, except that if
the optionee is terminated for Cause by the Company or any Subsidiary or Parent
Corporation, the Stock Option shall thereupon terminate.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Option is granted) of the Common Stock with
respect to which an Incentive Stock Option under this Plan or any other plan of
the Company and any Subsidiary or Parent Corporation is exercisable for the
first time by an optionee during any calendar year shall not exceed $100,000.
SECTION 6. Stock Appreciation Rights.
(a) Grant and Exercise. Except as set forth in paragraph (k) of Section
5, Stock Appreciation Rights may be granted in conjunction with all or part of
any Stock Option granted under the Plan. In the case of a Non-Qualified Stock
Option, such rights may be granted either at or after the time of the grant of
such Option. In the case of an Incentive Stock Option, such rights may be
granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that a
Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related stock Option shall not be reduced until the exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (b) of this Section 6, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in paragraph (b) of this Section 6. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to the extent
the related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent that the Stock Options to which
they relate shall be exercisable in accordance with the provisions of
Section 5 and this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an
amount in cash or shares of Stock equal in value to the excess of the
Fair Market Value of one share of Stock over the option price per share
specified in the related option multiplied by the number of shares in
respect of which the Stock Appreciation Right shall have been
exercised, with the Committee having the right to determine the form of
payment; provided the Committee may not require the optionee to receive
more than 50% of the aggregate value of such Stock Appreciation Rights
in shares of Stock.
(iii) Stock Appreciation Rights shall be transferable only
when and to the extent that the underlying Stock Option would be
transferable under Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the
Stock Option or part thereof to which such Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of shares
of Stock to be issued under the Plan, but only to the extent of the
number of shares issued or issuable under the Stock Appreciation Right
at the time of exercise based on the value of the Stock Appreciation
Right at such time.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market
price of the Stock subject to the Incentive Stock Option exceeds the
exercise price of such Option.
(vi) Each award shall be confirmed by, and subject to the
terms of, a Stock Appreciation Rights Agreement executed by the Company
and the participant.
SECTION 7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and Subsidiaries to
whom, and the time or times at which, grants of Restricted Stock will be made,
the number of shares to be awarded, the time or times within which such awards
may be subject to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of Restricted Stock upon the attainment
of specified performance goals. The provisions of Restricted Stock awards need
not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an Agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in
respect of shares of Restricted Stock awarded under the Plan. Such
certificate shall be registered in the name of the participant, and
shall bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to such award, substantially in the
following form:
"The transferability of this certificate and the shares
of stock represented hereby are subject to the terms and
conditions (including forfeiture) of the MTS Systems
Corporation 1994 Stock Plan and an Agreement entered into
between the registered owner and MTS Systems Corporation.
Copies of such Plan and Agreement are on file in the
offices of MTS Systems Corporation, 14000 Technology
Drive, Eden Prairie, MN 55344.
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
Agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. In no event shall the
Restriction Period be less than one (1) year. Within these limits, the
Committee may provide for the lapse of such restrictions in
installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 7,
the participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company, including the
right to vote the shares and the right to receive any cash dividends.
The Committee, in its sole discretion, may permit or require the
payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional shares of Restricted Stock (to the
extent shares are available under Section 3 and subject to paragraph
(f) of Section 13). Certificates for shares of unrestricted Stock shall
be delivered to the grantee promptly after, and only after, the period
of forfeiture shall have expired without forfeiture in respect of such
shares of Restricted Stock.
(iii) Subject to the provisions of the award Agreement and
paragraph (c)(iv) of this Section 7, upon termination of employment for
any reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause),
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in
part any or all remaining restrictions with respect to such
participant's shares of Restricted Stock.
(v) Notwithstanding the foregoing, all restrictions with
respect to any participant's shares of Restricted Stock shall lapse on
the date determined by the Committee, but in no event more than sixty
(60) days prior to or subsequent to the occurrence of any of the
following events: (i) dissolution or liquidation of the Company other
than in conjunction with a bankruptcy of the Company or any similar
occurrence, (ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be
the surviving entity or (iii) the transfer of substantially all of the
assets of the Company or 20% or more of the outstanding Stock of the
Company.
SECTION 8. Deferred Stock Awards.
(a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of the Company and Subsidiaries to whom and the
time or times at which Deferred Stock shall be awarded, the number of Shares of
Deferred Stock to be awarded to any participant or group of participants, the
duration of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Stock will be deferred, and the terms and conditions
of the award in addition to those contained in paragraph (b) of this Section 8.
The Committee may also condition the grant of Deferred Stock upon the attainment
of specified performance goals. The provisions of Deferred Stock awards need not
be the same with respect to each recipient.
(b) Terms and Conditions.
(i) Subject to the provisions of this Plan and the award
agreement, Deferred Stock awards may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral
Period. In no event shall the Deferral Period be less than one (1)
year. At the expiration of the Deferral Period (or Elective Deferral
Period, where applicable), share certificates shall be delivered to the
participant, or his legal representative, in a number equal to the
shares covered by the Deferred Stock award.
(ii) Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares covered by a
Deferred Stock award will be paid to the participant currently or
deferred and deemed to be reinvested in additional Deferred Stock or
otherwise reinvested, all as determined at the time of the award by the
Committee, in its sole discretion.
(iii) Subject to the provisions of the award Agreement and
paragraph (b)(iv) of this Section 8, upon termination of employment for
any reason during the Deferral Period for a given award, the Deferred
Stock in question shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause)
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in part
any or all of the remaining deferral limitations imposed hereunder with
respect to any or all of the participant's Deferred Stock.
(v) A participant may elect to further defer receipt of the
award for a specified period or until a specified event (the "Elective
Deferral Period"), subject in each case to the Committee's approval and
to such terms as are determined by the Committee, all in its sole
discretion. Subject to any exceptions adopted by the Committee, such
election must generally be made prior to completion of one half of the
Deferral Period for a Deferred Stock award (or for an installment of
such an award).
(vi) Each award shall be confirmed by, and subject to the
terms of, a Deferred Stock Agreement executed by the Company and the
participant.
SECTION 9. Other Awards.
The Committee may from time to time grant Stock, other Stock based and
non-Stock based awards under this Plan including without limitations those
awards pursuant to which shares of Stock are or in the future may be acquired,
awards denominated in Stock units, securities convertible into Stock, phantom
securities and dividend equivalents. The Committee shall determine the terms and
conditions of such Stock, Stock based and non-Stock based awards provided that
such awards shall not be inconsistent with the terms of this Plan.
SECTION 10. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation
or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or
from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 11. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option, Stock Appreciation Right,
Restricted Stock, Deferred Stock or other Stock-based award theretofore granted,
without the optionee's or participant's consent, or (ii) which without the
approval of the stockholders of the Company would cause the Plan to no longer
comply with Rule 16b-3 under the Securities Exchange Act of 1934, Section 422 of
the Code or any other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent.
SECTION 12. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 13. General Provisions.
(a) All certificates for shares of Stock delivered under the Plan
pursuant to any Restricted Stock, Deferred Stock or other Stock-based awards
shall be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
laws, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock,
Deferred Stock and other Stock-based awards under the Plan (other than Stock
Options) are not required to make any payment or provide consideration other
than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part
of the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 13(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
(e) At the time of grant, the Committee may provide in connection with
any grant made under this Plan that the shares of Stock received as a result of
such grant shall be subject to a repurchase right in favor of the Company
pursuant to which any participant who, at any time within a specified period
after termination of employment with the Company, directly or indirectly
competes with, or is employed by a competitor of, the Company, shall be required
to offer to the Company any shares that the participant acquired under the Plan,
with the price being the then Fair Market Value of the Stock, subject to such
other terms and conditions as the Committee may specify at the time of grant.
(f) The reinvestment of dividends in additional Restricted Stock (or in
Deferred Stock or other types of Plan awards) at the time of any dividend
payment shall only be permissible if the Committee (or the Company's chief
financial officer) certifies in writing that under Section 3 sufficient shares
are available for such reinvestment (taking into account then outstanding Stock
Options and other Plan awards).
SECTION 14. Effective Date of Plan.
The Plan shall be effective on the date it is approved by a vote of the
holders of a majority of the Stock present and entitled to vote at a meeting of
the Company's shareholders.
- ---------------------------
Adopted by the Board of Directors on November 30, 1993
Adopted by the Company's shareholders on January 31, 1994
Amended by the Board of Directors on November 22, 1996
EXHIBIT 10.p
MTS SYSTEMS CORPORATION
1997 STOCK OPTION PLAN
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. General Purpose of Plan; Definitions ...............................1
2. Administration .....................................................3
3. Stock Subject to Plan ..............................................4
4. Eligibility ........................................................4
5. Stock Options ......................................................4
6. Transfer, Leave of Absence, etc. ...................................8
7. Amendments and Termination .........................................9
8. General Provisions .................................................9
MTS SYSTEMS CORPORATION
1997 STOCK OPTION PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the MTS Systems Corporation 1997 Stock Option
Plan (the "Plan"). The purpose of the Plan is to enable MTS Systems Corporation
(the "Company") and its Subsidiaries to retain and attract executives, managers,
key technical and functional employees, directors and consultants who contribute
to the Company's success by their ability, ingenuity and industry, and to enable
such individuals to participate in the long-term success and growth of the
Company by giving them a proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Agreement" means an agreement by and between the Company and an
optionee or recipient of an award under the Plan setting forth the terms and
conditions of the option or award.
b. "Board" means the Board of Directors of the Company as it may be
comprised from time to time.
c. "Cause" means a felony conviction of a participant or the failure of
a participant to contest prosecution for a felony, willful misconduct,
dishonesty or intentional violation of a statute, rule or regulation, any of
which, in the judgment of the Company, is harmful to the business or reputation
of the Company.
d. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute.
e. "Committee" means the Committee referred to in Section 2 of the
Plan. If at any time no Committee shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by the Board, unless the Plan
specifically states otherwise.
f. "Company" means MTS Systems Corporation, a corporation organized
under the laws of the State of Minnesota (or any successor corporation).
g. "Consultant" means any person, including an advisor, engaged by the
Company or a Parent Corporation or Subsidiary of the Company to render services
and who is compensated for such services and who is not an employee of the
Company or any Parent Corporation or Subsidiary of the Company. A Non-Employee
Director may serve as a Consultant.
h. "Disability" means a physical or mental condition resulting from a
bodily injury or disease or mental disorder rendering such person incapable of
continuing to perform the employment duties of such person at the Company as
such duties existed immediately prior to the bodily injury, disease or mental
disorder.
i. "Fair Market Value" of Stock on any given date shall be determined
by the Committee as follows: (a) if the Stock is listed for trading on one of
more national securities exchanges, or is traded on the Nasdaq Stock Market, the
last reported sales price on the principal such exchange or the Nasdaq Stock
Market on the date in question, or if such Stock shall not have been traded on
such principal exchange on such date, the last reported sales price on such
principal exchange or the Nasdaq Stock Market on the first day prior thereto on
which such Stock was so traded; or (b) if the Stock is not listed for trading on
a national securities exchange or the Nasdaq Stock Market, but is traded in the
over-the-counter market, including the Nasdaq Small Cap Market, the closing bid
price for such Stock on the date in question, or if there is no such bid price
for such Stock on such date, the closing bid price on the first day prior
thereto on which such price existed; or (c) if neither (a) or (b) is applicable,
by any means fair and reasonable by the Committee, which determination shall be
final and binding on all parties.
j. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
k. "Non-Employee Director" means a "Non-Employee Director" within the
meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934.
l. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option, and is intended to be and is designated as a
"Non-Qualified Stock Option."
m. "Outside Director" means a Director who: (a) is not a current
employee of the Company or any member of an affiliated group which includes the
Company; (b) is not a former employee of the Company who receives compensation
for prior services (other than benefits under a tax-qualified retirement plan)
during the taxable year; (c) has not been an officer of the Company; (d) does
not receive remuneration from the Company, either directly or indirectly, in any
capacity other than as a director, except as otherwise permitted under Code
Section 162(m) and regulations thereunder. For this purpose, remuneration
includes any payment in exchange for good or services. This definition shall be
further governed by the provisions of Code Section 162(m) and regulations
promulgated thereunder.
n. "Parent Corporation" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if each of the
corporations (other than the Company) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.
o. "Retirement" means retirement from active employment with the
Company and any Subsidiary or Parent Corporation of the Company on or after age
55.
p. "Stock" means the Common Stock, $.25 par value per share, of the
Company.
q. "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 5 below.
r. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 2. Administration.
The Plan shall be administered by the Board of Directors or by a
Committee appointed by the Board of Directors of the Company consisting of at
least two Directors, all of whom shall be Outside Directors and Non-Employee
Directors, who shall serve at the pleasure of the Board.
The Committee shall have the power and authority to grant Stock Options
to eligible employees, Consultants and members of the Board pursuant to the
terms of the Plan. In particular, the Committee shall have the authority:
(i) to select the members of the Board, officers and other key
employees of the Company and its Subsidiaries and other eligible
persons to whom Stock Options may from time to time be granted
hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options and Non-Qualified Stock Options are to be granted hereunder;
(iii) to determine the number of shares to be covered by each
such award granted hereunder; and
(iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including,
but not limited to, any restriction on any Stock Option); provided,
however, that in the event of a merger or asset sale, the applicable
provisions of Section 5(c) of the Plan shall govern the acceleration of
the vesting of any Stock Option.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate to executive officers of the Company the authority to exercise the
powers specified in (i), (ii), (iii), and (iv) above with respect to persons who
are not either the chief executive officer of the Company or the four highest
paid officers of the Company other than the chief executive officer.
All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company
and Plan participants.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 750,000. Such shares may consist, in whole
or in part, of authorized and unissued shares. Upon a stock-for-stock exercise
of a Stock Option or upon the withholding of stock for the payment of the option
price or taxes, only the net number of shares issued to the Optionee shall be
used to calculate the number of shares remaining available for distribution
under the Plan.
If any shares that have been optioned cease to be subject to Stock
Options, such shares shall again be available for distribution in connection
with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding options granted under the Plan, as may be determined to
be appropriate by the Committee, in its sole discretion, provided that the
number of shares subject to any award shall always be a whole number.
SECTION 4. Eligibility.
Executives, managers, key technical and functional employees of the
Company and Subsidiaries, members of the Board of Directors and Consultants who
are responsible for or contribute to the management, growth and profitability of
the business of the Company and its Subsidiaries are eligible to be granted
Stock Options under the Plan. The optionees under the Plan shall be selected
from time to time by the Committee, in its sole discretion, from among those
eligible, and the Committee shall determine, in its sole discretion, the number
of shares covered by each award.
Notwithstanding the foregoing, no person shall receive grants of Stock
Options under this Plan which exceed 50,000 shares during any fiscal year of the
Company.
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after November 22, 2006.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options. To the
extent that any option does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Stock
Option as an Incentive Stock Option, provided the optionee consents in writing
to the modification or amendment.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under an Incentive
Stock Option or a Non-Qualified Stock Option be less than 100% of Fair Market
Value on the date the option is granted. If an employee owns or is deemed to own
(by reason of the attribution rules applicable under Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is
granted to such employee, the option price shall be no less than 110% of the
Fair Market Value of the Stock on the date the option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than seven
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant, subject to the
restrictions stated in Section 5(b) above. If the Committee provides, in its
discretion, that any option is exercisable only in installments, the Committee
may waive such installment exercise provisions at any time. Notwithstanding
anything contained in the Plan to the contrary, the Committee may, in its
discretion, extend or vary the term of any Stock Option or any installment
thereof, whether or not the optionee is then employed by the Company, if such
action is deemed to be in the best interests of the Company; provided, however,
that in the event of a merger or sale of assets, the provisions of this Section
5(c) shall govern vesting acceleration. Notwithstanding the foregoing, unless
the Stock Option provides otherwise, any Stock Option granted under this Plan
shall be exercisable in full, without regard to any installment exercise
provisions, for a period specified by the Committee, but not to exceed sixty
(60) days, prior to the occurrence of any of the following events: (i)
dissolution or liquidation of the Company other than in conjunction with a
bankruptcy of the Company or any similar occurrence, (ii) any merger,
consolidation, acquisition, separation, reorganization, or similar occurrence,
where the Company will not be the surviving entity or (iii) the transfer of
substantially all of the assets of the Company or 20% or more of the outstanding
Stock of the Company.
The grant of an option pursuant to the Plan shall not limit in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge,
exchange or consolidate or to dissolve, liquidate, sell or transfer all or any
part of its business or assets.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by
certified or bank check, or by any other form of legal consideration deemed
sufficient by the Committee and consistent with the Plan's purpose and
applicable law, including promissory notes or a properly executed exercise
notice together with irrevocable instructions to a broker acceptable to the
Company to promptly deliver to the Company the amount of sale or loan proceeds
to pay the exercise price. As determined by the Committee at the time of grant
or exercise, in its sole discretion, payment in full or in part may also be made
in the form of unrestricted Stock already owned by the optionee (which in the
case of Stock acquired upon exercise of an option have been owned for more than
six months on the date of surrender), provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the form of already owned
shares may be authorized only at the time the option is granted. If the terms of
an option so permit, an optionee may elect to pay all or part of the option
exercise price by having the Company withhold from the shares of Stock that
would otherwise be issued upon exercise that number of shares of Stock having a
Fair Market Value equal to the aggregate option exercise price for the shares
with respect to which such election is made. No shares of Stock shall be issued
until full payment therefor has been made. An optionee shall generally have the
rights to dividends and other rights of a shareholder with respect to shares
subject to the option when the optionee has given written notice of exercise,
has paid in full for such shares, and, if requested, has given the
representation described in paragraph (a) of Section 8.
(e) Non-transferability of Options.
(i) Subject to Section 5(e)(ii) below, no Stock Option shall
be transferable by the optionee otherwise than by will or by the laws
of descent and distribution, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee.
(ii) The Committee may, in its discretion, authorize all or a
portion of the options to be granted to an optionee to be on terms
which permit transfer by such optionee to (a) the spouse, children or
grandchildren of the optionees ("Immediate Family Members"), (b) a
trust or trusts for the exclusive benefit of such Immediate Family
Members, or (c) a partnership or partnerships in which such Immediate
Family Members are the only partners, provided that (i) there may be no
consideration for any such transfer, (ii) the stock option agreement
pursuant to which such options are granted must be approved by the
Committee, and must expressly provide for transferability in a manner
consistent with this Section 5(e)(ii), and (iii) subsequent transfers
of transferred options shall be prohibited except those in accordance
with Section 5(e)(i). Following transfer, any such options shall
continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that the term
"optionee" herein shall in such event be deemed to refer to the
transferee, except that the events of termination of employment of
Sections 5(f), 5(g), 5(h) and 5(i) hereof shall continue to be applied
with respect to the original optionee, following which the options
shall be exercisable by the transferee only to the extent, and for the
periods specified in such Sections.
(f) Termination by Death. If an optionee's employment by the Company
and any Subsidiary or Parent Corporation terminates by reason of death, any
Stock Option may thereafter be immediately exercised, to the extent then
exercisable (or on such accelerated basis as the Committee shall determine at or
after grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of three years from the
date of such death or until the expiration of the stated term of the option,
whichever period is shorter. In the event of termination of employment by reason
of death, if an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code, the option
will thereafter be treated as a Non-Qualified Stock Option.
(g) Termination by Reason of Disability. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after three years from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is the shorter. In the event of termination of employment by
reason of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, the option will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
in full, but may not be exercised after three years from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, the option will thereafter be treated as a Non-Qualified Stock Option.
(i) Other Termination. If an optionee's continuous status as an
employee terminates (other than upon the optionee's death, Disability or
Retirement), any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable at the time of such termination, but may not be
exercised after 90 days after such termination, or the expiration of the stated
term of the option, whichever period is the shorter. In the event of termination
of employment by reason other than death, Disability or Retirement and if
pursuant to its terms an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, the option will thereafter be treated as a Non-Qualified Stock Option. In
the event an Optionee's employment with the Company or any Subsidiary or Parent
Corporation is terminated for Cause, all unexercised Stock Options granted to
such Optionee shall immediately terminate.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Stock Option is granted) of the Common
Stock with respect to which an Incentive Stock Option under this Plan or any
other plan of the Company and any Subsidiary or Parent Corporation is
exercisable for the first time by an optionee during any calendar year shall not
exceed $100,000.
(k) Directors Who Are Not Employees. Each person who (i) is not an
employee of the Company, any Parent Corporation or any Subsidiary and (ii) is
elected or re-elected as a director by the Board or the shareholders subsequent
to November 22, 1996 shall automatically be granted an Option to purchase up to
3,000 shares of Stock (the actual number of which shall be determined by the
Committee upon such election or re-election) as of the date of such election or
re-election, at an option price per share equal to 100% of the Fair Market Value
of a share of Stock on the date of such election or re-election. All such
Options shall be designated as Non-Qualified Stock Options and shall be subject
to the same terms and provisions as are then in effect with respect to the grant
of Non-Qualified Stock Options to officers and key employees of the Company,
except that (i) the term of each such Option shall be four (4) years after the
date of grant, and (ii) the Option shall become exercisable as to all or any
part of the shares subject to the Option beginning six (6) months after the date
the option is granted. Subject to the foregoing, all provisions of this Plan not
inconsistent with the foregoing shall apply to Options granted pursuant to this
Section 5(k). The maximum aggregate number of shares as to which Options may be
granted to Non-Employee Directors under this Plan shall be 90,000 shares.
SECTION 6. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation
or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or
from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 7. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee under a Stock Option award theretofore granted without the
optionee's consent, or (ii) which without the approval of the shareholders of
the Company would cause the Plan to no longer comply with Rule 16b-3 under the
Securities Exchange Act of 1934, Section 422 of the Code or any other regulatory
requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively to the extent such amendment is
consistent with the terms of this Plan, but no such amendment shall impair the
rights of any holder without his or her consent except to the extent authorized
under the Plan.
SECTION 8. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
(b) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(c) Each participant shall, no later than the date as of which any part
of the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 8(c). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
(d) At the time of grant, the Committee may provide in connection with
any grant made under this Plan that the shares of Stock received as a result of
such grant shall be subject to a repurchase right in favor of the Company,
pursuant to which the participant shall be required to offer to the Company upon
termination of employment for any reason any shares that the participant
acquired under the Plan, with the price being the then Fair Market Value of the
Stock or, in the case of a termination for Cause, an amount equal to the cash
consideration paid for the Stock, subject to such other terms and conditions as
the Committee may specify at the time of grant. The Committee may, at the time
of the grant of an award under the Plan, provide the Company with the right to
repurchase, or require the forfeiture of, shares of Stock acquired pursuant to
the Plan by any participant who, at any time within two years after termination
of employment with the Company or any Subsidiary or Parent Corporation, directly
or indirectly competes with, or is employed by a competitor of, the Company.
(e) The Plan is expressly made subject to the approval by shareholders
of the Company. If the Plan is not so approved by the shareholders on or before
one year after this Plan's adoption by the Board of Directors, this Plan shall
not come into effect. The offering of the shares hereunder shall be also subject
to the effecting by the Company of any registration or qualification of the
shares under any federal or state law or the obtaining of the consent or
approval of any governmental regulatory body which the Company shall determine,
in its sole discretion, is necessary or desirable as a condition to or in
connection with, the offering or the issue or purchase of the shares covered
thereby. The Company shall make every reasonable effort to effect such
registration or qualification or to obtain such consent or approval.
- ------------------------------
Adopted by the Board of Directors on November 22, 1996.
Adopted by the Shareholders of the Company on ___________, 1997.
EXHIBIT 10.q
SEVERANCE AGREEMENT
AGREEMENT made as of this 30th day of September, 1996 by and between MTS Systems
Corporation, a Minnesota corporation ("MTS") and Steven M. Cohoon (the
"Executive")
WHEREAS, MTS considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of MTS
and its shareholders; and
WHEREAS, the Executive has made and is expected to make, due to Executive's
intimate knowledge of the business and affairs of MTS, its policies, methods,
personnel and problems, a significant contribution to the profitability, growth
and financial strength of MTS; and
WHEREAS, Executive is willing to remain in the employ of MTS upon the
understanding that MTS will provide income security if the Executive's
employment is terminated under certain terms and conditions;
THEREFORE, in consideration of the foregoing and other respective covenants and
agreements of the parties herein contained, the parties hereto agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect until the earlier of (A) the date that any and
all benefits due to Executive under this Agreement upon the happening
of the events set forth herein have been paid and satisfied and all
obligations of MTS to the Executive have been performed, (B) the date
the Executive and MTS agree in writing to terminate this Agreement, or
(C) the date the Executive reaches age 65. Notwithstanding the
preceding sentence, if a Change in Control occurs, as defined in that
certain agreement between the Executive and MTS of even date herewith
(the "Change in Control Agreement"), this Agreement shall be superceded
by the Change in Control Agreement.
2. Termination By Reason of Death or Disability. This Agreement shall not
apply if the Executive's termination of employment is the result of the
Executive's death or disability. In the event of the Executive's death
or disability while employed by MTS, Executive shall be entitled to
such benefits provided under any policy, plan or program governing
death or disability maintained by MTS and covering such Executive. The
determination of disability and the amount and entitlement of benefits
shall be governed by the terms of such policy, plan or program.
3. Termination for Cause.
(a) If Executive's employment shall be terminated by MTS for
Cause, MTS shall pay to Executive his full base salary through
the Date of Termination at the rate in effect at the time
Notice of Termination is given and MTS shall have no further
obligation to Executive under this Agreement.
(b) Termination by MTS of Executive's employment for "Cause" shall
mean termination as a result of:
(i) the conviction of the Executive by a court of
competent jurisdiction for felony criminal conduct;
or
(ii) willful misconduct by the Executive; or
(iii) violation by the Executive of any employment
agreement applicable to the Executive.
4. Termination Other Than for Cause. If Executive's employment is
terminated by MTS other than for Cause, death or disability, or if
Executive voluntarily terminates his employment because a successor to
the assets of MTS fails to assume MTS's obligations under this
Agreement, Executive shall be entitled to the following benefits:
(a) MTS shall pay the Executive for a period of 9 months or until
the executive reaches age 65, whichever occurs first, a
severance payment (the "Severance Payment") of an amount equal
to the Executive's Monthly Gross Income, as below. All
payments are subject to applicable federal and state
withholding.
For purposes of this Agreement, Monthly Gross Income shall
mean the sum of the following amounts:
(i) 1/12 of the highest average base salary for any
12-consecutive month period during the 36 calendar
month period ending immediately prior to the Date of
Termination; plus
(ii) 1/36 of the total Management Variable Compensation
paid during the 3 most recent fiscal years ending
immediately prior to the Date of Termination; plus
(iii) the product of the average percentage of MTS profit
sharing contributions to the MTS Systems Corporation
Profit Sharing Retirement Plan and Trust (as a
percent of Compensation as defined in the Plan) for
the 3 most recent Plan Years ending immediately prior
to the Date of Termination multiplied by the sum of
(i) and (ii) above.
(b) For a 9-month period after the Date of Termination, or until
Executive reaches age 65, whichever occurs first, MTS shall
continue to pay its portion of Executive's life, disability,
accident and health insurance benefits which the Executive is
receiving immediately prior to the Notice of Termination.
Executive shall be responsible for payment of his portion of
the premiums for such benefits. MTS may deduct from its
payment to the Executive those amounts. The MTS portion and
the Executive's portion shall be the respective percentages of
such premiums paid immediately prior to the Date of
Termination. Benefits otherwise receivable by Executive
pursuant to this subsection (b) shall be reduced to the extent
comparable benefits are actually received by Executive during
such 9 -month period, and any such benefits actually received
by Executive shall be reported to MTS. At the expiration of
said 9 -month period, Executive shall be entitled to continue
any of said benefits which qualify as group insurance benefits
for continuation coverage under the Comprehensive Omnibus
Budget Reconciliation Act ("COBRA") or applicable state law.
(c) MTS shall pay to Executive all legal fees and expenses
reasonably incurred by Executive in seeking to obtain or
enforce any right or benefit provided by this Agreement.
(d) Executive shall be entitled to receive all benefits payable to
the Executive under the MTS Systems Corporation Profit Sharing
Retirement Plan and any other plan or agreement relating to
retirement benefits.
(e) The Executive's rights under any existing Employee Stock
Option Agreement and any future such agreements, including
particularly his right to exercise his option rights within
three months following his termination of employment, shall
continue to be fully effective hereunder.
5. No Mitigation. Executive shall not be required to mitigate the amount
of any payment provided for in this Section by seeking other employment
or otherwise; nor shall the amount of any payment or benefit provided
for in this Section be reduced by any compensation earned by Executive
as the result of employment by another employer or by retirement
benefits after the Date of Termination or otherwise except as
specifically provided herein.
6. Non-Competition and Confidentialitv.
(a) Executive agrees that, as a condition of receiving benefits
under this Agreement, he will not render services directly or
indirectly to any competing organization, wherever located,
for a period of 12 months following the Date of Termination,
in connection with the design, implementation, development,
manufacture, marketing, sale, merchandising, leasing,
servicing or promotion of any "Conflicting Product" which as
used herein means any product, process, system or service of
any person, firm, corporation, organization other than MTS, in
existence or under development, which is the same as or
similar to or competes with, or has a usage allied to, a
product, process, system, or service produced, developed, or
used by MTS. Executive agrees that violation of this covenant
not to compete with MTS shall result in immediate cessation of
all benefits hereunder, other than insurance benefits, which
Executive may continue where permitted under federal and state
law at his own expense.
(b) Executive further agrees and acknowledges his existing
obligation that, at all times during and subsequent to his
employment with MTS, he will not divulge or appropriate to his
own use or the uses of others any secret or confidential
information pertaining to the business of MTS, or any of its
subsidiaries, obtained during his employment by MTS or any of
its subsidiaries.
7. Successors; Binding Agreement.
(a) MTS will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of MTS to
expressly assume and agree to perform this Agreement in the
same manner and to the same extent that MTS would be required
to perform it if no such succession had taken place. Failure
of MTS to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to terminate his
employment by written Notice of Termination and to receive the
compensation and benefits from MTS described in this Agreement
as if his termination was by MTS other than for Cause.
(b) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives,
heirs, and designated beneficiaries. If Executive should die
while any amount would still be payable to Executive hereunder
if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the Executive's designated
beneficiaries, or, if there is no such designated beneficiary,
to the Executive's estate.
8. Notice of Termination.
(a) Any purported termination of Executive's employment by MTS
under this Agreement shall be communicated by written notice
to the Executive.
(b) For purposes of this Agreement, "Date of Termination" shall
mean the date specified in the written Notice of Termination
which shall not be less than 10 nor more than 30 days from the
date such Notice of Termination is given.
(c) Notice of Termination and all other communications provided
for in the Agreement shall be deemed to have been duly given
when delivered or mailed by United States registered or
certified mail, return receipt requested, postage pre-paid,
addressed to the last known residence address of the Executive
or in the case of MTS, to its principal office to the
attention of each of the then directors of MTS with a copy to
its Secretary, or to such other address as either party may
have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective
only upon receipt.
9. Miscellaneous.
(a) No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the parties. No waiver by
either party hereto at any time of any breach by the other
party to this Agreement of, or compliance with, any other
party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
similar time.
(b) No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in
this Agreement.
(c) The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of
Minnesota.
(d) The invalidity or unenforceability or any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in
full force and effect.
IN WITNESS WHEREOF, MTS, through its authorized officer, and the Executive have
executed this Agreement as of the day and date first above written.
EXECUTIVE: MTS SYSTEMS CORPORATION
/s/ Steven M. Cohoon By /s/ Donald M. Sullivan
- -------------------------------- ------------------------------------
Steven M.Cohoon Donald M. Sullivan
Its Chairman and CEO
------------------------------------
MTS SYSTEMS CORPORATION
1996 ANNUAL REPORT TO SHAREHOLDERS
[PHOTO]
ADDING VALUE
IN ALL WE DO
OUR VISION
To add significant value to the operations of our customers by providing them
with products and services they can use to make their products better, faster,
cheaper, and safer.
In a very real sense, the employees of MTS contribute to the advancement of the
living standards of the world's people.
CONTENTS
- ----------------------------------------------------
1996 Highlights 1
- ----------------------------------------------------
Letter To Shareholders 2
- ----------------------------------------------------
Snapshot Of MTS 4
- ----------------------------------------------------
Market Niche Update 6
- ----------------------------------------------------
Six-year Financial Summary 16
- ----------------------------------------------------
Management's Discussion
And Analysis 17
- ----------------------------------------------------
Financial Statements 22
- ----------------------------------------------------
Shareholder Survey 33
- ----------------------------------------------------
Corporate Information 33
- ----------------------------------------------------
[BAR CHART]
Net Revenue $ Million
$161 $189 $201 $234 $261
- --------------------------------------
92 93 94 95 96
[BAR CHART]
Net Income $ Million
$4.9 $10.4 $8.7 $10.5 $14.1
- ---------------------------------------
92 93 94 95 96
[BAR CHART]
Net Income Per Share $ Million
$.54 $1.14 $.92 $1.15 $1.48
- ---------------------------------------
92 93 94 95 96
[BAR CHART]
Return on Beginning Equity Per Share
5.9% 11.9% 9.0% 10.5% 12.8%
- ---------------------------------------
92 93 94 95 96
Backlog of Orders $ Million
$99 $89 $85 $99 $120
- ---------------------------------------
92 93 94 95 96
1996 HIGHLIGHTS
1996 1995 Change
(expressed in thousands except per share data)
- -------------------------------------------------------------------------
Net revenue $ 261,029 $ 234,131 11.5%
Net income $ 14,109 $ 10,461 34.9%
Net income per share $ 1.48 $ 1.15 28.7%
- -------------------------------------------------------------------------
Return on sales 5.4% 4.5%
Return on beginning
equity per share 12.8% 10.5%
Return on average net assets 17.2% 12.9%
- -------------------------------------------------------------------------
Dividends per share $ .32 $ .28 14.3%
Stockholders' equity per share $ 12.30 $ 11.60 6.0%
Long-term capitalization ratio 9.5% 10.5%
Weighted average shares
outstanding (000's) 9,553 9,090 5.1%
- -------------------------------------------------------------------------
New orders $ 282,753 $ 245,919 15.0%
Backlog of orders at year end $ 120,481 $ 98,757 22.0%
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
1996 NEW ORDERS
[GRAPHIC OMITTED]
* North America
* Europe/Africa/Middle East
* Asia Pacific
* Latin America/Rest of World
* Earnings per share grow 28.7% on 11.5% revenue growth; both earnings and
revenues are records.
* Company declares a quarterly dividend increase of 14% in November 1995 and a
two-for-one stock split on April 1, 1996.
* MTS names three new divisional vice presidents in its Mechanical Testing and
Simulation sector: Daniel T. Sparks, Ph.D., for the Materials Testing
Division, Steven M. Cohoon for the Vehicle Dynamics Division, and James M.
Egerdal for North American Sales.
* Joachim Hellwig is named vice president, Europe, for the company's
Industrial Measurement and Automation Sector.
* MTS's Advanced System Division to provide $10.8 million motion system for
the National Advanced Driving Simulator, a major research program of the
U.S. Department of Transportation.
* MTS receives a $23.3 million order for an earthquake simulator from the
Japanese government, the company's largest order ever.
* Electronic products manufacturing moves to a new facility in Chaska,
Minnesota, operating on a two-shift basis.
* 32% of the year's revenues come from products or technologies first shipped
in 1994-1996 -- an all-time "entrepreneuring and market creation" record.
* In December 1996, MTS's Custom Servo Motors subsidiary acquires a majority
interest with an option to purchase the balance of Bregenhorn-Butow & Co. of
Freiberg, Germany, a growing supplier of low-power servo motors and drives
to European machinery manufacturers.
TO OUR SHAREHOLDERS
December 1996
I am pleased to report fiscal 1996 was a record year for orders, revenue, net
income and earnings per share.
Just as important as the absolute numbers, fiscal 1996 showed the first
back-to-back increase in net income and earnings per share in seven years. We
think your company has now broken out of the earnings doldrums which our
employees and shareholders have endured over those years.
There are five principal reasons for this breakout. The first four are
actions taken and well executed by our employees:
* First, an increasing stream of new products and services coming to market
with higher margins
* Second, effective cost control in administrative areas
* Third, pay-off from our investments in customer support, worldwide
* Fourth, improved asset utilization and cash generation--sharply reducing the
need for borrowing.
The fifth reason, not under our control, is the slow and erratic, yet consistent
growth of the world economies in which most of our customers operate.
A BRIEF REVIEW OF THE YEAR
The year proceeded according to plan, with some market niches above plan and
some below.
Our Industrial Measurement and Automation sector, primarily serving
manufacturing industries in North America and Europe, saw a slowdown in their
demand starting in January. This persisted through out the year. As a result,
revenue and profit growth dropped well below the rate of the past several years,
but they still grew.
Conversely, our Mechanical Testing and Simulation sector results were above
plan with an accelerating profit rate. This sector's business in Asia Pacific
was particularly strong, with new orders up about 70 percent fueled by the $23
million seismic order in Japan (we recognized $4.5 million of revenue from that
project in 1996). New orders in the Mechanical Testing and Simulation sector's
worldwide ground vehicles (auto/truck) market niche were ahead of plan with
exceptional growth coming in our ride and handling simulation testing product
line. Our material testing business grew nicely. Our aerospace business was
weak, but we think it will now turn up, as discussed elsewhere in this report.
I mentioned better asset utilization and cash generation. A look at our
balance sheet on page 22 will show we virtually eliminated the $10 million of
short term debt we had one year ago and built our cash balance by another $10
million. Our debt to total ratio was under 10 percent at the end of the year. We
have plenty of borrowing power when the time comes to use it.
THE GROWTH QUESTION
In this year's letter I want to focus on the question I am most frequently asked
by investors, present and potential. Simply put, that question is, "Given that
MTS presently serves (mostly) mature, slower growth markets, can you get your
revenue growth rate up to a level which would sustain above average earnings
growth?"
First, I want to note again that our earnings in 1995 and 1996 were
recovering from the quite low levels of the early 90's. Over that two year
period our revenue grew 17 percent and 11 percent, respectively. The best
starting point for this discussion is this year's revenue of $261 million and
EPS of $1.48.
Returning to the question, surely it's easier to grow fast if your customers
are growing fast. But we challenge the implication behind the question that
because some of our customers' markets are mature, MTS's business is also
mature. Whereas it is true that, on average, our customers' businesses are not
growing at Internet driven rates, there is great flux in the business processes
and technologies within the customers in most of our market niches. That flux
can drive the demand for our products and services at higher growth rates than
the customer's output.
The challenge we face is to find where in the customer's changing business
processes or technology base we might add value, and then to provide those
high-value products and services at a cost which gives us a high return. When
asked where we look, I sum it up by saying, "Wherever the customer wants to make
things better, faster, cheaper or safer." Although that's a short answer, it
captures the essence of what drives MTS's business.
As an example, much of our growth historically has come from creating a new
demand and not from capturing market share from competition. Our tire testing
system business is a case in point. It is growing because our customers can use
the systems to obtain information which simply was not available before the
advent of our Flat-Trac(TM) tire testing technology. The ability to get this
information is driving demand for the systems in what is surely a mature
industry.
A further consideration is that, whereas our customers' markets may be
mature in North America, Europe or Japan, they seldom are mature in the
developing countries. Our growth in orders this year from customers in the
developing countries was, again, well above growth in the developed ones, and
there are still developing countries in Latin America and South Asia whose
markets are just beginning to warrant our investment.
Finally, over the last two years we've increased our investment for top-line
revenue growth in new product development, selling/marketing and customer
support by over 10 percent per year. These areas are definitely not being
starved for the sake of short term earnings growth.
To summarize, our current Business Plan shows revenue growth beyond 1996 at
10 percent per year or more. The Plan includes smaller acquisitions within our
two market sectors but does not include major acquisitions nor entry into a new
sector. We believe that, short of a major recession in North America or in the
worldwide auto/truck industry, that revenue growth can be realized.
With at least a 10 percent revenue growth, we should be able to continue to
improve our after tax profit margins due to a combination of scale economies and
the product cost reductions and moderate price increases we've implemented the
last two years. Those efforts have resulted in our profit margin rising to 5.4
percent of revenue this year. We think that is still low and intend to get it
over 6 percent.
Putting this revenue growth and margin improvement together should deliver
above average earnings growth.
But certainly MTS has the financial, managerial and technical resources
which can be leveraged to build a bigger business faster. We're adding staff to
do more new business venturing and to do bigger acquisitions. Some of those
could lead us into a new market sector within our broadly defined field of
interest of industrial and scientific equipment, software and services. We
expect to have more to report on these efforts during the year.
A WORD OF CAUTION
In this letter, and elsewhere throughout this report, we are making forward
looking statements which reflect management's current expectations or beliefs.
We caution our shareholders and other readers of this report that actual future
results could differ materially from those in the forward looking statements
depending on many factors, some beyond our control, including factors related to
company competitive performance, industry conditions and international economic
trends.
STOCK SPLIT AND DIVIDEND INCREASE
The Board of Directors declared a 100 percent stock dividend at its January 1996
meeting effective April 1, 1996. This was the first split since 1987 as the
Board reaffirmed our past practice of splitting when the price of the stock
holds near $30 per share.
At its November 1996 meeting, the Board authorized a 25 percent increase in
the quarterly cash dividend to 10 cents per share, payable to holders of record
on December 9, 1996. This is consistent with our practice of paying out about
one-third of the average earnings of the trailing two years. Since 1991,
dividends per share have grown 15 percent per year.
On behalf of our officers, I want to thank MTS's employees for their
successful efforts and our shareholders for their commitment.
/s/ Donald M. Sullivan
Donald M. Sullivan
CHAIRMAN, CHIEF EXECUTIVE OFFICER
[PHOTO]
Shown left to right
William G. Beduhn
VICE PRESIDENT
Keith D. Zell
EXECUTIVE VICE PRESIDENT
Donald M. Sullivan
CHAIRMAN, CHIEF EXECUTIVE OFFICER, PRESIDENT
Marshall L. Carpenter
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Mauro Togneri
VICE PRESIDENT
J. Howell Owens
VICE PRESIDENT
SNAPSHOT
OF MTS SYSTEMS CORPORATION
For more than three decades MTS Systems has provided industrial and scientific
laboratories with state-of-the-art mechanical testing and simulation systems, a
market in which we are a recognized world leader. More recently, we entered the
industrial measurement and auto mation market with products based on innovative
technologies in which we also are recognized leaders. Our products and services
are used around the world in basic research, product development, manufacturing,
and quality control--adding value at each step. This snapshot gives a quick look
at each of our market niches.
MECHANICAL TESTING AND SIMULATION
[PHOTO]
Biomaterials And Biomechanics
Our systems are used in the bio materials and biomechanics market to test
biological and biocompatible materials, such as bone, collagen, cartilage, skin,
polyethylene, and titanium. MTS equipment also enables engineers to test the
dura bility of a broad range of medical and dental implants and prostheses. By
simulating motions and stresses from physical activities such as chewing,
walking, and running, our systems provide valuable information to academic and
industrial researchers and product developers, including manufacturers of sports
equipment.
[PHOTO]
Ground Vehicles
Our ground vehicle customers include automobile, truck, motorcycle, and
off-road vehicle manufacturers and their suppliers. We offer five types of
system solutions to these customers: dynamometer systems to test engines and
drive trains, durability systems that produce wear and failure data under
accelerated service conditions, vehicle and occupant impact simulators for crash
and safety testing, performance systems to determine ride and handling
characteristics, and noise, vibration, and harshness testing systems to help
evaluate ride quality.
[PHOTO]
Civil Engineering
Designing bridges, dams, roads and other infrastructure requires a thorough
understanding of the mechanical properties of substructures and diverse
materials, including rock, soil, concrete, and other cement-based materials. We
provide a comprehensive range of solutions for civil engineering needs, from
low-force and high-force geomaterial testing systems to fully integrated
structural testing laboratories including large-scale seismic (earthquake)
simulation tables.
[PHOTO]
Advanced Systems
Because our systems engineering expertise has applications beyond our
established niches, we are continually looking for new application
opportunities. Maintaining and exploiting these opportunities is the thrust of
our advanced systems effort. Applications can be found in mechanical testing and
simulation research, manufacturing, and elsewhere. Examples of recent custom
projects include ocean wave simulators, laser-based material processing systems,
and major amusement park rides.
[PHOTO]
Aerospace
Using MTS testing equipment, aerospace engineers evaluate the strength of
lightweight advanced materials, the durability of landing gear, the structural
integrity of wings and other large structures and the performance of propulsion
systems and other flight vehicle components. Such testing helps the industry
produce aircraft that meet safety certification standards and performance
requirements and are more economical to operate.
[PHOTO]
Material And Product Testing
Material and product testing laboratories in diverse industries need to
perform tests on many types of materials, including metals, plastics,
composites, and textiles, as well as industrial and consumer products. Our full
line of testing products helps these customers perform tests required to gain
critical information about how materials perform and to develop higher quality
products for their specific markets.
INDUSTRIAL MEASUREMENT
AND AUTOMATION
[PHOTO]
Measurement
For precise measurement of produc tion variables, we offer two lines of
sensors--both based on our core technology of magnetostriction. Our linear
displacement sensors measure physical displacement over lengths up to fifty
feet. They are used by manufacturers of injection molding and die casting
machines, printing and packaging machines, and many other types of equipment.
Our liquid-level sensors and instrumentation are used to sense liquid levels up
to one hundred feet. Customers include fluid processing companies, such as
refineries and chemical plants, as well as retail gas stations.
[PHOTO]
Automation
Our servo motors, amplifiers, and controllers help manufacturing industries
automate their production machinery. Our products are applicable to machine
tools, packaging machines, and other production equipment where control of
motion is critical to production speed and quality. Using advanced magnetic
technology in a unique scalable design, we provide custom servo motor solutions
that meet demanding speed, torque, and size requirements. Machine designers use
our products to replace complex assemblies of gears, pulleys, cranks, and
transmissions to improve production efficiency and reliability.
MARKET
NICHE UPDATE
Our strategic investments in new product development, worldwide customer
support, and leveragable acquisitions over the past several years began to pay
off in the form of improved profitability in 1996. Here is a news update from
each of our market niches.
[PHOTO]
MECHANICAL TESTING AND SIMULATION
Adding value by providing critical information on the mechanical behavior of
materials, products, and structures
BIOMECHANICS AND BIOMATERIALS
New material and component test systems continue to expand our biomechanics and
biomaterials business. We expect the market for these products to continue to
grow well into the twenty-first century as aging populations in developed
countries drive demand for prostheses of all types. The market also is being
driven by government safety certification requirements for implantable medical
devices and prostheses. To meet the demands of this market niche, we provide
engineers with the ability to program and run complex tests that simulate
precisely the forces applied to joints, bones, and muscles during normal and
strenuous activity. The information generated by such tests is invaluable to
researchers working to perfect artificial knees, hips, teeth, and other
implantable and external prostheses. With the Bionix(R) testing product line, WE
OFFER UNIQUE MULTIAXIAL TESTING CAPABILITIES UNMATCHED IN THE INDUSTRY. In 1996
we introduced the Bionix 100/200/400 systems, a line of electromechanical
systems designed to perform low-force static tests. Such tests are used to
evaluate catheters, sutures, medical stents, and other devices. We also
introduced a number of new specialized fixtures that allow our Mini Bionix
product line to simulate exact hip, knee, and spinal motions. In addition, our
new twelve-station hip simulator provides quality-assurance and research
engineers with added capacity at a price comparable to our previous
eight-station hip simulator.
By reproducing the motions and loads that affect the hip joint during walking
and running, our new twelve-station hip simulator helps researchers evaluate the
dura bility of materials and prosthetic designs.
[PHOTO]
[PHOTO]
Demographic trends drive the growth in demand for prosthetics.
GROUND VEHICLES
Our ground vehicle market continues to benefit from solid consumer demand for
safer and more pleasing cars and trucks. Tire engineers have responded to this
demand by researching areas such as tread wear and rolling resistance to develop
longer lasting, safer tires that also improve gas mileage. This type of research
has created a record backlog of orders for our new Flat-Trac(R) III tire test
system. At the same time, suspension engineers are using more of our kinematics
and compliance test systems to improve vehicle ride and handling.
Our safety testing systems enable manufacturers to respond not only to
consumer demands for safety but also to the growing body of government safety
regulations in North America, Europe, and Asia Pacific. Our testing and
simulation systems and software ENABLE MANUFACTURERS TO CONDUCT TESTS THAT MEET
SPECIFIC REGULATORY REQUIREMENTS for crush, intrusion, and impact.
[PHOTO]
Component testing is a growing market for our ground vehicles business.
By introducing the new FlexTest(TM) II test controllers based on the Windows
NT operating system, MTS is laying the groundwork for a totally integrated flow
of test methodology and data within manufacturing organizations and with their
suppliers. This will make it easier for our customers and their suppliers to
share test data, a capability we are leveraging as we market systems to
component manufacturers.
[PHOTO]
Our seat and headrest testing systems are used worldwide by automakers to ensure
com pliance with safety standards.
The year's noteworthy orders included a $4.7 million order from the Michelin
Tire Company and orders totaling $8.8 million from two Korean automakers. In
addition, we ended the year with a significant uptick in activity for our
MTS-PowerTek subsidiary, acquired in 1994, which produces dynamometer controls
and systems.
[PHOTO]
We ended the year with a record backlog of orders for our new Flat-Trac III
system, an advanced tire performance testing system.
We expect this niche to continue to grow because we believe the auto
industry will continue its growth worldwide, particularly in Asia Pacific. We
have responded with additional customer support to take advantage of
accelerating production of vehicles and components in that region. The off-road
and agricultural equipment industries also appear very healthy, and we
anticipate renewed growth in orders from these customers in North America,
Europe, and Asia Pacific.
[PHOTO]
ADDING VALUE THROUGH APPLICATION SOFTWARE
Software continues to be a key differentiator in
delivering value to testing and simulation markets, and we expect our software
to fuel growth as customers increasingly look for flexibility and ease of use in
their testing solutions.
Our internal software development efforts focus on applications which
include standard packages for specific tests as well as "middleware" with which
customers can create their own test programs. Our application products include
tests used in materials engineering, such as fatigue and fracture tests; civil
engineering, such as static deflection and fracture toughness tests; and
automotive engineering, such as suspension deflection and occupant impact tests;
along with applications in many other niches. Many of our application software
packages include predefined templates for common industry test standards.
Our easy-to-use, feature-rich software is designed to increase the
productivity of our customers' researchers and laboratory operators, enhancing
the value they add to their organizations.
To help integrate our application software into customers' computer networks
while reducing our cost of software development and support, we are continuing
to move our applications to the Microsoft Windows environment. Customers benefit
from the performance, ease of use, and data sharing capabilities that Windows
provides. Moving toward a widely accepted environment allows us to better focus
our software development resources. At the end of 1996, all of our digital
systems ran in either the Windows NT or Windows 95 environments. We also
continue to support other operating systems where desired by our customer base.
CIVIL ENGINEERING
When large forces are required to test geological and building materials and
components, our civil engineering test systems PROVIDE THE NEEDED POWER AND
CONTROL. We see opportunities to grow our civil engineering business as many
parts of the world urbanize at an increasing rate. These growing economies
demand new infrastructure in the form of roads, bridges, tunnels, and power
generation plants. Many developing countries also are committed to establishing
their own state-of-the-art civil engineering research centers. Benefiting from
this trend, our civil engineering business in FY 1996 included delivery of two
multi million-dollar orders to outfit advanced civil engineering laboratories in
Asia.
Late in the year we introduced a new low-cost, multipurpose geomaterials
test system, the Model 816. This system provides an economical solution for
tests that do not require extremely high compressive forces, and it allows
customers to expand their testing capabilities incrementally as their needs
change. We expect this new system to gain wide acceptance for advanced
construction materials evaluation.
[PHOTO]
Civil engineers use our high-accuracy strain transducers to determine the
deformation characteristics of concrete and other building materials.
AEROSPACE
[PHOTO]
The Aero-90 LT controller extends our aerospace controller product line to serve
a broader range of customers.
Our aerospace business has been affected by a sharp downturn in defense
spending worldwide and a cyclic downturn in large commercial aircraft
development in Europe and North America. In response, we've focused on two
initiatives. First, better project management and manufacturing cost reduction
have enabled us to improve gross manufacturing profit in the face of decreasing
revenue.
Second, scaling our Aero-90(TM) test control and data acquisition system
down to A SMALLER SIZE, WITHOUT REDUCING ITS CAPABILITY, allows us to compete
for general aviation and commuter airplane projects at a new price point. In mid
1996 we completed software developments that allow our new Aero-90 LT system to
run in the Windows NT environment, and by year end had booked several orders for
the system. Both of these initiatives will continue in 1997. Beyond that, we see
promising signs that our traditional aerospace business is poised for an
upswing. Major development projects are coming on-line in the defense and
commercial aircraft and aerospace sectors in North America, Europe, and Asia.
These projects include new commercial transport and civilian passenger planes,
military fighters, launch vehicles, and the international space station being
coordinated by the U.S. National Aeronautics and Space Administration.
[PHOTO]
Our aerospace customers include manufacturers of all types of aircraft,
including airplanes, helicopters, and launch vehicles.
ADDING VALUE THROUGH CUSTOMER SUPPORT
[PHOTO]
Beyond providing testing and simulation software and systems, we provide
a range of engineering services to help our customers meet their objectives. Our
consulting services help customers develop test methodologies for their unique
needs. We also will supplement their staff when their capacity is overloaded,
such as during the start-up of new labs and during peak workload periods prior
to new product releases. In some cases we design and equip entire laboratories
for our customers. The worldwide trend toward focusing on core competencies and
outsourcing non-core functions means that many companies are looking to outside
firms for tech nical expertise. Being able to provide these services provides us
with growth oppor tunities across a number of industries.
Once a customer's MTS equipment is up and running, we continue to provide
support through our aftermarket operations, which handles product upgrades,
accessories, and additional services, such as maintenance, calibration, and
training. Software upgrades provide us with an opportunity to realize return on
our R&D investment while enabling our customers to quickly increase the value of
their installed systems.
We consider our competitors' installed base as part of our served market
because our aftermarket products and services can provide great value to these
users. Serving them through our aftermarket business helps open doors that can
lead to new MTS testing and simulation system sales in the future.
We continue to invest heavily in engineering service and aftermarket support
capabilities worldwide. This business now represents more than 15 percent of our
mechanical testing and simulation sector and is making an increasing
contribution to the bottom line.
ADVANCED SYSTEMS
[PHOTO]
Our first underwater seismic simulation table is installed at Kyoto University
in Japan.
Recent advanced-system projects include a multimillion-dollar order for a
complete ride system to be installed at a major amusement park, a $5 million
order from the U.S. Army's Tank Automotive Command for upgrades to a tank motion
simulation system, a $10 million incrementally funded subcontract to provide the
motion system for the U.S. Department of Transportation's National Advanced
Driving Simulator, and an intelligent material processing system for the forming
of titanium near-net shapes. Although projects of this type are engineering
intensive and contain considerable cost risk, our staff has CONSISTENTLY BROUGHT
PROJECTS TO COMPLETION AT OR UNDER BUDGET WHILE SATISFYING STRINGENT CUSTOMER
REQUIREMENTS. This is a profitable and growing niche where we have few
competitors once given the opportunity to present our capabilities. Our
challenge is to find or create more of those opportunities.
MATERIAL AND PRODUCT TESTING
This niche comprises a broad range of customers with diverse testing
requirements. Our advanced testing products provide solutions to fulfill these
requirements at universities and government laboratories and for material,
component, and finished goods suppliers. We currently are among the top three or
four suppliers to this niche, but we are not the market share leader. Our
strategy is to develop or acquire best-of-class products and services and market
them selectively where we can gain market share. We have been successful in
implementing this strategy. In 1996 orders grew over 10 percent in this niche
which we believe grew in total less than 5 percent.
[PHOTO]
Many consumer materials and products are tested with MTS equipment to ensure
their quality and manufacturability.
We believe that the electronics industry presents us with growth
opportunities within this niche. To meet some of the mechanical testing needs of
this industry, we introduced the Tytron(TM) microforce test system, our first
system designed specifi cally for very low-force testing and which can
accommodate extremely small specimens. In the electronics industry it can be
used to address reliability issues arising from the thermal stresses placed on
electronic components and assemblies. Although industry standards are not yet in
place for the mechanical testing of electronic components, we are working with
industry organizations to help formulate such standards.
[PHOTO]
The growth of the electronics industry provides us with opportunities to grow
our business with products such as the Tytron micro-force testing system.
We also continued the integration of recent acquisitions and have begun to
realize improved margins from synergies between our electromechanical
operations. In 1994 we acquired Adamel-Lhomargy, the premier French manufacturer
of electromechanical (static) testing equipment. The acquisition expanded our
presence in Europe and provided us with an established line of accessories for
use with our existing product line worldwide. TestWorks(R) for Windows, our
industry-leading software for static applications, has been adapted for the
Adamel product line, enhancing the productivity, flexibility, and ease of use of
these systems. This two-way synergy is reducing the overall costs of product
development and will provide opportunities to expand the market for this
important product line.
We still have many opportunities to grow our market share in this niche.
[PHOTO]
Our Synergie(TM) testing systems provide a full range of low-force material
testing capabilities in a convenient, portable unit.
INDUSTRIAL MEASUREMENT AND AUTOMATION
Adding value by providing precise monitoring and control of industrial machines
and processes
MEASUREMENT
[PHOTO]
The Level Plus long gauge is easy to install and provides the unique ability to
cost-effectively measure three variables--two levels and temperature--with a
single gauge.
With manufacturing plants in Cary, North Carolina and Ludenscheid, Germany, and
a new joint venture in Yokohama, Japan, our sensors operations serve a worldwide
market.
In late 1996 we completely redesigned the basic elements of our
Temposonics(R) linear displacement sensors, the market-share leaders. The new
patented design features modular construction for unprecedented precision and
improved configurability and ruggedness. The new design is CE certified for
worldwide markets. New markets targeted by this innovation include metalforming,
auto motive, and mobile hydraulics. The full benefit of our new sensors will
begin to appear on our top and bottom lines by mid-1997.
[PHOTO]
Patented and CE-certified Temposonics linear displacement sensors have a modular
design that improves their performance and reduces manufacturing costs.
We currently command a small share of the liquid-level sensor market, but we
bring to the market a higher degree of perfor mance and reliability, and we
continue to acquire market share from older technologies. In late FY 1996, we
were selected as the primary supplier for the U.S. Navy's fuel depot
modernization project. Our sensors, chosen for their accurate measurement and
ease of installation, were installed on several tanks to provide inventory and
custody-transfer data. If successful in this initial project, we will be in a
position to supply Level Plus(R) gauges for the entire fuel modernization
project at Navy depots throughout the world.
AUTOMATION
Our Custom Servo Motors subsidiary provides high-performance, permanent magnet
brushless servo motors, amplifiers, and motion controllers to original equipment
manufacturers and end users to improve quality and reduce production costs.
Major markets for these products include the packaging, machine tool, and
factory automation industries. We expanded our product line in 1996 with several
product introductions.
[PHOTO]
Our servo motors, amplifiers, and controllers bring efficient new technologies
to the auto mation of industrial processes.
Our new MaxPlus(TM) 12-inch servo motor delivers up to 90 horsepower of
continuous torque. Operating at full torque at low speeds, the new 12-inch motor
performs extremely well on very large machines which were usually driven by less
efficient hydraulics. This larger motor opens new markets to us through new
applications. JM Systems Corporation, for example, uses two 12-inch motors as
the prime motors in the largest spring coiling machine ever to use electric
motors.
Our new line of 2- and 3-inch ServoFlex(TM) motors and amplifiers provides a
powerful, economical alternative to stepper motors and brush servo motors in
light duty applications. The ServoFlex motors yield higher performance than
stepper motors and require less maintenance than brush servo motors.
In 1996 we also announced a powerful new multi-axis controller, the XDC 720,
which can control up to 28 independent axis, making it ideal for complex
packaging operations. This controller has received CE certification, which
allows us to sell the product worldwide.
Just as this report was going to press, we completed the acquisition of a
majority interest in Bregenhorn-Butow, & Co., a German supplier of lower-power
motors and amplifiers. The acquired product lines complement our
high-performance motors manufactured in New Ulm, Minnesota. Through the combined
product line we will be able to rapidly launch our high-performance servo motor
products in Europe and distribute the lower-power motor products throughout our
established channels in North America.
[PHOTO]
By using 12-inch servo motors from our Custom Servo Motors subsidiary, JM
Systems Corporation eliminated less efficient hydraulic pumps and actuators.
SIX YEAR FINANCIAL SUMMARY
(SEPTEMBER 30)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
(dollars expressed in thousands, except per share data and number of employees)
OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ 261,029 $ 234,131 $200,550 $ 189,499 $161,013 $ 157,865
United States revenue 128,593 125,659 101,747 92,153 68,931 72,538
International revenue 132,436 108,472 98,803 97,346 92,082 85,327
Gross profit 106,104 91,638 79,840 78,882 61,919 69,902
Income before income taxes 20,006 14,031 12,629 14,937 6,452 14,350
Net income 14,109 10,461 8,659 10,382 4,915 10,080
Net income per share, fully diluted basis 1.48 1.15 .92 1.14 .54 1.12
Research and development costs 17,696 13,733 12,645 13,697 9,999 9,271
Net interest expense 1,123 2,424 1,860 1,207 704 1,061
Depreciation and amortization 7,820 7,217 6,214 5,648 5,789 5,755
FINANCIAL POSITION
- ----------------------------------------------------------------------------------------------------------------------------------
Current assets $ 130,382 $ 131,589 $123,206 $ 123,445 $100,929 $ 91,240
Current liabilities 60,834 67,014 66,361 66,961 50,717 44,183
Current ratio 2.1:1 2.0:1 1.9:1 1.8:1 2.0:1 2.1:1
Net working capital 69,548 64,575 56,845 56,484 50,212 47,057
Property and equipment, net 48,090 48,490 47,368 37,254 38,079 35,995
Total assets 187,396 189,500 175,708 165,716 144,650 135,627
Interest bearing debt 11,836 22,965 23,851 33,299 19,335 20,565
Shareholders' investment 112,814 106,677 100,046 93,011 84,992 80,739
Shareholders' investment per share 12.30 11.60 10.95 10.24 9.52 9.08
OTHER STATISTICS AND RATIOS
- ----------------------------------------------------------------------------------------------------------------------------------
Fully diluted shares outstanding(1) 9,553 9,090 9,336 9,144 9,190 8,954
Number of shareholders 1,523(2) 1,395 1,394 1,400 1,413 1,838
Number of employees 1,725 1,612 1,557 1,447 1,404 1,372
New orders $ 282,753 $ 245,919 $195,260 $ 178,786 $178,178 $ 169,237
Backlog of orders $ 120,481 $ 98,757 $ 84,591 $ 88,731 $ 99,221 $ 82,404
Gross profit percent 40.6% 39.1% 39.8 41.6% 38.5% 44.3%
Research and development costs
as a percent of net revenue 6.8% 5.9% 6.3% 7.2% 6.2% 5.9%
Net income as a percent of net revenue 5.4% 4.5% 4.3% 5.5% 3.1% 6.4%
Effective tax rate 29% 25% 31% 30% 24% 30%
Interest bearing debt to equity ratio 10% 22% 24% 36% 23% 25%
Return on average net assets(3) 17.2% 12.9% 11.6% 16.3% 7.6% 17.4%
Return on beginning
shareholders' investment per share 12.8% 10.5% 9.0% 11.9% 5.9% 13.7%
Cash dividends paid per share $ .32 $ .28 $ .28 $ .24 $ .24 $ .20
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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).
(2) On November 29, 1996, there were 1,523 common shareholders of record, with
another estimated 1,900 shareholders whose stock is held by nominees or
broker dealers.
(3) (Income before income taxes plus net interest expense) divided by (average
quarterly assets minus non-interest bearing liabilities).
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKLOG/NEW ORDERS
1996 1995 1994
- --------------------------------------------------------------
(expressed in thousands)
New Orders:
North America* $ 139,725 $ 137,775 $ 101,498
International 143,028 108,144 93,762
- --------------------------------------------------------------
Total $ 282,753 $ 245,919 $ 195,260
- --------------------------------------------------------------
Backlog $ 120,481 $ 98,757 $ 84,591
- --------------------------------------------------------------
*Includes U.S. and Canada
Record 1996 new orders of $282.8 million were up 15% from the prior year and
represented a 45% increase over 1994. New orders in 1996 included 56 orders with
unit values exceeding $500,000 compared to 67 orders in 1995 and 30 orders in
1994 in this category. These orders represented 39%, 31% and 26% of the new
order total for these three years.
In 1996, the Mechanical Test and Simulation sector (MT&S) new orders of
$234.6 million increased 17% from 1995 and represented a 48% increase over 1994.
The Industrial Measurement and Automation sector (M&A) new orders in 1996 of
$48.2 million increased 5% over the prior year and represented a 30% increase
over 1994.
North American new orders increased 1% in 1996, 36% in 1995 and 4% in 1994.
The M&A sector was strong in 1995 and 1994 but experienced a soft domestic
market for most of 1996. The ground vehicle niche of the MT&S sector
strengthened considerably in both 1996 and 1995 compared to order levels
achieved in 1994. The small but emerging biomechanics systems niche also
experienced strong growth in 1996.
International orders increased 32% in 1996, 15% in 1995 and 16% in 1994. The
1996 new order increase occurred in all three international areas (see table
below), whereas in 1995 the increase came principally from Europe. 1996 Asia
Pacific orders content included a $23.3 million earthquake simulator in Japan
which represented the largest single order received by the Company. Most of the
1994 increase occurred in Asia Pacific. See Geographic Analysis of New Orders
for the percentage breakdown by geographic area.
The backlog of undelivered orders at September 30, 1996, increased 22% from
1995, the result of record new orders received in 1996.
REVENUES
1996 1995 1994
- --------------------------------------------------------------
(expressed in thousands)
United States $ 128,593 $ 125,659 $ 101,747
International 132,436 108,472 98,803
- --------------------------------------------------------------
Total $ 261,029 $ 234,131 $ 200,550
- --------------------------------------------------------------
Record 1996 revenues of $261.0 million were up 11% from the prior year and
represented a 30% increase over 1994. For 1996, the Mechanical Test and
Simulation sector (MT&S) revenues of $212.8 million increased 12% from 1995 and
represented a 30% increase compared to 1994. The Industrial Measurement and
Automation sector (M&A) revenues in 1996 of $48.3 million increased 11% over the
prior year and represented a 31% increase compared to 1994. For geographic and
sector revenues and income information, see Note 2 of "Notes to Consoli dated
Financial Statements."
Revenues in the United States increased over the prior years: 2% in 1996,
24% in 1995 and 10% in 1994, reflecting strengthening markets for most of the
Company's business segments during 1995 and 1994 and a softer market in 1996.
The M&A sector revenue growth reflected rising demand from our European original
equipment manufacturers and a faster delivery response on new orders. The MT&S
sector revenue increase in 1996 reflected a continued strong automotive market,
strong aftermarket sales for accessories and services, and revenue recognized on
a portion of the large Japanese earthquake simulator in the fourth quarter.
International revenues increased 22% in 1996, 10% in 1995, and 2% in 1994.
The 1995 and 1994 growth rates were lower than those in the U.S. which reflected
the recessionary economies of Europe and Japan during these periods.
International revenues grew at a faster rate in 1996 reflecting a turnaround in
these economics in late 1995 which continued in 1996.
A significant portion of the Company's inter national 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 began strengthening in 1996, reducing dollar
values on translated foreign currency revenues by $5.5 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.
GEOGRAPHIC ANALYSIS OF NEW ORDERS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
North America 49% 57% 52% 55% 49% 46%
- ----------------------------------------------------------------------------------------------------------------
Europe/Africa/Middle East 22 25 21 20 25 35
- ----------------------------------------------------------------------------------------------------------------
Asia Pacific 26 17 26 23 25 18
- ----------------------------------------------------------------------------------------------------------------
Latin America/Rest of the World 3 1 1 2 1 1
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
GROSS PROFIT
1996 1995 1994
- -------------------------------------------------------------
(expressed in thousands)
Gross Profit $ 106,104 $ 91,638 $ 79,840
- -------------------------------------------------------------
% of Revenues 40.6% 39.1% 39.8%
- -------------------------------------------------------------
The gross profit percentage for 1996 increased to 40.6% from 39.1% in 1995, a
continuation of the improved gross profit margin which began in fourth quarter
of 1995. The lower gross profit percentage in 1995 was caused primarily by the
effect of a weak dollar on foreign currency denominated revenues of low-margin
projects in our Mechanical Testing and Simulation sector. The majority of these
low margin projects were shipped during the first half of 1995 after which point
our gross profit margin began to show improvement from revenues with higher
margin, operating efficiencies, and a more favorable business mix.
The 1994 gross profit percentage declined 1.8 percentage points from 1993,
principally caused by a higher-than-normal content of development costs in some
large custom projects resulting in much lower than expected gross profit
margins. Some of these projects also contributed to the 1995 decrease in the
gross profit percentage.
RESEARCH AND DEVELOPMENT
1996 1995 1994
- --------------------------------------------------------------
(expressed in thousands)
R & D Expense $ 17,696 $ 13,733 $ 12,645
- --------------------------------------------------------------
% of Revenues 6.8% 5.9% 6.3%
- --------------------------------------------------------------
The Company does not do basic research, but does fund product, system and
application developments (R&D) in both the Mechanical Testing and Simulation
(MT&S) and Industrial Measurement and Automation (M&A) sectors. The majority of
the development expenditures in all three years was for systems, software,
control products, new measurement products, servo motors and amplifiers,
electromechanical load frames and accessories.
The product development spending percentages reflected above are
representative of the ratio range the Company normally commits to in its annual
planning process with the 1996 percentage at the higher end of the range.
Accelerated development programs in both the MT&S and M&A sectors and a shift
from customer funded development caused the higher 1996 percentage.
The Company also undertakes "first of their kind" system level development
effort as part of custom projects sold to customers. The cost of these efforts
is reported as cost of sales. The combination of internally funded R&D and these
customer funded system innovations typically approximates 10% of revenues.
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES
1996 1995 1994
- --------------------------------------------------------------
(expressed in thousands)
Selling/Marketing $ 48,260 $ 45,088 $ 40,351
General &
Administrative 17,260 16,053 12,682
- --------------------------------------------------------------
Total $ 65,520 $ 61,141 $ 53,033
- --------------------------------------------------------------
% of Revenues 25.1% 26.1% 26.4%
- --------------------------------------------------------------
Selling/Marketing and General & Administrative (SG&A) expenses for 1996 as a
percentage of revenues were reduced 1.0 percentage point from 1995 and 1.3
percentage points from 1994. Full year spending for 1996 totaled $65.5 million
which represented a $4.4 million (7%) increase over 1995 and a $12.5 million
(24%) increase over 1994.
All three years were similar in that cost reduction was at the forefront of
the planning process as well as aligning existing resources or making new
investments in markets with the greatest potential. Operating expenses of newly
acquired companies represented $2.2 million of the expense increase in 1995 with
the majority of the remaining increase being attributable to investments by our
Industrial Measurement and Automation sector to support its strong growth rate,
higher translated European expenses caused by the weak dollar, and inflation.
The $4.4 million (7%) increase in SG&A expense in 1996 reflects the results of
cost reduction initiatives over the last two years which have resulted in a
lower SG&A cost as a percentage of revenues. The $5.2 million (11%) increase in
SG&A expense in 1994 from 1993 was principally related to the acquisition of
Adamel Lhomargy (France).
INCOME
1996 1995 1994
- --------------------------------------------------------------
(expressed in thousands except per share data)
Income Before
Income Taxes $ 20,006 $ 14,031 $ 12,629
- --------------------------------------------------------------
% of Revenues 7.7% 6.0% 6.3%
- --------------------------------------------------------------
Net Income $ 14,109 $ 10,461 $ 8,659
- --------------------------------------------------------------
% of Revenues 5.4% 4.5% 4.3%
- --------------------------------------------------------------
Effective Tax Rate 29.5% 25.4% 31.4%
- --------------------------------------------------------------
Return On Beginning
Equity Per Share 12.8% 10.5% 9.0%
- --------------------------------------------------------------
Net Income Per Share $ 1.48 $ 1.15 $ .92
- --------------------------------------------------------------
Income before income taxes (pretax income) in 1996 increased $6.0 million (43%)
from 1995 and reflected an improved return on revenue resulting from a 11%
increase in revenues, a 1.5% improvement in the gross profit percentage, and a
1.0% decrease in the Selling/Marketing and General & Administrative (SG&A)
percentage. For 1996, the Mechanical Testing and Simulation sector (MT&S) pretax
income of $15.3 million increased 59% compared to 1995 and was up 78% compared
to 1994. The Industrial Measurement and Automation sector (M&A) pretax income in
1996 of $4.7 million increased 5% over the prior year and was up 18% from 1994.
Pretax income in 1995 increased $1.4 million (11%) from 1994 principally
from higher revenues and improved gross profit margins in the fourth quarter.
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.
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 the tax
benefit of the Company's Foreign Sales Corporation and the Research and
Development (R&D) tax credits. The 1996 effective tax rate increased over 1995
as a result of having the reinstated R&D tax credit available only for the
fourth quarter of 1996. See Note 4 of "Notes to Consolidated Financial
Statements" for the reconcilia tion between the federal statutory and effective
income tax rates and other related tax information.
FOREIGN CURRENCIES EFFECTS
In 1996 the U.S. dollar strengthened in relation to the European and Japan
currencies which decreased translated foreign currency denominated revenues by
$5.5 million. 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.
In 1995, the U.S. dollar was generally weaker in relation to European
economies, specifically in relationship to the German Deutschemark, 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.
Throughout 1994, the dollar weakened against all major foreign currencies,
which increased translated foreign currency denominated revenues by $3.7
million.
The Company recorded foreign currency transaction gains of $104 thousand,
$1.4 million and $1.1 million, for the years 1996, 1995, and 1994, respectively.
The Company's foreign currency risk-management program focuses on foreign
currencies of countries where the Company operates (German Deutschemark, 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, 1996, there were open
currency hedge contracts, primarily denominated in Yen and Deutschemark, with
various settlement dates, totaling $28.4 million. Unrealized gains under these
contracts were $1.7 million as of September 30, 1996. These contracts are
targeted to limit transaction exposures where equipment and services costs are
incurred in U.S. dollars and the customer contracts are in a foreign currency.
LIQUIDITY AND CAPITAL RESOURCES
1996 1995 1994
- ---------------------------------------------------------------
(expressed in thousands except per share data)
Total Interest
Bearing Debt $ 11,836 $ 22,965 $ 23,851
% of Total
Capital 9.5% 17.7% 19.3%
- ---------------------------------------------------------------
Shareholders'
Investment $ 112,814 $ 106,677 $ 100,046
- ---------------------------------------------------------------
Per Share $ 12.30 $ 11.60 $ 10.95
- ---------------------------------------------------------------
FINANCIAL CONDITION
At September 30, 1996, the Company's capital structure was comprised of $3.1
million of current debt, $8.7 million long-term debt and $112.8 million
shareholders' equity. The ratio of total debt to total capital was 9.5%,
compared with 17.7% at September 30, 1995.
Total debt decreased $11.1 million during 1996 to $11.8 million. This
resulted from a $10.4 million reduction in notes payable to banks and a $2.7
million reduction in long-term debt offset by a $2.0 million increase in current
maturities of long-term debt.
Shareholders' equity increased $6.1 million in 1996 to $112.8 million.
Shareholders' investment per share in 1996 increased to $12.30 from $11.60 in
1995. The increase was primarily due to an increase in retained earnings of
$14.1 million from current year net earnings and $3.7 million from employee
stock option and purchase plans. These increases were offset by dividends of
$3.0 million, $7.9 million of treasury stock repurchases, and a $800 thousand
reduction in the cumulative translation adjustment.
CASH FLOWS
Operating activities generated cash of $36.1 million in 1996, $23.1 million in
1995 and $20.9 million in 1994. The cash generated in 1996 was largely from
earnings, depreciation and amortization, and a reduction in accounts receivable.
These funds supported $7.4 million of capital expenditures, $3.0 million of
dividend payments, $7.9 million of stock repurchases, and a repayment of $10.4
of notes payable to banks. Cash and cash equivalents increased $10.5
million during 1996.
Capital expenditures for property, plant and equipment totaled $7.4 million
in 1996, compared to $6.3 million in 1995, and $18.2 million in 1994. Capital
spending in 1994 included $11.3 million for a new facility for the Company's
Berlin, Germany operations. This amount was net of the sale of the existing
facility.
Capital spending in 1997 is planned to be about $8 million. The Company
anticipates that 1997 capital expenditures will be financed primarily with cash
balance and funds from operations.
DIVIDENDS
The Company's dividend policy is to maintain a payout ratio which allows
dividends to increase with the long-term growth of earnings per share, while
sustaining dividends in down years. The Company's dividend payout ratio target
is 33% of the average earnings per share of the last two years. In November,
1996, the Company's Board of Directors increased the quarterly dividend to 10
cents per share from 8 cents per share. Annualized, this dividend pay out
equates to 31% of the 1996 and 1995 average earnings per share.
SHARE REPURCHASE PLAN
In 1996, the Company repurchased 415,307 shares of common stock on the open
market for $7.9 million, at an average cost of $19.00 per share. The Company
repurchased 317,680 shares in 1995 for $3.6 million, and 80,078 shares in 1994
for $900 thousand. 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 773,904 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 500,000 shares of common stock in the open market within the Securities and
Exchange Commission guidelines. At the end of 1996, 153,955 shares remained
available to be repurchased under this authorization. In November, 1996, the
Company's Board of Directors authorized the repurchase of an additional 500,000
shares of common stock in the open market within the Securities and Exchange
Commission guidelines.
The above share amounts have been adjusted for the Company's two-for-one
stock split in the form of a 100% stock dividend effective April 1, 1996.
The Company believes that its 1997 anticipated cash flows from operations, a
forecast decrease in unbilled contract and retainage receivables, and its lines
of credit will adequately finance ongoing operations, allow for further
common-stock repurchase programs 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:
1996 1995
- -----------------------------------------------------------------
Shares Shares
High Low Traded High Low Traded
- -----------------------------------------------------------------
1st Quarter 17 3/4 13 7/8 2796 12 3/8 10 1/8 1117
2nd Quarter 19 3/8 14 2635 12 7/8 11 1309
3rd Quarter 22 1/2 17 1/2 1471 13 7/8 11 3/4 806
4th Quarter 21 1/2 18 1/2 1937 14 5/8 13 3/8 769
- -----------------------------------------------------------------
(1) Source: The Nasdaq Stock Market
The above prices and share volumes have been adjusted for the Company's
two-for-one stock split in the form of a 100% stock dividend, effective April 1,
1996
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 those fluctuations. (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. Manage ment 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, 1996, 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>
1996
Revenues $ 56,135 $ 67,082 $ 60,630 $ 77,182 $ 261,029
Gross margin 23,867 28,066 24,374 29,797 106,104
Pretax income 3,570 5,363 4,286 6,787 20,006
- -----------------------------------------------------------------------------------------------------
Net income $ 2,430 $ 3,632 $ 2,914 $ 5,133 $ 14,109
- -----------------------------------------------------------------------------------------------------
Income per share $ .26 $ .38 $ .30 $ .54 $ 1.48
- -----------------------------------------------------------------------------------------------------
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 $ .14 $ .17 $ .17 $ .67 $ 1.15
- -----------------------------------------------------------------------------------------------------
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 $ .26 $ .34 $ .10 $ .22 $ .92
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(SEPTEMBER 30)
ASSETS 1996 1995
- --------------------------------------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 19,231 $ 8,736
Accounts receivable, net of allowance for doubtful accounts of $1,742 and $1,824 53,717 65,106
Unbilled contracts and retainage receivable 16,418 19,668
Inventories 36,276 35,669
Prepaid expenses 4,740 2,410
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 130,382 131,589
- ---------------------------------------------------------------------------------------------------------------------
Property and Equipment:
Land 3,459 3,461
Buildings and improvements 38,644 38,574
Machinery and equipment 59,060 55,826
Accumulated depreciation (53,073) (49,371)
- ---------------------------------------------------------------------------------------------------------------------
Total property and equipment, net 48,090 48,490
- ---------------------------------------------------------------------------------------------------------------------
Other Assets 8,924 9,421
- ---------------------------------------------------------------------------------------------------------------------
$ 187,396 $ 189,500
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ---------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Notes payable to banks $ 56 $ 10,475
Current maturities of long-term debt 3,030 1,043
Accounts payable 11,604 11,768
Accrued compensation and benefits 23,664 20,194
Advance billings to customers 13,807 14,784
Other accrued liabilities 8,673 8,750
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 60,834 67,014
- ---------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes 4,998 4,362
Long-term Debt 8,750 11,447
- ---------------------------------------------------------------------------------------------------------------------
Shareholders' Investment:
Common stock, 25 (cents) par; 32,000,000 shares authorized:
9,173,518 and 4,598,311 shares issued and outstanding 2,293 1,150
Additional paid-in capital -- 255
Retained earnings 106,485 100,443
Cumulative translation adjustment 4,036 4,829
- ---------------------------------------------------------------------------------------------------------------------
Total shareholders' investment 112,814 106,677
- ---------------------------------------------------------------------------------------------------------------------
$ 187,396 $ 189,500
- ---------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
AND SHAREHOLDERS' INVESTMENT
(FOR THE YEARS ENDED SEPTEMBER 30)
INCOME 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
(expressed in thousands except for share data)
<S> <C> <C> <C>
Net Revenue $ 261,029 $ 234,131 $ 200,550
Cost of Revenue 154,925 142,493 120,710
- --------------------------------------------------------------------------------------------------------------
Gross Profit 106,104 91,638 79,840
- --------------------------------------------------------------------------------------------------------------
Operating Expenses:
Selling 48,260 45,088 40,351
General and administrative 17,260 16,053 12,682
Research and development 17,696 13,733 12,645
Interest expense 1,524 2,670 2,150
Interest income (401) (246) (290)
Other expense (income), net 1,759 309 (327)
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses 86,098 77,607 67,211
- --------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 20,006 14,031 12,629
Provision for Income Taxes 5,897 3,570 3,970
- --------------------------------------------------------------------------------------------------------------
Net Income $ 14,109 $ 10,461 $ 8,659
- --------------------------------------------------------------------------------------------------------------
Net Income Per Share $ 1.48 $ 1.15 $ .92
- --------------------------------------------------------------------------------------------------------------
Weighted Average Common Shares Outstanding 9,553 9,090 9,336
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' INVESTMENT
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------- Additional Cumulative
Shares Paid-In Retained Translation
Issued Amount Capital Earnings Adjustment
- --------------------------------------------------------------------------------------------------------------------------------
(dollars expressed in thousands)
<S> <C> <C> <C> <C> <C>
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, 28 (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, 28 (cents) per share -- -- -- (2,523) --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1995 4,598,311 1,150 255 100,443 4,829
- -------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 264,604 66 3,642 -- --
Translation adjustment -- -- -- -- (793)
Common stock purchased and retired (381,055) (95) (3,897) (3,904) --
Stock split, 2 for 1 4,691,658 1,172 -- (1,172) --
Net income -- -- -- 14,109 --
Cash dividends, 32 (cents) per share -- -- -- (2,991) --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 9,173,518 $2,293 $ -- $106,485 $4,036
- -------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(FOR THE YEARS ENDED SEPTEMBER 30)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
(expressed in thousands)
Operating Activities:
<S> <C> <C> <C>
Net income $ 14,109 $ 10,461 $ 8,659
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 7,820 7,217 6,214
Deferred income taxes 740 278 731
Gain from sale of land and building -- (418) (3,930)
Changes in operating assets and liabilities:
Accounts receivable, unbilled contracts, and retainage receivable 13,362 (2,625) 8,789
Inventories (1,071) 1,065 (10,143)
Prepaid expenses (2,380) 718 (1,085)
Advance billings to customers (455) 4,629 2,336
Other liabilities, net 3,969 1,749 9,339
- -----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 36,094 23,074 20,910
- -----------------------------------------------------------------------------------------------------------------
Investing Activities:
Property and equipment additions, net (7,437) (6,310) (6,901)
Plant purchases and new construction, net -- -- (11,277)
Proceeds from sale of land and building -- 671 6,131
Purchase of PowerTek, Inc. -- (4,687) --
Other assets (649) (405) (469)
- -----------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (8,086) (10,731) (12,516)
- -----------------------------------------------------------------------------------------------------------------
Financing Activities:
Net borrowings under notes payable to banks (10,386) (8,134) (11,595)
Proceeds from issuance of long-term debt 2,202 8,257 4,341
Repayments of long-term debt (2,169) (3,185) (2,194)
Cash dividends (2,991) (2,523) (2,558)
Proceeds from employee stock option and stock purchase plans 3,708 910 1,203
Payments to purchase and retire common stock (7,896) (3,611) (946)
- -----------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (17,532) (8,286) (11,749)
- -----------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 19 (240) 677
- -----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 10,495 3,817 (2,678)
Cash and Cash Equivalents at Beginning of Year 8,736 4,919 7,597
- -----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 19,231 $ 8,736 $ 4,919
- -----------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flows Information:
Cash paid during the year for:
Interest $ 1,458 $ 2,615 $ 2,069
Income taxes 6,677 3,317 3,715
- ------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
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 year. Income statement items are
translated at average exchange rates during the year. 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 (income), net" in the Consolidated Statements of Income. These
transac tions resulted in net exchange gains of $104,000 in 1996, $1,401,000 in
1995 and $1,058,000 in 1994.
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, 1996, there were open
hedge and options contracts, with various future settlement dates, totaling
$28,362,000. The net unrealized gain on such contracts was $1,707,000 at
September 30, 1996. Upon settlement, resultant gains or losses on such contracts
offset the impact of foreign currency rates on cash collected from accounts
receivable.
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
antici pated 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 such 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 these contracts appear in the
Consoli dated Balance Sheets as Unbilled Contracts and Retainage Receivable.
Amounts unbilled or retained at September 30, 1996 are expected to be invoiced
during fiscal 1997.
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 war ranty
claims.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make assumptions and estimates that
affect the reported amounts in the Consolidated Balance Sheets and Statements of
Income and the disclosures in the accompanying Notes to Consolidated Financial
Statements. Ultimate results could differ from reported amounts based upon those
assumptions and estimates.
The Company undertakes significant technological innovation on some of its
Long-term Contracts. These contracts involve performance risk which may result
in delayed delivery of product and/or in revenue and gross profit variation from
difficulties in estimating the ultimate cost of such contracts.
CASH EQUIVALENTS
Cash equivalents represent short-term investments which have an original
maturity of 90 days or less and 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 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:
1996 1995
- --------------------------------------------------------------
(expressed in thousands)
Customer projects in
various stages of
completion $ 12,832 $ 13,304
Components,
assemblies and parts 23,444 22,365
- --------------------------------------------------------------
Total $ 36,276 $ 35,669
- --------------------------------------------------------------
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: 3 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. The carrying value of such assets
less accumulated amortization was $6,872,000 and $7,275,000 in 1996 and 1995,
respectively. These assets are being amortized over various periods from 8 to 40
years.
ADOPTION OF STATEMENT NO. 121
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(the Statement), is effective for the Company's fiscal year ending September 30,
1997. The Company chose to adopt this Statement in 1996. Adoption of the
Statement had no impact on the Company's Consolidated Statements of Income or
Balance Sheets.
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 income by the weighted average
number of shares of common stock and common stock equivalents outstanding during
each period. Fully diluted and primary net income per share amounts are
approximately equivalent for the years presented. Weighted average common shares
and per share computations have been restated retroactively for the 2 for 1
stock split effective April 1, 1996.
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 Industrial
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 indus trial processes
and equipment. Financial information by sector follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C> <C>
Net Revenue
Mechanical Testing & Simulation $ 212,763 $ 190,464 $ 163,502
Measurement & Automation 48,266 43,946 37,276
Transfers within and between sectors -- (279) (228)
- ---------------------------------------------------------------------------------------------------
Total $ 261,029 $ 234,131 $ 200,550
- ---------------------------------------------------------------------------------------------------
Income Before Income Taxes
Mechanical Testing & Simulation $ 15,299 $ 9,550 $ 8,606
Measurement & Automation 4,707 4,481 4,023
- ---------------------------------------------------------------------------------------------------
Total $ 20,006 $ 14,031 $ 12,629
- ---------------------------------------------------------------------------------------------------
Identifiable Assets
Mechanical Testing & Simulation $ 165,110 $ 161,678 $ 152,763
Measurement & Automation 38,670 36,048 29,558
Eliminations between sectors (16,384) (8,226) (6,613)
- ---------------------------------------------------------------------------------------------------
Total $ 187,396 $ 189,500 $ 175,708
- ---------------------------------------------------------------------------------------------------
Other Sector Data
Mechanical Testing & Simulation:
Capital expenditures $ 6,198 $ 6,319 $ 16,464
Depreciation 5,706 5,456 4,917
Amortization 380 417 108
- ---------------------------------------------------------------------------------------------------
Measurement & Automation:
Capital expenditures $ 1,803 $ 1,243 $ 1,396
Depreciation 1,216 1,086 945
Amortization 518 258 244
- ---------------------------------------------------------------------------------------------------
</TABLE>
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, 1996
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, 1996
Net revenue $128,593 $ 54,392 $63,023 $15,021 $ -- $ 261,029
Transfers between
geographic areas 2,513 18,411 21,499 3 (42,426) --
- -------------------------------------------------------------------------------------------------------------------------------
Total $131,106 $ 72,803 $84,522 $15,024 $ (42,426) $ 261,029
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 10,690 $ 2,208 $ 3,876 $ 3,232 $ -- $ 20,006
- -------------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------------
Identifiable Assets
at September 30
1996 $174,507 $ 12,060 $42,098 $ 175 $ (41,444) $ 187,396
1995 164,341 12,895 51,708 311 (39,755) 189,500
1994 154,954 19,454 40,825 791 (40,316) 175,708
- -------------------------------------------------------------------------------------------------------------------------------
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.
</TABLE>
3. FINANCING:
Long-term debt as of September 30 follows:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C>
7.75% Mortgage, due in October 2015, collateralized by building $ 7,413 $ 8,085
6.69% Note, unsecured, due in April 1997 2,296 2,408
5.5% Note, unsecured, due in September 2000 2,064 --
9.5% Note, unsecured, due in August 1996 -- 1,611
8.3% Note, unsecured, due in September 1996 -- 313
Other 7 73
- -------------------------------------------------------------------------------------------------------------
Total 11,780 12,490
Less Current Maturities (3,030) (1,043)
- -------------------------------------------------------------------------------------------------------------
Total Long-Term Debt $ 8,750 $ 11,447
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities of long-term debt for the next five fiscal years are
as follows: 1997--$3,030,000; 1998--$741,000; 1999--$756,000; 2000--$635,000;
2001--$240,000 and $6,378,000 thereafter. The carrying value of the Company's
long-term debt at September 30, 1996, 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
$20,000,000. One credit agreement, for $5,000,000, permits the Company to issue
domestic and Euro-currency notes. The other credit agreement, for $15,000,000,
permits the Company to issue domestic notes, Euro-currency notes, and banker's
acceptances. As part of the same credit agreement, the bank has agreed to issue
term loans up to a maximum of $15,000,000 until September 30, 1997. This
agreement provides for repayment of these term loans through September 1999. 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, 1996, standby
letters of credit outstanding totaled $12,267,000.
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, 1996, tangible net worth exceeded the defined
minimum amount by $17,352,000 and the Company had $3,439,000 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, 1996.
Information on short-term borrowings for the years ended September 30
follows: 1996 1995 1994
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C> <C>
Balance outstanding at September 30 $ 56 $ 10,475 $ 17,007
Average balance outstanding 3,282 22,286 23,702
Maximum balance outstanding 11,223 26,642 30,302
Year-end interest rate 7.0% 7.0% 5.8%
Weighted-average interest rate 6.9% 6.5% 4.4%
- --------------------------------------------------------------------------------------------
4. INCOME TAXES:
The provision for income taxes for the years ended September 30 consisted of:
1996 1995 1994
- --------------------------------------------------------------------------------------------
(expressed in thousands)
Currently payable (receivable):
Federal $ 3,717 $ 3,211 $ 2,249
State 499 662 411
Foreign 1,830 (295) 1,203
Deferred (149) (8) 107
- --------------------------------------------------------------------------------------------
Total provision $ 5,897 $ 3,570 $3,970
- --------------------------------------------------------------------------------------------
</TABLE>
A reconciliation from the Federal statutory income tax rate to the Company's
effective rate for the years ended September 30 follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
Tax benefit of Foreign Sales Corporation (5) (7) (4)
Foreign provision in excess of U.S. tax rate 2 -- 5
State income taxes, net of Federal benefit 2 3 2
Research and development tax credits (3) (7) (4)
Other, net (2) 1 (3)
- -------------------------------------------------------------------------------------------
Effective rate 29% 25% 31%
- -------------------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C>
Accrued compensation and benefits $ 1,446 $1,444
Inventory reserves 1,586 860
Allowance for doubtful accounts 248 216
Other assets (20) 21
- ---------------------------------------------------------------------------------------------
Total deferred tax assets $ 3,260 $2,541
- ---------------------------------------------------------------------------------------------
Deferred Tax Liability:
1996 1995
- ---------------------------------------------------------------------------------------------
Property and equipment $ 4,998 $4,362
- ---------------------------------------------------------------------------------------------
Net deferred tax liability $ 1,738 $1,821
- ---------------------------------------------------------------------------------------------
</TABLE>
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, 1996, the Company
had awarded only 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 proportion ately 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 1996 and
1995, option holders exchanged 52,189 and 30,546 shares, respectively, of the
Company's stock in payment of options exercised. (All share and share price data
herein have been restated retroactively for the 2 for 1 stock split effective
April 1, 1996.)
Under the Plans, options for 983,068 shares are outstanding at $11.56 to
$19.50 per share, of which options for 463,465 shares were exercisable at
September 30, 1996. Another 345,601 options remain available for granting beyond
September 30, 1996. During 1996 and 1995, options for 394,335 and 88,314 shares
were exercised at prices of $6.50 to $15.88 and $6.50 to $13.38 per share,
respectively.
In January 1992 the Company's shareholders authorized an Employee Stock
Purchase Plan (the Purchase Plan), whereby 500,000 shares of the Company's
common stock were reserved for sale to employees until April 2002. Participants
in the 1996 and 1995 phases, all at dates specified in the Purchase Plan, were
issued 49,539 shares in 1996, and 30,786 shares in 1995. During fiscal 1996,
participants subscribed to purchase 45,000 shares at 85% of market price for
issuance in fiscal 1997.
Financial Accounting Standards Board (FASB) Statement No. 123, "Accounting
for Stock-Based Compensation" (the Statement) is effective for the Company's
fiscal year ending September 30, 1997. The Statement encourages, but does not
require, a fair value based method of accounting for employee stock options or
other similar equity instruments. The Company believes the effect of the
adoption of the new standard will have no impact on the Company's consolidated
results of operations or financial position as the Company intends to continue
to measure compensation costs under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and present pro forma disclosures of
net income and net income per share as if the fair value based method of
accounting had been applied.
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
up to the maximum profit sharing contribution allowed by federal law, so long as
the entire contribution calculation does not exceed pretax income. The
contributions for 1996, 1995, and 1994 were 4.3%, 4.3%, and 4.3% of participant
compensation, respectively. The provisions for profit sharing were $2,338,000 in
1996, $2,132,000 in 1995, and $2,281,000 in 1994, 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.
The expenses for these plans consist of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C> <C>
Service cost-benefit earned during the period $ 360 $ 395 $ 214
Interest cost on projected benefit obligation 261 278 195
Net amortization and deferral 5 40 (16)
- --------------------------------------------------------------------------------------------------------------
Net Periodic Pension Cost $ 626 $ 713 $ 393
- --------------------------------------------------------------------------------------------------------------
The status of the Company`s plans and the amounts recognized
in the consolidated financial statements are:
1996 1995
- --------------------------------------------------------------------------------------------------------------
(expressed in thousands)
Actuarial Present Value:
Accumulated benefit obligation:
Vested $3,135 $3,201
Nonvested 552 778
- --------------------------------------------------------------------------------------------------------------
Total 3,687 3,979
- --------------------------------------------------------------------------------------------------------------
Projected benefit obligation 4,532 4,968
Unrecognized net gain 822 409
Unrecognized net liability being amortized (631) (738)
Adjustment required to recognize minimum liability 86 118
- --------------------------------------------------------------------------------------------------------------
Accrued Pension Liability $4,809 $4,757
- --------------------------------------------------------------------------------------------------------------
Major assumptions at year-end are:
- --------------------------------------------------------------------------------------------------------------
Discount rate 3.5 to 7% 3.5 to 7%
Rate of increase in future compensation levels 3% 3%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
7. ACQUISITIONS:
In fiscal 1994 the Company purchased 100% of the stock of Adamel Lhomargy for
cash and assumption of debt. The transaction was accounted for by the purchase
method of accounting.
In fiscal 1995 the Company acquired three entities. The Company acquired the
stock of PowerTek, Inc. for an initial cash payment and a contingent future
payment. The transaction was accounted for by the purchase method of accounting.
PowerTek became a wholly owned subsidiary and conducts business as MTS-PowerTek,
Inc. The Company also 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.
These companies were absorbed into existing operating units of the Company.
Financial data for prior periods were not restated for the acquisitions by
pooling of interests as neither assets nor operations were material,
individually or in total, to the Company's 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, 1996
and 1995, and the related consolidated statements of income, shareholders'
investment, and cash flows for each of the three years in the period ended
September 30, 1996. These financial statements are the responsibility of the
Company's manage ment. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
November 22, 1996
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 accor d ance with generally accepted accounting
principles and include certain amounts based on man age ment'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 inde pendent 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
CORPORATE INFORMATION
BOARD OF DIRECTORS
E. Thomas Binger
General Partner,
Pittsburgh Pacific Co.
Charles A. Brickman
President,
Pinnacle Capital Corporation
Bobby I. Griffin
President,
Medtronic Pacing Business;
Executive Vice President,
Medtronic, Inc.
Russell A. Gullotti
Chairman, President,
Chief Executive Officer,
National Computer Systems
Thomas E. Holloran
Professor,
University of St. Thomas
Thomas E. Stelson, Ph.D
Independent Engineering
Consultant
Donald M. Sullivan
Chairman,
Chief Executive Officer,
President
MTS Systems Corporation
Linda Hall Whitman, Ph.D
President,
Chief Executive Officer,
Ceridian People Partners
CHAIRMAN EMERITUS
George N. Butzow
Founder
EXECUTIVE OFFICERS
Donald M. Sullivan
Chairman, Chief Executive
Officer, President
William G. Beduhn
Vice President
Marshall L. Carpenter
Vice President and
Chief Financial Officer
Mauro Togneri
Vice President
Keith D. Zell
Executive Vice President
CORPORATE OFFICERS
Barbara J. Carpenter
Assistant Corporate Secretary
Patrick Delaney
Secretary,
Partner, Lindquist & Vennum
Thomas J. Minneman
Treasurer
Werner Ongyert
Vice President/Europe
J. Howell Owens
Vice President
Richard S. White
Vice President/Asia Pacific
DIVISIONAL OFFICERS
William G. Anderson
Vice President
Steven M. Cohoon
Vice President
James M. Egerdal
Vice President
Kenneth E. Floren
Vice President
Joachim Hellwig
Vice President
Daniel T. Sparks
Vice President
REFERENCES
Bank Reference
First Bank National Association
Minneapolis, MN
Transfer Agent
Norwest Bank Minnesota, N.A.
South St. Paul, MN
Shareholder Assistance:
800-468-9716
General Counsel
Lindquist & Vennum PLLP
Minneapolis, MN
Patent Counsel
Westman, Champlin & Kelly
Minneapolis, MN
Auditors
Arthur Andersen LLP
Minneapolis, MN
NOTICE OF ANNUAL MEETING
The annual meeting of stockholders will be held at 4:00 p.m. (Central Standard
Time) on Tuesday, January 28, 1997 at the Company's Headquarters in Eden
Prairie, Minnesota
STOCKHOLDERS WHO CANNOT ATTEND THE MEETING ARE URGED TO EXERCISE THEIR RIGHT TO
VOTE BY PROXY. A PROXY CARD, A PROXY STATEMENT, AND A RETURN ENVELOPE ARE
ENCLOSED FOR THIS PURPOSE.
10-K REPORT
Copies of the Annual Report on Form 10-K, filed with the Securities and Exchange
Commission, are available on request without charge from Investor Relations,
MTSSystems Corporation, 14000 Technology Drive, Eden Prairie, Minnesota
55344-2290.
COMMON STOCK
MTS Systems Corporation's common stock publicly trades on The Nasdaq Stock
Market's National Market under the symbol "MTSC".
STOCK HELD IN
STREET NAME
The Company maintains a direct mailing list to insure that stockholders whose
stock is not held in their own names, and other interested persons, receive
annual reports and other information on a timely basis. If you would like your
name added to this list, please send your request to Barbara Carpenter,
Assistant Corporate Secretary, MTS Systems Corporation, 14000 Technology Drive,
Eden Prairie, Minnesota 55344-2290.
INVESTOR INQUIRIES
Security analysts, investment managers and others seeking information about
MTSSystems Corporation should contact Thomas J. Minneman, Treasurer, by mail at
the Company's headquarters or by telephone at 612-937-4647.
TRADEMARKS
MTS, Bionix, Level Plus, Temposonics, Flat-Trac, and TestWorks are registered
trademarks, and Aero-90, FlexTest, MaxPlus, ServoFlex, Synergie, and Tytron are
trademarks of MTS Systems Corporation. Microsoft and Windows are trademarks of
Microsoft Corporation.
[LOGO]
CORPORATE HEADQUARTERS
MTS Systems Corporation
14000 Technology Drive
Eden Prairie, Minnesota 55344-2290
Telephone: 612-937-4000
E-mail: [email protected]
Internet Address: www.mts.com
ISO 9001 Certified
DOMESTIC SUBSIDIARIES
Custom Servo Motors, Inc.
MTS-PowerTek, Inc.
INTERNATIONAL SUBSIDIARIES
MTS International Ltd.
(Barbados, West Indies)
MTS (Japan) Ltd.
MTS Systems (China) Inc.
MTS Systems France
MTS Systems GmbH (Berlin)
MTS Systems (Hong Kong) Inc.
MTS Systems Limited (London)
MTS Systems Norden AB (Sweden)
MTS Systems SRL (Italy)
MTS Sensors Technologie
GmbH and Co. KG (Germany)
MTS Sensors Technology K.K. (Japan)
MTS Testing Systems (Canada) Ltd.
MTS Korea, Inc.
MTS Adamel Lhomargy S.A.
MTS Holdings France, SARL
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 (Berlin) 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 Systems 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 and incorporated by reference in this Form 10-K and 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 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 19,231
<SECURITIES> 0
<RECEIVABLES> 70,135
<ALLOWANCES> 1,742
<INVENTORY> 36,276
<CURRENT-ASSETS> 130,382
<PP&E> 101,163
<DEPRECIATION> 53,073
<TOTAL-ASSETS> 187,396
<CURRENT-LIABILITIES> 60,834
<BONDS> 11,780
0
0
<COMMON> 2,293
<OTHER-SE> 110,521
<TOTAL-LIABILITY-AND-EQUITY> 187,396
<SALES> 261,029
<TOTAL-REVENUES> 261,029
<CGS> 154,925
<TOTAL-COSTS> 241,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 330
<INTEREST-EXPENSE> 1,524
<INCOME-PRETAX> 20,006
<INCOME-TAX> 5,897
<INCOME-CONTINUING> 20,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,109
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.48
</TABLE>
