United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
or the Securities Exchange Act of 1934
For quarterly period ended December 31, 1996
Commission File Number 0-2382
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MTS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 612-937-4000 41-0908057
(State or other jurisdiction (Telephone number of (I.R.S. Employer
of incorporation or registrant including Identification No.)
organization) area code)
14000 Technology Drive, Eden Prairie, Minnesota 55344
(Address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
__X__ Yes _____ No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.25 par value; 9,092,766 shares outstanding.
PART I. FINANCIAL INFORMATION
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1996
December 31 September 30
1996 1996
ASSETS UNAUDITED AUDITED
- ------ ----------- ------------
(expressed in $ 000's)
Cash and cash equivalents $ 10,680 $ 19,231
Accounts receivable 54,576 53,717
Unbilled contracts and retainage receivable 18,793 16,418
Inventories-
Customer jobs-in-process 6,237 12,832
Components, assemblies and parts 34,204 23,444
Prepaid expenses 5,713 4,740
--------- ---------
Total current assets 130,203 130,382
Land 3,448 3,459
Buildings and improvements 38,714 38,644
Machinery and equipment 60,994 59,060
Accumulated depreciation (54,639) (53,073)
--------- ---------
Total property and equipment 48,517 48,090
Other assets 14,701 8,924
--------- ---------
$ 193,421 $ 187,396
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Notes payable to banks $ 14,616 $ 56
Current maturities of long-term debt 2,970 3,030
Accounts payable 11,881 11,604
Accrued compensation and benefits 20,371 23,664
Advance billings to customers 9,863 13,807
Other accrued liabilities 9,533 9,835
Accrued income taxes (2,355) (1,162)
--------- ---------
Total current liabilities 66,879 60,834
--------- ---------
Deferred income taxes 4,983 4,998
Long-term debt, less current maturities 8,558 8,750
--------- ---------
Common stock, $.25 par; 32,000,000 shares
authorized: 9,092,766 and 9,173,518
shares issued and outstanding 2,273 2,293
Additional paid-in capital -- --
Retained earnings 107,055 106,485
Cumulative translation adjustment 3,673 4,036
--------- ---------
Total shareholders' investment 113,001 112,814
--------- ---------
$ 193,421 $ 187,396
========= =========
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 3 MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
FOR THE 3 MONTHS ENDED
DECEMBER 31
1996 1995
--------- ---------
(expressed in 000's except
for per share amounts)
NET REVENUES $ 66,841 $ 56,135
COST OF REVENUES 39,750 32,268
--------- ---------
Gross profit 27,091 23,867
OPERATING EXPENSES:
Selling 12,703 11,337
General and administrative 4,523 3,703
Research and development 4,385 3,767
Interest expense 323 455
Interest income (105) (27)
Other (income) and expense, net 579 1,062
--------- ---------
Total operating expense 22,408 20,297
--------- ---------
INCOME BEFORE INCOME TAXES 4,683 3,570
PROVISION FOR INCOME TAXES 1,462 1,140
--------- ---------
NET INCOME $ 3,221 $ 2,430
========= =========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.34 $ 0.26
========= =========
DIVIDENDS PER SHARE $ 0.10 $ 0.08
========= =========
BACKLOG $ 125,345 $ 107,672
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,408 9,457
========= =========
<TABLE>
<CAPTION>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 3 MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
FOR THE 3 MONTHS ENDED
December 31
1996 1995
-------- --------
(expressed in $000's)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 3,221 $ 2,430
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,989 1,801
Deferred income taxes -- (11)
Changes in operating assets and liabilities:
Receivables, including accounts, unbilled
contracts and retainages (1,916) 7,086
Inventories (2,997) (3,323)
Prepaid expenses (904) (722)
Accrued income taxes (1,975) (1,695)
Advance billings to customers (3,688) 1,784
Other, net (4,166) (2,347)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES (10,436) 5,003
-------- --------
INVESTING ACTIVITIES
Property and equipment, net (1,829) (705)
Purchase of Bregenhorn-Butow & Co., net of cash acquired (6,793) --
Other assets (169) 25
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (8,791) (680)
-------- --------
FINANCING ACTIVITIES
Net borrowings (payments) on notes payable 13,920 (2,298)
Payments on long-term borrowings (179) (237)
Cash dividends (915) (750)
Proceeds from employee stock option
and stock purchase plans 161 1,719
Payments to purchase and retire common stock (1,917) --
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,070 (1,566)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (394) (168)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS (8,551) 2,589
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,231 8,736
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,680 $ 11,325
======== ========
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND TRANSLATION. The consolidated financial statements
include the accounts of MTS SYSTEMS CORPORATION (the Company) and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated.
All balance sheet accounts of foreign subsidiaries are translated at
the current exchange rate as of the end of the accounting period. Income
statement items are translated at average currency exchange rates. The resulting
translation adjustment is recorded as a separate component of shareholders'
investment. Gains and losses resulting from foreign currency transactions are
included in "Other (income) and expense, net" in the Consolidated Statements of
Income.
REVENUE RECOGNITION. Revenue is recognized upon shipment of equipment
when the customer's order can be manufactured, delivered and installed in less
than nine months. Revenue on contracts requiring longer delivery periods
(long-term contracts) and other customized orders which permit progress billings
is recognized using the percentage-of-completion method based on the cost
incurred to date relative to estimated total cost of the contract (cost-to-cost
method). The cumulative effects of revisions of estimated total contract costs
and revenues are recorded in the period in which the facts become known. When a
loss is anticipated on a contract, the amount thereof is provided currently.
LONG-TERM CONTRACTS. The Company enters into long-term contracts for
customized equipment sold to its customers. Under terms of certain contracts,
revenue recognized using the percent-of-completion method may not be invoiced
until completion of contractual milestones, upon shipment of the equipment, or
upon installation and acceptance by the customer. Unbilled amounts for such
contracts appear in the consolidated balance sheets as unbilled contracts and
retainage receivable. Amounts unbilled or retained at December 31, 1996 are
expected to be invoiced in fiscal 1997.
OTHER FINANCIAL STATEMENT DISCLOSURES. The Notes to Consolidated
Financial Statements appearing in the Company's September 30, 1996 Annual Report
to Shareholders on pages 25 through 31 are incorporated herein by reference.
MANAGEMENT'S INTERIM FINANCIAL STATEMENT REPRESENTATION. The unaudited
interim financial statements furnished herein reflect all adjustments which are,
in the opinion of management, necessary to fairly state the results of the
interim periods presented.
RESTATEMENT OF EPS AND SHARE DATA. Earnings per share (EPS) and
weighted average common shares computations have been restated retroactively for
the two-for-one stock split declared by the Company's Board of Directors at
their January, 1996 board meeting.
ACQUISITION. In December, 1996 the Company acquired a majority of the
stock of Bregenhorn-Butow & Co. (BB & Co.) of Freiburg, Germany. MTS has an
option to purchase the remaining interest in BB & Co. at a later date. The
transaction has been accounted for by the purchase method of accounting.
BB & Co. was a privately owned supplier of low power, electronic servo
motors and drives to the European manufacturing market with annual revenues of
approximately $8 million. The Company expects BB & Co.
to contribute positively to fiscal 1997 earnings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
New Orders and Backlog
New orders for the first quarter of fiscal 1997, ended December 31,
1996, were $69 million, a 6% increase over the comparable quarter in fiscal
1996. Orders from international customers were 41% of the total for the first
quarter compared to 47% one year ago. Orders from Europe were strong, but the
increase was offset partially by lower order volume in Asia. The Company expects
Asian order volumes for the remainder of the fiscal year to be consistent with
prior years.
Order activity in the Mechanical Testing and Simulation (MT&S) sector
was 2% ahead of the prior year. Order activity in the Measurement and Automation
Group (MAG) sector increased 32% over the same period a year ago. The BB & Co.
acquisition contributed nearly 24% of the increase in new orders. International
customers accounted for 42% of MT&S sector orders compared to 52% one year ago.
International orders were 38% of the MAG total in fiscal 1997 compared to 23%
one year ago.
The Backlog of undelivered orders at December 31, 1996 was $125
million, an increase of 4% from September 30, 1996 and an increase of 16% over
the backlog one year ago.
Results of Operations
Revenues for the first quarter were $67 million, a 19% increase from
the same quarter one year ago. International revenue accounted for 51% and 52%
of total revenue for the quarters ended in 1996 and 1995, respectively. MT&S
sector revenues increased 16% over the first quarter one year ago. MAG revenues
increased 30% over last year's first quarter. Nearly 17% of this increase is
attributable to the new acquisition. MT&S revenues accounted for 77 and 79% of
total revenues for the quarters ended December 31, 1996 and 1995, respectively.
Income before income taxes increased 33% to $4,683,000 compared to
$3,570,000 for the quarter ended a year ago. The increase in pretax earnings
results primarily from increased revenue in both sectors. Consolidated gross
margin percents were 41% and 43% for the periods ended December 31, 1996 and
1995, respectively. The gross margin percent for the first quarter of 1996 was
expected and the decline from the prior year was due to a change in the mix of
products sold.
Operating expenses comprised of selling , general and administrative,
and research and development increased approximately $2.8 million. A portion of
the increase relates to operating expenses of the new acquisition and the
remainder reflects continuing development of market presence and new products
and software in both sectors. Interest and other (income) expense, net decreased
$.7 million from the quarter ended in 1995 compared to the quarter ended in
1996.
Net income for the quarter increased 33% to $3,221,000 compared to the
comparable quarter one year ago. The effective tax rate for the quarter ended
December 31, 1996 was 31% compared to 32% for the quarter ended in 1995 and 29%
for the year ended September 30, 1996. The income tax provision in 1995
excluded any benefit from the Research and Development Tax Credit, which had
expired in June 1995. The reinstatement of the credit in July, 1996 was a
factor in the 29% effective rate for the year ended in September, 1996.
Financial Condition and Liquidity
The ratio of current assets to current liabilities at was 2.0 at both
December 31, 1996 and September 30, 1996. Cash and cash equivalents decreased
44% to $10.7 million at December 31 compared to $19.2 million at September 30,
1996. The Company's borrowing under its $60 million in credit lines was $14.6
million at December 31 compared to $56,000 at September 30, 1996. The increase
in borrowing results from the acquisition of BB & Co., common stock repurchase
activity and typical first quarter cash requirements for compensation plans and
tax estimates.
Capital expenditures, net of retirements for the first quarter totaled
$1.8 million. The Company's total debt to equity ratio increased to 23% at
December 31 from 10% at September 30, 1996 reflecting the borrowing needs
discussed above.
The Company's past financial performance, the availability of credit
under its borrowing facilities, available cash and cash equivalents provide
sufficient resources for growth, expansion and diversification.
PART II-------OTHER INFORMATION
ITEM 5. Other Information.
ANNUAL SHAREHOLDERS' MEETING. The Annual Meeting of Shareholders was
held on January 28, 1997 at the Company's headquarters in Eden Prairie,
Minnesota. With shareholders voting 96% of the outstanding shares, actions
passed to re-elect the Board of Directors, ratify the appointment of Arthur
Andersen LLP as the Company's independent public auditors, and approve the 1997
Stock Option Plan.
FORWARD LOOKING STATEMENTS. In this report the Company makes 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 upon many factors, some beyond our control, including factors related
to Company competitive performance, industry conditions and international
economic trends.
ITEM 6. Exhibits and Reports on Form 8-K.
The following are submitted as part of this report.
(a) Exhibit
27. Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the quarter ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MTS SYSTEMS CORPORATION
/s/ D.M. Sullivan
-------------------------------------
D.M. Sullivan
Chairman, President and
Chief Executive Officer
/s/ M.L. Carpenter
-------------------------------------
M.L. Carpenter
Vice President
Chief Financial Officer
Dated: February 13, 1997
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,680
<SECURITIES> 0
<RECEIVABLES> 73,369
<ALLOWANCES> 1,531
<INVENTORY> 40,441
<CURRENT-ASSETS> 130,203
<PP&E> 103,156
<DEPRECIATION> 54,639
<TOTAL-ASSETS> 193,421
<CURRENT-LIABILITIES> 66,879
<BONDS> 11,528
0
0
<COMMON> 2,273
<OTHER-SE> 110,728
<TOTAL-LIABILITY-AND-EQUITY> 193,421
<SALES> 66,841
<TOTAL-REVENUES> 66,841
<CGS> 39,750
<TOTAL-COSTS> 62,158
<OTHER-EXPENSES> 579
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 323
<INCOME-PRETAX> 4,683
<INCOME-TAX> 1,462
<INCOME-CONTINUING> 4,683
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,221
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
