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, 1997
Commission File Number 0-2382
-----------------------------
MTS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 612-937-4000
(State or other jurisdiction of (Telephone number of registrant
incorporation or organization) including area code)
41-0908057
(I.R.S. Employer
Identification No.)
14000 Technology Drive, Eden Prairie, Minnesota 55344
(Address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
_X_ Yes ___ No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.25 par value; 9,158,975 shares outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
December 31 September 30
1997 1997
ASSETS UNAUDITED AUDITED
(expressed in $ 000's)
Cash and cash equivalents $ 8,908 $ 10,285
Accounts receivable 62,773 62,023
Unbilled contracts and retainage receivable 35,105 32,653
Inventories-
Customer jobs-in-process 7,761 5,559
Components, assemblies and parts 39,672 38,032
Prepaid expenses 4,622 4,253
--------- ---------
Total current assets 158,841 152,805
--------- ---------
Land 2,442 2,453
Buildings and improvements 39,064 37,779
Machinery and equipment 70,788 68,071
Accumulated depreciation (59,308) (57,884)
--------- ---------
Total property and equipment 52,986 50,419
--------- ---------
Other assets 12,393 12,908
--------- ---------
$ 224,220 $ 216,132
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Notes payable to banks $ 14,534 $ 4,356
Current maturities of long-term debt 768 920
Accounts payable 13,735 17,771
Accrued compensation and benefits 20,314 25,487
Advance billings to customers 24,623 21,065
Other accrued liabilities 11,538 9,880
--------- ---------
Total current liabilities 85,512 79,479
Deferred income taxes 4,404 4,445
Long-term debt, less current maturities 7,347 7,589
--------- ---------
Common stock, $.25 par; 32,000,000 shares
authorized: 9,158,975 and 9,153,766
shares issued and outstanding 2,290 2,284
Additional paid-in capital 1,540 1,438
Retained earnings 122,380 119,167
Cumulative translation adjustment 747 1,730
--------- ---------
Total shareholders' investment 126,957 124,619
--------- ---------
$ 224,220 $ 216,132
========= =========
<PAGE>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
FOR THE 3 MONTHS ENDED
DECEMBER 31
1997 1996
--------- ---------
(expressed in 000's except
for per share amounts)
NET REVENUES $ 73,938 $ 66,841
COST OF REVENUES 43,699 39,750
--------- ---------
Gross profit 30,239 27,091
OPERATING EXPENSES:
Selling 12,346 12,703
General and administrative 5,201 4,523
Research and development 4,568 4,385
--------- ---------
INCOME FROM OPERATIONS 8,124 5,480
Interest expense 226 323
Interest income (108) (105)
Other (income) and expense, net 1,294 579
--------- ---------
INCOME BEFORE INCOME TAXES 6,712 4,683
PROVISION FOR INCOME TAXES 2,400 1,462
--------- ---------
NET INCOME $ 4,312 $ 3,221
========= =========
BASIC EARNINGS PER SHARE $ 0.47 $ 0.35
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,145 9,140
DILUTED EARNINGS PER SHARE $ 0.45 $ 0.34
WEIGHTED AVERAGE COMMON SHARES ASSUMING DILUTION 9,630 9,408
DIVIDENDS PER SHARE $ 0.12 $ 0.10
BACKLOG $ 166,900 $ 125,345
<PAGE>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 3 MONTHS ENDED
December 31
1997 1996
-------- --------
(expressed in $000's)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,312 $ 3,221
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,212 1,989
Deferred income taxes 5 --
Changes in operating assets and liabilities that provide or (use) cash:
Receivables, including accounts, unbilled
contracts and retainages (4,549) (1,916)
Inventories (4,046) (2,997)
Prepaid expenses (463) (904)
Advance billings to customers 3,732 (3,688)
Other, net (6,721) (6,141)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES (5,518) (10,436)
-------- --------
INVESTING ACTIVITIES
Property and equipment, net (4,834) (1,829)
Purchase of Bregenhorn-Butow & Co., net of cash acquired -- (6,793)
Other assets (42) (169)
-------- --------
NET CASH (USED) IN INVESTING ACTIVITIES (4,876) (8,791)
-------- --------
FINANCING ACTIVITIES
Net borrowings (payments) on notes payable 10,226 13,920
Proceeds from issuance of long-term debt -- --
Payments on long-term borrowings (215) (179)
Cash dividends (1,099) (915)
Proceeds from employee stock option
and stock purchase plans 294 161
Payments to purchase and retire common stock (186) (1,917)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 9,020 11,070
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3) (394)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS (1,377) (8,551)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,285 19,231
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,908 $ 10,680
======== ========
</TABLE>
<PAGE>
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 denominated currency
transactions and from foreign exchange hedge contracts 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 twelve 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 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, 1997 are
expected to be invoiced within twelve months.
OTHER FINANCIAL STATEMENT DISCLOSURES. The Notes to Consolidated
Financial Statements appearing in the Company's September 30, 1997 Annual Report
to Shareholders on pages 26 through 34 are incorporated herein by reference.
<PAGE>
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.
EARNINGS PER SHARE DATA. Statement of Financial Accounting Standards
No. 128, "Earnings per Share" requires all companies whose capital structure
includes convertible securities and options to provide dual presentation of
basic and diluted earnings per share. The standard becomes effective with the
quarter ended December 31, 1997. Prior year earnings per share have been
restated to conform with the new standard.
SUBSEQUENT EVENT. On December 3, 1997 the Company's Board of Directors
declared a two-for-one stock split to be effected in the form of a one hundred
percent stock dividend to shareholders of record on January 15, 1998. The
distribution of stock will occur on or about February 2, 1998. Earnings per
share and share data in the financial statements for the periods ended December
31, 1997 and 1996 have not been restated to reflect the split.
ACQUISITION. In December, 1996 the Company acquired a majority of the
stock of Bregenhorn-Butow & Co. of Freiburg, Germany (name subsequently changed
to Custom Servo Motors Antriebstechnik GmbH & Co. KG), a privately held supplier
of low power, electric servo motors and drives. The transaction involved cash
and debt and has been accounted for by the purchase method of accounting.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
New Orders and Backlog
New orders for the first quarter of fiscal 1998, ended December 31,
1997, were $69 million, the same as the comparable quarter in fiscal 1996.
Orders from international customers were 44% of the total for the first quarter
compared to 41% one year ago. Orders from Europe were strong, but Asian orders
were considerably below last year's level. The Company expects that Asian order
volumes for the remainder of the fiscal year will be lower than in prior years.
Recovering economies in central and eastern Europe have shown strength during
this quarter and offer prospects for order growth during the rest of the year.
Order activity in the Mechanical Testing and Simulation (MT&S) sector
was comparable with the prior year. Order activity in the Measurement and
Automation Group (MAG) sector increased 4% over the same period a year ago.
International customers accounted for 45% of MT&S sector orders compared to 42%
one year ago. International orders were 40% of the MAG total in fiscal 1998
compared to 38% one year ago.
The Backlog of undelivered orders at December 31, 1997 was $167
million, a decrease of 5% from record backlog at September 30, 1997 and an
increase of 33% over the backlog one year ago.
Results of Operations
Record revenues for the first quarter were $74 million, an 11% increase
from the same quarter one year ago. International revenue accounted for 46% and
51% of total revenue for the quarters ended in 1997 and 1996, respectively. MT&S
sector revenues increased 13% over the first quarter one year ago. MAG revenues
increased 3% over last year's first quarter. MT&S revenues accounted for 79 and
77% of total revenues for the quarters ended December 31, 1997 and 1996,
respectively.
Income before income taxes increased 43% to $6.7 million compared to
$4.7 million 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 40.9% and 40.5% for the periods ended December 31, 1997 and
1996, respectively. This small change in gross margin percents leveraged by
increased revenue contributed positively to income before income taxes for the
quarter ended in 1997. Total operating expenses for the quarter increased $1
million over the first quarter ended in 1996 and partially offset the increase
in gross margin, mentioned above. As a percent of sales, total operating
expenses were 32% compared to 34% for the 1997 and 1996 quarters,
<PAGE>
respectively.
Net income for the quarter was a record $4.3 million and represents a
32% increase over the comparable quarter one year ago. The effective tax rate
for the quarter ended December 31, 1997 was 36% compared to 31% for the quarter
ended in 1996 and 36% for the year ended September 30, 1997.
Financial Condition and Liquidity
The ratio of current assets to current liabilities at was 1.9 at both
December 31, 1997 and September 30, 1997. Cash and cash equivalents decreased
13% to $8.9 million at December 31 compared to $10.3 million at September 30,
1997. The Company's borrowing under its $60 million in credit lines was $14.5
million at December 31 compared to $4.3 million at September 30, 1997. The
increase in borrowing results from typical first quarter operating needs,
capital expenditures and cash requirements for compensation plans and tax
estimates.
Capital expenditures, net of retirements for the first quarter totaled
$4.8 million. The Company's total debt to equity ratio increased to 18% at
December 31 from 10% at September 30, 1997 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.
<PAGE>
PART II-------OTHER INFORMATION
ITEM 5. Other Information.
ANNUAL SHAREHOLDERS' MEETING. The Annual Meeting of Shareholders was
held on January 28, 1998 at the Company's headquarters in Eden Prairie,
Minnesota. With shareholders voting 91% 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 an
amendment to the Company's Amended and Restated Articles of Incorporation which
increases the number of authorized shares of Common Stock from 32,000,000 to
64,000,000 shares.
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, 1997.
<PAGE>
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 17, 1998
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,908
<SECURITIES> 0
<RECEIVABLES> 99,914
<ALLOWANCES> 2,036
<INVENTORY> 47,433
<CURRENT-ASSETS> 158,841
<PP&E> 112,294
<DEPRECIATION> 59,308
<TOTAL-ASSETS> 224,220
<CURRENT-LIABILITIES> 85,512
<BONDS> 8,115
0
0
<COMMON> 2,290
<OTHER-SE> 124,667
<TOTAL-LIABILITY-AND-EQUITY> 224,220
<SALES> 73,938
<TOTAL-REVENUES> 73,938
<CGS> 43,699
<TOTAL-COSTS> 22,115
<OTHER-EXPENSES> 1,186
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 226
<INCOME-PRETAX> 6,712
<INCOME-TAX> 2,400
<INCOME-CONTINUING> 6,712
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,312
<EPS-PRIMARY> .47
<EPS-DILUTED> .45
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