--------------------------------------------------------------------------------
United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period ended June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
----------------------
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.)
14000 Technology Drive, Eden Prairie, Minnesota 55344
(Address of principal executive offices) (Zip Code)
Registrants telephone number: (952)-937-4000
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
The number of shares outstanding of the Registrant's common stock as of
July 28, 2000 was 20,842,956 shares.
--------------------------------------------------------------------------------
<PAGE>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
THIRD QUARTER REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2000
TABLE OF CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2000 and September 30, 1999 2
Consolidated Statements of Income
Three and nine months ended June 30, 2000
and 1999 3
Consolidated Statements of Cash Flows
Nine months ended June 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-11
Item 3. Quantitative and Qualitative Disclosures About
Market Risks 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
1
<PAGE>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(expressed in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 9,116 $ 18,083
Accounts receivable 95,334 98,307
Unbilled contracts and retainage receivable 32,062 42,332
Inventories-
Customer jobs-in-process 5,648 3,625
Components, assemblies and parts 59,553 53,323
Prepaid expenses 10,519 7,981
------------ ------------
Total current assets 212,232 223,651
------------ ------------
Property and Equipment:
Land 3,247 3,247
Buildings and improvements 44,263 42,332
Machinery and equipment 107,133 101,140
Accumulated depreciation (80,913) (73,086)
------------ ------------
Total property and equipment, net 73,730 73,633
------------ ------------
Other assets 32,088 36,063
------------ ------------
Total assets $ 318,050 $ 333,347
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable to banks $ 7,758 $ 10,071
Current maturities of long-term debt 859 1,308
Accounts payable 16,515 21,062
Accrued compensation and benefits 28,089 28,662
Advance billings to customers 23,347 25,943
Other accrued liabilities 17,862 17,667
------------ ------------
Total current liabilities 94,430 104,713
Deferred income taxes 5,326 5,517
Long-term debt, less current maturities 61,807 60,258
------------ ------------
Commitments and contingencies
Shareholders' Investment:
Common stock, $.25 par; 64,000,000 shares
authorized: 20,849,183 and 20,883,639
shares issued and outstanding 5,212 5,221
Additional paid-in capital 7,693 8,122
Retained earnings 142,885 147,615
Accumulated other comprehensive income 697 1,901
------------ ------------
Total shareholders' investment 156,487 162,859
------------ ------------
Total liabilities and shareholders' investment $ 318,050 $ 333,347
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
2
<PAGE>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(expressed in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
JUNE 30 JUNE 30
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUE $ 94,989 $ 95,363 $ 277,494 $ 284,767
COST OF REVENUE 60,192 57,783 185,441 173,048
------------ ------------ ------------ ------------
Gross profit 34,797 37,580 92,053 111,719
OPERATING EXPENSES:
Selling 14,988 15,357 45,482 46,087
General and administrative 7,375 7,908 22,703 22,711
Research and development 5,901 7,035 19,264 20,660
Restructuring -- -- -- 2,596
Acquisition -- 1,391 -- 1,391
------------ ------------ ------------ ------------
Total operating expenses 28,264 31,691 87,449 93,445
INCOME FROM OPERATIONS 6,533 5,889 4,604 18,274
Interest expense 1,739 1,032 4,744 3,429
Interest income (851) (74) (1,130) (246)
Other (income) and expense, net (186) (3,338) 2,168 (3,566)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 5,831 8,269 (1,178) 18,657
PROVISION (BENEFIT) FOR INCOME TAXES 2,134 2,976 (206) 6,492
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 3,697 $ 5,293 $ (972) $ 12,165
============ ============ ============ ============
BASIC NET INCOME (LOSS) PER SHARE $ 0.18 $ 0.25 $ (0.05) $ 0.59
BASIC - COMMON SHARES OUTSTANDING 20,855 20,813 20,857 20,728
DILUTED NET INCOME (LOSS) PER SHARE $ 0.18 $ 0.25 $ (0.05) $ 0.57
DILUTED - COMMON SHARES OUTSTANDING 20,928 21,209 20,857 21,176
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(expressed in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
JUNE 30
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (972) $ 12,165
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 11,137 10,189
Deferred income taxes 21 (118)
Changes in operating assets and liabilities:
Accounts receivable, unbilled
contracts and retainage receivable 10,263 7,463
Inventories (8,985) (7,590)
Prepaid expenses (2,802) (2,939)
Advance billings to customers (1,886) (1,236)
Other liabilities, net (3,114) 3,325
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,662 21,259
------------ ------------
INVESTING ACTIVITIES
Purchases of property and equipment, net (9,825) (12,716)
Other assets 1,025 675
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (8,800) (12,041)
------------ ------------
FINANCING ACTIVITIES
Net payments on notes payable to banks (2,349) (19,585)
Proceeds from issuance of long-term debt 2,358 16,115
Repayments of long-term debt (598) (648)
Cash dividends (3,758) (3,360)
Payments to purchase and retire common stock (1,503) (85)
Proceeds from exercise of stock option and stock purchase plans 1,066 2,198
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (4,784) (5,365)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 955 710
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,967) 4,563
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,083 12,589
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,116 $ 17,152
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
4
<PAGE>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Consolidation
The consolidated financial statements include the accounts of MTS SYSTEMS
CORPORATION and its wholly owned subsidiaries (the Company). All significant
intercompany balances and transactions have been eliminated.
The interim consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments necessary for the fair presentation of such consolidated financial
statements have been reflected in the interim periods presented. The significant
accounting policies and certain financial information that is normally included
in financial statements prepared in accordance with generally accepted
accounting principles, but which are not required for interim reporting
purposes, have been condensed or omitted. The accompanying consolidated
financial statements of the Company should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended September 30, 1999.
Reclassifications
Certain amounts included in the consolidated financial statements have been
reclassified in prior years to conform with the third quarter of fiscal 2000
financial statement presentation. These reclassifications had no effect on the
previously reported shareholders' investment or net income.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000. The Company anticipates that the effect of
adopting SFAS No. 133 will not have a material impact on the Company's financial
statements.
5
<PAGE>
2. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the year.
Diluted net income (loss) per share includes the dilutive effect of potential
common shares. All stock options outstanding during the nine month period ended
June 30, 2000 were anti-dilutive due to the year-to-date net loss. A
reconciliation of the weighted average common shares used in the computation of
basic and diluted net income (loss) per share is as follows:
Three Months Ended Nine Months Ended
JUNE 30 June 30 JUNE 30 June 30
2000 1999 2000 1999
-------------------------------------------------------------------------------
Basic - common shares
outstanding 20,855 20,813 20,857 20,728
Dilutive potential
common shares 73 396 -- 448
-------------------------------------------------------------------------------
Diluted - common shares
outstanding 20,928 21,209 20,857 21,176
-------------------------------------------------------------------------------
Basic net income (loss)
per share $ 0.18 $ 0.25 $ (0.05) $ 0.59
Diluted net income (loss)
per share $ 0.18 $ 0.25 $ (0.05) $ 0.57
-------------------------------------------------------------------------------
3. RESTRUCTURING CHARGES
In the first quarter of fiscal 1999, the Company took a series of actions to
better align its organizational structure with market elements, improve
operational performance and reduce costs. These actions resulted in a
restructuring charge during the first quarter of fiscal year 1999 of $2.1
million ($1.4 million after tax, or $.07 per share). This charge relates
principally to costs associated with a workforce reduction. Also in the first
quarter of fiscal 1999, DSP Technology, Inc. announced its strategic decision to
relocate its corporate headquarters and consolidate its Transportation Group
operations in Ann Arbor, Michigan from Fremont, California. This decision
resulted in a restructuring charge of $0.5 million ($0.3 million after tax or
$.01 per share). This charge relates to employee severance cost of $0.3 million
and $0.2 million in idle facility and winding down costs. All of the
restructuring charges taken in the first quarter of fiscal 1999 have been paid.
In the fourth quarter of fiscal 1999, the Company identified actions necessary
to rationalize certain of its business capacity. These actions resulted in a
restructuring charge during the fourth quarter of fiscal 1999 of $3.1 million
($2.1 million after tax, or $.10 per share). This charge relates to employee
severance costs of $2.8 million and $0.3 million of other costs. Of the total
restructuring charges taken in the fourth quarter of fiscal 1999, $1.2 million
has been paid for severance related costs.
4. COMPREHENSIVE INCOME
For the Company, comprehensive income represents net income adjusted for foreign
currency translation adjustments and unrealized loss on investment.
Comprehensive income (loss) was $3.3 million and $4.6 million for the three
months ended June 30, 2000 and 1999, respectively and ($2.2) million and $10.7
million for the nine-month period ended June 30, 2000 and 1999.
6
<PAGE>
5. BUSINESS SEGMENT INFORMATION
The Company evaluated its business activities that are regularly reviewed by the
Chief Executive Officer for which discrete financial information is available.
As a result of this evaluation, the Company has determined that it has five
operating segments: Vehicle Testing Systems, Material Testing Systems, Advanced
Systems, Automation and Sensors. The Vehicle Testing Systems business
manufactures and markets systems for vehicle and component manufacturers to aid
in the acceleration of design development work and decrease the cost to
manufacture their products. The Material Testing Systems business manufactures
and markets systems to aid their customers in product development and quality
control to improve the design and manufacture of materials and products. The
Advanced Systems business offers highly customized systems for simulation and
testing. The Automation business manufactures and markets high performance
products for challenging factory automation applications in a wide range of
industries. The Sensors business manufactures and markets displacement and
liquid level sensors used in various applications to monitor and automate
industrial processes. The economic characteristics, nature of products and
services, production processes, type or class of customer, method of
distribution and regulatory environments are similar for the Vehicle Testing
Systems, Material Testing Systems and Advanced Systems business segments. As a
result of these similarities, these segments have been aggregated into one
reportable segment called Mechanical Testing and Simulation (MT&S) for financial
statement purposes. Also, the economic characteristics, nature of products and
services, production processes, type or class of customer, method of
distribution and regulatory environments are similar for the Automation and
Sensors business segments. As a result, these segments have been aggregated into
one reportable segment called Factory Automation (FA).
The accounting policies of the business segments are the same as those described
in Note 1. In evaluating the segment performance, management focuses on income
(loss) from operations. This measurement excludes special charges (e.g.
restructuring charges, acquisition expenses, etc.), interest expense, interest
income, income tax expense and other non-operating income or expense. Corporate
expenses are allocated to segments primarily on the basis of revenue. This
allocation includes expenses for various support functions such as human
resources, information technology and finance. Financial information by
reportable segment follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------------ -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(expressed in thousands)
<S> <C> <C> <C> <C>
NET REVENUE BY SEGMENT:
Mechanical Testing and Simulation $ 71,486 $ 77,351 $ 211,890 $ 227,792
Factory Automation 23,503 18,012 65,604 56,975
---------- ---------- ---------- ----------
Total Net Revenue 94,989 95,363 277,494 284,767
INCOME (LOSS) FROM OPERATIONS BY SEGMENT:
Mechanical Testing and Simulation:
Before Restructuring & Acquisition Expenses 3,348 6,301 (3,321) 17,621
Restructuring & Acquisition Expenses -- (1,391) -- (3,786)
---------- ---------- ---------- ----------
Total Mechanical Testing and Simulation 3,348 4,910 (3,321) 13,835
Factory Automation:
Before Restructuring 3,185 979 7,925 4,640
Restructuring -- -- -- (201)
---------- ---------- ---------- ----------
Total Factory Automation 3,185 979 7,925 4,439
Total Income from Operations $ 6,533 $ 5,889 $ 4,604 $ 18,274
========== ========== ========== ==========
</TABLE>
7
<PAGE>
MTS SYSTEMS CORPORATION AND SUBSIDIARIES (UNAUDITED)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NEW ORDERS AND BACKLOG
THREE MONTHS ENDED 6/30/00 COMPARED TO THREE MONTHS ENDED 6/30/99
New orders for the third quarter of fiscal 2000 increased to $100.3 million
compared to $77.4 million, a 29.6% increase, when compared to the same period
one year ago.
Orders for the Mechanical Testing and Simulation (MT&S) segment increased 39.9%
to $77.8 million from $55.6 million for the prior year. The MT&S segment
accounted for 77.6% of total orders compared to 71.8% one year ago. Orders for
the Factory Automation segment (FA) increased 3.2% to $22.5 million from $21.8
million one year ago. The FA segment accounted for 22.4% of total orders
compared to 28.2% one year ago.
NINE MONTHS ENDED 6/30/00 COMPARED TO NINE MONTHS ENDED 6/30/99
New orders for the first nine-months of fiscal 2000 increased to $304.8 million
compared to $251.9 million, a 21.0% increase, when compared to the same period
one year ago.
Orders for the Mechanical Testing and Simulation (MT&S) segment increased 18.0%
to $231.3 million from $196.1 million for the prior year. The MT&S segment
accounted for 75.9% of total orders compared to 77.8% one year ago. Orders for
the Factory Automation segment (FA) increased 31.7% to $73.5 million from $55.8
million one year ago. The FA segment accounted for 24.1% of total orders
compared to 22.2% one year ago.
Backlog of undelivered orders at June 30, 2000 was $170.1 million, an increase
of 15.9% from September 30, 1999 and an increase of 10.2% from the backlog at
June 30, 1999. The backlog amount at June 30, 2000 was adjusted by $4.0 million
for the cancellation of an order related to the contract dispute over an
amusement park ride system that was settled during the quarter.
RESULTS OF OPERATIONS
THREE MONTHS ENDED 6/30/00 COMPARED TO THREE MONTHS ENDED 6/30/99
NET REVENUE for the third quarter of fiscal 2000 was $95.0 million, a decrease
of $0.4 million compared to the same three months of fiscal 1999. International
revenue represented 50.5% of total revenues compared to 47.3% for the third
quarter ended June 30, 1999. Net revenues were impacted by the increased
business activity in the factory automation segment offset by lower revenues in
our MT&S segment.
GROSS PROFIT for the third quarter of fiscal 2000 decreased 7.4% to $34.8
million compared to $37.6 million for the same period one year ago. Gross profit
as a percentage of revenue decreased to 36.6% from 39.4% for the three-month
periods ended June 30, 2000 and 1999, respectively. The decrease in margin
percentage continues to be a result of lower margin project activity in fiscal
2000.
SELLING EXPENSES decreased by 2.6% to $15.0 million compared to $15.4 million
for the three months ended June 30, 2000 and 1999 respectively. Selling expense
as a percentage of revenue decreased to 15.8% compared to 16.1% for the same
period one year ago.
8
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES decreased by 6.3% to $7.4 million compared
to $7.9 million for the three months ended June 30, 2000 and 1999 respectively.
General and administrative expense as a percentage of revenue decreased to 7.8%
compared to 8.3% for the same period one year ago. The reduction in expenses is
a direct result of actions taken earlier this year to reduce operating expenses.
RESEARCH AND DEVELOPMENT EXPENSES decreased by 15.7% to $5.9 million compared to
$7.0 million for the three months ended June 30, 2000 and 1999 respectively.
Research and development expense as a percentage of revenue decreased to 6.2%
compared to 7.4% for the same period one year ago. The reduction in expenses is
due to the completion of several research and development programs from fiscal
year 1999.
ACQUISITION EXPENSES were $1.4 million for the three-month period ended June 30,
1999. The expense consisted of such items as professional fees, filing fees, and
other transaction related expenses for the acquisition of DSP Technology, Inc.
INTEREST (INCOME) AND EXPENSE decreased to $0.9 million compared to $1.0 million
for the three months ended June 30, 2000 and 1999 respectively. Interest expense
increased mainly due to higher average long-term balances and higher interest
rates during the third quarter of fiscal 2000 as compared to the same period
one-year ago. Net interest expense as a percentage of revenue decreased to 0.9%
from 1.0% for the same period one year ago. Interest income was higher in fiscal
2000 due to the receipt of interest related to Federal tax adjustments from
prior years.
OTHER (INCOME) AND EXPENSE, which includes gains and losses from foreign
currency translations, decreased to ($0.2) million from ($3.3) million for the
three months ended June 30, 2000 and 1999 respectively. The primary difference
was due to currency gains of $1.5 million and net life insurance proceeds of
$1.4 million in the same period one year ago.
NET INCOME (LOSS) decreased 30.2% to $3.7 million compared to $5.3 million for
the three months ended June 30, 2000 and 1999 respectively. Net income as a
percentage of revenue decreased to 3.9% from 5.6% for the same period one year
ago. The effective tax rate for the third quarter of fiscal 2000 increased to
36.6% from 36.0% for the same period one year ago.
NINE MONTHS ENDED 6/30/00 COMPARED TO NINE MONTHS ENDED 6/30/99
NET REVENUE for the first nine months of fiscal 2000 was $277.5 million, a
decrease of $7.3 million or 2.6% over the first nine months of fiscal 1999.
International content of revenue was 48.6% of total revenues compared to 46.2%
for the nine-month periods ended June 30, 2000 and 1999 respectively.
GROSS PROFIT for the first nine months of fiscal 2000 decreased 17.5% to $92.1
million compared to $111.7 million for the same period one year ago. Gross
profit as a percentage of revenue was 33.2% compared to 39.2% for the nine-month
periods ended June 30, 2000 and 1999 respectively. The significant decrease in
margins was result of technical and scheduling issues related to two large
fixed-fee custom projects and continuing lower margin project activity.
SELLING EXPENSES decreased by 1.3% to $45.5 million compared to $46.1 million
for the nine months ended June 30, 2000 and 1999 respectively. Selling expense
as a percentage of revenue increased slightly to 16.4% compared to 16.2% for the
same period one year ago.
GENERAL AND ADMINISTRATIVE EXPENSES were $22.7 million for the nine months ended
June 30, 2000 and 1999. General and administrative expense as a percentage of
revenue increased slightly to 8.2% compared to 8.0% for the same period one year
ago.
RESEARCH AND DEVELOPMENT EXPENSES decreased by 6.8% to $19.3 million compared to
$20.7 million for the nine months ended June 30, 2000 and 1999 respectively.
Research and development expense as a percentage of revenue decreased to 6.9%
compared to 7.3% for the same period one year ago.
9
<PAGE>
INTEREST (INCOME) AND EXPENSE increased to $3.6 million compared to $3.2 million
for the nine months ended June 30, 2000 and 1999 respectively. Net interest
expense as a percentage of revenue increased to 1.3% from 1.1% for the same
period one year ago. Interest expense increased due to higher average long-term
balances outstanding and higher interest rates in the first nine months of
fiscal 2000 as compared to the same period one year ago.
OTHER (INCOME) AND EXPENSE increased to $2.2 million from ($3.6) million for the
nine months ended June 30, 2000 and 1999 respectively. The increase is due to
currency losses of $1.2 million recognized in the first nine months of fiscal
year 2000 as compared to currency gains of $1.5 million in the same period one
year ago. In addition, net life insurance proceeds of $1.4 million were received
in fiscal 1999.
NET INCOME (LOSS) was ($1.0) million compared to $12.2 million for the nine
months ended June 30, 2000 and 1999 respectively. Net income as a percentage of
revenue decreased to (.4%) from 4.3% for the same period one year ago. The
effective tax rate for the first half of fiscal 2000 was 17.5% compared to 34.8%
for first nine months of fiscal 1999. See also Note 3 of Notes to Consolidated
Financial Statements regarding discussion on restructuring charges and the
quarterly discussion on acquisition expenses.
CAPITAL RESOURCES AND LIQUIDITY
CASH FLOWS FROM OPERATING ACTIVITIES provided $3.7 million in the first nine
months of 2000 as compared to $21.3 million for the same period in 1999. The
decrease in cash from operating activities in fiscal 2000 as compared to the
same period in fiscal 1999 was a direct result of a $1.0 million net loss
coupled with the reduction of other liabilities of $3.1 million.
CASH FLOWS FROM INVESTING ACTIVITIES required cash totaling $8.8 million in the
first nine months of 2000 compared to $12.0 million in 1999. The majority of the
cash outflows during the first nine months of 2000 and 1999 related to net
additions to property, plant and equipment. The Company expects future
expenditures for property, plant and equipment to be funded with internally
generated funds. Capital expenditures were budgeted for fiscal 2000 at
approximately $18.0 million, however the Company expects to end the year
significantly below these levels.
CASH FLOWS FROM FINANCING ACTIVITIES used $4.8 million in the first nine months
of 2000 compared to $5.4 million in 1999. Cash used for financing activities
primarily related to payments on short-term borrowings of $2.3 million, payment
of dividends of $3.8 million and the repurchase of common stock of $1.5 million.
Cash provided from financing activities included proceeds from net long-term
debt of $1.7 million and from the Company's stock option and stock purchase
plans of $1.1 million.
Under the terms of its credit agreements, the Company has agreed to certain
financial covenants. At June 30, 2000, the Company was in compliance with the
terms and covenants of its credit agreements. The Company believes that the
combination of present capital resources, internally generated funds, and unused
financing sources will be adequate to finance on-going operations, allow for
reinvestment in the business and strategic acquisitions. However, the Company
may find it necessary to seek additional sources of financing to support its
capital needs, for additional working capital, potential investments or
acquisitions or otherwise.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY LANGUAGE
Statements included or incorporated by reference in this Management's Discussion
and Analysis of Financial Condition and Results of Operations which are not
historical or current facts are "forward-looking" statements, as defined in the
Private Securities Litigation Reform Act of 1995, and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results and those presently anticipated or projected. The
following important facts, among others, could affect the Company's actual
results in the future and could cause the Company's actual financial performance
to differ materially from that expressed in any forward-looking statements:
(I) With regard to the Company's new product developments, there may be
uncertainties currently known to the Company concerning the expected
results.
10
<PAGE>
(II) Possible significant volatility in both backlog and quarterly operating
results may result from large, individual, fixed price orders in
connection with sales of MT&S systems.
(III) Export controls based on U.S. initiatives and foreign policy, as well
as import controls imposed by foreign governments, may cause delays for
certain shipments or the rejection of orders by the Company. Such
delays could create material fluctuations in quarterly results and
could have a material adverse effect on results of operations. Local
political conditions and/or currency restrictions may also affect
foreign revenues.
(IV) Delays in realization of backlog orders may occur due to technical
difficulties, export licensing approval or the customer's preparation
of the installation site, any of which can affect the quarterly or
annual period when backlog is recognized as revenue and could
materially affect the results of any such period.
(V) The Company experiences competition on a worldwide basis. Customers may
choose to purchase equipment from the Company or from its competitors.
(VI) The Company is exposed to market risk from changes in foreign currency
exchange rates, which can affect its results from operations and
financial condition.
The foregoing list is not exhaustive, and the Company disclaims any obligation
to or revise any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The required disclosures are included in Management's Discussion and Analysis of
Financial Condition and Results of Operations and in Note 1 to the Consolidated
Financial Statements included in the Company's 1999 Annual Report to
Shareholders. This information remains current and is incorporated herein by
reference.
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<PAGE>
PART II-------OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
The following are submitted as part of this report.
(a) Exhibit 27
Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the quarter ended June 30, 2000.
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<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/ Sidney W. Emery, Jr.
------------------------------------
Sidney W. Emery, Jr.
President
Chief Executive Officer
/s/ David E. Hoffman
------------------------------------
David E. Hoffman
Vice President
Chief Financial Officer
Dated: August 10, 2000
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