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United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q/A
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly period ended March 31, 2002
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, MN 55344
(Address of principal executive offices) (Zip Code)
Registrant's 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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):N/A
The number of shares outstanding of the Registrant's common stock as of May 10,
2002 was 21,050,846 shares.
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EXPLANATORY NOTE
The Company is filing this amendment to Form 10-Q to restate its consolidated
financial statements (as more fully discussed in Note 8 of the Condensed Notes
to Consolidated Financial Statements) for the three- and six-month periods ended
March 31, 2002 and 2001 to restate the Company's second quarter and year-to-date
2002 and comparative second quarter and year-to-date 2001 financial statements
to correct various bookkeeping errors and misapplications of generally accepted
accounting principles. These adjustments reflect:
(1) Correction of revenue recognition practices related to service
contracts and to the deferral of installation revenue, impacting
revenue recognition and deferred revenue and deferred tax balances;
(2) Correction of cut-off errors in recognition of revenue and
elimination of intercompany profit in inventory, impacting related
revenue, cost of sales, deferred revenue, and inventory balances;
(3) Correction to a number of previously unreconciled inventory and
related reserves and the correction of errors related to the timing
of recognition of surplus and obsolete inventory reserves, which
collectively impacted cost of sales and inventory balances;
(4) Correction of an error in calculating SFAS 133 currency hedge gains,
impacting currency gains, retained earnings, prepaid expenses, and
unrealized loss on investments accounts;
(5) Correction of the timing of recognizing restructuring reserves,
impacting cost of sales, general and administrative expenses, and
other accrued liabilities;
(6) Correction of the accounting for residual values of certain fixed
assets and asset retirements that should have occurred in prior
periods, impacting various income statement expense categories and
fixed asset balances;
(7) The correction of bookkeeping and account reconciliation errors
affecting numerous balance sheet and statement of income accounts,
including income taxes and long-lived assets; and
(8) Correction of the Company's effective tax rate, primarily due to
incorrect recognition of tax credits, affecting income tax expense
and accrued income taxes.
The Company is concurrently filing a Form 10-K which includes audited financial
statements for the fiscal year ended September 28, 2002 and restated audited
financial statements for the fiscal years ended September 30, 2001 and 2000.
Further information regarding the background of the restatement is contained
therein.
For purposes of this Form 10-Q/A, and in accordance with Rule 12b-15, under the
Securities Exchange Act of 1934, as amended, the Company has amended and
restated in its entirety each item of the Company's Form 10-Q for the quarterly
and year-to-date periods ended March 31, 2002 which have been affected by this
restatement. This From 10-Q/A does not reflect events occurring after the filing
of the original Form 10-Q, or modify or update those disclosures in any way,
except as required to reflect the effects of this restatement and the cumulative
effects of previously disclosed changes in accounting principles adopted in
fiscal years 2002 and 2001.
MTS SYSTEMS CORPORATION
REPORT ON FORM 10-Q/A
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2002
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
as of March 31, 2002 and September 30, 2001 (restated) 3
Consolidated Statements of Income
For the Three and Six Months Ended March 31, 2002 and 2001 (restated) 4
Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 2002 and 2001 (restated) 5
Condensed Notes to Consolidated Financial Statements 6 - 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15 - 22
Item 3. Qualitative and Quantitative Disclosures About
Market Risk 22
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K 23 - 24
SIGNATURES 25
CERTIFICATIONS 25 - 29
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MTS SYSTEMS CORPORATION
Consolidated Balance Sheets
(unaudited - in thousands of dollars, except share data)
March 31 September 30
ASSETS 2002 2001
---------- ------------
(Restated) (Restated)
Current Assets:
Cash and cash equivalents $ 54,137 $ 17,515
Accounts receivable, net 75,906 97,731
Unbilled contracts and retainage receivable 33,920 40,700
Inventories 47,289 64,308
Prepaid expenses 8,130 5,975
Current deferred tax asset 7,894 7,894
--------- ---------
Total current assets 227,276 234,123
--------- ---------
Property and Equipment:
Land 3,247 3,247
Buildings and improvements 46,523 45,785
Machinery and equipment 86,895 91,203
Accumulated depreciation (75,731) (74,827)
--------- ---------
Total property and equipment, net 60,934 65,408
Goodwill 4,157 22,545
Other Assets 6,438 9,867
--------- ---------
Total assets $ 298,805 $ 331,943
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable to banks $ 380 $ 428
Current maturities of long-term debt 5,299 5,260
Accounts payable 15,339 15,685
Accrued compensation and benefits 23,992 33,358
Advance billings to customers 27,493 32,884
Accrued warranty 4,800 4,481
Other accrued liabilities 15,296 22,799
--------- ---------
Total current liabilities 92,599 114,895
Deferred Income Taxes 2,693 2,693
Long-Term Debt, net of current maturities 52,978 53,617
--------- ---------
Total liabilities 148,270 171,205
--------- ---------
Shareholders' Investment:
Common stock, $.25 par; 64,000,000 shares
authorized: 21,072,000 and 21,044,000 shares issued
and outstanding 5,268 5,261
Additional paid-in capital 8,856 9,040
Retained earnings 140,259 147,635
Accumulated other comprehensive loss (3,848) (1,198)
--------- ---------
Total shareholders' investment 150,535 160,738
--------- ---------
$ 298,805 $ 331,943
========= =========
The accompanying notes to consolidated financial
statements are an integral part of these statements.
3
MTS SYSTEMS CORPORATION
Consolidated Statements of Income
(unaudited - in thousands of dollars, except earning per share)
For The Three Months Ended For The Six Months Ended
March 31 March 31
2002 2001 2002 2001
---- ---- ---- ----
(Restated) (Restated) (Restated) (Restated)
---------- ---------- ---------- ----------
Net revenue $ 92,075 $ 98,091 $ 179,239 $ 192,746
Cost of revenue 61,198 64,551 117,288 126,288
-------- -------- --------- ---------
Gross profit 30,877 33,540 61,951 66,458
-------- -------- --------- ---------
Operating expenses:
Selling 13,277 14,223 27,049 28,303
General and administrative 6,864 8,022 14,001 18,390
Research and development 5,504 5,776 10,606 10,864
-------- -------- --------- ---------
Total operating expenses 25,645 28,021 51,656 57,557
-------- -------- --------- ---------
Income (loss) from operations 5,232 5,519 10,295 8,901
Interest expense 1,043 1,544 2,196 3,033
Interest income (168) (145) (305) (251)
Gain on sale of investments (2,630) -- (2,630) --
Other income, net (447) (479) (1,746) (139)
-------- -------- --------- ---------
Income before income taxes
and cumulative effect of accounting changes 7,434 4,599 12,780 6,258
Provision for income taxes 2,271 1,559 3,904 2,121
-------- -------- --------- ---------
Income before cumulative effect of
accounting changes 5,163 3,040 8,876 4,137
Cumulative effect of accounting changes,
net of taxes of $4,317 in 2002, and $1,564 in 2001 -- -- (13,721) (2,492)
-------- -------- --------- ---------
Net income (loss) $ 5,163 $ 3,040 ($ 4,845) $ 1,645
======== ======== ========= =========
Earnings per share:
Basic -
Before cumulative effect of accounting changes $ 0.25 $ 0.15 $ 0.42 $ 0.20
Cumulative effect of accounting changes, net -- -- (0.65) (0.12)
-------- -------- --------- ---------
Net income (loss) $ 0.25 $ 0.15 ($ 0.23) $ 0.08
======== ======== ========= =========
Weighted average number of common shares outstanding - basic 21,057 20,661 21,042 20,691
======== ======== ========= =========
Diluted -
Before cumulative effect of accounting changes $ 0.24 $ 0.15 $ 0.41 $ 0.20
Cumulative effect of accounting changes, net -- -- (0.64) (0.12)
-------- -------- --------- ---------
Net income (loss) $ 0.24 $ 0.15 ($ 0.23) $ 0.08
======== ======== ========= =========
Weighted average number of common shares outstanding - diluted 21,336 20,866 21,367 20,817
======== ======== ========= =========
The accompanying notes to consolidated financial
statements are an integral part of these statements.
4
MTS SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
(unaudited - in thousands of dollars)
Six Months Ended March 31,
--------------------------
2002 2001
-------- --------
(Restated) (Restated)
Cash Flows from Operating Activities:
Net income (loss) $ (4,845) $ 1,645
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 5,962 7,525
Non-cash cumulative effect of accounting changes 13,721 2,492
Gain on sale of investments (2,630) --
Deferred income taxes 89 (3)
Bad debt allowance provision 483 226
Inventory provision 6,016 5,049
Changes in operating assets and liabilities:
Accounts, unbilled contracts and retainage receivables 24,226 9,531
Inventories 9,769 (12,548)
Prepaid expenses (2,573) (2,003)
Other assets 952 (1,505)
Accounts payable (142) (5,007)
Accrued compensation and benefits (9,181) (1,317)
Advance billings to customers (4,546) 12,680
Accrued warranty 361 205
Other current liabilities (756) 677
-------- --------
Net cash provided by operating activities 36,906 17,647
-------- --------
Cash Flows from Investing Activities:
Property and equipment additions (1,817) (3,423)
Proceeds from sale of investments 4,920 --
-------- --------
Net cash provided by (used in) investing activities 3,103 (3,423)
-------- --------
Cash Flows from Financing Activities:
Net repayments under notes payable to banks -- (9,741)
Proceeds from issuance of long-term debt -- 423
Payments of long-term debt (217) (368)
Cash dividends (2,530) (2,480)
Proceeds from exercise of stock options 639 41
Payments to purchase and retire common stock (816) (1,172)
-------- --------
Net cash used in financing activities (2,924) (13,297)
-------- --------
Effect of exchange rate changes on cash (463) (286)
-------- --------
Net increase in cash and cash equivalents 36,622 641
Cash and cash equivalents, at beginning of period 17,515 8,211
-------- --------
Cash and cash equivalents, at end of period $ 54,137 $ 8,852
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the periods for:
Interest expense $ 1,615 $ 2,327
Income taxes $ 2,897 $ 5,175
======== ========
The accompanying notes to consolidated financial
statements are an integral part of these statements.
5
MTS SYSTEMS CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
Restatement
As discussed in Note 8, the accompanying consolidated financial statements have
been restated.
Fiscal Year
Effective with fiscal year 2002, the Company changed its fiscal year end to the
Saturday closest to September 30. For the year ended September 28, 2002, the
Company's fiscal year consisted of 52 weeks. Effective for fiscal year 2003, the
Company changed its fiscal quarter ends to the Saturday closest to December 31,
March 31, and June 30.
Accounting Policies
The consolidated financial statements include the accounts of MTS SYSTEMS
CORPORATION and its wholly and majority 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 ("SEC"). The information furnished in these
financial statements includes normal recurring adjustments and reflects all
adjustments that are, in the opinion of management, necessary for a fair
presentation of such financial statements. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations. The
accompanying financial statements of the Company should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's 2002 Annual Report on Form 10-K filed with the SEC, which includes
audited financial statements for the fiscal year ended September 28, 2002 and
restated audited financial statements for the fiscal years ended September 30,
2001 and 2000. Interim results of operations for the six-month period ended
March 31, 2002 may not necessarily be indicative of the results to be expected
for the full year.
Certain prior year amounts included in the accompanying financial statements
have been reclassified to conform to the current year's presentation. Such
reclassifications had no effect on the Company's previously reported financial
position, net income or cash flows.
The Company believes that of its significant accounting policies, the following
are particularly important to the portrayal of the Company's results of
operations and financial position and may require the application of a higher
level of judgment by the Company's management, and as a result are subject to an
inherent degree of uncertainty.
Revenue Recognition
The Company implemented the revenue recognition principles of Staff Accounting
Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements." in fiscal
2001. The cumulative effect adjustment of the change in accounting for all
periods through September 30, 2000 was a reduction in net income of $2.5 million
(net of income taxes of $1.6 million), or $0.12 per diluted share, which has
been accounted for as a change to the financial results for the first quarter of
fiscal 2001. During the quarter ended March 31, 2002, there were no revenues
recognized which had been previously recognized prior to adoption of SAB 101.
During the six-month period ended March 31, 2002, the Company recognized $0.4
million of revenues which were previously recognized prior to the adoption of
SAB 101. During the three- and six-month periods ended March 31, 2001, the
Company recognized $2.0 million and $8.5 million, respectively, of revenues
which were previously recognized prior to the Company's adoption of SAB 101.
For orders that are manufactured and delivered in less than twelve months with
routine installations and no "special" acceptance protocol, revenue is
recognized when systems are shipped and title has passed to the customer, less
the portion of related revenues associated with installation, which are deferred
until customer acceptance. The remaining
6
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
revenue on these contracts is recognized upon installation and customer
acceptance. In cases where "special" acceptance protocols exist, the Company
recognizes revenue upon the completion of installation and fulfillment of
obligations specific to the terms of the customer's contract. Revenue on
contracts requiring longer delivery periods (long-term contracts) is recognized
using the percentage-of-completion method based on the cost incurred to date
relative to estimated total cost of the contract. In most cases, orders with
complex installations and/or unusual acceptance protocols involve long-term
contracts for custom systems that follow the percentage-of-completion method of
revenue recognition through customer acceptance.
The Company enters into long-term contracts for customized equipment sold to its
customers. Under the 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
Consolidated Balance Sheets as Unbilled Contracts and Retainage Receivable.
Revenue for services is recognized as the service is performed and ratably over
a defined contractual period for service maintenance contracts.
Inventories
Inventories are stated at the lower of cost or market and include materials,
labor and overhead costs. The first-in, first-out accounting method is used in
valuing inventories. Inventory consists of the following:
March 31, 2002 September 30, 2001
----------------- --------------------
(Restated) (Restated)
(in thousands of dollars)
Customer projects in various
stages of completion $ 9,146 $11,716
Components,
assemblies and parts 38,143 52,592
------- -------
Total $47,289 $64,308
======= =======
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued two new
statements, Statement of Financial Accounting Standard ("SFAS") No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." Under SFAS No. 141, all business combinations will be accounted for
under the purchase method beginning June 30, 2001. SFAS No. 142 includes
requirements to test goodwill for impairment using a fair value approach, rather
than amortizing the cost of goodwill over future periods. Upon the Company's
adoption of the new accounting standards in the first quarter of its fiscal year
ended September 28, 2002, annual goodwill amortization of $2.2 million ceased
effective October 1, 2001. Fair value was determined using a discounted cash
flow methodology. An evaluation of the Automation and Vehicle Testing Systems
reporting units indicated that $10.8 million and $7.3 million of goodwill,
respectively, was impaired. The performance in these acquired businesses has not
met management's original expectations due to ongoing weakness in the worldwide
automotive marketplace. Adoption of SFAS No. 142 resulted in a non-cash
transition charge to income in the first quarter of fiscal year 2002 of $13.7
million, or $0.64 per diluted share, for impairment of goodwill, net of tax.
Earnings for the three- and six-month periods ended March 31, 2002 were
positively impacted by $0.02 and $0.03 per diluted share, respectively, from the
exclusion of goodwill amortization.
7
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Goodwill for the last three years was:
Goodwill
-------------------------------------------------------
Beginning Ending
Year Balance Amortization Write-off Balance
---- ------- ------------ --------- -------
(in thousands of dollars)
2000 $27,489 ($2,931) $ -- $24,558
2001 24,558 (2,013) -- 22,545
2002 22,545 -- (18,388) 4,157
Annual amortization of other intangible assets of $1.1 million in fiscal year
2002 was not impacted by the new standards and will continue. The anticipated
amortization expense related to other intangible assets for the next five fiscal
years is as follows:
Fiscal Year
----------------------------------------------------
2002 2003 2004 2005 2006
---- ---- ---- ---- ----
(in thousands of dollars)
Amortization Expense $1,073 $1,022 $567 $517 $287
The following tables set forth pro forma net income and earnings (loss) per
share (in thousands except per share amounts):
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(in thousands of dollars) (in thousands of dollars)
Income before cumulative effect of accounting changes (restated) $ 5,163 $ 3,040 $ 8,876 $ 4,137
Add back: Goodwill amortization, net of tax -- 341 -- 670
---------- ---------- ---------- ----------
Adjusted net income before cumulative effect of accounting changes 5,163 3,381 8,876 4,807
Cumulative effect of accounting changes, net of tax -- -- (13,721) (2,492)
---------- ---------- ---------- ----------
Adjusted net income $ 5,163 $ 3,381 ($ 4,845) $ 2,315
========== ========== ========== ==========
Basic earnings per share before cumulative effect of accounting
changes (restated) $ 0.25 $ 0.15 $ 0.42 $ 0.20
Add back: Goodwill amortization, net of tax -- 0.02 -- 0.03
---------- ---------- ---------- ----------
Basic adjusted earnings per share before cumulative effect of
accounting changes $ 0.25 $ 0.17 $ 0.42 $ 0.23
Cumulative effect of accounting changes, net of tax -- -- (0.65) (0.12)
---------- ---------- ---------- ----------
Adjusted net income (loss) per share $ 0.25 0.17 ($ 0.23) $ 0.11
========== ========== ========== ==========
Diluted earnings per share before cumulative effect of accounting
changes (restated) $ 0.24 $ 0.15 $ 0.41 $ 0.20
Add back: Goodwill amortization, net of tax -- 0.02 -- 0.03
---------- ---------- ---------- ----------
Diluted adjusted earnings per share before cumulative effect of
accounting changes $ 0.24 $ 0.17 $ 0.41 $ 0.23
Cumulative effect of accounting changes, net of tax -- -- (0.64) (0.12)
---------- ---------- ---------- ----------
Adjusted net income (loss) per share $ 0.24 $ 0.17 ($ 0.23) $ 0.11
========== ========== ========== ==========
8
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the three years ended September 30, 2001, 2000, and 1999, the goodwill
amortization, adjusted net income (loss), and basic and diluted earnings (loss)
per share are as follows:
September 30,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
(in thousands of dollars)
Income before cumulative effect of accounting change (restated) $ 13,106 $ 3,170 $ 11,132
Add back: Goodwill amortization, net of tax 1,489 1,535 1,569
---------- ---------- ----------
Adjusted net income before cumulative effect of accounting
changes $ 14,595 $ 4,705 $ 12,701
Cumulative effect of accounting change, net of tax (2,492) -- --
---------- ---------- ----------
Adjusted net income $ 12,103 $ 4,705 $ 12,701
========== ========== ==========
Basic earnings per share before cumulative effect of accounting
change (restated) $ 0.63 $ 0.15 $ 0.54
Add back: Goodwill amortization, net of tax 0.07 0.08 0.07
---------- ---------- ----------
Basic adjusted earnings per share before cumulative effect of
accounting change $ 0.70 $ 0.23 $ 0.61
Cumulative effect of accounting change, net of tax (0.12) -- --
---------- ---------- ----------
Adjusted net income $ 0.58 $ 0.23 $ 0.61
========== ========== ==========
Diluted earnings per share before cumulative effect of accounting
change (restated) $ 0.62 $ 0.15 $ 0.53
Add back: Goodwill amortization, net of tax 0.07 0.07 0.07
---------- ---------- ----------
Diluted adjusted earnings per share before cumulative effect of
accounting change $ 0.69 $ 0.22 $ 0.60
Cumulative effect of accounting change, net of tax (0.12) -- --
---------- ---------- ----------
Adjusted net income $ 0.57 $ 0.22 $ 0.60
========== ========== ==========
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The Company is
required to adopt this statement in its fiscal year 2003. The Company has
concluded that there will be no impact of adoption of SFAS No. 144.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
which amends existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The Company is required to adopt this statement in its financial
statements issued after May 15, 2002. The Company does not have any activities
that will fall under the scope of SFAS 145.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses financial accounting and
reporting for costs associated with exit or disposal activities. The Company
will adopt this statement for exit or disposal activities initiated after
December 31, 2002, as required.
In November 2002, the Emerging Issues Task Force finalized its tentative
consensus on EITF Issue 00-21, "Revenue Arrangements with Multiple
Deliverables," which provides guidance on the timing of revenue recognition for
sales undertakings to deliver more than one product or service. The Company is
required to adopt EITF 00-21 on transactions occurring after June 2003 and is
currently analyzing the impact of its adoption on the Company's financial
statements.
3. EARNINGS (LOSS) PER COMMON 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 applicable
periods. Diluted net income (loss) per share is computed under the treasury
stock method and is calculated to reflect the potentially dilutive effect of
common shares issued in connection with outstanding stock options. The dilutive
effect of common shares issued in connection with outstanding stock options is
determined on net income (loss) before cumulative change in accounting method. A
reconciliation of these amounts is as follows:
9
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------
(Restated) (Restated) (Restated) (Restated)
(in thousands, except per share data)
Income (loss) before cumulative effect of $ 5,163 $ 3,040 $ 8,876 $ 4,137
of accouting change
Cumulative effect of accounting changes -- -- (13,721) (2,492)
------- ------- -------- --------
Net income (loss) $ 5,163 $ 3,040 $ (4,845) $ 1,645
======= ======= ======== ========
Weighted average
common shares outstanding 21,057 20,661 21,042 20,691
Dilutive potential
common shares 279 205 325 126
- ----------------------------------------------------------------------------------------------------
Total diluted common shares 21,336 20,866 21,367 20,817
- ----------------------------------------------------------------------------------------------------
Basic net income (loss)
per share $ 0.25 $ 0.15 $ (0.23) $ 0.08
Diluted net income (loss)
per share $ 0.24 $ 0.15 $ (0.23) $ 0.08
- ----------------------------------------------------------------------------------------------------
4. COMPREHENSIVE INCOME (LOSS)
For the Company, comprehensive income represents net income adjusted for foreign
currency translation adjustments, the unrealized gain or loss on
available-for-sale investments and the net effect of accumulated hedging
activity. Comprehensive income (loss) was ($1.7) million and ($0.7) million for
the three months ended March 31, 2002 and 2001, respectively, and ($2.7 million)
and $0.3 million for the six months ended March 31, 2002 and 2001, respectively.
5. BUSINESS SEGMENT INFORMATION
The Company periodically evaluates its business activities that are regularly
reviewed by its Chief Executive Officer for which discrete financial information
is available. In connection therewith, the Company has determined that it has
five business units: Vehicle Testing Systems, Material Testing Systems, Advanced
Systems, Automation and Sensors. The Vehicle Testing Systems unit manufactures
and markets systems for vehicle and component manufacturers to aid in the
acceleration of design development work and to decrease the cost of product
manufacturing. The Material Testing Systems unit manufactures and markets
systems to aid customers in product development and quality control toward an
effort of design improvement. The Advanced Systems unit offers highly customized
systems primarily for simulation and manufacturing. The Automation unit
manufactures and markets products for high performance industrial machine
applications in a wide range of industries. The Sensors unit 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
served, method of distribution and regulatory environments are similar for the
Vehicle Testing Systems, Material Testing Systems and Advanced Systems business
units. As a result of these similarities, these units have been aggregated for
financial statement purposes into one reportable segment called Mechanical
Testing and Simulation ("MT&S"). In addition, the economic characteristics,
nature of products and services, production processes, type or class of customer
served, method of distribution and regulatory environments are similar for the
Automation and Sensors business units. As a result, these units have been
aggregated into one reportable segment called Factory Automation ("FA").
The accounting policies of the reportable segments are the same as those
described in Note 1 to the Consolidated Financial Statements found in the
Company's 2002 Annual Report on Form 10-K (same as in 2001 Form 10-K as
initially filed). In evaluating each segment's performance, management focuses
on income from operations. This measurement excludes interest income and
expense, income taxes, and other non-operating items. Corporate expenses,
including costs associated with various support functions such as human
resources, information technology, finance and accounting, and general
administrative costs, are allocated to the reportable segments primarily on the
basis of revenue.
10
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Financial information by reportable segment is as follows:
Three Months Ended Six Months Ended
March 31, March 31,
2002 2001 2002 2001
---------- ---------- ---------- ----------
(Restated) (Restated) (Restated) (Restated)
(in thousands of dollars) (in thousands of dollars)
NET REVENUE BY SEGMENT:
Mechanical Testing and Simulation $ 74,696 $ 76,404 $ 144,979 $150,343
Factory Automation 17,379 21,687 34,260 42,403
-------- -------- --------- --------
Total net revenue $ 92,075 $ 98,091 $ 179,239 $192,746
======== ======== ========= ========
INCOME (LOSS) FROM OPERATIONS BY SEGMENT:
Mechanical Testing and Simulation $ 8,915 $ 6,859 $ 15,484 $ 8,765
Factory Automatiom (3,683) (1,340) (5,189) 136
-------- -------- --------- --------
Total income from operations $ 5,232 $ 5,519 $ 10,295 $ 8,901
======== ======== ========= ========
6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective October 1, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of SFAS Statement No. 133" ("SFAS No. 138"), which requires the
Company to recognize all derivative financial instruments on the balance sheet
at fair value. Derivatives that are not classified as a hedge are required under
SFAS 133 to be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of the
hedged assets, liabilities, or firm commitments are recognized through earnings
or in other comprehensive income (loss) until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company has determined that the impact
of the adoption of SFAS 133 was not material to the earnings and financial
position of the Company.
The Company periodically enters into forward exchange contracts principally to
hedge the estimated cash flow of foreign currency denominated transactions
(primarily the EURO, British Pound, Swedish Krona, and the Japanese Yen). These
contracts are recognized on the balance sheet at fair value, which is the
estimated amount at which they could be settled based on forward market exchange
rates. The contracts generally mature within one year and are designed to limit
exposure to exchange rate fluctuations. On the date the forward exchange
contract is entered into, it is designated as a foreign currency cash flow
hedge. Subsequent changes in the fair value of a contract that is highly
effective and qualifies as a foreign currency cash flow hedge are recorded in
other comprehensive income until they are recognized in earnings at the time the
forecasted transaction occurs. The company formally documents all relationships
between hedging instruments and hedged items, as well as its risk management
objective and strategy for undertaking various hedge transactions. This process
includes linking all derivatives that are designated as foreign currency hedges
to specific forecasted transactions. The Company formally assesses, both at the
hedge's inception and on an ongoing basis, whether the derivatives that are used
in hedging transactions are highly effective in offsetting changes in cash flows
of hedged items. When it is determined that a derivative is not highly effective
as a hedge or that it has ceased to be a highly effective hedge, the Company
discontinues hedge accounting prospectively, as discussed below.
The Company discontinues hedge accounting prospectively when the derivative is
(1) determined to be no longer effective in offsetting the fair value of the
cash flows of a hedged item; (2) sold, terminated, or exercised; or (3)
de-designated as a hedge instrument because it is unlikely that a forecasted
transaction will occur. When hedge accounting is discontinued, the derivative
will be carried at its fair value on the balance sheet with changes in its fair
value recognized in current period earnings. Any related gains or losses that
were accumulated in other comprehensive income will be recognized immediately in
earnings.
11
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company uses forward exchange contracts to hedge specific foreign exchange
currency denominated assets or liabilities on the balance sheet. These are
recorded at their fair value with the related gains and losses included in
"Other (income) expense, net" on the income statement. Results of these
contracts offset in full or in part the gains and losses stemming from the
normal mark-to-market of the underlying balance sheet exposures. The Company
does not use derivative financial instruments for speculative or trading
purposes.
At March 31, 2002 and 2001, the Company had outstanding foreign currency forward
contracts with US dollar notional equivalent amounts of $39.4 million, $32.0
million respectively. At March 31, 2002 and 2001 the fair value of the foreign
currency forward contracts was $2.2 million and $2.0 million, respectively. The
amount recognized in earnings as a result of the ineffectiveness of cash flow
hedges was not material for the periods ended March 31, 2002 and 2001. At March
31, 2002, approximately $0.2 million was projected to be reclassified from other
comprehensive income into earnings in the next 12 months. At March 31, 2001,
approximately $1.8 million was projected to be reclassified from other
comprehensive income into earnings in the next 12 months. The maximum maturity
of any derivative was 1.1 years at March 31, 2002, and 1.5 years at March 31,
2001.
7. DEFERRED TAX ASSET
At March 31, 2002, the Company has an aggregate deferred tax asset of $7.9
million in connection with accrued compensation and benefits, inventory
reserves, and allowances for doubtful accounts and other assets.
Management routinely performs an analysis of the realization of the deferred tax
asset each fiscal year end. This analysis largely relies on continued long-term
profitability. Unanticipated negative changes in future operations of the
Company would adversely affect the realization of the Company's deferred tax
asset. Such negative changes would result in the establishment of a valuation
reserve for the deferred tax asset.
8. RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS
In consultation with its independent auditors, the Company restated its audited
financial statements for years ended September 30, 2001 and 2000 and its
unaudited financial statements for each of the quarters in the nine-month period
ended June 30, 2002 and the fiscal year ended September 30, 2001. See
Explanatory Note to this Form 10-Q/A. The aggregate restatement eliminated the
net loss of $1.2 million with cumulative positive impacts of $6.3 million to a
profit of $5.1 million for second quarter 2002 and reduced net income by $0.8
million to $3.0 million for second quarter 2001. For the quarter ended March 31,
2002, the following restatement items resulted in the most significant
adjustments to the period:
1. Adjustment to a number of previously unreconciled inventory and
related reserves and the correction of errors related to the timing
of recognition of surplus and obsolete inventory reserves, which
collectively resulted in a reduction to previously reported cost of
sales of $6.0 million;
2. Correction of the accounting for residual values of certain fixed
assets and asset retirements that should have been recorded in
several prior periods, which resulted in a $3.1 million decrease to
previously reported cost of sales and various other expense
categories;
3. Correction of an error in the calculation of FAS 133 currency hedge
gains, which reduced previously reported income by $1.1 million;
4. The correction of errors in the Company's recognition of income tax
credits, which resulted in an 8 percentage-point reduction in the
effective tax rate.
For the quarter ended March 31, 2001, the following restatement items resulted
in the most significant adjustments to the period:
1. Reconciliation of inventories and related reserve accounts, which
resulted in an increase in previously reported cost of sales of $1.7
million;
2. The correction of errors in the Company's recognition of income tax
credits, which resulted in a 5 percentage-point reduction in the
effective tax rate.
Correction of other bookkeeping errors in both the current and prior year
quarters resulted in additional impacts to various income statement and balance
sheet amounts.
For the six months ended March 31, 2002 and 2001, the aggregate restatement
impacted reported net income before cumulative effect of accounting changes by
an increase of $7.9 million and a decrease of $1.4 million, respectively.
12
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The restated results for the six months ended March 31, 2002 also reflect the
impact of the cumulative effect of a change in accounting principle of $13.7
million, net of tax, related to adoption of SFAS 142, which was originally
recorded in the third quarter ended June 30, 2002 with a retroactive charge to
the first quarter ended December 31, 2001. Similarly, the restated results for
the six months ended March 31, 2001 also reflect the impact of the cumulative
effect of a change in accounting principle of $2.5 million, net of tax, related
to the adoption of SAB 101, which was originally recorded in the fourth quarter
ended September 30, 2001 with a retroactive charge to the first quarter ended
December 31, 2000. In this Form 10-Q/A, references or comparisons to results for
the three and six months ended March 31, 2001 and March 31, 2002 are to the
restated results.
The effects of the restatements are as follows;
STATEMENT OF INCOME DATA: For the quarter ended For the six months ended
March 31, 2002 March 31, 2002
------------------------ -------------------------
As reported Restated As reported Restated
----------- -------- ----------- --------
Net revenue $ 92,030 $ 92,075 $ 176,798 $ 179,239
Cost of revenue 70,211 61,198 124,658 117,288
Gross profit 21,819 30,877 52,140 61,951
Operating expenses 24,985 25,645 50,820 51,656
Income (loss) from operations (3,166) 5,232 1,320 10,295
Gain on Sale of Investments -- (2,630) -- (2,630)
Other (income) expense, net (2,134) (3,077) (2,197) (4,376)
Income before income taxes (1,907) 7,434 1,626 12,780
Income before cumulative effect (1,178) 5,163 1,004 8,876
Cumulative effect (1) -- -- -- (13,721)
Net income (loss) (1,178) 5,163 1,004 (4,845)
Basic earnings (loss) per share (0.06) 0.25 0.05 (0.23)
Diluted earnings (loss) per share $ (0.06) $ 0.24 $ 0.05 $ (0.23)
BALANCE SHEET DATA: March 31, 2002
------------------------
As reported Restated
----------- --------
Accounts receivable, net $ 75,836 $ 75,906
Inventories 45,679 47,289
Prepaid expense 8,346 8,130
Deferred tax asset -- 7,894
Total current assets 217,917 227,276
Machinery and equipment 91,716 86,895
Goodwill -- 4,157
Other assets 30,080 6,438
Accounts payable 16,418 15,339
Accrued compensation and benefits 23,479 23,992
Advanced billings to customers 25,650 27,493
Other accrued liabilities 15,791 20,096
Total current liabilities 87,019 92,599
Shareholders' investment $163,519 $150,535
CASH FLOW DATA: For the six months ended
March 31, 2002
------------------------
As reported Restated
----------- --------
Net cash from operating activities $ 37,540 $ 36,906
Net cash from investing activities 1,621 3,103
Net cash used in financing activities (2,923) (2,924)
Net increase in cash 36,621 36,622
(1) The ($13,721) cumulative effect of change in accounting principle related to
the Company's adoption of SFAS 142 was first reported in the quarter ended June
30, 2002.
13
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
STATEMENT OF INCOME DATA: For the quarter ended For the six months ended
March 31, 2001 March 31, 2001
------------------------- -------------------------
As reported Restated As reported Restated
----------- -------- ----------- --------
Net revenue $ 98,272 $ 98,091 $ 189,835 $ 192,746
Cost of revenue 62,672 64,551 122,283 126,288
Gross profit 35,600 33,540 67,552 66,458
Operating expenses 28,254 28,021 55,865 57,557
Income from operations 7,345 5,519 11,687 8,901
Other (income) expense, net (461) (479) (268) (139)
Income before income taxes 6,407 4,599 9,173 6,258
Income before cumulative effect 3,853 3,040 5,551 4,137
Cumulative effect (2) -- -- (2,263) (2,492)
Net income 3,853 3,040 3,288 1,645
Basic earnings per share 0.19 0.15 0.16 0.08
Diluted earnings per share $ 0.18 $ 0.15 $ 0.16 $ 0.08
BALANCE SHEET DATA: March 31, 2001
-----------------------
As reported Restated
----------- --------
Accounts receivable, net $ 90,030 $ 90,100
Inventories 77,856 71,263
Prepaid expense 11,912 11,912
Deferred tax asset -- 5,443
Total current assets 221,194 220,114
Machinery and equipment 109,976 91,347
Goodwill -- 23,478
Other assets 33,291 9,188
Accounts payable 17,934 16,908
Accrued compensation and benefits 25,740 25,388
Advanced billings to customers 33,236 35,327
Other accrued liabilities 17,716 20,958
Total current liabilities 102,336 106,291
Total shareholders' investment $157,803 $151,934
CASH FLOW DATA: For the six months ended
March 31, 2001
------------------------
As reported Restated
----------- --------
Net cash from operating activities $ 19,038 $17,647
Net cash from investing activities (5,211) (3,923)
Net cash used in financing activities (13,297) (13,297)
Net increase in cash 640 641
(2) The ($2,263) cumulative effect of change in accounting principle related to
the Company's adoption of SAB 101 was first reported in the quarter ended
September 30, 2001.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below reflects the impacts of restatements to the Company's
previously reported consolidated financial statements for the second quarter of
fiscal 2002 and the second quarter of fiscal 2001.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which require the
Company to make estimates and assumptions in certain circumstances that affect
amounts reported. In preparing these financial statements, management has made
its best estimates and judgments of certain amounts, giving due consideration to
materiality. The Company believes that of its significant accounting policies,
the following are particularly important to the portrayal of the Company's
results of operations and financial position and may require the application of
a higher level of judgment by the Company's management, and as a result are
subject to an inherent degree of uncertainty.
Revenue Recognition. The Company implemented the revenue recognition principles
of Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial
Statements." in fiscal 2001. The cumulative effect adjustment of the change in
accounting for all periods through September 30, 2000 was a reduction in net
income of $2.5 million (net of income taxes of $1.6 million), or $0.12 per
diluted share, which has been accounted for as a change to the financial results
for the first quarter of fiscal 2001. During the quarter ended March 31, 2002,
there were no revenues recognized which had been previously recognized prior to
adoption of SAB 101. During the six-month period ended March 31, 2002, the
Company recognized $0.4 million of revenues which were previously recognized
prior to the adoption of SAB 101. During the three- and six-month periods ended
March 31, 2001, the Company recognized $2.0 million and $8.5 million,
respectively, of revenues which were previously recognized prior to the
Company's adoption of SAB 101.
For orders that are manufactured and delivered in less than twelve months with
routine installations and no "special" acceptance protocol, revenue is
recognized when systems are shipped and title has passed to the customer, less
the portion of related revenues associated with installation, which are deferred
until customer acceptance. The remaining revenue on these contracts is
recognized upon installation and customer acceptance. In cases where "special"
acceptance protocols exist, the Company recognizes revenue upon the completion
of installation and fulfillment of obligations specific to the terms of the
customer's contract. Revenue on contracts requiring longer delivery periods
(long-term contracts) is recognized using the percentage-of-completion method
based on the cost incurred to date relative to estimated total cost of the
contract. In most cases, orders with complex installations and/or unusual
acceptance protocols involve long-term contracts for custom systems that follow
the percentage-of-completion method of revenue recognition through customer
acceptance.
The Company enters into long-term contracts for customized equipment sold to its
customers. Under the 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
Consolidated Balance Sheets as Unbilled Contracts and Retainage Receivable.
Revenue for services is recognized as the service is performed and ratably over
a defined contractual period for service maintenance contracts.
Inventories. Inventories are stated at the lower of cost or market which
approximates the first-in, first-out method. Reserves for slow-moving and
obsolete inventories are provided based upon current and expected future product
sales and the expected impact of product transitions or modifications. While the
Company expects its sales to grow, a reduction in its sales could reduce the
demand for the Company's products, and additional inventory reserves may be
required.
NEW ACCOUNTING PRINCIPLES
In July 2001, the FASB issued two new statements, SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." Under
SFAS No. 141, all business combinations will be accounted for under the purchase
method beginning June 30, 2001. SFAS No. 142 includes requirements to test
goodwill for impairment using a fair value approach, rather than amortizing the
cost of goodwill over future periods. Upon the Company's adoption of the new
accounting standards in the first quarter of its fiscal year ended September 28,
2002, annual goodwill amortization of $2.2 million ceased effective October 1,
2001. Fair value was determined using a discounted cash flow methodology. An
evaluation of the Automation and Vehicle Testing Systems reporting units
indicated that $10.8 million and $7.3 million of goodwill, respectively, was
impaired. The performance in these acquired businesses has not met management's
original expectations due to ongoing weakness in the worldwide automotive
marketplace. Adoption of SFAS No. 142 resulted in a non-cash transition charge
to income in the first quarter of its fiscal year 2002 ended September 30, 2002
of $13.7 million, or $0.64 per diluted share, for impairment of goodwill, net of
tax. Earnings per share for the three and six-month periods ended March 31, 2002
were positively impacted by $0.02 and $0.03 per diluted share, respectively,
from the exclusion of goodwill amortization.
Goodwill for the last three years was:
Goodwill
-----------------------------------------------------
Beginning Ending
Year Balance Amortization Write-off Balance
---- ------- ------------ --------- -------
(in thousands of dollars)
2000 $27,489 ($2,931) $ -- $24,558
2001 24,558 (2,013) -- 22,545
2002 22,545 -- (18,388) 4,157
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Annual amortization of other intangible assets of $1.1 million in fiscal year
2002 was not impacted by the new standards and will continue. The anticipated
amortization expense related to other intangible assets for the next five fiscal
years is as follows:
Fiscal Year
--------------------------------------------------------
2002 2003 2004 2005 2006
---- ---- ---- ---- ----
(in thousands of dollars)
Amortization Expense $1,073 $1,022 $567 $517 $287
The following tables set forth pro forma net income (loss) and earnings (loss)
per share (in thousands except per share amounts):
Three Months Ended Six Months Ended
March 31 March 31
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(in thousands of dollars) (in thousands of dollars)
Income before cumulative effect of accounting change (restated) $ 5,163 $ 3,040 $ 8,876 $ 4,137
Add back: Goodwill amortization, net of tax -- 341 -- 670
---------- ---------- ---------- ----------
Adjusted net income before cumulative effect of accounting changes 5,163 3,381 8,876 4,807
Cumulative effect of accounting changes, net of tax -- -- (13,721) (2,492)
---------- ---------- ---------- ----------
Adjusted net income (loss) $ 5,163 $ 3,381 ($ 4,845) $ 2,315
========== ========== ========== ==========
Basic earnings per share before cumulative effect of accounting changes
(restated) $ 0.25 $ 0.15 $ 0.42 $ 0.20
Add back: Goodwill amortization, net of tax -- 0.02 -- 0.03
---------- ---------- ---------- ----------
Basic adjusted earnings per share before cumulative effect of
accounting changes $ 0.25 $ 0.17 $ 0.42 $ 0.23
Cumulative effect of accounting changes, net of tax -- -- (0.65) (0.12)
---------- ---------- ---------- ----------
Adjusted net income (loss) $ 0.25 0.17 ($ 0.23) $ 0.11
========== ========== ========== ==========
Diluted earnings per share before cumulative effect of accounting
changes (restated) $ 0.24 $ 0.15 $ 0.41 $ 0.20
Add back: Goodwill amortization, net of tax -- 0.01 -- 0.03
---------- ---------- ---------- ----------
Diluted adjusted earnings per share before cumulative effect of
accounting changes $ 0.24 $ 0.16 $ 0.41 $ 0.23
Cumulative effect of accounting changes, net of tax -- -- (0.64) (0.12)
---------- ---------- ---------- ----------
Adjusted net income (loss) $ 0.24 $ 0.16 ($ 0.23) $ 0.11
========== ========== ========== ==========
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
For the three years ended September 30, 2001, 2000, and 1999 the goodwill
amortization, adjusted net income (loss), and basic and diluted earnings (loss)
per share are as follows:
September 30,
----------------------------------------
2001 2000 1999
---------- ---------- ----------
(in thousands of dollars)
Income before cumulative effect of accounting change (restated) $ 13,106 $ 3,170 $ 11,132
Add back: Goodwill amortization, net of tax 1,489 1,535 1,569
---------- ---------- ----------
Adjusted net income before cumulative effect of accounting change $ 14,595 $ 4,705 $ 12,701
Cumulative effect of accounting change, net of tax (2,492) -- --
---------- ---------- ----------
Adjusted net income $ 12,103 $ 4,705 $ 12,701
========== ========== ==========
Basic earnings per share before cumulative effect of accounting change (restated) $ 0.63 $ 0.15 $ 0.54
Add back: Goodwill amortization, net of tax 0.07 0.08 0.07
---------- ---------- ----------
Basic adjusted earnings per share before cumulative effect of accounting change $ 0.70 $ 0.23 $ 0.61
Cumulative effect of accounting change, net of tax (0.12) -- --
---------- ---------- ----------
Adjusted net income $ 0.58 $ 0.23 $ 0.61
========== ========== ==========
Diluted earnings per share before cumulative effect of accounting change (restated) $ 0.62 $ 0.15 $ 0.53
Add back: Goodwill amortization, net of tax 0.07 0.07 0.07
---------- ---------- ----------
Diluted adjusted earnings per share before cumulative effect of accounting change $ 0.69 $ 0.22 $ 0.60
Cumulative effect of accounting change, net of tax (0.12) -- --
---------- ---------- ----------
Adjusted net income $ 0.57 $ 0.22 $ 0.60
========== ========== ==========
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The Company is
required to adopt this statement in its fiscal year 2003. The Company has
concluded that will be no impact of adoption of SFAS No. 144.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
which amends existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The Company is required to adopt this statement in its financial
statements issued after May 15, 2002. The Company does not have any activities
that will fall under the scope of SFAS 145.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses financial accounting and
reporting for costs associated with exit or disposal activities. The Company
will adopt this statement for exit or disposal activities initiated after
December 31, 2002, as required.
In November 2002, the Emerging Issues Task Force finalized its tentative
consensus on EITF Issue 00-21, "Revenue Arrangements with Multiple
Deliverables," which provides guidance on the timing of revenue recognition for
sales undertakings to deliver more than one product or service. The Company is
required to adopt EITF 00-21 on transactions occurring after June 2003 and is
currently analyzing the impact of its adoption on the Company's financial
statements.
NEW CUSTOMER ORDERS AND BACKLOG
THREE MONTHS ENDED MARCH 31, 2002 ("SECOND QUARTER OF FISCAL 2002") COMPARED TO
THREE MONTHS ENDED MARCH 31, 2001 ("SECOND QUARTER OF FISCAL 2001")
New orders from customers during Second Quarter of Fiscal 2002 aggregated $87.5
million, compared to customer orders of $86.3 million booked during Second
Quarter of Fiscal 2001.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Orders for the Mechanical Testing and Simulation ("MT&S") segment increased 8.4%
to $72.5 million, compared to customer orders of $66.9 million for Second
Quarter of Fiscal 2001. Orders for custom projects in the quarter offset general
weakness in standard short-cycle products, particularly in North America.
Significant bookings included durability testing equipment for several German
automotive OEMs, extensive performance evaluation equipment in the Formula 1
racing market, and testing equipment for geological and civil structures
worldwide. The MT&S segment accounted for 82.9% of total Company orders for
Second Quarter of Fiscal 2002, compared to 77.5% for the Second Quarter of
Fiscal 2001.
Orders for the Factory Automation ("FA") segment decreased to $15.0 million for
Second Quarter of Fiscal 2002 from $19.4 million for Second Quarter of Fiscal
2001, down 22.7%. The decline in orders was the result of continued general
worldwide weakness in the automotive, semiconductor, and industrial markets. The
FA segment accounted for 17.1% of total Company orders during Second Quarter of
Fiscal 2002, compared to 22.5% in Second Quarter of Fiscal 2001.
SIX MONTHS ENDED MARCH 31, 2002 ("FIRST HALF OF FISCAL 2002") COMPARED TO SIX
MONTHS ENDED MARCH 31, 2001 ("FIRST HALF OF FISCAL 2001")
New orders for the First Half of Fiscal 2002 aggregated $184.2 million, a
decrease of 3.4% compared to $190.6 million for the First Half of Fiscal 2001.
Orders for the MT&S segment of $154.2 million in First Half of Fiscal 2002
increased approximately $4.7 million compared to $149.5 million in the First
Half of Fiscal 2001. This segment accounted for 83.7% of total new orders in
First Half of Fiscal 2002, compared to 78.4% for First Half of Fiscal 2001.
Orders for the FA segment of $30.0 million in First Half of Fiscal 2002
decreased 27.2% from the orders booked in First Half of Fiscal 2001 of $41.2
million. The FA segment accounted for 16.3% of total orders during First Half of
2002, compared to 21.6% in First Half of Fiscal 2001.
Backlog of undelivered orders at March 31, 2002 was $161.0 million, an increase
of 1.8% from the backlog of $158.1 million at September 30, 2001 and a decrease
of 10.3% from the backlog of $179.5 million at March 31, 2001. The Company's
backlog is subject to order cancellations.
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL 2002 COMPARED TO SECOND QUARTER OF FISCAL 2001
NET REVENUE for Second Quarter of Fiscal 2002 was $92.1 million, a decrease of
$6.0 million, or 6.1%, compared to $98.1 million in the Second Quarter of Fiscal
2001. A decline in North America of 16% was partially offset by growth in Europe
and Asia of 2% and 9%, respectively. The decrease in net revenue was principally
due to the slowdown in the automotive-related businesses. The continued weakness
in the North American automotive business had a negative effect on both the
Mechanical Testing and Simulation and the Factory Automation segments. Revenue
from European and Asian markets for Second Quarter of Fiscal 2002 represented
52.4% of total net revenues, compared to 46.8% for Second Quarter of Fiscal
2001.
GROSS PROFIT for Second Quarter of Fiscal 2002 decreased to $30.9 million, down
7.8% compared to gross profit of $33.5 million for Second Quarter of Fiscal
2001. Gross profit as a percentage of net revenue was 33.6% for Second Quarter
of Fiscal 2002, down from the 34.2% reported for Second Quarter of Fiscal 2001.
The gross margin for the MT&S segment was 37.0% for Second Quarter of Fiscal
2002, up 1.8% compared to Second Quarter of Fiscal 2001, primarily due to
favorable product mix for the quarter. Gross profit for the FA segment was 18.5%
for Second Quarter of Fiscal 2002, compared to 30.6% for the Second Quarter of
Fiscal 2001. The decrease was primarily the result of a reduction in sales
volume, resulting in excess capacity.
SELLING EXPENSES were $13.3 million for Second Quarter of Fiscal 2002, a
decrease of 6.3% from $14.2 million for Second Quarter of Fiscal 2001 a decline
in proportion with the reduced sales level for the quarter. Selling expense as a
percentage of net revenue was 14.4% for Second Quarter of Fiscal 2002, roughly
flat with selling expense of 14.5% for Second Quarter of Fiscal 2001.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
GENERAL AND ADMINISTRATIVE EXPENSES totaled $6.9 million for Second Quarter of
Fiscal 2002, a decrease of 13.8% compared to $8.0 million for Second Quarter of
Fiscal 2001. General and administrative expenses as a percentage of net revenue
decreased by 0.7% from 8.2% for Second Quarter of Fiscal 2001 to 7.5% for Second
Quarter of Fiscal 2002. The decrease in the overall expense was partially due to
implementation of SFAS 142, which eliminated goodwill amortization beginning
October 1, 2001 and decreased general and administrative expenses by $0.6
million in the current quarter. Decreased spending was also the result of cost
reduction and productivity initiatives that were implemented in fiscal year
2001.
RESEARCH AND DEVELOPMENT EXPENSES totaled $5.5 million for the Second Quarter of
2002, a decrease of 5.2% compared to $5.8 million for the Second Quarter of
Fiscal 2001. Research and development expenses as a percentage of net revenue
were 6.0% for Second Quarter of Fiscal 2002, roughly flat with research and
development expenses of 5.9% for the Second Quarter of Fiscal 2001.
INCOME FROM OPERATIONS decreased 5.5%, from $5.5 million in Second Quarter of
2001 to $5.2 million in the Second Quarter of 2002. Operating earnings increased
significantly in the MT&S segment, from $6.9 million to $8.9 million. This
growth was offset by a $2.3 million decline in the operating earnings of the FA
segment.
INTEREST EXPENSE decreased to $1.0 million for Second Quarter of Fiscal 2002
compared to $1.5 million for the Second Quarter of Fiscal 2001. This decrease
was primarily the result of lower average borrowings under the Company's bank
line of credit. Interest expense as a percentage of net revenue decreased to
1.1% for Second Quarter of Fiscal 2002, compared to 1.5% for the Second Quarter
of Fiscal 2001.
INTEREST INCOME increased to $0.2 million for Second Quarter of Fiscal 2002
compared to $0.1 million for Second Quarter of Fiscal 2001. Interest income for
Second Quarter of Fiscal 2002 consisted principally of earnings on short-term
investments of excess cash funds.
OTHER INCOME AND EXPENSE for Second Quarter of Fiscal 2002 primarily reflects a
non-recurring $2.6 million gain on the sale of an investment. Other income and
expense for Second Quarter of Fiscal 2001 consisted primarily of a gain on
foreign currency transactions of $0.5 million.
NET INCOME increased to $5.2 million for Second Quarter of Fiscal 2002 compared
to net income of $3.0 million for Second Quarter of Fiscal 2001. Net income as a
percentage of net revenue increased to 5.6% for Second Quarter of Fiscal 2002,
compared to income of 3.1% for Second Quarter of Fiscal 2001. The effective tax
rate for Second Quarter of Fiscal 2002 was 30.5% compared to 33.9% for Second
Quarter of Fiscal 2001. The decrease in the overall effective tax rate was
primarily the result of tax savings initiatives implemented in Fiscal 2002 and
an increase in the proportion of domestic income to foreign income as compared
to Fiscal 2001, resulting in the offset of higher foreign tax rates with lower
federal and state rates in the U.S.
FIRST HALF OF FISCAL 2002 COMPARED TO FIRST HALF OF FISCAL 2001
NET REVENUE for First Half of Fiscal 2002 was $179.2 million, a decrease of
$13.5 million, or 7.0%, compared to $192.7 million in the First Half of Fiscal
2001. The decrease in net revenue was principally due to the slowdown in the
automotive-related businesses. The continued weakness in the North American
automotive business had a negative effect on both the Mechanical Testing and
Simulation and the Factory Automation segments. Revenue from European and Asian
markets for First Half of Fiscal 2002 represented 52.6% of net revenues,
compared to 44.9% of revenues for First Half of Fiscal 2001. Revenue generated
by the MT&S segment was $144.9 million during the First Half of 2002, a decrease
of $5.4 million compared to First Half of Fiscal 2001. The FA segment revenue
declined to $34.3 million for the First Half of Fiscal 2002, compared to $42.4
million for First Half of Fiscal 2001.
GROSS PROFIT for First Half of Fiscal 2002 decreased to $62.0 million, down 6.8%
compared to gross profit of $66.5 million for First Half of Fiscal 2001. The
fluctuation in margin was primarily due to lower revenue volume. Gross profit as
a percentage of net revenue was 34.6% for First Half of Fiscal 2002,
approximately flat with the 34.5% reported in First Half of Fiscal 2001.
SELLING EXPENSES decreased to $27.0 million in First Half of Fiscal 2002, or
4.6%, from $28.3 million for First Half of Fiscal 2001. Selling expense as a
percentage of net revenue increased to 15.1% in First Half of Fiscal 2002,
compared to 14.7% for First Half of Fiscal 2001.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
RESULTS OF OPERATIONS (CONTINUED)
GENERAL AND ADMINISTRATIVE EXPENSES totaled $14.0 million for First Half of
Fiscal 2002, a decrease of 23.9% compared to $18.4 million for First Half of
Fiscal 2001. The decrease was largely due to $2.4 million of restructuring
charges recorded in the First Half of Fiscal 2001. The decrease in the overall
expense was also partially due to the implementation of SFAS 142, which
eliminated goodwill amortization expense beginning October 1, 2001 and decreased
general and administrative expenses by $1.1 million in the First Half of 2002.
General and administrative expenses as a percentage of net revenue decreased by
1.7%, from 9.5% in First Half of Fiscal 2001 to 7.8% in First Half of Fiscal
2002.
RESEARCH AND DEVELOPMENT EXPENSES decreased slightly to $10.6 million in First
Half of Fiscal 2002 compared to $10.9 million in First Half of 2001. Research
and development expense as a percentage of net revenue increased slightly to
5.9% in First Half of Fiscal 2002, compared to 5.7% in First Half of Fiscal
2001.
INCOME FROM OPERATIONS increased substantially, by 15.7%, from $8.9 million in
First Half of 2001 to $10.3 million in First Half of 2002. Operating earnings
increased significantly in the MT&S segment, from $8.8 million to $15.5 million.
This growth was offset by a $5.3 million decline in the operating earnings of
the FA segment.
INTEREST EXPENSE decreased to $2.2 million in First Half of Fiscal 2002 compared
to $3.0 million in First Half of Fiscal 2001. Interest expense as a percentage
of revenue decreased by 0.4% to 1.2% for First Half of Fiscal 2002. This
decrease was primarily the result of lower average borrowings under the
Company's bank line of credit.
INTEREST INCOME remained flat at $0.3 million for First Half of Fiscal 2002.
Interest income as a percentage of net revenue remained relatively unchanged at
0.2%.
OTHER INCOME AND EXPENSE reflects income of $1.8 million in First Half of Fiscal
2002, compared to income of $0.1 million in First Half of Fiscal 2001. This
increase primarily reflects a gain on foreign currency transactions of
$1.1 million in the First Half of 2002.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAXES for First Half of Fiscal
2002 reflects a non-cash transition charge to income of $13.7 million related to
the adoption of SFAS 142. The $2.5 million charge for First Half of Fiscal 2001
was due to the adoption of SAB 101 as it related to revenue recognition.
NET INCOME (LOSS) yielded a net loss of $4.8 million for First Half of Fiscal
2002, compared to net income of $1.6 million for First Half of Fiscal 2001. The
decrease is primarily the result of adoption of SFAS 142 in Fiscal 2002 and the
related cumulative effect. Before the cumulative effect of accounting change,
net income increased $4.7 million, partially due to the non-recurring gain of
$2.6 million on the sale of an investment recorded in the First Half of 2002.
The improved earnings were also due to the Company's focus on several cost
control initiatives and the alignment of resources with current and anticipated
economic conditions. Net loss as a percentage of net revenue was 2.7% for First
Half of Fiscal 2002, and net income as a percentage of revenue was 0.9% for
First Half of Fiscal 2001. The effective tax rate for First Half of Fiscal 2002
was 30.6%, compared to 33.9% for First Half of Fiscal 2001.
CAPITAL RESOURCES AND LIQUIDITY
CASH FLOWS FROM OPERATING ACTIVITIES provided cash of $36.9 million during the
First Half of Fiscal 2002, compared to cash provided of $17.6 million during the
First Half of Fiscal 2001. The increase in cash provided by operating activities
during the First Half of Fiscal 2002 was the result of working capital
improvements in the operations of the core business and reductions in accounts
receivable of $24.2 million and inventories of $9.8 million. These increases in
available cash were partially offset during the First Half of Fiscal 2002 by a
decrease in accrued compensation and benefits of $9.2 million and advance
billings to customers of $4.5 million.
CASH FLOWS FROM INVESTING ACTIVITIES provided cash of $3.1 million during the
First Half of Fiscal 2002, compared with cash usage of $3.4 million in the First
Half of Fiscal 2001. Cash was provided by investing activities in 2002
principally provided through $4.9 million gross proceeds from the sale of an
investment during Second Quarter of Fiscal 2002.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
CASH FLOWS FROM FINANCING ACTIVITIES required the use of cash totaling $2.9
million during the First Half of Fiscal 2002, compared to usage of $13.3 million
for the First Half of Fiscal 2001. During the First Half of Fiscal 2002, the
Company's increase in cash flows from operating activities allowed it to
internally fund its capital expenditures, dividend payments, and purchases of
treasury stock.
Under the terms of its credit agreements, the Company has agreed to certain
financial covenants. At March 31, 2002, 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 ongoing operations, allow for
investment in opportunities to internally grow its business, and make selected
strategic acquisitions.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Contractual Obligations Total Less than 1 year 1 - 3 years 4-5 years After 5 years
----------------------- -----------------------------------------------------------------------------------
Long-Term Debt $57,620 5,299 16,059 14,713 21,549
Capital Lease Obligations 353 135 154 63 1
Operating Leases 12,873 3,415 4,840 1,685 2,933
Other Long-Term Obligations 1,785 166 320 491 808
---------------------------------------------------------------------------------
$72,631 $ 9,015 $21,373 $16,952 $25,291
=================================================================================
Amount of Commitment Expiration Per Period (in thousands of dollars)
Total Amounts
Other Commercial Commitments Committed Less than 1 year 1 - 3 years 4-5 years After 5 years
---------------------------- -----------------------------------------------------------------------------------
Standby Letters of Credit $ 30,371 $ 16,666 $13,705 $ -- $ --
Guarantees 7,776 1,337 6,423 16 --
Other Comercial Commitments 12,945 2,520 9,557 651 217
------------------------------------------------------------------------------
$ 51,092 $ 20,523 $29,685 $667 $217
==============================================================================
OTHER MATTERS
The Company is exposed to market risk from changes in foreign currency exchange
rates that may affect its results from operations and financial condition. To
minimize that risk, the Company manages exposure to changes in foreign currency
rates through its regular operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments, principally
forward exchange contracts. Foreign exchange contracts are used to hedge the
Company's overall exposure to exchange rate fluctuations, since the gains and
losses on these contracts offset gains and losses on the assets, liabilities,
and transactions being hedged.
The Company's dividend policy is to maintain a payout ratio that 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 approximately 25% of earnings per share over the long term.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
FORWARD LOOKING STATEMENTS
Statements included or incorporated by reference in this Management's Discussion
and Analysis of Financial Condition and Results of Operations and elsewhere in
this Form 10-Q/A 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 unknown to the Company concerning the
expected results. In addition, the Company may not be aware of the
introduction of new products or product enhancements by its
competitors.
(ii) Possible significant volatility in both backlog and quarterly
operating results may result from individual large, fixed price
orders in connection with sales of MT&S systems.
(iii) Order volumes and other operating considerations may be directly
or indirectly impacted by economic conditions generally and/or in
various geographic areas in which the Company operates.
(iv) 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 operating results and could have a material adverse
effect on results of operations. Local political conditions and/or
currency restrictions may also affect foreign revenue.
(v) 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.
(vi) The Company experiences competition on a worldwide basis.
Customers may choose to purchase equipment from the Company or
from its competitors. For certain of the Company's products,
customers may also contract with testing laboratories or construct
their own testing equipment, purchasing commercially available
components. Factors that may influence a customer's decision
include price, service or required level of technology.
(vii) The Company is exposed to market risk from changes in foreign
currency exchange rates, which can affect its results from
operations and financial condition.
(viii) The Company's short-term borrowings carry interest rate risk that
is generally related to either LIBOR or the prime rate. The
Company has minimal earnings and cash flow exposure due to market
risks on its long-term debt obligations as a result of the
primarily fixed-rate nature of the debt
The foregoing list is not exhaustive, and the Company disclaims any obligation
to 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The required disclosures are included in Note 6 to the Condensed Notes to
Consolidated Financial Statements included in Item 1 of this Form 10-Q/A,
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 Form 10-K for Fiscal Year 2002 filed with the SEC.
22
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Shareholders was held on January 29,
2002.
(b) The following persons were nominated and elected to continue as
directors of the Company until the next Annual Meeting of
Shareholders.
Voted For Voted Against
--------- -------------
Charles A. Brickman 19,157,214 157,637
Jean-Lou Chameau 19,129,535 158,122
Sidney W. Emery 19,096,664 190,993
Bobby I. Griffin 19,131,108 156,549
Brendan C. Hegarty 19,122,474 165,183
Bruce D. Hertzke 19,130,020 157,637
Barb J. Samardzich 19,141,953 145,704
Linda Hall Whitman 19,130,372 157,285
There were no abstentions or broker non-votes for any of the
directors.
(c) Shareholders approved the 2002 Employee Stock Purchase Plan with
17,054,097 votes in favor, 1,411,357 votes against, and 67,300 votes
abstained. There were 304,903 broker non-votes.
(d) Arthur Andersen LLP was ratified to serve as the Company's
independent auditors for fiscal year 2002 with 18,772,656 votes in
favor, 1,411,357 votes against, and 123,949 votes abstained. There
were 115,991 broker non-votes.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.a Restated and Amended Articles of Incorporation, adopted
January 30, 1996, incorporated by reference from Exhibit 3.a.
of Form 10-K for the year ended September 30, 1996.
3.b Restated Bylaws, reflecting amendments through May 26, 1998,
incorporated by reference from Exhibit 3.b. of Form 10-K for
the year ended September 30, 1998.
99.1 Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) (Filed
herewith).
23
99.2 Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) (filed
herewith).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended March 31, 2002.
24
SIGNATURES
Pursuant to the requirements 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
Date: December 27, 2002 /s/ Sidney W. Emery, Jr.
------------------------------------------
Sidney W. Emery, Jr.
Chairman, President and
Chief Executive Officer
Date: December 27, 2002 /s/ Susan E. Knight
------------------------------------------
Susan E. Knight
Vice President and Chief Financial Officer
CERTIFICATIONS
I, Sidney W. Emery, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of MTS Systems
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: December 27, 2002
/S/ SIDNEY W. EMERY JR.
-----------------------------------
SIDNEY W. EMERY JR.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
25
CERTIFICATIONS
(continued)
I, Susan E. Knight, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of MTS Systems
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: December 27, 2002
/S/ SUSAN E. KNIGHT
-----------------------------------
SUSAN E. KNIGHT
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
26
EXHIBIT INDEX TO FORM 10-Q/A
99.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
99.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
27