FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For quarterly period ended 31 December 1993
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 officer) (Zip code)
(612)937-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date. Common stock, $.25 par value;
4,555,832 shares outstanding.
PART I. FINANCIAL INFORMATION
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND SEPTEMBER 30, 1993
DEC 31 SEPT 30
1993 1993
ASSETS UNAUDITED AUDITED
(expressed in $ 000's)
Cash and cash equivalents $7,519 $7,597
Accounts receivable 38,911 41,841
Unbilled contracts and retainage receivable 50,491 47,066
Inventories-
Customer jobs-in-process 6,849 7,394
Components, assemblies and parts 17,345 17,615
Prepaid expenses 3,257 1,932
Total current assets 124,372 123,445
Land 3,867 3,725
Buildings and improvements 36,620 27,532
Machinery and equipment 46,071 45,376
Accumulated depreciation (39,671) (39,379)
Total property and equipment 46,887 37,254
Other assets 4,935 5,017
$176,194 $165,716
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Notes payable to banks 40,886 28,602
Current maturities of long-term debt 1,375 2,194
Accounts payable 5,073 6,882
Accrued compensation and benefits 14,422 16,085
Accrued income taxes 1,933 726
Other accrued liabilities 6,760 5,148
Advance billings to customers 6,503 7,324
Total current liabilities 76,952 66,961
Deferred income taxes 2,619 3,241
Long-term debt, less current maturities 2,299 2,503
Common stock, $.25 par; 16,000,000 shares
authorized: 4,555,832 and 4,543,603
shares issued and outstanding 1,139 1,136
Additional paid-in capital 2,849 2,677
Retained earnings 87,383 85,661
Cumulative translation adjustment 2,953 3,537
Total shareholders' investment 94,324 93,011
176,194 165,716
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED DECEMBER 31, 1993 AND 1992
(UNAUDITED)
FOR THE 3 MONTHS ENDED
DECEMBER 31
1993 1992
(expressed in 000's except
for per share amounts)
NET SALES $47,241 $40,016
COST OF SALES 27,797 23,311
Gross profit 19,444 16,705
OPERATING EXPENSES:
Selling 9,254 8,621
General and administrative 2,748 2,151
Research and development 2,672 2,624
Interest expense 398 336
Interest income (52) (86)
Other (income) and expense, net 898 597
Total operating expense 15,918 14,243
INCOME BEFORE INCOME TAXES 3,526 2,462
PROVISION FOR INCOME TAXES 1,166 788
NET INCOME $2,360 $1,674
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE 0.51 0.37
DIVIDENDS PER SHARE 0.14 0.12
BACKLOG 80,342 112,914
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,666 4,540
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 3 MONTHS ENDED DECEMBER 31, 1993 AND 1992
(UNAUDITED)
FOR THE 3 MONTHS ENDED
DEC 31 DEC 31
1993 1992
(expressed in $000's)
OPERATING ACTIVITIES
Net income $2,360 $1,674
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,320 1,270
Deferred income taxes (622) (72)
Foreign currency translation adjustment (584) (1,212)
Changes in operating assets and liabilities:
Receivables, including accounts, unbilled
contracts and retainages (495) 916
Inventories 815 (814)
Prepaid expenses (1,325) (793)
Accrued income taxes 1,207 (446)
Advance billings to customers (821) 4,193
Other, net (1,861) (1,393)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (6) 3,323
INVESTING ACTIVITIES
Property and equipment, net (10,893) (322)
Investment in Custom Servo Motors, Inc. -- (471)
Other assets 22 138
NET CASH USED IN INVESTING ACTIVITIES (10,871) (655)
FINANCING ACTIVITIES
Net borrowings (payments) on notes payable 12,284 4,948
Payments on long-term borrowings (1,023) (2,011)
Cash dividends (637) (536)
Proceeds from employee stock option
and stock purchase plans 175 151
Payments to purchase and retire common stock -- (712)
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,799 1,840
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (78) 4,508
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,597 9,277
CASH AND CASH EQUIVALENTS AT END OF PERIOD $7,519 $13,785
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND TRANSLATION. The consolidated financial statements include
the accounts of MTS SYSTEMS CORPORATION (the Company) and its wholly owned
subsidiaries. All significant intercompany balances and transactions have
been eliminated.
All balance sheet accounts of foreign subsidiaries are translated at the
current exchange rate as of the end fo the accounting period. Income
statement items are translated at average currency exchange rates. The
resulting translation adjustment is recorded as a separate component of
shareholders' investment. Gains and losses resulting from foreign currency
transactions are included in "Other (income) and expense, net" in the
consolidated Statements of Income.
REVENUE RECOGNITION. Revenue is recognized upon shipment of equipment when
the customer's order can be manufactured and delivered in less than nine
months. Revenue on contracts requiring longer delivery periods (long-term
contracts) and other customized orders which permit progress billings is
recognized using the percentage of completion method based on the cost
incurred to date relative to estimated total cost of the contract (cost-to-co-
st method). The cumulative effects of revisions of estimated total contract
costs and revenues are recorded in the period in which the facts become known.
When a loss is anticipated on a contract, the amount thereof is provided
currently.
LONG-TERM CONTRACTS. The Company enters into long-term contracts for
customized equipment sold to its customers. Under terms of certain contracts,
revenue recognized using the percent of completion method may not be invoiced
until completion of contractual milestones, upon shipment of the equipment, or
upon installation and acceptance by the customer. Unbilled amounts for such
contracts appear in the consolidated balance sheets as unbilled contracts and
retainage receivable. Amounts unbilled or retained at December 31, 1993 are
expected to be invoiced as follows: $42,059,000 in 1994 and $8,432,000 in
1995.
INCOME TAXES -- CHANGE IN ACCOUNTING METHOD. Effective October 1, 1993, the
Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes (SFAS No. 109) under which deferred income tax
assets and liabilities are recognized for the differences between financial
and income tax reporting bases of assets and liabilities based on enacted tax
rates and laws. Provision for Income Taxes is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax
assets and liabilities.
The cumulative effect of adopting SFAS No. 109 was not significant. The
impact of the Company's change in accounting for income taxes on the results
of operations for the quarter ended December 31, 1993 was also not signifi-
cant.
Temporary differences which resulted in deferred income tax assets and
liabilities as of December 31, 1993 and September 30, 1993 are as follows:
Dec 31 Sept 30
1993 1993
Deferred Income Tax Assets
Accounts receivable reserve $282,000 $282,000
Inventory allowances 1,096,000 1,098,000
Accrued expenses 1,226,000 1,103,000
Other 31,000 32,000
Deferred tax asset valuation allowance - -
2,635,000 2,515,000
Deferred Income Tax Liabilities
Depreciation 2,841,000 2,821,000
Long-term contracts 627,000 627,000
Capitalized expenses 501,000 589,000
Other 1,285,000 1,719,00
5,254,000 5,756,000
Net Deferred Income Tax Liability $2,619,000 $3,241,000
OTHER FINANCIAL STATEMENT DISCLOSURE. The Notes to Consolidated Financial
Statements appearing in the Company's September 30, 1993 Annual Report to
Shareholders on pages 22 through 28 are incorporated herein by reference.
MANAGEMENT'S INTERIM FINANCIAL STATEMENT REPRESENTATION. The unaudited
interim financial statements furnished herein reflect all adjustments which
are, in the opinion of management, necessary to a fair statement of the
results of the interim periods presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
New Orders and Backlog
New orders for the first quarter of fiscal 1994, ended December 31, 1993, were
$38,852,000, a 28% decrease over the comparable quarter in fiscal 1993.
Orders in the Mechanical Testing and Simulation sector were lower than
expectations. Large dollar orders for the quarter fell short of targets while
orders for the quarter ended in 1992 included two large orders, one each from
Europe and Asia. The Company expects orders in this sector to rebound in the
second quarter and for the year. Orders in the Measurement and Automation
sector increased 15% over the same period a year ago. Increases came from
sensor and servo motor product lines. The international content of new orders
was 48% compared to 68% for the same period one year ago. Backlog of
undelivered orders at December 31, 1993 was $80,342,000, a decrease of 9% from
September 30, 1993.
Results of Operations
Revenues for the first quarter were $47,241,000 a 18% increase from the same
quarter one year ago. In response to customer requests the Company acceler-
ated shipments to meet delivery requirements. Revenues for 1994 were ahead of
the first quarter plan. International content of shipments was 52% and 57%
for the quarters ended December 31, 1993 and 1992, respectively.
Income before income taxes increased 43% to $3,526,000 compared to $2,462,000
for the quarter ended a year ago. The increase in pretax earnings resulted
primarily from increased sales volume partially offset by increased operating
expenses for selling, administrative, and the impact of translating the
financial statements and the settlement of specific transactions denominated
in foreign currencies. Increases in operating expenses reflect investments in
the Far-east and European markets and the domestic servo motor business. The
gross margin percents were 41.1% and 41.7% for the periods ended December 31,
1993 and 1992.
Net income for the quarter was $2,360,000 a 41% increase compared to the
comparable quarter one year ago. The effective tax rate for the quarter ended
December 31, 1993 was 33% compared to 32% for the quarter ended in December,
1992 and 30% for the year ended September 30, 1993.
The cumulative effect of the Company's change in accounting to adopt SFAS No.
109 was not significant. The impact of the change on the results of
operations for the quarter ended December 31, 1993 also was not significant.
Financial Condition and Liquidity
The ratio of current assets to current liabilities at December 31 was 1.6
compared to 1.8 at September 30, 1993. Cash and cash equivalents were
$7,519,000 at December 31 compared to $7,597,000 at September 30, 1993. The
Company's borrowing under its $70 million lines of credit was $40,886,000 at
December 31 compared to $28,602,000 at September 30, 1993. The increase in
borrowing results from the purchase of a new plant facility in Berlin and
acceleration of payments on long-term debt (to arbitrage interest rates).
Capital expenditures, net of retirements for the first quarter totalled
$10,893,000. The purchase of a new Berlin plant facility accounts for most of
the expenditure. The Company's total debt to equity ratio increased to 47% at
December 31 from 36% at September 30,1993 reflecting the use of short-term
notes to finance that purchase. The Company intends to reduce short-term
borrowings with proceeds from the sale of its existing Berlin facility. The
closing for this transaction is scheduled during the second quarter and is
expected to result in a non-recurring gain of approximately $.30 per share. A
mortgage will finance the remaining indebtedness on the new facility when the
current property is sold.
The Company's past financial performance, the availability of credit under
its borrowing facilities, available cash and cash equivalents provide
sufficient resources for growth, expansion and diversification.
PART II-------OTHER INFORMATION
Item 5. Other Information
Purchase and sale of new plant facility:
During the quarter ended December 31, 1993 the Company completed the purchase
of a new plant facility in Berlin. Discussion of the purchase, sale of the
existing Berlin facility and the resultant gain on the transactions is
contained in Part I, Management's Discussion and Analysis of Financial
Position and Results of Operations (Financial Condition). The material
discussed therein is incorporated by reference to item 5.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
MTS SYSTEMS CORPORATION
/s/ D.M. Sullivan
D.M. Sullivan
President
Chief Executive Officer
/s/ M.L. Carpenter
M.L. Carpenter
Vice President
Chief Financial Officer
Dated: February 14, 1994