United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
or the Securities Exchange Act of 1934
For quarterly period ended June 30, 1994
Commission File Number 0-2382
MTS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction of
incorporation or organization)
612-937-4000
(Telephone number of registrant
including area code)
41-0908057
(I.R.S. Employer
Identification No.)
14000 Technology Drive, Eden Prairie, Minnesota 55344
(Address/Zip Code of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.25 par value; 4,605,678 shares outstanding.
PART I. FINANCIAL INFORMATION
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND SEPTEMBER 30, 1993
JUNE SEPT 30
1994 1993
ASSETS UNAUDITED AUDITED
---------- ---------------
(expressed in $ 000's)
Cash and cash equivalents $8,195 $7,597
Accounts receivable 45,569 41,841
Unbilled contracts and retainage receivable 30,754 47,066
Inventories-
Customer jobs-in-process 11,542 7,394
Components, assemblies and parts 20,588 17,615
Prepaid expenses 5,355 1,932
---------- ---------------
Total current assets 122,003 123,445
---------- ---------------
Land 3,703 3,725
Buildings and improvements 36,127 27,532
Machinery and equipment 49,367 45,376
Accumulated depreciation (42,074) (39,379)
---------- ---------------
Total property and equipment 47,123 37,254
---------- ---------------
Other assets 5,770 5,017
---------- ---------------
$174,896 $165,716
========== =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Notes payable to banks $23,317 $28,602
Current maturities of long-term debt 1,037 2,194
Accounts payable 10,455 6,882
Accrued compensation and benefits 15,416 16,085
Accrued income taxes 1,592 726
Other accrued liabilities 8,011 5,148
Advance billings to customers 6,514 7,324
---------- ---------------
Total current liabilities 66,342 66,961
---------- ---------------
Deferred income taxes 2,651 3,241
Long-term debt, less current maturities 6,638 2,503
---------- ---------------
Common stock, $.25 par; 16,000,000 shares
authorized: 4,605,678 and 4,543,603
shares issued and outstanding 1,151 1,136
Additional paid-in capital 3,801 2,677
Retained earnings 90,281 85,661
Cumulative translation adjustment 4,032 3,537
---------- ---------------
Total shareholders' investment 99,265 93,011
---------- ---------------
$174,896 $165,716
========== =========
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1994 AND 1993
(UNAUDITED)
FOR THE 3 MONTHS ENDED
JUNE 30
1994 1993
------------ ---------------
(expressed in 000's except
for per share amounts)
NET SALES $48,468 $48,824
COST OF SALES 29,566 28,698
-------- -------
Gross profit 18,902 20,126
OPERATING EXPENSES:
Selling 10,744 9,668
General and administrative 3,406 2,790
Research and development 3,253 2,769
Interest expense 552 567
Interest income (116) (109)
Other (income) and expense, net
(including $.7 million gain
from real estate transaction in 1993) (379) 80
-------- -------
Total operating expense 17,460 15,765
-------- -------
INCOME BEFORE INCOME TAXES 1,442 4,361
PROVISION FOR INCOME TAXES 440 1,497
-------- -------
NET INCOME $1,002 $2,864
======== =======
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $0.21 $0.63
======== =======
DIVIDENDS PER SHARE $0.14 $0.12
======== =======
BACKLOG $89,327 $99,405
======== =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,686 4,580
======== =======
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30, 1994 AND 1993
(UNAUDITED)
FOR THE 9 MONTHS ENDED
JUNE 30
1994 1993
-------- ---------------
(expressed in 000's except
for per share amounts)
NET SALES $142,065 $132,008
COST OF SALES 86,340 77,306
-------- -------
Gross profit 55,725 54,702
OPERATING EXPENSES:
Selling 29,667 27,017
General and administrative 9,429 7,719
Research and development 9,282 8,694
Interest expense 1,504 1,316
Interest income (211) (379)
Other (income) and expense, net (including
$3.7 and $.7 million gain
from real estate transactions
in 1994 and 1993, respectively (3,929) 138
-------- -------
Total operating expense 45,742 44,505
-------- -------
INCOME BEFORE INCOME TAXES 9,983 10,197
PROVISION FOR INCOME TAXES 3,440 3,471
-------- -------
NET INCOME $6,543 $6,726
======== =========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $1.40 $1.48
======== =========
DIVIDENDS PER SHARE $0.42 $0.36
======== =========
BACKLOG $86,327 $99,405
======== =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,679 4,546
======== =========
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1994 AND 1993
(UNAUDITED)
<catpion>
FOR THE 9 MONTHS ENDED
JUN 30 JUN 30
1994 1993
-------- -------------
(expressed in $000's)
OPERATING ACTIVITIES
Net income $6,543 $6,726
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 4,492 4,068
Deferred income taxes (590) (100)
Foreign currency translation adjustment 495 (954)
Changes in operating assets and liabilities:
Receivables, including accounts, unbilled
contracts and retainages 12,584 (9,777)
Inventories (7,121) (5,716)
Prepaid expenses (3,423) (1,007)
Accrued income taxes 867 (1,210)
Advance billings to customers (811) 348
Other, net 5,767 3,389
-------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 18,803 (4,233)
-------- --------
INVESTING ACTIVITIES
Property and equipment, net (14,108) (3,246)
Investment in Custom Servo Motors, Inc. -- (471)
Excess purchase cost over assets acquired in Adamel Lhomargy (40) --
Other assets (967) 541
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (15,115) (3,176)
-------- --------
FINANCING ACTIVITIES
Net borrowings (payments) on notes payable (5,285) 12,439
Proceeds from issuance of long-term debt 9,690 --
Payments on long-term borrowings (6,711) (2,238)
Cash dividends (1,923) (1,606)
Proceeds from employee stock option
and stock purchase plans 1,165 1,033
Payments to purchase and retire common stock (26) (1,177)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES (3,090) 8,451
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 598 1,042
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,597 9,277
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $8,195 $10,319
======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND TRANSLATION. The consolidated financial statements
include the accounts of MTS SYSTEMS CORPORATION (the Company) and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated.
All balance sheet accounts of foreign subsidiaries are translated at
the current exchange rate as of the end of the accounting period. Income
statement items are translated at average currency exchange rates. The resulting
translation adjustment is recorded as a separate component of shareholders'
investment. Gains and losses resulting from foreign currency transactions are
included in "Other (income) and expense, net" in the consolidated Statements of
Income.
REVENUE RECOGNITION. Revenue is recognized upon shipment of equipment
when the customer's order can be manufactured 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-cost method).
The cumulative effects of revisions of estimated total contract costs and
revenues are recorded in the period in which the facts become known. When a loss
is anticipated on a contract, the amount thereof is provided currently.
LONG-TERM CONTRACTS. The Company enters into long-term contracts for
customized equipment sold to its customers. Under terms of certain contracts,
revenue recognized using the percent of completion method may not be invoiced
until completion of contractual milestones, upon shipment of the equipment, or
upon installation and acceptance by the customer. Unbilled amounts for such
contracts appear in the consolidated balance sheets as unbilled contracts and
retainage receivable. Amounts unbilled or retained at June 30, 1994 are expected
to be invoiced as follows: $22,322,000 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 quarters ended December 31, 1993 and June 30, 1994 was also
not significant.
ACQUISITION. During the quarter ended March 31, 1994, the Company
acquired the stock of Adamel-Lhomargy, a French manufacturer of material testing
systems, for cash and assumption of debt. The Consolidated Balance Sheet at June
30, 1994 includes the assets and liabilities of Adamel, and the Consolidated
Statement of Income for the three and nine months periods ended June 30, 1994
includes the operations of Adamel from the effective date of the acquisition.
Adamel had revenues of under $10 million in its most recent fiscal
year. Neither the balance sheet nor the results of operations for Adamel's most
recent fiscal year or the quarter ended June 30, 1994 were significant with
respect to the Company's Consolidated Balance Sheets or Consolidated Statements
of Income prepared as of September 30, 1993 or June 30, 1994, respectively.
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 third quarter of fiscal 1994, ended June 30 were
$51,242,000, a 29% increase over the comparable quarter in fiscal 1993. Orders
in the Mechanical Testing and Simulation sector increased 28% from the same
quarter in 1993. Large dollar orders for the quarter were 23% of new orders in
1994 and 1993. Orders in the Measurement and Automation sector increased 38% for
the quarter ended in 1994 compared to the same quarter in 1993.
New orders for the nine months ended June 30, 1994 were $141,512,000
compared to $131,970,000 for the same period one year ago, a 7% increase. Orders
in the Mechanical Testing and Simulation sector were 2% higher than last year
while orders in the Measurement and Automation sector were 38% ahead of last
year. Large orders comprise 25% of the total in 1994 compared to 34% of the 1993
order volume. International orders were 52% of the 1994 total compared to 46%
for 1993.
Backlog of undelivered orders at June 30, 1994 was $89,327,000
compared to $99,405,000 at March 31, 1993 and $88,731,000 at September 30, 1993.
Results of Operations
Revenues for the third quarter were $48,468,000, a 1% decrease from the
same quarter one year ago. International content of revenue was 53% and 47% for
the quarters ended June 30, 1994 and 1993, respectively.
Income before income taxes decreased 67% to $1,442,000 compared to
$4,361,000 for the second quarter ended a year ago. The decrease in pretax
earnings resulted from lower gross margins on 1994 projects and increased
operating expenses. Certain large custom-content projects in the Company's
Mechanical Testing and Simulation sector are experiencing lower gross margins
arising from technical challenges and competitive pricing pressure. Operating
expenses increased nearly $1.7 million, principally in selling, administration
and in product development. The increase reflects investments in domestic servo
motor business and markets in the Far-east and Europe, including the new French
acquisition. Such investments are consistent with revenue growth in those areas.
Net income for the quarter was $1,002,000 a 65% decrease compared to
the comparable quarter one year ago. The effective tax rate for the quarter
ended June 30, 1994 was 30% compared to 34% for the quarter ended in June,
1993.
Revenues for the nine months ended in June, 1994 were $142,065,000, an
8% increase from the $132,008,000 reported one year ago. International revenues
were 51% compared to 50% for the periods ended in June of 1994 and 1993,
respectively. Revenues in the Material Testing and Simulation sector increased
3% while Measurement and Automation revenues increased 33% over revenues
reported one year ago.
Income before income taxes for the first nine months of 1994, decreased
2% to $9,983,000 from $10,197,000 reported in 1993. Gross margins as a percent
of sales were 39.2% in 1994 compared to 41.4% in 1993. The decline in margins
is discussed above and is the principal reason for the decline in pretax
income. The effect of reduced gross margin was offset by a $3.7 million
non-operating gain from the sale of the Berlin plant, reported in the second
quarter. Operating expenses (exclusive of the gain in 1994 and a similar,
though much smaller, gain in 1993) as a percent of sales were 34.8% compared to
34.2% for the nine months ended in June, 1994 and 1993, respectively.
Net income for the first nine months of 1994 was $6,543,000 compared to
$6,726,000 reported one year ago, a 3% decrease. The income tax rates were 34%
and 34% for the nine months ended in 1994 and 1993, respectively.
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 quarters ended in December, 1993, March, 1994 and June also
were not significant.
Financial Condition and Liquidity
The ratio of current assets to current liabilities was 1.8 at June 30,
1994 and September 30, 1993. Cash and cash equivalents were $8,195,000 at June
30, 1994 compared to $7,597,000 at September 30, 1993. The Company's borrowing
under its $70 million lines of credit was $23 million at June 30, 1994 compared
to $29 million at September 30, 1993.
Capital expenditures, net of retirements for the nine months totalled
$14,108,000. The purchase of a new Berlin plant facility accounts for $10
million of the expenditure. The Company's total debt to equity ratio decreased
to 31% at June 30, 1994 from 36% at September 30, 1993. However, MTS undertook
additional debt to purchase the new plant in Berlin and acquire Adamel-Lhomargy
during the nine month period ended in June. The resulting decrease in the total
debt to equity ratio reflects conversion of unbilled receivables to cash over
the nine months and use of the proceeds from the sale of its old facility in
Berlin to repay a portion of the additional financing undertaken. Negotiations
are underway to restructure the remaining indebtedness with a mortgage.
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.
SIGNATUREs
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MTS SYSTEMS CORPORATION
/s/ D.M. Sullivan
D.M. Sullivan
Chairman, President and
Chief Executive Officer
/s/ M.L. Carpenter
M.L. Carpenter
Vice President
Chief Financial Officer
Dated: August 12, 1994