United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
or the Securities Exchange Act of 1934
For quarterly period ended December 31, 1994
Commission File Number 0-2382
MTS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 612-937-4000
(State or other jurisdiction of (Telephone number of registrant
incorporation or organization) including area code)
41-0908057
(I.R.S. Employer Identification No.)
14000 Technology Drive, Eden Prairie, Minnesota 55344
(Address/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; 4,445,093 shares outstanding.
PART I. FINANCIAL INFORMATION
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND SEPTEMBER 30, 1994
DEC 31 SEPT 30
1994 1994
ASSETS UNAUDITED AUDITED
(expressed in $ 000's)
Cash and cash equivalents $7,579 $4,919
Accounts receivable 45,167 44,534
Unbilled contracts and retainage receivable 29,837 35,584
Inventories-
Customer jobs-in-process 17,392 14,336
Components, assemblies and parts 20,097 20,816
Prepaid expenses 3,609 3,017
Total current assets 123,681 123,206
Land 3,703 3,703
Buildings and improvements 36,682 36,452
Machinery and equipment 51,654 50,803
Accumulated depreciation (45,068) (43,590)
Total property and equipment 46,971 47,368
Other assets 8,914 5,134
$179,566 $175,708
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Notes payable to banks $26,330 $17,007
Current maturities of long-term debt 1,463 1,516
Accounts payable 8,826 10,969
Accrued compensation and benefits 16,423 18,058
Accrued income taxes (753) 981
Other accrued liabilities 8,702 8,170
Advance billings to customers 11,570 9,660
Total current liabilities 72,561 66,361
Deferred income taxes 3,980 3,973
Long-term debt, less current maturities 5,161 5,328
Common stock, $.25 par; 16,000,000 shares
authorized: 4,445,093 and 4,568,374
shares issued and outstanding 1,111 1,142
Additional paid-in capital 166 2,928
Retained earnings 92,368 91,762
Cumulative translation adjustment 4,219 4,214
Total shareholders' investment 97,864 100,046
$179,566 $175,708
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED DECEMBER 31, 1994 AND 1993
(UNAUDITED)
FOR THE 3 MONTHS ENDED
DECEMBER 31
1994 1993
(expressed in 000's except
for per share amounts)
NET SALES $49,468 $47,241
COST OF SALES 31,273 27,797
Gross profit 18,195 19,444
OPERATING EXPENSES:
Selling 10,147 9,254
General and administrative 3,145 2,748
Research and development 2,979 2,672
Interest expense 416 398
Interest income (25) (52)
Other (income) and expense, net (119) 898
Total operating expense 16,543 15,918
INCOME BEFORE INCOME TAXES 1,652 3,526
PROVISION FOR INCOME TAXES 413 1,166
NET INCOME $1,239 $2,360
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $0.27 $0.51
DIVIDENDS PER SHARE $0.14 $0.14
BACKLOG $89,552 $80,342
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,551 4,666
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 3 MONTHS ENDED DECEMBER 31, 1994 AND 1993
(UNAUDITED)
FOR THE 3 MONTHS ENDED
DEC 31 DEC 31
1994 1993
(expressed in $000'S)
OPERATING ACTIVITIES
Net income $ 1,239 $ 2,360
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,623 1,320
Deferred income taxes 7 (622)
Foreign currency translation adjustment 5 (584)
Changes in operating assets and liabilities:
Receivables, including accounts, unbilled
contracts and retainages 5,114 (495)
Inventories (2,337) 815
Prepaid expenses (592) (1,325)
Accrued income taxes (1,734) 1,207
Advance billings to customers 1,910 (821)
Other, net (3,246) (1,861)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,989 (6)
INVESTING ACTIVITIES
Property and equipment, net (1,111) (10,893)
Excess purchase cost for MTS Power Tek, Inc. (3,746) --
Other assets (149) 22
NET CASH USED IN INVESTING ACTIVITIES (5,006) (10,871)
FINANCING ACTIVITIES
Net borrowings (payments) on notes payable 9,323 12,284
Payments on long-term borrowings (220) (1,023)
Cash dividends (633) (637)
Proceeds from employee stock option
and stock purchase plans 55 175
Payments to purchase and retire common stock (2,848) --
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,677 10,799
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,660 (78)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,919 7,597
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,579 $ 7,519
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, delivered and installed 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 December 31, 1994 are
expected to be invoiced as follows: $25,636,000 in 1995 and $4,201,000 in 1996.
INCOME TAXES -- CHANGE IN ACCOUNTING METHOD. The Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes
effective October 1, 1993. The effect of such adoption was not significant on
the Company's financial position or results of operations for the quarter ended
December 31, 1993 or the year ended September 30, 1994.
OTHER FINANCIAL STATEMENT DISCLOSURE. The Notes to Consolidated Financial
Statements appearing in the Company's September 30, 1994 Annual Report to
Shareholders on pages 20 through 25 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 fairly state 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 1995, ended December 31, 1994,
were $52,051,000, a 34% increase over the comparable quarter in fiscal 1994. The
increase for the quarter ended in December, 1994, was expected because order
volume in 1993 reflected weak demand in Europe and Japan for the Mechanical
Testing and Simulation (MT&S) sector. In 1994 MT&S orders were 31% ahead of the
prior year primarily on the resurgence of the U. S. auto industry. Recent
acquisitions, MTS-Power Tek and Adamel Lhomargy S.A., contributed nearly $8
million of the increase. The international content of new orders was 45%
compared to 48% for the same period one year ago. European order volume was
level with last year while orders from Japan were slightly less than expected.
Backlog of undelivered orders at December 31, 1994 was $89,552,000, an increase
of 6% from September 30, 1994.
Results of Operations
Revenues for the first quarter were $49,468,000 a 5% increase from the same
quarter one year ago. Much of the increase was contributed by the recent
acquisitions, mentioned above. Revenues in total were slightly ahead of the
first quarter plan for fiscal 1995. International content of shipments was 57%
and 52% for the quarters ended December 31, 1994 and 1993, respectively.
Income before income taxes decreased 53% to $1,652,000 compared to
$3,526,000 for the quarter ended a year ago. The decrease in pretax earnings
resulted primarily from low manufacturing margins in the MT&S sector. Gross
margin percents were 37% and 41% for the periods ended December 31, 1994 and
1993, respectively. The change in the Company's margins reflects shipments of
(i) lower margin system orders accepted during a period of weak demand in Europe
and Japan and (ii) other custom projects with significant technological
challenges that are nearing completion at lower than expected margins. The MT&S
sector's margins in the Company's current backlog and the mix of projected
orders suggests that profitability will improve in the second half of fiscal
1995.
Increases in operating expenses, primarily due to acquiring Power Tek and
Adamel Lhomargy, also contributed to the decline in pretax income as selling and
administrative expenses increased while the impact of translating international
subsidiary financial statements and the settlement of specific transactions
denominated in foreign currencies partially offset the increased expenses.
Net income for the quarter was $1,239,000 a 48% decrease compared to the
comparable quarter one year ago. The effective tax rate for the quarter ended
December 31, 1994 was 25% compared to 33% for the quarter ended in December,
1993 and 31% for the year ended September 30, 1994.
The cumulative effect of the Company's change in accounting to adopt SFAS
No. 109 on October 1, 1993 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 1.7
compared to 1.9 at September 30, 1994. Cash and cash equivalents increased 54%
to $7,579,000 at December 31 compared to $4,919,000 at September 30, 1994. The
Company's borrowing under its $70,000,000 lines of credit was $26,330,000 at
December 31 compared to $17,007,000 at September 30, 1994. The increase in
borrowing reflects the financing used to acquire MTS-Power Tek and to purchase
and retire shares of Company's common stock.
Capital expenditures, net of retirements for the first quarter totaled
$1,111,000. The Company's total debt to equity ratio increased to 34% at
December 31 from 24% at September 30,1994 reflecting the use of short-term notes
to finance the acquisition of Power Tek and the retirement of common shares.
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
Acquisition of MTS Power Tek, Inc.:
In November, 1994 the Company acquired the stock of Power-Tek, Inc. of
Farmington Hills, Michigan. Power-Tek manufactures dynamometers and clean-air
testing systems for the auto, truck and construction equipment industries. The
company will operate as a wholly owned subsidiary and will be known as MTS-Power
Tek, Inc. Other information on this transaction was previously reported in the
Company's Annual Report on Form 10-K. The material discussed therein is
incorporated by reference to item 5.
ITEM 6. Exhibits and Reports on Form 8-K
The following are submitted as part of this report.
(a) Exhibit
27. Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MTS SYSTEMS CORPORATION
/s/ D.M. Sullivan
D.M. Sullivan
Chairman, President and
Chief Executive Officer
/s/ M.L. Carpenter
M.L. Carpenter
Vice President
Chief Financial Officer
Dated: February 14, 1995