Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MTSC > SEC Filings for MTSC > Form 10-Q on 5-Aug-2013All Recent SEC Filings

Show all filings for MTS SYSTEMS CORP

Form 10-Q for MTS SYSTEMS CORP


5-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

About MTS Systems Corporation

MTS Systems Corporation is a leading global supplier of high-performance test systems and position sensors. The Company's testing hardware and software solutions help customers accelerate and improve their design, development, and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. MTS' high-performance position sensors provide controls for a variety of industrial and vehicular applications. MTS had 2,147 employees at September 29, 2012 and revenue of $542 million for the fiscal year ended September 29, 2012.

Financial Results

Total Company

Orders and Backlog

Three Fiscal Months Ended June 29, 2013 ("Third Quarter of Fiscal 2013") Compared to Three Fiscal Months Ended June 30, 2012 ("Third Quarter of Fiscal 2012")

Nine Fiscal Months Ended June 29, 2013 ("First Nine Fiscal Months of 2013") Compared to Nine Fiscal Months Ended June 30, 2012 ("First Nine Fiscal Months of 2012")

The following is a comparison of Fiscal 2013 and Fiscal 2012 orders, separately identifying the estimated impact of currency translation (in millions):

           Three Fiscal                                       Three Fiscal       Nine Fiscal                                        Nine Fiscal
              Months                                             Months            Months                                             Months
               Ended                  Estimated                   Ended             Ended                  Estimated                   Ended
             June 29,         Business        Currency          June 30,          June 29,         Business        Currency          June 30,
               2013            Change        Translation          2012              2013            Change        Translation          2012

Orders $ 130.3 $ (16.3 ) $ (1.4 ) $ 148.0 $ 407.2 $ (6.3 ) $ (4.9 ) $ 418.4

Orders

Orders in the Third Quarter of Fiscal 2013 totaled $130.3 million, a decrease of $17.7 million, or 12.0%, including an estimated 0.9% unfavorable impact of currency translation, compared to $148.0 million for the Third Quarter of Fiscal 2012. This decrease was driven by variability in large (in excess of $5.0 million) orders as well as a 4.0% decline in base orders (those under $5.0 million) in the Test segment ("Test"). Orders in the Third Quarter of Fiscal 2013 included one large custom Test order of approximately $6 million. Orders in the Third Quarter of Fiscal 2012 included two large custom Test orders totaling approximately $20 million. Test orders declined 14.7% while Sensors segment ("Sensors") orders grew 1.6%.

Orders in the First Nine Fiscal Months of 2013 totaled $407.2 million, a decrease of $11.2 million, or 2.7%, including an estimated 1.2% unfavorable impact of currency translation, compared to $418.4 million for the First Nine Fiscal Months of 2012. This decrease was primarily driven by a decrease in base orders and an unfavorable impact of currency translation, partially offset by an increase in large custom orders. Orders in the First Nine Fiscal Months of 2013 included four large Test orders totaling approximately $32 million. Orders in the First Nine Fiscal Months of 2012 included three large Test orders totaling approximately $25 million. Test orders declined 2.4% and Sensors orders declined 3.8%.

Backlog

Backlog of undelivered orders at the end of the Third Quarter of Fiscal 2013 was $282.5 million, a decrease of 1.4% compared to $286.5 million at the end of the Third Quarter of Fiscal 2012. While the Company's backlog is subject to order cancellations, the Company has not historically experienced a significant number of order cancellations. Second Quarter of Fiscal 2013 beginning backlog was unfavorably impacted by a custom order in Test totaling approximately $2.1 million that was cancelled during the First Quarter of Fiscal 2013. This order was booked in the previous fiscal year.

Table of Contents

Results of Operations



The following is a comparison of Fiscal 2013 to Fiscal 2012 statements of
operations (in millions, except per share data):



                                    Three Fiscal Months Ended                            Nine Fiscal Months Ended
                                   June 29,           June 30,                          June 29,           June 30,
                                     2013               2012          % Variance          2013               2012          % Variance

Revenue                          $      135.1       $      141.7             -4.7 %   $      414.6       $      404.4              2.5 %
Cost of sales                            80.5               78.0              3.2 %          249.5              225.6             10.6 %
Gross profit                             54.6               63.7            -14.3 %          165.1              178.8             -7.7 %
Gross margin                             40.4 %             44.9 %                            39.8 %             44.2 %

Operating expenses:
Selling and marketing                    20.3               19.6              3.6 %           59.0               55.8              5.7 %
General administrative                   11.6               13.0            -10.8 %           37.1               40.1             -7.5 %
Research and development                  6.3                5.1             23.5 %           16.9               16.1              5.0 %
U.S Government settlement                   -                7.8           -100.0 %              -                7.8           -100.0 %
Total operating expenses                 38.2               45.5            -16.0 %          113.0              119.8             -5.7 %

Income from operations                   16.4               18.2             -9.9 %           52.1               59.0            -11.7 %

Interest income (expense), net              -                0.2           -100.0 %           (0.2 )             (0.2 )            0.0 %
Other income (expense), net               0.4                0.1            300.0 %           (0.1 )             (0.4 )          -75.0 %

Income before income taxes               16.8               18.5             -9.2 %           51.8               58.4            -11.3 %
Income tax provision                      5.3                8.9            -40.4 %           15.4               22.1            -30.3 %
Net income                       $       11.5       $        9.6             19.8 %   $       36.4       $       36.3              0.3 %

Diluted earnings per share       $       0.72       $       0.59             22.0 %   $       2.29       $       2.26              1.3 %

The following is a comparison of Fiscal 2013 to Fiscal 2012 results of operations, separately identifying the estimated impact of currency translation (in millions):

                             Three Fiscal                                       Three Fiscal       Nine Fiscal                                        Nine Fiscal
                                Months                                             Months            Months                                             Months
                                 Ended                  Estimated                   Ended             Ended                  Estimated                   Ended
                               June 29,         Business        Currency          June 30,          June 29,         Business        Currency          June 30,
                                 2013            Change        Translation          2012              2013            Change        Translation          2012

Revenue                      $       135.1     $     (4.2 )   $        (2.4 )   $       141.7     $       414.6     $     16.6     $        (6.4 )   $       404.4
Cost of sales                         80.5            4.0              (1.5 )            78.0             249.5           28.1              (4.2 )           225.6
Gross profit                          54.6           (8.2 )            (0.9 )            63.7             165.1          (11.5 )            (2.2 )           178.8
                                      40.4 %                                             44.9 %            39.8 %                                             44.2 %
Operating expenses:
Selling and marketing                 20.3            1.0              (0.3 )            19.6              59.0            4.1              (0.9 )            55.8
General administrative                11.6           (1.4 )               -              13.0              37.1           (2.9 )            (0.1 )            40.1
Research and development               6.3            1.2                 -               5.1              16.9            0.8                 -              16.1
U.S. Government settlement               -           (7.8 )               -               7.8                 -           (7.8 )               -               7.8
Total operating expenses              38.2           (7.0 )            (0.3 )            45.5             113.0           (5.8 )            (1.0 )           119.8

Income from operations       $        16.4     $     (1.2 )   $        (0.6 )   $        18.2     $        52.1     $     (5.7 )   $        (1.2 )   $        59.0

Revenue

Revenue in the Third Quarter of Fiscal 2013 was $135.1 million, a decrease of $6.6 million, or 4.7%, compared to $141.7 million for the Third Quarter of Fiscal 2012. The decrease was driven by lower beginning backlog in both segments and reduced base order volume in Test, as well as an estimated $2.4 million unfavorable impact of currency translation. Test revenue decreased 5.1% to $110.4 million and Sensors revenue decreased 2.8% to $24.7 million.

Table of Contents

Revenue in the First Nine Fiscal Months of 2013 was $414.6 million, an increase of $10.2 million, or 2.5%, compared to $404.4 million for the First Nine Fiscal Months of 2012. The increase was primarily driven by strong backlog execution in Test, partially offset by a lower beginning backlog and reduced order volume in Sensors, as well as an estimated $6.4 million unfavorable impact of currency translation. Test revenue increased 5.3% to $345.4 million, while Sensors revenue decreased 9.5% to $69.2 million.

Gross Profit

Gross profit in the Third Quarter of Fiscal 2013 was $54.6 million, a decrease of $9.1 million, or 14.3%, compared to $63.7 million for the Third Quarter of Fiscal 2012. Gross profit as a percentage of revenue was 40.4%, a decrease of 4.5 percentage points from 44.9% for the Third Quarter of Fiscal 2012. This decrease reflects an unfavorable mix of lower margin products and services in Test. The gross profit rate was also negatively impacted by approximately 1 percentage point from continued investment in productivity and infrastructure initiatives in Test, 1 percentage point from higher warranty expense in Test, and 1 percentage point from lower engineering labor utilization in Test. These decreases were partially offset by a 1 percentage point favorable impact from lower variable compensation. The productivity and infrastructure initiatives that impact gross profit are focused on the building of a scalable enterprise and include investments in the Company's operating system and service delivery system. These investments will likely continue for the remainder of fiscal year 2013 and into fiscal year 2014.

Gross profit in the First Nine Fiscal Months of 2013 was $165.1 million, a decrease of $13.7 million, or 7.7%, compared to $178.8 million for the First Nine Fiscal Months of 2012. Gross profit as a percentage of revenue was 39.8%, a decrease of 4.4 percentage points from 44.2% for the First Nine Fiscal Months of 2012. This decrease reflects an unfavorable mix, primarily resulting from a higher proportion of lower-margin custom development products in Test. The gross profit rate was also negatively impacted by approximately 1 percentage point from continued investment in productivity and infrastructure initiatives in Test, 1 percentage point from lower engineering labor utilization in Test, and 1 percentage point from higher warranty expense in Test.

Selling and Marketing Expense

Selling and marketing expense in the Third Quarter of Fiscal 2013 was $20.3 million, an increase of $0.7 million, or 3.6%, compared to $19.6 million for the Third Quarter of Fiscal 2012. Selling and marketing expense in the First Nine Fiscal Months of 2013 was $59.0 million, an increase of $3.2 million, or 5.7%, compared to $55.8 million for the First Nine Fiscal Months of 2012. Both increases were primarily driven by higher travel and other discretionary expenses to support current sales efforts, as well as higher compensation and benefits resulting from increased headcount, partially offset by lower variable compensation and sales commissions. Selling and marketing expense as a percentage of revenue for the Third Quarter of Fiscal 2013 was 15.0%, compared to 13.8% for the Third Quarter of Fiscal 2012. Selling and marketing expense as a percentage of revenue for the First Nine Fiscal Months of 2013 was 14.2%, compared to 13.8% for the First Nine Fiscal Months of 2012.

General and Administrative Expense

General and administrative expense in the Third Quarter of Fiscal 2013 was $11.6 million, a decrease of $1.4 million, or 10.8%, compared to $13.0 million for the Third Quarter of Fiscal 2012. This decrease was primarily driven by a lower level of investment in strategic and compliance initiatives, lower variable compensation, and Chief Executive Officer ("CEO") transition-related expenses recognized in the Third Quarter of Fiscal 2012, partially offset by higher compensation and benefits driven by increased headcount. General and administrative expense as a percentage of revenue was 8.6%, compared to 9.2% for the Third Quarter of Fiscal 2012.

General and administrative expense in the First Nine Fiscal Months of 2013 was $37.1 million, a decrease of $3.0 million, or 7.5%, compared to $40.1 million for the First Nine Fiscal Months of 2012. This decrease is primarily driven by a lower level of investment in strategic and compliance initiatives, and CEO transition-related expenses recognized in the First Nine Fiscal Months of Fiscal 2012, partially offset by higher compensation and benefits driven by increased headcount, as well as senior management transition-related expenses in Sensors. General and administrative expense as a percentage of revenue was 8.9%, compared to 9.9% for the First Nine Fiscal Months of 2012.

Research and Development Expense

Research and development expense in the Third Quarter of Fiscal 2013 was $6.3 million, an increase of $1.2 million, or 23.5%, compared to $5.1 million for the Third Quarter of Fiscal 2012. Research and development expense in the First Nine Fiscal Months of 2013 was $16.9 million, an increase of $0.8 million, or 5.0%, compared to $16.1 million for the First Nine Fiscal Months of 2012. Both increases were primarily due to timing of planned expenditures in Test. Research and development expense as a percentage of revenue for the Third Quarter of Fiscal 2013 was 4.7%, compared to 3.6% for the Third Quarter of Fiscal 2012. Research and development expense as a percentage of revenue for the First Nine Fiscal Months of 2013 was 4.1%, compared to 4.0% for the First Nine Fiscal Months of 2012.

Table of Contents

U.S. Government Settlement Expense

In the fourth quarter of fiscal year 2012, the Company reached an agreement with the DOC and the USAO, settling for $7.8 million the DOC and USAO's investigation into the Company's past disclosures on its government certifications and its government contracting compliance policies, general compliance record and practices in areas including export controls and government contracts. During the Third Quarter of Fiscal 2012, the Company accrued a loss contingency equal to the settlement amount. U.S. Government settlement expense as a percentage of revenue was 5.5% and 1.9% for the Third Quarter of Fiscal 2012 and First Nine Fiscal Months of 2012, respectively.

Income from Operations

Income from operations in the Third Quarter of Fiscal 2013 was $16.4 million, a decrease of $1.8 million, or 9.9%, compared to income from operations of $18.2 million for the Third Quarter of Fiscal 2012. Income from operations in the First Nine Fiscal Months of 2013 was $52.1 million, a decrease of $6.9 million, or 11.7%, compared to income from operations of $59.0 million for the First Nine Fiscal Months of 2012. Both decreases were driven by lower gross profit, partially offset by decreased operating expenses. Operating income as a percentage of revenue for the Third Quarter of Fiscal 2013 was 12.1%, compared to 12.8% for the Third Quarter of Fiscal 2012. Operating income as a percentage of revenue for the First Nine Fiscal Months of 2013 was 12.6%, compared to 14.6% for the First Nine Fiscal Months of 2012.

Interest (Expense) Income, net

Net interest expense in the Third Quarter of Fiscal 2013 was less than $0.1 million, compared to $0.2 million of net interest income in the Third Quarter of Fiscal 2012. Net interest income in the Third Quarter of Fiscal 2012 was driven by a $0.3 million reduction in accrued interest associated with the Company's liability for uncertain tax positions.

Net interest expense in the First Nine Fiscal Months of 2013 was $0.2 million, flat compared to the First Nine Fiscal Months of 2012.

Other Income (Expense), net

Other income (expense), net in the Third Quarter of Fiscal 2013 was $0.4 million of net other income, an increase of $0.3 million compared to $0.1 million of net other income in the Third Quarter of Fiscal 2012. This increase was primarily due to $0.1 million increased net gains on foreign currency transactions in the Third Quarter of Fiscal 2013 compared to $0.2 million net losses on foreign currency transactions in the Third Quarter of Fiscal 2012.

Other income (expense), net in the First Nine Fiscal Months of 2013 was $0.1 million of net other expense, a decrease of $0.3 million compared to $0.4 million of net other expense in the First Nine Fiscal Months of 2012. This decrease is primarily due to $0.4 million higher royalty income in the First Nine Fiscal Months of 2013 associated with a Test product line that was sold by the Company in fiscal year 2012, partially offset by $0.3 million increased net losses on foreign currency transactions driven by volatility in the value of the U.S. dollar against the Japanese Yen during the First Nine Fiscal Months of 2013.

Provision for Income Taxes

Provision for income taxes in the Third Quarter of Fiscal 2013 totaled $5.3 million, a decrease of $3.6 million, or 40.4%, compared to $8.9 million for the Third Quarter of Fiscal 2012, primarily due to a lower effective tax rate as well as decreased income before income taxes. The effective tax rate for the Third Quarter of Fiscal 2013 was 31.2%, a decrease of 16.9 percentage points compared to a tax rate of 48.1% for the Third Quarter of Fiscal 2012. The effective tax rate for the Third Quarter of Fiscal 2012 was negatively impacted by approximately 15.6 percentage points due to the recognition of the previously mentioned $7.8 million accrual related to the U.S. Government settlement which was nondeductible for income tax purposes.

Provision for income taxes in the First Nine Fiscal Months of 2013 totaled $15.4 million, a decrease of $6.7 million, or 30.3%, compared to $22.1 million for the First Nine Fiscal Months of 2012, primarily due to a lower effective tax rate as well as decreased income before income taxes. The effective tax rate for the First Nine Fiscal Months of 2013 was 29.8%, a decrease of 8.1 percentage points compared to a tax rate of 37.9% for the First Nine Fiscal Months of 2012. The effective tax rate for the First Nine Fiscal Months of Fiscal 2012 was unfavorably impacted by approximately 4.9 percentage points due to the recognition of the previously mentioned $7.8 million nondeductible accrual associated with the U.S. Government settlement. In addition, the effective tax rate for the First Nine Fiscal Months of 2013 was favorably impacted by approximately 2.0 percentage points due to the enactment of legislation in the Second Quarter of Fiscal 2013 that retroactively extended the United States R&D tax credit and provided a tax benefit of $1.0 million for the retroactive period January 1, 2012 through September 29, 2012.

Table of Contents

Net income

Net income in the Third Quarter of Fiscal 2013 was $11.5 million, an increase of $1.9 million, or 19.8%, compared to $9.6 million for the Third Quarter of Fiscal 2012. The increase was primarily driven by a decrease in the effective tax rate, partially offset by lower income from operations. Earnings per diluted share were $0.72, an increase of $0.13 per share, or 22.0%, compared to $0.59 for the Third Quarter of Fiscal 2012. The previously mentioned $7.8 million accrual recognized in the Third Quarter of Fiscal 2012 negatively impacted earnings per diluted share by $0.48.

Net income in the First Nine Fiscal Months of 2013 was $36.4 million, relatively flat compared to the First Nine Fiscal Months of 2012, as lower income from operations was partially offset by a decrease in the effective tax rate. Earnings per diluted share increased $0.03 to $2.29, compared to $2.26 for the First Nine Fiscal Months of 2012. The previously mentioned $7.8 million accrual recognized in the Third Quarter of Fiscal 2012 negatively impacted earnings per diluted share by $0.48 in the prior year.

Segment Results

Test Segment

Orders and Backlog



The following is a comparison of Fiscal 2013 to Fiscal 2012 orders for Test,
separately identifying the estimated impact of currency translation (in
millions):



           Three Fiscal                                       Three Fiscal       Nine Fiscal                                        Nine Fiscal
              Months                                             Months            Months                                             Months
               Ended                  Estimated                   Ended             Ended                  Estimated                   Ended
             June 29,         Business        Currency          June 30,          June 29,         Business        Currency          June 30,
               2013            Change        Translation          2012              2013            Change        Translation          2012

Orders $ 105.4 $ (17.7 ) $ (0.4 ) $ 123.5 $ 335.8 $ (5.9 ) $ (2.5 ) $ 344.2

Orders

Orders in the Third Quarter of Fiscal 2013 totaled $105.4 million, a decrease of $18.1 million, or 14.7%, compared to orders of $123.5 million for the Third Quarter of Fiscal 2012, primarily driven by variability in large orders as well as a 4.0% decline in base orders. Base orders decreased primarily due to weaker volume of materials orders in Europe and the Americas. Third Quarter of Fiscal 2013 orders included one large Americas' order in the ground vehicles market totaling $6 million for aerodynamic testing. Orders in the Third Quarter of Fiscal 2012 included two large orders: an $11 million Asian structures order and a $9 million European structures order. Currency translation unfavorably impacted orders by approximately $0.4 million. Test accounted for 80.9% of total Company orders, compared to 83.5% for the Third Quarter of Fiscal 2012.

Orders in the First Nine Fiscal Months of 2013 totaled $335.8 million, a decrease of $8.4 million, or 2.4%, compared to orders of $344.2 million for the First Nine Fiscal Months of 2012. First Nine Fiscal Months 2013 orders included two large European orders in the ground vehicles market totaling $17 million, one of which was for a rolling road wind tunnel measurement system and the other was for a transmission test system, as well as two large Americas' orders totaling $15 million, one of which was for a vehicle motion simulator in the structures market and the other for an aerodynamic test system in the ground vehicles market. First Nine Fiscal Months of 2012 orders included three large custom orders of approximately $25 million, of which $20 million was associated with the structures market and $5 million was associated with the ground vehicles market. Geographically, the Americas' increased 4.8% and Europe was up 4.5%, driven by the previously mentioned large orders. Asia declined 11.4%, primarily due to the cyclical nature of Chinese seismic orders, as well as timing of wind energy orders, in the structures market. Currency translation unfavorably impacted orders by approximately $2.5 million. Test accounted for 82.5% of total Company orders, compared to 82.3% for the First Nine Fiscal Months of 2012.

Table of Contents

Backlog

Backlog of undelivered orders at the end of the quarter was $266.6 million, a decrease of 2.0% compared to backlog of $272.0 million at the end of the Third Quarter of Fiscal 2012. As previously mentioned, Third Quarter of Fiscal 2013 beginning backlog was negatively impacted by a custom order totaling approximately $2.1 million that was cancelled during the First Quarter of Fiscal 2013.

Results of Operations



The following is a comparison of Fiscal 2013 to Fiscal 2012 results of
operations for Test, separately identifying the estimated impact of currency
translation (in millions):



                             Three Fiscal                                       Three Fiscal       Nine Fiscal                                        Nine Fiscal
                                Months                                             Months            Months                                             Months
                                 Ended                  Estimated                   Ended             Ended                  Estimated                   Ended
                               June 29,         Business        Currency          June 30,          June 29,         Business        Currency          June 30,
                                 2013            Change        Translation          2012              2013            Change        Translation          2012

Revenue                      $       110.4     $     (4.4 )   $        (1.5 )   $       116.3     $       345.4     $     21.8     $        (4.3 )   $       327.9
Cost of sales                         70.3            4.4              (1.2 )            67.1             219.3           30.1              (3.4 )           192.6
Gross profit                          40.1           (8.8 )            (0.3 )            49.2             126.1           (8.3 )            (0.9 )           135.3
                                      36.3 %                                             42.2 %            36.5 %                                             41.3 %
Operating expenses:
Selling and marketing                 15.5           (0.1 )            (0.1 )            15.7              46.1            2.2              (0.4 )            44.3
General administrative                 8.9           (1.2 )             0.1              10.0              27.9           (2.8 )             0.2              30.5
Research and development               4.8            1.1                 -               3.7              12.8            0.6                 -              12.2
U.S. Government settlement               -           (6.1 )               -               6.1                 -           (6.1 )               -               6.1
Total operating expenses              29.2           (6.3 )               -              35.5              86.8           (6.1 )            (0.2 )            93.1

Income from operations       $        10.9     $     (2.5 )   $        (0.3 )   $        13.7     $        39.3     $     (2.2 )   $        (0.7 )   $        42.2

Revenue

. . .

  Add MTSC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MTSC - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.