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United States |
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SECURITIES AND EXCHANGE COMMISSION |
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WASHINGTON, D.C. 20549 |
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FORM 10-Q |
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(Mark One) |
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x |
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the quarterly period ended March 30, 2013 |
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or |
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o |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___________ to___________ |
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Commission File Number 0-2382 |
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MTS SYSTEMS CORPORATION |
(Exact name of Registrant as specified in its charter) |
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MINNESOTA |
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41-0908057 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification No.) |
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14000 Technology Drive, Eden Prairie, MN 55344 |
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(Address of principal executive offices) (Zip Code) |
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Registrants telephone number, including area code: (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 o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller Reporting Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
o Yes x No
The number of shares outstanding of each of the issuers classes of common stock as of May 3, 2013 was 15,808,560 shares.
MTS SYSTEMS CORPORATION
REPORT ON FORM 10-Q
FOR THE THREE AND SIX FISCAL MONTHS ENDED MARCH 30, 2013
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Page No. |
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Consolidated Balance Sheets as of March 30, 2013 and September 29, 2012 |
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5 |
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6 - 19 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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20 - 34 |
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34 - 35 |
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35 |
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35 |
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36 |
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36 |
1
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
MTS SYSTEMS CORPORATION
Consolidated Balance Sheets
(unaudited - in thousands, except share data)
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March
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September
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
46,612 |
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$ |
79,852 |
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Accounts receivable, net of allowances for doubtful accounts of $1,915 and $2,247, respectively |
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104,732 |
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84,119 |
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Unbilled accounts receivable |
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57,634 |
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51,306 |
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Inventories |
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74,810 |
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67,979 |
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Prepaid expenses and other current assets |
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12,632 |
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6,982 |
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Deferred income taxes |
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9,846 |
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10,665 |
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Total current assets |
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306,266 |
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300,903 |
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Property and equipment, net |
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69,306 |
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61,653 |
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Goodwill |
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16,310 |
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16,239 |
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Other intangible assets, net |
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21,292 |
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23,077 |
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Other assets |
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4,312 |
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4,696 |
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Deferred income taxes |
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2,583 |
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2,870 |
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Total Assets |
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$ |
420,069 |
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$ |
409,438 |
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LIABILITIES AND SHAREHOLDERS INVESTMENT |
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Current Liabilities: |
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Short-term borrowings |
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$ |
5,000 |
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$ |
230 |
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Accounts payable |
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28,748 |
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33,744 |
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Accrued payroll and related costs |
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25,931 |
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30,731 |
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Advance payments from customers |
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63,470 |
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65,833 |
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Accrued warranty costs |
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4,438 |
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3,984 |
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Accrued income taxes |
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2,712 |
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3,510 |
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Deferred income taxes |
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2,642 |
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2,627 |
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Other accrued liabilities |
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18,309 |
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19,573 |
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Total current liabilities |
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151,250 |
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160,232 |
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Deferred income taxes |
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8,670 |
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8,671 |
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Non-current accrued income taxes |
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2,019 |
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1,666 |
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Defined benefit pension plan obligation |
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7,753 |
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7,761 |
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Other long-term liabilities |
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3,521 |
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4,389 |
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Total Liabilities |
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173,213 |
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182,719 |
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Shareholders Investment: |
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Common stock, $0.25 par; 64,000 shares authorized: 15,760 and 15,640 shares issued and outstanding as of March 30, 2013 and September 29, 2012, respectively |
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3,940 |
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3,910 |
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Additional paid-in capital |
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6,727 |
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652 |
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Retained earnings |
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226,655 |
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211,256 |
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Accumulated other comprehensive income |
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9,534 |
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10,901 |
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Total Shareholders Investment |
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246,856 |
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226,719 |
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Total Liabilities and Shareholders Investment |
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$ |
420,069 |
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$ |
409,438 |
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The accompanying condensed notes to consolidated financial statements are an integral part of these statements.
2
MTS SYSTEMS CORPORATION
Consolidated Statements of Income
(unaudited - in thousands, except share and per share data)
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Three Fiscal Months Ended |
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Six Fiscal Months Ended |
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March
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March
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March
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March
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Revenue: |
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Product |
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$ |
119,793 |
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$ |
112,788 |
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$ |
244,414 |
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$ |
230,239 |
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Service |
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17,124 |
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16,231 |
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35,171 |
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32,477 |
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Total revenue |
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136,917 |
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129,019 |
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279,585 |
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262,716 |
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Cost of sales: |
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Product |
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73,559 |
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64,648 |
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149,519 |
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131,520 |
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Service |
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9,453 |
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7,981 |
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19,559 |
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16,093 |
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Total cost of sales |
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83,012 |
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72,629 |
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169,078 |
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147,613 |
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Gross profit |
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53,905 |
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56,390 |
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110,507 |
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115,103 |
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Operating expenses: |
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Selling and marketing |
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19,519 |
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19,206 |
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38,698 |
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36,215 |
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General and administrative |
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13,175 |
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13,917 |
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25,489 |
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27,113 |
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Research and development |
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5,588 |
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6,068 |
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10,640 |
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11,027 |
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Total operating expenses |
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38,282 |
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39,191 |
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74,827 |
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74,355 |
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Income from operations |
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15,623 |
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17,199 |
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35,680 |
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40,748 |
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Interest expense, net |
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(150 |
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(212 |
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(144 |
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(418 |
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Other expense, net |
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(954 |
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(399 |
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(502 |
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(422 |
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Income before income taxes |
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14,519 |
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16,588 |
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35,034 |
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39,908 |
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Provision for income taxes |
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3,458 |
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5,431 |
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10,190 |
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13,212 |
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Net income |
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$ |
11,061 |
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$ |
11,157 |
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$ |
24,844 |
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$ |
26,696 |
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Earnings per share: |
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Basic- |
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Earnings per share |
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$ |
0.70 |
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$ |
0.70 |
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$ |
1.58 |
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$ |
1.69 |
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Weighted average number of common shares outstanding - basic |
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15,723 |
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15,906 |
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15,696 |
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15,793 |
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Diluted- |
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Earnings per share |
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$ |
0.69 |
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$ |
0.69 |
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$ |
1.56 |
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$ |
1.67 |
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Weighted average number of common shares outstanding - diluted |
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15,928 |
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16,106 |
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15,887 |
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15,969 |
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Dividends declared per share |
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$ |
0.30 |
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$ |
0.25 |
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$ |
0.60 |
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$ |
0.50 |
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The accompanying condensed notes to consolidated financial statements are an integral part of these statements.
3
MTS SYSTEMS CORPORATION
Consolidated Statements of Comprehensive Income
(unaudited - in thousands)
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Three Fiscal Months Ended |
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Six Fiscal Months Ended |
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March
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March
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March
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March
31, |
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Net income |
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$ |
11,061 |
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$ |
11,157 |
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$ |
24,844 |
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$ |
26,696 |
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Other comprehensive (loss) income, net of tax: |
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Foreign currency translation adjustments |
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(3,584 |
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772 |
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(3,383 |
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(771 |
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Derivative instruments: |
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Unrealized net gain (loss) |
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1,435 |
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(120 |
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2,239 |
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125 |
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Net (gain) loss reclassified to earnings |
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(581 |
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(56 |
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(480 |
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307 |
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Defined benefit pension plan: |
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Unrealized net (loss) gain |
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(122 |
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(69 |
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30 |
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85 |
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Net loss reclassified to earnings |
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91 |
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14 |
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181 |
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28 |
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Currency exchange rate change |
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180 |
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(54 |
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46 |
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18 |
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Other comprehensive (loss) income |
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(2,581 |
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487 |
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(1,367 |
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(208 |
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Comprehensive income |
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$ |
8,480 |
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$ |
11,644 |
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$ |
23,477 |
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$ |
26,488 |
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The accompanying condensed notes to consolidated financial statements are an integral part of these statements.
4
MTS SYSTEMS
CORPORATION
Consolidated Statements of Cash Flows
(unaudited - in thousands)
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Six Fiscal Months Ended |
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March 30, |
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March 31, |
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Cash flows from operating activities: |
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Net income |
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$ |
24,844 |
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$ |
26,696 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Stock-based compensation |
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2,153 |
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1,818 |
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Excess tax benefits for stock-based compensation |
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(568 |
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(648 |
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Net periodic pension benefit cost |
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643 |
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340 |
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Depreciation and amortization |
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7,712 |
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6,447 |
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Deferred income taxes |
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932 |
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131 |
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Bad debt (recovery) provision |
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(239 |
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758 |
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Changes in operating assets and liabilities: |
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Accounts and unbilled contracts receivable |
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(29,155 |
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(8,680 |
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Inventories |
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(7,061 |
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(4,484 |
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Prepaid expenses |
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(2,144 |
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(2,046 |
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Accounts payable |
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(4,801 |
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692 |
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Accrued payroll and related costs |
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(3,443 |
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(6,721 |
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Advance payments from customers |
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(2,410 |
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9,217 |
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Accrued warranty costs |
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471 |
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(799 |
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Other assets and liabilities |
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(2,472 |
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(3,152 |
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Net cash (used in) provided by operating activities |
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(15,538 |
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19,569 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(14,420 |
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(6,703 |
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Cash flows from financing activities: |
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Receipts under short-term borrowings |
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10,000 |
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15 |
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Payments under short-term borrowings |
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(5,283 |
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- |
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Excess tax benefits from stock-based compensation |
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568 |
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648 |
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Cash dividends |
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(9,670 |
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(7,950 |
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Proceeds from exercise of stock options and employee stock purchase plan |
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3,403 |
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13,950 |
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Net cash (used in) provided by financing activities |
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(982 |
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6,663 |
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Effect of exchange rate on changes in cash |
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(2,300 |
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(376 |
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Net (decrease) increase in cash and cash equivalents |
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(33,240 |
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19,153 |
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Cash and cash equivalents, at beginning of period |
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79,852 |
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104,095 |
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Cash and cash equivalents, at end of period |
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$ |
46,612 |
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$ |
123,248 |
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for - |
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Interest |
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$ |
36 |
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$ |
523 |
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Income taxes |
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12,383 |
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17,304 |
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Non-cash financing activities: |
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Dividends declared not yet paid |
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$ |
4,633 |
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$ |
3,905 |
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The accompanying condensed 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
The consolidated financial statements include the accounts of MTS Systems Corporation and its wholly 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 consolidated financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP), which require the Company to make estimates and assumptions that affect amounts reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. The accompanying consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended September 29, 2012 filed with the SEC. Interim results of operations for the three and six-fiscal month period ended March 30, 2013 are not necessarily indicative of the results to be expected for the full year.
Summary of Significant Accounting Policies
The Company believes that of its significant accounting policies, the following are particularly important to the portrayal of the Companys results of operations and financial position and may require the application of a higher level of judgment by the Companys management and, as a result, are subject to an inherent degree of uncertainty.
Revenue Recognition. The Company recognizes revenue on a sales arrangement when it is realized or realizable and earned, which occurs when all of the following criteria have been met: persuasive evidence of an arrangement exists; delivery and title transfer has occurred or services have been rendered; the sales price is fixed and determinable; collectability is reasonably assured; and all significant obligations to the customer have been fulfilled.
Orders that are manufactured and delivered in less than six months with routine installations and no special acceptance protocols may contain multiple elements for revenue recognition purposes. The Company considers each deliverable that provides value to the customer on a standalone basis a separable element. Separable elements in these arrangements may include the design and manufacture of hardware and essential software, installation services, training and/or post contract software maintenance and support. The Company initially allocates consideration to each separable element using the relative selling price method. Selling prices are determined by the Company based on either vendor-specific objective evidence (VSOE) (the actual selling prices of similar products and services sold on a standalone basis) or, in the absence of VSOE, the Companys best estimate of the selling price. Factors considered by the Company in determining estimated selling prices for applicable elements generally include overall economic conditions, customer demand, costs incurred by the Company to provide the deliverable, as well as the Companys historical pricing practices. Under these arrangements, revenue associated with each delivered element is recognized in an amount equal to the lesser of the consideration initially allocated to the delivered element or the amount for which payment is not deemed contingent upon future delivery of other elements in the arrangement. Under arrangements where special acceptance protocols exist, installation services and training are not considered separable. Accordingly, revenue for the entire arrangement is recognized upon the completion of installation, training and fulfillment of any other significant obligations specific to the terms of the arrangement. Arrangements that do not contain any separable elements are typically recognized when the products are shipped and title has transferred to the customer.
Certain contractual arrangements require longer production periods, generally longer than six months (long-term contracts), and may contain non-routine installations and special acceptance protocols. These arrangements often include hardware and essential software, installation services, training and support. Long-term contractual arrangements involving essential software typically include significant production, modification, and customization. For long-term arrangements with essential software and all other long-term arrangements with complex installations and/or unusual acceptance protocols, revenue is recognized using the percentage-of-completion method, based on the cost incurred to-date relative to estimated total cost of the contract. Elements of an arrangement that do not separately fall within the scope of the percentage of completion method (e.g. training and post contract software maintenance and support) are recognized as the service is provided in amounts determined based on VSOE, or in the absence of VSOE, the Companys best estimate of the selling price.
6
Under the terms of the Companys long-term contracts, revenue recognized using the percentage-of-completion method may not, in certain circumstances, 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 Accounts Receivable.
Revenue from arrangements for services such as maintenance, repair, consulting and technical support are recognized either as the service is performed or ratably over the defined contractual period for service maintenance contracts. Revenue from post-contract software maintenance and support services is recognized ratably over the defined contractual period of the maintenance agreement.
The Companys sales arrangements typically do not include specific performance-, cancellation-, termination-, or refund-type provisions. In the event a customer cancels a contractual arrangement, the Company would typically be entitled to receive reimbursement from the customer for actual costs incurred under the arrangement plus a reasonable margin.
Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant governmental authority.
Inventories. Inventories consist of material, labor and overhead costs and are stated at the lower of cost or market, determined under the first-in, first-out accounting method. Inventories at March 30, 2013 and September 29, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
March
30, |
|
September
29, |
|
||
|
|
(expressed in thousands) |
|
||||
Customer projects in various stages of completion |
|
$ |
15,530 |
|
$ |
17,704 |
|
Components, assemblies and parts |
|
|
59,280 |
|
|
50,275 |
|
Total |
|
$ |
74,810 |
|
$ |
67,979 |
|
Software Development Costs. The Company capitalizes certain software development costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials and services, salary and benefits of the Companys development and technical support staff, and other costs associated with the development of new products and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. Based on the Companys product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and the Company has established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of sales over the products estimated economic life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.
The Companys capitalized software development costs are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that are determined to be in excess of net realizable value will be expensed in the period such a determination is made. Amortization expense for software development costs for the three-fiscal month periods ended March 30, 2013 and March 31, 2012 was $0.7 million and $0.7 million, respectively. Amortization expense for software development costs for the six-fiscal month periods ended March 30, 2013 and March 31, 2012 was $1.4 million and $1.2 million, respectively. See Note 3 in the Condensed Notes to Consolidated Financial Statements for additional information on capitalized software development costs.
7
Impairment of Long-Lived Assets. The Company reviews the carrying value of long-lived assets or asset groups, such as property and equipment and intangibles subject to amortization, when events or changes in circumstances such as market value, asset utilization, physical change, legal factors, or other matters indicate that the carrying value may not be recoverable. When this review indicates the carrying value of an asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, the Company recognizes an asset impairment charge against operations. The amount of the impairment loss recorded is the amount by which the carrying value of the impaired asset or asset group exceeds its fair value.
Goodwill. Goodwill represents the excess of acquisition costs over the fair value of the net assets of businesses acquired. Goodwill is not amortized to income, but instead tested for impairment at least annually, during the fourth quarter of each fiscal year. Goodwill is also tested for impairment as changes in circumstances occur indicating that the carrying value may not be recoverable. Goodwill impairment testing first requires a comparison of the fair value of each reporting unit to the carrying value. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired.
Warranty Obligations. Sales of the Companys products and systems are subject to limited warranty obligations that are included in customer contracts. For sales that include installation services, warranty obligations typically extend for a period of twelve to twenty-four months from the date of either shipment or acceptance. Product obligations typically extend for a period of twelve to twenty-four months from the date of purchase. Under the terms of these warranties, the Company is obligated to repair or replace any components or assemblies it deems defective due to workmanship or materials. The Company reserves the right to reject warranty claims where it determines that failure is due to normal wear, customer modifications, improper maintenance, or misuse. The Company records general warranty provisions based on an estimated warranty expense percentage applied to current period revenue. The percentage applied reflects historical warranty claims experience over the preceding twelve-month period. Both the experience percentage and the warranty liability are evaluated on an ongoing basis for adequacy. In addition, warranty provisions are also recognized for certain nonrecurring product claims that are individually significant. Warranty provisions and claims for the three and six-fiscal month periods ended March 30, 2013 and March 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Fiscal Months Ended |
|
Six Fiscal Months Ended |
|
||||||||
|
|
March
30, |
|
March
31, |
|
March
30, |
|
March
31, |
|
||||
|
|
(expressed in thousands) |
|
||||||||||
Beginning balance |
|
$ |
4,423 |
|
$ |
4,595 |
|
$ |
3,984 |
|
$ |
5,290 |
|
Warranty provisions |
|
|
1,454 |
|
|
1,094 |
|
|
3,146 |
|
|
1,483 |
|
Warranty claims |
|
|
(1,544 |
) |
|
(1,565 |
) |
|
(2,826 |
) |
|
(2,583 |
) |
Adjustments to preexisting warranties |
|
|
151 |
|
|
300 |
|
|
151 |
|
|
300 |
|
Currency translation |
|
|
(46 |
) |
|
44 |
|
|
(17 |
) |
|
(22 |
) |
Ending balance |
|
$ |
4,438 |
|
$ |
4,468 |
|
$ |
4,438 |
|
$ |
4,468 |
|
Income Taxes. The Company records a tax provision for the anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. The Company believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining net realizable value of its deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with managements expectations could have a material impact on the Companys financial condition and operating results. See Note 11 in the Condensed Notes to Consolidated Financial Statements for additional information on income taxes.
8
2. Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-08, Intangibles Goodwill and Other (Topic 350) Testing Goodwill for Impairment. ASU No. 2011-08 amends Accounting Standards Codification (ASC) Topic 350, Intangibles Goodwill and Other, and provides an entity with the option of first performing a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after completion of the qualitative assessment, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value to the carrying amount of the reporting unit as described in ASC 350. Under the amendments in ASU No. 2011-08, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the first step of the two-step impairment test. The provisions of ASU No. 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Companys adoption of ASU No. 2011-08 during the first quarter of fiscal year 2013 did not impact the Companys financial position, results of operations or cash flows.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) - Presentation of Comprehensive Income. ASU No. 2011-05 amends ASC Topic 220, Comprehensive Income, to allow an entity the option to present the components of net income and other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders investment. The amendments to the ASC in ASU No. 2011-05 do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220) which deferred certain provisions of ASU No. 2011-05 that specifically relate to the presentation of separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income for all periods presented. With the exception of the specific provisions deferred under ASU No. 2011-12, the provisions of ASU No. 2011-05 are to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In the first quarter of fiscal year 2013, with the exception of the provisions specifically deferred under ASU No. 2011-12, the Company adopted the provisions of ASU No. 2011-05 and elected to present the components of net income and comprehensive income in two separate but consecutive statements. As a result, the Company included a new financial statement labeled Consolidated Statements of Comprehensive Income. The adoption of ASU No. 2011-05 did not affect the Companys financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU No. 2013-02, Reporting Amounts Reclassified Out of Accumulated Comprehensive Income which requires an entity to present, either on the face of the statement where net income is presented or in the notes to the financial statements, significant amounts reclassified out of accumulated comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The amendments to the ASC in ASU No. 2011-05 do not change the current requirements for reporting net income of other comprehensive income in the financial statements. The provisions of ASU No. 2013-02 are to be applied prospectively for reporting periods beginning after December 15, 2012. In the second quarter of fiscal year 2013, the Company adopted the provisions of ASU No. 2013-02 and elected to present significant amounts reclassified out of accumulated comprehensive income by the respective line items of net income in the Condensed Notes to the Consolidated Financial Statements. The adoption of ASU No. 2013-02 did not affect the Companys financial position, results of operations or cash flows.
See Note 9 in the Condensed Notes to Consolidated Financial Statements for additional information on other comprehensive income and accumulated other comprehensive income.
9
3. Capital Assets
Property and Equipment
Property and equipment at March 30, 2013
and September 29, 2012 consist of the following:
|
|
|
|
|
|
|
|
|
|
March
30, |
|
September
29, |
|
||
|
|
(expressed in thousands) |
|
||||
Land and improvements |
|
$ |
1,710 |
|
$ |
1,711 |
|
Buildings and improvements |
|
|
53,574 |
|
|
53,545 |
|
Machinery and equipment |
|
|
130,934 |
|
|
118,838 |
|
Total |
|
|
186,218 |
|
|
174,094 |
|
Less accumulated depreciation |
|
|
(116,912 |
) |
|
(112,441 |
) |
Property and equipment, net |
|
$ |
69,306 |
|
$ |
61,653 |
|
Goodwill
Goodwill at March 30, 2013 and September 29, 2012 was $16.3 million and $16.2 million, respectively. The increase in goodwill during the six-fiscal month period ended March 30, 2013 was due to currency translation.
Other Intangible Assets
Other intangible assets at
March 30, 2013 and September 29, 2012 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2013 |
|
||||||||||
|
|
Gross
Carrying |
|
Accumulated |
|
Net
Carrying |
|
Weighted |
|
||||
|
|
(dollar amounts expressed in thousands) |
|
||||||||||
Software development costs |
|
$ |
15,860 |
|
$ |
(7,504 |
) |
$ |
8,356 |
|
|
5.7 |
|
Patents |
|
|
10,126 |
|
|
(3,248 |
) |
|
6,878 |
|
|
15.3 |
|
Trademarks and trade names |
|
|
6,050 |
|
|
(1,128 |
) |
|
4,922 |
|
|
30.2 |
|
Land-use rights |
|
|
1,247 |
|
|
(111 |
) |
|
1,136 |
|
|
47.8 |
|
Total |
|
$ |
33,283 |
|
$ |
(11,991 |
) |
$ |
21,292 |
|
|
14.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2012 |
|
||||||||||
|
|
Gross
Carrying |
|
Accumulated |
|
Net
Carrying |
|
Weighted |
|
||||
|
|
(dollar amounts expressed in thousands) |
|
||||||||||
Software development costs |
|
$ |
15,860 |
|
$ |
(6,125 |
) |
$ |
9,735 |
|
|
5.7 |
|
Patents |
|
|
10,073 |
|
|
(2,871 |
) |
|
7,202 |
|
|
15.3 |
|
Trademarks and trade names |
|
|
6,020 |
|
|
(1,024 |
) |
|
4,996 |
|
|
30.2 |
|
Land-use rights |
|
|
1,241 |
|
|
(97 |
) |
|
1,144 |
|
|
47.8 |
|
Total |
|
$ |
33,194 |
|
$ |
(10,117 |
) |
$ |
23,077 |
|
|
14.3 |
|
Amortization expense recognized during the three-fiscal month periods ended March 30, 2013 and March 31, 2012 was $0.9 million and $0.9 million, respectively. Amortization expense recognized during the six-fiscal month periods ended March 30, 2013 and March 31, 2012 was $1.9 million and $1.6 million, respectively.
4. Stock Purchases
During the fourth quarter of fiscal year 2012, the Company entered into an accelerated share purchase agreement with an unrelated third party investment bank. This forward contract is indexed to, and potentially settled in, the Companys common stock. This forward contract meets the requirements of ASC 815-40 to be classified as permanent equity. In connection with the agreement, the Company made an initial $35.0 million payment to the investment bank and immediately received an initial delivery of approximately 0.5 million shares of its common stock with a fair value of $28.0 million as of the purchase date. Effective as of the date of the initial 0.5 million stock purchase, the transaction was accounted for as a share retirement, resulting in a reduction of common stock, additional paid-in capital and retained earnings of $0.1 million, $26.1 million and $1.8 million, respectively. The remaining $7.0 million of the Companys initial payment to the investment bank was reported as a reduction in retained earnings. As long as the forward contract continues to meet the requirements to be classified as permanent equity, the Company will not record future changes in its fair value. The contract continued to meet those requirements as of March 30, 2013 and the Company expects it will continue to meet those requirements through the settlement date. The agreement expires in the third quarter of fiscal year 2013. Upon settlement of the contract, the Company will adjust common stock, as well as either additional paid-in capital or retained earnings, as appropriate, to reflect the final settlement amount.
10
The specific number of shares that the Company will ultimately purchase under the accelerated share purchase agreement will be based on the volume weighted average price (VWAP) of the Companys common stock during the purchase period, less an agreed upon discount, unless such discounted VWAP were to fall below a specified floor price, in which case the floor price would be in effect. The maximum number of shares of common stock the Company can be required to issue to settle the agreement cannot exceed 2.0 million. At March 30, 2013, if the accelerated share purchase agreement had been settled on that date, the investment bank would have been required to deliver approximately 139,000 additional shares of the Companys common stock. For every $1.00 increase or decrease in the Companys VWAP, the settlement amount changes by approximately 12,000 shares.
5. Earnings Per Common Share
Basic earnings per share are computed by dividing net earnings by the daily weighted average number of common shares outstanding during the applicable periods. Diluted earnings per share include the potentially dilutive effect of common shares issued in connection with outstanding stock-based compensation awards, using the treasury stock method. Under the treasury stock method, shares associated with certain stock options have been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options would lead to a net reduction in common shares outstanding. As a result, stock options to acquire less than 0.1 million weighted common shares have been excluded from diluted weighted shares outstanding for both the three-fiscal month periods ended March 30, 2013 and March 31, 2012, respectively. Stock options to acquire less than 0.1 million and 0.4 million weighted average common shares have been excluded from diluted weighted average shares outstanding for the six-month fiscal periods ended March 30, 2013 and March 31, 2012, respectively. The potentially dilutive effect of common shares issued in connection with outstanding stock options is determined based on net income. A reconciliation of these amounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Fiscal Months Ended |
|
Six Fiscal Months Ended |
|
||||||||
|
|
March
30, |
|
March
31, |
|
March
30, |
|
March
31, |
|
||||
|
|
(expressed
in thousands, except per share data) |
|
||||||||||
Net income |
|
$ |
11,061 |
|
$ |
11,157 |
|
$ |
24,844 |
|
$ |
26,696 |
|
Weighted average common shares outstanding |
|
|
15,723 |
|
|
15,906 |
|
|
15,696 |
|
|
15,793 |
|
Dilutive potential common shares |
|
|
205 |
|
|
200 |
|
|
191 |
|
|
176 |
|
Total diluted weighted shares outstanding |
|
|
15,928 |
|
|
16,106 |
|
|
15,887 |
|
|
15,969 |
|
|
|||||||||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.70 |
|
$ |
0.70 |
|
$ |
1.58 |
|
$ |
1.69 |
|
Diluted |
|
$ |
0.69 |
|
$ |
0.69 |
|
$ |
1.56 |
|
$ |
1.67 |
|
6. Business Segment Information
The Companys Chief Executive Officer and management regularly review financial information for the Companys two operating segments, Test and Sensors. Test provides testing equipment, systems, and services to the ground vehicles, materials and structures markets. Sensors provides high-performance position sensors for a variety of industrial and mobile hydraulic applications.
The accounting policies of the reportable segments are the same as those described in Note 1 to the Consolidated Financial Statements found in the Companys Annual Report on Form 10-K for the fiscal year ended September 29, 2012. In evaluating each segments performance, management focuses on income from operations. This measure 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 and administrative costs, are allocated to the reportable segments primarily on the basis of revenue.
11
Financial information by reportable segment for the three and six-fiscal month periods ended March 30, 2013 and March 31, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Fiscal Months Ended |
|
Six Fiscal Months Ended |
|
||||||||
|
|
March
30, |
|
March
31, |
|
March
30, |
|
March
31, |
|
||||
|
|
(expressed in thousands) |
|
||||||||||
Revenue by Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Test |
|
$ |
113,943 |
|
$ |
102,913 |
|
$ |
235,046 |
|
$ |
211,541 |
|
Sensors |
|
|
22,974 |
|
|
26,106 |
|
|
44,539 |
|
|
51,175 |
|
Total revenue |
|
$ |
136,917 |
|
$ |
129,019 |
|
$ |
279,585 |
|
$ |
262,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations by Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Test |
|
$ |
12,006 |
|
$ |
10,694 |
|
$ |
28,397 |
|
$ |
28,467 |
|
Sensors |
|
|
3,617 |
|
|
6,505 |
|
|
7,283 |
|
|
12,281 |
|
Total income from operations |
|
$ |
15,623 |
|
$ |
17,199 |
|
$ |
35,680 |
|
$ |
40,748 |
|
7. Derivative Instruments and Hedging Activities
The Companys results of operations could be materially impacted by changes in foreign currency exchange rates, as well as interest rates on its floating rate indebtedness. In an effort to manage exposure to these risks, the Company periodically enters into forward and option currency exchange contracts, interest rate swaps and forward interest rate swaps. Because the market value of these hedging contracts is derived from current market rates, they are classified as derivative financial instruments. The Company does not use derivatives for speculative or trading purposes. The derivative contracts contain credit risk to the extent that the Companys bank counterparties may be unable to meet the terms of the agreements. The amount of such credit risk is generally limited to the unrealized gains, if any, in such contracts. Such risk is minimized by limiting those counterparties to major financial institutions of high credit quality. For derivative instruments executed under master netting arrangements, the Company has the contractual right to offset fair value amounts recognized for the right to reclaim cash collateral with obligations to return cash collateral. The Company does not offset fair value amounts recognized on these derivative instruments. As of March 30, 2013, the Company does not have any foreign exchange contracts with credit-risk related contingent features.
The Companys currency exchange contracts and interest rate swaps are designated as cash flow hedges and qualify as hedging instruments pursuant to ASC 815. The Company also has derivatives which are accounted for and reported under the guidance of ASC 830-20-10. Regardless of the designation for accounting purposes, the Company believes that all of its derivative instruments are hedges of transactional risk exposures. The fair value of the Companys outstanding designated and undesignated derivative assets and liabilities are reported in the March 30, 2013 and September 29, 2012 Consolidated Balance Sheet as follows:
|
|
|
|
|
|
|
|
|
|
March 30, 2013 |
|
||||
|
|
Prepaid
Expenses |
|
Other
Accrued |
|
||
Designated hedge derivatives: |
|
(expressed in thousands) |
|
||||
Foreign exchange cash flow hedges |
|
$ |
2,002 |
|
$ |
116 |
|
Total designated hedge derivatives |
|
|
2,002 |
|
|
116 |
|
Derivatives not designated as hedges: |
|
|
|
|
|
|
|
Foreign exchange balance sheet derivatives |
|
|
- |
|
|
53 |
|
Total hedge and other derivatives |
|
$ |
2,002 |
|
$ |
169 |
|
12
|
|
|
|
|
|
|
|
|
|
September 29, 2012 |
|
||||
|
|
Prepaid
Expenses |
|
Other
Accrued |
|
||
Designated hedge derivatives: |
|
(expressed in thousands) |
|
||||
Foreign exchange cash flow hedges |
|
$ |
432 |
|
$ |
1,157 |
|
Total designated hedge derivatives |
|
|
432 |
|
|
1,157 |
|
Derivatives not designated as hedges: |
|
|
|
|
|
|
|
Foreign exchange balance sheet derivatives |
|
|
- |
|
|
415 |
|
Total hedge and other derivatives |
|
$ |
432 |
|
$ |
1,572 |
|
Cash Flow Hedging Currency Risks
Currency exchange contracts utilized to
maintain the functional currency value of expected financial transactions
denominated in foreign currencies are designated as cash flow hedges.
Qualifying gains and losses related to changes in the market value of these contracts
are reported as a component of Accumulated Other Comprehensive Income (AOCI)
within Shareholders Investment on the Consolidated Balance Sheets and
reclassified into earnings in the same period during which the underlying
hedged transaction affects earnings. The effective portion of the cash flow
hedges represents the change in fair value of the hedge that offsets the change
in the functional currency value of the hedged item. Each month, the Company
assesses whether its currency exchange contracts are effective and, when a
contract is determined to be no longer effective as a hedge, the Company
discontinues hedge accounting prospectively. Subsequent changes in the market
value of ineffective currency exchange contracts are recognized as an increase
or decrease in Revenue on the Consolidated Statement of Income, because that is
the same line item upon which the underlying hedged transaction is reported.
At March 30, 2013 and March 31, 2012, the Company had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $46.2 million and $37.0 million, respectively. Upon netting offsetting contracts to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding were $42.8 million and $34.9 million at March 30, 2013 and March 31, 2012, respectively. At March 30, 2013 the net market value of the foreign currency exchange contracts was a net asset of $1.9 million, consisting of $2.0 million in assets and $0.1 million in liabilities. At March 31, 2012 the net market value of the foreign currency exchange contracts was a net liability of $0.1 million, consisting of $0.3 million in assets and $0.4 million in liabilities.
The pretax amounts recognized in AOCI on currency exchange contracts for the three and six-fiscal month periods ended March 30, 2013 and March 31, 2012, including gains and losses reclassified into earnings in the Consolidated Statements of Income and gains (losses) recognized in other comprehensive income (OCI), are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Fiscal Months Ended |
|
Six Fiscal Months Ended |
|
||||||||
|
|
March
30, |
|
March
31, |
|
March
30, |
|
March
31, |
|
||||
|
|
(expressed in thousands) |
|
||||||||||
Beginning unrealized net gain (loss) in AOCI |
|
$ |
787 |
|
$ |
414 |
|
$ |
(648 |
) |
$ |
(365 |
) |
Net (gain) loss reclassified into Revenue (effective portion) |
|
|
(920 |
) |
|
(273 |
) |
|
(760 |
) |
|
129 |
|
Net gain (loss) recognized in OCI (effective portion) |
|
|
2,271 |
|
|
(153 |
) |
|
3,546 |
|
|
224 |
|
Ending unrealized net gain (loss) in AOCI |
|
$ |
2,138 |
|
$ |
(12 |
) |
$ |
2,138 |
|
$ |
(12 |
) |
The amount recognized in earnings as a result of the ineffectiveness of cash flow hedges was $0.1 million in each of the three and six-fiscal month periods ended March 30, 2013. The amount recognized in earnings as a result of the ineffectiveness of cash flow hedges was less than $0.1 million in each of the three and six-fiscal month periods ended March 31, 2012. At March 30, 2013 and March 31, 2012, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of $2.1 million and a net loss of $0.1 million, respectively. The maximum remaining maturity of any forward or optional contract at March 30, 2013 and March 31, 2012 was 1.3 years and 2.3 years, respectively.
13
Cash Flow Hedging - Interest Rate Risks
During the three and six-fiscal month periods
ended March 31, 2012, the Company used floating to fixed interest rate swaps to
mitigate its exposure to future changes in interest rates related to its
floating rate indebtedness. The Company had designated these interest rate swap
arrangements as cash flow hedges. As a result, changes in the fair value of the
interest rate swaps were recorded in AOCI within Shareholders Investment on
the Consolidated Balance Sheets throughout the entire contractual term of each
of the interest rate swap arrangements. During the fiscal year ended September
29, 2012, the Companys interest rate swap arrangements expired at various
times from July 25, 2012 through September 28, 2012.
At March 31, 2012, the Company had outstanding interest rate swaps with total notional amounts of $40.0 million. During the six fiscal month period ended March 31, 2012, the Company paid fixed interest in exchange for interest received at monthly U.S. LIBOR. At March 31, 2012, the weighted-average interest rate payable by the Company under the terms of the credit facility borrowings and outstanding interest rate swaps was 2.09%. At March 31, 2012, there was a 45 basis-point differential between the variable rate interest paid by the Company on its outstanding credit facility borrowings and the variable rate interest received on the interest rate swaps. As a result of this differential, the overall effective interest rate applicable to outstanding credit facility borrowings, under the terms of the credit facility and interest rate swap agreements, was 2.54%.
The total market value of interest rate swaps at March 31, 2012 was a liability of $0.3 million. The pretax amounts recognized in AOCI on interest rate swaps for the three-fiscal month and six-fiscal month periods ended March 31, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
Three
Fiscal |
|
Six
Fiscal |
|
||
|
|
(expressed in thousands) |
|
||||
Beginning unrealized net loss in AOCI |
|
$ |
(427 |
) |
$ |
(617 |
) |
Net loss reclassified into Interest expense (effective portion) |
|
|
183 |
|
|
359 |
|
Net loss recognized in OCI (effective portion) |
|
|
(38 |
) |
|
(24 |
) |
Ending unrealized net loss in AOCI |
|
$ |
(282 |
) |
$ |
(282 |
) |
Foreign Currency Balance Sheet Derivatives
The Company also uses foreign currency
derivative contracts to maintain the functional currency value of monetary
assets and liabilities denominated in non-functional foreign currencies. The
gains and losses related to the changes in the market value of these derivative
contracts are included in Other Income (Expense), net on the Consolidated
Statement of Income.
At March 30, 2013 and March 31, 2012, the Company had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of $35.9 million and $38.1 million, respectively. Upon netting offsetting contracts by counterparty banks to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding at March 30, 2013 and March 31, 2012 was $11.3 million and $11.8 million, respectively. At March 30, 2013, the net market value of the foreign exchange balance sheet derivative contracts was a net liability of less than $0.1 million. At March 31, 2012, the net market value of the foreign exchange balance sheet derivative contracts was a net liability of less than $0.1 million.
14
The net losses and gains recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts for the three and six-fiscal month periods ended March 30, 2013 and March 31, 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Fiscal Months Ended |
|
Six Fiscal Months Ended |
|
||||||||
|
|
March
30, |
|
March
31, |
|
March
30, |
|
March
31, |
|
||||
|
|
(expressed in thousands) |
|
||||||||||
Net (loss) gain recognized in Other expense, net |
|
$ |
(218 |
) |
$ |
205 |
|
$ |
(272 |
) |
$ |
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Fair Value Measurements
In determining the fair value of financial assets and liabilities, the Company currently utilizes market data or other assumptions that it believes market participants would use in pricing the asset or liability in the principal or most advantageous market, and adjusts for non-performance and/or other risk associated with the Company as well as counterparties, as appropriate. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
|
|
|
Level 1 Inputs: Unadjusted quoted prices which are available in active markets for identical assets or liabilities accessible to the Company at the measurement date. |
|
|
|
Level 2 Inputs: Inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. |
|
|
|
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. |
The hierarchy gives the highest priority to Level 1, because this level provides the most reliable measure of fair value, while giving the lowest priority to Level 3.
Financial Instruments Measured at Fair Value on a Recurring
Basis
As of March 30, 2013 and September 29,
2012, financial assets and liabilities subject to fair value measurements on a
recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2013 |
|
|||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
|
|
(expressed in thousands) |
|
|||||||||||
Assets: |
|
|
|
|||||||||||
Currency contracts(1) |
|
$ |
- |
|
$ |
2,002 |
|
$ |
- |
|
$ |
2,002 |
|
|
Total assets |
|
$ |
- |
|
$ |
2,002 |
|
$ |
- |
|
$ |
2,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency contracts(1) |
|
$ |
- |
|
$ |
169 |
|
$ |
- |
|
$ |
169 |
|
|
Total liabilities |
|
$ |
- |
|
$ |
169 |
|
$ |
- |
|
$ |
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2012 |
|
||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
|
|
(expressed in thousands) |
|
||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency contracts(1) |
|
$ |
- |
|
$ |
432 |
|
$ |
- |
|
$ |
432 |
|
Total assets |
|
$ |
- |
|
$ |
432 |
|
$ |
- |
|
$ |
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency contracts(1) |
|
$ |
- |
|
$ |
1,572 |
|
$ |
- |
|
$ |
1,572 |
|
Total liabilities |
|
$ |
- |
|
$ |
1,572 |
|
$ |
- |
|
$ |
1,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Based on observable market transactions of spot currency rates and forward currency rates on equivalently-termed instruments. |
15
Nonfinancial Assets Measured at Fair Value on a Nonrecurring
Basis
The Companys goodwill, intangible
assets and other long-lived assets are nonfinancial assets that were acquired
either as part of a business combination, individually or with a group of other
assets. These nonfinancial assets were initially, and are currently, measured
and recognized at amounts equal to the fair value determined as of the date of
acquisition. Periodically, these nonfinancial assets are tested for impairment,
by comparing their respective carrying values to the estimated fair value of
the reporting unit or asset group in which they reside. In the event any of
these nonfinancial assets were to become impaired, the Company would recognize
an impairment loss equal to the amount by which the carrying value of the
reporting unit, impaired asset or asset group exceeds its estimated fair value.
Fair value measurements of reporting units are estimated using an income
approach involving discounted or undiscounted cash flow models that contain
certain Level 3 inputs requiring management judgment, including projections of
economic conditions and customer demand, revenue and margins, changes in
competition, operating costs, working capital requirements, and new product
introductions. Fair value measurements of the reporting units associated with
the Companys goodwill balances are estimated at least annually in the fourth
quarter of each fiscal year for purposes of impairment testing. Fair value
measurements associated with the Companys intangible assets and other
long-lived assets are estimated when events or changes in circumstances such as
market value, asset utilization, physical change, legal factors, or other
matters indicate that the carrying value may not be recoverable.
Financial Instruments not Measured at Fair Value
Certain of the Companys financial
instruments are not measured at fair value but nevertheless are recorded at
carrying amounts approximating fair value, based on their short-term nature or
variable interest rate. These financial instruments include cash and cash
equivalents, accounts receivable, accounts payable and short-term borrowings.
9. Other Comprehensive Income
Other Comprehensive Income, a component of Shareholders Investment, consists of foreign currency translation adjustments, gains or losses on derivative instruments, and defined benefit pension plan adjustments.
Income tax expense or benefit allocated to each component of other comprehensive income (loss) for the three and six-fiscal month periods ended March 30, 2013 and March 31, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2013 |
|
||||||||||||||||
|
|
Three Fiscal Months Ended |
|
Six Fiscal Months Ended |
|
||||||||||||||
|
|
Pretax |
|
Tax |
|
Net
of |
|
Pretax |
|
Tax |
|
Net
of |
|
||||||
|
|
(expressed in thousands) |
|
||||||||||||||||
Foreign currency translation adjustments |
|
$ |
(3,584 |
) |
$ |
- |
|
$ |
(3,584 |
) |
$ |
(3,383 |
) |
$ |
- |
|
$ |
(3,383 |
) |
Derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gain |
|
|
2,270 |
|
|
(835 |
) |
|
1,435 |
|
|
3,545 |
|
|
(1,306 |
) |
|
2,239 |
|
Net gain reclassified to earnings |
|
|
(920 |
) |
|
339 |
|
|
(581 |
) |
|
(760 |
) |
|
280 |
|
|
(480 |
) |
Defined benefit pension plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net (loss) gain |
|
|
(174 |
) |
|
52 |
|
|
(122 |
) |
|
43 |
|
|
(13 |
) |
|
30 |
|
Net loss reclassified to earnings |
|
|
132 |
|
|
(41 |
) |
|
91 |
|
|
260 |
|
|
(79 |
) |
|
181 |
|
Currency exchange rate change |
|
|
180 |
|
|
- |
|
|
180 |
|
|
46 |
|
|
- |
|
|
46 |
|
Other comprehensive loss |
|
$ |
(2,096 |
) |
$ |
(485 |
) |
$ |
(2,581 |
) |
$ |
(249 |
) |
$ |
(1,118 |
) |
$ |
(1,367 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012 |
|
||||||||||||||||
|
|
Three Fiscal Months Ended |
|
Six Fiscal Months Ended |
|
||||||||||||||
|
|
Pretax |
|
Tax |
|
Net
of |
|
Pretax |
|
Tax |
|
Net
of |
|
||||||
|
|
(expressed in thousands) |
|
||||||||||||||||
Foreign currency translation adjustments |
|
$ |
772 |
|
$ |
- |
|
$ |
772 |
|
$ |
(771 |
) |
$ |
- |
|
$ |
(771 |
) |
Derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net (loss) gain |
|
|
(192 |
) |
|
72 |
|
|
(120 |
) |
|
198 |
|
|
(73 |
) |
|
125 |
|
Net (gain) loss reclassified to earnings |
|
|
(90 |
) |
|
34 |
|
|
(56 |
) |
|
488 |
|
|
(181 |
) |
|
307 |
|
Defined benefit pension plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net (loss) gain |
|
|
(122 |
) |
|
53 |
|
|
(69 |
) |
|
130 |
|
|
(45 |
) |
|
85 |
|
Net loss reclassified to earnings |
|
|
20 |
|
|
(6 |
) |
|
14 |
|
|
40 |
|
|
(12 |
) |
|
28 |
|
Currency exchange rate change |
|
|
(54 |
) |
|
- |
|
|
(54 |
) |
|
18 |
|
|
- |
|
|
18 |
|
Other comprehensive income |
|
$ |
334 |
|
$ |
153 |
|
$ |
487 |
|
$ |
103 |
|
$ |
(311 |
) |
$ |
(208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
The changes in the net-of-tax balances of each component of AOCI during the three and six-fiscal month periods ended March 30, 2013 and March 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2013 |
|
||||||||||||||||||||||
|
|
Three Fiscal Months Ended |
|
Six Fiscal Months Ended |
|
||||||||||||||||||||
|
|
Foreign |
|
Unrealized |
|
Defined |
|
Total |
|
Foreign |
|
Unrealized |
|
Defined |
|
Total |
|
||||||||
|
|
(expressed in thousands ) |
|
||||||||||||||||||||||
Beginning balance |
|
$ |
16,935 |
|
$ |
497 |
|
$ |
(5,317 |
) |
$ |
12,115 |
|
$ |
16,734 |
|
$ |
(408 |
) |
$ |
(5,425 |
) |
$ |
10,901 |
|
Other comprehensive loss before reclassifications |
|
|
(3,584 |
) |
|
1,435 |
|
|
58 |
|
|
(2,091 |
) |
|
(3,383 |
) |
|
2,239 |
|
|
76 |
|
|
(1,068 |
) |
Amounts reclassified to earnings |
|
|
- |
|
|
(581 |
) |
|
91 |
|
|
(490 |
) |
|
- |
|
|
(480 |
) |
|
181 |
|
|
(299 |
) |
Other comprehensive loss |
|
|
(3,584 |
) |
|
854 |
|
|
149 |
|
|
(2,581 |
) |
|
(3,383 |
) |
|
1,759 |
|
|
257 |
|
|
(1,367 |
) |
Ending balance |
|
$ |
13,351 |
|
$ |
1,351 |
|
$ |
(5,168 |
) |
$ |
9,534 |
|
$ |
13,351 |
|
$ |
1,351 |
|
$ |
(5,168 |
) |
$ |
9,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012 |
|
||||||||||||||||||||||
|
|
Three Fiscal Months Ended |
|
Six Fiscal Months Ended |
|
||||||||||||||||||||
|
|
Foreign |
|
Unrealized |
|
Defined |
|
Total |
|
Foreign |
|
Unrealized |
|
Defined |
|
Total |
|
||||||||
|
|
(expressed in thousands ) |
|
||||||||||||||||||||||
Beginning balance |
|
$ |
17,314 |
|
$ |
(8 |
) |
$ |
(1,712 |
) |
$ |
15,594 |
|
$ |
18,857 |
|
$ |
(616 |
) |
$ |
(1,952 |
) |
$ |
16,289 |
|
Other comprehensive income (loss) before reclassifications |
|
|
772 |
|
|
(120 |
) |
|
(123 |
) |
|
529 |
|
|
(771 |
) |
|
125 |
|
|
103 |
|
|
(543 |
) |
Amounts reclassified to earnings |
|
|
- |
|
|
(56 |
) |
|
14 |
|
|
(42 |
) |
|
- |
|
|
307 |
|
|
28 |
|
|
335 |
|
Other comprehensive income (loss) |
|
|
772 |
|
|
(176 |
) |
|
(109 |
) |
|
487 |
|
|
(771 |
) |
|
432 |
|
|
131 |
|
|
(208 |
) |
Ending balance |
|
$ |
18,086 |
|
$ |
(184 |
) |
$ |
(1,821 |
) |
$ |
16,081 |
|
$ |
18,086 |
|
$ |
(184 |
) |
$ |
(1,821 |
) |
$ |
16,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
The effect on certain line items in the Consolidated Statements of Income of amounts reclassified out of AOCI for the three and six-fiscal month periods ended March 30, 2013 and March 31, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Fiscal Months Ended |
|
Six Fiscal Months Ended |
|
Affected
Line Item in the |
||||||||
|
|
March 30, |
|
March 31, |
|
March 30, |
|
March 31, |
|
|||||
Derivative instruments: |
|
|
(expressed in thousands) |
|
|
|||||||||
Currency exchange contracts |
|
$ |
920 |
|
$ |
273 |
|
$ |
760 |
|
$ |
(129 |
) |
Revenue |
Interest rate swaps |
|
|
- |
|
|
(183 |
) |
|
- |
|
|
(359 |
) |
Interest expense, net |
Total net gains (losses) included in income before income taxes |
|
|
920 |
|
|
90 |
|
|
760 |
|
|
(488 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
(339 |
) |
|
(34 |
) |
|
(280 |
) |
|
181 |
|
|
Total net gains (losses) included in net income |
|
|
581 |
|
|
56 |
|
|
480 |
|
|
(307 |
) |
|
Defined benefit pension plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses |
|
|
(44 |
) |
|
(7 |
) |
|
(85 |
) |
|
(13 |
) |
Cost of sales |
Actuarial losses |
|
|
(39 |
) |
|
(6 |
) |
|
(78 |
) |
|
(12 |
) |
Selling and marketing |
Actuarial losses |
|
|
(49 |
) |
|
(7 |
) |
|
(97 |
) |
|
(15 |
) |
General and administrative |
Total losses included in income before income taxes |
|
|
(132 |
) |
|
(20 |
) |
|
(260 |
) |
|
(40 |
) |
|
Income tax expense |
|
|
41 |
|
|
6 |
|
|
79 |
|
|
12 |
|
|
Total net losses included in net income |
|
|
(91 |
) |
|
(14 |
) |
|
(181 |
) |
|
(28 |
) |
|
Total net-of-tax reclassifications out of accumulated other comprehensive income included in net income |
|
$ |
490 |
|
$ |
42 |
|
$ |
299 |
|
$ |
(335 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Financing
Short-term borrowings at March 30, 2013 and September 29, 2012 consist of the following:
|
|
|
|
|
|
|
|
|
|
March
30, |
|
September 29, |
|
||
|
|
(expressed in thousands) |
|
||||
Bank line of credit, swing line loan (3.25% rate in effect at March 30, 2013), maturing September 2017 |
|
$ |
5,000 |
|
$ |
- |
|
Notes payable, non-interest bearing |
|
|
- |
|
|
230 |
|
Total short-term borrowings |
|
$ |
5,000 |
|
$ |
230 |
|
|
|
|
|
|
|
|
|
The Companys credit facility provides for up to $100 million for working capital financing, acquisitions, share purchases, or other general corporate purposes and expires in September 2017. At March 30, 2013 outstanding borrowings under the credit facility were $5.0 million. At March 30, 2013, under the terms of the credit facility borrowings, the fixed interest rate applicable to outstanding credit facility borrowings was 3.25%. At September 29, 2012, the Company had no borrowings outstanding under the $100 million credit facility. Short-term borrowings at September 29, 2012 consisted of non-interest bearing notes payable to vendors by the Companys Japanese Sensors subsidiary. At March 30, 2013, the Company had outstanding letters of credit drawn from the credit facility totaling $10.7 million, leaving $84.3 million of unused borrowing capacity. At September 29, 2012, the Company had outstanding letters of credit drawn from the credit facility totaling $10.1 million, leaving $89.9 million of unused borrowing capacity.
11. Income Taxes
As of March 30, 2013, the Companys liability for unrecognized tax benefits was $2.0 million, of which $0.8 million would favorably affect the Companys effective tax rate if recognized. At September 29, 2012, the Companys liability for unrecognized tax benefits was $1.7 million, of which $0.5 million would favorably affect the Companys effective tax rate, if recognized. As of March 30, 2013, the Company does not expect significant changes in the amount of unrecognized tax benefits during the next twelve months.
On January 2, 2013, the American Taxpayer Relief Act of 2012 (Act) was signed into law. The Act includes legislation that reinstated the United States Research and Development (R&D) tax credit retroactively from January 1, 2012 and extends it through December 31, 2013. As a result of this legislation, the Company recognized a tax benefit of approximately $1.3 million during the second quarter of fiscal year 2013.
18
12. Retirement Benefit Plan
One of the Companys German subsidiaries has a non-contributory, defined benefit retirement plan for eligible employees. This plan provides benefits based on the employees years of service and compensation during the years immediately preceding retirement, early retirement, termination, disability, or death, as defined in the plan.
The cost for the plan for the three and six-fiscal month periods ended March 30, 2013 and March 31, 2012 included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Fiscal Months Ended |
|
Six Fiscal Months Ended |
|
||||||||
|
|
|
March
30, |
|
|
March
31, |
|
|
March
30, |
|
|
March
31, |
|
|
|
(expressed in thousands) |
|
||||||||||
Service cost |
|
$ |
174 |
|
$ |
104 |
|
$ |
344 |
|
$ |
211 |
|
Interest cost |
|
|
194 |
|
|
211 |
|
|
384 |
|
|
427 |
|
Expected return on plan assets |
|
|
(175 |
) |
|
(167 |
) |
|
(345 |
) |
|
(338 |
) |
Net amortization and deferral |
|
|
132 |
|
|
20 |
|
|
260 |
|
|
40 |
|
Net periodic benefit cost |
|
$ |
325 |
|
$ |
168 |
|
$ |
643 |
|
$ |
340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average expected long-term rate of return on plan assets used to determine the net periodic benefit cost for the three and six-fiscal month periods ended March 30, 2013 and March 31, 2012 was 5.2% and 5.4%, respectively.
19
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements regarding financial projections made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that are subject to certain risks and uncertainties, as well as assumptions, that could cause actual results to differ materially from historical results and those presently anticipated or projected. Words such as may, will, should, expects, intends, projects, plans, believes, estimates, targets, anticipates, and similar expressions are used to identify these forward-looking statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those factors described in Part I, Item 1A, Risk Factors of our 2012 Form 10-K. Such important factors include:
|
|
|
|
|
The Companys business operations may be affected by government contracting risks |
|
|
The Companys business is significantly international in scope, which poses multiple risks including, but not limited to: currency value fluctuations; difficulty enforcing agreements and collecting receivables; import and export matters; higher danger of terrorist activity; difficulty in staffing; and compliance with laws |
|
|
Volatility in the global economy could adversely affect results |
|
|
The Companys business is subject to strong competition |
|
|
The Company may not achieve its growth plans for the expansion of the business because the Companys long-term success depends on its ability to expand its business through new product development, mergers and acquisitions, geographic expansion, and service offerings, all of which are subject to inherent risks including, but not limited to: market demand; market acceptance of products; and the Companys ability to advance its technology |
|
|
The Company may experience difficulties obtaining the services of skilled employees |
|
|
The Company may fail to protect its intellectual property effectively, or may infringe upon the intellectual property of others |
|
|
The business could be adversely affected by product liability and commercial litigation |
|
|
The Company may experience difficulty obtaining materials or components for its products, or the cost of materials or components may increase |
|
|
Government regulation imposes significant costs and other constraints |
|
|
The backlog, sales, delivery and acceptance cycle for many of the Companys products is irregular and may not develop as anticipated |
|
|
The Companys customers are in cyclical industries |
|
|
Interest rate fluctuations could adversely affect results |
|
|
The Company may be required to recognize impairment charges for long-lived assets |
|
|
The Company will need to begin disclosing its use of conflict minerals, which will impose costs on the Company and could raise reputational and other risks |
The performance of the Companys business and its securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances. Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including our reports on Forms 10-Q and 8-K to be filed by the Company in fiscal year 2013.
About MTS Systems Corporation
MTS Systems Corporation is a leading global supplier of high-performance test systems and position sensors. The Companys 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 and revenue of $542 million for the fiscal year ended September 29, 2012.
20
Financial Results
Total Company |
Orders and Backlog
Three Fiscal Months Ended March 30, 2013 (Second Quarter of Fiscal 2013) Compared to Three Fiscal Months Ended March 31, 2012 (Second Quarter of Fiscal 2012)
The following is a comparison of Second Quarter of Fiscal 2013 and Second Quarter of Fiscal 2012 orders, separately identifying the estimated impact of currency translation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Fiscal |
|
|
|
Three
Fiscal |
|
||||||
|
|
|
Business |
|
Currency |
|
|
||||||
Orders |
|
$ |
137.7 |
|
$ |
4.2 |
|
$ |
(2.1 |
) |
$ |
135.6 |
|
Orders totaled $137.7 million, an increase of $2.1 million, or 1.5%, including an estimated 1.5% unfavorable impact of currency translation, compared to orders of $135.6 million for the Second Quarter of Fiscal 2012. Orders in both the current quarter and prior year included one large (in excess of $5.0 million) custom Test segment (Test) order of approximately $5 million. Test orders grew 3.5% while Sensors segment (Sensors) orders declined 6.6%.
Backlog of undelivered orders at the end of the quarter was $287.3 million, a decrease of 2.4% compared to backlog of $294.4 million at the end of the Second Quarter of Fiscal 2012. While the Companys 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.
Results of Operations
Second Quarter of Fiscal 2013 Compared to Second Quarter of Fiscal 2012
The following is a comparison of Second Quarter of Fiscal 2013 and Second Quarter of Fiscal 2012 statements of operations (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Fiscal Months Ended |
|
|
|
|
|
|
|
||||
|
|
March
30, |
|
March
31, |
|
Variance |
|
% Variance |
|
||||
Revenue |
|
$ |
136.9 |
|
$ |
129.0 |
|
$ |
7.9 |
|
|
6.1 |
% |
Cost of sales |
|
|
83.0 |
|
|
72.6 |
|
|
10.4 |
|
|
14.3 |
% |
Gross profit |
|
|
53.9 |
|
|
56.4 |
|
|
(2.5 |
) |
|
-4.4 |
% |
Gross margin |
|
|
39.4 |
% |
|
43.7 |
% |
|
(4.3 |
) pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
19.5 |
|
|
19.2 |
|
|
0.3 |
|
|
1.6 |
% |
General administrative |
|
|
13.2 |
|
|
13.9 |
|
|
(0.7 |
) |
|
-5.0 |
% |
Research and development |
|
|
5.6 |
|
|
6.1 |
|
|
(0.5 |
) |
|
-8.2 |
% |
Total operating expenses |
|
|
38.3 |
|
|
39.2 |
|
|
(0.9 |
) |
|
-2.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
15.6 |
|
|
17.2 |
|
|
(1.6 |
) |
|
-9.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(0.2 |
) |
|
(0.2 |
) |
|
- |
|
|
0.0 |
% |
Other expense, net |
|
|
(0.9 |
) |
|
(0.4 |
) |
|
(0.5 |
) |
|
125.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
14.5 |
|
|
16.6 |
|
|
(2.1 |
) |
|
-12.7 |
% |
Income tax provision |
|
|
3.4 |
|
|
5.4 |
|
|
(2.0 |
) |
|
-37.0 |
% |
Net income |
|
$ |
11.1 |
|
$ |
11.2 |
|
$ |
(0.1 |
) |
|
-0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.69 |
|
$ |
0.69 |
|
$ |
- |
|
|
0.0 |
% |
21
The following is a comparison of Second Quarter of Fiscal 2013 and Second Quarter of Fiscal 2012 results of operations, separately identifying the estimated impact of currency translation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Fiscal |
|
|
|
Three
Fiscal |
|
||||||
|
|
|
Business |
|
Currency |
|
|
||||||
Revenue |
|
$ |
136.9 |
|
$ |
10.1 |
|
$ |
(2.2 |
) |
$ |
129.0 |
|
Cost of sales |
|
|
83.0 |
|
|
12.0 |
|
|
(1.6 |
) |
|
72.6 |
|
Gross profit |
|
|
53.9 |
|
|
(1.9 |
) |
|
(0.6 |
) |
|
56.4 |
|
|
|
|
39.4 |
% |
|
|
|
|
|
|
|
43.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
19.5 |
|
|
0.5 |
|
|
(0.2 |
) |
|
19.2 |
|
General administrative |
|
|
13.2 |
|
|
(0.6 |
) |
|
(0.1 |
) |
|
13.9 |
|
Research and development |
|
|
5.6 |
|
|
(0.5 |
) |
|
- |
|
|
6.1 |
|
Total operating expenses |
|
|
38.3 |
|
|
(0.6 |
) |
|
(0.3 |
) |
|
39.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
15.6 |
|
$ |
(1.3 |
) |
$ |
(0.3 |
) |
$ |
17.2 |
|
Revenue was $136.9 million, an increase of $7.9 million, or 6.1%, compared to revenue of $129.0 million for the Second Quarter of Fiscal 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 $2.2 million unfavorable impact of currency translation. Test revenue increased 10.7% to $113.9 million, while Sensors revenue decreased 11.9% to $23.0 million.
Gross profit was $53.9 million, a decrease of $2.5 million, or 4.4%, compared to gross profit of $56.4 million for the Second Quarter of Fiscal 2012. Gross profit as a percentage of revenue was 39.4%, a decrease of 4.3 percentage points from 43.7% for the Second Quarter of Fiscal 2012. This decrease reflects unfavorable mix, resulting from an 11.9% reduction in higher-margin Sensors revenue, as well as 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, as well as 1 percentage point from lower engineering labor utilization in Test. These decreases were partially offset by volume leverage in Test. The productivity and infrastructure initiatives are focused on the building of a scalable enterprise and include investments in the Company’s operating system, selling process, and service delivery system. These investments will likely continue for the remainder of fiscal year 2013 and into fiscal year 2014.
Selling and marketing expense was $19.5 million, an increase of $0.3 million, or 1.6%, compared to $19.2 million for the Second Quarter of Fiscal 2012. This increase was primarily due to increased spending on marketing initiatives, travel and other discretionary spending to support selling efforts, partially offset by lower sales commissions and reduced bad debt expense. Selling and marketing expense as a percentage of revenue was 14.2% on higher volume, compared to 14.9% for the Second Quarter of Fiscal 2012.
General and administrative expense was $13.2 million, a decrease of $0.7 million, or 5.0%, compared to $13.9 million for the Second Quarter of Fiscal 2012. This decrease is primarily driven by a lower level of investment in strategic and compliance initiatives compared to the Second Quarter of Fiscal 2012, partially offset by higher compensation and benefits driven by senior management transition-related expenses in Sensors of $0.5 million as well as increased headcount in Test. General and administrative expense as a percentage of revenue was 9.6%, compared to 10.8% for the Second Quarter of Fiscal 2012.
22
Research and development expense was $5.6 million, a decrease of $0.5 million, or 8.2%, compared to $6.1 million for the Second Quarter of Fiscal 2012, primarily due to timing of planned expenditures in Test. Research and development expense as a percentage of revenue was 4.1%, compared to 4.7% for the Second Quarter of Fiscal 2012.
Income from operations was $15.6 million, a decrease of $1.6 million, or 9.3%, compared to income from operations of $17.2 million for the Second Quarter of Fiscal 2012. This decrease was driven by lower gross profit, partially offset by decreased operating expenses. Operating income as a percentage of revenue was 11.4%, compared to 13.3% for the Second Quarter of Fiscal 2012.
Interest expense, net was $0.2 million, relatively flat compared to the Second Quarter of Fiscal 2012.
Other expense, net was $0.9 million, an increase of $0.5 million, or 125.0%, compared to $0.4 million in the Second Quarter of Fiscal 2012. This increase was primarily due to $0.6 million increased net losses on foreign currency transactions driven by volatility in the value of the U.S. dollar against the Japanese Yen during Second Quarter of Fiscal 2013.
Provision for income taxes totaled $3.4 million for the Second Quarter of Fiscal 2013, a decrease of $2.0 million, or 37.0%, compared to $5.4 million for the Second 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 Second Quarter of Fiscal 2013 was 23.8%, a decrease of 8.9 percentage points compared to a tax rate of 32.7% for the Second Quarter of Fiscal 2012. This decrease was primarily due to the enactment of tax legislation in the Second Quarter of Fiscal 2013 that retroactively extended the United States research and development tax credit and resulted in a tax benefit of $1.3 million.
Net income was $11.1 million, relatively flat compared to $11.2 million for the Second Quarter of Fiscal 2012, as lower income from operations and increased net losses on foreign currency transactions was substantially offset by a decrease in the effective tax rate. Earnings per diluted share were $0.69, flat compared to the Second Quarter of Fiscal 2012.
Segment Results
Test Segment |
Orders and Backlog
Second Quarter of Fiscal 2013 Compared to Second Quarter of Fiscal 2012
The following is a comparison of Second Quarter of Fiscal 2013 and Second Quarter of Fiscal 2012 orders for Test, separately identifying the estimated impact of currency translation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Fiscal |
|
|
|
Three
Fiscal |
|
||||||
|
|
|
Business |
|
Currency |
|
|
||||||
Orders |
|
$ |
113.7 |
|
$ |
5.2 |
|
$ |
(1.4 |
) |
$ |
109.9 |
|
Orders totaled $113.7 million, an increase of $3.8 million, or 3.5%, compared to orders of $109.9 million for the Second Quarter of Fiscal 2012. Orders in both the Second Quarter of Fiscal 2013 and Fiscal 2012 included a $5 million European order in the ground vehicles market. Geographically, Asia grew 16.4% and the Americas increased 0.8%, driven by growth in base orders (those under $5.0 million) in the ground vehicles market. Europe declined 10.8%, primarily driven by timing of wind energy orders in the structures market, partially offset by growth in service orders. Currency translation unfavorably impacted orders by approximately $1.4 million. Test accounted for 82.6% of total Company orders, compared to 81.0% for the Second Quarter of Fiscal 2012.
23
Backlog of undelivered orders at the end of the quarter was $271.6 million, a decrease of 2.5% compared backlog of $278.6 million at the end of the Second Quarter of Fiscal 2012. As previously mentioned, Second 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
Second Quarter of Fiscal 2013 Compared to Second Quarter of Fiscal 2012
The following is a comparison of Second Quarter of Fiscal 2013 and Second Quarter of Fiscal 2012 results of operations for Test, separately identifying the estimated impact of currency translation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Fiscal |
|
|
|
Three
Fiscal |
|
||||||
|
|
|
Business |
|
Currency |
|
|
||||||
Revenue |
|
$ |
113.9 |
|
$ |
12.7 |
|
$ |
(1.7 |
) |
$ |
102.9 |
|
Cost of sales |
|
|
72.6 |
|
|
12.5 |
|
|
(1.4 |
) |
|
61.5 |
|
Gross profit |
|
|
41.3 |
|
|
0.2 |
|
|
(0.3 |
) |
|
41.4 |
|
|
|
|
36.3 |
% |
|
|
|
|
|
|
|
40.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
15.5 |
|
|
0.2 |
|
|
(0.1 |
) |
|
15.4 |
|
General administrative |
|
|
9.6 |
|
|
(0.9 |
) |
|
- |
|
|
10.5 |
|
Research and development |
|
|
4.2 |
|
|
(0.6 |
) |
|
- |
|
|
4.8 |
|
Total operating expenses |
|
|
29.3 |
|
|
(1.3 |
) |
|
(0.1 |
) |
|
30.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
12.0 |
|
$ |
1.5 |
|
$ |
(0.2 |
) |
$ |
10.7 |
|
Revenue was $113.9 million, an increase of $11.0 million, or 10.7%, compared to revenue of $102.9 million for the Second Quarter of Fiscal 2012. The increase was primarily driven by strong backlog execution, partially offset by an estimated $1.7 million unfavorable impact of currency translation. The backlog conversion rate benefited from the implementation of operational process improvements. These improvements include the implementation of project scheduling and sales and operations planning processes which are used to forecast and schedule engineering and manufacturing labor requirements based on planned future sales.
Gross profit was $41.3 million, relatively flat compared to the Second Quarter of Fiscal 2012. Gross profit as a percentage of revenue was 36.3%, a decrease of 3.9 percentage points from 40.2% for the Second Quarter of Fiscal 2012. Of the reduced gross profit rate, approximately 3 percentage points resulted from an unfavorable mix of lower-margin projects, 1 percentage point resulted from continued investment in productivity and infrastructure initiatives, and 1 percentage point resulted from lower engineering labor utilization caused primarily by increased innovation and training initiatives during the quarter. These decreases were partially offset by leverage on higher volume. As previously mentioned, the productivity and infrastructure initiatives are focused on the building of a scalable enterprise and include investments in the Company’s operating system, selling process, and service delivery system. These investments will likely continue for the remainder of fiscal year 2013 and into fiscal year 2014.
Selling and marketing expense was $15.5 million, relatively flat compared to the Second Quarter of Fiscal 2012. Continued investment in sales expansion to drive future revenue growth, primarily comprised of higher compensation and benefits resulting from increased headcount, as well as increased travel and other discretionary expenses to support current sales efforts, was largely offset by lower sales commissions, severance charges of $0.6 million recognized in the Second Quarter of Fiscal 2012, and reduced bad debt expense. Selling and marketing expense as a percentage of revenue was 13.6% on higher volume, compared to 15.0% for the Second Quarter of Fiscal 2012.
General and administrative expense was $9.6 million, a decrease of $0.9 million, or 8.6%, compared to $10.5 million for the Second Quarter of Fiscal 2012. This decrease is primarily driven by a lower level of investment in strategic and compliance initiatives. General and administrative expense as a percentage of revenue was 8.4%, compared to 10.2% for the Second Quarter of Fiscal 2012.
24
Research and development expense was $4.2 million, a decrease of $0.6 million, or 12.5%, compared to $4.8 million for the Second Quarter of Fiscal 2012, due to the timing of planned expenditures. Research and development expense as a percentage of revenue was 3.7%, compared to 4.7% for the Second Quarter of Fiscal 2012.
Income from operations was $12.0 million, an increase of $1.3 million, or 12.1%, compared to income from operations of $10.7 million for the Second Quarter of Fiscal 2012, primarily driven by decreased operating expenses. Operating income as a percentage of revenue was 10.5%, compared to 10.4% for the Second Quarter of Fiscal 2012.
Sensors Segment |
Orders and Backlog
Second Quarter of Fiscal 2013 Compared to Second Quarter of Fiscal 2012
The following is a comparison of Second Quarter of Fiscal 2013 and Second Quarter of Fiscal 2012 orders for Sensors, separately identifying the estimated impact of currency translation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Fiscal |
|
|
|
Three
Fiscal |
|
||||||
|
|
|
Business |
|
Currency |
|
|
||||||
Orders |
|
$ |
24.0 |
|
$ |
(1.0 |
) |
$ |
(0.7 |
) |
$ |
25.7 |
|
Orders totaled $24.0 million, a decrease of $1.7 million, or 6.6%, including an estimated 2.7% unfavorable impact of currency translation, compared to orders of $25.7 million for the Second Quarter of Fiscal 2012. The industrial market was down modestly at 4.0%, primarily driven by weaker demand in the plastics and steel markets in Asia. The mobile hydraulic market was down 15.9%, primarily driven by Original Equipment Manufacturers reducing their inventory levels in response to lower demand in the Americas and Europe. Sensors accounted for 17.4% of total Company orders, compared to 19.0% for the Second Quarter of Fiscal 2012.
Backlog of undelivered orders at the end of the quarter was $15.7 million, relatively flat compared to backlog of $15.8 million at the end of the Second Quarter of Fiscal 2012.
Results of Operations
Second Quarter of Fiscal 2013 Compared to Second Quarter of Fiscal 2012
The following is a comparison of Second Quarter of Fiscal 2013 and Second Quarter of Fiscal 2012 results of operations for Sensors, separately identifying the estimated impact of currency translation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Fiscal |
|
|
|
Three
Fiscal |
|
||||||
|
|
|
Business |
|
Currency |
|
|
||||||
Revenue |
|
$ |
23.0 |
|
$ |
(2.6 |
) |
$ |
(0.5 |
) |
$ |
26.1 |
|
Cost of sales |
|
|
10.4 |
|
|
(0.5 |
) |
|
(0.2 |
) |
|
11.1 |
|
Gross profit |
|
|
12.6 |
|
|
(2.1 |
) |
|
(0.3 |
) |
|
15.0 |
|
|
|
|
54.8 |
% |
|
|
|
|
|
|
|
57.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
4.0 |
|
|
0.3 |
|
|
(0.1 |
) |
|
3.8 |
|
General administrative |
|
|
3.6 |
|
|
0.3 |
|
|
(0.1 |
) |
|
3.4 |
|
Research and development |
|
|
1.4 |
|
|
0.1 |
|
|
- |
|
|
1.3 |
|
Total operating expenses |
|
|
9.0 |
|
|
0.7 |
|
|
(0.2 |
) |
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
3.6 |
|
$ |
(2.8 |
) |
$ |
(0.1 |
) |
$ |
6.5 |
|
25
Revenue was $23.0 million, a decrease of $3.1 million, or 11.9%, compared to revenue of $26.1 million for the Second Quarter of Fiscal 2012. This decrease was primarily driven by lower order volume, as well as an estimated $0.5 million unfavorable impact of currency translation.
Gross profit was $12.6 million, a decrease of $2.4 million, or 16.0%, compared to gross profit of $15.0 million for the Second Quarter of Fiscal 2012, driven by lower revenue volume. Gross profit as a percentage of revenue was 54.8%, a decrease of 2.6 percentage points from 57.4% for the Second Quarter of Fiscal 2012, driven by reduced leverage on lower volume.
Selling and marketing expense was $4.0 million, an increase of $0.2 million, or 5.3%, compared to $3.8 million for the Second Quarter of Fiscal 2012. The increase was primarily due to higher compensation and benefits driven by increased headcount to support future sales growth. Selling and marketing expense as a percentage of revenue was 17.4%, compared to 14.6% for the Second Quarter of Fiscal 2012.
General and administrative expense was $3.6 million, an increase of $0.2 million, or 5.9%, compared to $3.4 million for the Second Quarter of Fiscal 2012. This increase is primarily driven by $0.5 million higher compensation and benefits for senior management transition-related expenses, partially offset by a lower level of investment in strategic and compliance initiatives. General and administrative expense as a percentage of revenue was 15.7%, compared to 13.0% for the Second Quarter of Fiscal 2012.
Research and development expense was $1.4 million, relatively flat compared to the Second Quarter of Fiscal 2012. Research and development expense as a percentage of revenue was 6.1%, compared to 5.0% for the Second Quarter of Fiscal 2012.
Income from operations was $3.6 million, a decrease of $2.9 million, or 44.6%, compared to income from operations of $6.5 million for the Second Quarter of Fiscal 2012. The decrease was primarily due to lower gross profit and higher operating expenses. Operating income as a percentage of revenue was 15.7%, compared to 24.9% for the Second Quarter of Fiscal 2012.
Financial Results
Total Company |
Orders and Backlog
Six Fiscal Months Ended March 30, 2013 (First Half of Fiscal 2013) Compared to Six Fiscal Months Ended March 31, 2012 (First Half of Fiscal 2012)
The following is a comparison of First Half of Fiscal 2013 and First Half of Fiscal 2012 orders, separately identifying the estimated impact of currency translation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Fiscal |
|
|
|
Six
Fiscal |
|
||||||
|
|
|
Business |
|
Currency |
|
|
||||||
Orders |
|
$ |
277.0 |
|
$ |
10.0 |
|
$ |
(3.5 |
) |
$ |
270.5 |
|
Orders totaled $277.0 million, an increase of $6.5 million, or 2.4%, including an estimated 2.6% unfavorable impact of currency translation, compared to orders of $270.5 million for the First Half of Fiscal 2012. This increase was driven by three large (in excess of $5.0 million) custom Test segment (Test) orders totaling approximately $26 million. There was one large custom Test segment order of approximately $5 million in the First Half of Fiscal 2012. Test orders grew 4.4% while Sensors segment (Sensors) orders declined 6.4%.
26
Backlog of undelivered orders at the end of the period was $287.3 million, compared to backlog of $294.4 million at the end of the First Half of Fiscal 2012.
Results of Operations
First Half of Fiscal 2013 Compared to First Half of Fiscal 2012
The following is a comparison of First Half of Fiscal 2013 and First Half of Fiscal 2012 statements of operations (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Fiscal Months Ended |
|
|
|
|
|
|
|
||||
|
|
March
30, |
|
March
31, |
|
Variance |
|
% Variance |
|
||||
Revenue |
|
$ |
279.6 |
|
$ |
262.7 |
|
$ |
16.9 |
|
|
6.4 |
% |
Cost of sales |
|
|
169.1 |
|
|
147.6 |
|
|
21.5 |
|
|
14.6 |
% |
Gross profit |
|
|
110.5 |
|
|
115.1 |
|
|
(4.6 |
) |
|
-4.0 |
% |
Gross margin |
|
|
39.5 |
% |
|
43.8 |
% |
|
(4.3 |
) pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
38.7 |
|
|
36.2 |
|
|
2.5 |
|
|
6.9 |
% |
General administrative |
|
|
25.5 |
|
|
27.1 |
|
|
(1.6 |
) |
|
-5.9 |
% |
Research and development |
|
|
10.6 |
|
|
11.1 |
|
|
(0.5 |
) |
|
-4.5 |
% |
Total operating expenses |
|
|
74.8 |
|
|
74.4 |
|
|
0.4 |
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
35.7 |
|
|
40.7 |
|
|
(5.0 |
) |
|
-12.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(0.2 |
) |
|
(0.4 |
) |
|
0.2 |
|
|
-50.0 |
% |
Other expense, net |
|
|
(0.5 |
) |
|
(0.4 |
) |
|
(0.1 |
) |
|
25.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
35.0 |
|
|
39.9 |
|
|
(4.9 |
) |
|
-12.3 |
% |
Income tax provision |
|
|
10.2 |
|
|
13.2 |
|
|
(3.0 |
) |
|
-22.7 |
% |
Net income |
|
$ |
24.8 |
|
$ |
26.7 |
|
$ |
(1.9 |
) |
|
-7.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
1.56 |
|
$ |
1.67 |
|
$ |
(0.11 |
) |
|
-6.6 |
% |
The following is a comparison of First Half of Fiscal 2013 and First Half of Fiscal 2012 results of operations, separately identifying the estimated impact of currency translation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Fiscal |
|
|
|
Six
Fiscal |
|
||||||
|
|
|
Business |
|
Currency |
|
|
||||||
Revenue |
|
$ |
279.6 |
|
$ |
20.9 |
|
$ |
(4.0 |
) |
$ |
262.7 |
|
Cost of sales |
|
|
169.1 |
|
|
24.2 |
|
|
(2.7 |
) |
|
147.6 |
|
Gross profit |
|
|
110.5 |
|
|
(3.3 |
) |
|
(1.3 |
) |
|
115.1 |
|
|
|
|
39.5 |
% |
|
|
|
|
|
|
|
43.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
38.7 |
|
|
3.0 |
|
|
(0.5 |
) |
|
36.2 |
|
General administrative |
|
|
25.5 |
|
|
(1.4 |
) |
|
(0.2 |
) |
|
27.1 |
|
Research and development |
|
|
10.6 |
|
|
(0.5 |
) |
|
- |
|
|
11.1 |
|
Total operating expenses |
|
|
74.8 |
|
|
1.1 |
|
|
(0.7 |
) |
|
74.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
35.7 |
|
$ |
(4.4 |
) |
$ |
(0.6 |
) |
$ |
40.7 |
|
27
Revenue was $279.6 million, an increase of $16.9 million, or 6.4%, compared to revenue of $262.7 million for the First Half of Fiscal 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 $4.0 million unfavorable impact of currency translation. Test revenue increased 11.2% to $235.1 million, while Sensors revenue decreased 13.1% to $44.5 million.
Gross profit was $110.5 million, a decrease of $4.6 million, or 4.0%, compared to gross profit of $115.1 million for the First Half of Fiscal 2012. Gross profit as a percentage of revenue was 39.5%, a decrease of 4.3 percentage points from 43.8% for the First Half of Fiscal 2012. This decrease reflects an unfavorable mix, resulting from a higher proportion of lower-margin custom development products in Test, as well as a 13.1% reduction in higher-margin Sensors revenue. The gross profit rate was also negatively impacted by approximately 1 percentage point from continued investment in productivity and infrastructure initiatives in Test, as well as 1 percentage point from higher warranty expense and lower engineering labor utilization in Test. These decreases were partially offset by volume leverage in Test. As previously mentioned, the productivity and infrastructure initiatives are focused on the building of a scalable enterprise and include investments in the Company’s operating system, selling process, and service delivery system. These investments will likely continue for the remainder of fiscal year 2013 and into fiscal year 2014.
Selling and marketing expense was $38.7 million, an increase of $2.5 million, or 6.9%, compared to $36.2 million for the First Half of Fiscal 2012. This increase was primarily driven by investment in sales expansion, primarily comprised of higher compensation and benefits resulting from increased headcount, as well as increased travel and other discretionary expenses to support selling efforts, partially offset by reduced bad debt expense and lower sales commissions. Selling and marketing expense as a percentage of revenue was 13.8% on higher volume, compared to 13.8% for the First Half of Fiscal 2012.
General and administrative expense was $25.5 million, a decrease of $1.6 million, or 5.9%, compared to $27.1 million for the First Half of Fiscal 2012. This decrease is primarily driven by a lower level of investment in strategic and compliance initiatives, partially offset by higher compensation and benefits driven by increased headcount. General and administrative expense as a percentage of revenue was 9.1%, compared to 10.3% for the First Half of Fiscal 2012.
Research and development expense was $10.6 million, a decrease of $0.5 million, or 4.5%, compared to $11.1 million for the First Half of Fiscal 2012, primarily due to timing of planned expenditures in Test. Research and development expense as a percentage of revenue was 3.8%, compared to 4.2% for the First Half of Fiscal 2012.
Income from operations was $35.7 million, a decrease of $5.0 million, or 12.3%, compared to income from operations of $40.7 million for the First Half of Fiscal 2012. This decrease was driven by lower gross profit. Operating income as a percentage of revenue was 12.8%, compared to 15.5% for the First Half of Fiscal 2012.
Interest expense, net was $0.2 million, a decrease of $0.2 million, or 50.0%, compared to $0.4 million of net interest expense in the First Half of Fiscal 2012, driven by a $0.3 million reduction in interest expense resulting from an overall lower level of borrowings under the Companys credit facility.
Other expense, net was $0.5 million, an increase of $0.1 million compared to $0.4 million in the First Half of Fiscal 2012. This increase is primarily due to $0.5 million increased net losses on foreign currency transactions driven by volatility in the value of the U.S. dollar against the Japanese Yen during First Half of Fiscal 2013, partially offset by $0.4 million higher royalty income in the First Half of Fiscal 2013 associated with a Test product line that was sold by the Company in fiscal year 2012.
Provision for income taxes totaled $10.2 million for the First Half of Fiscal 2013, a decrease of $3.0 million, or 22.7%, compared to $13.2 million for the First Half of Fiscal 2012, primarily due to decreased income before income taxes and a lower effective tax rate. The effective tax rate for the First Half of Fiscal 2013 was 29.1%, a decrease of 4.0 percentage points compared to a tax rate of 33.1% for the First Half of Fiscal 2012, primarily due to the enactment of tax legislation in the Second Quarter of Fiscal 2013 that retroactively extended the United States research and development tax credit and provided a tax benefit of $1.0 million.
28
Net income was $24.8 million, a decrease of $1.9 million, or 7.1%, compared to $26.7 million for the First Half of Fiscal 2012. Earnings per diluted share decreased $0.11 to $1.56, compared to $1.67 for the First Half of Fiscal 2012. The decrease was primarily driven by lower income from operations, partially offset by a decrease in the effective tax rate.
Segment Results
Test Segment |
Orders and Backlog
First Half of Fiscal 2013 Compared to First Half of Fiscal 2012
The following is a comparison of First Half of Fiscal 2013 and First Half of Fiscal 2012 orders for Test, separately identifying the estimated impact of currency translation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Fiscal |
|
|
|
|
|
|
|
Six
Fiscal |
|
||
|
|
|
Estimated |
|
|
||||||||
|
|
|
Business |
|
Currency |
|
|
||||||
|
|
|
|
|
|
||||||||
Orders |
|
$ |
230.4 |
|
$ |
11.8 |
|
$ |
(2.1 |
) |
$ |
220.7 |
|
Orders totaled $230.4 million, an increase of $9.7 million, or 4.4%, compared to orders of $220.7 million for the First Half of Fiscal 2012. The First Half of Fiscal 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 a $9 million Americas structures market order for a vehicle motion simulator. First Half of Fiscal 2012 orders included one large custom order of approximately $5 million. Geographically, Europe increased 15.2% and the Americas grew 4.2%, driven by the previously mentioned large orders. Asia declined 2.5%, 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 $2.1 million. Test accounted for 83.2% of total Company orders, compared to 81.6% for the First Half of Fiscal 2012.
Backlog of undelivered orders at the end of the quarter was $271.6 million, compared to backlog of $278.6 million at the end of the Second Quarter of Fiscal 2012.
Results of Operations
First Half of Fiscal 2013 Compared to First Half of Fiscal 2012
The following is a comparison of First Half of Fiscal 2013 and First Half of Fiscal 2012 results of operations for Test, separately identifying the estimated impact of currency translation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Fiscal |
|
|
|
|
|
|
|
Six
Fiscal |
|
||
|
|
|
Estimated |
|
|
||||||||
|
|
|
Business |
|
Currency |
|
|
||||||
|
|
|
|
|
|
||||||||
Revenue |
|
$ |
235.1 |
|
$ |
26.4 |
|
$ |
(2.8 |
) |
$ |
211.5 |
|
Cost of sales |
|
|
149.1 |
|
|
25.9 |
|
|
(2.2 |
) |
|
125.4 |
|
Gross profit |
|
|
86.0 |
|
|
0.5 |
|
|
(0.6 |
) |
|
86.1 |
|
|
|
|
36.6 |
% |
|
|
|
|
|
|
|
40.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
30.5 |
|
|
2.1 |
|
|
(0.2 |
) |
|
28.6 |
|
General administrative |
|
|
19.1 |
|
|
(1.5 |
) |
|
- |
|
|
20.6 |
|
Research and development |
|
|
8.0 |
|
|
(0.5 |
) |
|
- |
|
|
8.5 |
|
Total operating expenses |
|
|
57.6 |
|
|
0.1 |
|
|
(0.2 |
) |
|
57.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
28.4 |
|
$ |
0.4 |
|
$ |
(0.4 |
) |
$ |
28.4 |
|
29
Revenue was $235.1 million, an increase of $23.6 million, or 11.2%, compared to revenue of $211.5 million for the First Half of Fiscal 2012. The increase was primarily driven by a strong execution on 5.2% higher beginning backlog, partially offset by an estimated $2.8 million unfavorable impact of currency translation. The backlog conversion rate benefited from the implementation of operational process improvements.
Gross profit was $86.0 million, relatively flat compared to gross profit of $86.1 million for the First Half of Fiscal 2012. Gross profit as a percentage of revenue was 36.6%, a decrease of 4.1 percentage points from 40.7% for the First Half of Fiscal 2012. Of the reduced gross profit rate, approximately 2 percentage points resulted from an unfavorable mix of lower-margin projects, 1 percentage point resulted from continued investment in productivity and infrastructure initiatives, and 1 percentage point resulted from increased warranty expense and lower engineering labor utilization caused primarily by increased innovation and training initiatives during the current year. These decreases were partially offset by leverage on higher volume. As previously mentioned, the productivity and infrastructure initiatives are focused on the building of a scalable enterprise and include investments in the Company’s operating system, selling process, and service delivery system. These investments will likely continue for the remainder of fiscal year 2013 and into fiscal year 2014.
Selling and marketing expense was $30.5 million, an increase of $1.9 million, or 6.6%, compared to $28.6 million for the First Half of Fiscal 2012. This increase was primarily driven by investment in sales expansion, primarily comprised of higher compensation and benefits resulting from increased headcount, as well as increased travel and other discretionary expenses to support selling efforts, partially offset by reduced bad debt expense and lower sales commissions. Selling and marketing expense as a percentage of revenue was 13.0% on higher volume, compared to 13.5% for the First Half of Fiscal 2012.
General and administrative expense was $19.1 million, a decrease of $1.5 million, or 7.3%, compared to $20.6 million for the First Half of Fiscal 2012. This decrease is primarily driven by a relatively lower level of investment in legal and compliance initiatives, partially offset by higher compensation and benefits driven by increased headcount. General and administrative expense as a percentage of revenue was 8.1%, compared to 9.7% for the First Half of Fiscal 2012.
Research and development expense was $8.0 million, a decrease of $0.5 million, or 5.9%, compared to the First Half of Fiscal 2012, due to timing of planned expenditures. Research and development expense as a percentage of revenue was 3.4%, compared to 4.0% for the First Half of Fiscal 2012.
Income from operations was $28.4 million, flat compared to the First Half of Fiscal 2012. Operating income as a percentage of revenue was 12.1%, compared to 13.4% for the First Quarter of Fiscal 2012.
Sensors Segment |
Orders and Backlog
First Half of Fiscal 2013 Compared to First Half of Fiscal 2012
The following is a comparison of First Half of Fiscal 2013 and First Quarter of Fiscal 2012 orders for Sensors, separately identifying the estimated impact of currency translation (in millions):
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Six
Fiscal |
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Six
Fiscal |
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Estimated |
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Currency |
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Orders |
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$ |
46.6 |
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$ |
(1.8 |
) |
$ |
(1.4 |
) |
$ |
49.8 |
|
30
Orders totaled $46.6 million, a decrease of $3.2 million, or 6.4%, including an estimated 5.4% unfavorable impact of currency translation, compared to orders of $49.8 million for the First Half of Fiscal 2012, primarily due to soft market conditions in Europe and Japan. The industrial market was down 4.2% while the mobile hydraulic market was down 15.9%. Sensors accounted for 16.8% of total Company orders, compared to 18.4% for the First Half of Fiscal 2012.
Backlog of undelivered orders at the end of the quarter was $15.7 million, relatively flat compared to backlog of $15.8 million at the end of the Second Quarter of Fiscal 2012.
Results of Operations
First Half of Fiscal 2013 Compared to First Half of Fiscal 2012
The following is a comparison of First Half of Fiscal 2013 and First Half of Fiscal 2012 results of operations for Sensors, separately identifying the estimated impact of currency translation (in millions):
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Six
Fiscal |
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Six
Fiscal |
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Estimated |
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Currency |
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Revenue |
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$ |
44.5 |
|
$ |
(5.5 |
) |
$ |
(1.2 |
) |
$ |
51.2 |
|
Cost of sales |
|
|
20.0 |
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|
(1.7 |
) |
|
(0.5 |
) |
|
22.2 |
|
Gross profit |
|
|
24.5 |
|
|
(3.8 |
) |
|
(0.7 |
) |
|
29.0 |
|
|
|
|
55.1 |
% |
|
|
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|
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|
|
56.7 |
% |
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Operating expenses: |
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|
Selling and marketing |
|
|
8.2 |
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|
0.9 |
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|
(0.3 |
) |
|
7.6 |
|
General administrative |
|
|
6.4 |
|
|
0.1 |
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|
(0.2 |
) |
|
6.5 |
|
Research and development |
|
|
2.6 |
|
|
- |
|
|
- |
|
|
2.6 |
|
Total operating expenses |
|
|
17.2 |
|
|
1.0 |
|
|
(0.5 |
) |
|
16.7 |
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Income from operations |
|
$ |
7.3 |
|
$ |
(4.8 |
) |
$ |
(0.2 |
) |
$ |
12.3 |
|
Revenue was $44.5 million, a decrease of $6.7 million, or 13.1%, compared to revenue of $51.2 million for the First Half of Fiscal 2012. This decrease was primarily driven by a 20.8% lower beginning backlog, reduced order volume, and an estimated $1.2 million unfavorable impact of currency translation.
Gross profit was $24.5 million, a decrease of $4.5 million, or 15.5%, compared to gross profit of $29.0 million for the First Half of Fiscal 2012, driven by lower revenue volume. Gross profit as a percentage of revenue was 55.1%, a decrease of 1.6 percentage points from 56.7% for the First Half of Fiscal 2012, driven by reduced leverage on lower volume.
Selling and marketing expense was $8.2 million, an increase of $0.6 million, or 7.9%, compared to $7.6 million for the First Half of Fiscal 2012. The increase was primarily due to higher compensation and benefits driven by increased headcount to support future sales growth. Selling and marketing expense as a percentage of revenue was 18.4%, compared to 14.8% for the First Half of Fiscal 2012.
General and administrative expense was $6.4 million, relatively flat compared to $6.5 million for the First Half of Fiscal 2012, as a relatively lower level of investment in strategic and compliance initiatives was substantially offset by higher compensation and benefits driven by senior management transition-related expenses. General and administrative expense as a percentage of revenue was 14.4% on lower volume, compared to 12.7% for the First Quarter of Fiscal 2012.
Research and development expense was $2.6 million, flat compared to the First Half of Fiscal 2012. Research and development expense as a percentage of revenue was 5.8% on lower volume, compared to 5.1% for the First Half of Fiscal 2012.
31
Income from operations was $7.3 million, a decrease of $5.0 million, or 40.7%, compared to income from operations of $12.3 million for the First Half of Fiscal 2012. The decrease was primarily due to lower gross profit and higher operating expenses. Operating income as a percentage of revenue was 16.4%, compared to 24.0% for the First Half of Fiscal 2012.
Capital Resources and Liquidity
The Company had cash and cash equivalents of $46.6 million at the end of the Second Quarter of Fiscal 2013. Of this amount, $2.9 million was located in North America, $28.2 million in Europe, and $15.5 million in Asia. Of the $43.7 million of cash located outside of North America, approximately $33.0 million is not available for use in the U.S. without the incurrence of U.S. federal and state income tax consequences.
The North American balance was primarily invested in bank deposits. In Europe and Asia, the balances were primarily invested in money market funds and bank deposits. In accordance with its investment policy, the Company places cash equivalent investments with issuers who have high-quality investment credit ratings. In addition, the Company limits the amount of investment exposure it has with any particular issuer. The Companys investment objectives are to preserve principal, maintain liquidity, and achieve the best available return consistent with its primary objectives of safety and liquidity. At the end of the Second Quarter of Fiscal 2013, the Company held no short-term investments.
Total cash and cash equivalents decreased $33.2 million in the First Half of Fiscal 2013, primarily due to increased working capital requirements, investments in property and equipment, and dividend payments, partially offset by earnings. Total cash and cash equivalents increased $19.2 million in the First Half of Fiscal 2012, primarily due to earnings and proceeds from the exercise of stock options, partially offset by dividend payments, investment in property and equipment, employee incentives and related benefit payments. The Company believes that its liquidity, represented by funds available from cash, cash equivalents, credit facility, and anticipated cash from operations, are adequate to fund ongoing operations, internal growth opportunities, capital expenditures, dividends and share purchases, as well as to fund strategic acquisitions.
Cash flows from operating activities used cash totaling $15.5 million for the First Half of Fiscal 2013, compared to cash provided of $19.6 million for the First Half of Fiscal 2012. Cash used for the First Half of Fiscal 2013 was primarily due to $29.2 million increased accounts and unbilled receivables resulting from general timing of billings and collections, $7.1 million increased inventories to support future revenue, $4.8 million decreased accounts payable resulting from general timing of purchases and payments, $2.4 million decreased advance payments received from customers driven by the timing of orders, and $3.4 million net employee incentives and related benefit payments.
Cash provided for the First Half of Fiscal 2012 was primarily due to earnings, $9.2 million increased advance payments received from customers driven by higher orders, partially offset by $8.7 million increased accounts and unbilled receivables resulting from higher revenue volume and the general timing of billing and collections, $4.5 million increased inventories to support future revenue, and $6.7 million net employee incentives and related benefit payments.
Cash flows from investing activities required the use of cash totaling $14.4 million for the First Half of Fiscal 2013, compared to the use of cash totaling $6.7 million for the First Half of Fiscal 2012, each of which reflects investment in property and equipment. The significant increase was driven by investments in various growth and productivity initiatives.
Cash flows from financing activities used cash totaling $1.0 million for the First Half of Fiscal 2013, compared to the cash provided totaling $6.7 million for the First Half of Fiscal 2012. The cash used for the First Half of Fiscal 2013 was primarily due to cash dividend payments totaling $9.6 million, partially offset by $5.0 million proceeds from short-term borrowings, and $3.4 million received in connection with stock option exercises. The cash provided for the First Half of Fiscal 2012 was primarily due to $14.0 million received in connection with stock option exercises, partially offset by payment of cash dividends of $8.0 million.
Under the terms of its borrowing agreements, the Company has agreed to certain financial covenants. At the end of the Second Quarter of Fiscal 2013, the Company was in compliance with the financial terms and conditions of those agreements.
32
Off-Balance Sheet Arrangements
As of March 30, 2013, the Company had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Companys financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies
The Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles, 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 Companys results of operations and financial position, may require the application of a higher level of judgment by the Companys management and, as a result, are subject to an inherent degree of uncertainty. Further information is provided in Note 1 in the Condensed Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Revenue Recognition. The Company is required to comply with a variety of technical accounting requirements in order to achieve consistent and accurate revenue recognition. The most significant area of judgment and estimation is percentage of completion contract accounting. The Company develops cost estimates that include materials, component parts, labor and overhead costs. Detailed costs plans are developed for all aspects of the contracts during the bidding phase of the contract. Cost estimates are largely based on actual historical performance of similar projects combined with current knowledge of the projects in progress. Significant factors that impact the cost estimates include technical risk, inflationary cost of materials and labor, changes in scope and schedule, and internal and subcontractor performance. Actual costs incurred during the project phase are monitored and compared to the estimates on a monthly basis. Cost estimates are revised based on changes in circumstances. Anticipated losses on long-term contracts are recognized when such losses become evident.
Inventories. The Company maintains a material amount of inventory to support its engineering and manufacturing operations. This inventory is stated at the lower of cost or market. On a regular basis, the Company reviews its inventory and identifies that which is excess, slow moving, and obsolete by considering factors such as inventory levels, expected product life, and forecasted sales demand. Any identified excess, slow moving, and obsolete inventory is written down to its market value through a charge to income from operations. It is possible that additional inventory write-down charges may be required in the future if there is a significant decline in demand for the Companys products and the Company does not adjust its manufacturing production accordingly.
Impairment of Long-Lived Assets. The Company reviews the carrying value of long-lived assets or asset groups, such as property and equipment and intangibles subject to amortization, when events or changes in circumstances such as market value, asset utilization, physical change, legal factors, or other matters indicate that the carrying value may not be recoverable. When this review indicates the carrying value of an asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, the Company recognizes an asset impairment charge against operations. The amount of the impairment charge recorded is the amount by which the carrying value of the impaired asset or asset group exceeds its fair value.
Goodwill. The Company tests goodwill at least annually for impairment. Goodwill is also tested for impairment as changes in circumstances occur indicating that the carrying value may not be recoverable. Goodwill impairment testing first requires a comparison of the fair value of each reporting unit to the carrying value. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired.
The Company has three reporting units, two of which are assigned goodwill. At March 30, 2013, one reporting unit was assigned $14.8 million of goodwill while another was assigned $1.5 million. The fair value of a reporting unit is estimated using a discounted cash flow model that requires input of certain estimates and assumptions requiring management judgment, including projections of economic conditions and customer demand, revenue and margins, changes in competition, operating costs, and new product introductions. At the end of the prior fiscal year, the estimated fair value of the reporting unit assigned $1.5 million of goodwill was substantially in excess of its carrying value, while the estimated fair value of the reporting unit assigned $14.7 million of goodwill exceeded its carrying value by approximately 28 percent. While the Company believes the estimates and assumptions used in determining the fair value of its reporting units are reasonable, significant changes in estimates of future cash flows, such as those caused by unforeseen events or changes in market conditions, could materially impact the fair value of a reporting unit which could result in the recognition of a goodwill impairment charge.
33
Software Development Costs. The Company incurs costs associated with the development of software to be sold, leased, or otherwise marketed. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. In evaluating the recoverability of capitalized software costs, the Company compares expected product performance, utilizing forecasted revenue amounts, to the total costs incurred to date and estimates of additional costs to be incurred. If revised forecasted product revenue is less than, and/or revised forecasted costs are greater than, the previously forecasted amounts, the net realizable value may be lower than previously estimated, which could result in the recognition of an impairment charge in the period in which such a determination is made.
Warranty Obligations. The Company is subject to warranty obligations on sales of its products. The Company records general warranty provisions based on an estimated warranty expense percentage applied to current period revenue. The percentage applied reflects historical warranty claims experience over the preceding twelve-month period. Both the experience percentage and the warranty liability are evaluated on an ongoing basis for adequacy. A certain amount of judgment is required in determining appropriate reserve levels for anticipated warranty claims. While these reserve levels are based on historical warranty experience, they may not reflect the actual claims that will occur over the upcoming warranty period, and additional warranty reserves may be required.
Income Taxes. The Company records a tax provision for the anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. The Company believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining net realizable value of its deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with managements expectations could have a material impact on the Companys financial condition and operating results.
Other Matters
The Companys dividend policy is to maintain a payout ratio that allows dividends to increase as earnings per share increases over time while sustaining dividends through economic cycles. The Companys dividend practice is to target, over time, a payout ratio of approximately 30% of net earnings per share.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Companys investment portfolio at March 30, 2013 included $46.6 million of cash and cash equivalents. The cash equivalent portion of the Companys investment portfolio is invested in money market funds and bank deposits. A hypothetical 1.0 percentage point increase or decrease in market interest rates would have caused interest income to increase or decrease by $0.3 million for the six-fiscal month period ended March 30, 2013.
The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates. The Company manages exposure to changes in foreign currency exchange rates through its regular operating and financing activities and through the use of foreign currency exchange contracts. These contracts are used to manage the Companys overall exposure to exchange rate fluctuations, as the gains and losses on these contracts are intended to offset gains and losses on the Companys assets, liabilities, and cash flows.
A hypothetical 10% appreciation or depreciation in foreign currencies against the U.S. dollar, assuming all other variables were held constant, would have resulted in an estimated increase or decrease of $13.1 million in revenue for the six-fiscal month period ended March 30, 2013.
34
At March 30, 2013, the Companys short-term borrowings outstanding consisted of $5.0 million utilization of the revolving credit facility. This utilization of the credit facility involves interest payments calculated at a fixed rate and, therefore, is not impacted by the effect of increases or decreases in market interest rates.
Item 4. Controls and Procedures
The Companys management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the 1934 Act)) as of March 30, 2013. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the 1934 Act is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms, and that such information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in internal control over financial reporting during the fiscal quarter ended March 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
PART II ------ OTHER INFORMATION
Investigative Matters
As previously reported by the Company with disclosures
starting in March 2012, the Company investigated certain gift, travel,
entertainment and other expenses incurred in connection with some of the
Companys operations in the Asia Pacific region. The investigation focused on
possible violations of Company policy, corresponding internal control issues
and possible violations of applicable law, including the Foreign Corrupt
Practices Act. Substantial investigative work has been completed and the Company
has taken remedial actions, including changes to internal control procedures
and removing certain persons formerly employed in its Korea office. The Company
voluntarily disclosed this matter to the Department of Justice and the SEC.
Additionally, the Company disclosed this matter to the U.S. Air Force pursuant
to its Administrative Agreement with the U.S. Air Force. The Company presented
the results of its investigation and its corrective actions to representatives
of the Department of Justice and the SEC on January 16, 2013. The Company
cannot predict the outcome of this matter at this time or whether it will have
a material adverse impact on its business prospects, financial condition,
operating results or cash flows.
Litigation
The Company is subject to various claims, legal
actions, and complaints arising in the ordinary course of business. Management
believes the final resolution of legal matters outstanding as of March 30, 2013
will not have a material adverse effect on the consolidated financial position
or results of operations of the Company. The Company expenses legal costs as
incurred.
35
|
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|
Exhibit |
|
|
Description |
|
|
|
|
||
10.1 |
Letter Agreement (with Annexes A-D and Exhibit A) Regarding Accelerated Share Repurchase Program by and between the Company and J.P Morgan Securities, Inc., as agent for JPMorgan Chase Bank, National Association, London Branch, dated September 7, 2012 (filed herewith). |
|||
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||
10.2 |
Letter Agreement, dated February 25, 2013, between the Company and William E. Bacharach (filed herewith). |
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|
||
31.1 |
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
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|
||
31.2 |
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|||
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|
|
||
32.1 |
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) (furnished herewith). |
|||
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|
||
32.2 |
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) (furnished herewith). |
|||
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|
||
101.INS ** |
XBRL Instance Document (furnished herewith). |
|||
|
|
|||
101.SCH ** |
XBRL Taxonomy Extension Schema Document (furnished herewith). |
|||
|
|
|||
101.CAL ** |
XBRL Taxonomy Extension Calculation Linkbase Document (furnished herewith). |
|||
|
|
|||
101.DEF ** |
XBRL Taxonomy Extension Definition Linkbase Document (furnished herewith). |
|||
|
|
|||
101.LAB ** |
XBRL Taxonomy Extension Label Linkbase Document (furnished herewith). |
|||
|
|
|||
101.PRE ** |
XBRL Taxonomy Extension Presentation Linkbase Document (furnished herewith). |
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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.
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MTS SYSTEMS CORPORATION |
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|
Dated: May 6, 2013 |
/s/ SUSAN E. KNIGHT |
|
|
Susan E. Knight |
|
|
Senior Vice President and Chief Financial Officer * |
|
* Executing as both the principal financial officer and duly authorized officer of the Company.
36