Susan Knight, Chief Financial Officer
(952) 937-4000
Thomas Minneman, Treasurer
(952) 937-4647
MTS Reports Second Quarter Results, Raises Full Year Outlook
Eden Prairie, Minn., April 21, 2003 - MTS Systems Corporation (Nasdaq: MTSC) today reported net income from continuing operations of $6.4 million, or $0.30 per diluted share, for its second quarter ended March 29, 2003, compared to the previously communicated estimate range of $0.23-$0.26. Associated with the third quarter sale of its Automation division that was announced on March 31, 2003 and April 11, 2003, the Company recorded a one-time impairment loss on discontinued operations of $2.4 million, net of taxes, or $0.11 per share. After recognition of the impairment charge, the Company reported diluted earnings per share of $0.19 compared to $0.24 in the second quarter of fiscal 2002. (A reconciliation of financial results before and after the impact of discontinued operations is included in this release as Exhibit A.) Cash and short-term investments increased approximately $19 million in the quarter, driven by continued favorable working capital performance.
"We delivered operating profit above expectations for the quarter on strong revenue performance, while further strengthening the balance sheet," said Sidney W. Emery, Jr., Chairman and CEO. "The sale of the Automation division enables the Company to increase its focus on the core businesses where we have a breadth of long-term opportunities for profitable growth. While backlog is down $22 million from the beginning of the year and we have recorded a one-time impairment charge on discontinued operations, our forecast indicates that we will be able to deliver improved earnings per share in the high $0.80's to low $0.90's range for fiscal 2003, as compared to previous guidance in the mid-$0.80's."
Second quarter orders, before the impact of discontinued operations, were $86.8 million, slightly above the estimate range of $80-$85 million. Orders from continuing operations were $78.8 million, a decrease of four percent compared to orders of $81.9 million for second quarter of fiscal 2002. Backlog for continuing operations decreased nine percent, from approximately $162 million to approximately $148 million.
Second quarter revenue, before the impact of discontinued operations, was $100.6 million, exceeding the estimate range of $90-$95 million primarily due to an increase in short-duration projects in the MT&S segment. Revenue from continuing operations was $93.2 million, an increase of ten percent compared to revenue of $84.7 million for second quarter of fiscal 2002.
The Company reported diluted earnings per share of $0.19 in the current year quarter compared to $0.24 for second quarter of fiscal 2002. Year-over-year earnings per share were favorably impacted by $0.10 from increased revenue volume and $0.04 due to proceeds from penalties associated with a canceled contract in the current year quarter, as well as the $0.08 impact of Automation division inventory write-offs recorded in the prior year second quarter. These favorable impacts were more than offset by negative impacts of $0.11 from the impairment charge on discontinued operations and $.08 from margin rate decline due to product mix in the current year quarter, as well as the $0.08 impact of a non-recurring $2.6 million pre-tax gain on the sale of an investment recorded in the prior year second quarter.
Segment Results
Mechanical Testing and Simulation Segment (MT&S):
Orders for the MT&S segment were $65.7 million for the second quarter, down 9 percent compared to orders of $72.5 million for second quarter of fiscal 2002, primarily due to continued weakness in the global automotive and industrial markets. Backlog decreased approximately $14 million, or 9 percent, to approximately $141 million. Second quarter revenue was $80.8 million, an increase of 8 percent compared to $74.7 million for second quarter of fiscal 2002, driven by strong performance in the North American and European automotive and motorsports markets. The MT&S gross margin rate was 34.4 percent, a decrease of 2.6 percentage points compared to 37.0 percent for second quarter of fiscal 2002, primarily due to product mix. The segment reported $7.2 million in operating earnings for the current year quarter compared to $8.9 million for second quarter of fiscal 2002 due to lower margin in the quarter and the timing of operating expenses, partially offset by increased volume.
Factory Automation Segment (FA):
In conjunction with the third quarter sale of its Automation division, the Company recorded a loss on impairment of discontinued operations of $2.4 million, net of taxes, in the second quarter. Excluding the impairment charge, the Company's discontinued operations reported effectively break-even operating results for the current year quarter compared to an operating loss of $2.6 million, net of taxes, for second quarter of fiscal 2002 due to inventory write-offs. The carrying values of the Automation division's net assets and liabilities included in total current assets and liabilities are $11.5 million and $1.9 million, respectively.
Before the impact of discontinued operations, orders for the FA segment were $21.1 million for the second quarter, an increase of 41 percent compared to $15.0 million for second quarter of fiscal 2002. Orders from continuing operations were $13.1 million, an increase of 39 percent compared to orders of $9.4 million for second quarter of fiscal 2002. The Company's AeroMet business was awarded a $1.5 million development contract from the U.S. government, and orders in the Sensors business increased due to strong demand in Europe and Japan. Backlog from continuing operations was flat at approximately $7 million. Before the impact of discontinued operations, revenue was $19.8 million, an increase of 13.8 percent compared to revenue of $17.4 million for second quarter of fiscal 2002. Revenue from continuing operations was $12.4 million, an increase of 24 percent compared to revenue of $10.0 million for second quarter of fiscal 2002. The FA gross margin rate from continuing operations was 44.3 percent, a decrease of 3.4 percentage points compared to gross margin of 47.7 percent for second quarter of fiscal 2002 due to product mix and one-time costs associated with a canceled contract. Operating earnings from continuing operations were $0.9 million compared to $0.5 million for second quarter of fiscal year 2002, driven by favorable volume partially offset by the decline in gross margin rate in the quarter.
Second Quarter Conference Call
A conference call will be held on Tuesday, April 22, at 11:00 a.m. CDT (Noon EDT). Call +1-712-257-2476; state the Passcode "Second Quarter" and conference leader "Chip Emery". Telephone re-play will be available through 6:00 p.m. CDT, May 22, 2003. Call +1-402-220-4147 and state the Passcode "4006."
If you prefer to listen live over the Internet - please log on to the web at <http://www.mts.com/news/financial_news.htm> and click on the Vcall webcast image. The webcast will be archived through 6:00 p.m. (CDT), May 22, 2003.
About MTS Systems Corporation
MTS Systems Corporation is a global supplier of integrated simulation solutions that help customers accelerate and improve their design, development, and manufacturing processes. MTS supplies products for determining the mechanical behavior of materials, products and structures - including computer-based testing and simulation systems, modeling and testing software, and consulting services - as well as products for automating manufacturing processes. MTS had 1,900 employees and revenue from continuing operations of $327 million for the fiscal year ended September 28, 2002. Additional information on MTS can be found on the worldwide web at http://www.mts.com.
This release contains "forward-looking statements" 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. In addition to the factors discussed above, other important risk factors are delineated in the Company's SEC reports, including Form 10-K for the year ended September 28, 2002.
MTS SYSTEMS CORPORATION
Consolidated Balance Sheets
(unaudited - in thousands of dollars, except per share data)
March 29, 2003
September 28, 2002
ASSETS
Current Assets:
Cash and cash equivalents
$ 59,228
$ 62,456
Short-term investments
53,997
35,094
Accounts receivable, net of allowances for doubtful accounts
55,844
59,943
Unbilled contracts and retainage receivable
29,813
32,276
Inventories
29,978
34,773
Prepaid expense
5,280
5,380
Current deferred tax asset
8,739
8,739
Other current assets
1,147
19
Assets of discontinued operations
11,548
15,311
Total current assets
255,574
253,991
Property and Equipment:
Land
3,247
3,247
Buildings and improvements
46,009
44,723
Machinery and equipment
83,298
79,679
Accumulated depreciation
(75,657)
(70,765)
Total property and equipment, net
56,897
56,884
Goodwill
4,329
4,268
Other assets
2,729
3,363
Non-current deferred tax asset
1,593
1,593
Total Assets
$ 321,122
$ 320,099
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable to banks
$ 198
$ 598
Current maturities of long-term debt
6,828
8,605
Accounts payable
12,051
13,137
Accrued payroll-related costs
27,445
26,112
Advance payments from customers
43,376
37,209
Accrued warranty costs
5,035
4,482
Accrued income taxes
6,135
11,453
Other accrued liabilities
10,029
9,917
Liabilities of discontinued operations
1,879
1,462
Total current liabilities
112,976
112,975
Deferred income taxes
1,740
1,519
Long-term debt, less current maturities
36,325
42,790
Other long-term liabilities
584
550
Total Liabilities
151,625
157,834
Shareholders' Investment:
Common stock, $.25 par; 64,000,000 shares authorized:
21,075,076 and 21,208,000 shares issued and outstanding
5,268
5,302
Additional paid-in capital
8,101
9,770
Retained earnings
153,780
146,857
Accumulated other comprehensive income
2,348
336
Total shareholders' investment
169,497
162,265
Total Liabilities and Shareholders' Investment
$ 321,122
$ 320,099
MTS SYSTEMS CORPORATION
Consolidated Statements of Income
(unaudited - in thousands of dollars, except per share data)
Three Months Ended
Six Months Ended
March 29,
March 31,
March 29,
March 31,
2003
2002
2003
2002
Revenue
$ 93,236
$ 84,665
$ 177,675
$ 164,263
Cost of sales
59,916
52,215
113,049
101,197
Gross profit
33,320
32,450
64,626
63,066
Operating expenses:
Selling
13,817
12,694
26,352
25,873
General and administrative
7,290
5,874
13,441
12,202
Research and development
4,044
4,435
7,623
8,573
Total operating expenses
25,151
23,003
47,416
46,648
Income from continuing operations
8,169
9,447
17,210
16,418
Interest expense
949
995
1,993
2,102
Interest income
(617)
(168)
(1,104)
(305)
(Gain) on sale of investments
-
(2,630)
-
(2,630)
Other expense (income), net
(1,729)
(435)
(1,712)
(1,698)
Income before income taxes, discontinued operations,
and cumulative effect of accounting change
9,566
11,685
18,033
18,949
Provision for income tax
3,184
3,914
5,951
6,292
Income before discontinued operation and
cumulative effect of accounting change
6,382
7,771
12,082
12,657
Discontinued operations:
Loss from discontinued operations, net of tax
(17)
(2,608)
(220)
(3,781)
Impairment on discontinued operations, net of tax
(2,402)
-
(2,402)
-
Cumulative effect of accounting change, net of tax
-
-
-
(9,198)
Loss from discontinued operations, net of tax
(2,419)
(2,608)
(2,622)
(12,979)
Income (loss) before cumulative effect of accounting change
on continuing operations
3,963
5,163
9,460
(322)
Cumulative effect of accounting change on continuing
operations, net of tax
-
-
-
(4,523)
Net income (loss)
$ 3,963
$ 5,163
$ 9,460
$ (4,845)
Check
Earnings (loss) per share:
Basic-
Income before income taxes, discontinued operations,
and cumulative effect of accounting change
$ 0.30
$ 0.37
$ 0.57
$ 0.60
Discontinued operations:
Loss from discontinued operations, net of tax
0.00
(0.12)
(0.01)
(0.18)
Impairment on discontinued operations, net of tax
(0.11)
0.00
(0.11)
0.00
Cumulative effect of accounting change, net of tax
0.00
0.00
0.00
(0.44)
Loss from discontinued operations, net of tax
(0.11)
(0.12)
(0.12)
(0.62)
Income (loss) before cumulative effect of accounting change
on continuing operations
0.19
0.25
0.45
(0.02)
Cumulative effect of accounting change, net of tax
0.00
0.00
0.00
(0.21)
Earnings (loss) per share
$ 0.19
$ 0.25
$ 0.45
$ (0.23)
Weighted average number of common shares outstanding - basic
21,112
21,057
21,122
21,042
Diluted-
Income before income taxes, discontinued operations,
and cumulative effect of accounting change
$ 0.30
$ 0.36
$ 0.56
$ 0.59
Discontinued operations:
Loss from discontinued operations, net of tax
0.00
(0.12)
(0.01)
(0.18)
Impairment on discontinued operations, net of tax
(0.11)
0.00
(0.11)
0.00
Cumulative effect of accounting change, net of taxes
0.00
0.00
0.00
(0.43)
Loss from discontinued operations, net of tax
(0.11)
(0.12)
(0.12)
(0.61)
Income (loss) before cumulative effect of accounting change
on continuing operations
0.19
0.24
0.44
(0.02)
Cumulative effect of accounting change, net of tax
0.00
0.00
0.00
(0.21)
Earnings (loss) per share
$ 0.19
$ 0.24
$ 0.44
$ (0.23)
Weighted average number of common shares outstanding - diluted
21,404
21,336
21,379
21,367
EXHIBIT A
MTS SYSTEMS CORPORATION
Discontinued Operations Reconciliation
(unaudited - in thousands of dollars)
Three Months Ended
Six Months Ended
March 29,
March 31,
March 29,
March 31,
2003
2002
2003
2002
Orders:
Before discontinued operations
$ 86,782
$ 87,545
$ 168,541
$ 184,231
Discontinued operations
7,989
5,603
14,223
10,724
Continuing operations
78,793
81,942
154,318
173,507
Backlog:
Before discontinued operations
$ 154,898
$ 161,038
$ 154,898
$ 161,038
Discontinued operations
6,721
$ 7,656
6,721
$ 7,656
Continuing operations
148,177
153,382
148,177
153,382
Revenue:
Before discontinued operations
$ 100,589
$ 92,075
$ 191,850
$ 179,239
Discontinued operations
7,353
7,410
14,175
14,976
Continuing operations
93,236
84,665
177,675
164,263
Income before income taxes and cumulative
effect of accounting change:
Before discontinued operations
$ 9,544
$ 7,434
$ 14,537
$ 12,780
Discontinued operations
(22)
(4,251)
(3,496)
(6,169)
Continuing operations
9,566
11,685
18,033
18,949
Income before cumulative effect of account change:
