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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
--------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Required)
For The Fiscal Year Ended September 30, 1997 Commission File Number 0-2382
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MTS SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 612-937-4000 41-0908057
(State or other jurisdiction (Telephone number of registrant (I.R.S. Employer
of incorporation or including area code) Identification No.)
organization)
14000 TECHNOLOGY DRIVE, EDEN PRAIRIE, MINNESOTA 55344-9763
(Address of principle executive offices) (Zip Code)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK (PAR VALUE OF $.25 PER SHARE)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
_X_ Yes ___ No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
As of December 1, 1997, 9,147,204 shares of the Registrant's Common
Stock were outstanding and the aggregate market value of such Common Stock
(based upon the average of the high and low prices) held by non-affiliates was
$308,717,790.
--------------------
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for Fiscal Year ended September 30, 1997 - Parts
I, II and IV.
Proxy Statement for Annual Meeting of Shareholders, statement dated prior to
January 27, 1998 - Part III.
MTS SYSTEMS CORPORATION
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
PART I
ITEM 1. BUSINESS
MTS Systems Corporation (hereafter called "MTS" or "the Company" or "the
Registrant") is a technology-based company providing engineering services,
equipment, and software for applications in research, product development,
quality control and production.
MTS bases its business on a set of building-block technologies and business
processes. Technologies include sensors for measuring machine and process
parameters, control technologies for test and process automation, hydraulic and
electric servodrives for precise actuation, and application software to tailor
the test or automation system to the customer's needs and to analyze results.
Business processes include project and product styles of operations on a
worldwide basis. In combination, they offer solutions to customers in a variety
of markets.
In the Mechanical Testing and Simulation sector, customers use the Company's
products and services in research, product development and quality control to
determine the mechanical properties and performance of materials, products and
civil structures. Many of the Company's products and services support the
customers' mechanical design automation processes. In the Factory Automation
sector, customers use the Company's measurement and control instrumentation to
automate production processes.
CUSTOMERS AND PRODUCTS BY BUSINESS SECTOR
The Company's operations are organized into two business sectors: 1) Mechanical
Testing and Simulation (MT&S), and 2) Factory Automation (FA). The operational
alignment of the sectors allows the Company to maintain a strategic focus on
markets with different applications of the Company's technologies and with
different competitors.
Mechanical testing and simulation sector: Customers in this sector use MTS's
systems and software for research, product development and quality control in
the design and manufacture of materials, products and structures. Customer
industries in this sector include:
AIRCRAFT AND AEROSPACE VEHICLE MANUFACTURERS AND THEIR SUPPLIERS: These
customers use the Company's systems and software for full scale structural tests
on complete vehicles and principal subsystems such as landing gear.
In the aircraft industry, the Company's customers include manufacturers of
commercial, military and general aviation planes and their suppliers, such as
engine manufacturers.
The space vehicle industry utilizes the Company's systems and software for such
applications as solid fuel development and heat shield studies.
Both aircraft and space vehicle manufacturers and their suppliers use the
Company's systems and software to perform research on new materials and to
control quality in the manufacturing of materials.
CIVIL ENGINEERING: This market is comprised of university and government
laboratories, and construction and mineral/petroleum production companies.
Systems sold in this market include seismic (earthquake) simulators, civil
construction component (e.g., beam) testing systems, pavement material testing
systems, and specialized systems for rock and soil studies in construction and
mineral/petroleum production.
CONSUMER AND BIOMECHANICAL PRODUCTS/MATERIAL PRODUCERS: These use the Company's
electromechanical and servohydraulic material testing systems in research,
product development and are used extensively for quality control during
production.
Typical consumer products are made of textiles, paper products and plastic films
of many types. Biomechanical products include implants, prostheses and other
medical and dental devices and materials. Material producers include metal,
ceramic, composite, paper and plastic manufacturers.
GROUND VEHICLE INDUSTRY: This market consists of automobile, truck and off-road
vehicle manufacturers and their suppliers. This market is the largest within the
MT&S sector.
Applications of the Company's systems and software include the design and
production testing of engines and drivetrains, suspension and steering
components, body and chassis, tires and wheels, and fuel storage and exhaust
components. Vehicle manufacturers strive to improve performance, durability and
safety, accelerate design development work and decrease the cost to manufacture
their products and components.
ADVANCED SYSTEMS: The Company also offers highly customized systems for
simulation and testing through its Advanced Engineering Solutions Division
(AESD). These systems frequently embody technology which is new to the
application. Customers of AESD come from all industries served by the MT&S
sector - aerospace and advanced materials, civil engineering, and ground
vehicles - as well as customers from other industries interested in the
development of new manufacturing technologies and systems such as welding and
material processing.
MT&S sector accounted for 79% of revenue in 1997, 82% of revenue in 1996 and 81%
of revenue in 1995. It represents the oldest and is the principal market for the
Company's technology. This sector is responsible for the Company's traditional
corporate image: " a leading supplier of test equipment to laboratories."
Factory Automation Sector: FA customers use MTS products in discrete part
manufacturing and chemical process industries. Products in this sector include:
DISPLACEMENT POSITION AND LIQUID-LEVEL SENSORS BASED ON MAGNETOSTRICTIVE
TECHNOLOGY. Displacement sensors accurately measure position up to 50 feet. They
are used in discrete (piece part) manufacturing where accurate positioning is
critical. Major applications include injection molding and die casting machines,
printing and packaging machines and presses of all types.
Liquid level sensors accurately measure levels of liquids in tanks or vessels.
These sensors are sold in three markets: the underground storage tank (UST)
market, the production support tank (PST) market, and the large, above-ground
inventory storage tank (AST) market.
The UST market consists primarily of retail gas stations. It is served by
original equipment manufacturers who purchase MTS sensing probes and incorporate
them with their proprietary electronic unit to monitor fuel inventory and detect
leaks.
The PST market includes a wide variety of applications in the chemical,
pharmaceutical and food and beverage industries. This market generally requires
sensors less than 25 feet in length.
The AST market of above ground liquid storage tanks and tank farms in the
petroleum refining industry is the newest application for these sensors. This
market requires sensors up to 100 feet in length. MTS also sells controlling and
indicating instruments to this market for use on installations of up to several
hundred tanks.
SERVO MOTORS AND CONTROLLERS: Customers use high-performance brushless servo
motors and amplifiers for challenging factory automation applications in a wide
range of industries, including machine tools, fabrication and packaging.
Specialized plug-in amplifiers are used in light duty applications such as the
semiconductor and textile industries. The Company's controllers are used for
precise control of a wide variety of applications ranging from simple
applications requiring only one axis of control to high-speed, complex
operations requiring up to 28 axes of control. These combined product lines
address the need for high performance systems and are used primarily by original
equipment manufacturers and large end users.
The FA sector accounted for 21% of revenue in 1997, 18% of revenue in 1996, and
19% of revenue in 1995.
COMMON TECHNOLOGIES
MTS' systems and products in both sectors are constructed using employees'
application engineering know-how with common technology building block
components generally composed of measuring and actuation devices, electronic
controls and application software. Many of these components are proprietary and
are developed and manufactured within the Company.
MTS employees engineer or configure the components into products and systems to
match the application called for in the customer's order. Frequently,
special-purpose software is developed to meet a customer's unique requirements.
Such software often represents a significant part of the value added by the
Company. Services offered to system customers include on-site installation,
training of customer personnel, technical manuals and continuing maintenance.
Such services are often included in the contract amount charged for completed
systems, but these services may be purchased separately, during and after the
system warranty period.
Certain proprietary products, such as sensors, process controls, motors,
actuators and process software and firmware are sold as products to end users
and to other companies for incorporation into their systems, machines or
processes. All products and most systems are sold on fixed-price contracts.
Complex systems and applied research in the MT&S sector are in some cases
undertaken on "cost-plus-fixed-fee" contract basis.
1997 PRODUCT DEVELOPMENT HIGHLIGHTS
The Company funds new application and product development within its market
sectors. Highlights of product development undertaken or completed in 1997
include:
Mechanical Testing and Simulation Sector
- ----------------------------------------
* The Company introduced the SWIFT(TM) spinning wheel integrated force
transducer. Automotive engineers can use the same SWIFT transducer to
measure both the forces a test vehicle experiences on the roadway and on an
MTS Model 329 Road Simulator, resulting in high data correlation and
playback accuracy, and more efficient test preparation and monitoring.
* The Company introduced the MTS Motorcycle Simulator, a multi-axial road
simulator for fatigue and durability testing of motorcycles.
* The Company introduced the MTS Engineering Office(TM) NVH software which
runs on the Microsoft Windows NT(TM) platform. This software is designed
for use in automotive testing and development. Using NVH software, tests
run on various MTS systems can be analyzed to determine the causes of
noise, vibration, and harshness on vehicles, components and prototypes.
* The Company introduced the TestWatch remote monitoring software for
material testing. This software provides a convenient way for customers to
monitor the status of their tests remotely via modem using Internet browser
technology.
Factory Automation Sector
- -------------------------
* The Company introduced software modularity to its Temposonics(R) III linear
displacement sensors. The Company expects the software modularity will
broaden the applications for its sensors since they will be compatible with
a wider number of industrial control architectures.
* The Company introduced a line of high performance, configurable amplifiers
that offers machine tool users efficient X-Y-Z axis control. The modular
drive features a common power supply reducing AC wiring to a single
connection.
CHARACTERISTICS OF SALES
The Company's systems and products are sold and delivered throughout the world
and its customer orders cover a broad spectrum of industries, government
agencies, institutions, applications and geographic locations. As such, MTS is
not dependent upon any single customer for its business.
MT&S systems range in price from less than $20,000 to over $20 million. Large,
individual, fixed-price orders, generally considered to be over $10 million,
although important to the Company's image and technical advancement, can produce
volatility in both backlog and quarterly operating results. The majority of the
orders received in any one year are based on fixed-price quotations and some
require extensive technical communication with potential customers prior to
receipt of an order. The current typical delivery time for a system ranges from
one to twelve months, depending upon the complexity of the system and the
availability of components in the Company's or suppliers' inventories. Larger
system contracts can run as long as three years and cost-plus-fixed-fee
contracts have run longer.
FA products are sold in quantity at unit prices ranging from $500 to $10,000.
Delivery varies from several days to several months.
Approximately 47% of revenue in fiscal 1997, 49% of revenue in fiscal 1996, and
54% of revenue in 1995 was from domestic customers. The balance of the revenue,
some of which was sold in currencies other than the U.S. dollar, was to
customers located outside the United States--mainly in Europe, Asia-Pacific,
Latin America and Canada. The Company's foreign operations and foreign revenues
may be affected by local political conditions, export licensing problems and/or
currency restrictions.
Sales Channels: MTS markets its products using a number of sales channels. The
Company sells its MT&S equipment through an employee sales network, independent
sales representatives and a direct mail (catalog) operation. Sales personnel are
generally graduate engineers or highly skilled technicians and are specially
trained to sell MTS products and services. Employee salespersons are compensated
with salary and sales incentives, and independent representatives are paid a
commission.
A list of major domestic and international offices for the Company's MT&S sector
follows:
Domestic offices:
Akron Dayton Philadelphia
Austin Denver Raleigh
Baltimore Detroit Pittsburgh
Boston Huntsville San Diego
Chicago Los Angeles San Jose
Cincinnati Minneapolis Seattle
Dallas Washington, D.C.
International offices:
Beijing and other cities, Paris, France
Peoples Republic of China
Berlin and other cities, Seoul, South Korea
Germany Torino, Italy
Gothenburg, Sweden Stroud, United Kingdom
Hong Kong Nagoya and Tokyo, Japan
Singapore
In addition, MTS works with sales and service representative organizations in
nearly all industrialized countries of the world and in the developing countries
of Latin America, Asia, Africa and the Middle East.
The Company offers a mail-order catalog of material testing components,
accessories and products. The catalog includes products of complementary vendors
and aims to reach a broad range of customers involved in mechanical testing and
simulation.
The FA sector sells its products through sales channels separate from the MT&S
sector. A network of employees, direct sales, external domestic distributors,
representatives and system houses market the products of these divisions.
International revenue currently accounts for 40% of this sector's volume.
Efforts continue to expand sales channels in international markets.
International Operations and Export Sales: The sections entitled Geographic
Analysis of New Orders and Geographic Segment Information on pages 18 and 29 of
the Company's 1997 Annual Report to Shareholders, which sections are
incorporated by reference herein, contain information regarding the Company's
operations by geographic area.
Export Licensing: The Company's foreign shipments in fiscal 1997, 1996, and 1995
included sales to Asia-Pacific, Europe and other regions that may require the
Company to obtain export permission from the U.S. government. The Company does
not undertake manufacturing on custom systems or projects until
it is assured that permission will be granted. However, due to the extended time
to process and receive a license, design work is performed on some systems
during the licensing period. Changes in political relations between the U.S. and
countries requiring import licenses, as well as other factors, can adversely
affect the Company's ability to complete a sale should a previously issued
license be withdrawn. While political reform occurring internationally may relax
export controls, the U.S. government still maintains multilateral controls in
agreement with allies and unilateral controls based on U.S. initiatives and
foreign policy that may cause delays for certain shipments or the rejection of
orders by the Company.
BACKLOG
The Company's backlog, which it defines as firm orders remaining unfilled,
totaled $175.8 million at September 30, 1997, $120.5 million at September 30,
1996, and $98.8 million at September 30, 1995. The Company believes that
approximately $150 million of the backlog at September 30, 1997 will become
revenue during fiscal 1998. Delays may occur due to technical difficulties,
export licensing approval or the customer's preparation of the installation
site. Any such delay can affect the period when backlog is recognized as
revenue.
COMPETITION
In the MT&S sector, customers may choose to buy equipment from the Company or
from competitors, principally: Instron (U.S.-based), Instron Schenck Testing
Systems (U.S.-German joint venture) Interlachen (U.S.), SATEC (U.S.), AVL
(Austria), Zwick (Germany), Saganomiya and Shimadzu (Japan). There are also
smaller local competitors in most major countries.
In lieu of buying equipment from the Company or its competitors, customers may
contract with testing laboratories such as EG&G, Peabody, Wyle, or with
universities. Government laboratories also market testing services to the
public.
Finally, customers may choose to construct their own testing equipment from
commercially available components. Customers in the aerospace and automotive
industries and universities sometimes choose this approach, purchasing equipment
from companies such as Parker Hannifin, Moog and Mannesman (Germany).
In the FA sector, the Company competes directly with small to medium-sized
specialty suppliers and also with divisions of the large control system
companies such as Rockwell, Emerson Electric, Mannesman (Germany) and Fanuc
(Japan).
MANUFACTURING AND ENGINEERING
The Company conducted a significant portion of its fiscal 1997 MT&S
manufacturing and engineering activities in Minneapolis. Certain engineering,
project management, final system assembly and quality testing may be done in
Berlin, Germany, and Tokyo, Japan. Electromechanical material testing systems
are assembled in the Raleigh, NC, facility and in the Paris, France facility.
The Company's MTS-PowerTek subsidiary engineers and assembles dynamometer
control systems and provides related services from Detroit.
Manufacturing and engineering activities for the FA sector occur in Raleigh, NC,
in New Ulm, MN, in Ludenscheid, Freiburg, and Stralsund, Germany, and at the
Company's majority-owned subsidiary in Nagoya, Japan.
PATENTS AND TRADEMARKS
The Company holds a number of patents, patent applications, licenses, trademarks
and copyrights which it considers, in the aggregate, to constitute a valuable
asset. The Company's system business is not dependent upon any single patent,
license, trademark or copyright.
RESEARCH AND DEVELOPMENT
The Company does not do basic research, but does fund significant product,
system and application developments. Costs of these development programs are
expensed as incurred, and amounted to $17.5, $17.7, and $13.7 million for fiscal
years 1997, 1996, and 1995 respectively. Additionally, the Company also
undertakes "first of their kind" high-technology, customer-funded contracts
which contain considerable technical pioneering. The combination of internally
sponsored product development and system or application innovation on customer
contracts approximates 10% of annual sales volume.
EXECUTIVE OFFICERS OF THE COMPANY
The Corporate Executive Officers of the Registrant on September 30, 1997 were:
Name and Age Position Officer Since
- ------------ -------- -------------
D. M. Sullivan (62) Chairman, President and 1976
Chief Executive Officer
K. D. Zell (55) Executive Vice President 1979
W. G. Beduhn (56) Vice President 1983
M. L. Carpenter (60) Vice President 1973
and Chief Financial Officer
M. G. Togneri (60) Vice President 1991
Officers serve at the discretion of and are elected annually by the board of
directors, and serve until their successors are elected.
EMPLOYEES
MTS employed 1,981 persons as of September 30, 1997, including 397 employees in
Europe, 49 in Japan, 13 in China, 5 in Canada, 11 in Korea, 4 in Hong Kong, and
2 in Singapore.
None of the Company's U.S. employees are covered by a collective bargaining
agreement, and MTS has experienced no work stoppages at any location.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND COMPONENTS
A major portion of products and systems delivered to a customer may consist of
equipment purchased from vendors. The relationship which the Company promotes
with its vendors is one of close cooperation. The Company is dependent upon
certain computing hardware and software devices and certain raw materials which
have limited sources. However, the Company has not experienced significant
problems in procurement or delivery of any essential materials, parts or
components in the last several years.
Due to the manner in which the Company sells the majority of its products, on a
fixed-price contract agreed upon at the time the order is obtained, wide
fluctuations up or down in cost of materials and components from order date to
delivery date, if not accurately forecast by the Company at an early date, can
change the expected profitability of any sale. The Company believes that such
fluctuations have not had a material effect on reported earnings, except as
affected by changes in foreign currency rates, which have been reported.
ENVIRONMENTAL MATTERS
Management believes the Company's operations are in compliance with federal,
state and local provisions relating to the protection of the environment.
BUSINESS SYSTEMS DEVELOPMENT
The Company undertook the development and deployment of an enterprise-wide
financial and business operations software system in 1997. The company expects
to complete its first phase of implementation in late 1998, with subsequent
phases to follow. This system is expected to improve business processing and to
provide software processing capability beyond the end of the century.
ITEM 2. PROPERTIES
Domestic Facilities:
The Company's corporate headquarters and main MT&S plant, occupying 410,000
square feet, is located on 56 acres of land in Eden Prairie, Minnesota, a suburb
of Minneapolis. The original plant was completed in 1967. Six additions have
expanded the plant to its present size. The most recent addition, in 1997, added
43,000 square feet of warehouse space and made available a similar amount of
space for assembly and staging of larger projects. Approximately 50% of the Eden
Prairie facility is used for manufacturing and assembly while the balance of the
facility is used for office space.
Electronic design and component assembly is conducted in a 57,000 square foot
facility in Chaska, Minnesota, approximately 10 miles west of the headquarters
in Eden Prairie. The building was completed in 1996. MTS has a five year
operating lease with provisions to extend, purchase or terminate at the end of
the lease period. The terms of the lease agreement do not require capitalization
of the asset and the related obligation.
Custom Servo Motors, Inc. occupies a 30,000 square foot plant in New Ulm,
Minnesota (65 miles southwest of Minneapolis). The plant provides assembly
operations and office space. The facility was constructed in 1993 by the New Ulm
Economic Development Corporation and expanded in 1995. MTS has a five year
operating lease for the facility with provisions to extend the lease, purchase
the property, or terminate the lease. The terms of the lease agreement do not
require capitalization of the asset and the related obligation.
MTS Sensors Division is located near the Research Triangle Park in Cary, North
Carolina, a suburb of Raleigh. A 40,000 square foot plant constructed in 1988
provides manufacturing and office space. In 1992, 25,000 square feet was added
to the plant.
MTD Raleigh is located adjacent to the MTS Sensors Division site in Cary, North
Carolina. A 25,000 square foot plant, constructed in 1991, provides
manufacturing and office space.
MTS-PowerTek, Inc. occupies 20,000 square feet in Farmington Hills, Michigan, a
suburb of Detroit. Plant and office space in two buildings is leased under
conventional operating lease terms.
The Company leases space in other U.S. cities for sales and service offices.
Neither the space nor the rental obligations is significant.
International Facilities:
MTS Systems GmbH is located in a 80,000 square foot facility in Berlin, Germany.
As of September 30, 1997 3,000 square feet has been leased to other companies.
The building is situated on land leased by MTS from the city government. The
lease expires in 2069.
MTS Systems (France) operates in a leased facility in Paris, France, of
approximately 38,000 square feet. Approximately 40% of this space is used for
manufacturing with the remainder used as offices. The current lease expires at
the end of fiscal 1998.
MTS Sensors Technologie operates in a leased facility in Ludenscheid, Germany on
approximately six acres of land. The manufacturing and office facilities occupy
18,000 square feet at this location.
Custom Servo Motors Antriebstechnik Verwaltungs GmbH operates in three leased
facilities in Germany, two in Freiburg, and one in Stralsund. The Freiburg
facilities total about 7,500 square feet and the Stralsund location is about
7,000 square feet. Approximately 50% of the Freiburg facilities and 95% of the
Stralsund facility are used for assembly with the remainder used as offices.
The Company also leases office and general purpose space for its sales and
service subsidiaries in Stroud, United Kingdom; Torino, Italy; Seoul, South
Korea; Tokyo and Nagoya, Japan; Toronto, Canada; Sao Paulo, Brazil; Gothenburg,
Sweden; Beijing and Shanghai, Peoples Republic of China; Singapore; and Hong
Kong. No manufacturing is conducted at these locations.
Expansion Opportunities:
As noted above, the Company expanded its Eden Prairie facility by 43,000 square
feet in 1997. Also in fiscal 1997 the company sold 50 acres of undeveloped
property which was adjacent to its Eden Prairie facility. Room
remains at its Eden Prairie location for limited facility expansions. Also, the
sites in Cary could be expanded. Other suitable commercial real property is
available for purchase or lease in metropolitan areas where the Company is
presently located. The Company considers its current facilities adequate to
support its operations in 1998.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings were pending or threatened against the Company or
its subsidiaries as of September 30, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended September
30, 1997, for a vote by the shareholders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's stock is traded on The Nasdaq Stock Market's National Market
(Nasdaq) under the symbol MTSC. The following table shows the Company's low and
high closing sale transactions as reported by Nasdaq. Share prices for 1996 have
been restated retroactively for the two-for-one stock split in the form of a
100% stock dividend effective April 1, 1996.
Quarter Ended Low * High *
------------- ----- ------
December 31, 1995 $13.875 $17.75
March 31, 1996 $14.00 $19.375
June 30, 1996 $17.50 $22.50
September 30, 1996 $18.50 $21.50
December 31, 1996 $19.25 $21.50
March 31, 1997 $19.50 $22.625
June 30, 1997 $20.50 $30.50
September 30, 1997 $28.75 $39.25
* Source: The Nasdaq Stock Market, Inc. Summary of Activity Report
At December 1, 1997 there were 1,575 holders of record of the Company's $.25 par
value common stock. The Company estimates that there are an additional 2,000
shareholders whose stock is held by nominees or broker dealers.
The Company has a history of paying quarterly dividends and expects to continue
such payments in the future. During 1997, 1996 and 1995, the Company paid
dividends totaling $.40, $.32 and $.28 per share, per year, respectively, to
holders of its common stock.
Under the terms of the Company's credit agreements, certain covenants require
that tangible net worth, as defined, must exceed a defined minimum amount and
limit repurchases of its common stock to a defined maximum amount. As of
September 30, 1997, tangible net worth exceeded the minimum by $14.7 million and
the Company had $15.1 million available for repurchases of its common stock.
Thus, the Company has flexibility to declare and pay dividends in the future
similar to recent dividends.
ITEM 6. SELECTED FINANCIAL DATA
A comprehensive summary of selected financial information is presented in the
"Six Year Financial Summary" on page 17 of the Company's 1997 Annual Report to
Shareholders. Data included in the summary is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 18 through 22 of the Company's 1997 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Report of Independent Public Accountants,
Quarterly Financial Information (unaudited), and Six Year Financial Summary
(unaudited) included in the Company's 1997 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
(a) Information concerning the Company's directors may be found in the
Company's Proxy Statement, a definitive copy of which will be filed
with the Securities and Exchange Commission prior to January 27, 1998,
and is incorporated herein by reference.
(b) See Item 1. Business, on page 8 for information on the Company's
Executive Officers.
(c) The Company has no other significant employees requiring disclosure in
this Form 10-K.
(d) There are no family relationships between and among directors or
officers.
(e) Business experience of Directors may be found in the Company's Proxy
Statement, a definitive copy of which will be filed with the Securities
and Exchange Commission prior to January 27, 1998, and is incorporated
herein by reference. Business experience of the Executive Officers for
at least the last 5 years (consisting of positions with the Company
unless otherwise indicated) is as follows:
Officer Business Experience
------- -------------------
D. M. Sullivan Chairman in 1994. Chief Executive
Officer since 1987. President and Chief
Operating Officer since 1982. Vice
President from 1976 to 1982. Has
extensive prior experience in the
management of technology intensive
businesses.
K. D. Zell Executive Vice President of Mechanical
Testing and Simulation sector in 1993.
Vice President of Materials Testing
Division from 1988 to 1993. Vice
President, Sales and Service from 1984
to 1988. Vice President, Product Group
from 1979 to 1984. Division manager,
Hydro-Mechanical Products from 1978 to
1979.
Officer Business Experience
------- -------------------
W. G. Beduhn Vice President of Advanced Engineering
Solutions Division since 1991. Vice
President of Technology Development
from 1983 to 1991. Division
manager of various marketing and
operating divisions from 1977 to 1983.
M. L. Carpenter Vice President and Chief Financial
Officer since 1991. Vice President and
Treasurer since 1973.
M.G. Togneri Vice President of Factory Automation
sector since 1991. Prior to his
employment at MTS was V.P. at Square
D Corporation and General Manager of
Crisp Automation. Has extensive
experience in the industrial
instrumentation and control business in
the U.S. and internationally.
(f) Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated herein by reference from the
Company's Proxy Statement, a definitive copy of which will be filed
with the Securities and Exchange Commission prior to January 27, 1998,
pursuant to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
See Item 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Items 11 and 12 is incorporated herein by reference
from the Company's Proxy Statement, a definitive copy of which will be filed
with the Securities and Exchange Commission prior to January 27, 1998, pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Financial Statements:
See accompanying Index to Financial Statements on Page F-1.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of
fiscal 1997.
(c) Exhibits:
3.a Restated and amended Articles of Incorporation, adopted
January 30, 1996, incorporated by reference from
exhibit 3.a of Form 10-K for the fiscal year ended
September 30, 1996.
3.b Restated Bylaws, reflecting amendments through May 15,
1995, incorporated by reference to exhibit 3.b of Form
10-K for the fiscal year ended September 30, 1995.
10.a Management Variable Compensation Plan, Fiscal 1997,
dated November 22, 1996.
10.b 1985 Employee Stock Option Incentive Plan, incorporated
by reference to exhibit 4(a) from Form S-8, File No.
2-99389.
10.c 1987 Stock Option Plan, as amended, incorporated by
reference from exhibit 10.c of Form 10-K for the fiscal
year ended September 30, 1996.
10.d 1990 Stock Option Plan, as amended, incorporated by
reference from exhibit 10.d of Form 10-K for the fiscal
year ended September 30, 1996.
10.e 1994 Stock Plan, as amended, incorporated by reference
from exhibit 10.e of Form 10-K for the fiscal year
ended September 30, 1996.
10.f Severance Agreement, dated May 1, 1990 between the
Registrant and William G. Beduhn, incorporated by
reference to exhibit 10.g of Form 10-K for the fiscal
year ended September 30, 1996.
10.g Severance Agreement, dated May 1, 1990 between the
Registrant and Marshall L. Carpenter, incorporated by
reference to exhibit 10.i of Form 10-K for the fiscal
year ended September 30, 1990.
10.h Severance Agreement, dated December 3, 1990 between the
Registrant and Kenneth E. Floren, incorporated by
reference to exhibit 10.k of Form 10-K for the fiscal
year ended September 30, 1990.
10.i Severance Agreement, dated May 1, 1990 between the
Registrant and Werner Ongyert, incorporated by
reference to exhibit 10.m of Form 10-K for the fiscal
year ended September 30, 1990.
10.j Severance Agreement, dated May 1, 1990 between the
Registrant and J. Howell Owens, incorporated by
reference to exhibit 10.n of Form 10-K for the fiscal
year ended September 30, 1990.
10.k Severance Agreement, dated May 20, 1997 between the
Registrant and Donald M. Sullivan, as amended.
10.l Severance Agreement, dated May 1, 1990 between the
Registrant and Richard S. White, incorporated by
reference to exhibit 10.q of Form 10-K for the fiscal
year ended September 30, 1990.
10.m Severance Agreement, dated May 1, 1990 between the
Registrant and Keith D. Zell, incorporated by reference
to exhibit 10.r of Form 10-K for the fiscal year ended
September 30, 1990.
10.n Severance Agreement, dated April 1, 1991 between the
Registrant and Mauro G. Togneri, incorporated by
reference to exhibit 10.s of Form 10-K for the fiscal
year ended September 30, 1991.
10.o 1992 Employee Stock Purchase Plan, incorporated by
reference to exhibit 4(a) from Form S-8, File No.
33-45386.
10.p 1997 Stock Option Plan, incorporated by reference to
exhibit 10.p of Form 10-K for the fiscal year ended
September 30, 1996
10.q Severance Agreement, dated September 30, 1996 between
the Registrant and Steven M. Cohoon, incorporated by
reference from exhibit 10.q of Form 10-K for the fiscal
year ended September 30, 1996.
13. Annual Report to Shareholders for the fiscal year ended
September 30, 1997.
21. Subsidiaries of the Company.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule.
(d) Financial Statement Schedules:
See accompanying Index to Financial Statements on page F-1.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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.
MTS SYSTEMS CORPORATION
By: /s/ Donald M. Sullivan
------------------------------------------
Donald M. Sullivan
Chairman, Chief Executive Officer,
President and Director
By: /s/ Marshall L. Carpenter
------------------------------------------
Marshall L. Carpenter
Vice President and Chief Financial Officer
By: /s/ Marvin R. Eckerle
------------------------------------------
Marvin R. Eckerle
Controller
Date: December 19, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
By: /s/ E. T. Binger
------------------------------------------
E. Thomas Binger, December 19, 1997
Director
By: /s/ Charles A. Brickman
------------------------------------------
Charles A. Brickman, December 19, 1997
Director
By: /s/ Bobby I. Griffin
------------------------------------------
Bobby I. Griffin, December 19, 1997
Director
By: /s/ Russell A. Gullotti
------------------------------------------
Russell A. Gullotti, December 19, 1997
Director
By: /s/ Thomas E. Holloran
------------------------------------------
Thomas E. Holloran, December 19, 1997
Director
By: /s/ Thomas E. Stelson
------------------------------------------
Thomas E. Stelson, December 19, 1997
Director
By: /s/ Linda Hall Whitman
------------------------------------------
Linda Hall Whitman, December 19, 1997
Director
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
A. CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the consolidated financial statements in the
Company's 1997 Annual Report to Shareholders which are incorporated by
reference in accordance with Rule 12b-23 under the Securities Exchange
Act of 1934 and attached hereto.
Annual
Report 10-K
Page Page
---- ----
Quarterly Financial Information (Unaudited) 22 ---
Consolidated Balance Sheets - September 30, 1997 23 ---
and 1996
Consolidated Statements of Income and Shareholders'
Investment for the Years Ended September 30, 1997,
1996 and 1995 24 ---
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1997, 1996 and 1995 25 ---
Notes to Consolidated Financial Statements 26 ---
Report of Independent Public Accountants 35 ---
F-1
Annual
Report 10-K
Page Page
---- ----
B. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE --- F-3
C. CONSOLIDATED SCHEDULE
Schedule Description
- -------- -----------
II Summary of Consolidated Allowances for
Doubtful Accounts --- F-4
All schedules except the one listed above
have been omitted as not required, not
applicable, or the information required
therein is contained in the financial
statements or the footnotes thereto.
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To MTS Systems Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in MTS Systems Corporation's annual
report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated November 21, 1997. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
(page F-4) listed as a part of Item 14 in this Form 10-K is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
November 21, 1997
F-3
MTS SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE II - SUMMARY OF CONSOLIDATED ALLOWANCES
FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
Balance Provision Amounts Balance
Beginning Charged to Written End of
of Year Operations Off Year
------- ---------- --- ----
(expressed in thousands)
1997 $1,742 $449 $(181) $2,010
1996 1,824 330 (412) 1,742
1995 1,439 620 (235) 1,824
F-4
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
10.a Management Variable Compensation Plan-Fiscal 1997
10.k Severance Agreement, dated May 20, 1997, as amended
13. Annual Report to Shareholders for the fiscal year ended
September 30, 1997
21. Subsidiaries of the Company
23. Consent of Independent Public Accountants
27. Financial Data Schedule