MTS Systems investigating possible ethics violations by employees in China

MTS Systems Corp. will delay filing its 2016 annual report until after it investigates possible ethics violations at its China operations, company officials announced Tuesday.

MTS Treasurer Andy Cebulla said in an interview that officials at the Eden Prairie-based company planned to release fourth-quarter results on Wednesday, but learned two weeks ago that several employees in China appeared also to be working for a competing firm there. China represents about 20 to 25 percent of MTS sales.

"There is no indication that the [employees] were falsifying sales records, or shipping to a bogus customer. This is more about us learning that they were working with a competing business," Cebulla said. "They were not committing financial fraud," so final financial results are not expected to be impacted greatly.

Still, the investigation is not complete, he said. The individuals being investigated have been suspended until the matter is resolved and more is known.

"The sad thing for us is that this investigation will be the news highlight and mask what was otherwise a very good quarter," Cebulla said.

Preliminary results surpassed prior estimates but are still subject to the completion of the internal investigation and an independent audit.

The audit committee of MTS' board of directors has hired an outside law firm to help with the investigation and to assess any financial and legal damage to the China operations.

Preliminary results show revenue reaching $645 million to $650 million for the fiscal year, beating a prior forecast of $630 million to $640 million, officials said. Earnings estimates of $1.65 to $1.75 a share are also higher than the previous forecast of $1.35 to $1.50 a share.

No estimates were given for the quarter, although the company said cash flow was strong, and debt payments were made on time. MTS also funded acquisition-related costs without needing to tap revolving credit lines.

MTS bought sensor maker PCB Group in April, and integration is going well, the company said. Acquisition costs, though, were $4 million higher than estimated at $23 million.