FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 29, 2002
Commission File Number: 0-23400
DT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 44-0537828
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
907 West Fifth Street, Dayton, Ohio 45407
(Address of principal executive offices) (Zip Code)
(937) 586-5600
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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.
Yes |X| No | |
The number of shares of Common Stock, $0.01 par value, of the registrant
outstanding as of February 7, 2003 was 23,647,932.
DT INDUSTRIES, INC.
INDEX
PAGE 1
Page
Number
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at December 29, 2002
and June 30, 2002 2
Consolidated Statement of Operations for the three and
six months ended December 29, 2002 and December
23, 2001 3
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended December 29, 2002 4
Consolidated Statement of Cash Flows for the six
months ended December 29, 2002 and December
23, 2001 5
Notes to Consolidated Financial Statements 6-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-28
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 28
Item 4. Controls and Procedures 28
Part II Other Information
Item 1. Legal Proceedings 29
Item 3. Defaults upon Senior Securities 29
Item 4. Submission of Matters to Vote of Security Holders 29
Item 6. Exhibits and Reports on Form 8-K 29-30
Signature
DT INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
PAGE 2
December 29,
2002 June 30,
(unaudited) 2002
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,001 $ 18,847
Accounts receivable, net 44,845 54,936
Costs and estimated earnings in excess of amounts
billed on uncompleted contracts 28,559 29,288
Inventories, net 31,377 26,777
Prepaid expenses and other 13,685 8,809
------------ ------------
Total current assets 125,467 138,657
Property, plant and equipment, net 36,906 37,329
Goodwill 126,578 125,538
Other assets, net 5,413 6,886
------------ ------------
$ 294,364 $ 308,410
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior secured term and revolving credit facility (Note 4) $ 53,965 $ 6,000
Current portion of other long-term debt 95 5,140
Accounts payable 17,905 21,049
Customer advances 15,632 13,124
Billings in excess of costs and estimated earnings on uncompleted
contracts 11,559 12,020
Accrued liabilities 24,429 29,595
------------ ------------
Total current liabilities 123,585 86,928
------------ ------------
Long-term debt 90 45,381
Other long-term liabilities 2,799 3,285
------------ ------------
Total long-term obligations 2,889 48,666
------------ ------------
Commitments and contingencies (See Note 10)
Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust holding solely
convertible junior subordinated debentures of the Company 36,203 35,401
------------ ------------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,500,000 shares authorized; no
shares issued and outstanding
Common stock, $0.01 par value; 100,000,000 shares authorized;
23,647,932 shares issued and outstanding at
December 29, 2002 and June 30, 2002, respectively 246 246
Additional paid-in capital 188,546 188,546
Accumulated deficit (32,180) (25,922)
Accumulated other comprehensive loss (1,550) (1,918)
Unearned portion of restricted stock (308) (470)
Less -
Treasury stock (988,488 shares at December
29, 2002 and June 30, 2002, respectively), at cost (23,067) (23,067)
------------ ------------
Total stockholders' equity 131,687 137,415
------------ ------------
$ 294,364 $ 308,410
============ ============
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 3
Three months ended Six months ended
December 23, December 23,
December 29, 2001 December 29, 2001
2002 As Restated 2002 As Restated
------------ ------------ ------------ ------------
Net sales $ 62,268 $ 88,661 $ 131,710 $ 189,092
Cost of sales 53,090 70,733 108,658 150,565
------------ ------------ ------------ ------------
Gross profit 9,178 17,928 23,052 38,527
Selling, general and
administrative expenses 13,625 13,176 26,822 28,192
Restructuring charges (Note 8) 1,700 1,521 1,700 1,521
------------ ------------ ------------ ------------
Operating income (loss) (6,147) 3,231 (5,470) 8,814
Interest expense, net 1,544 3,198 2,982 6,365
Accrued dividends on Company-
obligated, mandatorily
redeemable convertible preferred
securities of subsidiary DT
Capital Trust holding solely
convertible junior
subordinated debentures of the
Company 401 1,465 802 2,905
------------ ------------ ------------ ------------
Loss before benefit for
income taxes (8,092) (1,432) (9,254) (456)
Benefit for income
taxes (2,700) (527) (2,996) (160)
------------ ------------ ------------ ------------
Net loss $ (5,392) $ (905) $ (6,258) $ (296)
============ ============ ============ ============
Net loss per common share:
Basic $ (0.23) $ (0.09) $ (0.26) $ (0.03)
Diluted $ (0.23) $ (0.09) $ (0.26) $ (0.03)
============ ============ ============ ============
Weighted average common
shares outstanding:
Basic 23,647,932 10,387,274 23,647,932 10,363,922
Diluted 23,647,932 10,387,274 23,647,932 10,363,922
============ ============ ============ ============
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 29, 2002
(DOLLARS IN THOUSANDS)
(UNAUDITED)
PAGE 4
Accumulated Unearned
Additional other portion of
Common paid-in Accumulated comprehensive restricted Treasury
stock capital deficit loss stock stock Total
-------------------------------------------------------------------------------------------------
Balance, June 30, 2002 $ 246 $ 188,546 $ (25,922) $ (1,918) $ (470) $ (23,067) $ 137,415
Comprehensive loss:
Net loss (6,258)
Foreign currency translation 368
Total comprehensive loss (5,890)
Amortization of earned portion
of restricted stock 162 162
---------- ----------- ----------- ----------- ----------- ----------- ---------
Balance, December 29, 2002 $ 246 $ 188,546 $ (32,180) $ (1,550) $ (380) $ (23,067) $ 131,687
========== =========== =========== =========== =========== =========== =========
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
PAGE 5
Six Months Ended
December 29, December 23,
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,258) $ (296)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation 2,290 3,238
Amortization 1,180 1,655
Deferral of dividends on convertible trust preferred securities 802 2,905
Deferred taxes (3,573) 215
(Increase) decrease in current assets, excluding the
effect of dispositions:
Accounts receivable 10,091 (18,324)
Costs and earnings in excess of amounts billed on uncompleted
contracts 729 35,456
Inventories (4,600) 4,063
Prepaid expenses and other 298 1,641
Increase (decrease) in current liabilities, excluding the
effect of dispositions:
Accounts payable (3,144) (16,976)
Customer advances 2,508 8,439
Billings in excess of costs and estimated earnings on uncompleted
contracts (461) --
Accrued liabilities and other (6,619) (8,115)
------------ ------------
Net cash provided (used) by operating activities (6,757) 13,901
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 679 18,811
Capital expenditures (2,224) (930)
------------ ------------
Net cash provided (used) by investing activities (1,545) 17,881
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (paydowns) on revolving loans 991 (26,578)
Payments on borrowings (5,109) (2,848)
Financing costs (306) (2,795)
Net proceeds from equity transactions -- 31
------------ ------------
Net cash used by financing activities (4,424) (32,190)
------------ ------------
Effect of exchange rate changes 880 478
------------ ------------
Net increase (decrease) in cash (11,846) 70
Cash and cash equivalents at beginning of period 18,847 5,505
------------ ------------
Cash and cash equivalents at end of period $ 7,001 $ 5,575
============ ============
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 6
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of DT
Industries, Inc. (DTI or the Company) have been prepared in accordance
with the instructions for Form 10-Q and do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. However,
in the opinion of management, the information includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for the periods presented.
Operating results for any quarter are not necessarily indicative of the
results for any other quarter or for the full year. These statements
should be read in conjunction with the consolidated financial statements
and notes to the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2002.
RECENT RESTATEMENT OF HISTORICAL FINANCIAL RESULTS
As publicly announced on August 6, 2002 (prior to the public announcement
of the Company's consolidated financial results for the fiscal year ended
June 30, 2002), the Company discovered that it was required to make
accounting adjustments to previously reported audited consolidated
financial results for the fiscal years ended June 24, 2001, June 25, 2000
and June 27, 1999, as well as its previously reported unaudited
consolidated financial results for the first three quarters of fiscal
2002, due to an overstatement of the balance sheet account entitled costs
and estimated earnings in excess of amounts billed on uncompleted
contracts ("CIE"). The CIE balance is comprised of estimated gross profit
recognized to date plus actual work-in-process costs incurred to date less
billings/deposits to date. The overstatement of CIE occurred at our
Assembly Machines, Inc. ("AMI") subsidiary located in Erie, Pennsylvania,
which was part of the Company's Precision Assembly segment until it was
closed in February 2003. This CIE overstatement resulted in a
corresponding understatement of cost of sales because CIE represents
project costs that have been expended, but are still available to be
billed; therefore, the overstatement in CIE included available to bill
amounts that should have been expensed to cost of sales in prior periods.
The cumulative amount of the accounting adjustments increased the
aggregate pre-tax loss reported during the impacted periods by $6,486 and
increased the aggregate net loss after taxes reported during the impacted
periods by $4,216. See Note 11 for the restatement of the three and six
months ended December 23, 2001.
The Company discovered the accounting adjustments while beginning the
transfer of the sales and accounting functions at AMI to its Precision
Assembly segment headquarters in Buffalo Grove, Illinois in connection
with the reorganization of the Company's operations described in Note 6.
The Board of Directors authorized the Audit and Finance Committee to
conduct an independent investigation, with the assistance of special
counsel retained by the Committee, to identify the causes of these
accounting adjustments. The Committee retained Katten Muchin Zavis
Rosenman ("KMZR") as special counsel, and KMZR engaged an independent
accounting firm to assist in the investigation. In addition, the Company
investigated whether similar issues existed at any other subsidiaries. At
the conclusion of the independent investigation, KMZR and the independent
accounting firm provided the Committee with an oral report of their
findings. Due to the time-sensitive nature of the independent
investigation, no written report was prepared for, or provided to, the
Committee. As a result of the investigations, the Company believes that
the accounting issues were confined to AMI and determined that the
misstatement of the CIE account at AMI was primarily the result of the
former controller of AMI, without instruction from, or the knowledge of,
Company management, (1) failing to properly account for manufacturing
variances,
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 7
(2) adding inappropriate costs to work-in-process amounts, (3)
understating amounts billed and/or customer deposits and (4) failing to
recognize certain losses, in each case on various projects during the
relevant time period. Using these miscalculations of CIE, the former AMI
controller made incorrect journal entries that were recorded in the books
and records of AMI.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
The accounts of the Company's foreign subsidiaries are maintained in their
respective local currencies. The accompanying consolidated financial
statements have been translated and adjusted to reflect U.S. dollars in
accordance with accounting principles generally accepted in the United
States.
3. ASSET SALES
For the six months ended December 23, 2001, the Company sold substantially
all of the assets of three divisions. The following table summarizes
certain information regarding these sales:
NET
CASH LOSS
DATE OF SALE BUSINESS PROCEEDS ON DISPOSAL
------------ ------------------------------- ---------- -----------
June 2001 Detroit Tool Metal Products Co. $ 14,250 $ (1,618)
July 2001 Scheu & Kniss 3,939 (6,200)
October 2001 Hansford Parts and Products 622 --
---------- ----------
$ 18,811 $ (7,818)
========== ==========
The losses associated with the sale of these divisions were recognized in
fiscal 2001.
In June 2002, the Company completed a sale/leaseback agreement for the
Hyannis, Massachusetts facility and recorded a net loss on disposal of the
assets of $1,128. Cash proceeds of approximately $5,493 were used prepay
the outstanding $5,000 of Industrial Revenue Bonds. See Note 4 for
additional information.
In October 2002, the Company completed a sale/leaseback transaction of its
Packaging Systems segment Alcester, England facility. The Company received
net proceeds of approximately $679.
In January 2003, the Company completed the sale of its Packaging Systems
segment Leominster, Massachusetts facility after relocating to a new
leased facility in Leominster. The Company recorded an approximate $250
charge in the third quarter of fiscal 2002 to write-down the Leominster
facility to fair market value. Proceeds of approximately $1,300, which
approximates book value after the write-down, were used to reduce debt
outstanding under the senior credit facility.
In January 2003, the Company entered into an agreement to sell its
Precision Assembly segment Erie, Pennsylvania facility. Anticipated net
proceeds of approximately $850, which approximates book value after the
write-down, will be used to reduce debt outstanding under the senior
credit facility. The transaction is expected to close during the third
quarter of fiscal 2003. The Company wrote-down the Erie facility to its
fair market value in the third quarter of fiscal 2003. See Note 8 for
additional information.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 8
4. FINANCING
As of December 29, 2002 and June 30, 2002, current and long-term debt
consisted of the following:
DECEMBER 29, JUNE 30,
2002 2002
------------ ------------
Term and revolving loans under senior secured credit
facility:
Term loan $ 6,315 $ 6,441
Revolving loans 47,650 44,846
Other debt 185 5,234
------------ ------------
54,150 56,521
Less - senior secured credit facility classified as
current 53,965 6,000
Less - current portions of other debt 95 5,140
------------ ------------
Long-term debt $ 90 $ 45,381
============ ============
As a result of covenant defaults under its senior credit facility, as
noted below, the Company is required to classify the long-term portion of
its senior credit facility ($47,965) as current. Once the permanent waiver
and amendment to the facility is completed, as noted below, the long-term
portion of the bank debt will be reclassified from a current to a
long-term liability.
The Company's senior credit facility, last amended on June 20, 2002,
consists of a $6,315 term loan and a $68,626 revolving loan (as of
December 29, 2002) and matures on July 2, 2004. Significant terms of the
amended agreement are as follows:
- $1,500 quarterly scheduled commitment reductions prorated between
the term and revolving loan commitments through June 2004;
- Advances under the revolver and letters of credit issued in excess
of $53,000 (priority advances) subject to a monthly asset coverage
test comprised of 65% of eligible accounts receivable and 25% of
eligible inventory;
- Interest rates for amounts borrowed under the credit facility are
based on Prime Rate plus 3.5% or Eurodollar Rate plus 4.0% for all
revolver advances up to $53,000 and Prime Rate plus 4.0% for all
priority advances in excess of $53,000. At December 29, 2002,
interest rates on outstanding indebtedness ranged from 7.75% to
8.0%;
- Monthly and quarterly financial covenants;
- Commitment fees of 0.50% per annum payable quarterly on any unused
portion of the revolving credit facility, an annual agency fee of
$150 and a 1% annual facility fee. The annual facility fee will be
forgiven if the debt is paid in full and the credit facility is
cancelled before the annual due dates; and
- Borrowings under the credit facility are secured by substantially
all of the assets of DTI and its domestic subsidiaries.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 9
As a result of its second quarter financial results, the Company did not
meet certain financial covenants under its senior credit facility,
including maximum funded debt to EBITDA (earnings before interest, taxes,
depreciation and amortization), minimum fixed charge coverage, minimum
EBITDA to interest expense ratio and minimum EBITDA. The Company has been
operating under a temporary waiver and expects to finalize shortly an
amendment to the senior credit facility which will provide a permanent
waiver of these covenant defaults and establish new covenant levels for
the remainder of the term of the facility. The Company anticipates that
this amendment will also reduce the revolving credit line to approximately
$60,000 from $66,044 currently and increase borrowing rates. Until the
Company obtains such permanent waiver, its lenders are entitled to, among
other things, accelerate the maturity of the debt outstanding so that it
is immediately due and payable. The temporary waiver under the senior
credit facility restricts the Company's outstanding borrowings under the
revolving line of credit to $53,000. Based on outstanding borrowings as of
December 29, 2002 of $48,344 (including $900 in outstanding letters of
credit), the Company had $4,656 of borrowing availability. If the Company
does not obtain a permanent waiver, no further priority advances will be
available under the revolving portion of the facility. If the indebtedness
is accelerated, the Company will not have sufficient funds to satisfy its
obligations and it will not be able to continue its operations as
currently anticipated.
The Company also has a European credit facility of approximately $4,473,
of which approximately $1,245 was outstanding in issued bank guarantees to
customers as of December 29, 2002.
On June 26, 2002, the Company completed a sale/leaseback of the facility
in Hyannis and repaid the outstanding balance of $5,000 on Massachusetts
Industrial Finance Agency Multi-Mode Industrial Development Revenue Bonds
1998 Series A on August 1, 2002.
5. COMPANY-OBLIGATED, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
OF SUBSIDIARY DT CAPITAL TRUST HOLDING SOLELY CONVERTIBLE JUNIOR
SUBORDINATED DEBENTURES OF THE COMPANY (CONVERTIBLE PREFERRED SECURITIES
OR TIDES)
The conversion price of the $35,000 outstanding TIDES (and the Junior
Debentures of the Company held by the DT Capital Trust) is $14.00 per
share, distributions on the TIDES payable are not required to be paid from
April 1, 2002 until July 2, 2004, and the maturity date of the TIDES is
May 31, 2008. Distributions are payable on the TIDES at 7.16% beginning
September 2004 through their maturity date of May 31, 2008. However,
annual dividend expense of $1,604 on the TIDES is being recorded,
reflecting an approximate effective yield of 4.6% over the life of the
TIDES. Distributions accrued during the period through July 2, 2004 are
added to the amount outstanding ($36,203 at December 29, 2002).
6. BUSINESS SEGMENTS
See "Item 1. Business. Markets and Products" in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2002 for a
description of the products and markets of the Company's four segments -
Material Processing, Precision Assembly, Packaging Systems and Assembly
and Test.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 10
Net sales for the Company's reportable segments consisted of the following:
Three months ended Six months ended
December 23, December 23,
December 29, 2001 December 29, 2001
2002 As Restated 2002 As Restated
------------ ------------ ------------ ------------
Net sales
Material Processing $ 22,026 $ 31,294 $ 46,677 $ 57,893
Precision Assembly 9,703 15,167 26,992 34,046
Packaging Systems 10,506 8,975 16,357 20,644
Assembly & Test 20,033 32,994 41,684 75,717
Divested businesses -- 231 -- 792
------------ ------------ ------------ ------------
Consolidated total $ 62,268 $ 88,661 $ 131,710 $ 189,092
============ ============ ============ ============
The reconciliation of segment operating income to consolidated income (loss)
before income taxes consisted of the following:
Three months ended Six months ended
December 23, December 23,
December 29, 2001 December 29, 2001
2002 As Restated 2002 As Restated
------------ ------------ ------------ ------------
Material Processing $ 917 $ 3,551 $ 3,165 $ 5,001
Precision Assembly (2,809) 1,622 (1,695) 3,463
Packaging Systems (23) (736) 75 407
Assembly & Test (2,072) (1,084) (2,741) 1,785
------------ ------------ ------------ ------------
Operating income (loss)
for reportable segments (3,987) 3,353 (1,346) 10,656
------------ ------------ ------------ ------------
Operating loss for divested
businesses -- (37) -- (105)
Corporate (2,160) (85) (4,124) (1,737)
Interest expense, net (1,544) (3,198) (2,982) (6,365)
Dividends on Company-
obligated, mandatorily
redeemable convertible
preferred securities of
subsidiary DT Capital Trust
holding solely convertible
junior subordinated
debentures of the Company (401) (1,465) (802) (2,905)
------------ ------------ ------------ ------------
Consolidated loss before
income taxes $ (8,092) $ (1,432) $ (9,254) $ (456)
============ ============ ============ ============
The Company sold substantially all of the assets of the remaining division in
the Divested Businesses category in October 2001.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 11
Total assets for the Company's reportable segments consisted of the following:
AS OF AS OF
DECEMBER 29, 2002 JUNE 30, 2002
----------------- -------------
Total assets
Material Processing $ 61,051 $ 64,061
Precision Assembly 64,733 77,865
Packaging Systems 53,728 53,846
Assembly & Test 96,007 94,266
Corporate 18,845 18,372
------------ ------------
Consolidated total $ 294,364 $ 308,410
============ ============
7. SUPPLEMENTAL BALANCE SHEET INFORMATION
DECEMBER 29, 2002 JUNE 30, 2002
----------------- -------------
Accounts receivable
Trade receivables $ 47,116 $ 58,021
Less - allowance for doubtful accounts (2,271) (3,085)
------------ ------------
$ 44,845 $ 54,936
============ ============
Costs and estimated earnings in excess of amounts
billed on uncompleted contracts
Costs incurred on uncompleted contracts $ 162,655 $ 176,781
Estimated earnings 31,191 37,040
------------ ------------
193,846 213,821
Less - Billings to date (176,846) (196,553)
------------ ------------
$ 17,000 $ 17,268
============ ============
Included in the accompanying balance sheets:
Costs and estimated earnings in excess of amounts billed $ 28,559 $ 29,288
Billings in excess of costs and estimated earnings (11,559) (12,020)
------------ ------------
$ 17,000 $ 17,268
============ ============
Inventories, net
Raw materials $ 19,771 $ 17,575
Work in process 18,503 12,404
Finished goods 1,425 4,292
Less - inventory reserves (8,322) (7,494)
------------ ------------
$ 31,377 $ 26,777
============ ============
Accrued liabilities
Accrued employee compensation and benefits $ 9,308 $ 10,258
Accrued warranty 3,243 3,422
Restructuring accrual 2,707 4,678
Other 9,171 11,237
------------ ------------
$ 24,429 $ 29,595
============ ============
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 12
The change in the allowance for doubtful accounts during the six months
ended December 29, 2002 resulted primarily from the reversal of $903
related to the resolution during the first quarter of a customer lawsuit,
as a result of which the outstanding receivable balance was written off
against the previously established allowance account.
A summary and roll-forward of the warranty reserves were as follows:
Beginning Ending
Balance Expense Charges Balance
--------- --------- --------- ---------
For the six months
ended December 29, 2002 3,422 1,228 (1,407) 3,243
8. RESTRUCTURING
As outlined in its Annual Report on Form 10-K for the fiscal year ended
June 30, 2002, during fiscal 2002 and 2001, the Company took several
actions in connection with a plan to restructure its business operations.
The steps included closing facilities in Rochester, New York, Montreal,
Quebec, and a Packaging Systems sales office in Canada. In addition, the
Company transferred its Converting Technologies operation in Bristol,
Pennsylvania to Hyannis, Massachusetts, its Assembly and Test - Europe
fabrication operation in Gawcott, UK to Buckingham, England, and relocated
its corporate offices from Springfield, Missouri to Dayton, Ohio. The
Company also recorded severance reserves related to certain management
changes and workforce reductions at several locations. Substantially all
employee terminations have occurred. The Company was able to successfully
negotiate an early termination of its Springfield, Missouri office lease
and recorded the resulting $200 benefit as a reduction in reserve in the
first quarter of fiscal 2003.
On December 13, 2002, the Company announced the closure of its Erie,
Pennsylvania facility (also known as Assembly Machines, Inc.),
transferring manufacturing operations and the customer base to its Buffalo
Grove, Illinois facility as part of its Precision Assembly segment. The
Company expects to complete the shutdown by the end of February 2003 and
sell the facility thereafter. The Company recorded a restructuring charge
in December 2002 of $1,700, including severance costs of $627 for the
termination of 62 employees. The Company released 47 employees on December
13, 2002 with the remaining employees to be terminated by the end of the
third quarter of fiscal 2003. The remaining restructuring charge of $1,073
includes a $1,020 charge to write-down the land and building to the
estimated fair market value and $53 for other asset write-offs and
non-cancellable office and plant equipment leases.
The following table summarizes the changes in the restructuring accruals
during the first six months of fiscal 2003:
Cash Non-Cash Accrued as of
Accrued as of Additions Reduction Charges to Charges December 29,
June 30, 2002 to Reserve in Reserve Accrual to Accrual 2002
------------- ---------- ---------- ---------- ---------- -------------
Severance costs $ 1,431 $ 627 $ (200) $ (1,546) $ -- $ 312
Future lease
costs on
closed facilities 2,846 53 (200) (1,324) -- 1,375
Asset write-
downs 307 1,020 -- -- (307) 1,020
Other 94 -- -- (94) -- 0
------------- ---------- ---------- ---------- ---------- ------------
$ 4,678 $ 1,700 $ (400) $ (2,964) $ (307) $ 2,707
============= ========== ========== ========== ========== ============
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 13
9. ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure - An Amendment of FAS 123" (SFAS 148). SFAS 148 amends SFAS
123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition,
this SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements
about the method of accounting of stock-based employee compensation and
the effect of the method used on reported results. The Company will adopt
the new disclosure requirements beginning in the third quarter of fiscal
2003. At the present time the Company does not anticipate changing to an
alternate method of accounting for stock-based employee compensation. The
Company currently accounts for employee stock options in accordance with
Accounting Principles Board No. 25, "Accounting for Stock Issued to
Employees" (APB 25). SFAS 123 allows companies to continue to apply the
valuation methods set forth in APB 25.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that
guarantors recognize a liability, at the inception of a guarantee, equal
to the fair value of the obligation it assumes under the guarantee. FIN 45
also elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under
certain guarantees that it has issued, even if the likelihood of the
guarantor's having to make any payments under the guarantee is remote. The
Company has adopted the disclosure requirements of FIN 45 in the second
quarter of fiscal 2003 and will apply the new requirements of recognizing
liabilities on a prospective basis to all new or modified guarantees, in
accordance with the provisions of this interpretation. The Company does
not expect the prospective application of FIN 45 will have a material
impact to it's financial position or results of operations.
10. COMMITMENTS AND CONTINGENCIES
The Company is involved in legal and regulatory proceedings, as described
in "Part 1, Item 3. Legal Proceedings" of the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2002.
Since the disclosure in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2002, there have been no material developments
in previously reported legal or regulatory proceedings.
The Company is from time to time subject to claims and suits arising in
the ordinary course of business. Although the ultimate disposition of such
proceedings is not presently determinable, management does not believe
that the ultimate resolution of these matters will have a material adverse
effect on the Company's financial condition, results of operations or cash
flows. The Company maintains comprehensive general liability insurance
that it believes to be adequate for the continued operation of its
business.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 14
11. RESTATEMENT
As described in Note 1, the Company's consolidated statement of operations
for the three and six months ended December 23, 2001 has been restated. A
comparison of previously reported and restated consolidated statements of
operations for this period is presented below. The impact of the
restatement for the three months ended December 23, 2001 was an increase
to the Company's net income of $203, and to the Company's net income per
common share of $0.02. The impact of the restatement for the six months
ended December 23, 2001 was a decrease to the Company's net income of $47,
and to the Company's net income per common share of $0.01.
Consolidated Statement of Operations
-----------------------------------------------------------------
Three months ended Six months ended
December 23, 2001 December 23, 2001
----------------- ------------ ------------------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------- ------------ ------------- ------------
Net sales $ 88,104 $ 88,661 $ 188,588 $ 189,092
Cost of sales 70,488 70,733 149,989 150,565
------------- ------------ ------------- ------------
Gross profit 17,616 17,928 38,599 38,527
Selling, general and administrative
expenses 13,176 13,176 28,192 28,192
Restructuring charges 1,521 1,521 1,521 1,521
------------- ------------ ------------- ------------
Operating income 2,919 3,231 8,886 8,814
Interest expense 3,198 3,198 6,365 6,365
Dividends on Company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary DT
Capital Trust holding solely convertible
junior subordinated debentures of the
Company 1,465 1,465 2,905 2,905
------------- ------------ ------------- ------------
Loss before benefit for income taxes (1,744) (1,432) (384) (456)
Benefit for income taxes (636) (527) (135) (160)
------------- ------------ ------------- ------------
Net loss (1,108) (905) (249) (296)
============= ============ ============= ============
Net loss per common share:
Basic $ (0.11) $ (0.09) $ (0.02) $ (0.03)
Diluted $ (0.11) $ (0.09) $ (0.02) $ (0.03)
============= ============ ============= ============
Weighted average common shares
outstanding:
Basic 10,387,274 10,387,274 10,363,922 10,363,922
Diluted 10,387,274 10,387,274 10,363,922 10,363,922
============= ============ ============= ============
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 15
GENERAL OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of DT Industries, Inc.
(DTI or the Company) for the three and six months ended December 29, 2002
compared to the three and six months ended December 23, 2001. This discussion
should be read in conjunction with the consolidated financial statements and
notes to the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2002 and the consolidated
financial statements and notes thereto included in this Quarterly Report on Form
10-Q.
See "Item 1. Business. Markets and Products" in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2002 for a description of the
products and markets of the Company's four segments - Material Processing,
Precision Assembly, Packaging Systems and Assembly and Test.
The continued depressed market demand for capital goods, including the Company's
products, has negatively impacted the Company's level of order intake and
corresponding revenues and operating profits across the business segments. If
improvements in the overall economy and demand for the Company's products are
not forthcoming, it will have a continued negative impact on the Company's
future operating results. This may result in the Company not being able to
project adequate future cash flow to support the goodwill balance recorded on
the balance sheet. If this was to occur, the Company may be required to record,
possibly during the remainder of fiscal 2003, an impairment of the carrying
amount of its recorded goodwill.
Almost all of our net sales are derived from the sale and installation of
equipment and systems primarily under fixed-price contracts. We also derive net
sales from the sale of spare and replacement parts and servicing installed
equipment and systems. We recognize revenue under the percentage of completion
method or upon delivery and acceptance in accordance with SAB 101.
We principally utilize the percentage of completion method of accounting to
recognize revenues and related costs for the sale and installation of equipment
and systems pursuant to customer contracts. These contracts are typically
engineering-driven design and build contracts of automated production equipment
and systems used to manufacture, test or package a variety of industrial and
consumer products. These contracts are generally for large dollar amounts and
require a significant amount of labor hours with durations ranging from three
months to over a year. Under the percentage of completion method, revenues and
related costs are measured based on the ratio of engineering and manufacturing
labor hours incurred to date compared to total estimated engineering and
manufacturing labor hours. Any revisions in the estimated total costs of the
contracts during the course of the work are reflected when the facts that
require the revisions become known.
For those contracts accounted for in accordance with SAB 101, we recognize
revenue upon shipment (FOB shipping point). We utilize this method of revenue
recognition for products produced in a standard manufacturing operation whereby
the product is built according to pre-existing bills of materials, with some
customization occurring. These contracts are typically of shorter duration (one
to three months) and have smaller contract values. The revenue recognition for
these products follows the terms of the contracts, which call for transfer of
title at time of shipment after factory acceptance tests with the customer. If
installation of the products is included in the contracts, revenue for the
installation portion of the contract is recognized when installation is
complete.
Costs and related expenses to manufacture products, primarily labor, materials
and overhead, are recorded as costs of sales when the related revenue is
recognized. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.
Selling, general and administrative expenses primarily consist of salary and
wages for employees, research and development costs, sales commissions,
marketing costs, legal and professional expenses.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 16
Certain information contained in this report, including, without limitation, the
information appearing under the captions "Legal Proceedings" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
includes forward-looking statements made pursuant to the safe harbor provisions
of Section 21E of the Securities Exchange Act of 1934, as amended. These
statements comprising all statements herein which are not historical reflect our
current expectations and projections about our future results, performance,
liquidity, financial condition, prospects and opportunities and are based upon
information currently available to us and our interpretation of what we believe
to be significant factors affecting our businesses, including many assumptions
regarding future events. References to the words "will", "anticipate",
"believe", "intent", "expect", "should", "estimates" and similar expressions
used herein indicate such forward-looking statements. Our actual results,
performance, liquidity, financial condition, prospects and opportunities could
differ materially from those expressed in, or implied by, these forward-looking
statements as a result of various risks, uncertainties and other factors,
including the amount and availability of, and restrictions and covenants
relating to, our indebtedness under our senior credit facility and any defaults
thereunder, our ability to achieve anticipated cost savings from our corporate
restructuring, our ability to upgrade and modify our financial, information and
management systems and controls to manage our operations on an integrated basis
and report our results, economic downturns in industries or markets served,
delays or cancellations of customer orders, delays in shipping dates of
products, significant cost overruns on projects, the loss of a key customer,
excess product warranty expenses, significant restructuring or other special
non-recurring charges, foreign currency exchange rate fluctuations, changes in
interest rates, increased inflation, collectibility of past due customer
receivables, and any adverse impact of restating our historical financial
statements, including any proceedings relating to the restatement. See "Risk
Factors" in our Prospectus dated January 14, 2003, as filed with the SEC, for a
description of these and other risks, uncertainties and factors.
You should not place undue reliance on any forward-looking statements. Except as
expressly required by the federal securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events, changed circumstances or any other reason.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 17
RECENT RESTATEMENT OF HISTORICAL FINANCIAL RESULTS
As publicly announced on August 6, 2002 (prior to the public announcement of our
consolidated financial results for the fiscal year ended June 30, 2002), we
discovered that we were required to make accounting adjustments to our
previously reported audited consolidated financial results for the fiscal years
ended June 24, 2001, June 25, 2000 and June 27, 1999, as well as our previously
reported unaudited consolidated financial results for the first three fiscal
quarters of 2002, due to an overstatement of the balance sheet account entitled
costs and estimating earnings in excess of amounts billed on uncompleted
contracts ("CIE"). The CIE balance is comprised of estimated gross margins
recognized to date plus actual work-in-process costs incurred to date less
billings/deposits to date. The overstatement of CIE occurred at our Assembly
Machines, Inc. ("AMI") subsidiary located in Erie, Pennsylvania, which was part
of our Precision Assembly segment until being closed in February 2003. This CIE
overstatement resulted in a corresponding understatement of cost of sales
because CIE represents project costs that have been expended, but are still
available to be billed; therefore, the overstatement in CIE included available
to bill amounts that should have been expensed to cost of sales in prior
periods. The cumulative amount of the accounting adjustments increased the
aggregate pre-tax loss reported during the impacted periods by $6.5 million and
increased the aggregate net loss after taxes reported during the impacted
periods by $4.2 million. Our restated consolidated statement of operations for
the three and six months ended December 23, 2001 is included in Note 11 to our
consolidated financial statements included herein.
We discovered the accounting adjustments while beginning the transfer of the
sales and accounting functions at AMI to our Precision Assembly segment
headquarters in Buffalo Grove, Illinois in connection with the reorganization of
our operations. Our Board of Directors authorized the Audit and Finance
Committee to conduct an independent investigation, with the assistance of
special counsel retained by the Committee, to identify the causes of these
accounting adjustments. The Committee retained Katten Muchin Zavis Rosenman
("KMZR") as special counsel, and KMZR engaged an independent accounting firm to
assist in the investigation. In addition, we investigated whether similar issues
existed at any of our other units. At the conclusion of the independent
investigation, KMZR and the independent accounting firm provided the Committee
with an oral report of their findings. Due to the time-sensitive nature of the
independent investigation, no written report was prepared for, or provided to,
the Committee. As a result of the investigations, we believe that the accounting
issues were confined to AMI and determined that the misstatement of the CIE
account at AMI was primarily the result of the former controller of AMI, without
instruction from, or the knowledge of, our management, (1) failing to properly
account for manufacturing variances, (2) adding inappropriate costs to
work-in-process amounts, (3) understating amounts billed and/or customer
deposits and (4) failing to recognize certain losses, in each case on various
projects during the relevant time period. Using these miscalculations of CIE,
the former AMI controller made incorrect journal entries that were recorded in
the books and records of AMI.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 18
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
consolidated net sales represented by certain items reflected in the Company's
consolidated statement of operations:
Three months ended Six months ended
------------------------------ ------------------------------
December 23, December 23,
December 29, 2001 December 29, 2001
2002 As Restated 2002 As Restated
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------- ------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 85.3 79.8 82.5 79.6
------------ ------------ ------------ ------------
Gross profit 14.7 20.2 17.5 20.4
Selling, general and
administrative expenses 21.9 14.9 20.4 14.9
Restructuring charges 2.7 1.7 1.3 0.8
------------ ------------ ------------ ------------
Operating income (loss) (9.9) 3.6 (4.2) 4.7
Interest expense 2.5 3.6 2.3 3.4
Dividends on Company-obligated,
mandatorily redeemable
convertible preferred securities
of subsidiary DT Capital Trust 0.6 1.6 0.6 1.5
------------ ------------ ------------ ------------
Loss before benefit for income
taxes (13.0) (1.6) (7.1) (0.2)
Benefit for income taxes (4.3) (0.6) (2.3) (0.1)
------------ ------------ ------------ ------------
Net loss (8.7)% (1.0)% (4.8)% (0.1)%
============ ============ ============ ============
THREE MONTHS ENDED DECEMBER 29, 2002
COMPARED TO THREE MONTHS ENDED DECEMBER 23, 2001 (AS RESTATED)
Consolidated net sales for the three months ended December 29, 2002 were $62.3
million, a decrease of $26.4 million, or 29.8%, from $88.7 million for the three
months ended December 23, 2001.
Net sales by segment were as follows (in millions):
Three Months Ended
---------------------------------------------------
Increase
December 29, 2002 December 23, 2001 (Decrease)
----------------- ----------------- ----------
Material Processing $ 22.0 $ 31.3 $ (9.3)
Precision Assembly 9.7 15.2 (5.5)
Packaging Systems 10.5 9.0 1.5
Assembly & Test 20.1 33.0 (12.9)
Divested businesses -- 0.2 (0.2)
-------- -------- --------
Total $ 62.3 $ 88.7 $ (26.4)
======== ======== ========
The decrease in Material Processing segment sales primarily reflects a $9.8
million decrease in sales to a consumer products company and a $2.7 million
decrease in sales to an electronics customer related to the completion of
projects during fiscal 2002. The Material Processing segment was able to replace
a portion of the sales with new sales to the appliance industry and a number of
new projects with new and repeat customers. The Company is currently working on
the process and equipment development for Earthshell's biodegradable foam
laminate packaging equipment, with expectations of delivering the first machine
during the third quarter of fiscal 2003.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 19
The Precision Assembly segment recorded 84% and 71% of total sales for the
current quarter and prior year's quarter, respectively, with its core
electronics market. Some of the programs currently in backlog within our
electronics market have been delayed by this segment's largest customer, which
impacted revenue recognition in the second quarter by approximately $6.0
million. The forecast for future electronics orders is currently uncertain.
In the Packaging Systems segment, the Company recognized increased sales in the
quarter from the delays experienced in the first quarter which pushed shipment
on several projects to the second quarter. Most of the Packaging Systems segment
projects are recognized under the delivery and acceptance method of revenue
recognition in accordance with SAB 101. Excluding the timing effects of
shipments, sales have been negatively impacted by the integration of the
Montreal, Canada and Leominster, Massachusetts facilities into a new Leominster,
Massachusetts facility. The segment, which primarily serves the pharmaceutical
market, is also experiencing some market softness and stronger competition.
The Assembly & Test segment, which primarily serves the automotive, truck and
heavy equipment market, has experienced market softness for the last 24 months.
Results for the December 2001 quarter included revenue recognition on a diesel
engine assembly and material handling system that was substantially delivered in
the fourth quarter of fiscal 2002 and on several electronics assembly system
chassis subcontracted from the Precision Assembly segment. The segment has not
replaced these projects and the core automotive market remains depressed and
very competitive.
Gross profit decreased by $8.8 million, or 48.8%, to $9.2 million for the three
months ended December 29, 2002 versus $17.9 million for the three months ended
December 23, 2001. The gross margin decreased to 14.7% in the second quarter of
fiscal 2003 from 20.2% in the second quarter of fiscal 2002, primarily
reflecting the impact of reduced volumes and under-absorption of overhead costs
across all of the segments, the incremental project costs related to several
Hansford projects that were assumed by the Precision Assembly and Assembly &
Test segments upon the shut down of the Hansford facility, the development costs
on the Earthshell packaging systems, and the non-recurring costs associated with
transitioning the Kalish and AMI product lines associated with those facility
shutdowns.
Selling, general and administrative (SG&A) expenses were $13.6 million for the
three months ended December 29, 2002, an increase of $0.4 million, or 3.4%,
compared to $13.2 million for the three months ended December 23, 2001. The
increase reflects several non-recurring favorable items in the prior year period
and increased legal and professional fees in the current period as a result of
our recent restatement of historical financial results and public filings
associated with the recapitalization. This increase offsets the decrease in SG&A
expenses attributable to the restructurings of the Packaging Systems and
Assembly and Test segments that reduced administrative headcount. The favorable
SG&A items in the prior period included reversals of bad debt reserves from
collections on delinquent accounts, 401K forfeitures income, termination of
post-retirement plans and the resulting reductions in reserves, decreases in
bonus accruals and the reductions in workers compensation reserves. SG&A
expenses as a percentage of consolidated net sales increased to 21.9% in the
second quarter of fiscal 2003 from 14.9% in the second quarter of fiscal 2002,
reflecting the above items and the lower sales volume.
Research and development spending, part of SG&A, was $0.4 million in the second
quarter of fiscal 2003, down $0.4 million from the comparable prior year period.
The decrease resulted from completing research and development for four new
products that were introduced in the first quarter of fiscal 2003, for which
substantial R&D expenditures were made in the comparable prior year period.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 20
On December 13, 2002, the Company announced the closure of its Erie,
Pennsylvania facility, (also known as Assembly Machines, Inc.), transferring
manufacturing operations and the customer base to its Buffalo Grove, Illinois
facility as part of its Precision Assembly segment. The Company expects to
complete the shut down by the end of February 2003 and sell the facility
thereafter. The Company recorded a restructuring charge in December 2002 of $1.7
million, including severance costs of $0.6 million for the termination of 62
employees. The Company released 47 employees on December 13, 2002 with the
remaining employees to be terminated by the end of the third quarter of fiscal
2003. The remaining restructuring charge of $1.1 million includes a $1.0 million
charge to write-down the land and building to the estimated fair market value
and $0.1 million for other asset write-offs and non-cancellable office and plant
equipment leases. The Company estimates savings of $0.8 million in manufacturing
overhead and selling, general and administrative costs for the remaining six
months of fiscal 2003.
Operating income was a loss of $6.1 million for the three months ended December
29, 2002 versus income of $3.2 million for the three months ended December 23,
2001. Material Processing segment operating income decreased $2.7 million, or
74.2%, to $0.9 million for the three months ended December 29, 2002 from $3.6
million for the prior period. Operating margin decreased to 4.2% in the current
quarter compared to 11.3% in the prior year quarter. In addition to the 29.6%
drop in sales, the segment's operating income and margins for the second quarter
of fiscal 2003 were impacted by the approximate $0.9 million in process and
equipment development costs related to Earthshell's biodegradable foam laminate
packaging equipment. The prior year period's revenues and operating income were
favorably impacted by the cancellation of a project and resulting payment of a
cancellation fee by the customer, which accelerated revenue and profit.
Precision Assembly segment operating income decreased $4.4 million, or 273%, to
a loss of $2.8 million for the three months ended December 29, 2002 from income
of $1.6 million for the prior period. Operating margin decreased to a loss of
28.9% in the current quarter compared to 10.7% in the prior year quarter.
Precision Assembly sales were down 36% in the quarter resulting in increases in
unabsorbed manufacturing costs. Operating income for the segment also decreased
from the $1.7 million restructuring charge to shut down the Company's Erie,
Pennsylvania facility, additional non-recurring costs of approximately $0.4
million associated with the shutdown and additional project losses of
approximately $1.0 million related to some Hansford projects that were assumed
by the Precision Assembly segment upon the shutdown of the Hansford facility.
Packaging Systems segment operating loss decreased $0.8 million to substantially
break-even for the three months ended December 29, 2002 from a loss of $0.8
million for the prior period. The operating margin was a loss of 8.2% in the
prior year quarter. The improvement is primarily the result of the SG&A savings
resulting from the shutdown of the Montreal, Quebec (Kalish) facility in the
fourth quarter of fiscal 2002.
Assembly & Test segment operating loss increased $1.0 million, or 91%, to a loss
of $2.1 million for the three months ended December 29, 2002 from a loss of $1.1
million for the prior period. Operating margin decreased to a loss of 10.3% in
the current quarter compared to 3.3% in the prior year quarter. Assembly & Test
segment sales were down 39.3% in the quarter resulting in increases in
unabsorbed manufacturing costs. Operating income for the segment also decreased
due to additional project losses of approximately $0.5 million related to
several Hansford projects that were assumed by the Assembly & Test segment upon
the shutdown of the Hansford facility. Operating margins for the Assembly & Test
segment have also declined due to competitive pricing, particularly in the
automotive sector.
The corporate head office operating loss increased $2.1 million to a loss of
$2.2 million for the three months ended December 29, 2002, a loss of $0.1
million for the prior period due to several favorable non-recurring items
recorded in the prior year period discussed above in SG&A.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 21
Interest expense decreased $1.4 million to $1.5 million for the three months
ended December 29, 2002 versus $3.2 million for the three months ended December
23, 2001. The decrease resulted from the lower outstanding borrowings resulting
both from the proceeds from the private placement of common stock on June 20,
2002 and the reductions in working capital throughout fiscal 2002. Funded debt
has been reduced from $104.2 million at December 23, 2001 to $54.2 million at
December 29, 2002. Dividends on the convertible preferred securities of our
wholly-owned subsidiary trust were $0.4 and $1.5 million for the three months
ended December 29, 2002 and December 23, 2001, respectively. The lower amount of
dividends recorded reflect the restructuring of the convertible trust preferred
securities that was completed on June 20, 2002. Dividend expense of $1.6 million
is recorded annually on the convertible trust preferred securities, reflecting
an approximate effective yield of 4.6% over the life of the securities, after
considering the period from April 1, 2002 until July 2, 2004 when distributions
are not required to be paid.
The benefit for income taxes for the three months ended December 29, 2002 and
December 23, 2001reflects an effective tax rate of approximately 33% and 37%,
respectively. The lower effective tax rate in fiscal 2003 reflects an effective
federal tax rate of 35% (federal tax benefit), offset by a provision of state
taxes, despite book losses.
Net loss was $5.4 million for the three months ended December 29, 2002
compared to $0.9 million for the three months ended December 23, 2001. Basic and
diluted loss per share were $0.23 for the three months ended December 29, 2002
compared to $0.09 for the three months ended December 23, 2001. Basic and
diluted weighted average shares outstanding were approximately 23.6 and 10.4
million shares for the three months ended December 29, 2002 and December 23,
2001, respectively. The increase in weighted average shares outstanding reflects
the recapitalization transaction on June 20, 2002, including the private
placement of 7.0 million shares of common stock and the conversion of
convertible trust preferred securities into approximately 6.3 million shares of
common stock.
SIX MONTHS ENDED DECEMBER 29, 2002
COMPARED TO SIX MONTHS ENDED DECEMBER 23, 2001 (AS RESTATED)
Consolidated net sales for the six months ended December 29, 2002 were $131.7
million, a decrease of $57.4 million, or 30.3%, from $189.1 million for the six
months ended December 23, 2001.
Net sales by segment were as follows (in millions):
Six Months Ended
-------------------------------------------------------------
Increase
December 29, 2002 December 23, 2001 (Decrease)
----------------- ----------------- ----------
Material Processing $ 46.7 $ 57.9 $ (11.2)
Precision Assembly 27.0 34.0 (7.0)
Packaging Systems 16.3 20.7 (4.4)
Assembly & Test 41.7 75.7 (34.0)
Divested businesses -- 0.8 (0.8)
-------- -------- --------
Total $ 131.7 $ 189.1 $ (57.4)
======== ======== ========
The decrease in Material Processing segment sales primarily reflects a $9.8
million decrease in sales to a consumer products company and a $7.3 million
decrease in sales to a significant tire manufacturer related to the completion
of projects during fiscal 2002. The Material Processing segment was able to
replace only a portion of the sales with new sales to the appliance industry and
a number of new projects with new and repeat customers. The Company is currently
working on the process and equipment development for Earthshell's biodegradable
foam laminate packaging equipment, with expectations of delivering the first
machine during the third quarter of fiscal 2003.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 22
The Precision Assembly segment recorded 86% and 72% of total sales for the
current year and prior year, respectively, with its core electronics market.
Some of the programs currently in backlog within our electronics market have
been delayed by the customer impacting revenue recognition in the current year
by approximately $6.0 million. The forecast for future electronics orders is
currently uncertain.
Sales of the Material Processing and Precision Assembly segment were impacted in
the first quarter of fiscal 2003 by the failure of the Company to get customer
acceptance on a project. The Company settled with this customer and agreed to
refund an agreed upon cash amount. The Company reversed percentage of completion
sales recognized to date ($0.9 million for the Material Processing segment and
$0.7 million for the Precision Assembly segment) and recorded the assembly and
plastics packaging system in inventory at its estimated fair market value. The
estimated loss resulting from the settlement with the customer of $1.1 million
was recorded in the fourth quarter of fiscal 2002. The Company negotiated a more
favorable settlement than originally estimated resulting in a $0.3 million
recovery in the first quarter of fiscal 2003.
In the Packaging Systems segment, the Company resolved a lawsuit with a customer
in the first quarter of fiscal 2003 which resulted in the customer returning a
packaging system to the Company and receiving a full refund of progress
payments. As a result, the Company reversed percentage of completion sales
recognized to date of $1.4 million pertaining to this system during the first
quarter of fiscal 2003. The Company established a full reserve for this lawsuit
in fiscal 2002. Sales were also negatively impacted by the integration of the
Montreal, Canada and Leominster, Massachusetts facilities into a new Leominster,
Massachusetts facility. The segment, which primarily serves the pharmaceutical
market, is also experiencing some market softness and stronger competition for
new orders.
The Assembly & Test segment, which primarily serves the automotive, truck and
heavy equipment market, has experienced market softness over an extended period.
Results for the prior year included revenue recognition on a diesel engine
assembly and material handling system that was substantially delivered in the
fourth quarter of fiscal 2002 and on several electronics assembly system chassis
subcontracted from the Precision Assembly segment. The segment has not replaced
these projects and the core automotive market remains depressed and very
competitive.
Gross profit decreased by $15.4 million, or 40.2%, to $23.1 million for the six
months ended December 29, 2002 versus $38.5 million for the six months ended
December 23, 2001. The gross margin decreased to 17.5% for the six months of
fiscal 2003 from 20.4% for the six months of fiscal 2002, primarily reflecting
the impact of reduced volumes and under-absorption of overhead costs across all
of the segments. Gross margins were also impacted by the incremental project
costs related to several Hansford projects that were assumed by the Precision
Assembly and Assembly & Test segments upon the shut down of the Hansford
facility, the development costs on the Earthshell packaging systems and the
non-recurring costs associated with transitioning the Kalish and AMI product
lines associated with those facility shut downs.
Selling, general and administrative (SG&A) expenses were $26.8 million for the
six months ended December 29, 2002, a decrease of $1.4 million, or 4.9%,
compared to $28.2 million for the six months ended December 23, 2001. In
connection with the customer lawsuit resolution referenced above and resulting
return of a Packaging Systems segment sale, the Company reversed a previously
recorded bad debt expense of approximately $0.9 million in the first quarter of
fiscal 2003. The Company recorded the return of product as a reversal of sales,
cost of sales and SG&A, and recorded the returned inventory to its estimated
fair market value. Decreases in SG&A expenses are also attributable to the
restructurings in the Packaging Systems and Assembly and Test segments that
reduced administrative headcount. These decreases were partially offset by
favorable SG&A items in the prior period which included reversals of bad debts
reserves from collections on delinquent accounts, 401K forfeitures income,
termination of post-retirement plans and the resulting reductions in reserves,
decreases in bonus accruals and the reductions in workers compensation reserves.
SG&A expenses as a percentage of consolidated net sales increased to 20.4% for
the six months of fiscal 2003 from 14.9% for the prior year period, reflecting
the above items and the lower sales volume.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 23
Research and development spending, part of SG&A, was $1.4 million for the first
six months of fiscal 2003, up slightly from the comparable prior year period.
The increase resulted from the introduction of four new products in the first
quarter of fiscal 2003.
On December 13, 2002, the Company announced the closure of its Erie,
Pennsylvania facility and recorded a $1.7 million restructuring charge as more
fully discussed in the quarter to quarter comparison above.
Operating income was a loss of $5.5 million for the six months ended December
29, 2002 versus income of $8.8 million for the six months ended December 23,
2001. Operating margin decreased to a loss of 4.2% in the current year versus
4.7% in the prior year. The following discusses the operating income/loss
variances from the prior year comparable period.
Material Processing segment operating income decreased $1.8 million, or 36.7%,
to $3.2 million for the six months ended December 29, 2002 from $5.0 million for
the prior period. Operating margin decreased to 6.8% in the current period
compared to 8.6% in the prior year. Other than the 19.4% drop in sales, the
segment's operating income and margins were impacted by the approximate $0.9
million in process and equipment development costs related to Earthshell's
biodegradable foam laminate packaging equipment. The prior year period's
revenues and operating income were favorably impacted by a project cancellation
and resulting payment of a cancellation fee by the customer, which accelerated
revenue and profit recognition on this project.
Precision Assembly segment operating income decreased $5.2 million, or 149%, to
a loss of $1.7 million for the six months ended December 29, 2002 from income of
$3.5 million for the prior period. Operating margin decreased to a loss of 6.3%
in the current period compared to 10.2% in the prior year period. Precision
Assembly sales were down 21% in the period resulting in increases in unabsorbed
manufacturing costs. Operating income for the segment also decreased from the
$1.7 million restructuring charge to shutdown its Erie, Pennsylvania facility,
additional non-recurring costs of approximately $0.4 million associated with the
shutdown and additional project losses of approximately $1.0 million related to
several Hansford projects that were assumed by the Precision Assembly segment
upon the shutdown of the Hansford facility.
Packaging Systems segment operating income decreased $0.3 million to $0.1
million for the six months ended December 29, 2002 from $0.4 million for the
prior period. Operating margin decreased to 0.5% in the current period compared
to 2.0% in the prior year period. The decrease is primarily due to the
unabsorbed manufacturing overhead costs, a large part of which was due to the
transitioning of the Kalish product line into the Leominster, Massachusetts
facility. The decrease was partially offset by SG&A savings resulting from the
elimination of administrative headcount at Kalish.
Assembly & Test segment operating income decreased $4.5 million, or 254%, to a
loss of $2.7 million for the six months ended December 29, 2002 from income of
$1.8 million for the prior period. Operating margin decreased to a loss of 6.6%
in the current period compared to income of 2.4% in the prior year period.
Assembly & Test segment sales were down 44.9% in the period resulting in
increases in unabsorbed manufacturing costs. Operating income for the segment
also decreased from additional project losses of approximately $0.5 million
related to several Hansford projects that were assumed by the Assembly & Test
segment upon the shut down of the Hansford facility. Operating margins for the
Assembly & Test segment have also declined due to the competitive pricing,
particularly in the automotive sector.
The corporate head office operating loss increased $2.4 million to a loss of
$4.1 million for the six months ended December 29, 2002 from a loss of $1.7
million for the prior period due to several favorable non-recurring items
recorded in the prior year period discussed above in SG&A.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 24
Interest expense decreased $3.4 million to $3.0 million for the six months ended
December 29, 2002 versus $6.4 million for the six months ended December 23,
2001. The decrease resulted from the lower outstanding borrowings resulting both
from the proceeds from the private placement of common stock on June 20, 2002
and the reductions in working capital throughout fiscal 2002. Dividends on the
convertible preferred securities of our wholly-owned subsidiary trust were $0.8
and $2.9 million for the six months ended December 29, 2002 and December 23,
2001, respectively. The lower amount of dividends recorded reflect the
restructuring of the convertible trust preferred securities that was completed
on June 20, 2002. Dividend expense of $1.6 million is recorded annually on the
convertible trust preferred securities, reflecting an approximate effective
yield of 4.6% over the life of the securities, after considering the period from
April 1, 2002 until July 2, 2004 when distributions are not required to be paid.
The benefit for income taxes for the six months ended December 29, 2002 and
December 23, 2001reflects an effective tax rate of approximately 32% and 35%,
respectively. The lower effective tax rate in fiscal 2003 reflects an effective
federal tax rate of 35% (federal tax benefit), offset by a provision of state
taxes, despite book losses.
Net loss was $6.3 million for the six months ended December 29, 2002 compared to
$0.3 million for the six months ended December 23, 2001. Basic and diluted loss
per share were $0.26 for the six months ended December 29, 2002 compared $0.03
for the six months ended December 23, 2001. Basic and diluted weighted average
shares outstanding were approximately 23.6 and 10.4 million shares for the six
months ended December 29, 2002 and December 23, 2001, respectively. The increase
in weighted average shares outstanding reflects the recapitalization transaction
on June 20, 2002, including the private placement of 7.0 million shares of
common stock and the conversion of the convertible trust preferred securities
into approximately 6.3 million shares of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Activity
Net cash used by operating activities was $6.7 million for the six months ended
December 29, 2002, compared to net cash provided by operating activities of
$13.9 million for the six months ended December 23, 2001.
The net cash used primarily resulted from the net loss of $6.3 million. Net
increases in working capital balances used operating cash of $2.1 million. The
slightly higher working capital balances primarily reflect decreased accrued
liabilities largely due to the payments on employee compensation matters in
connection with the restructurings across the business segments. Project related
working capital has continued to decrease due to the lower volume of projects.
Working capital balances can fluctuate significantly between periods as a result
of the significant costs incurred on individual contracts, and the relatively
large amounts invoiced and collected by the Company for a number of large
contracts, and the amounts and timing of customer advances or progress payments
associated with certain contracts.
During the six months ended December 29, 2002, the Company reduced its
borrowings under its senior credit facility and other debt agreements by $4.1
million. The proceeds from the Hyannis facility sale-leaseback transaction in
June 2002 provided the funding for the paydown in August of $5.0 million of
Industrial Revenue Bonds. The cash balance at June 30, 2002 of $18.8 million was
used to fund operations and capital expenditures during the first six months of
fiscal 2003. The Company spent $2.2 million in capital projects and incurred
$0.3 million of financing costs during the six months ended December 29, 2002.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 25
Management anticipates capital expenditures for fiscal 2003 to be in the range
of $3.5 to $4.0 million. This includes primarily only recurring replacement or
refurbishment of machinery and equipment. Funding for capital expenditures is
expected to be provided by cash from operating activities and through the
Company's credit facility.
Senior Credit Facility and Preferred Securities
The Company uses borrowings under the senior credit facility to fund working
capital requirements and capital expenditures. Borrowings under the senior
credit facility are secured by substantially all of the Company's domestic
assets. As of December 29, 2002, the senior credit facility consisted of a $68.6
million revolving credit facility and a $6.3 million term credit facility. Of
this amount, $54.7 million was outstanding (including $0.9 million in
outstanding letters of credit).
As a result of its second quarter financial results, the Company did not meet
certain financial covenants under its senior credit facility, including maximum
funded debt to EBITDA (earnings before interest, taxes, depreciation and
amortization), minimum fixed charge coverage, minimum EBITDA to interest expense
ratio and minimum EBITDA. The Company has been operating under a temporary
waiver and expects to finalize shortly an amendment to the senior credit
facility which will provide a permanent waiver of these covenant defaults and
establish new covenant levels for the remainder of the term of the facility. The
Company anticipates that this amendment will also reduce the revolving credit
line to approximately $60 million from $66 million and increase borrowing rates.
Until the Company obtains such permanent waiver, its lenders are entitled to,
among other things, accelerate the maturity of the debt outstanding so that it
is immediately due and payable. The temporary waiver under the senior credit
facility restricts the Company's outstanding borrowings under the revolving line
of credit to $53 million. Based on outstanding borrowings as of December 29,
2002 of $48.3 million (including $0.9 million in outstanding letters of credit),
the Company had $4.7 million of borrowing availability. If the Company does not
obtain a permanent waiver, no further priority advances will be available under
the revolving portion of the facility. If the indebtedness is accelerated, the
Company will not have sufficient funds to satisfy its obligations and it may not
be able to continue its operations as currently anticipated.
At December 29, 2002, interest rates on outstanding indebtedness under the
revolving credit facility ranged from 7.75% to 8.0%. The credit facility
requires commitment fees of 0.50% per annum payable quarterly on any unused
portion of the revolving credit facility, an annual agency fee of $0.15 million
and a 1% annual facility fee. The annual facility fee will be forgiven if the
debt is paid in full and the credit facility is cancelled before the annual due
dates.
In January 2003, the Company completed the sale of its Packaging Systems segment
Leominster, Massachusetts facility after relocating to a new leased facility in
Leominster. Proceeds of approximately $1.3 million were used to reduce debt
outstanding under the senior credit facility. In January 2003, the Company also
entered into an agreement to sell its Precision Assembly segment Erie,
Pennsylvania facility. Anticipated net proceeds of approximately $0.9 million
will be used to reduce debt outstanding under the senior credit facility. The
transaction is expected to close during the third quarter of fiscal 2003.
The Company believes that cash flows from operations, together with available
borrowings under its senior credit facility (even if availability is reduced
under the revolving credit line to $60 million as discussed above), will be
sufficient to meet its currently anticipated working capital, capital
expenditures and debt service needs up to July 2, 2004. The Company will need to
refinance or extend its senior credit facility in order to satisfy its liquidity
needs after July 2, 2004.
The Company also has outstanding $35.0 million of 7.16% convertible preferred
securities ("TIDES"). The TIDES represent undivided beneficial ownership
interests in the Company's wholly-owned subsidiary trust, DT Capital Trust (the
"Trust"), the sole assets of which are the related aggregate principal amount of
junior subordinated debentures issued by the Company that the Trust acquired
with the proceeds of the TIDES offering. The TIDES are convertible at the option
of the holders at any time into shares of DTI common stock at a conversion price
of $14.00 per share. Furthermore, the TIDES holders are entitled to receive cash
distributions starting July 2, 2004 at an annual rate of 7.16%, payable
quarterly in arrears on the last day of each calendar quarter. However, annual
dividend expense of $1,604 on the TIDES is being recorded, reflecting an
approximate effective yield of 4.6% over the life of the TIDES. Distributions
accrued during the period through July 2, 2004 are added to the amount
outstanding ($36,203 at December 29, 2002). The TIDES mature on May 31, 2008.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND ITEMS 3 AND 4
PAGE 26
The Company has guaranteed the payment of distributions and payments on
liquidation of the Trust or redemption of the TIDES. Through this guarantee, the
Company's junior subordinated debentures, the debentures' indenture and the
Trust's declaration of trust, taken together, the Company has fully, irrevocably
and unconditionally guaranteed all of the Trust's obligations under the TIDES.
Thus, while the TIDES are not included in liabilities for financial reporting
purposes and instead appear in the consolidated balance sheet between
liabilities and stockholders' equity, they represent obligations of the Company.
The Company also has a European credit facility of approximately $4.5 million,
of which approximately $1.2 million was outstanding in issued bank guarantees to
customers as of December 29, 2002.
BACKLOG
The Company's backlog is based upon customer purchase orders that the Company
believes are firm. Backlog by segment for the current and prior year period are
as follows:
Backlog as of:
----------------------------------
December 29, December 23,
2002 2001
------------ ------------
Material Processing $ 50.9 $ 54.0
Precision Assembly 13.1 25.4
Packaging Systems 13.6 16.8
Assembly and Test 46.9 55.2
------------ ------------
$ 124.5 $ 151.4
============ ============
The level of backlog at any particular time is not necessarily indicative of our
future operating performance for any particular reporting period because we may
not be able to recognize as sales the orders in our backlog when expected or at
all due to various contingencies, many of which are beyond our control. For
example, many purchase orders are subject to cancellation by the customer upon
notification. Certain orders are also subject to delays in completion and
shipment at the request of the customer. However, our contracts normally provide
for cancellation and/or delay charges that require the customer to reimburse us
for costs actually incurred and a portion of the quoted profit margin on the
project. We believe most of the orders in our backlog as of December 29, 2002
will be recognized as sales during fiscal 2003.
We have generated a substantial portion of our net sales from a relatively small
number of customers. Our purchase orders typically have a duration of less than
12 months, and, therefore, we do not generally have a multi-year commitment from
our significant customers to continue their current level of work with us in the
future. The loss of, or reduced orders for products from, one or more of our
significant customers could have a material adverse effect on our future
operating results if we cannot replace the net sales from purchase orders for
those significant customers that are completed or reduced in a given period with
additional purchase orders from these or other current or future customers. In
addition, a delay in purchase orders from, or completion of projects for, one or
more of our significant customers, could have a material adverse impact on our
operating results in a particular quarterly period. Our top ten customers for
the six months ended December 29, 2002 accounted for $77.4 million, or 58.8% of
total sales. The backlog of orders with those ten customers at December 29, 2002
was $70.7 million, most of which we expect to recognize in the remainder of
fiscal 2003.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 27
OUTLOOK
The weak economy continues to make forecasting extremely challenging. The
Company continues to actively bid numerous projects across all of its product
lines. However, customers are still postponing buying decisions, which is having
a negative impact on the new business pipeline. The Company did introduce four
new products during the first six months of fiscal 2003 as discussed in the
Company's Quarterly Report on Form 10-Q for the first quarter of fiscal 2003.
The Company expects these new products to provide a competitive edge in the
future and to start generating revenues in the fourth quarter of fiscal 2003.
Due to the Company's current fixed manufacturing costs, acceptable levels of
gross profit margins cannot be attained until the Company's backlog returns to a
sustainable level of at least $150 million and all of those orders are
recognized as sales. The Company is continuing its cost cutting strategy to
lower its break even level to its current revenue levels ($60 to $65 million per
quarter). Several actions have already been taken which the Company expects to
provide savings in the last half of fiscal year 2003. One such action was the
Company's announcement to its domestic employees that it will be suspending all
Company contributions to the 401(K) plan until further notice. This is expected
to provide savings of $0.7 million per quarter. Other cost cutting actions are
being considered by the Company.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
In general, the Company's business is not subject to seasonal variations in
demand for its products. However, because orders for certain of the Company's
products can be several million dollars, a relatively limited number of orders
can constitute a meaningful percentage of the Company's revenue in any one
quarterly period. As a result, a relatively small reduction or delay in the
number of orders can have a material impact on the timing of recognition of the
Company's revenues. Certain of the Company's revenues are derived from fixed
price contracts. To the extent that original cost estimates prove to be
inaccurate, profitability from a particular contract may be adversely affected.
Gross margins may vary between comparable periods as a result of the variations
in profitability of contracts for large orders of special machines as well as
product mix between the various types of custom and proprietary equipment
manufactured by the Company. Accordingly, results of operations of the Company
for any particular quarter are not necessarily indicative of results that may be
expected for any subsequent quarter or related fiscal year.
FOREIGN OPERATIONS
Our primary foreign operations are conducted through subsidiaries in the United
Kingdom and Germany. Our Canadian subsidiary was closed in August 2002. The
functional currencies of these subsidiaries are the currencies native to the
specific country in which the subsidiary is located.
SUMMARY DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS
See the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2002. There were no significant updates to the disclosure other than the
prepayment in full on August 1, 2002 of the Industrial Revenue Bonds and as a
result of covenant defaults under its senior credit facility, the Company is
required to classify the long-term portion of its senior credit facility as
current.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes DTI's exposures to market risk during the
six months ended December 29, 2002 that would require an update to the
disclosures provided in DTI's Form 10-K for the fiscal year ended June 30, 2002.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's periodic
reports is recorded, processed, summarized and reported on a timely and accurate
basis, and that such information is accumulated and communicated to the
Company's management, including its President and Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. Management necessarily applied its judgment in assessing
the costs and benefits of such controls and procedures which, by their nature,
can provide only reasonable assurance regarding management's control objectives.
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer along
with the Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon the foregoing, the Company's President and
Chief Executive Officer, along with the Company's Chief Financial Officer,
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company (including
its consolidated subsidiaries) required to be included in the Company's Exchange
Act reports. As the Company completes its integration into 11 operating
facilities in the United Kingdom, Germany and in five states in the United
States, it will need to continue to upgrade and modify its financial,
information and management systems and controls to ensure uniform compliance
with corporate procedures and policies and accurate and timely reporting of
financial data and required Company disclosure. There have been no significant
changes in the Company's internal controls or in other factors which could
significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
DT INDUSTRIES, INC.
PART II. OTHER INFORMATION
PAGE 29
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in legal and regulatory proceedings, as described in
"Part 1, Item 3. Legal Proceedings" of the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 2002.
Since the disclosure in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 2002, there have been no material developments in previously
reported legal and regulatory proceedings.
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. Although the ultimate disposition of such
proceedings is not presently determinable, management does not believe that the
ultimate resolution of these matters will have a material adverse effect on the
Company's financial condition, results of operations or cash flows. The Company
maintains comprehensive general liability insurance that it believes to be
adequate for the continued operation of its business.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources", above for a discussion of current
covenant defaults under the Company's bank credit facility.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 7, 2002, the Annual Meeting of the Stockholders of DTI was held, at
which the election of directors was voted upon. Each of the following nominees
received the number of votes set forth opposite his name:
FOR WITHHELD
---------- -----------
Class III William H.T. Bush 12,137,111 1,415,912
(term expires 2005) Charles A. Dill 12,137,111 1,415,912
Robert C. Lannert 13,369,311 183,712
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
On November 12, 2002, a Current Report on Form 8-K was filed to
report, pursuant to Items 5 and 7 thereof, the release of the
Company's earnings for the three months ended September 29, 2002.
On December 5, 2002, the Company filed a Current Report on Form 8-K
pursuant to Item 5 thereof, containing audited consolidated
financial statements for the fiscal years ended June 25, 2000, June
24, 2001 and June 30, 2002 and as of June 24, 2001 and June 30,
2002, to reflect in Notes 10 and 15 thereof the reclassification of
all comparable prior period segment information resulting from the
Company's change in segment reporting from two segments to four
segments.
DT INDUSTRIES, INC.
PART II. OTHER INFORMATION
PAGE 30
On December 16, 2002, a Current Report on Form 8-K was filed to
report, pursuant to Items 5 and 7 thereof, that the Company will
close its Erie, Pennsylvania facility and combine it with its
Buffalo Grove, Illinois facility.
On December 27, 2002, the Company filed, on Form 8-K/A, an amendment
to its Current Report on Form 8-K dated December 5, 2002 to include
therein the reclassification of the "Segment Financial Data",
"Results of Operations", "Backlog" and "Customers" sections
contained in Part II, Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations, of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2002.
DT INDUSTRIES, INC.
SIGNATURES
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.
DT INDUSTRIES, INC.
Date: February 12, 2003 /s/ John M. Casper
-----------------------------------------
(Signature)
John M. Casper
Senior Vice President, Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
CERTIFICATION PURSUANT TO
THE SARBANES-OXLEY ACT OF 2002
I, Stephen J. Perkins, certify that:
1. I have reviewed this quarterly report on Form 10-Q of DT Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 12, 2003 /s/ Stephen J. Perkins
-------------------------------------
(Signature)
Stephen J. Perkins
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
THE SARBANES-OXLEY ACT OF 2002
I, John M. Casper, certify that:
1. I have reviewed this quarterly report on Form 10-Q of DT Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 12, 2003 /s/ John M. Casper
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(Signature)
John M. Casper
Senior Vice President - Finance and
Chief Financial Officer