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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-23400
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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 45407
DAYTON, OH (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(937) 586-5600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
Series A Cumulative Preferred Stock, par value $.01 per share
Preferred Stock Purchase Rights
(Title of each class)
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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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
As of September 3, 2002, the aggregate market value of the voting common
stock held by non-affiliates of the registrant was $78,776,589 (based on the
closing sales price, on such date, of $3.39 per share).
As of September 3, 2002, there were 23,647,932 shares of common stock, $.01 par
value, outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
None.
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DT INDUSTRIES, INC.
INDEX TO FORM 10-K
PAGE
----
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS............................ iii
PART I.......................................................................... 1
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Securities Holders....... 16
PART II......................................................................... 17
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 17
Item 6. Selected Financial Data..................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 36
Item 8. Financial Statements and Supplementary Data................. 36
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 36
PART III........................................................................ 37
Item 10. Directors and Executive Officers of the Registrant.......... 37
Item 11. Executive Compensation...................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.................. 44
Item 13. Certain Relationships and Related Transactions.............. 47
PART IV......................................................................... 48
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 48
SIGNATURES...................................................................... 49
CERTIFICATIONS.................................................................. 50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................................... F-1
ii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained in this Annual Report, including, without
limitation, the information appearing under the captions "Business," "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 that 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 "opportunities", "growth potential", "objectives", "goals", "will",
"anticipate", "believe", "intend", "estimate", "expect", "should", 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, 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
"Business -- Risks Related to Our Business" for a description of these and other
risks, uncertainties and factors.
You should not place undue reliance on any forward-looking statements.
Except as 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.
iii
PART I
ITEM 1. BUSINESS
GENERAL
DT Industries, Inc. is an engineering-driven designer, manufacturer and
integrator of automated production equipment and systems used to manufacture,
test or package a variety of industrial and consumer products. Our business
strategy is to develop, market and provide complementary technologies and
capabilities to supply customers with integrated processing, assembly, testing
and packaging systems for their products.
We are a Delaware corporation organized in January 1993 and the successor
to Peer Corporation, Detroit Tool Group, Inc. ("DTG") and Detroit Tool and
Engineering Company ("DTE"). Peer Corporation was organized in June 1992 to
acquire the Peer Division of Teledyne, Inc. and the stock of DTG, the sole
stockholder of DTE and Detroit Tool Metal Products Co. As used in this Annual
Report, unless the context indicates otherwise, the terms "we," "us," "our" and
"DTI" refer to DT Industries, Inc. and its consolidated subsidiaries.
Our principal executive offices are located at 907 West Fifth Street,
Dayton, Ohio 45407, and our telephone number is (937) 586-5600. Our website is
located at http://www.dtindustries.com. Information contained on our website is
not a part of this Annual Report.
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 estimated 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, a small facility located in Erie,
Pennsylvania that has historically been part of our Automation segment. 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 audited consolidated financial statements
as of, and for the fiscal year ended, June 24, 2001 and our restated audited
consolidated statement of operations, changes in stockholders' equity and cash
flows for the year ended June 25, 2000 are included on pages F-3 through F-6 and
Note 16 to the audited consolidated financial statements included herein.
Restated selected consolidated financial data for those two fiscal years, as
well as the fiscal year ended June 27, 1999, is included under "Item 6. Selected
Financial Data." Restated unaudited consolidated quarterly financial data for
the fiscal years ended June 30, 2002 and June 24, 2001 is included in Note 17 to
the audited consolidated financial statements included herein.
We discovered the accounting adjustments while beginning the transfer of
the sales and accounting functions at AMI to our DT Precision Assembly segment
headquarters in Buffalo Grove, Illinois in connection with the reorganization of
our operations described below. 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 subsidiaries. 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
1
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.
BUSINESS SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND INTERNATIONAL SALES
Through the end of fiscal 2002, we primarily operated in two business
segments -- Automation and Packaging. The Automation segment accounted for
approximately 80%, 75% and 65% of our consolidated net sales for fiscal years
2002, 2001 and 2000, respectively, and the Packaging segment accounted for
approximately 20%, 17% and 27% of our consolidated net sales for fiscal years
2002, 2001 and 2000, respectively. Our non-core businesses, which we sold in
fiscal 2002, accounted for approximately 8% of our consolidated net sales in
each of fiscal 2001 and fiscal 2000. Our principal foreign operations consist of
manufacturing, sales and service operations in the United Kingdom and Germany.
Our Canadian subsidiary was closed in fiscal 2002. Sales from our foreign
operations were approximately 18% of our consolidated net sales for fiscal 2002,
14% of our consolidated net sales for fiscal 2001 and 19% of our consolidated
net sales for fiscal 2000. Sales to customers outside of the United States were
approximately 45% of our consolidated net sales for fiscal 2002, 37% of our
consolidated net sales in fiscal 2001 and 28% of our consolidated net sales in
fiscal 2000. For certain other financial information concerning our business
segments, foreign and domestic operations and international sales, see Note 15
to the audited consolidated financial statements included herein.
We announced in March 2002 that we are reorganizing our operations into
four business segments: Material Processing, Precision Assembly, Assembly and
Test and Packaging Systems. This new structure is designed to allow us to
streamline product offerings, capitalize on the combined strength of operating
units, reduce overlap in the marketplace and improve capacity utilization,
internal controls, financial reporting and disclosure controls. We are still
implementing this integration plan and completing the systems required to
provide, analyze, review and report results of operations for current and
historical periods for our newly-defined segments. We intend to begin reporting
financial results for these four new business segments in our Form 10-Q for the
fiscal quarter ended September 29, 2002. The four new business segments are
described below under "-- Markets and Products."
BUSINESS STRATEGY
Our long-term business strategy is to develop, market and provide
complementary technologies and capabilities to supply customers with integrated
assembly, testing and packaging systems for their products. Our goal is to
become the premier provider of engineered solutions for the markets we serve. We
expect to achieve this goal by designing and delivering on-time, innovative
solutions that meet or exceed our customers' expectations while continuously
improving quality, service and cost. Key elements of our strategy include the
following:
Operational Improvements. We are focused on improving operational
performance through greater use of risk assessment techniques, higher quality
and more detailed project proposals, a strengthening of the skill set in
applications, engineering and project management, and an increased focus on
working capital management. Management is also developing a more positive work
environment that emphasizes continuous operational improvement throughout the
organization. For example, management and employees are being evaluated on the
basis of the improvement of identified financial and operational benchmarks,
such as return on assets managed and operating cash flow.
Cost Reductions. We have continued to pursue cost reduction measures
throughout our businesses with a goal of lowering or maintaining the current
level of selling, general and administrative expenses, lowering indirect
manufacturing expenses and increasing profitability.
Leverage Engineering and Manufacturing Capabilities. We intend to utilize
our versatile engineering expertise to satisfy the growing demand for small,
medium and large complex, integrated automation solutions. We also intend to
utilize our manufacturing capacity and engineering capabilities fully by
directing work to facilities with specific capabilities and manufacturing
strengths to best meet our customers' needs.
2
Product Line and Customer Base Expansion. We are focused on providing
customers with integrated solutions and systems rather than single use
equipment. We are also using our engineering expertise and manufacturing
capability to develop new products and technologies for markets we currently
serve and to enter into new markets. As we continue to integrate operations and
develop existing product lines, we expect to expand our product offerings and
customer base. We anticipate renewed growth as a result of new opportunities
created through the expansion of our product offerings and customer base.
MARKETS AND PRODUCTS
The following disclosure describes the markets and products of the four
business segments into which we are in the process of reorganizing. Through the
end of fiscal 2002, we operated in the Automation and Packaging segments. The
Automation segment consisted of the markets and products of the new DT Precision
Assembly and DT Assembly and Test segments and the Detroit Tool and Engineering
("DTE") division of the new DT Material Processing segment. The Packaging
segment consisted of the markets and products of the new DT Packaging Systems
segment and the DT Converting Technologies division of the new DT Material
Processing segment.
DT MATERIAL PROCESSING SEGMENT. The DT Material Processing segment
manufactures special machines, automated systems, tooling and fixturing, the
Peer(TM) brand of automated welding equipment, high-speed rotary presses and
plastic processing machines and equipment for a wide variety of products, such
as appliances, electronics, building construction, hardware, cosmetics, food and
beverage, toys and automotive accessories. The DT Material Processing segment is
comprised of the DTE and DT Converting Technologies divisions.
DTE manufactures special automation assembly and processing equipment for a
wide variety of applications, precision tooling and dies, and welding systems.
DTE's special automation equipment incorporates engineering capabilities ranging
from refining and replicating existing equipment to designing and building new
equipment. DTE's special automation equipment typically handles part envelopes
cubes of three inches and larger, with cycle times of three to 30 parts per
minute. DTE provides systems integration and implements a wide range of
applications, including dials, power and free, synchronous, indexing processes,
metal forming, welding and robotics.
DTE possesses considerable expertise in the design, engineering and
production of precision tools and dies, including cam dies, progressive dies,
large single-hit dies and contoured form dies. In addition, personnel trained as
tool and die makers often apply their skill to the manufacture of production
machines.
DTE also manufactures and sells a line of standard resistance welding
equipment, as well as special automated welding systems, designed and built for
specific applications. Marketed under the brand name Peer(TM), these products
are used in the automotive, appliance and electrical industries to fabricate and
assemble components and subassemblies. Our resistance welding equipment is also
used in the manufacture of file cabinets, school and athletic lockers, store
display shelves, metal furniture and material storage products.
DT Converting Technologies manufactures high-speed rotary presses and
plastic processing machines and equipment. We design and manufacture rotary
presses used by customers in the airbag, candy, food supplement, ceramic,
ordnance, specialty chemical, and pharmaceutical industries to produce tablets.
Marketed under the brand name Stokes(TM), our line of rotary presses includes
machines capable of producing 17,000 tablets per minute and other machines
capable of applying up to 40 tons of pressure. Products produced on our rotary
presses include candy, breath mints, vitamins and inflation pellets for
automotive airbags.
The plastic processing equipment we manufacture includes thermoformers,
blister packaging systems and laboratory machines. A thermoformer heats plastic
material and uses pressure and/or a vacuum to mold it into a product. Marketed
under the brand names Sencorp(R) and Armac(TM), our thermoformers are used by
customers in North America, Europe and Asia to form a variety of products,
including specialized cups, plates and food containers, trays for food and
medical products and other plastics applications. Our thermoformers are sold
primarily to custom formers who use the machines to create thermoformed items
that are sold to a
3
variety of end users. We also sell thermoformers directly to end users,
including large producers of electrical and healthcare products, cosmetics,
hardware, and other consumer products.
Blister packaging is a common method of displaying consumer products for
sale in hardware stores, convenience stores, warehouse stores, drug stores and
similar retail outlets. Batteries, cosmetics, hardware items, electrical
components, razor blades and toys are among the wide variety of products sold in
a clear plastic blister or two-sided package. We design and manufacture
machinery, marketed under the brand names Sencorp(R) and Armac(TM), that
performs blister packaging by heat-sealing a clear plastic bubble, or blister,
onto coated paperboard, or by sealing two-sided packages using heat or microwave
technology. Our blister packaging systems are primarily sold to manufacturers of
the end products. We also produce a line of small scale blister sealers and a
line of tablet pressing equipment used to test new materials and techniques, for
quality control, laboratory or other small run uses. In addition, we sell parts
and accessories for our proprietary machines and design and build special tools
and dies used in custom applications of our thermoforming systems and rotary
presses.
DT PRECISION ASSEMBLY SEGMENT. The DT Precision Assembly segment designs,
manufactures and integrates custom precision assembly systems, primarily for
customers in the medical, electronics, consumer, bioscience and automotive
markets. Integrated systems combine a wide variety of manufacturing technologies
into a complete automated manufacturing system. Utilizing advanced computers,
robotics, vision systems and other technologies, we provide a variety of
capabilities, including systems integration, medium/high speed indexing,
synchronous assembly, flexible/reconfigurable assembly, high speed precision
assembly and cell control/data collection. We offer this variety of integrated
systems for small or large and custom or standard applications. The standardized
automation applications utilize various machine platforms and proprietary
modular building blocks in carousel, in-line, rotary and robotic assembly
systems, all of which facilitate time-sensitive, concurrent engineering projects
where changes in tooling and processes can occur in an advanced stage of system
design.
DT ASSEMBLY AND TEST SEGMENT. The DT Assembly and Test segment designs and
builds custom non-synchronous assembly systems, rotary dial assembly systems,
electrified monorail material handling systems, fuel injection, engine and
transmission test systems, and lean assembly systems primarily for customers in
automotive-related and heavy equipment markets.
Our custom machine building capabilities include engineering, project
management, machining and fabrication of components, installation of electrical
controls, final assembly and testing. A customer will usually approach us with a
manufacturing objective, and we will work with the customer to design, engineer,
assemble, test and install a machine to meet the objective. The customer often
retains rights to the design after delivery of the machine because the purchase
contract typically includes the design of the machine; however, we often reapply
the engineering and manufacturing expertise gained in designing and building the
machine in projects for other customers.
We build an automated electrified monorail product offered in various
capacity ranges from lightweight systems to systems transporting products
weighing up to 8,800 pounds. This product can be applied to a variety of
material handling applications ranging from delivery systems for the food
industry to manufacturing processes involving manual and automation interfaces
for engine assembly and testing. The benefits of this product include providing
a clean, quiet, controlled transport with the flexibility to operate in a
variety of processes and production rates.
DT PACKAGING SYSTEMS SEGMENT. The DT Packaging Systems segment designs and
builds proprietary machines and integrated systems utilized for packaging,
liquid filling or tube filling applications that are marketed under individual
brand names and manufactured for specific industrial applications using designs
we own or license. Although these machines are generally cataloged as specific
models, they are usually modified for specific customer requirements and often
combined with other machines into integrated systems. Many customers also
request additional accessories and features that typically generate higher
revenues and enhanced profit opportunities. The equipment we manufacture
includes bottle unscramblers, electronic and slat tablet counters, liquid
fillers, cottoners, cappers and labelers, collators and cartoners, all of which
can be sold as an integrated system or individual units. These machines are
marketed under the brand names of
4
Kalish(TM), Lakso(R), Merrill(R), and Swiftpack(TM) and are primarily provided
to customers in the pharmaceutical, nutritional, food, cosmetic, toy and
chemical industries. We believe this equipment maintains a strong reputation
among our customers for quality, reliability and ease of operation and
maintenance. We also sell replacement parts and accessories for our substantial
installed base of machines.
We benefit from a substantial installed base of Lakso(R) and Merrill(R)
slat counters in the aftermarket sale of slats. Slat counting machines use a set
of slats to meter the number of tablets or capsules to be inserted into bottles.
Each size or shape of tablet or capsule requires a different set of slats. In
addition, the practice in the pharmaceutical industry is to use a different set
of slats for each product, even if the tablets are the same size.
NON-CORE BUSINESSES. During fiscal 2002, we sold the assets used to
produce precision-stamped steel and aluminum components through stamping and
fabrication operations for the heavy trucking, agricultural equipment,
appliance, and electrical industries. These assets comprised our non-core
businesses in fiscal 2001 and fiscal 2000.
MARKETING AND DISTRIBUTION
Our machines and systems are sold primarily through our direct sales force.
We have sales and service offices in the United States, England and Germany.
Sales of machines and integrated systems require our sales personnel to have a
high degree of technical expertise and extensive knowledge of the industry
served. Our sales force consists of specialists in each primary market in which
our machines and systems are sold. Each division has a sales force experienced
in the marketing of the equipment and systems historically produced by its
business. We believe that integration of proprietary technology and custom
equipment into total production automation systems for selected industries
provides us with expanded sales opportunities. Our machines and systems are also
sold throughout the world to a lesser extent by manufacturers' representatives
and sales agents.
RAW MATERIALS
The principal raw materials and components used in the manufacturing of our
machines and systems include carbon steel, stainless steel, aluminum, electronic
components, pumps and compressors, programmable logic controls, hydraulic
components, conveyor systems, visual and mechanical sensors, precision bearings
and lasers. We are not dependent upon any one supplier for raw materials or
components used in the manufacture of machines and systems. Certain customers
specify sole source suppliers for components of custom machines or systems. We
believe there are adequate alternative sources of raw materials and components
of sufficient quantity and quality.
CUSTOMERS
The majority of our sales are attributable to repeat customers, some of
which have been our customers (including our acquired businesses) for over
twenty years. We believe this repeat business is indicative of our engineering
capabilities, the quality of our products and overall customer satisfaction. We
have historically generated a substantial portion of our net sales from a
relatively small number of customers. For example, Hewlett-Packard Company
accounted for approximately 31% and 28% of our consolidated net sales during
fiscal 2002 and fiscal 2001, respectively, and approximately 38% and 37% of our
Automation segment's net sales during fiscal 2002 and fiscal 2001, respectively.
No other customer accounted for 10% or more of our consolidated net sales or of
our Automation or Packaging segment's net sales during fiscal 2002.
BACKLOG
Our backlog is based upon customer purchase orders we believe are firm. As
of June 30, 2002, we had $142.8 million of orders in backlog, which compares to
a backlog of approximately $217.6 million as of June 24, 2001.
Automation segment backlog was $119.8 million as of June 30, 2002, a
decrease of $65.0 million, or 35.2%, from the prior year. The decrease in
backlog reflects the high backlog of orders of automation systems
5
at June 24, 2001 for a key customer in the electronics market. We have not been
able to replace this work because the soft economy has adversely affected
capital spending in most of our other markets. The lower backlog also reflects
some trends in the industry, including shorter lead times and the placement of
smaller customer orders. Backlog for the Packaging segment decreased $3.6
million, or 13.6%, to $23.0 million primarily due to softness across several
packaging product lines.
The level of backlog at any particular time is not necessarily indicative
of our future operating performance for any particular report 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 quoted profit margin on the
project. We believe most of the orders in our backlog as of June 30, 2002 will
be recognized as sales during fiscal 2003.
COMPETITION
The market for our machines and systems is highly competitive, with a large
number of companies advertising the sale of production machines. However, the
market for machinery and systems is fragmented and characterized by a number of
industry niches in which few manufacturers compete. Our competitors vary in size
and resources; most are smaller privately-held companies or subsidiaries of
larger companies, some of which are larger than us, and none of which compete
with us in all product lines. In addition, we may encounter competition from new
market entrants. We believe that the principal competitive factors in the sale
of our equipment and systems are quality, technology, on-time delivery, price
and service. We believe that we compete favorably with respect to each of these
factors.
ENGINEERING; RESEARCH AND DEVELOPMENT
We maintain engineering departments at all of our manufacturing locations.
In addition to design work relating to specific customer projects, our engineers
develop new products and product improvements designed to address the needs of
our target market niches and to enhance the reliability, efficiency, ease of
operation and safety of our proprietary machines. We incurred research and
development costs of approximately $3.4 million, $2.8 million and $4.9 million
in fiscal 2002, 2001 and 2000, respectively. We expect our research and
development costs to increase in fiscal 2003.
INTELLECTUAL PROPERTY RIGHTS
We use a combination of trade secrets, trademarks, patents, employee and
third party nondisclosure agreements, copyright laws and contractual rights to
establish and protect proprietary rights in our technology, manufacturing
process and products. In the United States, we own and maintain the registered
trademarks ATT(R), AMI 1(R), AMI 2(R), AssemblyFlex(R), Cord-Lock(R),
Fabspec(R), Fillit(R), Force-Flo Feeder(R), Lakso(R), Merrill(R), Micro-Scan(R),
Mid-West(R), Mid-West Automation(R), MWA(R) and design, Oscar(R) and design,
Pacer(R), Pharmaveyor(R), Reformer(R), Sencorp(R), Slat-Scan(R), TMC(R),
Vali-Tab(R) and Versa-Press(R). We also own and maintain registrations for our
trademarks in countries where the applicable products are sold and such
registrations are considered necessary to preserve our proprietary rights
therein. We also have the rights to use the unregistered trademarks AMI(TM),
Armac(TM), F.A.S.T.(TM), Hartridge(TM), Kalish(TM), Peer(TM), Stokes(TM) and
Swiftpack(TM). All of the trademarks listed above are used in connection with
the marketing of our machines and systems.
We apply for and maintain United States and foreign patents when we believe
they are necessary to maintain our interest in inventions, designs and
improvements. We do not believe that any single patent or group of patents is
material to our business, nor do we believe that the expiration of any one or a
group of our patents would have a material adverse effect upon our business or
ability to compete in our business. We believe that our existing patent and
trademark protection, however, provides us with a modest competitive advantage
in the marketing and sale of our proprietary products.
6
ENVIRONMENTAL AND SAFETY REGULATION
We are subject to environmental laws and regulations that impose
limitations on the discharge of pollutants into the environment and establish
standards for the treatment, storage and disposal of toxic and hazardous wastes.
We are also subject to the federal Occupational Safety and Health Act and state
safety and health statutes. Costs of compliance with environmental, health and
safety requirements have not been material to date, and we believe we are in
material compliance with all such applicable laws and regulations.
EMPLOYEES
As of June 30, 2002, we had approximately 1,700 employees. None of our
employees are covered under collective bargaining agreements. We consider our
relations with employees to be good.
RISKS RELATED TO OUR BUSINESS
The following risks, uncertainties and other factors could have a material
adverse affect on our business, financial condition, operating results and
growth prospects.
OUR INDEBTEDNESS AND OBLIGATIONS UNDER THE PREFERRED SECURITIES OF OUR
WHOLLY-OWNED SUBSIDIARY TRUST COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.
As of August 31, 2002, our total indebtedness, plus our obligations under
the preferred securities of our wholly-owned subsidiary trust (the sole asset of
which is our junior subordinated debentures), was approximately $79.3 million.
We expect to incur additional indebtedness in the future to fund our operations
and capital expenditures. Our indebtedness and obligations under the trust
preferred securities could adversely affect our financial health by:
- limiting our ability to obtain additional financing that we may need to
operate and develop our business;
- requiring us to dedicate or reserve a substantial portion of our cash
flow from operations to service our debt and other obligations, which
reduces the funds available for operations and future business
opportunities;
- increasing our vulnerability to a downturn in general economic conditions
or other adverse events in our business;
- increasing our vulnerability to increases in interest rates because our
borrowings under our senior credit facility are at variable interest
rates; and
- making us more leveraged than certain competitors in our industry, which
could place us at a competitive disadvantage.
Our senior credit facility matures on July 2, 2004 and we have periodic
commitment reductions of $1.5 million per quarter commencing September 30, 2002
while the senior credit facility is outstanding. In addition, the preferred
securities of our wholly-owned subsidiary trust and our related junior
subordinated debentures are scheduled to mature on May 31, 2008 and, although
they may be deferred until such maturity date, we are obligated to make cash
distributions on these securities beginning on July 2, 2004 for at least one
quarter to qualify to defer subsequent distributions after the quarter ending
September 30, 2004. If the cash flow from our operating activities is
insufficient to meet our obligations under the senior credit facility and the
trust preferred securities, we may need to delay or reduce capital expenditures,
restructure or refinance our debt, sell assets or seek additional equity
capital. For example, if we had not consummated our financial recapitalization
transaction on June 20, 2002, whereby we extended the maturity of our senior
credit facility and used proceeds from a private placement of common stock to
repay outstanding indebtedness of approximately $18.5 million under our senior
credit facility, we would not have been able to make the approximately $48.8
million lump sum payment that would otherwise have been due on July 2, 2002. In
addition, the sale of assets for approximately $24.4 million in fiscal 2002,
coupled with the cash provided by operations of approximately $55.4 million in
fiscal 2002 that reflected our working capital management
7
program, enabled us to make scheduled reductions of approximately $58.5 million
and cash interest payments of approximately $9.0 million under our senior credit
facility in fiscal 2002. Delaying or reducing capital expenditures,
restructuring or refinancing our debt, selling assets and/or raising additional
equity capital, however, may not be sufficient to allow us to service our debt
and other obligations in the future. Further, we may be unable to take any of
these actions on satisfactory terms, in a timely manner, or at all. If we do not
have sufficient funds to satisfy our obligations under our senior credit
facility and the trust preferred securities, we may not be able to continue our
operations as currently anticipated.
THE COVENANTS AND RESTRICTIONS UNDER OUR SENIOR CREDIT FACILITY COULD LIMIT OUR
OPERATING AND FINANCIAL FLEXIBILITY.
Under the terms of our senior credit facility, we must maintain minimum
levels of EBITDA (earnings before interest, taxes, depreciation and
amortization) and quarterly net worth, not exceed annual capital expenditure
limitations and comply with various financial performance ratios. We may not be
able to comply with these covenants. For example, as a result of our financial
performance in fiscal 2002, we failed to satisfy the minimum trailing
twelve-month EBITDA and maximum funded debt to EBITDA financial covenants under
the facility. In connection with our recapitalization transaction completed on
June 20, 2002, we obtained waivers from our lenders for the failure to comply
with those covenants, and our lenders established new covenants commencing with
the first quarter of fiscal 2003. We also exceeded our capital expenditure
limitation under the facility for the fourth quarter of fiscal 2002. We obtained
a waiver from our lenders for our failure to comply with this provision. Any
other failure to comply with the covenants in our credit facility could trigger
an event of default that, if not waived or cured, would entitle our lenders to,
among other things, accelerate the maturity of the debt outstanding under our
senior credit facility so that it is immediately due and payable. In addition,
no further borrowings would be available under the revolving portion of our
senior credit facility. If our indebtedness is accelerated, we may not have
sufficient funds to satisfy our obligations and we may not be able to continue
our operations as currently anticipated.
In addition, our senior credit facility contains restrictive covenants that
could limit our ability to engage in transactions that we believe are in our
long-term best interest, including the following:
- certain types of mergers or consolidations;
- paying dividends or other distributions to our securityholders;
- making investments;
- selling or encumbering assets;
- changing lines of business;
- borrowing additional money; and
- engaging in transactions with affiliates.
These restrictions could limit our ability to react to changes in our operating
environment or take advantage of business opportunities.
OUR BORROWING BASE OF ASSETS MAY NOT BE SUFFICIENT TO PERMIT US TO BORROW
SUFFICIENT FUNDS UNDER OUR SENIOR CREDIT FACILITY TO OPERATE OUR BUSINESS.
All advances and letters of credit in excess of $53.0 million made under
the revolver portion of our senior credit facility and letters of credit are
subject to a monthly asset coverage test based on eligible accounts receivable
and eligible inventory. Under this test, we may not always have the ability to
borrow up to the amount by which the credit facility's commitment exceeds $53.0
million. Furthermore, our borrowing base of assets may not be sufficient in the
future to permit us to borrow sufficient funds to operate our business and meet
our capital resources needs, including as a result of our periodic commitment
reduction obligations under the credit facility being applied against our
borrowing base of assets.
8
WE REPORTED AN OPERATING LOSS FOR OUR 2001 AND 2002 FISCAL YEARS AND MAY NOT
ACHIEVE OR SUSTAIN PROFITABILITY IN THE NEAR FUTURE.
We reported a restated operating loss of approximately $66.8 million for
the fiscal year ended June 24, 2001 and an operating loss of approximately $1.8
million for the fiscal year ended June 30, 2002. We are implementing a plan to
restructure our business by consolidating manufacturing and fabrication
operations, establishing four business segments and reducing our workforce. We
are focused on improving operational performance through greater use of risk
assessment techniques, higher quality and more detailed project proposals, a
strengthening of the skill set in applications, engineering and project
management, and an increased focus on working capital management. To the extent
that our corporate restructuring and focus on operational improvements do not
generate the cost savings or net sales that we anticipate, we may continue to
incur losses and may not achieve profitability in the near future. Furthermore,
if we achieve profitability in the near future, we may not be able to sustain
it.
WE HAVE A NUMBER OF DIFFERENT OPERATING DIVISIONS AND MANUFACTURING FACILITIES
AND MAY HAVE DIFFICULTY ESTABLISHING EFFECTIVE INTERNAL AND DISCLOSURE CONTROLS
AND CONDUCTING OUR OPERATIONS ON AN INTEGRATED BASIS.
Upon completion of our corporate restructuring, we will have six operating
divisions with 12 manufacturing facilities within four business segments. Some
of our operating facilities have different systems, internal and disclosure
controls and procedures in various operational and financial areas that we are
in the process of rationalizing and integrating. We will need to continue to
upgrade and modify our 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.
This may be difficult because we have facilities in the United Kingdom, Germany
and six different states in the United States. If we are unable to fully
integrate our operations and improve our internal and disclosure controls
smoothly, quickly, successfully, or at all, we will not achieve the efficiency,
results and capabilities that the rationalization and consolidation of our
operations are designed to accomplish.
A DOWNTURN IN GENERAL ECONOMIC CONDITIONS AND THE ECONOMIC CONDITION OF THE
MARKETS THAT WE SERVE HAS MATERIALLY ADVERSELY AFFECTED, AND MAY FURTHER
MATERIALLY ADVERSELY AFFECT, OUR REVENUES.
Our revenues and results of operations are susceptible to negative trends
in the general economy and the markets that we serve that affect capital
spending. For example, the slowing of the U.S. economy and the effects of the
events of September 11, 2001 have resulted in restrained customer capital
spending, which has adversely affected sales of our equipment to the
pharmaceutical and nutritional, plastics packaging, automotive, heavy trucks and
other industries. A prolonged economic slowdown or continued economic
uncertainty could cause our customers to further reduce or delay orders for our
products or delay payment for our delivered products. If this occurs, our
revenues and cash flows could be further materially adversely affected.
WE MAY NOT RECOGNIZE AS SALES A MATERIAL AMOUNT OF THE ORDERS IN OUR BACKLOG,
WHICH WOULD MATERIALLY HARM OUR BUSINESS.
Our backlog was $142.8 million as of June 30, 2002. Our backlog is based
upon customer purchase orders that we believe are firm. The level of our backlog
at any current time, however, 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 of our purchase orders are subject to cancellation by the customer upon
notification and certain purchase orders are subject to delays in completion and
shipment at the request of the customer. Although we have historically
recognized as sales almost all of the orders in our backlog, our ability to
recognize as sales in fiscal 2003 the orders in our backlog as of June 30, 2002
could be adversely affected if a continued downturn or continued uncertainty in
the economic condition of the markets we serve causes our customers in those
markets to cancel purchase orders due to poor demand for their products and
their need to restrain capital spending. If we fail to recognize a material
amount of our backlog, our net sales would be materially harmed.
9
OUR OVERALL PERFORMANCE AND QUARTERLY OPERATING RESULTS MAY FLUCTUATE
SIGNIFICANTLY AND COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
Our net sales and results of operations have varied significantly from
quarter to quarter. We expect large fluctuations in our future quarterly
operating results due to a number of factors, including:
- the level of product and price competition;
- the length of our sales cycle and manufacturing processes;
- the size and timing of individual projects;
- the timing of satisfying milestones in order to recognize revenue for
percentage of completion projects;
- the mix of customized projects, which tend to have lower gross margins
due to the difficulty in estimating the cost and pricing of less proven
concepts, and repeat and standard projects, which tend to have higher
margins, due to experience in estimating the cost and price of proven
concepts;
- the size and timing of significant pre-tax charges, including for
goodwill impairment, the write-down of assets, such as for excess and
obsolete inventories and doubtful account receivables, warranty-related
costs and restructuring charges, such as costs for severance, idle
facilities and personnel relocation;
- defects and other product quality problems;
- the timing of new product introductions and enhancements by us and our
competitors;
- customers' fiscal constraints and related demand for our equipment and
systems;
- changes in foreign currency exchange rates, including for the Euro and
the British Pound; and
- general economic conditions.
As a result of these and other factors, many of which are beyond our control,
our results of operations for any particular quarter are not necessarily
indicative of results that may be expected for any subsequent quarter or related
fiscal year. These fluctuations in our quarterly results could cause our
quarterly earnings to fall below market expectations, which in turn could
adversely affect the market price of our common stock.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE FAIL TO ACCURATELY ESTIMATE THE
MATERIAL AND LABOR COSTS OR DURATION OF A PROJECT OR FAIL TO COMMUNICATE CHANGES
TO THESE SPECIFICATIONS TO OUR CUSTOMERS.
We derive almost all of our net sales from the sale and installation of
equipment and systems pursuant to fixed-price contracts. Because of the
complexity or customized nature of many of our projects, accurately estimating
the material and labor costs of a particular project can be a difficult task. If
we fail to accurately estimate the costs of projects during the bidding process,
we could be forced to devote additional materials and labor hours to these
projects for which we will not receive additional compensation. To the extent
that an expenditure of additional resources is required on a project, this could
reduce the profitability of, or result in a loss on, the project. In the past,
we have, on occasion, engaged in significant negotiations with customers
regarding changes to the costs or duration of specific projects. To the extent
we do not sufficiently communicate to our customers, or our customers fail to
adequately appreciate, the nature and extent of any of these changes to a
project, our reputation may be harmed and we may suffer losses on the project.
In addition, many contracts are subject to certain completion schedule
requirements with liquidated damages in the event schedules are not met as the
result of circumstances that are within our control. Our business could be
materially adversely affected if we incur significant liquidated damages due to
not satisfying projects' schedules.
10
THE LOSS OF, OR REDUCED PURCHASE ORDERS FROM, A KEY CUSTOMER COULD MATERIALLY
ADVERSELY AFFECT OUR OPERATING RESULTS BECAUSE WE DEPEND ON A RELATIVELY LIMITED
NUMBER OF CUSTOMERS FOR A LARGE PORTION OF OUR NET SALES.
We have historically generated a substantial portion of our net sales from
a relatively small number of customers. For example, Hewlett-Packard Company
accounted for approximately 31% and 28% of our consolidated net sales during
fiscal 2002 and fiscal 2001, respectively. The loss of, or reduced orders for
products from, one or more of our significant customers, including
Hewlett-Packard, could have a material adverse impact on our future operating
results. In addition, a delay in purchase orders from, or completion of projects
for, one or more of our significant customers, including Hewlett-Packard, could
have a material adverse impact on our operating results in a particular
quarterly period. Our reliance on a limited number of customers also magnifies
the risks of not being able to collect accounts receivable from any one
customer.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE EXPERIENCE EXCESS PRODUCT
WARRANTY OR LIABILITY CLAIMS.
We are subject to warranty claims in the ordinary course of our business.
Although we maintain reserves for such claims, the warranty expense levels may
not remain at current levels or our reserves may not be adequate. A large number
of warranty claims exceeding our current warranty expense levels could
materially harm our business. In addition, we are subject to product liability
claims from time to time for various injuries alleged to have resulted from
defects in the manufacture and/or design of our products. Any resolution of
these claims in a manner adverse to us could have an adverse effect on our
business, financial condition and results of operations. These claims may also
be costly to defend against and may divert the attention of our management and
resources in general.
INTENSE COMPETITION IN OUR INDUSTRY COULD IMPAIR OUR ABILITY TO GROW AND ACHIEVE
PROFITABILITY.
The market for our automation and packaging machines and systems is highly
competitive. Our competitors vary in size and resources, some of which are
larger than we are and have access to greater resources than we do. As a result,
our competitors may be in a stronger position to respond more quickly to changes
in customer needs and may be able to devote more resources to the development,
marketing and sale of their products than we can. We may also encounter
competition from new market entrants. We may not be able to compete effectively
with current or future competitors, which could impair our ability to grow and
achieve profitability.
OUR FAILURE TO RETAIN KEY PERSONNEL MAY NEGATIVELY AFFECT OUR BUSINESS.
Our success depends on our ability to retain senior executives and other
key employees who are critical to our continued development and support of our
products, the management of our diverse operations and our ongoing sales and
marketing efforts. The loss of key personnel could cause disruptions in our
operations, the loss of existing customers, the loss of key information,
expertise and know-how, and unanticipated additional recruitment and training
costs. Furthermore, our amended senior credit facility provides that an event of
default will exist under the facility if any two of Stephen J. Perkins, our
President and Chief Executive Officer, John M. Casper, our Senior Vice
President -- Finance and Chief Financial Officer, and John F. Schott, our Chief
Operating Officer, are no longer employed by, and fulfilling their current
positions with, us, other than as a result of their death, disability or our
board of directors exercising its fiduciary duty. Thus, under these
circumstances, if we lose any two of these senior executives, our lenders could
accelerate the maturity of the debt outstanding under our senior credit facility
unless we obtain satisfactory replacement executives.
IF WE DECIDE TO SELL ANY OF OUR BUSINESSES OR DISCONTINUE ANY OF OUR OPERATIONS
AND DO NOT SUCCESSFULLY ADDRESS THE ASSOCIATED RISKS, OUR ABILITY TO COMPETE,
OPERATE EFFICIENTLY AND OTHERWISE REALIZE THE EXPECTED BENEFITS OF SUCH A
TRANSACTION MAY BE IMPAIRED.
In connection with our corporate integration plan and to generate cash to
help us meet our debt obligations, in fiscal 2002 we disposed of our Detroit
Tool Metal Products, Scheu & Kniss and Hansford Parts and Products businesses,
closed facilities in Montreal, Quebec, Rochester New York and Bristol,
Pennsylvania
11
and consolidated our Swiftpack and C.E. King operations. Although we currently
do not expect to sell any of our other businesses or discontinue any of our
other operations in the near future, we may decide to do so if we believe such
actions would further improve our operational efficiency, decide to change the
focus of our business strategy or need to generate cash. In the case of the
disposition of a business, we may not be able to identify buyers who are willing
to pay acceptable prices or agree to acceptable terms. For example, we pursued
the sale of our Stokes business in 2001, but were unable to consummate the
disposition due to adverse market conditions and instead closed the facility in
Bristol, Pennsylvania and combined Stokes' manufacturing operations with our DT
Converting Technologies facility in Hyannis, Massachusetts in 2002. The sale of
a business and discontinuing operations involve a number of special risks and
challenges, including:
- diversion of management's attention;
- expenses incurred to effect the transactions;
- difficulties in implementing a new business strategy with which we may
have little experience;
- employees' uncertainty about their role with the continuing operations of
the business and a lack of employee focus due to distractions of a
transaction;
- a reduction of recurring costs that may not exceed the reduction of
recurring revenues; and
- incurring substantial non-recurring charges, such as for severance, asset
write-offs and future facility lease costs, or a net loss on the disposal
of assets.
If we decide to sell any of our businesses or discontinue any of our operations
and do not successfully address the associated risks, our ability to compete,
operate efficiently and otherwise realize the expected benefits of such a
transaction may be impaired.
WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL AND EMPLOYEE SAFETY AND HEALTH
REGULATIONS, WHICH COULD SUBJECT US TO SIGNIFICANT LIABILITIES AND COMPLIANCE
EXPENDITURES.
We are subject to various federal, state and local environmental laws and
regulations concerning air emissions, wastewater discharges, storage tanks and
solid and hazardous waste disposal at our facilities. Our operations are also
subject to various employee safety and health laws and regulations, including
those concerning occupational injury and illness, employee exposure to hazardous
materials and employee complaints. Environmental and employee safety and health
regulations are comprehensive, complex and frequently changing. We may be
subject from time to time to administrative and/or judicial proceedings or
investigations brought by private parties or governmental agencies with respect
to environmental matters and employee safety and health issues. These
proceedings and investigations could result in substantial costs to us, divert
our management's attention and, if it is determined we are not in compliance
with applicable laws and regulations, result in significant liabilities, fines
or the suspension or interruption of our manufacturing activities. Future
events, such as changes in existing laws and regulations, new laws and
regulation or the discovery of conditions not currently known to us, could
create substantial compliance or remedial liabilities and costs.
WE INCURRED SIGNIFICANT PRE-TAX CHARGES RELATED TO GOODWILL IMPAIRMENT AND THE
WRITE-DOWN OF ASSETS DURING FISCAL 2001, AND IF WE INCUR SIMILAR SIGNIFICANT
CHARGES IN THE FUTURE OUR OPERATING RESULTS AND BORROWING BASE MAY BE MATERIALLY
ADVERSELY AFFECTED.
During fiscal 2001, we recorded an impairment charge of approximately $38.2
million after determining that the goodwill associated with five of our
divisions had been impaired and wrote down approximately $21.8 million of assets
primarily due to excess and obsolete inventory and accounts receivable
write-offs. As of June 30, 2002, our goodwill balance of approximately $125.5
million represented approximately 41% of our total assets. In July 2001, the
Financial Accounting Standards Board issued Statement No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142), which we early adopted in the first quarter
of fiscal 2002. SFAS 142 requires, among other things, the discontinuance of the
amortization of goodwill and the introduction of, at a minimum, annual
impairment testing in its place. In connection with such impairment testing in
the future, we may determine that the carrying value of our goodwill is
impaired. If we are required
12
to significantly write-down the carrying value of goodwill in accordance with
SFAS 142 in the future, or write-down significant assets in the future due to
unsalable inventory or difficulties in collecting accounts receivable, our
operating results may be materially adversely affected and the borrowing base
under our senior credit facility may be significantly reduced.
THE RESTATEMENTS OF OUR HISTORICAL FINANCIAL RESULTS DURING FISCAL 2002 AND
FISCAL 2000 HAVE ADVERSELY AFFECTED OUR MANAGEMENT'S ABILITY TO FOCUS ON
OPERATING THE COMPANY AND OUR REPUTATION AND RESULTED IN AN SEC INVESTIGATION;
ANY FURTHER RESTATEMENTS IN THE FUTURE COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR LIQUIDITY, ABILITY TO OPERATE AND COMMON STOCK PRICE AND RESULT IN MATERIAL
LIABILITIES.
As discussed in "Business -- Recent Restatement of Historical Financial
Results," we have restated 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. As discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview," in fiscal 2000, we were also required to restate our
audited consolidated financial results for the fiscal years 1997, 1998 and 1999,
as well as our unaudited consolidated financial results for the first three
quarters of fiscal 2000. The restatements were the result of improper accounting
entries made by controllers at three of our divisions. These restatements have
diverted management's attention from our ongoing operations, generated
significant accounting and legal expenses and harmed our reputation with
investors and possibly customers. In addition, the restatement in fiscal 2000
harmed our relationship with our lenders and led to a class action lawsuit that
has since been dismissed. As discussed in "Legal Proceedings," the Securities
and Exchange Commission (the "Commission") is currently conducting an
investigation into the accounting practices that led to these restatements. We
cannot predict the length or outcome of the investigation at this time.
Although we continue to improve our internal controls and accounting staff
at our divisions, we may experience accounting and financial reporting problems
at our subsidiaries in the future, which could have a material adverse impact on
our consolidated financial statements. If we are not able to hire competent,
trustworthy accounting staff at our divisions and continue to upgrade and modify
our internal controls so as to avoid these accounting issues and similar
restatements in the future, our access to our senior credit facility and ability
to obtain other financing, as well the price of our common stock and our ability
to maintain the listing of our common stock on the Nasdaq Stock Market, may be
materially adversely affected, we may face securities class action lawsuits and
the Commission may impose significant penalties against us.
HOLDERS OF OUR COMMON STOCK ARE SUBORDINATED TO THE HOLDERS OF PREFERRED
SECURITIES OF OUR WHOLLY-OWNED SUBSIDIARY TRUST AND WOULD BE DILUTED UPON
CONVERSION OF THE TRUST PREFERRED SECURITIES INTO COMMON STOCK.
Our wholly-owned subsidiary trust currently has issued and outstanding
$35.0 million of preferred securities. These trust preferred securities
represent undivided beneficial ownership interests in the trust, the sole assets
of which are a related aggregate principal amount of our junior subordinated
debentures. We have guaranteed the payment of distributions and payments on
liquidation of the trust or the redemption of the trust preferred securities.
Through this guarantee, our junior subordinated debentures, the debentures'
indenture and the trust's declaration of trust, taken together, we have fully,
irrevocably and unconditionally guaranteed all of the trust's obligations under
the trust preferred securities. Thus, while the trust preferred securities are
not included in liabilities for financial reporting purposes and instead appear
on our consolidated balance sheet between liabilities and stockholders' equity,
they represent obligations of DTI that rank senior in right of payment to our
common stock. Therefore, upon the bankruptcy, liquidation or winding up of the
operations of DTI, holders of the trust preferred securities would be paid
before holders of our common stock. In addition to having a preference senior to
our common stock, the trust preferred securities are convertible into an
aggregate of 2,500,000 shares of common stock. The issuance of these shares of
common stock would dilute the ownership and voting interest in DTI of existing
stockholders.
13
ITEM 2. PROPERTIES
Our administrative headquarters are located in Dayton, Ohio where we lease
approximately 27,000 square feet of space. This lease expires on August 1, 2016.
Set forth below is certain information with respect to our manufacturing
facilities as of the date of this Annual Report.
SQUARE
FOOTAGE OWNED/
LOCATION (APPROXIMATE) LEASED LEASE EXPIRATION PRODUCTS
-------- ------------- ------ ------------------ --------
DT MATERIAL PROCESSING SEGMENT
Lebanon, Missouri(1)(2)........ 324,000 Owned Special machines, integrated systems,
tools and dies
Benton Harbor,
Michigan(1)(2)............... 71,500 Owned Resistance and arc welding equipment
and systems
Hyannis, Massachusetts(3)...... 155,000 Leased June 25, 2012(4) Plastics processing equipment and
rotary presses
DT PRECISION ASSEMBLY SEGMENT
Buffalo Grove, Illinois(1)..... 212,000 Leased July 31, 2003(5) Integrated precision assembly systems
Erie, Pennsylvania(1)(2)....... 56,000 Owned High-speed assembly systems
DT ASSEMBLY AND TEST SEGMENT
Buckingham, England(1)......... 151,000 Owned Integrated assembly and testing systems
Dayton, Ohio(1)................ 162,000 Leased July 1, 2016(4) Integrated assembly and testing systems
Livonia, Michigan(1)........... 86,000 Leased July 31, 2003 Integrated assembly and testing systems
Neuwied, Germany(1)............ 33,000 Leased September 13, 2003 Integrated assembly and testing systems
Saginaw, Michigan(1)(2)........ 91,000 Owned Integrated assembly and testing systems
DT PACKAGING SYSTEMS SEGMENT
Leominster, Massachusetts(3)... 105,000 Leased March 27, 2006(4) Tablet packaging equipment and systems
Alcester, England(3)........... 22,000 Owned(6) Electronic counters
---------------
(1) This facility was part of our Automation segment through fiscal 2002.
(2) This property secures our senior credit facility.
(3) This facility was part of our Packaging segment through fiscal 2002.
(4) We have an option to renew this lease for two additional five-year terms.
(5) We have an option to renew this lease for one additional five-year term.
(6) We have negotiated a sale/leaseback of this property and are in the process
of consummating this transaction.
We do not anticipate any significant difficulty in leasing alternate space
at reasonable rates in the event of the expiration, cancellation or termination
of a lease relating to any of our leased properties. We believe that our
principal owned and leased manufacturing facilities have sufficient capacity to
accommodate future internal growth without major capital improvements.
ITEM 3. LEGAL PROCEEDINGS
Following our announcements in August and September 2000 of the
restatements of previously reported financial statements, DTI, our Kalish
subsidiary and certain of their directors and officers were named as defendants
in five complaints in putative class action lawsuits. During fiscal 2001, these
actions were consolidated into a single class action styled In re DT Industries,
Inc. Securities Litigation and an amended complaint was filed (the "Securities
Action") adding our Sencorp subsidiary and certain additional officers and
directors as defendants. As of the end of fiscal 2002, the Securities Action was
pending in the United States District Court for the Western District of Missouri
(the "Court"). The Consolidated Amended Complaint asserted causes of action
under Section 10(b), and Rule 10b-5 promulgated thereunder, and Section 20(a) of
the Securities Exchange Act of 1934, and alleged, among other things, that the
accounting adjustments caused our previously issued financial statements to be
materially false and misleading. The
14
Consolidated Amended Complaint also sought damages in an unspecified amount and
was purported to be brought on behalf of purchasers of our common stock during
various periods, all of which fall between September 29, 1997 and August 23,
2000.
On October 4, 2001, the Court granted our motion to dismiss the Securities
Action, without prejudice. Pursuant to the Court's dismissal order, all
defendants were dismissed, but the plaintiffs were granted the right to amend
their complaint. The plaintiffs filed their Second Amended Consolidated Class
Action Complaint on January 25, 2002 (the "Second Complaint"), thereby reviving
the Securities Action. On March 11, 2002, DTI and the other defendants filed a
motion to dismiss the Second Complaint.
The Court granted our motion to dismiss the Second Complaint, with
prejudice, on July 16, 2002. Pursuant to the Court's dismissal order, all
defendants were dismissed and a judgment was entered in favor of the defendants.
The plaintiffs did not appeal the Court's decision, so the Court's dismissal
order is final and non-appealable, and the plaintiffs can neither further amend
their complaint nor submit a new complaint in connection with the
above-referenced restatements.
The staff of the Securities and Exchange Commission (the "Commission") is
conducting an investigation of the accounting practices at our Kalish and
Sencorp subsidiaries that led to the restatements of our consolidated financial
statements for fiscal years 1997, 1998 and 1999 and the first three quarters of
fiscal 2000, as well as the issues at AMI that led to the 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 and to our previously
reported unaudited consolidated financial results for the first three fiscal
quarters of 2002. We are cooperating fully with the Commission in connection
with its investigation and cannot currently predict the duration or outcome of
the investigation.
In November 1998, pursuant to the agreement by which we acquired Kalish,
Mr. Graham L. Lewis, a former executive officer and director of DTI, received an
additional payment based on Kalish's earnings for each of the three years after
the closing. As a result of the prior restatement due to accounting practices at
Kalish, we believe that the additional payment should not have been made. During
fiscal 2001, we commenced legal action against Mr. Lewis in Superior Court,
Civil Division in Montreal, Quebec to recover this payment and certain bonuses
paid to Mr. Lewis. Mr. Lewis has counter-sued for wrongful termination and is
seeking to recover monetary damages, including severance, loss of future income,
emotional distress and harm to reputation, equal to $2.8 million Canadian
dollars. There has been no discovery in these actions. Management believes that
our suit against Mr. Lewis has merit. Management further believes that Mr.
Lewis' counter-suit is without merit. We intend to pursue vigorously our claims
against Mr. Lewis and defend against his counter-suit.
Product liability claims are asserted against us from time to time for
various injuries alleged to have resulted from defects in the manufacture and/or
design of our products. There are currently 10 such claims either pending or, to
our knowledge, that may be asserted against us. We do not believe that the
resolution of these claims, either individually or in the aggregate, will have a
material adverse effect on our financial condition, results of operations or
cash flow. Product liability claims are covered by our comprehensive general
liability insurance policies, subject to certain deductible amounts. We have
established reserves for these deductible amounts, which we believe to be
adequate based on our previous claims experience. However, there can be no
assurance that resolution of product liability claims in the future will not
have a material adverse effect on our financial condition, results of operations
or cash flow.
In addition to product liability claims, from time to time we are the
subject of legal proceedings, including involving employee, commercial, general
liability and similar claims, that are incidental to the ordinary course of our
business. There are no such material claims currently pending. We maintain
comprehensive general liability insurance that we believe to be adequate for the
continued operation of our business.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
We held a Special Meeting of Stockholders on June 19, 2002 at which the
following matters were voted upon:
1. Proposal to approve our sale of 7,000,000 shares of common stock at
a purchase price of $3.20 per share in a private placement (the "Private
Placement"). The vote to approve the Private Placement was 6,653,314 for,
813,405 against, and an aggregate of 563,053 abstentions and broker
non-votes.
2. Proposal to approve our issuance of 6,260,658 shares of common
stock in exchange for $35,000,000 of outstanding preferred securities of
our subsidiary trust, plus $15,085,254 of accrued and unpaid cash
distributions, at an exchange price of $8.00 per share (the "TIDES
Exchange"). The vote to approve the TIDES Exchange was 8,001,960 for,
22,462 against, and an aggregate of 5,350 abstentions and broker non-votes.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION AND HOLDERS
Our common stock is quoted on the Nasdaq National Market under the symbol
"DTII". As of September 20, 2002, the number of record holders of common stock
was 97. Such record holders include several holders who are nominees for an
undetermined number of beneficial owners. We believe that the number of
beneficial owners of the shares of common stock issued and outstanding at such
date was approximately 1,100.
The following table sets forth, for the quarters indicated, the high and
low sales prices for our common stock as reported by The Nasdaq Stock Market.
SALES PRICES
-------------
HIGH LOW
----- -----
FISCAL 2002
Fourth quarter.............................................. $4.86 $2.88
Third quarter............................................... 6.00 3.05
Second quarter.............................................. 6.33 5.34
First quarter............................................... 7.66 4.67
FISCAL 2001
Fourth quarter.............................................. $6.05 $2.75
Third quarter............................................... 3.88 2.38
Second quarter.............................................. 4.63 3.25
First quarter............................................... 10.25 8.44
DIVIDENDS
We did not pay or declare any cash dividends on our common stock in fiscal
2001 or 2002. Our senior credit facility and the indenture governing our
convertible junior subordinated debentures currently prohibit us from declaring
or paying a cash dividend on our common stock.
RECENT SALES OF UNREGISTERED SECURITIES
On June 20, 2002, we sold 7,000,000 shares of common stock for an aggregate
cash purchase price of $22,400,000 in a private offering to 25 institutional
purchasers, each of which was an existing stockholder or affiliate of an
existing stockholder and each of which is an accredited investor as defined in
Rule 501(a) under the Securities Act of 1933, as amended (the "Securities Act").
These shares were sold in reliance on the exemption from registration provided
in Rule 506 under the Securities Act. We paid a placement agent fee of $675,000
to William Blair & Company in connection with this offering.
On June 20, 2002, we issued 6,260,658 shares of common stock to the holders
of preferred securities of our subsidiary trust. Each of these holders is an
accredited investor. These shares were issued in exchange for $35,000,000 of
outstanding trust preferred securities, plus $15,085,254 of accrued and unpaid
cash distributions thereon, at an exchange price of $8.00 per share. These
shares were issued in reliance on the exemption from registration provided in
Rule 506 under the Securities Act.
On June 20, 2002, we amended the terms of the remaining $35,000,000 of
trust preferred securities by reducing their conversion price from $38.75 per
share to $14.00 per share, shortening their maturity from May 31, 2012 to May
31, 2008 and providing that interest does not accrue during the period from
March 31, 2002 until July 2, 2004. These remaining trust preferred securities
are held by accredited investors. To the extent these amendments are deemed to
constitute the issuance of new securities, this transaction was also completed
in reliance on the exemption from registration provided in Rule 506 under the
Securities Act.
17
ITEM 6. SELECTED FINANCIAL DATA
You should read the following selected consolidated financial data along
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes thereto
included in this Annual Report. For fiscal years 2001, 2000 and 1999, we have
presented a comparison of previously reported and restated selected financial
data due to the accounting adjustments at AMI described under
"Business -- Recent Restatement of Historical Financial Results." The pro forma
consolidated statement of operations data for the fiscal year ended June 30,
2002 reflects the impact of the financial recapitalization transaction that we
completed on June 20, 2002 and is described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Recapitalization" on our consolidated statement of
operations data for the fiscal year ended June 30, 2002, as if the financial
recapitalization transaction had occurred at the beginning of the fiscal year.
Because we completed the financial recapitalization transaction on June 20,
2002, the impact of the transaction is reflected in our consolidated balance
sheet data as of June 30, 2002.
FISCAL YEAR ENDED
-----------------------------------------------------------------------
JUNE 24, JUNE 25,
JUNE 30, 2001 JUNE 24, 2000
2002 AS 2001 AS
JUNE 30, PRO PREVIOUSLY AS PREVIOUSLY
2002 ADJUSTMENT FORMA REPORTED RESTATED REPORTED
-------- ---------- -------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA
Net sales.................................. $326,276 -- $326,276 $511,102 $511,102 $464,285
Cost of sales.............................. 261,011 -- 261,011 434,357 437,017 374,091
-------- -------- -------- -------- -------- --------
Gross profit............................... 65,265 -- 65,265 76,745 74,085 90,194
Selling, general and administrative
expenses.................................. 55,603 -- 55,603 90,494 90,494 79,852
Goodwill impairment........................ -- -- -- 38,219 38,219 --
Restructuring charge....................... 10,332 -- 10,332 3,694 3,694 --
Net loss on disposal of assets............. 1,128 -- 1,128 8,473 8,473 --
-------- -------- -------- -------- -------- --------
Operating income (loss).................... (1,798) -- (1,798) (64,135) (66,795) 10,342
Interest expense, net...................... 12,198 (1,665)(2) 10,533 14,891 14,891 10,305
Dividends on Company -- obligated,
mandatorily redeemable convertible
preferred securities of subsidiary DT
Capital Trust............................. 4,834 (3,230)(3) 1,604 5,506 5,506 5,146
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes.......... (18,830) 4,895 (13,935) (84,532) (87,192) (5,109)
Provision (benefit) for income taxes....... (3,900) 1,860(4) (2,040) (13,189) (14,120) (519)
-------- -------- -------- -------- -------- --------
Net income (loss).......................... $(14,930) $ 3,035 $(11,895) $(71,343) $(73,072) $ (4,590)
Gain on conversion of trust preferred
securities, net of tax.................... 16,587 -- 16,587 -- -- --
-------- -------- -------- -------- -------- --------
Income (loss) available to common
stockholders.............................. $ 1,657 $ 3,035 $ 4,692 $(71,343) $(73,072) $ (4,590)
-------- -------- -------- -------- -------- --------
Income (loss) available to common
stockholders per common share:
(Diluted)................................. $ 0.15 $ 0.29 $ 0.44 $ (7.01) $ (7.18) $ (0.45)
Weighted average common shares
outstanding............................... 10,751 -- 10,751 10,173 10,173 10,107
Cash dividends declared per common
share(1).................................. -- -- -- -- -- --
FISCAL YEAR ENDED
-------------------------------------------
JUNE 27,
JUNE 25, 1999 JUNE 27,
2000 AS 1999
AS PREVIOUSLY AS JUNE 28,
RESTATED REPORTED RESTATED 1998
-------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA
Net sales.................................. $464,285 $442,084 $442,084 $519,342
Cost of sales.............................. 375,418 352,526 354,734 387,515
-------- -------- -------- --------
Gross profit............................... 88,867 89,558 87,350 131,827
Selling, general and administrative
expenses.................................. 79,852 80,740 80,740 75,246
Goodwill impairment........................ -- -- -- --
Restructuring charge....................... -- 2,500 2,500 --
Net loss on disposal of assets............. -- -- -- 1,383
-------- -------- -------- --------
Operating income (loss).................... 9,015 6,318 4,110 55,198
Interest expense, net...................... 10,305 7,742 7,742 6,509
Dividends on Company -- obligated,
mandatorily redeemable convertible
preferred securities of subsidiary DT
Capital Trust............................. 5,146 5,012 5,012 5,012
-------- -------- -------- --------
Income (loss) before income taxes.......... (6,436) (6,436) (8,644) 43,677
Provision (benefit) for income taxes....... (983) (1,301) (2,074) 16,792
-------- -------- -------- --------
Net income (loss).......................... $ (5,453) $ (5,135) $ (6,570) $ 25,685
Gain on conversion of trust preferred
securities, net of tax.................... -- -- -- --
-------- -------- -------- --------
Income (loss) available to common
stockholders.............................. $ (5,453) $ (5,135) $ (6,570) $ 25,685
-------- -------- -------- --------
Income (loss) available to common
stockholders per common share:
(Diluted)................................. $ (0.54) $ (0.51) $ (0.65) $ 2.10
Weighted average common shares
outstanding............................... 10,107 10,149 10,149 13,621
Cash dividends declared per common
share(1).................................. -- $ 0.08 $ 0.08 $ 0.08
AS OF
-------------------------------------------------------------------------------------------
JUNE 24, JUNE 25, JUNE 27,
2001 JUNE 24, 2000 JUNE 25, 1999 JUNE 27,
AS 2001 AS 2000 AS 1999
JUNE 30, PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS JUNE 28,
2002 REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED 1998
-------- ---------- -------- ---------- -------- ---------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA
Costs and estimated earnings in
excess of amounts billed on
uncompleted contracts.............. $ 29,288 $ 92,000 $ 85,805 $ 94,925 $ 91,390 $ 65,806 $ 63,598 $ 67,469
Prepaid expenses and other.......... 8,809 12,497 14,665 14,296 15,533 16,070 16,843 8,282
Goodwill............................ 125,538 123,767 123,767 173,823 173,823 180,066 180,066 177,578
Working capital..................... 51,729 81,779 77,752 129,163 126,865 96,808 95,373 103,023
Total assets........................ 308,410 414,701 410,674 481,070 478,772 453,265 451,830 451,700
Total debt.......................... 56,521 132,722 132,722 126,857 126,857 104,593 104,593 90,011
Company -- obligated, mandatorily
redeemable convertible preferred
securities of subsidiary DT Capital
Trust holding solely convertible
junior subordinated debentures of
the Company........................ 35,401 80,652 80,652 75,146 75,146 70,000 70,000 70,000
Retained earnings (accumulated
deficit)........................... (25,922) (6,965) (10,992) 64,378 62,080 68,968 67,533 74,917
Stockholders' equity................ 137,415 98,838 89,811 165,083 162,785 170,276 168,841 184,642
---------------
18
(1) Our senior credit facility and the indenture governing our convertible
junior subordinated debentures currently prohibit us from declaring or
paying a cash dividend on our common stock.
(2) Represents the reduction of interest expense resulting from using proceeds
from the Private Placement to repay indebtedness of approximately $18.5
million under our senior credit facility. This amount has been calculated
using the approximate average interest rate under the senior credit facility
during fiscal 2002, which was 9%.
(3) Represents the reduction of trust preferred securities dividends resulting
from the exchange of $35.0 million of outstanding trust preferred securities
and approximately $15.1 million of accrued and unpaid distributions for
common stock and the impact of the "distribution holiday" pursuant to which
distributions on the remaining trust preferred securities will not accrue
from April 1, 2002 through July 2, 2004. Annual dividend expense of $1,604
on the remaining trust preferred securities will be recorded reflecting an
approximate effective yield of 4.6% over the life of the remaining trust
preferred securities.
(4) Represents the reduction in income tax benefit resulting from the lower
expenses explained in (2) and (3) above. The reduction in income tax benefit
was calculated using our effective tax rate of 38% for fiscal 2002.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For a better understanding of the significant factors that influenced our
performance during the past three fiscal years, the following discussion should
be read in conjunction with our audited consolidated financial statements and
notes thereto appearing elsewhere in this Annual Report. The following
discussion contains forward-looking statements that are subject to risks,
uncertainties and other factors, including those discussed under
"Business -- Risk Factors," that could cause our actual results, performance,
financial condition, liquidity, prospects and opportunities in fiscal 2003 and
beyond to differ materially from those expressed in, or implied by, these
forward-looking statements. See "Cautionary Note Regarding Forward-Looking
Statements."
OVERVIEW
We were formed through a series of acquisitions beginning with the initial
acquisitions of Detroit Tool Group, Inc. and the Peer Division of Teledyne, Inc.
in 1992. Subsequent to those transactions, we acquired a number of companies
with proprietary products and manufacturing capabilities that had strong market
and technological positions in the niche markets they served and furthered our
goal of providing customers with a full range of integrated automated systems.
These acquisitions expanded our base of customers and markets, creating greater
opportunities for cross-selling among our various divisions.
We primarily operated in two business segments through fiscal
2002 -- Automation and Packaging. Our Automation segment designed and built
integrated systems for the assembly, test and handling of discrete products. Our
Packaging segment manufactured tablet processing, counting and liquid filling
systems and plastics processing equipment, including thermoforming, blister
packaging and heat sealing. In the first and second quarters of fiscal 2002, we
sold the assets comprising our non-core businesses that produced precision-
stamped steel and aluminum components through our stamping and fabrication
operations.
At the end of fiscal year 2000, we discovered certain accounting errors at
our Kalish, Inc. and Sencorp Systems, Inc. subsidiaries. As a result of these
errors, we were required to restate our previously reported audited consolidated
financial statements for fiscal years 1997, 1998 and 1999, as well as the
previously reported unaudited consolidated financial information for the first
three quarters of fiscal year 2000. In response to the accounting errors
detected at Kalish and Sencorp, we appointed a new executive management team in
2001. Our new management team has been aggressively reviewing our business
practices and procedures and implementing needed changes to position us for
stability and profitability. We made significant progress in fiscal 2002 to
return to financial health by engaging in asset sales to generate cash for debt
reduction, modifying our operations in an effort to improve productivity and
margins and, as part of a major financial recapitalization transaction described
under "Liquidity and Capital Resources -- Recapitalization," negotiating an
extension of our senior credit facility from July 2, 2002 to July 2, 2004.
Furthermore, we began implementing the final steps of our corporate
restructuring plan to contain costs and improve profitability by reducing our
operations from 17 autonomous divisions with 22 manufacturing facilities as of
January 1, 2001 to six operating divisions with 12 manufacturing facilities.
This restructuring has included management changes at under-performing
divisions, reductions in work force throughout our organization, the closing of
facilities in Montreal, Quebec, Rochester, New York and Bristol, Pennsylvania,
and the consolidation of our
19
Swiftpack and C.E. King operations. Also as part of this restructuring plan, we
are reorganizing our operations into four business segments: Material
Processing, Precision Assembly, Assembly and Test and Packaging Systems. This
new structure is designed to allow us to streamline product offerings,
capitalize on the combined strength of operating units, reduce overlap in the
marketplace and improve capacity utilization, internal controls, financial
reporting and disclosure controls. We are still implementing this integration
plan and completing the systems required to provide, analyze, review and report
results of operations for current and historical periods for our newly defined
segments. We intend to begin reporting financial results for these four new
business segments in our Form 10-Q for the fiscal quarter ended September 29,
2002.
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
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. The percentage of completion method of accounting is described
below under "Critical Accounting Policies and Estimates -- Revenue
Recognition -- Percentage of Completion Method."
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
customisation 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 calls 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 cost 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 and
marketing and professional expenses. Prior to fiscal 2002, selling, general and
administrative expenses also included goodwill amortization.
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 estimated 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, a small facility located in Erie,
Pennsylvania that has historically been part of our Automation segment. 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
20
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 audited consolidated financial statements
as of, and for the fiscal year ended, June 24, 2001 and our restated audited
consolidated statement of operations, changes in stockholders' equity and cash
flows for the year ended June 25, 2000 are included on pages F-3 through F-6 and
Note 16 to the audited consolidated financial statements included herein.
Restated selected consolidated financial data for those two fiscal years, as
well as the fiscal year ended June 27, 1999, is included under "Item 6. Selected
Financial Data." Restated unaudited consolidated quarterly financial data for
the fiscal years ended June 30, 2002 and June 24, 2001 is included in Note 17 to
the audited consolidated financial statements included herein.
We discovered the accounting adjustments while beginning the transfer of
the sales and accounting functions at AMI to our DT Precision Assembly segment
headquarters in Buffalo Grove, Illinois in connection with the reorganization of
our operations described in "Business -- Markets and Products." 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 subsidiaries. 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management has prepared the consolidated financial statements included
herein in conformity with U.S. generally accepted accounting principles.
Accordingly, management is required to make certain estimates, judgments and
assumptions that it believes to be reasonable based upon the information
available. These estimates, judgments and assumptions affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of net sales and expenses during the periods presented. The
following accounting policies comprise those that management believes involve
estimates, judgments and assumptions that are the most critical to aid in fully
understanding and evaluating our reported financial results. Because of the
uncertainty inherent in these matters, actual results could differ from
estimates, judgments and assumptions we use in applying the critical accounting
policies.
Revenue Recognition -- Percentage of Completion Method
We recognize a significant portion of our revenues and profits as contracts
progress using the percentage of completion method of accounting, which relies
on estimates of total expected contract revenues and costs. Under this method,
estimated contract revenues and resulting gross profit are recognized based on
labor hours incurred to date as a percentage of total estimated labor hours to
complete the contract. We follow this method because we believe reasonably
dependable estimates of the revenues and costs applicable to various elements of
a contract can be made. Because the financial reporting of these contracts
depends on estimates, which are assessed continually during the term of these
contracts, recognized revenues and profit are subject to revisions as the
contract progresses to completion. Total estimated costs, and thus contract
profitability, are impacted by changes in productivity, scheduling, and the unit
cost of labor, subcontracts, materials and purchased equipment. Additionally,
external factors, such as customer needs and customer delays in providing
approvals, may also affect the progress and estimated cost of a project's
completion and thus the timing of profit and revenue recognition. Revisions in
profit estimates are reflected in the period in which the facts that give rise
to the revision become known. Accordingly, favorable changes in estimates result
in additional revenues and profit recognition, and unfavorable changes in
estimates result in a reduction of recognized
21
revenues and profits. When current estimates of total contract costs indicate
that the contract will result in a loss, the projected loss is recognized in
full in the period in which the loss becomes evident.
Many of our contracts provide for termination of the contract at the
convenience of the customer. In the event a contract is terminated at the
convenience of the customer prior to completion, we will typically be
compensated for progress up to the time of termination and any termination
costs. In addition, many contracts are subject to certain completion schedule
requirements with liquidated damages in the event schedules are not met as the
result of circumstances that are within our control. Losses on terminated
contracts and liquidated damages have historically not been significant.
Inventory Valuation
We value our inventories at the lower of the actual cost to purchase or
manufacture, which approximates the first-in, first-out (FIFO) method, or the
current estimated market value. With regards to stock inventories, we regularly
count quantities on hand and record a provision for excess and obsolete
inventory based primarily on historical usage rates. With regards to finished
goods inventories, we record market value reserves based on estimated forecasts
of future product demand. A significant decrease in demand could result in an
increase in the amount of excess inventory quantities on hand. In addition,
estimates of future product demand involve inherent uncertainties, which may
result in additional charges related to excess and obsolete inventory.
Therefore, any significant unanticipated changes in demand could have a
significant impact on our level of inventory reserves and reported operating
results.
Accounts Receivable
We perform ongoing credit evaluations of new and existing customers and
constantly monitor customer payments via accounts receivable aging reports. We
maintain an estimated allowance for doubtful accounts resulting from the
inability of our customers to make required payments based upon historical
experience and known customer collection issues. The allowance for doubtful
accounts is reevaluated at each balance sheet date and adjusted based on
information that impacts the estimates of uncollectible amounts. Because we
cannot predict future changes in the financial stability of our customers,
actual future losses from uncollectible accounts may differ from our estimates.
Goodwill Impairment
Under Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142), we assess recoverability of goodwill on an
annual basis or when events or changes in circumstances indicate that the
carrying amount of goodwill may not be recoverable. Factors that we would
consider important that could trigger an impairment review include the
following:
- significant underperformance of a segment or division relative to
expected historical or projected future operating results;
- significant negative industry or economic trends; and
- significant changes in the strategy for a segment or division.
In accordance with the provisions of SFAS 142, we derive a fair value for
our reporting units, which represent the various components of our operating
segments, and compare such fair value to the carrying value of the reporting
unit to determine if there is any indication of goodwill impairment. For
purposes of deriving the fair value of our reporting units, we utilize a
discounted cash flow analysis based upon, among other things, certain
assumptions about expected future operating performance. Our estimates of
discounted cash flows may differ from actual cash flow due to, among other
things, changes in economic conditions, changes to our business models, changes
in our weighted average cost of capital, or changes in our operating
performance. We will recognize an impairment charge to the extent that the
implied fair value of the goodwill balances for the reporting units is less than
the carrying value of such goodwill balances.
Given that this impairment analysis is performed at the reporting unit
level for which discrete financial information is available, it is possible for
a segment of our business, which represents an aggregation of reporting units,
to show increased levels of sales and operating results but at the same time
have impairment within such segment.
22
Warranty Accruals
We routinely incur costs after projects are installed and closed. We record
these costs as warranty charges within cost of sales. Warranty costs are
estimated at the time a project is closed based on our historical warranty
experience and consideration of any known warranty issues. The fluctuation in
our warranty costs depends on the nature and timing of our projects. Increases
in warranty costs coincide with our incurring increased costs associated with
projects that have performance issues. Our estimate of warranty expense may
differ from actual warranty expense incurred due to, among other things, our
inability to satisfactorily debug all customer projects or our inability to meet
all specifications of customer projects.
SEGMENT FINANCIAL DATA
Set forth below is certain financial data relating to each business
segment. For fiscal 2001 and 2000, we have presented a comparison of previously
reported and restated amounts due to the accounting adjustments at AMI discussed
above in "Recent Restatement of Historical Financial Results."
FISCAL YEAR ENDED
--------------------------------------------------------------------
JUNE 24, JUNE 25,
2001 JUNE 24, 2000 JUNE 25,
JUNE 30, AS PREVIOUSLY 2001 AS PREVIOUSLY 2000
2002 REPORTED AS RESTATED REPORTED AS RESTATED
-------- ------------- ----------- ------------- -----------
(IN THOUSANDS)
NET SALES
Automation....................... $259,966 $385,515 $385,515 $302,788 $302,788
Packaging........................ 65,518 87,282 87,282 123,237 123,237
Other............................ 792 38,305 38,305 38,260 38,260
-------- -------- -------- -------- --------
Total......................... $326,276 $511,102 $511,102 $464,285 $464,285
======== ======== ======== ======== ========
GROSS PROFIT
Automation....................... $ 53,297 $ 67,803 $ 65,143 $ 60,937 $ 59,610
Gross margin................ 20.5% 17.6% 16.9% 20.1% 19.7%
Packaging........................ 11,947 4,642 4,642 23,900 23,900
Gross margin................ 18.2% 5.3% 5.3% 19.4% 19.4%
Other............................ 21 4,300 4,300 5,357 5,357
Gross margin................ -- 11.2% 11.2% 14.0% 14.0%
-------- -------- -------- -------- --------
Total gross profit............ $ 65,265 $ 76,745 $ 74,085 $ 90,194 $ 88,867
Total gross margin............ 20.0% 15.0% 14.5% 19.4% 19.1%
======== ======== ======== ======== ========
OPERATING INCOME (LOSS)
Automation....................... $ 13,804 $ 4,802 $ 2,142 $ 15,366 $ 14,039
Operating margin.............. 5.3% 1.2% 0.6% 5.1% 4.6%
Packaging........................ (9,361) (55,254) (55,254) 526 526
Operating margin.............. (14.3)% (63.3)% (63.3)% 0.4% 0.4%
Other............................ 491 128 128 3,207 3,207
Operating margin.............. -- 0.3% 0.3% 8.4% 8.4%
Corporate........................ (6,732) (13,811) (13,811) (8,757) (8,757)
-------- -------- -------- -------- --------
Total operating income
(loss)...................... $ (1,798) $(64,135) $(66,795) $ 10,342 $ 9,015
Total operating margin........ (0.6)% (12.5)% (13.0)% 2.2% 1.9%
======== ======== ======== ======== ========
DEPRECIATION AND AMORTIZATION
EXPENSE
Automation....................... $ 4,398 $ 8,546 $ 8,546 $ 9,181 $ 9,181
Packaging........................ 1,874 3,969 3,969 4,044 4,044
Other............................ 33 1,432 1,432 1,737 1,737
Corporate........................ 3,500 2,456 2,456 1,498 1,498
-------- -------- -------- -------- --------
Total......................... $ 9,805 $ 16,403 $ 16,403 $ 16,460 $ 16,460
======== ======== ======== ======== ========
CAPITAL EXPENDITURES
Automation....................... $ 2,174 $ 1,569 $ 1,569 $ 3,757 $ 3,757
Packaging........................ 634 885 885 2,056 2,056
Other............................ -- 346 346 -- --
Corporate........................ 115 378 378 918 918
-------- -------- -------- -------- --------
Total......................... $ 2,923 $ 3,178 $ 3,178 $ 6,731 $ 6,731
======== ======== ======== ======== ========
23
AS OF
--------------------------------------------------------------------
JUNE 24, JUNE 25,
2001 JUNE 24, 2000 JUNE 25,
JUNE 30, AS PREVIOUSLY 2001 AS PREVIOUSLY 2000
2002 REPORTED AS RESTATED REPORTED AS RESTATED
-------- ------------- ----------- ------------- -----------
(IN THOUSANDS)
TOTAL ASSETS
Automation....................... $217,254 $298,020 $293,993 $306,434 $304,136
Packaging........................ 72,784 80,998 80,998 138,924 138,924
Other............................ -- 23,401 23,401 22,022 22,022
Corporate........................ 18,372 12,282 12,282 13,690 13,690
-------- -------- -------- -------- --------
Total......................... $308,410 $414,701 $410,674 $481,070 $478,772
======== ======== ======== ======== ========
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items reflected in our consolidated
statement of operations. The data presented below was derived from our audited
financial statements included in this Annual Report. For fiscal 2001 and 2000,
we have presented a comparison of previously reported and restated amounts due
to the accounting adjustments at AMI discussed above in "Recent Restatement of
Historical Financial Results."
FISCAL YEAR ENDED
--------------------------------------------------------------------
JUNE 24, 2001 JUNE 24, JUNE 25, 2000 JUNE 25,
JUNE 30, AS PREVIOUSLY 2001 AS AS PREVIOUSLY 2000 AS
2002 REPORTED RESTATED REPORTED RESTATED
-------- ------------- ----------- ------------- -----------
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................... 80.0 85.0 85.5 80.6 80.9
----- ----- ----- ----- -----
Gross profit........................ 20.0 15.0 14.5 19.4 19.1
Selling, general and administrative
expenses.......................... 17.1 17.7 17.7 17.2 17.2
Goodwill impairment................. -- 7.5 7.5 -- --
Restructuring charge................ 3.2 0.7 0.7 -- --
Net loss on disposal of assets...... 0.3 1.6 1.6 -- --
----- ----- ----- ----- -----
Operating income (loss)............. (0.6) (12.5) (13.0) 2.2 1.9
Interest expense.................... 3.7 2.9 2.9 2.2 2.2
Dividends on Company -- obligated,
mandatorily redeemable convertible
preferred securities of subsidiary
DT Capital Trust holding solely
convertible junior subordinated
debentures of the Company......... 1.5 1.1 1.1 1.1 1.1
----- ----- ----- ----- -----
Loss before benefit for income
taxes............................. (5.8) (16.5) (17.0) (1.1) (1.4)
Benefit for income taxes............ (1.2) (2.5) (2.7) (0.1) (0.2)
Net loss............................ (4.6) (14.0) (14.3) (1.0) (1.2)
Gain on conversion of trust
preferred securities, net of
tax............................... 5.1 -- -- -- --
----- ----- ----- ----- -----
Income (loss) available to common
stockholders...................... 0.5% (14.0)% (14.3)% (1.0)% (1.2)%
===== ===== ===== ===== =====
Fiscal 2002 Compared to Fiscal 2001 (Restated)
Our consolidated net sales for the fiscal year ended June 30, 2002 were
$326.3 million, a decrease of $184.8 million, or 36.2%, from $511.1 million for
the fiscal year ended June 24, 2001. Our fiscal year 2001 net
24
sales included $46.3 million in net sales attributable to our Vanguard Technical
Solutions, Detroit Tool Metal Products, Scheu & Kniss and Hansford Parts and
Products divisions, the assets of which were sold in March 2001, June 2001, July
2001 and October 2001, respectively.
Automation segment net sales decreased $125.5 million, or 32.6%, to $260.0
million for the fiscal year ended June 30, 2002 from fiscal 2001. The decrease
in net sales was a result of the softness in order activity across all markets
served by this segment over the last 12-18 months, as well as a $1.9 million
decrease in net sales as a result of the sale of our Vanguard division in March
2001. Within the Automation segment, automotive-related sales decreased by $66.5
million, or 43.7%, from fiscal 2001. This decrease in automotive-related sales
was due to net sales related to a large capital spending program of a customer
in the automotive tire market being recognized during fiscal 2001 and to the
general softness in the economy that has restrained customer capital spending in
the automotive market. Within the Automation segment, sales to the electronics
market decreased $36.5 million, or 25.8%, from fiscal 2001. This decrease in
electronics-related sales was due to net sales related to several large capital
spending programs of a customer in the electronics market being recognized in
fiscal 2001. The remainder of the decrease in net sales for the Automation
segment was primarily attributable to lower sales recognized in the heavy truck
and other consumer markets, also due to the softness in the economy.
Packaging segment net sales decreased $21.8 million, or 25.0%, to $65.5
million for the fiscal year ended June 30, 2002 from fiscal 2001. The decrease
in net sales related primarily to lower sales of packaging equipment to the
pharmaceutical and nutritional markets and lower sales of thermoforming
equipment to the plastics packaging market attributable to reduced capital
spending in these markets as a result of the economic downturn they have
experienced. This amount also includes a $6.1 million decrease in net sales as a
result of the sale of the assets of our Scheu & Kniss division in July 2001.
Sales from our other businesses decreased $37.5 million as a result of the
sale of substantially all the assets of Detroit Tool Metal Products in June 2001
and Hansford Parts and Products in October 2001.
Gross profit decreased $8.8 million, or 11.9%, to $65.3 million for the
twelve months ended June 30, 2002 from $74.1 million for the twelve months ended
June 24, 2001. Gross profit in fiscal 2001 reflected $13.5 million of charges
taken in the fourth quarter of fiscal 2001 primarily related to provisions for
excess and obsolete inventory, other inventory market value write-downs and
certain fixed asset write-downs. See Note 13 to the audited consolidated
financial statements included herein for a discussion of these charges. Gross
profit in fiscal 2002 reflected decreased warranty expense of $1.0 million from
fiscal 2001 due to greater amounts of warranty activity during fiscal 2001
related to specific problematic projects. Our gross margin increased to 20.0% in
fiscal 2002 from 14.5% in fiscal 2001. The decrease in our gross profits
reflects the effect of the $184.8 million decrease in net sales. The increase in
our gross margin reflects improved margins in both our Automation and Packaging
segments. The gross margins in our Automation segment improved to 20.5% in
fiscal 2002 versus 16.9% in fiscal 2001 as a result of improved project
performance in the electronics market gained from manufacturing efficiencies in
the production of duplicate systems. Our Packaging segment margins increased to
18.2% in fiscal 2002 from 5.3% in fiscal 2001 as a result of our fiscal 2001
restructuring, which reduced headcount and overhead costs. Packaging segment
margins in fiscal 2001 reflect $11.3 million of the $13.5 million of charges
taken in the fourth quarter of fiscal 2001.
Selling, general and administrative (SG&A) expenses were $55.6 million for
the fiscal year ended June 30, 2002, a decrease of $34.9 million from the $90.5
million for the fiscal year ended June 24, 2001. The $34.9 million decrease in
SG&A expenses was primarily a result of the following items:
- $10.8 million decrease resulting from the $8.3 million charge in fiscal
2001 for asset write-downs primarily related to doubtful accounts of
which we recovered $2.5 million in fiscal 2002;
- $5.4 million decrease in amortization as a result of the discontinuance
of goodwill amortization in fiscal 2002 due to our implementation of SFAS
142 as of June 25, 2001, which replaces the requirement to amortize
intangible assets with indefinite lives with a requirement for an annual
impairment test;
25
- $4.3 million decrease in SG&A expenses resulting from the sale of
Vanguard Technical Solutions in the third quarter of fiscal 2001, Scheu &
Kniss and Detroit Tool Metal Products in the first quarter of fiscal 2002
and Hansford Parts and Products in the second quarter of fiscal 2002;
- $3.8 million decrease in SG&A expenses in fiscal 2002 resulting from
savings in salary and compensation expenses as a result of a decrease in
headcount from our fiscal 2001 restructuring;
- $3.5 million in non-recurring legal, consulting and other professional
expenses and severance-related expenses incurred in fiscal 2001 in
connection with the investigations into our accounting restatement in
fiscal 2000;
- $3.4 million decrease in SG&A expenses in fiscal 2002 relating to our
Rochester, New York and Montreal, Quebec manufacturing facilities; and
- $1.3 million reversal of post-retirement benefit accruals due to
cancellation of post-retirement plans in fiscal 2002.
We expect SG&A expenses to continue to decrease in fiscal 2003 due to the
actions we took in fiscal 2002 in connection with our corporate restructuring
described below. We expect this decrease, however, to be partially offset by an
increase in research and development costs and increased legal and other
professional expenses in connection with the investigations into the accounting
adjustments at AMI and compliance with new corporate governance rules.
During fiscal 2002, we announced several actions in connection with our
corporate restructuring plan as outlined below. These actions resulted in an
aggregate of $10.3 million of restructuring charges in fiscal 2002.
- Closure of our Rochester, New York facility, including termination of
employees, in the fourth quarter of 2002 and the transfer of the customer
base of this facility primarily to our Dayton, Ohio and Buffalo Grove,
Illinois facilities. The closure was announced January 24, 2002. The
restructuring costs, which totaled $3.6 million, were recorded in the
third quarter of fiscal 2002 and included estimated severance costs of
$1.3 million for the termination of up to 114 employees. As of June 30,
2002, four employees remained for final administrative duties, all of
whom were discharged by the end of the first quarter of fiscal 2003. The
remaining restructuring costs include $1.1 million for future facility
lease and related costs, $1.1 million for asset write-offs and $0.1
million for office equipment lease terminations and miscellaneous other
charges. The asset write-offs include the remaining value of leasehold
improvements, the computer system and show machines.
- Closure of our Montreal, Quebec facility, including termination of
employees in August 2002, and the transfer of its customer base and
assets to our operations in Leominster, Massachusetts. The closure of
this facility was announced March 22, 2002. The restructuring costs of
$2.3 million were recorded in the third quarter of fiscal 2002 and
included estimated severance costs of $1.0 million for the termination of
approximately 83 employees, partially offset by a reversal of $0.5
million associated with severance accrual recorded in fiscal 2001. 75
employees remained at June 30, 2002, 70 of which were terminated by the
end of the first quarter of fiscal 2003. The remaining restructuring
costs include $0.6 million for future facility lease and related costs,
$1.1 million for asset write-offs and $0.04 million of other costs. The
asset write-offs primarily include the remaining value of leasehold
improvements and the computer system.
- Transfer of our manufacturing operation in Bristol, Pennsylvania to
Hyannis, Massachusetts as part of our Converting Technologies division.
The closure of this operation was announced March 22, 2002 and completed
in September 2002. The restructuring costs of $0.9 million were recorded
in the third quarter of fiscal 2002 and included severance costs of $0.3
million for the termination of 15 employees. Up to 10 employees are
expected to remain in Bristol for sales and engineering support. As of
June 30, 2002, there had been no terminations. By the end of the first
quarter of fiscal 2003, 12 employees were terminated. The remaining
restructuring costs include $0.4 million of asset write-offs, $0.2
million for future facility lease and related costs and $.03 million of
other costs. The asset write-offs include the remaining value of
leasehold improvements.
26
- Transfer of our Assembly and Test-Europe fabrication operation from
Gawcott, United Kingdom to our Buckingham, England plant in the fourth
quarter of fiscal 2002. The restructuring costs of $1.2 million were
recorded in the third quarter of fiscal 2002 and included estimated
severance costs of $0.9 million for the termination of 43 employees, all
of whom were terminated by June 30, 2002. The restructuring costs include
$0.3 million for future lease payments and $.03 of other costs.
- We recognized additional restructuring charges of $2.3 million in fiscal
2002 primarily related to severance costs associated with management
changes and workforce reductions at several divisions, as well as future
lease payments resulting from the consolidation of two Packaging segment
divisions. The restructuring charge included estimated severance costs of
$1.7 million for the termination of 125 employees, $0.3 million for
future lease payments and $0.2 million of asset write-offs. All of the
employees were terminated by June 30, 2002.
In the fourth quarter of fiscal 2002, we entered into a sale/leaseback
agreement for our Hyannis, Massachusetts facility and recorded a net loss on
disposal of assets of $1.1 million in connection with that transaction. We
entered into the sale/leaseback transaction in order to retire the $5.0 million
of variable rate Industrial Revenue Bonds, which were backed by a letter of
credit drawn on Fleet National Bank ("Fleet"), that we issued in 1998 to fund
the expansion of this facility. Fleet, under the terms of the letter of credit
reimbursement agreement, required us to post 110% cash collateral to support the
letter of credit no later than August 1, 2002. The proceeds of the
sale/leaseback transaction were used to repay the Industrial Revenue Bonds on
August 1, 2002, thereby eliminating the need to post the cash collateral. We
also avoided a 7% fee charged by Fleet for the letter of credit and maintained
the liquidity under our senior credit revolving line. See "Liquidity and Capital
Resources -- Industrial Revenue Bonds." The effect of the sale/leaseback was the
removal of the facility, which had a carrying value of $6.5 million at June 30,
2002 from our accounting records and the recording of cash proceeds of
approximately $5.4 million. We will have lease expense, on a go-forward basis,
of approximately $0.8 million annually.
Interest expense decreased $2. 7 million, or 18.1%, to $12.2 million for
the fiscal year ended June 30, 2002 from the fiscal year ended June 24, 2001.
The decrease resulted from lower outstanding borrowings as a result of the
application of asset sale proceeds and additional debt paydowns. Dividends on
our trust preferred securities were $4.8 million in fiscal 2002 compared to $5.5
million in fiscal 2001 due to the financial recapitalization discussed in
"Liquidity and Capital Resources -- Recapitalization," which effectively
eliminated the accrued dividend in the fourth quarter of fiscal 2002. We expect
interest on our senior debt and dividends on our trust preferred securities to
be approximately $8.8 million in fiscal 2003 as a result of the financial
recapitalization.
The income tax benefit was $3.9 million, or an effective tax benefit rate
of 20.7%, for the fiscal year ended June 30, 2002, compared to an income tax
benefit of $14.1 million, or an effective tax benefit rate of 16.2%, for the
fiscal year ended June 24, 2001. The effective income tax benefit rate primarily
reflects valuation allowances and the utilization of net operating loss
carry-forwards.
We recorded a gain on conversion of trust preferred securities of $16.6
million, net of tax of $8.8 million, in June 2002. The gain resulted from the
financial recapitalization pursuant to which the holders of our trust preferred
securities exchanged $35.0 million of outstanding trust preferred securities and
$15.1 million in accrued and unpaid distributions for 6,260,658 shares of our
common stock. The shares were valued for book and tax purposes based on the
market price of our common stock on the closing date of the financial
recapitalization.
Fiscal 2001 (Restated) Compared To Fiscal 2000 (Restated)
Our consolidated net sales for the fiscal year ended June 24, 2001 were
$511.1 million, an increase of $46.8 million, or 10.1%, from $464.3 million for
the fiscal year ended June 25, 2000.
Automation segment net sales increased $82.7 million, or 27.3%, to $385.5
million for the fiscal year ended June 24, 2001 from the prior fiscal year. The
increase in sales was primarily the result of several large capital spending
programs of a customer in our electronics market. We manufactured these
electronics
27
assembly systems across several of our Automation divisions. Sales to our
electronics market accounted for approximately 36% of total Automation segment
sales in fiscal 2000.
Packaging segment net sales decreased $35.9 million, or 29.2%, to $87.3
million for the fiscal year ended June 24, 2001 from the prior fiscal year.
Plastics-related equipment sales were down approximately $18.9 million from a
combination of the decision to exit the extrusion business and significantly
lower sales of thermoforming equipment. Extrusion equipment sales were
approximately $11.4 million in fiscal 2000. Sales of thermoforming systems
decreased as a result of a market downturn in plastics-related products and
machinery. Sales from our other packaging businesses also decreased
substantially in fiscal 2001 versus fiscal 2000. The decrease in sales was
across several product lines, including presses, counters, fillers and line
integration, primarily to the pharmaceutical and nutritional markets.
Net sales from our other businesses, primarily Detroit Tool Metal Products,
remained constant at $38.8 million in fiscal 2001 in comparison to fiscal 2000.
We sold Detroit Tool Metal Products in June 2001 and sold our remaining
components business in October 2001.
Gross profit decreased $14.8 million, or 16.6%, to $74.1 million for the
fiscal year ended June 24, 2001 from $88.9 million for the fiscal year ended
June 25, 2000. The gross margin decreased to 14.5% in fiscal 2001 from 19.1% in
fiscal 2000. The decrease reflects lower gross margins across all business
segments for the fiscal year. Gross profit in fiscal 2001 reflects $13.5 million
of charges taken in the fourth quarter primarily related to provisions for
excess and obsolete inventories, other inventory market value write-downs and
certain fixed asset writedowns. See Note 13 to the audited consolidated
financial statements included herein for a discussion of these charges. Gross
profit in fiscal 2001 reflected increased warranty expense of approximately $1.7
million from fiscal 2000 due to greater amounts of warranty activity during 2001
related to specific problematic projects.
The Automation segment's margins decreased to 16.9% for the fiscal year
ended June 24, 2001 from 19.7% in the prior fiscal year. The lower margins
primarily resulted from several large projects initiated in fiscal 2001. The
lower margins on these projects were attributable to pricing and to the ramp-up
costs and initial inefficiencies associated with the first few of multiple
electronics systems being engineered and manufactured for an electronics
customer. We incurred substantial costs associated with the use of contract
labor in ramping up to meet the delivery needs of customers in fiscal 2001. The
margins during fiscal 2001 reflected the capitalization of $2.4 million of
certain engineering costs on the first of these multiple systems being
manufactured. The first system was shipped in the second quarter of 2001. We
amortized approximately $1.1 million in fiscal 2001 with the remaining amount
fully amortized by the end of January 2002.
The Packaging segment's margins decreased to 5.3% for the twelve months
ended June 24, 2001 from 19.4% in the prior fiscal year. The gross margins
reflect $11.3 million of charges taken by the Packaging segment in the fourth
quarter of fiscal 2001 primarily related to provisions for excess and obsolete
inventories and other inventory market value write-downs. The lower gross
margins were also a reflection of the 29.2% decrease in sales and the resulting
increase in unfavorable manufacturing absorption. We significantly restructured
both our Sencorp and Kalish operations in fiscal 2001, reducing headcount and
overhead costs. Headcount at Sencorp and Kalish was reduced approximately 30%
and 45%, respectively.
SG&A expenses were $90.5 million for the fiscal year ended June 24, 2001,
an increase of $10.6 million from the $79.9 million for the fiscal year ended
June 25, 2000. The increase reflected $8.3 million in charges taken in the
fourth quarter of fiscal 2001 primarily related to increases in the allowance
for doubtful accounts and fixed asset write-offs. We also incurred approximately
$3.5 million in non-recurring legal, consulting and other professional expenses
and severance-related expenses during fiscal 2001 in connection with the
investigations into our accounting restatements in fiscal 2000. Excluding the
$11.8 million in unusual expenses, SG&A expenses in fiscal 2001 were
approximately 1.5% less than the prior year.
In the fourth quarter of fiscal 2001, we recorded a goodwill impairment
charge of $38.2 million related to several businesses in both our Automation and
Packaging segments. The write-down of goodwill was primarily a result of a
continued decline in the operating results of certain subsidiaries and
management assumptions regarding future performance based on the overall
economic recession and an evaluation of our organizational
28
and operational structure. We calculated the present value of expected cash
flows to determine the fair value of the subsidiaries using a discount rate of
12%, which represented the weighted average cost of capital. Included in the
goodwill write-down was a full impairment charge of $5.9 million related to our
Stokes division. This charge was based on a sales price outlined in a letter of
intent to sell this subsidiary, which established fair value of the division
based on a current transaction. The net loss on the disposal of Scheu & Kniss
recorded in fiscal 2001 included a full impairment of the related goodwill of
$5.0 million.
In the fourth quarter of fiscal 2001, we recorded a restructuring charge of
$3.7 million for severance costs associated with management changes and
workforce reductions, future lease costs on idle facilities and personnel
relocation costs resulting from the relocation of our corporate office and the
closure of four Packaging segment sales offices and non-cash asset write-downs.
In particular, our fiscal 2001 restructuring plan consisted of the following
actions:
- Closure of our Canadian operation's sales offices, including the
termination of 64 employees. These offices were closed in the fourth
quarter of 2001. In addition, there was a headcount reduction at the
Montreal, Quebec location. These people were notified of termination in
the fourth quarter of fiscal 2001. Total severance costs were $0.7
million and future lease costs on rented office space for the sales
offices was $0.3 million. As mandated by Canadian law, a six-month
waiting period is required before termination after notice is given.
After notification, during the six-month period, a number of employees
left voluntarily and therefore received no benefits. Accordingly, an
amount of $0.5 million was reversed to income in fiscal 2002.
- Consolidation of two of our United Kingdom operations, which included the
termination of 28 employees in the first quarter of fiscal 2002 at a cost
of $0.5 million.
- Relocation of our corporate offices from Springfield, Missouri to Dayton,
Ohio. Total moving costs incurred were $0.9 million in the fourth quarter
of 2001, which included personnel relocation costs of $0.7 million and
other moving costs of $0.2 million. These moving costs were recognized
when incurred. In addition, we accrued future lease costs on the idle
office space in Springfield of $0.6 million. Lastly, severance of $0.5
million was recorded for termination of 10 employees at our Springfield
office.
During the third quarter of fiscal 2001, we sold our corporate airplane and
substantially all of the net assets of Vanguard Technical Solutions. Net
proceeds from the sales of these assets were approximately $2.0 million,
resulting in a pre-tax loss of $0.6 million. Subsequent to June 24, 2001, we
sold substantially all of the net assets of Detroit Tool Metal Products and
Scheu & Kniss. Net proceeds for the sales of these assets were approximately
$18.2 million, resulting in a pre-tax loss of approximately $7.8 million that
was recorded in fiscal 2001.
Interest expense increased $4.6 million, or 44.5%, to $14.9 million for the
fiscal year ended June 24, 2001. The substantial increase pertains to both the
increase in our interest rate on borrowings pursuant to the senior secured
credit facility and the increase in average borrowings outstanding. Borrowings
increased to fund working capital requirements. Dividends on the convertible
preferred trust securities were $5.5 million and $5.1 million for the years
ended June 24, 2001 and June 25, 2000, respectively. As of June 24, 2001, the
dividends were being deferred and accrued in conjunction with the September 1999
amendment to the senior credit facility.
The income tax benefit was $14.1 million, or an effective tax benefit rate
of 16.2%, for the fiscal year ended June 24, 2001 compared to an income tax
benefit of $1.0 million, or an effective tax benefit rate of 15.3%, for the
fiscal year ended June 25, 2000. The effective income tax benefit rate reflects
permanent differences, primarily non-deductible goodwill amortization related to
certain acquisitions. A substantial part of the goodwill impairment charges in
fiscal 2001 were non-deductible. We also recorded a $7.8 million deferred tax
assets valuation allowance in fiscal 2001 primarily related to Canadian net tax
loss carryforwards.
29
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Activity
Net cash flow generated by operations was $55.4 million in fiscal 2002,
compared with net cash used by operating activities of $8.6 million in fiscal
2001 and $14.3 million in fiscal 2000. The increase in cash flow in fiscal 2002
was primarily attributable to a reduction in working capital of $52.2 million.
The primary cause of the net cash used by operations in fiscal 2001 and fiscal
2000 was to fund increases in working capital.
The decrease in working capital of $52.2 million in fiscal 2002 from fiscal
2001 can be primarily attributed to the reduction in net sales of $184.8
million, or 36.2%, from fiscal 2001. Note 12 to the audited consolidated
financial statements included herein provides a breakdown of the components of
costs and estimated earnings in excess of amounts billed on uncompleted
contracts (CIE) and billings in excess of costs and estimated earnings that
contributed to the decrease in working capital. As shown in Note 12, costs
incurred on uncompleted contracts decreased $108.3 million from June 24, 2001 to
June 30, 2002 reflecting our much lower level of project activity at June 30,
2002. Also contributing to the decrease of working capital are working capital
management programs that we put into place during fiscal 2002 to ensure that
project cash flow could be financed with our capital resources. The reductions
in the various components of working capital were a result of better management
of payment terms with customers and suppliers, a shift of project mix towards
projects with better payment terms and a focus on reduction of inventories
carried.
The net decrease in working capital in fiscal 2001 from fiscal 2000 was
$8.4 million. The decrease in working capital was a result of reductions in
accounts receivable and inventories offset by a substantial increase in CIE
within our Automation segment relating to a very large diesel engine assembly
system project. The reductions in accounts receivable and inventories were
primarily due to the non-cash charges taken in the fourth quarter of fiscal 2001
of $8.3 million to accounts receivable and $12.0 million to inventories.
Our working capital balances can fluctuate significantly between periods as
a result of the significant costs incurred on individual contracts, the
relatively large amounts invoiced and collected for a number of large contracts,
and the amounts and timing of customer advances or progress payments associated
with certain contracts.
Cash flow provided by investing activities in fiscal 2002 generated $21.5
million. Capital expenditures in fiscal 2002 were $2.9 million, offset by
proceeds of $18.8 million from the disposal of Detroit Tool Metal Products,
Scheu & Kniss and Hansford Parts and Products, the sale/leaseback of our
Hyannis, Massachusetts manufacturing facility for $5.5 million and the sale of
miscellaneous pieces of property, plant and equipment. Net cash used in
investing activities of $1.1 million in fiscal 2001 was for capital expenditures
of $3.2 million offset partially by $2.0 million from the sale of our corporate
airplane and the sale of substantially all of the assets of Vanguard Technical
Solutions. Net cash used in investing activities of $9.5 million in fiscal 2000
was for capital expenditures of $6.7 million, the acquisition of the net assets
of C. E. King in July 1999 for $2.1 million and the acquisition of intellectual
property for approximately $0.6 million. These expenditures were financed by
borrowings under our revolving credit facility. We anticipate capital
expenditures in fiscal 2003 to be between $4.0 and $6.0 million.
During fiscal 2002, we repaid $79.7 million in borrowings from the cash
generated from operations, assets sales and the Private Placement discussed
below. We believe that cash flows from operations, together with available
borrowings under our credit facility, will be sufficient to meet our working
capital, capital expenditures and debt service needs up to July 2, 2004, the
maturity date of our senior credit facility. We will need to refinance or extend
our senior credit facility in order to satisfy our liquidity needs after July 2,
2004.
Senior Credit Facility and Trust Preferred Securities
We use our borrowings under our senior credit facility to fund working
capital requirements, capital expenditures and finance charges. Borrowings under
our senior credit facility are secured by substantially all of our domestic
assets. As of June 30, 2002, our senior credit facility consisted of a $70.0
million revolving credit facility and a $6.4 million term credit facility. Of
this amount, $53.6 million was outstanding (including $2.3 million in
outstanding letters of credit) and total borrowing availability was $22.8
million. See
30
"Business -- Risk Factors -- The covenants and restrictions under our senior
credit facility could limit our operating and financial flexibility" for a
discussion of restrictive covenants contained in the credit facility.
At June 30, 2002, interest rates on outstanding indebtedness under the
revolving credit facility ranged from 7.94% to 8.25%. Through December 31, 2001,
borrowings were based on Prime Rate plus 3% for domestic borrowings or the
Eurodollar rate plus 6% on foreign currency borrowings. After December 31, 2001
and through June 20, 2002, the Prime Rate increment increased to 3.5% and the
Eurodollar rate increment increased to 6.5%. Subsequent to June 20, 2002,
pursuant to the amended credit facility, the interest rates are as stated below
under "Recapitalization -- Bank Amendment." The amended 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 $150,000, a 1% amendment
fee paid June 20, 2002, 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.
As a result of our financial performance in fiscal 2002, we were in default
of certain financial covenants, including the minimum trailing twelve-month
earnings before interest, taxes, depreciation, amortization and non-recurring
items ("EBITDA") and maximum funded debt to EBITDA financial covenants under the
facility. As of June 20, 2002, we entered into an amendment to the senior credit
facility that, among other things, included a permanent waiver of these defaults
and extended the facility's maturity date to July 2, 2004. See
"Recapitalization -- Bank Amendment" below. We also exceeded our capital
expenditure limitation under the facility for the fourth quarter of fiscal 2002.
We obtained a waiver from our lenders for our failure to comply with this
provision.
On June 12, 1997, we completed a private placement to several institutional
investors of $70.0 million of 7.16% convertible preferred securities ("TIDES").
The TIDES offering was made by our wholly-owned subsidiary trust, DT Capital
Trust (the "Trust"). The TIDES represent undivided beneficial ownership
interests in the Trust, the sole assets of which are the related aggregate
principal amount of junior subordinated debentures issued by us that the Trust
acquired with the proceeds of the TIDES offering. As originally structured, the
TIDES were convertible at the option of the holders at any time into shares of
our common stock at a conversion price of $38.75 per share. Furthermore, the
TIDES holders were entitled to receive cash distributions at an annual rate of
7.16%, payable quarterly in arrears on the last day of each calendar quarter. In
connection with the September 1999 amendment to our senior credit facility, we
elected to defer distributions on the TIDES for up to five years. As of March
24, 2002, the date through which quarterly distributions on the TIDES were
deferred, we had deferred $15.1 million of quarterly distributions on the TIDES.
In connection with our financial recapitalization transaction that we
completed on June 20, 2002 we restructured our agreement with the TIDES holders
and, among other things, exchanged half of the outstanding TIDES, plus the
deferred quarterly distributions on the TIDES, for 6,260,658 shares of our
common stock. See "Recapitalization -- TIDES Exchange" below. Therefore, there
was $35.0 million of TIDES issued and outstanding as of June 30, 2002. We have
guaranteed the payment of distributions and payments on liquidation of the Trust
or the redemption of the TIDES. Through this guarantee, our junior subordinated
debentures, the debentures' indenture and the Trust's declaration of trust,
taken together, we have fully, irrevocably and unconditionally guaranteed all of
the Trust's obligations under the TIDES. Thus, while the TIDES are not included
in our liabilities for financial reporting purposes and instead appear on our
consolidated balance sheet between liabilities and stockholders' equity, they
represent obligations of DTI.
Recapitalization
On June 20, 2002, we consummated a major financial recapitalization
transaction comprised of an amendment to our senior credit facility (the "Bank
Amendment"), a restructuring of our TIDES securities (the "TIDES Exchange") and
the sale of 7.0 million shares of our common stock for $3.20 per share in a
private placement (the "Private Placement"). Each component of our financial
recapitalization is described below.
31
Bank Amendment
Pursuant to the Bank Amendment:
- our lenders permanently waived previous financial covenant defaults
resulting from our financial performance in fiscal 2002;
- the maturity date of our senior credit facility was extended from July 2,
2002 to July 2, 2004;
- the total commitment under the facility was reduced to $76.4 million,
comprised of a $70.0 million revolver and a $6.4 million term loan;
- a monthly asset coverage test (65% of eligible accounts and 25% of
eligible inventory) was established for all revolver advances in excess
of $53.0 million; and
- the interest rate was reset at the Eurodollar Rate plus 4% or the Prime
Rate plus 3.5% for all revolver advances up to $53.0 million and the
Prime Rate plus 4% for all revolver advances in excess of $53.0 million.
The Bank Amendment requires us to make pro rata reductions of the revolving loan
commitment and term loan (1) of $1.5 million per quarter commencing on September
30, 2002, (2) as a result of excess cash flow (as defined in the credit facility
agreement) for the fiscal year ending June 29, 2003, and (3) as a result of
proceeds from equity issuances other than in connection with employee stock
option exercises. The Bank Amendment also reset the financial covenants under
the senior credit facility, including maintenance of minimum levels of EBITDA
and quarterly net worth and maximum annual capital expenditures.
TIDES Exchange
As part of our financial recapitalization, we consummated the TIDES
Exchange, whereby:
- the TIDES holders exchanged $35.0 million of outstanding TIDES and $15.1
million of accrued and unpaid distributions thereon into 6,260,658 shares
of common stock at a price of $8.00 per share;
- the maturity date of the remaining $35.0 million of TIDES was shortened
from May 31, 2012 to May 31, 2008;
- the conversion price of the remaining TIDES was reduced from $38.75 per
share to $14.00 per share;
- the TIDES holders agreed to a "distribution holiday" pursuant to which
distributions on the remaining TIDES will not accrue from April 1, 2002
through July 2, 2004; and
- provided that we make the first distribution payment following the
"distribution holiday," we will have the right from time to time to defer
distributions on the TIDES through their maturity in 2008.
We have filed a registration statement on Form S-3 with the Commission to
register the resale of the shares of common stock issued upon the exchange, and
issuable upon the future conversion, of the trust preferred securities. We also
granted the holders of the trust preferred securities as a group the right to
appoint one representative to attend and observe meetings of our board of
directors. This right will expire upon the conversion of all of the remaining
trust preferred securities into shares of common stock. The holders of the trust
preferred securities have agreed to not sell, transfer or otherwise dispose of
our common stock for a period of 180 days following June 20, 2002.
Private Placement
As part of the financial recapitalization, we consummated the Private
Placement to several stockholders of 7.0 million shares of our common stock at
$3.20 per share. We used the proceeds of the offering to repay indebtedness of
approximately $18.5 million under the senior credit facility and to pay
transaction expenses of approximately $3.9 million. The registration statement
on Form S-3 that we have filed with the Commission will also register the resale
of these shares of common stock.
32
Pursuant to the share purchase agreement for the Private Placement, we
amended our Amended and Restated By-laws and our stock incentive plans to
provide that, unless approved by the holders of a majority of the shares of our
outstanding common stock, we will not:
- grant stock options that have an exercise price less than the underlying
stock's fair market value on the grant date;
- reprice any outstanding stock options, including through the cancellation
of outstanding options and grant of replacement options with a lower
exercise price or accelerated vesting schedule or restricted stock;
- sell or issue any security convertible into, or exercisable or
exchangeable for, shares of common stock having a conversion, exercise or
exchange price per share that is subject to downward adjustment based on
the market price of the common stock at the time of conversion, exercise
or exchange; or
- in general, enter into any equity line or agreement to sell common stock
or any security convertible into, or exercisable or exchangeable for,
shares of common stock at a purchase, conversion, exercise or exchange
price per share that is fixed after the execution date of the agreement.
These restrictions may make it more difficult for us to raise capital in the
equity or debt markets in the future should we need to do so.
Industrial Revenue Bonds
On July 27, 1998, our wholly-owned subsidiary, Sencorp Systems, Inc.
participated in the issuance of $7.0 million of Massachusetts Industrial Finance
Agency Multi-Mode Industrial Development Revenue Bonds 1998 Series A (Bonds) to
fund the expansion of our facility in Hyannis, Massachusetts. The Bonds were
scheduled to mature July 1, 2023 and bore interest at a floating rate (4.7% as
of June 30, 2002) determined weekly by Quick and Reilly, the bond remarketing
agent. We were not in compliance with certain financial covenants in one of the
bond documents as of March 24, 2002. In May 2002, we completed an amendment to
the relevant bond document, providing, among other things, for the permanent
waiver of the covenant defaults as of March 24, 2002 and requiring us to either
replace, or deposit cash collateral equal to 110% of the face amount of, the
letter of credit securing the Bonds on or prior to August 1, 2002.
On June 25, 2002, we consummated a sale/leaseback transaction of the
Hyannis facility, and informed the bond trustee of our intention to use the net
proceeds thereof to prepay the $5 million outstanding balance of the Bonds on
August 1, 2002. Accordingly, the Bonds are classified as a current liability as
of June 30, 2002. The Bonds were prepaid in full and retired on August 1, 2002.
33
SUMMARY DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS
The following table reflects a summary of our contractual cash obligations
as of June 30, 2002:
FISCAL YEAR
--------------------------------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER TOTAL
------- ------ ------- ------ ------ ---------- --------
(IN THOUSANDS)
Long-term debt:
Senior credit facility.......... $ 6,000 $4,500 $40,787 -- -- -- $ 51,287
Industrial Development Revenue
Bonds(1)..................... 5,000 -- -- -- -- -- 5,000
Trust preferred securities........ -- -- -- -- -- $35,000 35,000
Capital lease obligations......... 234 -- -- -- -- 234
Operating leases.................. 6,726 4,255 2,720 $2,552 $2,446 9,378 28,077
Other long-term obligations:
Deferred compensation
arrangements................. 136 136 136 136 136 484 1,164
Pension obligations............. -- -- -- -- -- 668(2)
Director's deferred
compensation................. -- -- -- -- -- 765(2)
Executive non-qualified
retirement plan.............. -- -- -- -- -- 438(2)
Severance arrangements.......... 1,515 -- -- -- -- 1,515
------- ------ ------- ------ ------ ------- --------
Total:.................. $19,611 $8,891 $43,643 $2,688 $2,582 $44,862 $124,148
======= ====== ======= ====== ====== ======= ========
---------------
(1) We entered into a sale/leaseback of our Hyannis, Massachusetts facility in
June 2002 and notified the Bond holders of our intent to prepay the
outstanding balance on August 1, 2002. The Bonds were prepaid in full and
retired on August 1, 2002.
(2) Amount pertains to contractual cash obligations for which there is no
predetermined date of payment.
BACKLOG
Our backlog is based upon customer purchase orders we believe are firm. As
of June 30, 2002, we had $142.8 million of orders in backlog, which compares to
a backlog of approximately $217.6 million as of June 24, 2001.
Automation segment backlog was $119.8 million as of June 30, 2002, a
decrease of $65.0 million from the prior year. The decrease in backlog reflects
the high backlog of orders of automation systems at June 24, 2001 for a key
customer in the electronics market. We have not been able to replace this work
because the soft economy has adversely affected capital spending in most of our
other markets. The lower backlog also reflects some trends in the industry,
including shorter lead times and the placement of smaller customer orders.
Backlog for the Packaging segment decreased $3.6 million, or 13.6%, to $23.0
million primarily due to softness across several packaging product lines.
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 June 30, 2002 will
be recognized as sales during fiscal 2003.
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. Foreign operations
accounted for approximately $57.9 million, $72.4 million and $85.8 million of
our net sales in fiscal 2002, 2001 and 2000,
34
respectively. Loss from operations for our foreign operations were $6.0 million,
$14.2 million and $2.8 million in fiscal 2002, 2001 and 2000, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
Asset Retirement Obligations
In June 2001, the Financial Accounting Standards Board (FASB) approved
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" (SFAS 143). SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and/or the normal
operation of a long-lived asset. This Statement is effective for us in fiscal
2003. We do not expect this Statement to have a material impact on our financial
position or results of operation.
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued Statement of Financial Account Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 addresses financial accounting and reporting for the impairment
or disposal of long-lived assets and supercedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The objective of SFAS 144 is to establish one
accounting model for long-lived assets to be disposed of by sale. The provisions
of this Statement are effective for us in fiscal 2003. We do not expect this
Statement to have a material impact on our financial position or results of
operations.
Rescission of Prior Statements
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002" (SFAS 145). SFAS
145 rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and an amendment of that Statement, FASB Statement No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
Statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
for Motor Carriers." This Statement amends FASB Statement No. 13, "Accounting
for Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. The provisions of this Statement are effective for us in fiscal
2003. We do not expect this Statement to have a material impact on our financial
position or result of operations. Certain extraordinary losses related to the
extinguishment and refinancing of debt during fiscal 1998 have been recast to be
included in the determination of net income in such years.
Costs Associated with Exit or Disposal Activities
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(SFAS 146). SFAS 146 addresses financial accounting and reporting costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The principal difference between this
Statement and Issue 94-3 relates to its requirements for recognition of a
liability for a cost associated with an exit or disposal activity. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. Under Issue
94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at
the date of an entity's commitment to an exit plan. A fundamental conclusion
reached by the Board in this Statement is that an entity's commitment to a plan,
by itself, does not create a present obligation to others that meets the
definition of a liability. Therefore, this Statement eliminates the
35
definition and requirements for recognition of exit costs in Issue 94-3. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002, at which date we will adopt such
provisions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, we are exposed to foreign currency and
interest rate risks. These exposures primarily relate to having investments in
assets denominated in foreign currencies and to changes in interest rates.
Fluctuations in currency exchange rates can impact operating results, including
net sales and operating expenses. We mitigate certain of our foreign currency
exposure by borrowing in the local functional currency in countries where we
have significant assets denominated in foreign currencies. These borrowings
include Pounds Sterling, Canadian dollars and Deutsche Marks in the United
Kingdom, Canada and Germany, respectively. We may, but currently do not, utilize
derivative financial instruments, including forward exchange contracts and swap
agreements, to manage certain of our foreign currency and interest rate risks
that we consider practical to do so. We do not enter into derivative financial
instruments for trading purposes. Market risks that we currently have elected
not to hedge primarily relate to our floating-rate debt.
If interest rates increase 1% in fiscal 2003, as compared to fiscal 2002,
our interest expense would increase by approximately $0.4 million, and net
income would decrease by approximately $0.3 million. This amount has been
determined using the assumptions that our outstanding floating-rate debt, as of
June 30, 2002, will continue to be outstanding throughout fiscal 2003 and that
the average interest rates for these instruments will increase 1% over fiscal
2002. The model does not consider the effects of the reduced level of potential
overall economic activity that would exist in such an environment. In the event
of a significant change in interest rates, we would likely take actions to
further mitigate our exposure to this market risk. However, due to the
uncertainty of the specific actions that would be taken and their possible
effects, the sensitivity analysis assumes no change in our financial structure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the consolidated financial statements and notes thereto on pages F-1
through F-37.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Pursuant to our Restated Certificate of Incorporation, as amended, our
Board of Directors is divided into three classes (Class I, Class II and Class
III), with all classes as nearly equal in number as possible. One class of
directors is ordinarily elected at each Annual Meeting of the Stockholders for a
three-year term.
The Board currently consists of eight members. There are no family
relationships among any of our directors or executive officers. The following
sets forth information concerning our directors.
CLASS I AGE
------- ---
James J. Kerley............................................. 79
Charles F. Pollnow.......................................... 70
John F. Logan............................................... 67
CLASS II
--------
Lee M. Liberman............................................. 81
Stephen J. Perkins.......................................... 55
CLASS III
---------
William H. T. Bush.......................................... 64
Charles A. Dill............................................. 62
Robert C. Lannert........................................... 60
Mr. Kerley was elected a director of DTI in July 1992, became our Chairman
of the Board in May 1997 and served as our interim Chief Executive Officer from
September 2000 until November 2000. Mr. Kerley served as the non-executive
Chairman of the Board of Directors of Rohr, Inc. from January 1993 to December
1994 and served as its interim President and Chief Executive Officer from
January 1993 to April 1993. Mr. Kerley retired from Emerson Electric Co. at the
end of 1985 and has served on a number of boards of directors since that time.
While active in industry, he was, at various times, the Vice Chairman, Chief
Financial Officer and a director of Emerson Electric Co., and Chief Financial
Officer and a director of the Monsanto Company and TransWorld Airlines, Inc. Mr.
Kerley's term as a director expires in November 2003.
Mr. Pollnow has been a director of DTI since November 1995. He has been the
Chairman of the Board, President and Chief Executive Officer of Brulin
Corporation, a manufacturer of healthcare, commercial and industrial products
with headquarters in Indianapolis, Indiana, since November 1987. Mr. Pollnow's
term as a director expires in November 2003.
Mr. Logan was elected a director of DTI in May 1997. He was our
President -- Automation Group from May 1997 until his retirement in December
1999. From January 1996 through April 1997, he was the President -- Assembly
Systems Group of the Company. Mr. Logan co-founded Advanced Assembly Automation,
Inc. ("AAA") in 1984 and served as its President from 1984 to 1996. We acquired
AAA in 1994. Mr. Logan's term as a director expires in November 2003.
Mr. Liberman has been a director of DTI since May 1994. He has served as
Chairman Emeritus of, and a consultant to, Laclede Gas Company, a natural gas
utility, since January 1994. From 1976 to January 1994, he served as Chairman of
the Board and a director of Laclede Gas Company and, from 1974 to August 1991,
as its Chief Executive Officer. Mr. Liberman has served as a director of CPI
Corporation since 1975, Falcon Products since 1982 and Furniture Brands
International since 1985. Mr. Liberman's term as a director expires in November
2004.
37
Mr. Perkins has been our President and Chief Executive Officer and a
director of DTI since November 2000. Prior to that time, Mr. Perkins served as
President, Chief Operating Officer and Chief Executive Officer-designate from
1999 to early 2000 of Commercial Intertech Corp., a manufacturer of hydraulic
components and systems and engineered building systems and products. From 1996
to 1999, Mr. Perkins was President and Chief Executive Officer of Aftermarket
Technology Corp., a remanufacturer and a distributor and provider of logistic
services to the automotive aftermarket. From 1979 to 1996, Mr. Perkins served in
various capacities, including President and Chief Executive Officer from 1983 to
1996, with Senior Flexonics, Inc. Mr. Perkins began his career in 1968 as an
industrial engineer with United States Steel and served in various manufacturing
management positions with Copperweld Corporation from 1971 to 1979. Mr. Perkins'
term as a director expires in November 2004.
Mr. Bush has been a director of DTI since November 1995. He has been
Chairman of the Board of Bush, O'Donnell & Co., Inc., an investment advisory and
merchant banking firm located in St. Louis, Missouri since 1986. Mr. Bush is
also a director of Mississippi Valley Bancshares, Inc., the Lord Abbett family
of mutual funds of Jersey City, New Jersey, WellPoint Health Networks, Inc., a
healthcare provider located in Thousand Oaks, California, and Engineered Support
Systems, Inc., a manufacturer of military support equipment and electronics
located in St. Louis, Missouri. Mr. Bush's term as a director expires in
November 2002.
Mr. Dill has been a director of DTI since November 1997. He has been the
general partner of Gateway Associates, L.P., a venture capital firm located in
St. Louis, Missouri, since November 1995. From 1991 until September 1995, Mr.
Dill was President, Chief Executive Officer and a Director of Bridge Information
Systems, Inc., an on-line provider of financial and trading data to
institutional equity markets. From 1988 until 1990, Mr. Dill was President and
Chief Operating Officer of AVX Corporation, a global supplier of capacitors to
the electronics industry. From 1963 until 1988, Mr. Dill was employed in various
capacities (most recently as Senior Vice President) by Emerson Electric Company.
Mr. Dill is also a director of Zoltek Companies, Inc., Stifel Financial
Corporation and Transact Technologies, Inc. Mr. Dill's term as a director
expires in November 2002.
Mr. Lannert has been a director of DTI since January 2002. He has been
Executive Vice President, Chief Financial Officer and a director of Navistar
International Corporation, a manufacturer of heavy-duty trucks and diesel
engines, since 1990. Mr. Lannert served in a number of financial positions with
Navistar and its corporate predecessors from 1964 until his appointment as Chief
Financial Officer in 1990. Mr. Lannert's term as a director expires in November
2002.
EXECUTIVE OFFICERS
The following provides certain information regarding our executive officers
who are appointed by and serve at the pleasure of the Board of Directors:
NAME AGE POSITION(S)
---- --- -----------
Stephen J. Perkins......... 55 President and Chief Executive Officer(1)
John M. Casper............. 57 Senior Vice President -- Finance and Chief Financial Officer
John F. Schott............. 57 Chief Operating Officer
---------------
(1) See information under "Directors."
Mr. Casper has served as our Senior Vice President -- Finance and Chief
Financial Officer since January 22, 2001. Mr. Casper served from July 1997 until
January 2001 as an independent financial consultant to small family-owned
companies. From February 1994 to July 1997, Mr. Casper was Vice President and
Chief Financial Officer of Petrolite Corporation, a specialty chemical
manufacturer supplying the oil field market. From 1987 to February 1994, Mr.
Casper was Executive Vice President -- International and Chief Financial Officer
of Mitek, Inc.
Mr. Schott has served as our Chief Operating Officer since January 10,
2001. Before then, Mr. Schott served in various capacities with us since 1990,
including President of the Precision Assembly sector of our
38
Automation Group, President of Detroit Tool and Engineering Company, President
of the Peer Welding Systems division, and engineering manager of Advanced
Assembly Automation, Inc.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Mr. Perkins inadvertently failed to timely file a Form 4 for May 2002 and
June 2002, as required under Section 16(a) of the Securities Exchange Act of
1934, in connection with purchases of shares of our common stock on the open
market on May 30, 2002, May 31, 2002, June 4, 2002 and June 5, 2002. These
transactions were reported on a Form 5 filed with the Commission on July 31,
2002.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to our chief executive
officer and our other two executive officers for services rendered in all
capacities to us for the fiscal years ended June 25, 2000, June 24, 2001 and
June 30, 2002.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- -------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS UNDERLYING COMPENSATION
POSITION YEAR ($)(1) ($)(2)(3) ($) ($) OPTIONS ($)
------------------ ---- -------- --------- ------------ ------------ ---------- ------------
Stephen J. Perkins.................. 2002 $480,000 $250,000 $108,655(4) -- -- $14,437(5)
President and Chief 2001(6) $309,230 $192,000 -- $711,520(7) 80,000(8) $ 7,405(5)
Executive Officer 2000 -- -- -- -- -- --
John M. Casper......................
Senior Vice President - 2002 $251,258 $110,000 $ 54,213(9) $125,000(10) -- $10,056(5)
Finance and Chief 2001(11) $108,016 $ 50,000 -- $ 36,880(10) 20,000 $ 2,770(5)
Financial Officer 2000 -- -- -- -- -- --
John F. Schott...................... 2002 $237,508 $ 90,000 $ 56,163(12) $ 62,500(13) -- $ 8,439(5)
Chief Operating 2001 $211,466 $ 51,406 -- $ 70,000(13) -- $12,255(5)
Officer (14) 2000 $182,502 $ 94,500 -- -- 18,000 $ 8,803(5)
---------------
(1) Includes amounts deferred under the 401(k) feature of our Retirement Income
Savings Plan and under our Non-Qualified Deferred Compensation Plan.
(2) Reflects bonus payments earned during the fiscal year, all or a portion of
which may have been paid in a subsequent fiscal year.
(3) The bonuses paid to Messrs. Perkins, Casper and Schott in fiscal 2002 were
in recognition of the special efforts each of them made in connection with
our financial recapitalization transaction and corporate restructuring. The
bonuses paid to Messrs. Perkins and Casper in fiscal 2001 were pursuant to
their respective employment agreements.
(4) Includes $80,451 paid to Mr. Perkins to reimburse him for expenses incurred
in connection with his relocation to Dayton, Ohio and for taxes related to
such reimbursement.
(5) Represents matching contributions under our Retirement Income Savings Plan
and Non-Qualified Deferred Compensation Plan and the payment of premiums
for term life insurance for the benefit of the executive officers. The
matching contributions were $7,125 and $14,140 for Mr. Perkins in 2001 and
2002, respectively; $2,560 and $9,759 for Mr. Casper in 2001 and 2002,
respectively; and $8,383, $11,835 and $8,178 for Mr. Schott in 2000, 2001
and 2002, respectively. The term life insurance premiums were $280 and $297
for Mr. Perkins in 2001 and 2002, respectively; $210 and $297 for Mr.
Casper in 2001 and 2002, respectively; and $420, $420 and $261 for Mr.
Schott in 2000, 2001 and 2002, respectively.
(6) Reflects compensation earned from November 6, 2000, the commencement of Mr.
Perkins' employment with DTI.
39
(7) The amount shown represents the fair market value of the restricted stock
award as of the date of grant. As of June 30, 2002, Mr. Perkins held
200,000 shares of restricted stock with an aggregate market value of
$700,000. Of these 200,000 shares of restricted stock, 100,000 shares will
vest November 6, 2002 and 100,000 shares will vest November 6, 2003.
Dividends will be paid on such shares of restricted stock if and when the
Board pays dividends on our common stock.
(8) These options were terminated in connection with the issuance of the
restricted shares referenced in footnote 7 above.
(9) Includes $38,711 paid to Mr. Casper to reimburse him for expenses incurred
in connection with his relocation to Dayton, Ohio and for taxes related to
such reimbursement.
(10) The amount shown represents the fair market value of the restricted stock
award as of the date of grant. As of June 30, 2002, Mr. Casper held 30,000
shares of restricted stock with an aggregate market value of $105,000.
During the fiscal year ended June 30, 2002, Mr. Casper was awarded 20,000
shares of restricted stock, 5,000 shares of which vested on September 12,
2002 and 5,000 of which will vest on each of September 12, 2003, September
12, 2004 and September 12, 2005. During the fiscal year ended June 24,
2001, Mr. Casper was awarded 10,000 shares of restricted stock, 2,500
shares of which vested on January 22, 2002 and 2,500 shares of which will
vest on each of January 22, 2003, January 23, 2004 and January 22, 2005.
Dividends will be paid on such shares of restricted stock if and when the
Board pays dividends on our common stock.
(11) Reflects compensation earned from January 22, 2001, the commencement of Mr.
Casper's employment with DTI.
(12) Includes $39,868 paid to Mr. Schott to reimburse him for expenses incurred
in connection his relocation to Dayton, Ohio and for taxes related to such
reimbursement.
(13) The amount shown represents the fair market value of the restricted stock
award as of the date of grant. As of June 30, 2002, Mr. Schott held 30,000
shares of restricted stock with an aggregate market value of $105,000.
During the fiscal year ended June 30, 2002, Mr. Schott was awarded 10,000
shares of restricted stock, 2,500 shares of which vested on each of
September 12, 2002 and 5,000 of which will vest on each of September 12,
2003, September 12, 2004 and September 12, 2005. During the fiscal year
ended June 24, 2001, Mr. Schott was awarded 20,000 shares of restricted
stock, 5,000 shares of which vested on April 24, 2002 and 5,000 shares of
which will vest on each of April 24, 2003, April 24, 2004 and April 24,
2005. Dividends will be paid on such shares of restricted stock if and when
the Board pays dividends on our Common Stock.
(14) Mr. Schott was appointed Chief Operating Officer on January 10, 2001. Prior
to this, Mr. Schott served in various non-executive officer capacities for
us.
COMPENSATION OF DIRECTORS
Directors who are employees of DTI receive no additional compensation for
serving as directors. Each director who is not an employee receives an annual
retainer fee of $20,000 for his services as a director, together with additional
fees of $1,000 for attendance at each meeting of the full Board of Directors and
$750 ($1,000 for committee chairmen) for attendance at each meeting of
committees of the Board of Directors (with a per day cap of either $1,250 of
committee meeting fees or $1,500 of committee meeting fees for chairmen of
committees that meet on any given day). The Chairman of the Board receives an
additional annual fee of $150,000 for his services. Directors are also entitled
to reimbursement for their expenses incurred in attending meetings. On November
8, 2001 and September 5, 2002, the Board authorized special payments to Mr.
Kerley, our Chairman of the Board, of $150,000 each in recognition of his
efforts on our behalf during fiscal 2001 and 2002, respectively.
Pursuant to our Directors Deferred Compensation Plan, each director who is
not an employee of DTI must defer $10,000 of his annual retainer fee in common
stock equivalent units until termination of his directorship. In addition, each
such director may defer receipt of all or part of his remaining compensation
until termination of his directorship. The value of the required deferred fees
reflect a hypothetical investment in our common stock. The value of the optional
deferred fees reflect a hypothetical investment in our common
40
stock or in any combination of the investment funds made available to our
employees under our 401(k) plan, in either case up until the time of termination
of directorship. All common stock equivalent units held in each non-employee
director's deferred fee account receive dividend equivalents.
DIRECTORS STOCK OPTION PLAN
We maintain a 1994 Directors Non-Qualified Stock Option Plan (the
"Directors Stock Option Plan"), that provides for the granting of options to our
directors who are not employees, for up to an aggregate of 100,000 shares of
common stock.
The Directors Stock Option Plan is administered by a Directors Stock Option
Committee of two or more members of the Board of Directors. Directors who have
been granted an option under the Directors Stock Option Plan during the
twelve-month period preceding appointment to the committee are not eligible to
serve on such committee, and no option may be granted to a director while
serving on the committee.
Options granted or to be granted under the Directors Stock Option Plan may
not be exercised for a period of two years from the date of grant and thereafter
become exercisable on a cumulative basis in 25% increments beginning on the
second anniversary of the date of grant and concluding on the fifth anniversary
of the date of grant. All options granted under the Directors Stock Option Plan
expire ten years from the date of grant. Options granted or to be granted under
the Directors Stock Option Plan are nontransferable, and the exercise price must
be equal to the fair market value of the common stock on the date of grant as
set forth in the Directors Stock Option Plan or as determined by the Directors
Stock Option Committee. Upon exercise, the exercise price must be paid in full
in cash or such other consideration as the Directors Stock Option Committee may
permit.
The Directors Stock Option Plan by its express terms provides for the grant
of options to each person upon becoming an eligible director with respect to
10,000 shares of common stock and the grant of an additional option to each
person upon becoming Chairman of the Board (provided he is an eligible director)
with respect to 5,000 shares of common stock, in each case at the fair market
value on the date of grant. No options were granted under the Directors Stock
Option Plan during fiscal 2002 because of the 100,000 shares of common stock
authorized to be issued pursuant to the Plan, options to purchase 98,500 shares
were already outstanding. Because there were not enough options to purchase
shares remaining under the Plan, the Directors Stock Option Committee granted
10,000 common stock equivalent units to Mr. Lannert as of January 30, 2002 and
1,000 common stock equivalent units to each of Messrs. Kerley, Bush, Dill,
Liberman, Logan and Pollnow as of November 8, 2001.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Stephen J. Perkins
Effective November 2000, we entered into a three-year employment agreement
with Mr. Perkins, our President and Chief Executive Officer, the term of which
is subject to automatic one-year extensions unless either party gives the
required notice. The employment agreement provides that Mr. Perkins will receive
an initial annual base salary of $480,000, subject to increase each year at the
Board's discretion, a guaranteed cash bonus for fiscal 2001 equal to 60% of the
base salary actually paid to Mr. Perkins in fiscal 2001 and annual incentive
compensation for other fiscal years based on DTI and Mr. Perkins meeting
performance criteria. Pursuant to the employment agreement, we entered into an
agreement with Mr. Perkins for the issuance of 200,000 restricted shares of
common stock to him. Under the agreement, Mr. Perkins is also entitled to
participate in our executive compensation and employee benefit plans and
programs, including long-term incentive plans, deferred compensation plans,
health and medical insurance programs, 401(k) and other savings plans. We are
also obligated to pay country club membership dues, a $1,250 monthly automobile
allowance and personal income tax return preparation expenses for Mr. Perkins.
The agreement also contains non-competition and confidentiality provisions
applicable to Mr. Perkins.
In November 2000, we also entered into a termination and change of control
agreement with Mr. Perkins. This agreement provides that if Mr. Perkins'
employment is terminated due to death, normal retirement or
41
disability, he will be entitled to the unpaid portion of his salary and business
expenses, vested, nonforfeitable amounts under benefit plans, and an amount
equal to the average annual incentive compensation paid to him in the three
fiscal years immediately preceding the year of termination, as prorated through
his date of termination. In addition, his stock options will become exercisable
and his restricted stock and performance shares will become vested to the extent
and for the periods indicated in the relevant plans and programs. If his
termination is due to disability, he also will continue to receive certain
benefits.
The termination and change of control agreement further provides that if we
terminate Mr. Perkins' employment for cause, or if he voluntarily terminates his
own employment without good reason, he will be entitled to receive the unpaid
portion of his salary and business expenses for the current year, as well as any
vested, nonforfeitable amounts in our compensation and benefits plans.
If we terminate Mr. Perkins' employment without cause prior to a change in
control, he will continue to be covered by certain benefit plans for two years,
and he will be entitled to the unpaid portion of his salary and business
expenses for the current year, any vested, nonforfeitable amounts in our
compensation and benefits plans, brokerage commissions for the sale of his
house, a payment equal to twice his annual base salary and target bonus, and an
additional payment equal to 60% of his prorated annual base salary. In addition,
his stock options will become exercisable, and his restricted stock and
performance shares will become vested to the extent and for the periods
indicated in the relevant plans and programs.
The agreement also provides that Mr. Perkins' employment will continue for
three years after a change in control. If, during that time, we terminate Mr.
Perkins' employment without cause, or if he voluntarily terminates his own
employment for good reason, he will continue to be covered by certain benefit
plans for three years, and he will entitled to the unpaid portion of his salary
and business expenses for the current year, a percentage of the current year's
bonus, certain performance-based compensation, outplacement services, brokerage
commissions for the sale of his house, a payment equal to three times his annual
base salary and target bonus, and any vested, nonforfeitable amounts in our
compensation and benefits plans. In addition, his stock options shall become
exercisable, and his restricted stock and performance shares will become vested
to the extent and for the periods indicated in the relevant plans and programs.
John M. Casper and John F. Schott
In January 2001, we entered into a two-year employment agreement with Mr.
Casper, our Chief Financial Officer and Executive Vice President-Finance, and in
May 2001, we entered into a nearly identical two-year employment agreement with
Mr. Schott, our Chief Operating Officer. Both agreements are subject to
automatic one-year extensions unless either party serves the required notice The
respective employment agreements provide for an annual base salary of at least
$250,000 and $235,008 for Mr. Casper and Mr. Schott, respectively. The
employment agreements contain non-competition and confidentiality provisions.
The employment agreements also provide that Mr. Casper and Mr. Schott are each
entitled to receive benefits and perquisites that are made available to all
senior executives. Further, subject to the provisions of the change of control
agreements described below, if we terminate the employment of Mr. Casper or Mr.
Schott for any reason other than death, disability or cause, or if they
voluntarily terminate their employment for good reason, the agreements provide
that they will be entitled to receive their base salary and certain benefits for
at least one year.
In January 2001, we also entered into a change of control agreement with
Mr. Casper, and in May 2001, we entered into a nearly identical change of
control agreement with Mr. Schott. The respective change of control agreements
provide that the employment of Mr. Casper and Mr. Schott will continue for at
least two years after a change of control. Upon a change of control, previously
granted stock options and restricted shares will become fully vested and
exercisable. The agreements further provide that, after a change in control, if
we terminate their employment without cause, or if they voluntarily terminate
their employment for good reason, their benefits under qualified retirement
plans will be fully vested, they will continue to be covered by certain medical,
dental and vision benefits for two years and will be entitled to the unpaid
portion of their respective salary and business expenses for the current year, a
payment equal to two times their respective
42
annual base salary and target bonus, and any vested, nonforfeitable amounts in
our compensation and benefits plans.
OPTIONS
No options were granted during the fiscal year ended June 30, 2002 to our
executive officers. There were no SARS granted to, or exercised by, our
executive officers in fiscal 2002, or outstanding as of June 30, 2002.
None of the executive officers exercised options in fiscal 2002. The
following table sets forth information concerning the unexercised options held
by our executive officers as of June 30, 2002.
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT JUNE 30, 2002 JUNE 30, 2002(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Stephen J. Perkins............................ -- -- -- --
John M. Casper................................ 4,000 16,000 -- --
John F. Schott................................ 36,000 14,800 -- --
---------------
(1) The value per option is calculated by subtracting the exercise price per
option from the closing price of our common stock on the Nasdaq National
Market on June 30, 2002. Based on this calculation, none of the unexercised
options held by our executive officers were in-the-money at June 30, 2002.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 2002, our Executive Compensation and
Development Committee consisted of Messrs. Bush, Liberman, Pollnow, Dill, Logan
and Lannert. Mr. Logan was formerly an executive officer of the Company until
his retirement on December 31, 1999.
43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
HOLDERS OF MORE THAN FIVE PERCENT BENEFICIAL OWNERSHIP
The following table sets forth certain information concerning the
beneficial ownership of common stock as of September 1, 2002 by each stockholder
who is known by us to own beneficially in excess of 5% of our outstanding common
stock. Except as otherwise indicated, to our knowledge all persons listed below
have sole voting and investment power with respect to their shares of common
stock.
SHARES OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING SHARES
------------------------------------ ------------ ------------------
State of Wisconsin Investment Board.................... 4,459,100(1) 18.9%
PO Box 7842
Madison, WI 53707
The Northwestern Mutual Life Insurance Company......... 3,754,568(2) 15.2%
720 East Wisconsin Avenue
Madison, WI 53202
Ironwood Capital Management, L.L.C..................... 2,713,490(3) 11.5%
21 Custom House Street
Boston, MA 02110
Citigroup, Inc......................................... 2,503,038(4) 10.3%
425 Park Avenue
New York, NY 10043
Mass Mutual Life Insurance Co.......................... 2,503,009(5) 10.3%
One Memorial Drive, Suite 1100
Cambridge, MA 02142
Putnam Investments, L.L.C.............................. 2,465,280(6) 10.4%
One Post Office Square
Boston, MA 02109
Fidelity Management & Research......................... 1,786,500(7) 7.6%
82 Devonshire Street
Boston, MA 02109
Royce & Associates, Inc................................ 1,239,000(8) 5.2%
1414 Avenue of the Americas
New York, NY 10019
---------------
(1) The number of shares of common stock shown as beneficially owned was derived
from a Schedule 13G/A dated February 15, 2002 that was filed with the
Commission by State of Wisconsin Investment Board ("SWIB"), reflecting
beneficial ownership of 1,959,100 shares of common stock. This amount also
includes 2,500,000 shares of common stock purchased by SWIB in the private
placement described in "Recent Sales of Unregistered Securities."
(2) The number of shares of common stock shown as beneficially owned was derived
from a Schedule 13G/A dated July 8, 2002 that was filed with the Commission
by the Northwestern Mutual Life Insurance Company ("Northwestern"). The
3,754,568 shares of common stock beneficially owned by Northwestern includes
1,071,500 shares of common stock issuable upon conversion of outstanding
TIDES.
(3) The number of shares of common stock shown as beneficially owned was derived
from information provided by Ironwood Capital Management, LLC ("ICM") and a
Schedule 13G dated May 10, 2002 that was filed with the Commission jointly
by ICM, Warren J. Isabelle ("Isabelle"), Richard L. Droster ("Droster"),
Donald Collins ("Collins") and ICM/Isabelle Small-Cap Value Fund (the
"Fund"). According to the Schedule 13G, ICM, Isabelle, Droster and Collins
each has shared voting power with respect to 1,096,590 shares of common
stock and shared dispositive power with respect to 1,583,490 shares of
common stock, and the Fund has shared voting and dispositive power with
respect to 653,800
44
shares of common stock. This amount also includes 1,130,000 shares of common
stock purchased by ICM and its affiliates, including the Fund, in the
private placement described in "Recent Sales of Unregistered Securities."
These shares are beneficially owned by ICM.
(4) The number of shares of common stock shown as beneficially owned was derived
from a Schedule 13G/A dated August 31, 2002 that was filed with the
Commission jointly by The Travelers Indemnity Company ("Indemnity"), The
Travelers Insurance Group Holdings Inc. ("TIGHI"), Travelers Property
Casualty Corp. ("TAP"), Citigroup Insurance Holding Corporation ("CIH"),
Associated Madison Companies, Inc. ("AMAD") and Citigroup Inc.
("Citigroup"). According to the Schedule 13G/A, Indemnity, TIGHI and TAP
have shared voting and dispositive power with respect to 1,451,762 shares of
common stock, and CIH, AMAD and Citigroup have shared voting and dispositive
power with respect to 2,503,038 shares of common stock. This amount includes
714,286 shares of common stock issuable upon conversion of outstanding
TIDES.
(5) The number of shares of common stock shown as beneficially owned is based
upon the number of shares of common stock issued to the holder in the TIDES
Exchange described in "Recent Sales of Unregistered Securities." This amount
includes 714,286 shares of common stock issuable upon conversion of
outstanding TIDES.
(6) The number of shares of common stock shown as beneficially owned was derived
from information provided by Putnam Investments, LLC ("Putnam Investments")
and a Schedule 13G/A dated February 5, 2002 that was filed with the
Commission jointly by Putnam Investments, Marsh & McLennan Companies, Inc.
("Marsh"), Putnam Investment Management, LLC ("PIM") and Putnam Advisory
Company, LLC ("PAC"). According to the Schedule 13G/A: (a) Putnam
Investments has shared voting power with respect to 461,135 shares of common
stock and shared dispositive power with respect to 1,465,280 shares of
common stock, (b) PIM has shared dispositive power with respect to 416,735
shares of common stock, and (c) PAC has shared voting power with respect to
461,135 shares of common stock and shared dispositive power with respect to
1,048,545 shares of common stock. This amount also includes 1,000,000 shares
of common stock purchased by Putnam Investments and its affiliates in the
private placement described in "Recent Sales of Unregistered Securities."
These shares are beneficially owned by Putnam Investments.
(7) The number of shares of common stock shown as beneficially owned was derived
from a Schedule 13G/A dated February 14, 2002 that was filed with the
Commission jointly by Fidelity Management & Research Company ("FMRC"),
Fidelity Low Priced Stock Fund (the "Fund"), FMR Corp. ("FMR"), Edward C.
Johnson 3d and Abigail P. Johnson. According to the Schedule 13G/A, FMRC, a
wholly-owned subsidiary of FMR, is the beneficial owner of 536,500 shares of
common stock in its capacity as investment adviser to the Fund, which owns
the shares. Edward C. Johnson 3d and FMR, through their control of FMRC and
the Fund, each has dispositive power with respect to these shares. According
to the Schedule 13G/A, Edward C. Johnson 3d, Abigail P. Johnson and members
of the Johnson family, through their ownership of voting common stock of
FMR, may be deemed to be a controlling group with respect to FMR, and
therefore have dispositive power with respect to these shares. According to
the Schedule 13G/A, the Board of Trustees for the funds managed by FMRC has
sole voting power with respect to these shares. This amount also includes
1,250,000 shares of common stock purchased by the Fund in the private
placement described in "Recent Sales of Unregistered Securities." These
shares are beneficially owned by FMRC.
(8) The number of shares of common stock shown as beneficially owned was derived
from a Schedule 13G/A dated February 7, 2002 that was filed with the
Commission by Royce & Associates, Inc. ("Royce"). This amount also includes
550,000 shares of common stock purchased by Royce and its affiliates in the
private placement described in "Recent Sales of Unregistered Securities."
These shares are beneficially owned by Royce.
45
BENEFICIAL OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of common stock and common stock equivalent units as of
September 1, 2002 by each director, by each of our executive officers and by all
directors and executive officers as a group.
COMMON
SHARES OF PERCENT OF STOCK
COMMON OUTSTANDING EQUIVALENT
NAME OF BENEFICIAL OWNER STOCK SHARES UNITS(9)
------------------------ --------- ----------- ----------
William H.T. Bush........................................... 23,750(1) * 7,976
John M. Casper.............................................. 84,000(2) * --
Charles A. Dill............................................. 18,250(3) * 26,712
James J. Kerley............................................. 23,250(4) * 102,161
Robert C. Lannert........................................... -- * 12,848
Lee M. Liberman............................................. 33,250(1) * 28,074
John F. Logan............................................... 77,000(5) * 13,387
Stephen J. Perkins.......................................... 225,000(6) * --
Charles F. Pollnow.......................................... 18,250(1) * 27,338
John F. Schott.............................................. 72,200(7) * --
All directors and executive officers as a group (10
persons).................................................. 574,950(8) 2.4% 218,496
---------------
* Less than 1.0%.
(1) Includes 10,750 shares issuable pursuant to options currently exercisable or
exercisable within 60 days of September 1, 2002.
(2) Includes 4,000 shares issuable pursuant to options exercisable within 60
days of September 1, 2002.
(3) Includes 8,250 shares issuable pursuant to options currently exercisable or
exercisable within 60 days of September 1, 2002.
(4) Includes 18,250 shares issuable pursuant to options currently exercisable or
exercisable within 60 days of September 1, 2002.
(5) Includes 67,000 shares issuable pursuant to options currently exercisable or
exercisable within 60 days of September 1, 2002.
(6) Includes 200,000 shares of restricted common stock of which 100,000 shares
will vest November 6, 2002 and 100,000 shares will vest November 6, 2003.
(7) Includes 39,200 shares issuable pursuant to options currently exercisable or
exercisable within 60 days of September 1, 2002.
(8) See footnotes (1) through (7).
(9) These common stock equivalent units are credited under our Directors
Deferred Compensation Plan. The value of the common stock equivalent units
mirrors the value of our common stock. The amounts ultimately realized by
our directors will reflect changes in the market value of our common stock
from the date of grant until the date of payout. The common stock equivalent
units do not have voting rights, but are credited with dividend equivalents.
46
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth certain information as of June 30, 2002 with
respect to compensation plans under which our equity securities are authorized
for issuance.
EQUITY COMPENSATION PLAN INFORMATION
WEIGHTED-AVERAGE NUMBER OF SECURITIES
NUMBER OF SECURITIES TO EXERCISE PRICE OF REMAINING AVAILABLE FOR
BE ISSUED UPON EXERCISE OUTSTANDING FUTURE ISSUANCE UNDER
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS EQUITY COMPENSATION
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS PLANS
------------- ----------------------- ----------------- -----------------------
Equity Compensation Plans Approved By
Security Holders................... 1,007,767 $13.14 177,596*
Equity Compensation Plans Not
Approved By Security Holders....... -0- N/A -0-
--------- ------ --------
Total........................... 1,007,767 $13.14 177,596*
---------------
* Of these securities, 69,000 shares are available for issuance in connection
with the grant of stock options, restricted stock or performance stock awards
pursuant to our 1996 Long-Term Incentive Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report:
PAGE
----
1. Financial Statements
Report of PricewaterhouseCoopers LLP, independent
public accountants..................................... F-2
Consolidated Balance Sheets as of June 30, 2002 and
June 24, 2001 (As Restated)............................ F-3
Consolidated Statement of Operations for the Fiscal
Years Ended June 30, 2002, June 24, 2001 (As Restated)
and June 25, 2000 (As Restated)........................ F-4
Consolidated Statement of Changes in Stockholders'
Equity for the Fiscal Years Ended June 30, 2002, June
24, 2001 (As Restated) and June 25, 2000 (As
Restated).............................................. F-5
Consolidated Statement of Cash Flows for the Fiscal
Years Ended June 30, 2002, June 24, 2001 (As Restated)
and June 25, 2000 (As Restated)........................ F-6
Notes to Consolidated Financial Statements............. F-7
2. Financial Statement Schedules
Report of Independent Accountants on Financial
Statement Schedule..................................... S-1
Schedule VIII Valuation and Qualifying Accounts and
Reserves for the Fiscal Years Ended June 30, 2002, June
24, 2001 and June 25, 2000............................. S-2
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
3. Exhibits
The exhibits listed on the accompanying Index to
Exhibits are filed as part of this Annual Report.
(b) Reports on Form 8-K
On May 8, 2002, a Current Report on Form 8-K was filed to report,
pursuant to Items 5 and 7 thereof, a release of our earnings for the third
quarter of fiscal 2002, among other things.
On May 9, 2002, a Current Report on Form 8-K was filed to report,
pursuant to Items 5 and 7 thereof, a release announcing that we had reached
agreements-in-principle to effect a major financial recapitalization
transaction, among other things.
On June 24, 2002, a Current Report on Form 8-K was filed to report,
pursuant to Items 5 and 7 thereof, a release announcing that we had
completed a previously-announced major financial recapitalization
transaction and that our 2002 annual meeting of stockholders is scheduled
for November 7, 2002.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DT INDUSTRIES, INC.
By: /s/ JOHN M. CASPER
------------------------------------
John M. Casper
Senior Vice President -- Finance and
Chief Financial Officer
Dated: October 4, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on October 4, 2002.
SIGNATURE TITLE
--------- -----
* Chairman of the Board
------------------------------------------------
James J. Kerley
/s/ STEPHEN J. PERKINS President, Chief Executive Officer and Director
------------------------------------------------ (Principal Executive Officer)
Stephen J. Perkins
/s/ JOHN M. CASPER Senior Vice President -- Finance and Chief
------------------------------------------------ Financial Officer (Principal Financial and
John M. Casper Accounting Officer)
* Director
------------------------------------------------
William H.T. Bush
* Director
------------------------------------------------
Charles A. Dill
* Director
------------------------------------------------
Robert C. Lannert
* Director
------------------------------------------------
Lee M. Liberman
* Director
------------------------------------------------
John F. Logan
* Director
------------------------------------------------
Charles Pollnow
*By: /s/ JOHN M. CASPER Attorney-In-Fact
-----------------------------------------
John M. Casper
49
CERTIFICATIONS
I, Stephen J. Perkins, certify that:
1. I have reviewed this annual report on Form 10-K of DT Industries, Inc.;
2. Based on my knowledge, this annual 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 annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report.
Date: October 4, 2002
/s/ STEPHEN J. PERKINS
--------------------------------------
Stephen J. Perkins
President and Chief Executive Officer
(principal executive officer)
I, John M. Casper, certify that:
1. I have reviewed this annual report on Form 10-K of DT Industries, Inc.;
2. Based on my knowledge, this annual 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 annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report.
Date: October 4, 2002
/s/ JOHN M. CASPER
--------------------------------------
John M. Casper
Senior Vice President -- Finance and
Chief Financial Officer
(principal financial and
accounting officer)
50
DT INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of PricewaterhouseCoopers LLP, independent public
accountants............................................... F-2
Consolidated Balance Sheets as of June 30, 2002 and June 24,
2001 (As Restated)........................................ F-3
Consolidated Statement of Operations for the Fiscal Years
Ended June 30, 2002, June 24, 2001 (As Restated) and June
25, 2000 (As Restated).................................... F-4
Consolidated Statement of Changes in Stockholders' Equity
for the Fiscal Years Ended June 30, 2002, June 24, 2001
(As Restated) and June 25, 2000 (As Restated)............. F-5
Consolidated Statement of Cash Flows for the Fiscal Years
Ended June 30, 2002, June 24, 2001 (As Restated) and June
25, 2000 (As Restated).................................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of DT Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows, after the restatement described in Notes 1 and 16, present
fairly, in all material respects, the financial position of DT Industries, Inc.
and its subsidiaries at June 30, 2002 and June 24, 2001, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended June 30, 2002 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, effective June 25, 2001.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
August 22, 2002
F-2
CONSOLIDATED BALANCE SHEETS
JUNE 24,
2001
JUNE 30, AS RESTATED
2002 (NOTES 1 AND 16)
--------- -----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 18,847 $ 5,505
Accounts receivable, net.................................. 54,936 70,774
Costs and estimated earnings in excess of amounts billed
on uncompleted contracts............................... 29,288 85,805
Inventories, net.......................................... 26,777 40,865
Prepaid expenses and other................................ 8,809 14,665
-------- --------
Total current assets................................... 138,657 217,614
Property, plant and equipment, net.......................... 37,329 62,463
Goodwill, net............................................... 125,538 123,767
Other assets, net........................................... 6,886 6,830
-------- --------
$308,410 $410,674
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of other long-term debt................... $ 5,140 $ 651
Senior secured term and revolving credit facility......... 6,000 35,500
Accounts payable.......................................... 21,049 40,917
Customer advances......................................... 13,124 16,809
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 12,020 8,842
Accrued liabilities....................................... 29,595 37,143
-------- --------
Total current liabilities.............................. 86,928 139,862
-------- --------
Long-term debt.............................................. 45,381 96,571
Other long-term liabilities................................. 3,285 3,778
-------- --------
48,666 100,349
-------- --------
Commitments and contingencies (Note 9)
Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust
holding solely convertible junior subordinated debentures
of the Company............................................ 35,401 80,652
-------- --------
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 and 10,337,274 shares
outstanding at June 30, 2002 and June 24, 2001,
respectively........................................... 246 113
Additional paid-in capital................................ 188,546 127,853
Accumulated deficit....................................... (25,922) (10,992)
Accumulated other comprehensive loss...................... (1,918) (2,058)
Unearned portion of restricted stock...................... (470) (661)
Less --
Treasury stock (988,488 and 1,038,488 shares at June
30, 2002 and June 24, 2001, respectively), at cost... (23,067) (24,444)
-------- --------
Total stockholders' equity............................. 137,415 89,811
-------- --------
$308,410 $410,674
======== ========
See accompanying Notes to Consolidated Financial Statements.
F-3
CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED
-------------------------------------------------
JUNE 24, JUNE 25,
2001 2000
JUNE 30, AS RESTATED AS RESTATED
2002 (NOTES 1 AND 16) (NOTES 1 AND 16)
----------- ---------------- ----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Net sales........................................ $ 326,276 $ 511,102 $ 464,285
Cost of sales.................................... 261,011 437,017 375,418
----------- ----------- -----------
Gross profit..................................... 65,265 74,085 88,867
Selling, general and administrative expenses..... 55,603 90,494 79,852
Goodwill impairment (Note 10).................... -- 38,219 --
Restructuring charge (Note 14)................... 10,332 3,694 --
Net loss on disposal of assets (Note 3).......... 1,128 8,473 --
----------- ----------- -----------
Operating income (loss).......................... (1,798) (66,795) 9,015
Interest expense, net............................ 12,198 14,891 10,305
Dividends on Company-obligated, mandatorily
redeemable convertible preferred securities of
subsidiary DT Capital Trust holding solely
convertible junior subordinated debentures of
the Company.................................... 4,834 5,506 5,146
----------- ----------- -----------
Loss before benefit for income taxes............. (18,830) (87,192) (6,436)
Benefit for income taxes......................... (3,900) (14,120) (983)
----------- ----------- -----------
Net loss......................................... $ (14,930) $ (73,072) $ (5,453)
Gain on conversion of trust preferred securities,
net of tax..................................... 16,587 -- --
----------- ----------- -----------
Income (loss) available to common stockholders... $ 1,657 $ (73,072) $ (5,453)
=========== =========== ===========
Income (loss) available to common stockholders
per common share:
Basic.......................................... $ 0.15 $ (7.18) $ (0.54)
Diluted........................................ $ 0.15 $ (7.18) $ (0.54)
=========== =========== ===========
Weighted average common shares outstanding:
Basic.......................................... 10,733,249 10,172,811 10,107,274
Diluted........................................ 10,750,743 10,172,811 10,107,274
See accompanying Notes to Consolidated Financial Statements.
F-4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
RETAINED ACCUMULATED UNEARNED
EARNINGS/ OTHER ADDITIONAL PORTION OF TOTAL
(ACCUMULATED COMPREHENSIVE COMMON PAID-IN TREASURY RESTRICTED STOCKHOLDERS'
DEFICIT) LOSS STOCK CAPITAL STOCK STOCK EQUITY
------------ ------------- ------ ---------- -------- ---------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
BALANCE, JUNE 27, 1999 -- AS
RESTATED (NOTES 1 AND 16)... $ 67,533 $(1,375) $113 $133,348 $(30,778) $ -- $168,841
Comprehensive loss:
Net loss.................... (5,453)
Foreign currency
translation............... (603)
Total comprehensive
loss.................... (6,056)
-------- ------- ---- -------- -------- ----- --------
BALANCE, JUNE 25, 2000 -- AS
RESTATED (NOTES 1 AND 16)... 62,080 (1,978) 113 133,348 (30,778) -- 162,785
-------- ------- ---- -------- -------- ----- --------
Comprehensive loss:
Net loss.................... (73,072)
Foreign currency
translation............... (80)
Total comprehensive
loss.................... (73,152)
Issuance of 230,000 shares of
restricted stock to
executive management........ (5,567) 6,334 (767) --
Amortization of earned portion
of restricted stock......... 106 106
Payment on stock subscriptions
receivable.................. 72 72
-------- ------- ---- -------- -------- ----- --------
BALANCE, JUNE 24, 2001 -- AS
RESTATED (NOTES 1 AND 16)... (10,992) (2,058) 113 127,853 (24,444) (661) 89,811
-------- ------- ---- -------- -------- ----- --------
Comprehensive loss:
Net loss.................... (14,930)
Foreign currency
translation............... 140
Total comprehensive
loss.................... (14,790)
Gain on conversion of trust
preferred securities, net of
tax......................... 16,587 16,587
Issuance of 50,000 shares of
restricted stock to
executive management........ (1,064) 1,377 (313) --
Amortization of earned portion
of restricted stock......... 504 504
Issuance of 7,000,000 shares
of common stock at $3.20 per
share in offering, net of
transaction fees............ 70 21,128 21,198
Issuance of 6,260,658 shares
of common stock in exchange
for trust preferred
securities and distributions
thereon, net of transaction
fees........................ 63 24,007 24,070
Payments on stock
subscriptions receivable.... 35 35
-------- ------- ---- -------- -------- ----- --------
BALANCE, JUNE 30, 2002........ $(25,922) $(1,918) $246 $188,546 $(23,067) $(470) $137,415
======== ======= ==== ======== ======== ===== ========
See accompanying Notes to Consolidated Financial Statements.
F-5
CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED
----------------------------------------------
JUNE 24, 2001 JUNE 25, 2000
JUNE 30, AS RESTATED AS RESTATED
2002 (NOTES 1 AND 16) (NOTES 1 AND 16)
-------- ---------------- ----------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(14,930) $(73,072) $ (5,453)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation............................................ 6,466 9,240 10,300
Amortization............................................ 3,339 7,163 6,160
Deferred income tax provision........................... (579) (14,045) 4,092
Goodwill impairment (Note 10)........................... -- 38,219 --
Net loss on disposal of assets (Note 3)................. 1,128 8,473 --
Other asset write-downs................................. 2,940 1,457 --
Deferral of dividends on convertible trust preferred
securities............................................ 4,834 5,506 5,146
(Increase) decrease in current assets, excluding the
effect of acquisitions/dispositions:
Accounts receivable..................................... 10,431 13,391 (8,918)
Costs and estimated earnings in excess of amounts billed
on uncompleted contracts.............................. 57,116 (20,274) (27,792)
Inventories............................................. 8,167 10,310 (1,705)
Prepaid expenses and other.............................. 1,684 7,549 (1,573)
Increase (decrease) in current liabilities, excluding the
effect of acquisitions/dispositions:
Accounts payable........................................ (15,990) (6,272) 9,682
Customer advances....................................... (3,606) 2,836 (341)
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. 2,579 1,309 696
Accrued liabilities and other........................... (8,155) (403) (4,624)
-------- -------- --------
Net cash provided by (used in) operating
activities....................................... 55,424 (8,613) (14,330)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (2,923) (3,178) (6,731)
Acquisition of C.E. King net assets..................... -- (2,116)
Proceeds from the disposal of assets (Note 3)........... 24,465 2,049 --
Other................................................... -- (7) (620)
-------- -------- --------
Net cash provided by (used in) investing
activities....................................... 21,542 (1,136) (9,467)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayments of) revolving loans..... (75,257) 10,494 26,083
Payments on borrowings.................................. (4,403) (1,661) (489)
Financing costs......................................... (5,932) (1,547) (1,296)
Net proceeds from equity transactions................... 21,233 72 --
-------- -------- --------
Net cash provided by (used in) financing
activities....................................... (64,359) 7,358 24,298
-------- -------- --------
Effect of exchange rate changes............................. 735 (809) (2,283)
-------- -------- --------
Net increase (decrease) in cash............................. 13,342 (3,200) (1,782)
Cash and cash equivalents at beginning of period............ 5,505 8,705 10,487
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 18,847 $ 5,505 $ 8,705
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest................................................ $ 8,981 $ 12,515 $ 9,809
Income taxes............................................ $ (2,430) $ (1,737) $ (423)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
The Company purchased C. E. King in fiscal 2000.
FISCAL YEAR ENDED
----------------------------------------------
JUNE 30, JUNE 24, JUNE 25,
2002 2001 2000
-------- ---------------- ----------------
Fair value of assets acquired............................... -- -- $ 1,856
Fair value assigned to goodwill............................. -- -- 915
Cash paid................................................... -- -- (2,116)
------- ------- -------
Liabilities assumed......................................... -- -- $ 655
======= ======= =======
See Note 1 for discussion of the financial recapitalization transaction that
occurred in June 2002 wherein certain of the outstanding TIDES and all accrued
and unpaid distributions were exchanged for common shares of the Company.
See accompanying Notes to Consolidated Financial Statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- BUSINESS
DT Industries, Inc. (DTI or the Company) is an engineering-driven designer,
manufacturer and integrator of automated production equipment and systems used
to manufacture, test or package a variety of industrial and consumer products.
Through fiscal 2002, the Company marketed its products through two primary
segments: Automation and Packaging. The Company's operations are located in
North America and Europe, but its products are sold throughout the world.
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 estimated 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, a small facility located in Erie,
Pennsylvania that has historically been part of our Automation segment. 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 audited consolidated financial statements
as of, and for the fiscal year ended, June 24, 2001 and our restated audited
consolidated statement of operations, changes in stockholders' equity and cash
flows for the year ended June 25, 2000 are included on pages F-3 through F-6 and
Note 16 to the audited consolidated financial statements included herein.
Restated selected consolidated financial data for those two fiscal years, as
well as the fiscal year ended June 27, 1999, is included under "Item 6. Selected
Financial Data." Restated unaudited consolidated quarterly financial data for
the fiscal years ended June 30, 2002 and June 24, 2001 is included in Note 17 to
the audited consolidated financial statements included herein.
The Company discovered the accounting adjustments while beginning the
transfer of the sales and accounting functions at AMI to our DT Precision
Assembly segment headquarters in Buffalo Grove, Illinois in connection with the
reorganization of the Company's operations described in Note 15. 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.
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, (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.
Recapitalization
On June 20, 2002, the Company consummated a major financial
recapitalization transaction comprised of an amendment to its senior credit
facility (the "Bank Amendment"), a restructuring of its TIDES
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
securities (the "TIDES Exchange") and the sale of 7.0 million shares of its
common stock for $3.20 per share in a private placement (the "Private
Placement"). Each component of the financial recapitalization is described
below.
Bank Amendment
Pursuant to the Bank Amendment:
- the Company's lenders permanently waived previous financial covenant
defaults resulting from its financial performance in fiscal 2002;
- the maturity date of the Company's senior credit facility was extended
from July 2, 2002 to July 2, 2004;
- the total commitment under the facility was reduced to $76.4 million,
comprised of a $70.0 million revolver and a $6.4 million term loan;
- a monthly asset coverage test (65% of eligible accounts and 25% of
eligible inventory) was established for all revolver advances in excess
of $53.0 million;
- the interest rate was reset at the Eurodollar Rate plus 4% or the Prime
Rate plus 3.5% for all revolver advances up to $53.0 million and the
Prime Rate plus 4% for all revolver advances in excess of $53.0 million;
and
- $1,500 quarterly pro rata reductions of the revolving loan commitment and
term loan are required during fiscal 2003.
See Note 4 for additional information on the Bank Amendment.
TIDES Exchange
As part of the financial recapitalization, the Company consummated the
TIDES Exchange, whereby:
- the TIDES holders exchanged $35.0 million of outstanding TIDES and $15.1
million of accrued and unpaid distribution thereon into 6,260,658 shares
of common stock of the Company at a price of $8.00 per share;
- the maturity date of the remaining $35.0 million of TIDES was shortened
from May 31, 2012 to May 31, 2008;
- the conversion price of the remaining TIDES was reduced from $38.75 per
share to $14.00 per share;
- the TIDES holders agreed to a "distribution holiday" pursuant to which
distributions on the remaining TIDES will not accrue from April 1, 2002
through July 2, 2004; and
- provided that the Company make the first distribution payment following
the "distribution holiday," it will have the right from time to time to
defer distributions on the TIDES through their maturity in 2008.
See Note 5 for additional information on the TIDES Exchange.
Private Placement
On June 20, 2002, the Company consummated the Private Placement to several
stockholders of 7.0 million shares of its common stock at $3.20 per share. The
Company used the proceeds of this offering to repay indebtedness of
approximately $18.5 million under the Company's senior credit facility and to
pay transaction expenses of approximately $3.9 million.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies utilized by the Company in the preparation of the
financial statements conform to accounting principles generally accepted in the
United States, and require that management make estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of net sales and
expenses during the reporting period. Actual amounts could differ from these
estimates.
During fiscal 2002, the Company changed its policy regarding the
classification of unpaid progress billings on the balance sheet. Under the new
policy, unpaid progress billings are now included in accounts receivable but
were previously included in costs and estimated earnings in excess of amounts
billed on uncompleted contracts on the balance sheet. As a result of this change
in policy, a reclassification of $25,859 was made to the June 24, 2001 balance
sheet that increased accounts receivable and decreased costs and estimated
earnings in excess of amounts billed on uncompleted contracts. Certain other
reclassifications have been made to prior year financial statements for
comparative purposes. These reclassifications had no effect on net losses.
The significant accounting policies followed by the Company are described
below.
Revenue Recognition
Almost all of the Company's net sales are derived from the sale and
installation of equipment and systems primarily under fixed-price contracts. The
Company also derives net sales from the sale of spare and replacement parts and
servicing installed equipment and systems. The Company recognizes revenue under
the percentage of completion method or upon delivery and acceptance in
accordance with SAB 101.
The Company principally utilizes 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 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, revenue is
recognized upon shipment (FOB shipping point). The Company utilizes 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 customisation 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
calls 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 cost 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.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of revenues by fiscal year recognized under the two methods of
accounting is as follows:
FISCAL YEAR ENDED
----------------------------------------------
JUNE 30, 2002 JUNE 24, 2001 JUNE 25, 2000
------------- ------------- --------------
Percentage of completion....................... $223,650 $374,167 $306,716
Delivery and acceptance under SAB 101.......... 102,626 136,935 157,569
-------- -------- --------
Total..................................... $326,276 $511,102 $464,285
======== ======== ========
Progress billings and cash deposits received from customers on contracts in
process recognized under percentage of completion accounting method are
reflected as costs and estimated earnings in excess of amounts billed on
uncompleted contracts or billings in excess of costs and estimated earnings on
uncompleted contracts in the consolidated balance sheet. Progress billings and
cash deposits received from customers on contracts in process recognized upon
delivery and acceptance are reflected as customer advances in the consolidated
balance sheet. Costs and estimated earnings in excess of amounts billed on
uncompleted contracts represent costs and earnings recognized in excess of
customer advances billed or collected. Billings in excess of costs and estimated
earnings on uncompleted contracts represent customer advances received in excess
of costs incurred and earnings recognized. See Note 12 for additional
information.
Capitalization of Certain Engineering Costs
The Company capitalizes the initial engineering costs on multiple systems
orders and amortizes these costs to systems in backlog concurrent with
recognition of revenue on such systems. The Company did not capitalize any
engineering costs in fiscal 2002. During fiscal 2001, the Company capitalized
approximately $2,400 of initial engineering costs of which approximately $1,300
remained unamortized as of June 24, 2001. The remaining $1,300 was amortized
during fiscal 2002.
Warranty Accrual
The Company routinely incurs warranty cost after projects are installed and
closed. The Company records these costs as warranty charges and are included in
cost of sales. Warranty costs are estimated at the time a project is closed
based on the Company's historical warranty experience and consideration of any
known warranty issues.
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.
Foreign Currency Translation
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 on the basis presented
below.
Assets and liabilities are translated into U.S. dollars at year-end
exchange rates. Income and expense items are translated at average rates of
exchange prevailing during the year. Adjustments resulting from the process of
translating the consolidated amounts into U.S. dollars are accumulated in a
separate translation adjustment account, included in stockholders' equity.
Common stock and additional paid-in capital are translated at historical U.S.
dollar equivalents in effect at the date of acquisition. Foreign currency
transaction
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
gains and losses are included in earnings currently. Foreign currency
transaction gains and losses were not material for all periods presented.
Cash and Cash Equivalents
All highly liquid debt instruments purchased with original maturities of
three months or less are classified as cash equivalents. As of June 30, 2002,
the Company had $5,493 of cash received upon the sale of the Hyannis,
Massachusetts facility that was restricted for the prepayment of the Sencorp
Industrial Revenue Bonds that were paid in full in August 2002. See Note 4 for
additional information.
Concentrations of Credit Risk and Allowance for Doubtful Accounts
The Company sells its production equipment and systems to a range of
manufacturing companies. However, historically the Company's top five customers
have accounted for at least 25% of the Company's consolidated net sales. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral, although many customers pay deposits to the Company
prior to shipment of its products. The Company monitors its exposure at each
balance sheet date and adjusts the allowance account for amounts estimated to be
uncollectible. The Company maintains a specific policy for its allowance for
doubtful accounts as it relates to significantly past due receivables and
requires amounts to be reserved for unless certain indicators from the customer
exist that indicate future payments will be made. At June 30, 2002, the Company
had trade receivables from a significant Automation segment customer of $19,262,
most of which was collected subsequent to year-end.
Inventories
Inventories are stated at the lower of cost, which approximates the
first-in, first out (FIFO) method, or market. Inventories include the cost of
materials, direct labor and manufacturing overhead.
Obsolete or unsalable inventories are reflected at their estimated
realizable values. Obsolescence is determined by analyzing historical and
forecasted future usage and/or inventory aging. Inventory that has not had
activity during the past year is fully reserved. The portion of the reserve
related to excess inventory is determined by analyzing historical and forecasted
usage against the amount of inventory on hand.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method over the estimated useful lives of the assets,
which range from 3 to 39.5 years.
Expenditures for repairs, maintenance and renewals are expensed as
incurred. Expenditures that improve an asset or extend its estimated useful life
are capitalized. When properties are retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is included in income.
Goodwill and Intangible Assets
In June 2001, the Financial Accounting Standards Board (FASB) approved
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 142 addresses the financial accounting and
reporting for goodwill and other intangible assets subsequent to their initial
recognition. Among the new requirements of SFAS 142 are:
- Goodwill and indefinite-lived intangible assets will no longer be
amortized;
- Goodwill and indefinite-lived intangible assets will be tested for
impairment at the reporting unit level annually;
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- The amortization period of intangible assets that have finite lives will
no longer be limited to 40 years; and
- Additional financial statement disclosures about goodwill and intangible
assets will be required.
SFAS 142 is effective for fiscal years beginning after December 15, 2001,
however, early adoption was permitted in certain instances. In the first quarter
of fiscal 2002, the Company elected to early-adopt the provisions of SFAS 142.
Discontinuance of goodwill amortization reduced pre-tax amortization expense by
$5,287 in fiscal 2002. The carrying value of goodwill will continue to be
assessed for recoverability by management at least on an annual basis. See Note
10 for additional information.
Environmental Liabilities
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and that do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with
completion of a feasibility study or the Company's commitment to a formal plan
of action.
Research and Development
Research and development costs are expensed as incurred. These costs
approximated $3,445, $2,785 and $4,907 in fiscal 2002, 2001 and 2000,
respectively, and are included as selling, general, and administrative expenses
in the accompanying consolidated statement of operations.
Fair Value of Financial Instruments
For purposes of financial reporting, the Company has determined the fair
value of financial instruments approximates book value at June 30, 2002, based
on terms currently available to the Company in financial markets.
Income Taxes
The Company files a consolidated federal income tax return which includes
its domestic subsidiaries. The Company has adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under
SFAS 109, the current or deferred tax consequences of a transaction are measured
by applying the provisions of enacted laws to determine the amount of taxes
payable currently or in future years. Deferred income taxes are provided for
temporary differences between the income tax bases of assets and liabilities,
and their carrying amounts for financial reporting purposes.
Earnings Per Share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128) requires the computation of basic (Basic EPS) and diluted (Diluted
EPS) earnings per share. Basic EPS is based on the weighted average number of
outstanding common shares during the period but does not consider dilution for
potentially dilutive securities.
Employee Stock-Based Compensation
The Company accounts for employee stock options in accordance with
Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees"
(APB 25). Under APB 25, the Company applies the intrinsic value method of
accounting. For employee stock options accounted for using the intrinsic value
method, no compensation expense is recognized because the options are granted
with an exercise price equal
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
to the market value of the stock on the date of grant. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123) prescribes the recognition of compensation expense based on the fair value
of options or stock awards determined on the date of grant. However, SFAS 123
allows companies to continue to apply the valuation methods set forth in APB 25.
For companies that continue to apply the valuation methods set forth in APB 25,
SFAS 123 mandates certain pro forma disclosures as if the fair value method had
been utilized. See Note 8 for additional information.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the disclosure of the components of comprehensive
income or loss in the financial statements. The components of comprehensive
income (loss) included in the Company's financial statements are net loss and
foreign currency translation, which are disclosed in the consolidated statement
of changes in stockholders' equity.
Fiscal Year
The Company uses a 52-53 week fiscal year that ends on the last Sunday in
June.
Accounting Pronouncements
Asset Retirement Obligations
In June 2001, the FASB approved Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This statement applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset. This statement is
effective for the Company in fiscal 2003. The Company does not expect this
statement to have a material impact on its financial position or results of
operation.
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued Statement of Financial Account Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 addresses financial accounting and reporting for the impairment
or disposal of long-lived assets and supercedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The objective of FAS 144 is to establish one
accounting model for long-lived assets to be disposed of by sale. The provisions
of this statement are effective for the Company in fiscal 2003. The Company does
not expect this statement to have a material impact on its financial position or
results of operations.
Rescission of Prior Statements
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002" (SFAS 145). SFAS
145 rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and an amendment of that statement, FASB Statement No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
for Motor Carriers." This statement amends FASB Statement No. 13, "Accounting
for Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
similar to sale-leaseback transactions. The provisions of this statement are
effective for the Company in fiscal 2003. The Company does not expect this
statement to have a material impact on its financial position or result of
operations.
Costs Associated with Exit or Disposal Activities
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(SFAS 146). SFAS 146 addresses financial accounting and reporting costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The principal difference between this
statement and Issue 94-3 relates to its requirements for recognition of a
liability for a cost associated with an exit or disposal activity. This
statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. Under Issue
94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at
the date of an entity's commitment to an exit plan. A fundamental conclusion
reached by the Board in this statement is that an entity's commitment to a plan,
by itself, does not create a present obligation to others that meets the
definition of a liability. Therefore, this statement eliminates the definition
and requirements for recognition of exit costs in Issue 94-3. The provisions of
this statement are effective for exit or disposal activities that are initiated
after December 31, 2002, at which date the Company will adopt such provisions.
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS
Acquisitions
In July 1999, the Company acquired C.E. King for a net cash purchase price
of $2,116. This acquisition was accounted for under the purchase method of
accounting and financed primarily through bank borrowings, resulting in an
increase in the Company's debt. Results of operations of C.E. King have been
included in the Company's consolidated financial statements from the date of
acquisition. The purchase price of the acquisition was allocated to the assets
and liabilities acquired, based on their estimated fair value at the date of
acquisition. The excess of purchase price over the estimated fair value of net
assets acquired was recorded as goodwill.
Dispositions
The following table summarizes certain information regarding the Company's
disposal of assets during the past three fiscal years:
NET CASH GAIN OR (LOSS)
DATE OF SALE BUSINESS OR ASSET PROCEEDS ON DISPOSAL
------------ -------------------------------------------------- -------- -----------------
SALES OCCURRING DURING FISCAL YEAR ENDED JUNE 24, 2001
January 2001... Corporate airplane $ 1,465 $ 640
March 2001..... Vanguard Technical Solutions, Inc. (Vanguard) 523 (1,249)
SALES OCCURRING DURING FISCAL YEAR ENDED JUNE 30, 2002
June 2001...... Detroit Tool Metal Products Co. (DTMP) $14,250 $(1,618)
July 2001...... Scheu & Kniss (S&K) 3,939 (6,200)
October 2001... Hansford Parts and Products (HPP) 622 --
June 2002...... Hyannis, Massachusetts facility 5,524 (1,128)
The losses on the sale of DTMP and S&K are reflected in the net loss on
disposal of assets line on the consolidated statement of operations for the
fiscal year ended June 24, 2001. Included in current assets,
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
property plant and equipment, and current liabilities as of June 24, 2001 were
$11,585, $13,224 and $6,596, respectively, of the amounts disposed of subsequent
to fiscal 2001 year end related to the sale of DTMP and S&K.
The net sales and operating loss of HPP in fiscal 2002 were $792 and $129,
respectively. The combined net sales and operating profit of Vanguard, DTMP, S&K
and HPP in fiscal 2001 were $46,335 and $1,124, respectively.
In the fourth quarter of fiscal 2002, the Company entered into a
sale/leaseback agreement for the Hyannis, Massachusetts facility and recorded a
net loss on disposal of the assets of $1,128. In conjunction with the agreement,
the Company removed the facility, which had a carrying value of $6,502 at June
30, 2002, from the accounting records and recorded the cash proceeds of
approximately $5,493. Using the cash proceeds, on August 1, 2002, the Company
prepaid the Industrial Revenue Bonds of $5,000 that were issued in 1998 to fund
the expansion of the facility. See Note 4 for additional information. The
Company will have lease expense, on a go-foward basis, of approximately $800
annually.
NOTE 4 -- FINANCING
Long-term debt consisted of the following at the end of the last two fiscal
years:
JUNE 30, JUNE 24,
2002 2001
-------- --------
Term and revolving loans under senior credit facility:
Term loan................................................. $ 6,441 $ 9,888
Revolving loans........................................... 44,846 115,255
Foreign currency denominated revolving credit facilities.... -- 1,459
Other long-term debt........................................ 5,234 6,120
------- --------
56,521 132,722
Less -- current portion of senior credit facility........... 6,000 35,500
Less -- current portions of other long-term debt............ 5,140 651
------- --------
$45,381 $ 96,571
======= ========
On June 20, 2002, the Company extended the senior credit facility, which
was scheduled to mature on July 2, 2002, through an amendment to the term and
revolving loan agreement. The amended agreement calls for periodic reductions in
both its revolving credit facility and term commitments. Significant terms of
the amended agreement are:
- Extended the maturity of the agreement to July 2, 2004;
- Waived certain existing defaults of covenants through the end of June
2002, and established new financial covenants through the end of June
2004;
- Requires $1,500 quarterly scheduled commitment reductions beginning
September 30, 2002, prorated between the term and revolving loan
commitments through June 2004;
- The total commitment of the term loan remained at $6,441 and the revolver
was reduced to $70,000 from $83,700;
- Requires all advances under the revolver and letters of credit issued in
excess of $53,000 (priority advances) to be subject to a monthly asset
coverage test comprised of 65% of eligible accounts receivable and 25% of
eligible inventory. Eligible accounts receivable exclude amounts over 90
days past invoice date, progress billings, foreign receivables of
domestic subsidiaries (unless covered by a letter of credit or the debtor
maintains a credit rating of BBB+, determined by Standard & Poor's
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Rating Service or Baa2, determined by Moody's Investors Service),
receivables of foreign subsidiaries and receivables subject to any
security interest. Eligible inventory excludes inventory not located in
the United States, work-in-process, excess and obsolete inventory
reserves, and inventory subject to any security interest. At June 30,
2002, the asset coverage was sufficient to have the full $17,000 of
priority advances available and there were no priority advances
outstanding;
- Established floating interest rates for the credit facility 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; and
- The credit facility allows for issuance of letters of credit subject to
the overall commitment level and restricts payment of dividends.
At June 30, 2002, interest rates on outstanding indebtedness under the
revolving credit facility ranged from 7.94% to 8.25%. Through December 31, 2001,
borrowings were based on Prime Rate plus 3% for domestic borrowings or the
Eurodollar rate plus 6% on foreign currency borrowings. After December 31, 2001
and through June 20, 2002, the Prime Rate increment increased to 3.5% and the
Eurodollar rate increment increased to 6.5%. Subsequent to June 20, 2002,
pursuant to the amended loan agreement, the interest rates were as stated above.
The amended 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 $150, a 1% amendment fee paid June 20, 2002, 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. Total
borrowing availability under the credit facility, as of June 30, 2002, was
$22,800. Borrowings under the credit facility are secured by substantially all
of the assets of DTI and its domestic subsidiaries.
On July 27, 1998, the Company's wholly-owned subsidiary, Sencorp Systems,
Inc., participated in the issuance of $7,000 of Massachusetts Industrial Finance
Agency Multi-Mode Industrial Development Revenue Bonds 1998 Series A (Bonds) to
fund the expansion of the Company's facility in Hyannis, Massachusetts. The
Bonds were scheduled to mature July 1, 2023. On June 26, 2002, the Company
completed a sale/leaseback of the facility in Hyannis and notified the bond
trustee of its intent to prepay the outstanding balance of $5,000 on August 1,
2002. On August 1, 2002, the Bonds were fully paid and retired.
NOTE 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)
On June 12, 1997, the Company completed a private placement to several
institutional investors of 1,400,000 7.16% Convertible Preferred Securities
(liquidation preference of $50 per Convertible Preferred Security). The
placement was made through the Company's wholly-owned subsidiary, DT Capital
Trust (Trust), a Delaware business trust. The Convertible Preferred Securities
represent undivided beneficial ownership interests in the Trust. The sole assets
of the Trust are the 7.16% Convertible Junior Subordinated Deferrable Interest
Debentures Due 2012 (Junior Debentures) issued by the Company that were acquired
with the proceeds from the offering as well as the sale of common securities of
the Trust to the Company. The Company's obligations under the Convertible Junior
Subordinated Debentures, the Indenture pursuant to which they were issued, the
Amended and Restated Declaration of Trust of the Trust and the Guarantee of DTI,
taken together, constitute a full, irrevocable and unconditional guarantee by
DTI of amounts due on the Convertible Preferred Securities. As originally
structured, the Convertible Preferred Securities were convertible at the option
of the holders at any time into the common stock of DTI at an effective
conversion price of $38.75 per share and were mandatorily redeemable in 2012.
The Convertible Preferred Securities are redeemable at the Company's option
after June 1, 2000.
On June 20, 2002, the Company completed a financial recapitalization
transaction pursuant to which, among other things, in the TIDES Exchange the
holders of the Convertible Preferred Securities agreed to
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
restructure the Convertible Preferred Securities (and the Junior Debentures of
the Company held by the Trust) such that, among other things, $35,000 of the
outstanding Convertible Preferred Securities plus approximately $15,085 in
accrued and unpaid distributions on the Convertible Preferred Securities were
exchanged for 6,260,658 shares of common stock. The conversion price of the
remaining $35,000 outstanding Convertible Preferred Securities (and the Junior
Debentures of the Company held by the Trust) was lowered to $14.00 per share,
the distributions on the Convertible Preferred Securities do not accrue from
April 1, 2002 until July 2, 2004, and the maturity date of the Convertible
Preferred Securities was accelerated to May 31, 2008. Dividend expense of $1,604
annually on the remaining Convertible Preferred Securities will be recorded
reflecting an approximate effective yield of 4.6% over the life of the remaining
Convertible Preferred Securities.
As a result of the TIDES Exchange, the Company recorded a gain on
conversion of the trust preferred securities of $16,587, net of tax of $8,787,
in June 2002. The shares were valued for book and tax purposes based on the
market price of the Company's common stock on the closing date of the TIDES
Exchange. The gain on conversion of the trust preferred securities was recorded
directly to equity and has been reflected on the consolidated statement of
operations below net loss to arrive at income available to common stockholders
in fiscal 2002.
NOTE 6 -- INCOME TAXES
Loss before benefit for income taxes was taxed under the following
jurisdictions:
FISCAL YEAR ENDED
------------------------------------
JUNE 24, JUNE 25,
JUNE 30, 2001 2000
2002 AS RESTATED AS RESTATED
-------- ----------- -----------
Domestic.................................................... $ (8,146) $(73,803) $ 89
Foreign..................................................... (10,684) (13,389) (6,525)
-------- -------- -------
$(18,830) $(87,192) $(6,436)
======== ======== =======
The benefit for income taxes charged to operations was as follows:
FISCAL YEAR ENDED
------------------------------------
JUNE 24, JUNE 25,
JUNE 30, 2001 2000
2002 AS RESTATED AS RESTATED
-------- ----------- -----------
Current
U. S. Federal............................................. $(10,380) $ (237) $(2,632)
State..................................................... 1,148 (296) (436)
Foreign................................................... -- (473) (2,007)
-------- -------- -------
Total current.......................................... (9,232) (1,006) (5,075)
-------- -------- -------
Deferred
U. S. Federal............................................. 5,050 (8,584) 3,687
State..................................................... 282 (1,273) 311
Foreign................................................... -- (3,257) 94
-------- -------- -------
Total deferred......................................... 5,332 (13,114) 4,092
-------- -------- -------
Total benefit............................................. $ (3,900) $(14,120) $ (983)
======== ======== =======
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Deferred tax assets (liabilities) are comprised of the following:
JUNE 24,
JUNE 30, 2001
2002 AS RESTATED
-------- -----------
DEFERRED TAX ASSETS
Net operating loss (NOL) carryforwards.................... $12,839 $12,792
Project and inventory reserves............................ 3,407 6,242
Bad debt reserves......................................... 824 2,967
Goodwill and intangibles amortization/impairment.......... -- 2,183
Other accruals............................................ 5,461 5,428
Other..................................................... 1,665 501
------- -------
Total deferred tax assets................................... 24,196 30,113
DEFERRED TAX LIABILITIES
Depreciation.............................................. $(2,519) $(5,181)
Earnings recognized under percentage of completion........ (3,081) (3,776)
Goodwill and intangibles amortization/impairment.......... (637) --
Other..................................................... (2,257) (583)
------- -------
Total deferred tax liabilities.............................. (8,494) (9,540)
------- -------
Deferred tax assets valuation allowance..................... (13,816) (8,846)
------- -------
Total net deferred tax assets............................... 1,886 11,727
Current portion included in prepaid expenses and other...... 1,886 7,915
------- -------
Long-term portion included in other assets, net and deferred
income taxes, respectively................................ $ -- $ 3,812
======= =======
The deferred tax assets valuation allowance has been recorded to reflect
the potential non-realization of primarily NOL carryforwards in Canada and
deductible temporary differences in Canada. The remaining deferred tax assets
relating to domestic companies are more likely than not to be realized.
At June 30, 2002 the Company had available domestic NOL carryforwards for
income tax reporting purposes of approximately $3,900, which will begin to
expire in 2021. Additionally, at June 30, 2002 the Company had Canadian NOL
carryforwards of approximately $15,067.
Kalish, Inc., a wholly-owned Canadian subsidiary of the Company, agreed to
an assessment by the Canadian Customs and Revenue Agency for its tax years 1996
through 2001. The additional taxable income agreed to in the assessment was
offset by NOL carryforwards and credits that would have otherwise been included
in the deferred tax asset valuation allowance. As the majority of the assessment
relates to transfer pricing adjustments, the Company has submitted a Competent
Authority request pursuant to the United States-Canada Income Tax Treaty to
reflect the results of the Canadian audit in the Company's United States income
tax returns for the same periods. While the final outcome of these proceedings
cannot be predicted, the Company believes it is adequately reserved for this
matter.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The effective tax rates differ from the U.S. Federal income tax rate for
the following reasons:
FISCAL YEAR ENDED
------------------------------------
JUNE 24, JUNE 25,
JUNE 30, 2001 2000
2002 AS RESTATED AS RESTATED
-------- ----------- -----------
Benefit at the U.S. statutory rate.......................... $(6,591) $(30,517) $(2,253)
Deferred tax assets valuation allowance..................... 4,970 7,848 --
Non-deductible goodwill amortization/impairment............. -- 9,881 1,098
State taxes................................................. (700) (1,100) (82)
Canadian loss deduction..................................... (1,645) -- --
Foreign sales corporation................................... -- -- (296)
Other....................................................... 66 (232) 550
------- -------- -------
Benefit for income taxes.................................... $(3,900) $(14,120) $ (983)
======= ======== =======
The above income tax disclosures exclude the effect of the gain on
conversion of preferred securities as described in Note 5.
NOTE 7 -- RETIREMENT PLANS
The Company offers substantially all of its employees a retirement savings
plan under Section 401(k) of the Internal Revenue Code. Each employee may elect
to enter a written salary deferral agreement under which a maximum of 17% of
their salary, subject to aggregate limits required under the Internal Revenue
Code, may be contributed to the plan. The Company will match a percentage of the
employee's contribution up to a specified maximum percentage of their salary. In
addition, the Company generally is required to make a mandatory contribution and
may make a discretionary contribution from profits. During the fiscal years
ended June 30, 2002, June 24, 2001 and June 25, 2000, the Company made
contributions of approximately $3,549, $4,557 and $4,118, respectively.
During fiscal 1999, the Company created a non-qualified deferred
compensation plan for certain executive employees. Each employee may elect to
enter a written salary deferral agreement under which a maximum of 17% of their
salary, less any amounts contributed under the 401(k) plan, may be contributed
to the plan. The Company will match a percentage of the employee's contribution
up to a specified maximum percentage of their salary. In addition, the Company
generally is required to make a mandatory retirement contribution.
In connection with the acquisition of Assembly Technology and Test, Ltd. in
fiscal 1998, the Company assumed defined benefit plans for the international
divisions. The following sets forth reconciliations of the projected benefit
obligations (PBO) of the defined benefit plans:
FISCAL YEAR ENDED
-------------------
JUNE 30, JUNE 24,
2002 2001
-------- --------
Beginning balance........................................... $24,525 $23,559
Service cost.............................................. 1,186 1,175
Interest cost............................................. 1,720 1,525
Actuarial loss (gain)..................................... 183 (28)
Other..................................................... 602 (265)
Foreign currency translation.............................. 2,402 (1,441)
------- -------
Ending balance.............................................. $30,618 $24,525
======= =======
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Included in the Other line item above for fiscal year 2002 were $1,614 of
curtailments, ($610) of settlements, ($395) of benefits paid, $228 of employee
contributions and ($235) of expenses.
The following sets forth the reconciliations of the fair value of plan
assets of the defined benefit plans:
FISCAL YEAR ENDED
-------------------
JUNE 30, JUNE 24,
2002 2001
-------- --------
Beginning balance........................................... $23,170 $23,066
Return on plan assets..................................... (2,508) 1,186
Employer contributions.................................... 901 648
Other..................................................... (1,007) (263)
Foreign currency translation.............................. 1,791 (1,467)
------- -------
Ending balance.............................................. $22,347 $23,170
======= =======
Included in the Other line item above for fiscal year 2002 were settlements
of ($610), benefits paid of ($390), employee contributions of $228 and expenses
of ($235).
The following sets forth the funded status of the defined benefit plans as
of the end of the last two fiscal years:
JUNE 30, JUNE 24,
2002 2001
-------- --------
Projected benefit obligation................................ $30,618 $24,525
Fair value of plan assets................................... 22,347 23,170
------- -------
Excess of projected benefit obligation over plan assets..... 8,271 1,355
Unrecognized loss........................................... (7,607) (827)
------- -------
Net pension liability....................................... $ 664 $ 528
======= =======
The following sets forth the defined benefit pension plans' net periodic
pension cost:
FISCAL YEAR ENDED
------------------------------
JUNE 30, JUNE 24, JUNE 25,
2002 2001 2000
-------- -------- --------
Service cost................................................ $ 1,186 $ 1,175 $ 1,437
Interest cost............................................... 1,720 1,525 1,523
Expected return on plan assets.............................. (2,031) (2,167) (2,071)
Other....................................................... 2,184 -- --
------- ------- -------
Net periodic pension cost................................... $ 3,059 $ 533 $ 889
======= ======= =======
Included in the Other line item above for fiscal year 2002 were $1,614 of
curtailments, $195 of settlements and $375 of unrecognized loss.
The weighted-average assumptions used to determine the PBO are as follows:
FISCAL YEAR ENDED
-------------------
JUNE 30, JUNE 24,
2002 2001
-------- --------
Discount rate............................................... 6.0% 6.75%
Expected return on plan assets.............................. 8.5% 8.5%
Rate of compensation increase............................... 3.5% 4.0%
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Effective December 31, 2001, the Company cancelled all of its domestic post
retirement medical and life insurance benefit plans. As a result of the
cancellation, the Company reversed its post retirement benefit obligation
resulting in income of $1,325 in fiscal year 2002.
NOTE 8 -- STOCK COMPENSATION PLANS
The Company has three stock incentive plans: the 1994 Employee Stock Option
Plan (Employee Plan), the 1994 Directors Non-Qualified Stock Option Plan
(Directors Plan) and the 1996 Long-Term Incentive Plan (LTIP Plan).
The Employee Plan provides for the granting of options to the Company's
executive officers and key employees to purchase shares of common stock at
prices equal to the fair market value of the stock on the date of grant. Options
to purchase up to 900,000 shares of common stock may be granted under the
Employee Plan. Options outstanding at June 30, 2002 entitle the holders to
purchase common stock at prices ranging between $3.40 and $31.25 per share.
Options outstanding become exercisable over five years from the date of grant.
The right to exercise the options expires ten years from the date of grant or
earlier if an option holder ceases to be employed by the Company.
The Directors Plan provides for the granting of options to the Company's
directors, who are not employees of the Company, to purchase shares of common
stock at prices equal to the fair market value of the stock on the date of
grant. Options to purchase up to 100,000 shares of common stock may be granted
under the Directors Plan. Options outstanding at June 30, 2002 entitle the
holders to purchase common stock at prices ranging between $4.19 and $30.25 per
share. Options outstanding become exercisable with respect to one-fourth of the
shares covered thereby on each anniversary of the date of grant, commencing on
the second anniversary of such date. All options granted under the Directors
Plan expire ten years from the date of grant or earlier if a director leaves the
board of directors of the Company.
The LTIP Plan provides for the granting of the following four types of
awards on a stand alone, combination, or a tandem basis: nonqualified stock
options, incentive stock options, restricted shares and performance stock
awards. The LTIP Plan provides for the granting of up to 600,000 shares of
common stock. Grants to date consist of restricted shares and non-qualified
stock options entitling the holders to purchase common stock at prices ranging
between $4.19 and $37.50 per share. The exercise price of such non-qualified
stock options is equal to the fair market value of the stock on the date of the
grant. Options outstanding become exercisable over five years from the date of
grant. The right to exercise the options expires ten years from the date of
grant or earlier if an option holder ceases to be employed by the Company.
During fiscal 2002, the Company issued 50,000 shares of restricted common
stock of the Company with four-year vesting periods under the LTIP Plan. Upon
issuance of the restricted shares, unearned compensation expense equivalent to
the market value at the date of grant was charged to Stockholders' Equity and
will be amortized to expense over the vesting period. The lapsing of
restrictions on these shares will be accelerated in certain circumstances, one
of which is a change in control of the Company.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of the status of the Company's stock incentive plans as of June
30, 2002, June 24, 2001 and June 25, 2000, and changes during the years then
ended are presented below:
FISCAL 2002 FISCAL 2001 FISCAL 2000
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
Outstanding at beginning of
year......................... 1,129,138 $13.95 1,328,513 $14.27 1,011,938 $17.43
Granted........................ 125,500 $ 6.21 72,000 $ 4.39 449,000 $ 7.83
Exercised...................... -- -- -- -- -- --
Forfeited...................... (246,871) $13.61 (271,375) $12.49 (132,425) $16.50
--------- --------- ---------
Outstanding at end of year..... 1,007,767 $13.14 1,129,138 $13.95 1,328,513 $14.27
========= ========= =========
Exercisable at end of year..... 697,617 706,450 538,384
========= ========= =========
The following table summarizes certain information for options currently
outstanding and exercisable at June 30, 2002:
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ----------- -------- ----------- --------
$3-14................................... 658,855 6 $ 9.46 382,205 $11.59
$15-19.................................. 271,212 4 $16.92 242,712 $17.02
$20-30.................................. 21,500 5 $27.06 18,600 $26.90
$31-38.................................. 56,200 5 $32.36 54,100 $32.41
--------- -------
1,007,767 697,617
========= =======
Pro Forma Disclosures
The Company applies APB 25 and related interpretations in accounting for
its stock incentive plans. Accordingly, no compensation cost has been recognized
for the stock options granted under these plans because the options were granted
with an exercise price equal to the stock price on the date of grant. Had
compensation costs for the Company's stock incentive plans been determined based
on the fair value of the options on the grant dates consistent with the
methodology prescribed by SFAS 123, the Company's income (loss) available to
common stockholders and income (loss) available to common stockholders per
diluted share would have been the pro forma amounts indicated below. Because
future stock option awards may be granted, the pro forma impacts shown below are
not necessarily indicative of the impact in future years.
FISCAL FISCAL 2001 FISCAL 2000
2002 AS RESTATED AS RESTATED
------ ----------- -----------
Income (loss) available to common stockholders... As reported $1,657 $(73,072) $(5,453)
Pro forma $1,309 $(73,639) $(6,219)
Income (loss) available to common stockholders
per diluted share.............................. As reported $ 0.15 $ (7.18) $ (0.54)
Pro forma $ 0.12 $ (7.24) $ (0.62)
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The fair value of the options granted (which is amortized over the option
vesting period in determining the pro forma impact) is estimated on the date of
grant using the Black-Scholes multiple option-pricing model with the following
weighted average assumptions:
FISCAL FISCAL FISCAL
2002 2001 2000
------- ------- -------
Expected life of options.................................... 5 years 5 years 5 years
Risk-free interest rate..................................... 4.37% 5.22% 6.21%
Expected volatility of stock................................ 73% 69% 54%
Expected dividend yield..................................... 0.0% 0.0% 0.0%
The weighted average fair value of options granted during the years ended
June 30, 2002, June 24, 2001 and June 25, 2000 was $3.91, $2.63 and $4.24 per
share, respectively.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
The Company leases land, buildings, machinery, equipment and furniture
under various noncancelable operating lease agreements. At June 30, 2002, future
minimum lease payments under noncancelable operating leases were as follows:
FISCAL YEAR:
------------
2003........................................................ $ 6,726
2004........................................................ 4,255
2005........................................................ 2,720
2006........................................................ 2,552
2007........................................................ 2,446
2008 and thereafter......................................... 9,378
-------
$28,077
=======
Total lease expense under noncancelable operating leases was approximately
$6,227, $7,133 and $7,247 for the years ended June 30, 2002, June 24, 2001 and
June 25, 2000, respectively. Commitments under capital leases are not
significant to the consolidated financial statements.
Following the Company's announcements in August and September 2000 of the
restatements of previously reported financial statements, DTI, its Kalish
subsidiary and certain of directors and officers were named as defendants in
five complaints in putative class action lawsuits. During fiscal 2001, these
actions were consolidated into a single class action styled In re DT Industries,
Inc. Securities Litigation and an amended complaint was filed (the "Securities
Action") adding the Company's Sencorp subsidiary and certain additional officers
and directors as defendants. As of the end of fiscal 2002, the Securities Action
was pending in the United States District Court for the Western District of
Missouri (the "Court"). The Consolidated Amended Complaint asserted causes of
action under Section 10(b), and Rule 10b-5 promulgated thereunder, and Section
20(a) of the Securities Exchange Act of 1934, and alleged, among other things,
that the accounting adjustments caused our previously issued financial
statements to be materially false and misleading. The Consolidated Amended
Complaint also sought damages in an unspecified amount and was purported to be
brought on behalf of purchasers of our common stock during various periods, all
of which fall between September 29, 1997 and August 23, 2000.
On October 4, 2001, the Court granted our motion to dismiss the Securities
Action, without prejudice. Pursuant to the Court's dismissal order, all
defendants were dismissed, but the plaintiffs were granted the right to amend
their complaint. The plaintiffs filed their Second Amended Consolidated Class
Action Complaint on
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
January 25, 2002 (the "Second Complaint"), thereby reviving the Securities
Action. On March 11, 2002, DTI and the other defendants filed a motion to
dismiss the Second Complaint.
The Court granted our motion to dismiss the Second Complaint, with
prejudice, on July 16, 2002. Pursuant to the Court's dismissal order, all
defendants were dismissed and a judgment was entered in favor of the defendants.
The plaintiffs did not appeal the Court's decision, so the Court's dismissal
order is final and non-appealable, and the plaintiffs can neither further amend
their complaint nor submit a new complaint in connection with the
above-referenced restatements.
The staff of the Securities and Exchange Commission (the "Commission") is
conducting an investigation of the accounting practices at the Company's Kalish
and Sencorp subsidiaries that led to the restatements of its consolidated
financial statements for fiscal years 1997, 1998 and 1999 and the first three
quarters of fiscal 2000, as well as the issues at AMI that led to the accounting
adjustments to the Company's 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 fiscal quarters of 2002. The Company is cooperating
fully with the Commission in connection with its investigation and cannot
currently predict the duration or outcome of the investigation.
In November 1998, pursuant to the agreement by which the Company acquired
Kalish, Mr. Graham L. Lewis, a former executive officer and director of DTI,
received an additional payment based on Kalish's earnings for each of the three
years after the closing. As a result of the prior restatement due to accounting
practices at Kalish, the Company believes that the additional payment should not
have been made. During fiscal 2001, the Company commenced legal action against
Mr. Lewis in Superior Court, Civil Division in Montreal, Quebec to recover this
payment and certain bonuses paid to Mr. Lewis. Mr. Lewis has counter-sued for
wrongful termination and is seeking to recover monetary damages, including
severance, loss of future income, emotional distress and harm to reputation,
equal to $2.8 million Canadian dollars. There has been no discovery in these
actions. Management believes that the Company's suit against Mr. Lewis has
merit. Management further believes that Mr. Lewis' counter-suit is without
merit. The Company intends to pursue vigorously its claims against Mr. Lewis and
defend against his counter-suit.
Product liability claims are asserted against the Company from time to time
for various injuries alleged to have resulted from defects in the manufacture
and/or design of its products. At June 30, 2002, there are currently 10 such
claims either pending or that may be asserted against the Company. The Company
does not believe that the resolution of these claims, either individually or in
the aggregate, will have a material adverse effect on its financial condition,
results of operations or cash flow. Product liability claims are covered by the
Company's comprehensive general liability insurance policies, subject to certain
deductible amounts. The Company has established reserves for these deductible
amounts, which it believes to be adequate based on its previous claims
experience. However, there can be no assurance that resolution of product
liability claims in the future will not have a material adverse effect on the
Company's financial condition, results of operations or cash flow.
In addition to product liability claims, from time to time the Company is
the subject of legal proceedings, including involving employee, commercial,
general liability and similar claims, that are incidental to the ordinary course
of its business. There are no such material claims currently pending. The
Company maintains comprehensive general liability insurance that it believes to
be adequate for the continued operation of our business.
NOTE 10 -- GOODWILL AND INTANGIBLE ASSETS
SFAS 142, as explained in Note 1, is effective for fiscal years beginning
after December 15, 2001. However, early adoption was permitted in certain
instances. In the first quarter of fiscal 2002, the Company elected to
early-adopt the provisions of SFAS 142. Discontinuance of goodwill amortization
reduced pre-tax
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
amortization expense by $5,287 in fiscal 2002. The carrying value of goodwill
will continue to be assessed for recoverability by management at least on an
annual basis.
The changes in the carrying amount of goodwill for fiscal year 2002 were as
follows:
AUTOMATION PACKAGING
GOODWILL SEGMENT SEGMENT TOTAL
-------- ---------- --------- --------
Balance as of June 24, 2001................................. $95,458 $28,309 $123,767
Foreign currency translation................................ 457 1,314 1,771
------- ------- --------
Balance as of June 30, 2002................................. $95,915 $29,623 $125,538
======= ======= ========
At June 30, 2002, the Company had one amortized intangible asset. This
asset is unpatented technology and the gross carrying amount and accumulated
amortization at June 30, 2002 were $576 and $308, respectively.
The amortization expense related to the intangible asset was $116 for the
fiscal year ended June 30, 2002 and June 24, 2001. Amortization expense is
expected to be $116 for each of the fiscal years through 2004 and $44 for fiscal
2005. The gross carrying amount, accumulated amortization and amortization
expense will vary depending on the prevailing foreign currency exchange rate.
Previous to the adoption of SFAS 142, the excess of the purchase price over
the fair value of net assets acquired in business combinations (goodwill) was
capitalized and amortized on a straight-line basis over periods ranging from 15
to 40 years. Goodwill amortization charged to income for the years ended June
24, 2001 and June 25, 2000 was approximately $5,296 and $5,230, respectively.
Accumulated amortization at June 30, 2002 and June 24, 2001 was approximately
$28,372. A reconciliation of reported income (loss) available to common
stockholders and income (loss) available to common stockholders per share to the
amounts adjusted for the exclusion of goodwill amortization for the last three
completed fiscal years is as follows:
FISCAL YEAR ENDED
------------------------------------
JUNE 24, JUNE 25,
JUNE 30, 2001 2000
2002 AS RESTATED AS RESTATED
-------- ----------- -----------
Reported income (loss) available to common stockholders..... $1,657 $(73,072) $(5,453)
Add back: Goodwill amortization (net of tax)................ -- 4,701 4,731
------ -------- -------
Adjusted income (loss) available to common stockholders..... $1,657 $(68,371) $ (722)
====== ======== =======
DILUTED LOSS PER SHARE:
Reported income (loss) available to common stockholders..... $ 0.15 $ (7.18) $ (0.54)
Add back: Goodwill amortization (net of tax)................ -- 0.46 0.47
------ -------- -------
Adjusted income (loss) available to common stockholders..... $ 0.15 $ (6.72) $ (0.07)
====== ======== =======
The carrying value of goodwill is assessed for recoverability by management
based on an analysis of future expected cash flows from the underlying
operations of the Company's reporting units, according to SFAS 142. The
Company's reporting units represent the various components of the Company's
segments for which discrete financial information is available and management
regularly reviews the results. All goodwill has been assigned to reporting
units. Each year the Company generates operating forecasts at the reporting unit
level, upon which the future expected cash flows are based. Under SFAS 142, the
impairment analysis is a two-step process whereby, in the first step, the fair
value of the Company's reporting units (as estimated using discounted future
cash flows) is compared to the respective carrying value of the reporting unit
as an indication of whether impairment exists. If the fair value exceeds
carrying value, a second step is required whereby the fair value of the
reporting unit is allocated to all of the assets and liabilities of the
reporting unit
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
resulting in an implied fair value of goodwill that is then compared to the
carrying value of goodwill. During the fiscal year ended June 30, 2002,
management determined that the goodwill recorded had not been impaired. The
Company calculated the present value of expected cash flows to determine the
fair value of the reporting units using a discount rate of 10%, which represents
the weighted average cost of capital.
Upon adoption of SFAS 142 in the first quarter of fiscal 2002, the Company
completed the transitional goodwill impairment analysis and found there to be no
impairment. The transitional impairment test followed the same guidelines as the
annual impairment test discussed above.
During the fourth quarter of fiscal 2001, management determined that an
assessment of the recoverability of goodwill by division was necessary. The
decision was based on a continuing decline in the operating results of certain
divisions and management assumptions regarding future performance based on the
overall economic recession and an evaluation of the organizational and
operational structure of the Company. The assessment was performed at the
divisional level as the divisions maintain distinctively identifiable goodwill
and represent the lowest level of identifiable cash flows. The Company
determined that goodwill recorded for certain divisions had been impaired and
recorded an impairment charge of $38,219 in accordance with SFAS 121. The fair
value of the goodwill was based on discounted expected future cash flows of the
related division, except as described below regarding the Stokes division.
The components of the fiscal 2001 goodwill write-off were as follows:
Automation segment
Mid-West (Buffalo Grove, Illinois)........................ $10,000
Hansford (Rochester, New York)............................ 4,193
Packaging segment
Sencorp (Hyannis, Massachusetts).......................... 10,730
Kalish (Montreal, Quebec)................................. 7,353
Stokes (Bristol, Pennsylvania)............................ 5,943
-------
$38,219
=======
Each of these components relates to assets to be held and used, other than
the Stokes portion, which at the time of the analysis was under a letter of
intent to be sold. The value stated in the letter of intent was used as the fair
market value for purposes of determining goodwill impairment for the Stokes
division. The proposed sale of Stokes was ultimately terminated and it is
currently being rationalized into our Hyannis, Massachusetts operation. The
total fiscal 2001 impairment charge related to the Stokes division was $9,249 of
which $5,943 was for goodwill impairment, $2,738 was for excess and obsolete
inventory and $568 was for other asset write downs. The goodwill impairment is
included in the goodwill impairment charge separately disclosed on the statement
of operations, the excess and obsolete inventory charge is included in cost of
sales and the other asset write-downs are included in selling, general and
administrative expenses. During fiscal 2001, prior to the charges discussed
above, the Stokes division had revenues of $6,707 and an operating loss of
$1,238. At June 24, 2001, the carrying value of the net assets of Stokes was
approximately $3,693. The net loss on the disposal of Scheu & Kniss recorded in
fiscal 2001, as discussed in Note 3, included a full impairment of the related
goodwill of $5,018.
NOTE 11 -- DEPENDENCE ON SIGNIFICANT CUSTOMERS
Total net sales to a customer in the electronics industry were $99,578,
$141,884 and $47,568 in fiscal 2002, 2001, and 2000 respectively. Total net
sales to a customer in the tire industry were $38,690 and $49,084 in fiscal 2001
and 2000, respectively.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Trade receivables recorded for the significant customer in the electronics
industry at June 30, 2002 were $19,262, most of which was collected subsequent
to year-end.
NOTE 12 -- SUPPLEMENTAL BALANCE SHEET INFORMATION
JUNE 24,
JUNE 30, 2001
2002 AS RESTATED
-------- -----------
ACCOUNTS RECEIVABLE
Trade receivables......................................... $ 58,021 $ 79,695
Less -- allowance for doubtful accounts................... (3,085) (8,921)
-------- --------
$ 54,936 $ 70,774
======== ========
COSTS AND ESTIMATED EARNINGS IN EXCESS OF AMOUNTS BILLED ON
UNCOMPLETED CONTRACTS
Costs incurred on uncompleted contracts................... $176,781 $285,114
Estimated earnings........................................ 37,040 37,757
-------- --------
213,821 322,871
Less -- Billings to date.................................. (196,553) (245,908)
-------- --------
$ 17,268 $ 76,963
======== ========
Included in the accompanying balance sheets:
Costs and estimated earnings in excess of amounts
billed................................................. $ 29,288 $ 85,805
Billings in excess of costs and estimated earnings........ (12,020) (8,842)
-------- --------
$ 17,268 $ 76,963
======== ========
INVENTORIES, NET
Raw materials............................................. $ 16,652 $ 26,778
Work in process........................................... 10,958 18,549
Finished goods............................................ 4,292 6,090
Less -- inventory reserves................................ (5,125) (10,552)
-------- --------
$ 26,777 $ 40,865
======== ========
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment................................... $ 50,187 $ 68,887
Buildings and improvements................................ 23,022 35,575
Land and improvements..................................... 5,964 7,112
Construction-in-progress.................................. 809 280
-------- --------
79,982 111,854
Less -- accumulated depreciation.......................... (42,653) (49,391)
-------- --------
$ 37,329 $ 62,463
======== ========
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 24,
JUNE 30, 2001
2002 AS RESTATED
-------- -----------
ACCRUED LIABILITIES
Accrued employee compensation and benefits................ $ 10,258 $ 13,570
Accrued warranty.......................................... 3,422 3,244
Restructuring accrual..................................... 4,678 2,879
Other..................................................... 11,237 17,450
-------- --------
$ 29,595 $ 37,143
======== ========
The Company routinely incurs warranty costs after projects are installed
and completed. The Company reserves for such warranty costs based on its
historical warranty experience and consideration of any known warranty issues.
A summary and rollforward of the warranty reserves for the previous three
fiscal years are as follows:
BEGINNING BALANCE EXPENSE CHARGES ENDING BALANCE
----------------- ------- ------- --------------
Fiscal 2002.......................... $3,244 $1,753 $(1,575) $3,422
Fiscal 2001.......................... 2,527 2,772 (2,055) 3,244
Fiscal 2000.......................... 4,995 1,098 (3,566) 2,527
NOTE 13 -- WRITE-DOWN OF ASSETS
The Company wrote down $21,809 of assets in the fourth quarter of fiscal
2001. A summary and roll-forward of the specific reserves are as follows:
RESERVE AT FISCAL FISCAL 2002 RESERVE AT
JUNE 24, 2002 WRITE-OFFS/ JUNE 30,
2001 EXPENSE DISPOSALS RECOVERIES DISPOSITIONS 2002
----------- ------- ----------- ---------- ------------ ----------
Inventory...................... $10,552 $1,303 $(5,753) $ (282) $(695) $5,125
Accounts receivable............ 8,921 1,208 (4,277) (2,498) (269) 3,085
The Company recorded inventory related charges of $9,811 (excess and
obsolete reserves and fair market value adjustments) in the fourth quarter of
fiscal 2001 resulting in an ending inventory reserve of $10,552. The Company
also took other inventory-related write-offs of $2,218 in June 2001, primarily
related to work-in-process items deemed unrecoverable by management.
The $9,811 charge, which increased excess and obsolete reserves and
adjusted certain inventory items to fair market value was comprised of the
following items:
- a charge of $1,400 to write-down the remaining assets of the discontinued
extrusion product line to an estimated fair market value of $400. The
product line was sold in fiscal year 2002 for $200 resulting in an
additional loss of $200 in fiscal year 2002;
- a charge of $2,738 related to excess and obsolete inventory of the Stokes
division based on a letter of intent to sell the Stokes assets. The sale
of the net assets of the Stokes division did not ultimately occur; and
- a charge of $5,673 related to various divisions that were determined to
have excess or obsolete inventory issues or inventory market value
concerns.
The inventory reserves established in fiscal 2001 assumed an estimated
salvage value on certain of the inventory items being reserved. The Company was
not able to achieve the estimated salvage value as it disposed of the inventory
in fiscal 2002 partially accounting for the incremental expense in fiscal 2002.
The
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Company's disposal activity during fiscal 2002 consisted of selling items for
scrap value, returning items to suppliers for credit and throwing items away.
The Company's inventory reserve balance as of June 30, 2002 is expected to be
substantially utilized in fiscal 2003. The Packaging segment accounts for $4,092
of the reserve at June 30, 2002, of which $2,176 is related to replacement parts
held at facilities closed in fiscal 2002 and deemed obsolete. The Company
anticipates disposing of these items in fiscal 2003.
The Company recorded $8,330 of accounts receivable write-offs in the fourth
quarter of fiscal 2001 resulting in an accounts receivable allowance for
doubtful accounts of $8,921 at June 24, 2001. Of this total, $4,500 related to
two specific projects for which the Company determined it would not be able to
collect. The remaining reserve relates to accounts deemed by management to be
uncollectible. Due to increased collection efforts, $2,498 of the accounts
receivable reserved for were collected in 2002 and therefore the related
reserves were reversed.
In addition to the above amounts, the Company also took an additional
charge of $1,450 in the fourth quarter of fiscal 2001 primarily related to
write-offs of fixed assets. The fixed asset write-off consisted primarily of
software development costs for systems that were expected to be rolled out
company-wide, which the new management team decided not to pursue.
The inventory related charges of $12,029 and the write-offs of fixed assets
of $1,450 were included in cost of sales in the statement of operations. The
accounts receivable write-offs of $8,330 were included in selling, general and
administrative expenses.
NOTE 14 -- RESTRUCTURING
During fiscal 2002, the Company announced several actions in connection
with its restructuring plan as outlined below. These actions resulted in an
aggregate of $10,332 of restructuring charges in fiscal 2002 after the fiscal
2001 restructuring charge reversal discussed below.
- Closure of its Rochester, New York facility, including termination of
employees in the fourth quarter of 2002 and the transfer of the customer
base of this facility primarily to its Dayton, Ohio and Buffalo Grove,
Illinois facilities. The closure was announced January 24, 2002. The
restructuring costs, which totaled $3,648 were recorded in the third
quarter of fiscal 2002 and included severance costs of $1,334 for the
termination of 114 employees. As of June 30, 2002, four employees
remained for final administrative duties, all of whom were discharged by
the end of the first quarter of fiscal 2003. The remaining restructuring
costs include $1,068 for future facility lease and related costs, $1,146
for assets write-offs and $100 for office equipment lease terminations
and miscellaneous other charges. The asset write-offs include the
remaining value of leasehold improvements, the computer system and show
machines.
- Closure of its Montreal, Quebec facility, including termination of
employees in August 2002, and the transfer of its customer base and
assets to its operations in Leominster, Massachusetts. The closure was
announced March 22, 2002. The restructuring costs of $2,299 were recorded
in the third quarter of fiscal 2002 and included severance costs of $993
for the termination of approximately 83 employees, partially offset by a
reversal of $451 associated with severance accrual recorded in fiscal
2001. 75 employees remained at June 30, 2002, 70 of which were terminated
by the end of the first quarter of fiscal 2003. The remaining
restructuring costs include $664 for future facility lease and related
costs, $1,056 for asset write-offs and $37 of other costs. The asset
write-offs include the remaining value of leasehold improvements,
computer system and other.
- Transfer of its manufacturing operations in Bristol, Pennsylvania to
Hyannis, Massachusetts as part of its Converting Technologies division.
The closure was announced March 22, 2002 and completed in September 2002.
The restructuring costs of $892 were recorded in the third quarter of
fiscal 2002 and included severance costs of $272 for the termination of
15 employees. Up to 10 employees are expected
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
to remain in Bristol for sales and engineering support. As of June 30, 2002,
there were no terminations. By the end of the first quarter of fiscal 2003, 12
employees were terminated. The remaining restructuring costs include $400
of asset write-offs, $192 for future facility lease and related costs and
$28 of other costs. The asset write-offs include the remaining value of
leasehold improvements.
- Transfer of the Assembly and Test-Europe fabrication operations from
Gawcott, United Kingdom to its Buckingham, England plant in the fourth
quarter of fiscal 2002. The restructuring costs of $1,206 were recorded
in the third quarter of fiscal 2002 and included estimated severance
costs of $908 for the termination of 43 employees, all of whom were
terminated by June 30, 2002. The restructuring costs include $264 for
future lease payments and $34 of other costs.
- The Company recognized additional restructuring charges of $2,287 in
fiscal 2002 ($1,521 in the second quarter, $463 in the third quarter, and
$303 in the fourth quarter) primarily related to severance costs
associated with management changes and workforce reductions at several
divisions, as well as future lease payments resulting from the
consolidation of two Packaging segment divisions. The restructuring
charge included severance costs of $1,747 for the termination of 125
employees, $300 for future lease payments and $240 of asset write-offs.
All of the employees were terminated by June 30, 2002.
The following table summarizes the components of the fiscal 2002
restructuring accruals:
NON-CASH AS OF
RESTRUCTURING CASH CHARGES CHARGES TO JUNE 30,
CHARGE TO ACCRUAL ACCRUAL 2002
------------- ------------ ---------- --------
Severance costs.................................. $ 5,254 $(3,823) $ -- $1,431
Future lease costs on closed facilities.......... 2,488 -- -- 2,488
Asset write-downs................................ 2,842 -- (2,535) 307
Other............................................ 199 (199) -- --
------- ------- ------- ------
$10,783 $(4,022) $(2,535) $4,226
======= ======= ======= ======
The Company has utilized $6,557 of the fiscal 2002 restructuring accrual as
of June 30, 2002 resulting in a remaining balance of $4,226. The future lease
commitment on closed facilities includes a two-year accrual for the Rochester,
New York and Montreal, Quebec facilities. The remaining restructuring charges
are expected to be used by the end of September 2003.
FISCAL 2001 RESTRUCTURING
In the fourth quarter of fiscal 2001, a restructuring charge of $3,694 was
established for severance costs associated with management changes and workforce
reductions, future lease costs on idle facilities and personnel relocation costs
resulting from the corporate office move and the closure of four Packaging
segment sales offices and non-cash asset write-downs.
The Company's fiscal 2001 restructuring plan consisted of the following
actions:
- Closure of Canadian operation's sales offices, including the termination
of 64 employees. These offices were closed in the fourth quarter of 2001.
In addition, there was a headcount reduction at the Montreal location.
These people were notified of termination in the fourth quarter of fiscal
2001. Total severance costs were $706 and future lease costs on rented
office space for the sales offices was $300. As mandated by Canadian law,
a six-month waiting period is required before termination after notice is
given. After notification, during the six-month period, a number of
employees left voluntarily and therefore received no benefits.
Accordingly, an amount of $451 was reversed to income in fiscal 2002 and
is included in the roll-forward.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- Consolidation of two of the Company's United Kingdom operations, which
included the termination of 28 employees in the first quarter of fiscal
2002 at a cost of $500.
- Relocation of the corporate offices from Springfield, Missouri to Dayton,
Ohio. Total moving costs incurred were $949 in the fourth quarter of
2001, which included personnel relocation costs of $747 and other moving
costs of $202. These moving costs were recognized when incurred. In
addition, the Company accrued future lease costs on the idle office space
in Springfield of $575. Lastly, severance of $545 was recorded for the
termination of 10 employees at the Springfield office.
The rollforward of the restructuring accrual related to fiscal 2001 is as
follows:
AS OF CASH NON-CASH AS OF
JUNE 24, CHARGES TO CHARGES TO REVERSAL JUNE 30,
2001 ACCRUAL ACCRUAL IN 2002 2002
-------- ---------- ---------- -------- --------
Severance costs............................... $1,277 $ (826) $ -- $(451) $ --
Future lease costs............................ 685 (327) -- -- 358
Relocation costs.............................. 544 (544) -- -- --
Asset write-downs............................. 131 -- (131) -- --
Other......................................... 242 (148) -- -- 94
------ ------- ----- ----- ----
$2,879 $(1,845) $(131) $(451) $452
====== ======= ===== ===== ====
The Company utilized $1,976 of the fiscal 2001 restructuring accrual as of
June 30, 2002 and reversed $451 in fiscal 2002, resulting in a remaining accrual
of $452, which is expected to be used during fiscal 2003.
NOTE 15 -- BUSINESS SEGMENTS
The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information", effective June 27, 1999. SFAS 131 requires disclosure of segment
information on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments.
The Company primarily operated in two business segments through fiscal
2002 -- Automation and Packaging. The Company's Automation segment designed and
built integrated systems for the assembly, test and handling of discrete
products. The Company's Packaging segment manufactured tablet processing,
counting and liquid filling systems and plastics processing equipment, including
thermoforming, blister packaging and heat sealing. In the first and second
quarters of fiscal 2002, the Company sold the assets that comprised its non-core
businesses that produced precision-stamped steel and aluminum components through
its stamping and fabrication operations.
The Company evaluates performance and allocates resources to reportable
segments primarily based on operating income. The accounting policies of the
reportable segments are the same as those described in the summary of
significant policies. Inter-segment sales are not significant.
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Financial information for the Company's reportable segments consisted of
the following:
FISCAL FISCAL
2001 2000
AS RESTATED AS RESTATED
FISCAL (SEE NOTES 1 (SEE NOTES 1
2002 AND 16) AND 16)
-------- ------------ ------------
NET SALES
Automation.............................................. $259,966 $385,515 $302,788
Packaging............................................... 65,518 87,282 123,237
Other................................................... 792 38,305 38,260
-------- -------- --------
Consolidated Total................................... $326,276 $511,102 $464,285
======== ======== ========
OPERATING INCOME (LOSS)
Automation.............................................. $ 13,804 $ 2,142 $ 14,039
Packaging............................................... (9,361) (55,254) 526
Other................................................... 491 128 3,207
Corporate............................................... (6,732) (13,811) (8,757)
-------- -------- --------
Consolidated Total................................... $ (1,798) $(66,795) $ 9,015
======== ======== ========
ASSETS
Automation.............................................. $217,254 $293,993 $304,136
Packaging............................................... 72,784 80,998 138,924
Other................................................... -- 23,401 22,022
Corporate............................................... 18,372 12,282 13,690
-------- -------- --------
Consolidated Total................................... $308,410 $410,674 $478,772
======== ======== ========
CAPITAL EXPENDITURES
Automation.............................................. $ 2,174 $ 1,569 $ 3,757
Packaging............................................... 634 885 2,056
Other................................................... -- 346 --
Corporate............................................... 115 378 918
-------- -------- --------
Consolidated Total................................... $ 2,923 $ 3,178 $ 6,731
======== ======== ========
DEPRECIATION AND AMORTIZATION
Automation.............................................. $ 4,398 $ 8,546 $ 9,181
Packaging............................................... 1,874 3,969 4,044
Other................................................... 33 1,432 1,737
Corporate............................................... 3,500 2,456 1,498
-------- -------- --------
Consolidated Total................................... $ 9,805 $ 16,403 $ 16,460
======== ======== ========
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Included in operating income (loss) are the following unusual items:
FISCAL FISCAL FISCAL
2002 2001 2000
------- ------- -------
GOODWILL IMPAIRMENT
Automation................................................ -- $14,193 --
Packaging................................................. -- 24,026 --
------- ------- -------
Total.................................................. -- $38,219 --
======= ======= =======
RESTRUCTURING CHARGE
Automation................................................ $ 6,557 $ 119 --
Packaging................................................. 3,775 1,506 --
Corporate................................................. -- 2,069 --
------- ------- -------
$10,332 $ 3,694 --
======= ======= =======
GAIN (LOSS) ON DISPOSAL OF ASSETS
Automation................................................ -- $(1,247) --
Packaging................................................. (1,128) (6,248) --
Other..................................................... -- (1,618) --
Corporate................................................. -- 640 --
------- ------- -------
Total.................................................. $(1,128) $(8,473) --
======= ======= =======
In addition to the items noted above, the corporate operating loss in
fiscal 2001 included approximately $3,487 of non-recurring legal and
professional fees associated with the investigations into the prior years'
accounting irregularities. See Note 9 for additional information.
The reconciliation of segment operating income (loss) to consolidated loss
before benefit for income taxes consisted of the following:
FISCAL FISCAL
2001 2000
AS RESTATED AS RESTATED
FISCAL (SEE NOTES 1 (SEE NOTES 1
2002 AND 16) AND 16)
-------- ------------ ------------
Automation................................................ $ 13,804 $ 2,142 $14,039
Packaging................................................. (9,361) (55,254) 526
-------- -------- -------
Operating income (loss) for reportable segments......... 4,443 (53,112) 14,565
Operating income for other businesses..................... 491 128 3,207
Corporate................................................. (6,732) (13,811) (8,757)
Interest expense, net..................................... (12,198) (14,891) (10,305)
Dividends on Company-obligated, mandatorily redeemable
convertible preferred securities of subsidiary DT
Capital Trust holding solely convertible junior
subordinated debentures of the Company.................. (4,834) (5,506) (5,146)
-------- -------- -------
Consolidated loss before benefit for income taxes......... $(18,830) $(87,192) $(6,436)
======== ======== =======
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Financial information related to the Company's operations by geographic
area consisted of the following:
FISCAL FISCAL FISCAL
2002 2001 2000
-------- -------- --------
Net sales
United States............................................. $180,751 $321,207 $334,099
Far East.................................................. 45,138 41,804 8,870
Europe.................................................... 61,460 106,469 69,073
Canada/Latin America...................................... 32,681 41,547 46,837
Other..................................................... 6,246 75 5,406
-------- -------- --------
Consolidated Total..................................... $326,276 $511,102 $464,285
======== ======== ========
Long-lived assets
United States............................................. $ 28,764 $ 53,593 $ 62,284
United Kingdom............................................ 7,354 7,213 7,926
Other International....................................... 1,211 1,657 3,008
-------- -------- --------
Consolidated Total..................................... $ 37,329 $ 62,463 $ 73,218
======== ======== ========
Net sales are attributed to countries based on the shipping destination of
products sold. Long-lived assets consist of total property, plant and equipment,
net of accumulated depreciation.
The Company announced in March 2002 that the Company is reorganizing its
operations into four business segments: Material Processing, Precision Assembly,
Assembly and Test and Packaging Systems. This new structure is designed to allow
the Company to streamline product offerings, capitalize on the combined strength
of operating units, reduce overlap in the marketplace and improve capacity
utilization, internal controls, financial reporting and disclosure controls. The
Company is still implementing this integration plan and completing the systems
required to provide, analyze, review and report results of operations for
current and historical periods for its newly defined segments. The Company
intends to begin reporting financial results for these four new business
segments in its Form 10-Q for the fiscal quarter ended September 29, 2002.
NOTE 16 -- RESTATEMENT
As described in Note 1, the Company's balance sheet as of, and statement of
operations for, the fiscal year ended June 24, 2001 and the Company's statement
of operations for the fiscal year ended June 25, 2000 have been restated. A
comparison of previously reported and restated financial statements for these
periods is presented below. The impact of these restatements resulted in
increases to the Company's net loss of $1,729 and $863, and to the Company's net
loss per common share of $0.17 per share and $0.09 per share, for fiscal 2001
and 2000, respectively.
Included in the Company's June 27, 1999 restated retained earnings is an
adjustment of $1,435 related to the cumulative impact of the restatement related
to fiscal 1999.
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED BALANCE SHEET
JUNE 24, 2001
AS PREVIOUSLY JUNE 24, 2001
REPORTED AS RESTATED
------------- -------------
Assets
Current assets:
Cash................................................... $ 5,505 $ 5,505
Accounts receivable, net............................... 70,774 70,774
Costs and estimated earnings in excess of amounts
billed on uncompleted contract........................ 92,000 85,805
Inventories, net....................................... 40,865 40,865
Prepaid expenses and other............................. 12,497 14,665
-------- --------
Total current assets................................... 221,641 217,614
Property, plant and equipment, net.......................... 62,463 62,463
Goodwill, net............................................... 123,767 123,767
Other assets, net........................................... 6,830 6,830
-------- --------
$414,701 $410,674
======== ========
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt...................... $ 36,151 $ 36,151
Accounts payable....................................... 40,917 40,917
Customer advances...................................... 25,651 25,651
Accrued liabilities.................................... 37,143 37,143
-------- --------
Total current liabilities................................. 139,862 139,862
-------- --------
Long-term debt.............................................. 96,571 96,571
Other long-term liabilities................................. 3,778 3,778
-------- --------
100,349 100,349
Commitments and contingencies
Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust
holding solely convertible junior subordinated debentures
of the Company............................................ 80,652 80,652
Stockholders' equity:
Common stock........................................... 113 113
Additional paid-in capital............................. 127,853 127,853
Retained earnings (accumulated deficit)................ (6,965) (10,992)
Accumulated other comprehensive loss................... (2,058) (2,058)
Unearned portion of restricted stock................... (661) (661)
Less -- Treasury stock................................. (24,444) (24,444)
-------- --------
Total stockholders' equity........................... 93,838 89,811
-------- --------
$414,701 $410,674
======== ========
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED
--------------------------------------------------------------
JUNE 24, 2001 JUNE 25, 2000
AS PREVIOUSLY JUNE 24, 2001 AS PREVIOUSLY JUNE 25, 2000
REPORTED AS RESTATED REPORTED AS RESTATED
------------- ------------- -------------- -------------
Net sales................................ $ 511,102 $ 511,102 $ 464,285 $ 464,285
Cost of sales............................ 434,357 437,017 374,091 375,418
----------- ----------- ----------- -----------
Gross profit............................. 76,745 74,085 90,194 88,867
Selling, general and administrative
expenses............................... 90,494 90,494 79,852 79,852
Goodwill impairment...................... 38,219 38,219 -- --
Restructuring charge..................... 3,694 3,694 -- --
Net loss on disposal of assets........... 8,473 8,473 -- --
----------- ----------- ----------- -----------
Operating income (loss).................. (64,135) (66,795) 10,342 9,015
Interest expense, net.................... 14,891 14,891 10,305 10,305
Dividends on Company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary DT
Capital Trust holding solely
convertible junior subordinated
debentures of the Company.............. 5,506 5,506 5,146 5,146
----------- ----------- ----------- -----------
Loss before benefit for income taxes..... (84,532) (87,192) (5,109) (6,436)
Benefit for income taxes................. (13,189) (14,120) (519) (983)
----------- ----------- ----------- -----------
Net loss................................. $ (71,343) $ (73,072) $ (4,590) $ (5,453)
----------- ----------- ----------- -----------
Net loss per common share:
Basic and Diluted...................... $ (7.01) $ (7.18) $ (0.45) $ (0.54)
Weighted average common shares
outstanding:
Basic and Diluted...................... 10,172,811 10,172,811 10,107,274 10,107,274
NOTE 17 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
As described in Note 1, the unaudited quarterly information for the first
three fiscal quarters of the fiscal year ended June 30, 2002 and the four fiscal
quarters of the fiscal year ended June 24, 2001 have been restated. A comparison
of previously reported and restated unaudited quarterly financial information is
presented below.
1ST QUARTER 2ND QUARTER 3RD QUARTER
AS 1ST QUARTER AS 2ND QUARTER AS 3RD QUARTER
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED 4TH QUARTER
----------- ----------- ----------- ----------- ----------- ----------- -----------
YEAR ENDED JUNE 30, 2002
Net sales....................... $100,484 $100,431 $88,104 $88,661 $ 60,184 $ 59,967 $77,217
Cost of sales................... 79,501 79,832 70,488 70,733 49,712 49,714 60,732
Gross profit.................... 20,983 20,599 17,616 17,928 10,472 10,253 16,485
Operating income (loss)......... 5,967 5,583 2,919 3,231 (12,122) (12,341) 1,729
Net income (loss)............... 859 609 (1,108) (905) (12,754) (12,896) (1,738)
Diluted earnings (loss) per
share......................... 0.08 0.06 (0.11) (0.09) (1.23) (1.24) (0.12)
F-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
AS 1ST QUARTER AS 2ND QUARTER AS 3RD QUARTER AS
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED
----------- ----------- ----------- ----------- ----------- ----------- -----------
YEAR ENDED JUNE 24, 2001
Net sales............... $116,451 $116,451 $131,425 $131,425 $123,965 $123,965 $139,261
Cost of sales........... 96,446 96,918 106,750 107,519 103,371 103,971 127,790
Gross profit............ 20,005 19,533 24,675 23,906 20,594 19,994 11,471
Operating income
(loss)................ 284 (188) 4,800 4,031 580 (20) (69,799)
Net income (loss)....... (3,124) (3,431) (929) (1,429) (3,434) (3,824) (63,856)
Diluted earnings (loss)
per share............. (0.31) (0.34) (0.09) (0.14) (0.34) (0.38) (6.17)
4TH QUARTER
AS
RESTATED
-----------
YEAR ENDED JUNE 24, 2001
Net sales............... $139,261
Cost of sales........... 128,609
Gross profit............ 10,652
Operating income
(loss)................ (70,618)
Net income (loss)....... (64,388)
Diluted earnings (loss)
per share............. (6.22)
The principal unusual items which affected the quarterly results for the
fiscal years ended June 30, 2002 and June 24, 2001 include the following pre-tax
items:
Second quarter 2002:
- A $1,521 restructuring charge included in operating expenses.
Third quarter 2002:
- A $8,508 restructuring charge included in operating expenses.
Fourth quarter 2002:
- A $1,128 loss on disposal of the Hyannis facility, included in operating
expenses.
Third quarter 2001:
- A $1,249 loss on the sale of substantially all of the assets of Vanguard
Technical Solutions, Inc., included in operating expenses; and
- A $640 gain on the sale of the corporate airplane, included in operating
expenses.
Fourth quarter 2001:
- A $38,219 charge related to the write down of goodwill included in
operating expenses;
- A $7,915 loss recorded on the disposal of net assets included in
operating expenses;
- A $3,694 restructuring charge included in operating expenses; and
- A $21,809 charge related to the write-down and provision of assets,
$13,479 of which primarily related to inventory and is included in cost
of sales, and the remaining $8,330, primarily related to accounts
receivable, which is included in operating expenses.
See Note 3 regarding the dispositions of assets and Notes 13 and 14
regarding the write-down of assets and restructuring.
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 its 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. Almost all of the Company's net sales are derived from fixed price
contracts. Therefore, 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, the Company's results of operations
for any particular quarter are not necessarily indicative of results that may be
expected for any subsequent quarter or related fiscal year.
F-37
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of DT Industries, Inc.
Our audits of the consolidated financial statements of DT Industries, Inc.
and its subsidiaries referred to in our report dated August 22, 2002, appearing
in this Form 10-K also included an audit of the financial statement schedule of
DT Industries, Inc. listed in Item 14 of this Form 10-K. In our opinion, the
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
August 22, 2002
S-1
DT INDUSTRIES, INC.
SCHEDULE VIII
RULE 12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G
-------- ---------- ---------- ---------- ---------- ----------- ----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
VALUATION AND BEGINNING COSTS AND OTHER PURCHASE OF END OF
RESERVE ACCOUNTS OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS NET ASSETS PERIOD
---------------- ---------- ---------- ---------- ---------- ----------- ----------
FOR THE FISCAL YEAR ENDED
JUNE 30, 2002
Deferred Tax Assets Valuation
Allowance.................. $ 8,846 $ 4,970 $13,816
Accounts Receivable
Reserve.................... $ 8,921 $ 1,208 $(7,044) $ 3,085
Inventories Reserve.......... $10,552 $ 1,021 $(5,753) $(695) $ 5,125
FOR THE FISCAL YEAR ENDED
JUNE 24, 2001
Deferred Tax Assets Valuation
Allowance.................. $ 998 $ 7,848 $ 8,846
Accounts Receivable
Reserve.................... $ 3,249 $ 8,196 $(2,524) $ 8,921
Inventories Reserve.......... $ 3,232 $11,391 $(4,071) $10,552
FOR THE FISCAL YEAR ENDED
JUNE 25, 2000
Deferred Tax Assets Valuation
Allowance.................. $ 998 $ 998
Accounts Receivable
Reserve.................... $ 3,024 $ 97 $ 757 $ (629) $ 3,249
Inventories Reserve.......... $ 3,475 $ 1,008 $(1,251) $ 3,232
S-2
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Restated Certificate of Incorporation of the Registrant
effective November 13, 1998 (filed with the Commission as
Exhibit 3 to our Quarterly Report on Form 10-Q for the
quarter ended December 27, 1998 filed with the Commission on
February 10, 1999 and incorporated herein by reference
thereto).
3.2 Amendment to By-Laws of the Registrant, dated as of June 20,
2002.
3.3 Second Amended and Restated By-Laws of the Registrant.
4.1 Rights Agreement dated as of August 18, 1997 between DT
Industries, Inc. and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent (filed as Exhibit 1 to our Form 8-K
dated August 18, 1997, filed with the Commission on August
19, 1997 and incorporated herein by reference thereto). The
Rights Agreement includes as Exhibit A thereto the
Certificate of Designations, Preferences and Rights of
Series A Preferred Stock of DT Industries, Inc., as Exhibit
B thereto the Form of Rights Certificate and as Exhibit C
thereto the Summary of Rights to Purchase Series A Preferred
Stock.
4.2 Amendment No. 1 to the Rights Agreement by and between DT
Industries, Inc. and ChaseMellon Shareholder Services,
L.L.C., dated as of November 5, 1998 (filed with the
Commission as Exhibit 10 to our Quarterly Report on Form
10-Q for the quarter ended December 27, 1998, filed with the
Commission on February 10, 1999 and incorporated hereby by
reference thereto).
4.3 Amendment No. 2 to the Rights Agreement by and between DT
Industries, Inc. and ChaseMellon Shareholder Services,
L.L.C., dated as of November 17, 2000 (filed with the
Commission as Exhibit 4 to our Quarterly Report on Form 10-Q
for the quarter ended March 25, 2001, filed with the
Commission on May 9, 2001 and incorporated herein by
reference thereto).
4.4 Share Purchase Agreement, dated May 9, 2002, by and among DT
Industries, Inc. and the purchasers listed on Schedule A
thereto (filed as Exhibit 99.1 to the Company's Registration
Statement on Form S-3, Registration No. 333-91500, filed
with the Commission on June 28, 2002 (the "2002 Registration
Statement") and incorporated herein by reference thereto).
4.5 Exchange Agreement, dated May 9, 2002, by and among DT
Industries, Inc., DT Capital Trust, Stephen J. Perkins, John
M. Casper and Gregory D. Wilson, as the regular trustees of
the Trust, The Bank of New York and each of the investors
listed on Schedule A thereto (filed as Exhibit 99.2 to the
2002 Registration Statement and incorporated herein by
reference thereto).
4.6 Amended and Restated Declaration of Trust of DT Capital
Trust dated as of June 1, 1997 among DT Industries, Inc., as
Sponsor, the Bank of New York, as Property Trustee, The Bank
of New York (Delaware), as Delaware Trustee, and Stephen J.
Gore, Bruce P. Erdel and Gregory D. Wilson, as Trustees
(filed as Exhibit 4.2 to the Company's Registration
Statement on Form S-3, Registration No. 333-30909, filed
with the Commission on July 8, 1997 (the "1997 Registration
Statement") and incorporated herein by reference thereto).
4.7 First Amendment to the Amended and Restated Declaration of
Trust of DT Capital Trust dated as of June 20, 2002 among DT
Industries, Inc., as Sponsor, and Stephen J. Perkins, John
M. Casper and Gregory D. Wilson, as Trustees.
4.8 Indenture for the 7.16% Convertible Junior Subordinated
Deferrable Interest Debentures Due 2012 dated as of June 1,
1997 among DT Industries, Inc. and The Bank of New York, as
Trustee (filed as Exhibit 4.3 to the 1997 Registration
Statement and incorporated herein by reference thereto).
4.9 First Supplemental Indenture dated as of June 20, 2002 to
Indenture dated as of June 1, 1997, among DT Industries,
Inc. and The Bank of New York, as Trustee.
4.10 Preferred Securities Guarantee Agreement dated June 12, 1997
between DT Industries, Inc., as Guarantor, and The Bank of
New York, as Preferred Guarantee Trustee (filed as Exhibit
4.6 to the 1997 Registration Statement and incorporated
herein by reference thereto).
4.11 Amendment and Confirmation to the Preferred Securities
Guarantee Agreement, dated as of June 20, 2002, between DT
Industries, Inc., as Guarantor, and The Bank of New York, as
Guarantee Trustee.
10.1* DT Industries, Inc. Employee Stock Option Plan (filed as
Exhibit 10.21 to our 1994 Registration Statement on Form
S-1, Registration No. 33-75174, filed with the Commission on
February 11, 1994, as amended on March 22, 1994 (the "1994
Registration Statement") and incorporated herein by
reference thereto).
EXHIBIT
NO. DESCRIPTION
------- -----------
10.2* DT Industries, Inc. Amendment to 1994 Employee Stock Option
Plan, adopted May 16, 1996 (filed as Exhibit 10.59 to our
Annual Report on Form 10-K for the fiscal year ended June
30, 1996 filed with the Commission on September 30, 1996
(the "1996 10-K") and incorporated herein by reference
thereto).
10.3* DT Industries, Inc. Second Amendment to 1994 Employee Stock
Option Plan, adopted September 18, 1996 (filed as Exhibit
10.60 to the 1996 10-K and incorporated herein by reference
thereto).
10.4* DT Industries, Inc. Third Amendment to 1994 Employee Stock
Option Plan, adopted as of June 20, 2002.
10.5* DT Industries, Inc. 1994 Directors Non-Qualified Stock
Option Plan (filed as Exhibit 10.22 to the 1994 Registration
Statement and incorporated herein by reference thereto).
10.6* DT Industries, Inc. Amendment to 1994 Directors
Non-Qualified Stock Option Plan, adopted as of June 20,
2002.
10.7* DT Industries, Inc. 1996 Long-Term Incentive Plan (filed as
Exhibit 10.61 to the 1996 10-K and incorporated herein by
reference thereto).
10.8* DT Industries, Inc. Amendment to 1996 Long-Term Incentive
Plan, adopted August 31, 1998 (filed as Exhibit 10.6 to our
Annual Report on Form 10-K for the fiscal year ended June
24, 2001, filed with the Commission on September 24, 2001
(the "2001 10-K") and incorporated by reference thereto.
10.9* DT Industries, Inc. Second Amendment to 1996 Long-Term
Incentive Plan, adopted as of June 20, 2002.
10.10 Fourth Amended and Restated Credit Facilities Agreement,
dated July 21, 1997, among Bank of America, N.A. (successor
by merger to The Boatmen's National Bank of St. Louis) and
any other persons who become lenders as provided therein and
DT Industries, Inc. and the other borrowers listed on the
signature pages thereof (filed as Exhibit 10.31 to the 1997
10-K and incorporated herein by reference thereto).
10.11 First Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of December 31, 1997, among
Bank of America, N.A., as Administrative Agent, and Bank of
America, N.A. and the other Lenders listed therein and DT
Industries, Inc. and the other Borrowers listed therein
(filed as Exhibit 10 to our Quarterly Report on Form 10-Q
for the quarter ended March 29, 1998 filed with the
Commission on May 12, 1998 and incorporated herein by
reference thereto).
10.12 Second Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of April 30, 1998, among Bank
of America, N.A., as Administrative Agent, and Bank of
America, N.A. and the other Lenders listed therein and DT
Industries, Inc. and the other Borrowers listed therein
(filed as Exhibit 10.22 to our Annual Report on Form 10-K
for the fiscal year ended June 28, 1998 filed with the
Commission on September 25, 1998 (the "1998 10-K") and
incorporated herein by reference thereto).
10.13 Third Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of August 26, 1998, among
Bank of America, N.A., as Administrative Agent, and Bank of
America, N.A. and the other Lenders listed therein and DT
Industries, Inc. and the other Borrowers listed therein
(filed as Exhibit 10.23 to the 1998 10-K and incorporated
herein by reference thereto).
10.14 Fourth Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of September 24, 1999, among
Bank of America, N.A., as Administrative Agent, and Bank of
America, N.A. and the other Lenders listed therein and DT
Industries, Inc. and the other Borrowers listed therein
(filed as Exhibit 10 to our Quarterly Report on Form 10-Q
for the quarter ended September 26, 1999 filed with the
Commission on November 9, 1999 and incorporated herein by
reference thereto).
10.15 Fifth Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of December 1, 1999, among
Bank of America, N.A., as Administrative Agent, and Bank of
America, N.A. and the other Lenders listed therein and DT
Industries, Inc. and the other Borrowers listed therein
(filed as Exhibit 10 to our Quarterly Report on Form 10-Q
for the quarter ended December 26, 1999 filed with the
Commission on February 9, 2000 and incorporated herein by
reference thereto).
EXHIBIT
NO. DESCRIPTION
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10.16 Sixth Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of June 26, 2000, among Bank
of America, N.A., as Administrative Agent, and Bank of
America, N.A. and the other Lenders listed therein and DT
Industries, Inc. and the other Borrowers listed therein
(filed as Exhibit 10.21 to our Annual Report on Form 10-K
for the fiscal year ended June 25, 2000 filed with the
Commission on October 13, 2000 (the "2000 10-K") and
incorporated herein by reference thereto).
10.17 Seventh Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of October 10, 2000, among
Bank of America, N.A., as Administrative Agent, and Bank of
America, N.A. and the other Lenders listed therein and DT
Industries, Inc. and the other Borrowers listed therein
(filed as Exhibit 10 to our Quarterly Report on Form 10-K
for the quarter ended December 24, 2000 filed with the
Commission on February 7, 2001 and incorporated herein by
reference thereto).
10.18 Eighth Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of June 25, 2001, among Bank
of America, N.A., as Administrative Agent, and Bank of
America, N.A. and the other Lenders listed therein and DT
Industries, Inc. and the other Borrowers listed therein
(filed as Exhibit 10.16 to the 2001 10-K and incorporated
hereby by reference thereto).
10.19 Ninth Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of July 1, 2001, among Bank
of America, N.A., as Administrative Agent, and Bank of
America, N.A. and the other Lenders listed therein and DT
Industries, Inc. and the other Borrowers listed therein
(filed as Exhibit 10.17 to the 2001 10-K and incorporated
herein by reference thereto).
10.20 Tenth Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of July 3, 2001, among Bank
of America, N.A., as Administrative Agent, and Bank of
America, N.A. and the other Lenders listed therein and DT
Industries, Inc. and the other Borrowers listed therein
(filed as Exhibit 10.18 to the 2001 10-K and incorporated
hereby by reference thereto).
10.21 Eleventh Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of August 2, 2001, among Bank
of America, N.A., as Administrative Agent, and Bank of
America, N.A. and the other Lenders listed therein and DT
Industries, Inc. and the other Borrowers listed therein
(filed as Exhibit 10.19 to the 2001 10-K and incorporated
hereby by reference thereto).
10.22 Twelfth Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of May 9, 2002, among Bank of
America, N.A., as Administrative Agent, and Bank of America,
N.A. and the other Lenders listed therein and DT Industries,
Inc. and the other Borrowers listed therein (filed as
Exhibit 99.3 to the 2002 Registration Statement and
incorporated hereby by reference thereto).
10.23 Lease dated as of February 20, 1996 by and between CityWide
Development Corporation and Advanced Assembly Automation,
Inc. (filed as Exhibit 10 to our Quarterly Report on Form
10-Q for the quarter ended March 24, 1996 filed with the
Commission on May 3, 1996 and incorporated herein by
reference thereto).
10.24 Single-Tenant Industrial Business Lease dated July 19, 1996,
between American National Bank and Trust Company of Chicago,
as Trustee under Trust No. 63442, Landlord, and Mid-West
Automation Enterprises, Inc., an Illinois corporation and
Mid-West Automation Systems, Inc., an Illinois corporation,
collectively, Tenant (filed as Exhibit No. 10.58 to the 1996
10-K and incorporated herein by reference thereto).
10.25 Industrial Building Lease, dated July 1991, by and between
The Allen Group Inc. and Lucas Hartridge, Inc. (filed as
Exhibit 10.56 to the 1997 10-K and incorporated herein by
reference thereto).
10.26* DT Industries, Inc. Directors Deferred Compensation Plan
(filed as Exhibit 10.37 to our Annual Report on Form 10-K
for the fiscal year ended June 27, 1999 filed with the
Commission on September 17, 1999 (the "1999 10-K") and
incorporated herein by reference thereto).
10.27* DT Industries, Inc. Non-Qualified Deferred Compensation Plan
(filed as Exhibit 10.38 to the 1999 10-K and incorporated
herein by reference thereto).
10.28* First Amendment to DT Industries, Inc. Non-Qualified
Deferred Compensation Plan (filed as Exhibit 10.35 to the
2000 10-K and incorporated herein by reference thereto).
EXHIBIT
NO. DESCRIPTION
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10.29* Employment Agreement, dated as of November 6, 2000, by and
between DT Industries, Inc. and Stephen J. Perkins (filed as
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
quarter ended March 25, 2001 filed with the Commission on
May 9, 2001 and incorporated hereby by reference thereto).
10.30* Termination and Change of Control Agreement, dated as of
November 6, 2000, by and between DT Industries, Inc. and
Stephen J. Perkins (filed as Exhibit 10.2 to our Quarterly
Report on Form 10-Q for the quarter ended March 25, 2001
filed with the Commission on May 9, 2001 and incorporated
herein by reference thereto).
10.31* Restricted Stock Agreement, dated April 25, 2001, by and
between DT Industries, Inc. and Stephen J. Perkins (filed as
Exhibit 10.3 to our Quarterly Report on Form 10-Q for the
quarter ended March 25, 2001 filed with the Commission on
May 9, 2001 and incorporated herein by reference thereto).
10.32* Employment Agreement, dated as of January 22, 2001, by and
between DT Industries, Inc. and John M. Casper (filed as
Exhibit 10.33 to the 2001 10-K and incorporated herein by
reference thereto).
10.33* Change of Control Agreement, dated as of January 22, 2001,
by and between DT Industries, Inc. and John M. Casper (filed
as Exhibit 10.34 to the 2001 10-K and incorporated herein by
reference thereto).
10.34* Employment Agreement, dated as of May 1, 2001, by and
between DT Industries, Inc. and John F. Schott (filed as
Exhibit 10.35 to the 2001 10-K and incorporated hereby
reference thereto).
10.35* Change of Control Agreement, dated as of May 1, 2001, by and
between DT Industries, Inc. and John F. Schott (filed as
Exhibit 10.36 to the 2001 10-K and incorporated herein by
reference thereto).
10.36 Sublease Agreement dated as of June 30, 2002 by and between
Mohawk/CDT, a division of Cable Design Technologies, Inc.,
as sublandlord and Pharma Group, Inc., as subtenant.
10.37 Landlord, Tenant and Subtenant Agreement dated as of June
30, 2002 by and among Shirley Chizmas, as Trustee of Chizmas
Realty Trust, as landlord, Mohawk/CDT, a division of Cable
Design Technologies, Inc., as sublandlord, and Pharma Group,
Inc., as subtenant.
10.38 Lease Agreement dated June 25, 2002 between One Center Place
Limited Partnership, as landlord, and Sencorp Systems, Inc.,
as tenant.
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Powers of Attorney
99.1 Certification of Chief Executive Officer dated October 4,
2002.
99.2 Certification of Chief Financial Officer dated October 4,
2002.
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* Management contract or compensatory plan or arrangement.