FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 29, 2002
-------------------------------------
Commission File Number: 0-23400
DT INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 44-0537828
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
907 West Fifth Street, Dayton, Ohio 45407
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(Address of principal executive offices) (Zip Code)
(937) 586-5600
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Common Stock, $0.01 par value, of the registrant
outstanding as of November 8, 2002 was 23,647,932.
DT INDUSTRIES, INC.
INDEX
PAGE 1
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Page
Number
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 29, 2002
and June 30, 2002 2
Consolidated Statement of Operations for the three
months ended September 29, 2002 and September
23, 2001 (As Restated) 3
Consolidated Statement of Changes in Stockholders'
Equity for the three months ended September 29,
2002 4
Consolidated Statement of Cash Flows for the three
months ended September 29, 2002 and September
23, 2001 (As Restated) 5
Notes to Consolidated Financial Statements 6-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-23
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 23
Item 4. Controls and Procedures 23
Part II Other Information
Item 1. Legal Proceedings 24
Item 6. Exhibits and Reports on Form 8-K 24
Signature
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 2
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SEPTEMBER 29, JUNE 30,
2002 2002
------------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 3,504 $ 18,847
Accounts receivable, net 40,138 54,936
Costs and estimated earnings in excess of amounts billed
on uncompleted contracts 37,042 29,288
Inventories, net 31,361 26,777
Prepaid expenses and other 10,868 8,809
--------- ---------
Total current assets 122,913 138,657
Property, plant and equipment, net 37,351 37,329
Goodwill 125,912 125,538
Other assets, net 6,604 6,886
--------- ---------
$ 292,780 $ 308,410
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior secured term and revolving credit facility $ 6,000 $ 6,000
Current portion of other long-term debt 126 5,140
Accounts payable 21,911 21,049
Customer advances 12,301 13,124
Billings in excess of costs and estimated earnings on
uncompleted contracts 10,239 12,020
Accrued liabilities 26,314 29,595
--------- ---------
Total current liabilities 76,891 86,928
--------- ---------
Long-term debt 39,693 45,381
Other long-term liabilities 3,318 3,285
--------- ---------
43,011 48,666
--------- ---------
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 35,802 35,401
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $0.01 par value; 100,000,000 shares
authorized; 23,647,932 shares outstanding at
September 29, 2002 and June 30, 2002 246 246
Additional paid-in capital 188,546 188,546
Accumulated deficit (26,788) (25,922)
Accumulated other comprehensive loss (1,472) (1,918)
Unearned portion of restricted stock (389) (470)
Less -
Treasury stock (988,488 shares at September 29, 2002
and June 30, 2002), at cost (23,067) (23,067)
--------- ---------
Total stockholders' equity 137,076 137,415
--------- ---------
$ 292,780 $ 308,410
========= =========
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 3
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THREE MONTHS ENDED
SEPTEMBER 23,
2001
SEPTEMBER 29, AS RESTATED
2002 (NOTES 1 AND 11)
------------ ---------------
Net sales $ 69,442 $ 100,431
Cost of sales 55,568 79,832
------------ ------------
Gross profit 13,874 20,599
Selling, general and administrative expenses 13,197 15,016
------------ ------------
Operating income 677 5,583
Interest expense, net 1,438 3,167
Dividends on Company-obligated, mandatorily redeemable convertible preferred
securities of subsidiary DT Capital Trust holding solely convertible junior
subordinated debentures of the Company 401 1,440
------------ ------------
Income (loss) before provision for income taxes (1,162) 976
Provision (benefit) for income taxes (296) 367
------------ ------------
Net income (loss) $ (866) $ 609
============ ============
Net income (loss) per common share:
Basic $ (0.04) $ 0.06
Diluted $ (0.04) $ 0.06
============ ============
Weighted average common shares outstanding:
Basic 23,647,932 10,340,571
Diluted 23,647,932 10,362,881
============ ============
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 29, 2002
(DOLLARS IN THOUSANDS)
(UNAUDITED)
PAGE 4
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Accumulated Unearned
other Additional portion of
Accumulated comprehensive Common paid-in Treasury restricted
deficit loss stock capital stock stock Total
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BALANCE, JUNE 30, 2002 $ (25,922) $ (1,918) $ 246 $ 188,546 $ (23,067) $ (470) $ 137,415
Comprehensive income:
Net loss (866)
Foreign currency translation 446
Total comprehensive income (420)
Amortization of earned portion
of restricted stock 81 81
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BALANCE, SEPTEMBER 29, 2002 $ (26,788) $ (1,472) $ 246 $ 188,546 $ (23,067) $ (389) $ 137,076
============================================================================================
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
PAGE 5
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THREE MONTHS ENDED
SEPTEMBER 23,
2001
SEPTEMBER 29, AS RESTATED
2002 (NOTES 1 AND 11)
-------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (866) $ 609
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation 1,187 1,652
Amortization 582 818
Other -- (36)
Deferral of dividends on convertible trust preferred securities 401 1,440
(Increase) decrease in current assets, excluding the effect
of dispositions:
Accounts receivable 14,798 12,331
Costs and estimated earnings in excess of amounts billed on
uncompleted contracts (7,754) 13,199
Inventories (4,584) (3,505)
Prepaid expenses and other (452) (1,230)
Increase (decrease) in current liabilities, excluding the effect of
dispositions:
Accounts payable 862 (9,153)
Customer advances (823) 956
Billings in excess of costs and estimated earnings on uncompleted (1,781) --
contracts
Accrued liabilities and others (5,066) (2,504)
-------- --------
Net cash provided (used) by operating activities (3,496) 14,577
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of assets -- 18,189
Capital expenditures (892) (254)
-------- --------
Net cash provided (used) by investing activities (892) 17,935
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net paydowns on revolving loans (6,346) (29,335)
Payments on borrowings (5,046) (1,745)
Financing costs (174) (2,340)
Net proceeds from equity transactions -- 35
-------- --------
Net cash used by financing activities (11,566) (33,385)
-------- --------
Effect of exchange rate changes 611 677
-------- --------
Net decrease in cash (15,343) (196)
Cash and cash equivalents at beginning of period 18,847 5,505
-------- --------
Cash and cash equivalents at end of period $ 3,504 $ 5,309
======== ========
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 6
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1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of DT
Industries, Inc. (DTI or the Company) have been prepared in accordance
with the instructions for Form 10-Q and do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
However, in the opinion of management, the information includes all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results of operations for the periods
presented. Operating results for any quarter are not necessarily
indicative of the results for any other quarter or for the full year.
These statements should be read in conjunction with the consolidated
financial statements and notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 2002.
Certain reclassifications have been made to prior year financial
statements for comparative purposes. These reclassifications had no
effect on net income (loss).
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), the Company discovered that we were required to
make accounting adjustments to previously reported audited consolidated
financial results for the fiscal years ended June 24, 2001, June 25,
2000 and June 27, 1999, as well as our previously reported unaudited
consolidated financial results for the first three quarters of fiscal
2002, due to an overstatement of the balance sheet account entitled
costs and estimated earnings in excess of amounts billed on uncompleted
contracts ("CIE"). The CIE balance is comprised of estimated gross
profit recognized to date plus actual work-in-process costs incurred to
date less billings/deposits to date. The overstatement of CIE occurred
at our Assembly Machines, Inc. ("AMI") subsidiary, a small facility
located in Erie, Pennsylvania that is currently part of our Precision
Assembly 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 $6,486 and
increased the aggregate net loss after taxes reported during the
impacted periods by $4,216. See Note 11 for the restatement of the
three months ended September 23, 2001.
The Company discovered the accounting adjustments while beginning the
transfer of the sales and accounting functions at AMI to our Precision
Assembly segment headquarters in Buffalo Grove, Illinois in connection
with the reorganization of the Company's operations described in Note
6. The Board of Directors authorized the Audit and Finance Committee to
conduct an independent investigation, with the assistance of special
counsel retained by the Committee, to identify the causes of these
accounting adjustments. The Committee retained Katten Muchin Zavis
Rosenman ("KMZR") as special counsel, and KMZR engaged an independent
accounting firm to assist in the investigation. In addition, the
Company investigated whether similar issues existed at any other
subsidiaries. At the conclusion of the independent investigation, KMZR
and the independent accounting firm provided the Committee with an oral
report of their findings. Due to the time-sensitive nature of the
independent investigation, no written report was prepared for, or
provided to, the Committee. As a result of the investigations, the
Company believes that the accounting issues were confined to AMI and
determined that the misstatement of the CIE account at AMI was
primarily the result of the former controller of AMI, without
instruction from, or the knowledge of, Company management, (1) failing
to properly account for manufacturing variances, (2) adding
inappropriate costs to work-in-process amounts, (3) understating
amounts billed and/or customer deposits and (4) failing to recognize
certain losses, in each case on various projects during the relevant
time period. Using these miscalculations of CIE, the former AMI
controller made incorrect journal entries that were recorded in the
books and records of AMI.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 7
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2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
The accounts of the Company's foreign subsidiaries are maintained in
their respective local currencies. The accompanying consolidated
financial statements have been translated and adjusted to reflect U.S.
dollars in accordance with accounting principles generally accepted in
the United States.
3. ASSET SALES
In the first quarter of fiscal 2002, the Company sold substantially all
of the assets of two divisions. The following table summarizes certain
information regarding these sales:
NET
CASH LOSS
DATE OF SALE BUSINESS PROCEEDS ON DISPOSAL
------------------- --------------------------------------- -------------- ----------------
June 2001 Detroit Tool Metal Products Co. $ 14,250 $ (1,618)
July 2001 Scheu & Kniss 3,939 (6,200)
------------ -------------
$ 18,189 $ (7,818)
============ =============
The losses associated with the sale of these divisions were recognized
in the fourth quarter of fiscal 2001.
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-forward basis, of approximately $800 annually
through June 2012.
During the first quarter of fiscal 2003, the Company entered into an
agreement to sell its Packaging Systems segment Leominster facility and
began its relocation to a new leased facility in Leominster. The
Company took a $0.3 million charge in the third quarter of fiscal 2002
to write-down the Leominster facility to fair market value. The sale of
the facility is expected to close in December 2002.
In October 2002, the Company closed a sale/leaseback transaction of its
Packaging Systems segment Alcester, England facility. The
sale/leaseback will result in a book gain of approximately $430.
Proceeds of the Leominster and Alcester transactions, estimated to be
$2,000, will be used to reduce debt outstanding under the senior credit
facility.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 8
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4. FINANCING
As of September 29, 2002 and June 30, 2002, current and long-term debt
consisted of the following:
SEPTEMBER 29, JUNE 30,
2002 2002
------------- ---------
Term and revolving loans under senior secured credit facility:
Term loan $ 6,399 $ 6,441
Revolving loans 39,190 44,846
Other debt 230 5,234
-------- --------
45,819 56,521
Less - current portion of senior secured credit facility 6,000 6,000
Less - current portions of other debt 126 5,140
-------- --------
Long-term debt $ 39,693 $ 45,381
======== ========
The total commitment under the amended senior credit agreement was
$76,441, consisting of a $6,441 term loan and a $70,000 revolving loan,
which mature on July 2, 2004. The credit facility allows for issuance
of letters of credit subject to the overall commitment level and
restricts payment of dividends. Significant terms of the amended
agreement require:
- Financial covenants through the end of June 2004;
- $1,500 quarterly scheduled commitment reductions beginning September
30, 2002, prorated between the term and revolving loan commitments
through June 2004, which have reduced the total revolving loan to
$68,626 as of October 31, 2002;
- 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. At September 29, 2002, the asset coverage
was sufficient to have the full priority advances available and
there were no priority advances outstanding.
Interest rates for amounts borrowed under the credit facility are based
on Prime Rate plus 3.5% or Eurodollar Rate plus 4.0% for all revolver
advances up to $53,000 and Prime Rate plus 4.0% for all priority
advances in excess of $53,000. At September 29, 2002, interest rates on
outstanding indebtedness under the amended facility ranged from 8.01%
to 8.25%. 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 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 September 29,
2002, was $28,747. At October 31, 2002, $6,591 was available under the
base amount of the revolving loan and $15,626 was available under the
priority advances, reflecting the above noted commitment reductions.
Borrowings under the credit facility are secured by substantially all
of the assets of DTI and its domestic subsidiaries.
The senior credit facility contains various financial covenants related
to earnings before interest, taxes, depreciation and amortization
(EBITDA). Because of customer requested delays in certain projects, the
Company's revenues and operating income will be negatively affected in
the second quarter of fiscal 2003. As a result, the Company does not
expect to meet certain of its EBITDA-related covenants during the
second quarter. The Company intends to request a waiver from its senior
lenders of any covenants which it may not meet. If the Company does not
obtain such a waiver, its lenders would be entitled to, among other
things, accelerate the maturity of the debt outstanding under the
senior credit facility so that it is immediately due and payable. In
addition, no further borrowings would be available under the revolving
portion of the senior credit facility. If the indebtedness is
accelerated, the Company may not have sufficient funds to satisfy its
obligations and it may not be able to continue its operations as
currently anticipated.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 9
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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. On June 26, 2002, the Company
completed a sale/leaseback of the facility in Hyannis and repaid the
outstanding balance of $5,000 on August 1, 2002.
5. COMPANY-OBLIGATED, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY DT CAPITAL TRUST HOLDING SOLELY CONVERTIBLE
JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY (CONVERTIBLE PREFERRED
SECURITIES) - TIDES
The conversion price of the $35,000 outstanding TIDES (and the Junior
Debentures of the Company held by the DT Capital Trust) is $14.00 per
share, distributions on the TIDES payable are not required to be paid
from April 1, 2002 until July 2, 2004, and the maturity date of the
TIDES is May 31, 2008. Distributions are payable on the TIDES at 7.16%
beginning September 2004 through their maturity date of May 31, 2008.
However, annual dividend expense of $1,604 on the TIDES is being
recorded, reflecting an approximate effective yield of 4.6% over the
life of the TIDES. Distributions accrued during the period through July
2, 2004 are added to the amount outstanding ($35,802 at September 29,
2002).
6. BUSINESS SEGMENTS
The Company primarily operated in two business segments through fiscal
2002 - Automation and Packaging. The Company announced in March 2002
the reorganization of its operations into four business segments:
Material Processing, Precision Assembly, Packaging Systems and Assembly
and Test. See "Item 1. Business. Markets and Products" in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2002 for
a description of the products and markets of these four segments. 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.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 10
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Net sales for the Company's reportable segments consisted of the
following:
THREE MONTHS ENDED
SEPTEMBER 23, 2001
SEPTEMBER 29, 2002 AS RESTATED
------------------ ------------------
Net sales
Material Processing $ 24,651 $ 26,599
Precision Assembly 17,289 18,879
Packaging Systems 5,851 11,669
Assembly & Test 21,651 42,723
Other Businesses -- 561
-------- --------
Consolidated total $ 69,442 $100,431
======== ========
The reconciliation of segment operating income to consolidated income
(loss) before income taxes consisted of the following:
THREE MONTHS ENDED
SEPTEMBER 23, 2001
SEPTEMBER 29, 2002 AS RESTATED
------------------ ------------------
Material Processing $ 2,248 $ 1,450
Precision Assembly 1,114 1,841
Packaging Systems (52) 1,143
Assembly & Test (669) 2,869
------- -------
Operating income for reportable segments 2,641 7,303
Operating loss for Other Businesses -- (68)
Corporate (1,964) (1,652)
Interest expense, net (1,438) (3,167)
Dividends on Company-obligated, mandatorily
redeemable convertible preferred securities
of subsidiary DT Capital Trust holding solely
convertible junior subordinated debentures of
the Company (401) (1,440)
------- -------
Consolidated income (loss) before income taxes $(1,162) $ 976
======= =======
The Company sold substantially all of the assets of the remaining
division in the Other Businesses segment in October 2001.
Total assets for the Company's reportable segments consisted of the
following:
AS OF AS OF
SEPTEMBER 29, 2002 JUNE 30, 2002
------------------ ------------------
Total assets
Material Processing $ 59,821 $ 64,061
Precision Assembly 73,158 77,865
Packaging Systems 53,242 53,846
Assembly & Test 92,882 94,266
Corporate 13,677 18,372
-------- --------
Consolidated total $292,780 $308,410
======== ========
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 11
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7. SUPPLEMENTAL BALANCE SHEET INFORMATION
SEPTEMBER 29, 2002 JUNE 30, 2002
------------------ -------------
Accounts receivable
Trade receivables $ 42,499 $ 58,021
Less - allowance for doubtful accounts (2,361) (3,085)
--------- ---------
$ 40,138 $ 54,936
========= =========
Costs and estimated earnings in excess of amounts billed on
uncompleted contracts
Costs incurred on uncompleted contracts $ 165,346 $ 176,781
Estimated earnings 35,204 37,040
--------- ---------
200,550 213,821
Less - Billings to date (173,747) (196,553)
--------- ---------
$ 26,803 $ 17,268
========= =========
Included in the accompanying balance sheets:
Costs and estimated earnings in excess of amounts billed $ 37,042 $ 29,288
Billings in excess of costs and estimated earnings (10,239) (12,020)
--------- ---------
$ 26,803 $ 17,268
========= =========
Inventories, net
Raw materials $ 20,789 $ 17,575
Work in process 15,986 12,404
Finished goods 2,119 4,292
Less - inventory reserves (7,533) (7,494)
--------- ---------
$ 31,361 $ 26,777
========= =========
Accrued liabilities
Accrued employee compensation and benefits $ 8,284 $ 10,258
Accrued warranty 3,135 3,422
Restructuring accrual 2,626 4,678
Other 12,269 11,237
--------- ---------
$ 26,314 $ 29,595
========= =========
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 12
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The change in the allowance for doubtful accounts resulted from
additional expense of $233 during the three months ended September 29,
2002 and the reversal of $903 related to the resolution during the
quarter of a customer lawsuit, as a result of which the outstanding
receivable balance was written off against the previously established
allowance account.
8. ACCOUNTING PRONOUNCEMENTS
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 Company adopted SFAS 144 in fiscal 2003. The adoption did
not have a material impact on our financial position or results of
operations.
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.
9. COMMITMENTS AND CONTINGENCIES
The Company is involved in legal and regulatory proceedings, as
described in "Part 1, Item 3. Legal Proceedings" of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2002.
Since the disclosure in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 2002, there have been no material
developments in previously reported legal proceedings.
The Company is from time to time subject to claims and suits arising in
the ordinary course of business. Although the ultimate disposition of
such proceedings is not presently determinable, management does not
believe that the ultimate resolution of these matters will have a
material adverse effect on the Company's financial condition, results
of operations or cash flows. The Company maintains comprehensive
general liability insurance that it believes to be adequate for the
continued operation of its business.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 13
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10. RESTRUCTURING
As outlined in its Annual Report on Form 10-K for the fiscal year ended
June 30, 2002, during fiscal 2002 and 2001, the Company took several
actions in connection with a plan to restructure its business
operations. The steps included closing facilities in Rochester, New
York, Montreal, Quebec, and a Packaging Systems sales office in Canada.
In addition, the Company transferred its Converting Technologies
operation in Bristol, Pennsylvania to Hyannis, Massachusetts, its
Assembly and Test - Europe fabrication operation in Gawcott, UK to
Buckingham, England, and relocated its corporate offices from
Springfield, Missouri to Dayton, Ohio. The Company also recorded
severance reserves related to certain management changes and workforce
reductions at several locations. Substantially all employee
terminations had occurred as of September 29, 2002. The Company was
able to successfully negotiate an early termination of its Springfield,
Missouri office lease and recorded the resulting $200 benefit as a
reduction in reserve.
The following table summarizes the changes in the restructuring
accruals during the first quarter of fiscal 2003:
ACCRUED NON-CASH ACCRUED
AS OF REDUCTION CASH CHARGES CHARGES TO AS OF
JUNE 30, 2002 IN RESERVE TO ACCRUAL ACCRUAL SEPTEMBER 29, 2002
-------------------------------------------------------------------------------------
Severance costs $ 1,431 -- $(1,311) $ -- $ 120
Future lease costs on closed facilities 2,846 (200) (479) -- 2,167
Relocation costs -- -- -- -- --
Asset write-downs 307 -- -- (52) 255
Other 94 -- (10) -- 84
----------------------------------------------------------------------------------
$ 4,678 (200) $(1,800) $ (52) $ 2,626
==================================================================================
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 14
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11. RESTATEMENT
As described in Note 1, the Company's consolidated statement of
operations for the three months ended September 23, 2001 has been
restated. A comparison of previously reported and restated consolidated
statements of operations for this period is presented below. The impact
of the restatement resulted in decreases to the Company's net income of
$250, and to the Company's net income per common share of $0.02.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 23, 2001
---------------------------------------------
AS PREVIOUSLY REPORTED AS RESTATED
---------------------- -----------
Net sales $ 100,484 $ 100,431
Cost of sales 79,501 79,832
----------- -----------
Gross profit 20,983 20,599
Selling, general and administrative expenses 15,016 15,016
----------- -----------
Operating income 5,967 5,583
Interest expense, net 3,167 3,167
Dividends on Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust holding solely
convertible junior subordinated debentures of
the Company 1,440 1,440
----------- -----------
Income before provision for income taxes 1,360 976
Provision for income taxes 501 367
----------- -----------
Net income $ 859 $ 609
=========== ===========
Net income per common share:
Basic and Diluted $ 0.08 $ 0.06
=========== ===========
Weighted average common shares outstanding:
Basic 10,340,571 10,340,571
Diluted 10,362,881 10,362,881
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 15
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THREE MONTHS ENDED SEPTEMBER 29, 2002
COMPARED TO THREE MONTHS ENDED SEPTEMBER 23, 2001 (AS RESTATED)
GENERAL OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of DT Industries, Inc.
(DTI or the Company) for the three months ended September 29, 2002 compared to
the three months ended September 23, 2001. This discussion should be read in
conjunction with the consolidated financial statements and notes to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2002 and the consolidated financial
statements and notes thereto included in this Quarterly Report on Form 10-Q.
The Company announced in March 2002 the reorganization of its operations into
four business segments: Material Processing, Precision Assembly, Packaging
Systems and Assembly and Test. See "Item 1, Business. Markets and Products" in
the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2002
for a description of the markets and products of these four segments. 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.
Almost all of our net sales are derived from the sale and installation of
equipment and systems primarily under fixed-price contracts. We also derive net
sales from the sale of spare and replacement parts and servicing installed
equipment and systems. We recognize revenue under the percentage of completion
method or upon delivery and acceptance in accordance with SAB 101.
We principally utilize the percentage of completion method of accounting to
recognize revenues and related costs for the sale and installation of equipment
and systems pursuant to customer contracts. These contracts are typically
engineering-driven design and build contracts of automated production equipment
and systems used to manufacture, test or package a variety of industrial and
consumer products. These contracts are generally for large dollar amounts and
require a significant amount of labor hours with durations ranging from three
months to over a year. Under the percentage of completion method, revenues and
related costs are measured based on the ratio of engineering and manufacturing
labor hours incurred to date compared to total estimated engineering and
manufacturing labor hours. Any revisions in the estimated total costs of the
contracts during the course of the work are reflected when the facts that
require the revisions become known.
For those contracts accounted for in accordance with SAB 101, we recognize
revenue upon shipment (FOB shipping point). We utilize this method of revenue
recognition for products produced in a standard manufacturing operation whereby
the product is built according to pre-existing bills of materials, with some
customization occurring. These contracts are typically of shorter duration (one
to three months) and have smaller contract values. The revenue recognition for
these products follows the terms of the contracts, which 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 costs of sales when the related revenue is
recognized. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.
Selling, general and administrative expenses primarily consist of salary and
wages for employees, research and development costs, sales commissions and
marketing and professional expenses.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 16
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Certain information contained in this report, including, without limitation, the
information appearing under the captions "Legal Proceedings" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
includes forward-looking statements made pursuant to the safe harbor provisions
of Section 21E of the Securities Exchange Act of 1934, as amended. These
statements comprising all statements herein which are not historical reflect our
current expectations and projections about our future results, performance,
liquidity, financial condition, prospects and opportunities and are based upon
information currently available to us and our interpretation of what we believe
to be significant factors affecting our businesses, including many assumptions
regarding future events. References to the words "will", "anticipate",
"believe", "intent", "expect", "should", 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 "Risk Factors" in our Form S-3
(File No. 333-91500) initially filed with the SEC on June 28, 2002, as amended,
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.
RECENT RESTATEMENT OF HISTORICAL FINANCIAL RESULTS
As publicly announced on August 6, 2002 (prior to the public announcement of our
consolidated financial results for the fiscal year ended June 30, 2002), we
discovered that we were required to make accounting adjustments to our
previously reported audited consolidated financial results for the fiscal years
ended June 24, 2001, June 25, 2000 and June 27, 1999, as well as our previously
reported unaudited consolidated financial results for the first three fiscal
quarters of 2002, due to an overstatement of the balance sheet account entitled
costs and estimating earnings in excess of amounts billed on uncompleted
contracts ("CIE"). The CIE balance is comprised of estimated gross margins
recognized to date plus actual work-in-process costs incurred to date less
billings/deposits to date. The overstatement of CIE occurred at our Assembly
Machines, Inc. ("AMI") subsidiary, a small facility located in Erie,
Pennsylvania that is currently part of our Precision Assembly 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 consolidated statement of operations for
the three months ended September 23, 2001 is included in Note 11 to our
consolidated financial statements included herein.
We discovered the accounting adjustments while beginning the transfer of the
sales and accounting functions at AMI to our Precision Assembly segment
headquarters in Buffalo Grove, Illinois in connection with the reorganization of
our operations. Our Board of Directors authorized the Audit and Finance
Committee to conduct an independent investigation, with the assistance of
special counsel retained by the Committee, to identify the causes of these
accounting adjustments. The Committee retained Katten Muchin Zavis Rosenman
("KMZR") as special counsel, and KMZR engaged an independent accounting firm to
assist in the investigation. In addition, we investigated whether similar issues
existed at any of our
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 17
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other units. At the conclusion of the independent investigation, KMZR and the
independent accounting firm provided the Committee with an oral report of their
findings. Due to the time-sensitve nature of the independent investigation,
no written report was prepared for or provided to, the Committee. As a result of
the investigations, we believe that the accounting issues were confined to AMI
and determined that the misstatement of the CIE account at AMI was primarily the
result of the former controller of AMI, without instruction from, or the
knowledge of, our management, (1) failing to properly account for manufacturing
variances, (2) adding inappropriate costs to work-in-process amounts, (3)
understating amounts billed and/or customer deposits and (4) failing to
recognize certain losses, in each case on various projects during the relevant
time period. Using these miscalculations of CIE, the former AMI controller made
incorrect journal entries that were recorded in the books and records of AMI.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
consolidated net sales represented by certain items reflected in the Company's
consolidated statement of operations:
Three Months Ended
September 23, 2001
September 29, 2002 As Restated
(Unaudited) (Unaudited)
------------------ -------------------
Net sales 100.0% 100.0%
Cost of sales 80.0 79.5
----- -----
Gross profit 20.0 20.5
Selling, general and administrative expenses 19.0 15.0
----- -----
Operating income 1.0 5.5
Interest expense 2.1 3.1
Dividends on Company-obligated, mandatorily redeemable
convertible preferred securities of subsidiary DT Capital Trust 0.6 1.4
----- -----
Income (loss) before provision for income taxes (1.7) 1.0
Provision (benefit) for income taxes (0.4) 0.4
----- -----
Net income (loss) (1.3)% 0.6%
===== =====
Consolidated net sales for the three months ended September 29, 2002 were $69.4
million, a decrease of $31.0 million, or 30.9%, from $100.4 million for the
three months ended September 23, 2001.
The Company's financial results in the first quarter of fiscal 2003 were
negatively impacted by customer required delays in certain projects.
Specifically, during the quarter the Company was selected as systems provider on
four projects totaling $28.1 million, but the projects were immediately delayed
by the customer until the new calendar year. In addition, a large electronics
customer has delayed a project by six months, which has negatively impacted
sales by $3.0 million in the first quarter of 2003.
Net sales by segment were as follows (in millions):
Three Months Ended Three Months Ended
September 29, 2002 September 23, 2001 Decrease
------------------ ------------------- ---------
Material Processing $ 24.6 $ 26.6 $ (2.0)
Precision Assembly 17.3 18.9 (1.6)
Packaging Systems 5.9 11.7 (5.8)
Assembly & Test 21.6 42.7 (21.1)
Other -- 0.5 (0.5)
------ ------ -------
$ 69.4 $100.4 $ (31.0)
====== ====== =======
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 18
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The decrease in Material Processing segment sales primarily reflects a $6.2
million decrease in sales to a significant tire manufacturer related to the
completion of a large project during fiscal 2002. The Material Processing
segment was able to replace a substantial portion of the sales to the tire
manufacturer with new sales to the appliance industry and a number of new
projects with new and repeat customers. Sales to the electronic markets were up
$1.6 million to $9.6 million, reflecting the continuation of a large program.
Sales of the Material Processing and Precision Assembly segment were impacted in
the first quarter of fiscal 2003 by the failure of the Company to get customer
acceptance on a project. The Company settled with this customer and agreed to
refund an agreed upon cash amount. The Company reversed percentage of completion
sales recognized to date ($0.9 million for the Material Processing segment and
$0.7 million for the Precision Assembly segment) and recorded the assembly and
plastics packaging system in inventory at its estimated fair market value. The
estimated loss resulting from the settlement with the customer of $1.1 million
was recorded in the fourth quarter of fiscal 2002. The Company negotiated a more
favorable settlement than originally estimated resulting in a $0.3 million
recovery in the first quarter of fiscal 2003.
The shutdown of the Hansford business, and the subsequent transfer of a portion
of the Hansford customers to the Precision Assembly division in the third
quarter of fiscal 2002, also contributed to the decrease in Precision Assembly
segment sales. A substantial portion of the Precision Assembly segment sales are
derived from the electronics market, which remained consistent for the three
months ended September 29, 2002 compared to the three months ended September 23,
2001.
In the Packaging Systems segment, the Company resolved a lawsuit with a customer
in the first quarter of fiscal 2003 which resulted in the customer returning a
packaging system to the Company and receiving a full refund of progress
payments. As a result, the Company reversed percentage of completion sales
recognized to date of $1.4 million pertaining to this system during the three
months ended September 29, 2002. The Company established a full reserve for this
lawsuit in fiscal 2002. Sales were also negatively impacted by the integration
of the Montreal, Canada and Leominster, Massachusetts facilities into a new
Leominster, Massachusetts facility. The segment, which primarily serves the
pharmaceutical market, is experiencing some market softness.
The Assembly & Test segment, which primarily serves the automotive, truck and
heavy equipment market, has experienced market softness for the prior 24 months.
Results for the September 2001 quarter included revenue recognition on a large
diesel engine assembly and material handling system that was substantially
delivered in the fourth quarter of fiscal 2002 and on several electronics
assembly system chassis sourced from the Precision Assembly segment. The segment
has not replaced these significant projects and the core automotive market
remains depressed and very competitive.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 19
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Gross profit decreased by $6.7 million, or 32.6%, to $13.9 million for the three
months ended September 29, 2002 versus $20.6 million for the three months ended
September 24, 2000. The gross margin decreased slightly to 20.0% in the first
quarter of fiscal 2003 from 20.5% in the first quarter of fiscal 2002,
reflecting the impact of reduced volumes and an under absorption of overhead
costs across all of the segments. Gross margins were also impacted during the
quarter by highly competitive markets and resulting lower pricing, particularly
in the automotive markets served by the Assembly and Test segment. The Company
has reduced its cost structure to maintain the gross margins it is achieving and
continues to improve its performance on contracts, resulting in a much smaller
quoted to actual margin differential.
Selling, general and administrative (SG&A) expenses were $13.2 million for the
three months ended September 29, 2002, a decrease of $1.8 million, or 12.1%,
compared to $15.0 million for the three months ended September 23, 2001. In
connection with the customer lawsuit resolution referenced above and resulting
return of a Packaging Systems segment sale, the Company reversed a previously
recorded bad debt expense of approximately $0.9 million. The Company recorded
the return of product as a reversal of sales, cost of sales and SG&A, and
recorded the returned inventory to its estimated fair market value. The
remainder of the decrease in SG&A expenses are attributable to the
restructurings in the Packaging Systems and Assembly and Test segments that
reduced administrative headcount. SG&A expenses as a percentage of consolidated
net sales increased to 19.0% in the first quarter of fiscal 2003 from 15.0% in
the first quarter of fiscal 2002.
Research and development spending, part of SG&A, was $1.0 million in the first
quarter of fiscal 2003, up $0.5 million from the comparable prior year period.
The increase resulted from the introduction of four new products in the first
quarter of fiscal 2003 expected to begin generating revenues in the fourth
quarter of fiscal 2003.
Operating income was $0.7 million for the three months ended September 29, 2002
versus $5.6 million for the three months ended September 23, 2001, primarily as
a result of the lower sales discussed above.
Interest expense decreased $1.7 million to $1.4 million for the three months
ended September 29, 2002 versus $3.2 million for the three months ended
September 23, 2001. The decrease resulted from the lower outstanding borrowings
resulting both from the proceeds from the private placement of common stock on
June 20, 2002 and the reductions in working capital throughout fiscal 2002.
Outstanding borrowings have been reduced from over $100 million in the first
quarter of fiscal 2002 to $45.8 million at September 29, 2002. Dividends on the
convertible preferred securities of our wholly-owned subsidiary trust were $0.4
and $1.4 million for the three months ended September 29, 2002 and September 23,
2001, respectively. The lower amount of dividends recorded reflect the
restructuring of the convertible preferred securities that was completed on June
20, 2002. Dividend expense of $1.6 million is recorded annually on the
convertible preferred securities, reflecting an approximate effective yield of
4.6% over the life of the securities, after considering the period from April 1,
2002 until July 2, 2004 when distributions are not required to be paid.
The benefit for income taxes for the three months ended September 29, 2002
reflected an effective tax rate of approximately 25%. The provision for income
taxes for the three months ended September 23, 2001 reflected an effective tax
rate of approximately 37.6%. The lower effective tax rate in fiscal 2003
reflects an effective federal tax rate of 35% (federal tax benefit), offset by a
provision of state taxes, despite book losses.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 20
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Net loss was $0.9 million for the three months ended September 29, 2002 compared
to net income of $0.6 million for the three months ended September 23, 2001.
Basic and diluted loss per share were $0.04 for the three months ended September
29, 2002 compared to basic and diluted earnings per share of $0.06 for the three
months ended September 23, 2001. Basic and diluted weighted average shares
outstanding were approximately 23.6 and 10.4 million shares for the three months
ended September 29, 2002 and September 23, 2001, respectively. The increase in
weighted average shares outstanding reflects the recapitalization transaction of
June 20, 2002, including the private placement of 7.0 million shares of common
stock and the conversion of the convertible preferred securities into
approximately 6.3 million shares of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Activity
Net cash used by operating activities was $3.4 million for the three months
ended September 29, 2002, compared to net cash provided by operating activities
of $14.6 million for the three months ended September 23, 2001.
Net increases in working capital balances used operating cash of $4.8 million.
The higher working capital balances primarily reflect decreased accrued
liabilities. Accrued liabilities decreased from the balance at June 30, 2002
largely due to the payments on employee compensation related matters and
severance and stay pay related to the restructurings across the business
segments. The decrease in accounts receivable was offset by the increase in
inventories, costs and earnings in excess of amounts billed and the decrease in
billings in excess of costs and earnings. The Company is beginning to see an
increase in working capital from the start of projects in the Materials
Processing and Assembly and Test segments. The Packaging Systems segment missed
shipping several projects by September 29, 2002 resulting in the increase in
inventories.
Working capital balances can fluctuate significantly between periods as a result
of the significant costs incurred on individual contracts, and the relatively
large amounts invoiced and collected by the Company for a number of large
contracts, and the amounts and timing of customer advances or progress payments
associated with certain contracts.
During the three months ended September 29, 2002, the Company made $11.4 million
in payments under its senior credit facility and other debt agreements. The
proceeds from the Hyannis facility sale-leaseback transaction provided the
funding for the paydown in August of $5.0 million of Industrial Revenue Bonds.
Cash generated from working capital in the fourth quarter of fiscal 2002, which
resulted in a cash balance at June 30, 2002 of $18.8 million, was used to
paydown the senior credit facility in the first quarter of fiscal 2003. The
Company also paid $0.2 million in financing costs in the first quarter of fiscal
2003 and made capital expenditures of $0.9 million.
Management anticipates capital expenditures for fiscal 2003 to be in the range
of $3.0 to $4.0 million. This includes primarily only recurring replacement or
refurbishment of machinery and equipment. Funding for capital expenditures is
expected to be provided by cash from operating activities and through the
Company's credit facility.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 21
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Senior Credit Facility and Preferred Securities
The Company uses borrowings under the senior credit facility to fund working
capital requirements, capital expenditures and finance charges. Borrowings under
the senior credit facility are secured by substantially all of the Company's
domestic assets. As of September 29, 2002, the senior credit facility consisted
of $69.5 million revolving credit facility and a $6.4 million term credit
facility. Of this amount, $47.1 million was outstanding (including $1.5 million
in outstanding letters of credit) and total borrowing availability was $28.7
million. As a result of the scheduled quarterly reduction of $1,500 in the
Company's credit facility and additional borrowings subsequent to September 29,
2002, the Company had $22.2 million available under the facility at October 31,
2002. The senior credit facility matures on July 2, 2004.
At September 29, 2002, interest rates on outstanding indebtedness under the
revolving credit facility ranged from 8.01% to 8.25%. 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 $0.15 million
and a 1% annual facility fee. The annual facility fee will be forgiven if the
debt is paid in full and the credit facility is cancelled before the annual due
dates.
The Company believes that cash flows from operations, together with available
borrowings under its senior credit facility, will be sufficient to meet its
working capital, capital expenditures and debt service needs up to July 2, 2004.
The Company will need to refinance or extend its senior credit facility in order
to satisfy its liquidity needs after July 2, 2004.
The senior credit facility contains various financial covenants related to
earnings before interest, taxes, depreciation and amortization (EBITDA). Because
of customer requested delays in certain projects, the Company's revenues and
operating income will be negatively affected in the second quarter. As a result,
the Company does not expect to meet certain of its EBITDA-related covenants
during the second quarter. The Company intends to request a waiver from its
senior lenders of any covenants which it may not meet. If the Company does not
obtain such a waiver, its lenders would be entitled to, among other things,
accelerate the maturity of the debt outstanding under the senior credit facility
so that it is immediately due and payable. In addition, no further borrowings
would be available under the revolving portion of the senior credit facility. If
the indebtedness is accelerated, the Company may not have sufficient funds to
satisfy its obligations and it may not be able to continue its operations as
currently anticipated.
The Company also has outstanding $35.0 million of 7.16% convertible preferred
securities ("TIDES"). The TIDES represent undivided beneficial ownership
interests in the Company's wholly-owned subsidiary trust, DT Capital Trust (the
"Trust"), the sole assets of which are the related aggregate principal amount of
junior subordinated debentures issued by the Company that the Trust acquired
with the proceeds of the TIDES offering. The TIDES are convertible at the option
of the holders at any time into shares of DTI common stock at a conversion price
of $14.00 per share. Furthermore, the TIDES holders are entitled to receive cash
distributions starting July 2, 2004 at an annual rate of 7.16%, payable
quarterly in arrears on the last day of each calendar quarter. However, annual
dividend expense of $1,604 on the TIDES is being recorded, reflecting an
approximate effective yield of 4.6% over the life of the TIDES. Distributions
accrued during the period through July 2, 2004 are added to the amount
outstanding ($35,802 at September 29, 2002). The TIDES mature on May 31, 2008.
The Company has guaranteed the payment of distributions and payments on
liquidation of the Trust or redemption of the TIDES. Through this guarantee, the
Company's junior subordinated debentures, the debentures' indenture and the
Trust's declaration of trust, taken together, the Company has fully, irrevocably
and unconditionally guaranteed all of the Trust's obligations under the TIDES.
Thus, while the TIDES are not included in liabilities for financial reporting
purposes and instead appear in the consolidated balance sheet between
liabilities and stockholders' equity, they represent obligations of the Company.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND ITEMS 3 AND 4
PAGE 22
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BACKLOG
The Company's backlog is based upon customer purchase orders that the Company
believes are firm. Backlog by segment for the current and prior year period are
as follows:
Backlog as of:
-----------------------------------
September 29, September 23,
2002 2001
------------- --------------
Material Processing $ 50.2 $ 42.4
Precision Assembly 16.9 26.7
Packaging Systems 16.0 15.8
Assembly and Test 45.4 66.4
Sold businesses
-------- -------
$ 128.5 $ 151.3
======== =======
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 September 29, 2002
will be recognized as sales during fiscal 2003.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
In general, the Company's business is not subject to seasonal variations in
demand for its products. However, because orders for certain of the Company's
products can be several million dollars, a relatively limited number of orders
can constitute a meaningful percentage of 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.
OUTLOOK
The weak economy continues to make forecasting extremely challenging. The
Company continues to actively bid numerous projects across all of its product
lines. However, customers are still postponing buying decisions, which is having
a negative impact on the new business pipeline. For example, the Company was
selected as system provider on four projects totaling $28.1 million during the
quarter ended September 29, 2002, but the projects were immediately delayed by
the customers until the new calendar year. These delayed projects are not
included in backlog at September 29, 2002.
A large electronics customer has delayed a program by six months, which has
impacted sales by $3.0 million in the first quarter of fiscal 2002. The Company
expects the program to resume during the third quarter of fiscal 2003. This
delay will negatively affect second quarter revenue recognition by approximately
$6.0 million, resulting in flat sales in the second quarter and an anticipation
of increased sales in the third and fourth quarters.
Through the Company's research and development program, four new products have
recently been introduced. The Precision Assembly Division introduced the Prism
885 "Zeus" and Prism 841 "Medusa" automation modules. The Zeus precision inline
module provides a cost effective building block chassis which can serve as the
basis for a variety of assembly and test applications. Medusa provides a servo
driven, software configurable, solution for equipment requiring a more compact
rotary style indexing system.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 23
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The Chicago Pack Expo International trade show was utilized to display new
product releases from the Converting Technologies Division, part of the Material
Processing Segment, and Packaging Systems Division. New products displayed
included the GEN II advanced technology thermoformer and the B300 pharmaceutical
blister packing and cartoning system.
The Company expects these new products to start generating revenues in the
fourth quarter of 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.
SUMMARY DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS
See the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2002. There were no significant updates to the disclosure other than the
prepayment in full on August 1, 2002 of the Industrial Revenue Bonds.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes DTI's exposures to market risk during the
three months ended September 29, 2002 that would require an update to the
disclosures provided in DTI's Form 10-K for the fiscal year ended June 30, 2002.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's periodic
reports is recorded, processed, summarized and reported on a timely and accurate
basis, and that such information is accumulated and communicated to the
Company's management, including its President and Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. Management necessarily applied its judgment in assessing
the costs and benefits of such controls and procedures which, by their nature,
can provide only reasonable assurance regarding management's control objectives.
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer along
with the Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon the foregoing, the Company's President and
Chief Executive Officer, along with the Company's Chief Financial Officer,
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company (including
its consolidated subsidiaries) required to be included in the Company's Exchange
Act reports. As the Company completes its integration into 12 operating
facilities in the United Kingdom, Germany and in six states in the United
States, it will need to continue to upgrade and modify its financial,
information and management systems and controls to ensure uniform compliance
with corporate procedures and policies and accurate and timely reporting of
financial data and required Company disclosure. There have been no significant
changes in the Company's internal controls or in other factors which could
significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
DT INDUSTRIES, INC.
PART II. OTHER INFORMATION
PAGE 24
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ITEM 1. LEGAL PROCEEDINGS
The Company is involved in legal and regulatory proceedings, as
described in "Part 1, Item 3. Legal Proceedings" of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2002.
Since the disclosure in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 2002, there have been no material
developments in previously reported legal proceedings.
In addition to the above-described items, the Company is from time to
time subject to claims and suits arising in the ordinary course of
business. Although the ultimate disposition of such proceedings is not
presently determinable, management does not believe that the ultimate
resolution of these matters will have a material adverse effect on the
Company's financial condition, results of operations or cash flows. The
Company maintains comprehensive general liability insurance that it
believes to be adequate for the continued operation of its business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
On August 7, 2002, the Company filed a Current Report on Form 8-K
to report, pursuant to Items 5 and 7 thereof, that the Company had
issued a press release announcing accounting adjustments relating
to its Assembly Machines, Inc. subsidiary, among other things.
DT INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DT INDUSTRIES, INC.
Date: November 13, 2002 /s/ John M. Casper
-------------------------------
(Signature)
John M. Casper
Senior Vice President - Finance
and Chief Financial Officer
CERTIFICATION PURSUANT TO
THE SARBANES-OXLEY ACT OF 2002
I, Stephen J. Perkins, certify that:
1. I have reviewed this quarterly report on Form 10-Q of DT Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Stephen J. Perkins
-------------------------------------
(Signature)
Stephen J. Perkins
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
THE SARBANES-OXLEY ACT OF 2002
I, John M. Casper, certify that:
1. I have reviewed this quarterly report on Form 10-Q of DT Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ John M. Casper
-------------------------------------
(Signature)
John M. Casper
Senior Vice President - Finance and
Chief Financial Officer