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 March 30, 2003
----------------------------------------
Commission File Number: 0-23400
DT INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 44-0537828
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(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
----- -----
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act)
Yes No X
----- -----
The number of shares of Common Stock, $0.01 par value, of the
registrant outstanding as of May 9, 2003 was 23,652,932.
DT INDUSTRIES, INC.
INDEX
PAGE 1
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Page
Number
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at March 30, 2003
(unaudited) and June 30, 2002 2
Consolidated Statement of Operations for the three and
nine months ended March 30, 2003 and March
24, 2002 (unaudited) 3
Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended March 30,
2003 (unaudited) 4
Consolidated Statement of Cash Flows for the nine
months ended March 30, 2003 and March
24, 2002 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-29
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 29
Item 4. Controls and Procedures 29
Part II Other Information
Item 1. Legal Proceedings 30
Item 3. Defaults upon Senior Securities 30
Item 6. Exhibits and Reports on Form 8-K 30
Signature
DT INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
PAGE 2
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March 30,
2003 June 30,
(Unaudited) 2002
----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 2,862 $ 18,847
Accounts receivable, net 38,284 54,936
Costs and estimated earnings in excess of amounts
billed on uncompleted contracts 27,139 29,288
Inventories, net 34,123 26,777
Prepaid expenses and other 13,226 8,809
--------- ---------
Total current assets 115,634 138,657
Property, plant and equipment, net 34,456 37,329
Goodwill 126,427 125,538
Other assets, net 5,125 6,886
--------- ---------
$ 281,642 $ 308,410
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior secured term and revolving credit facility (Note 5) $ 6,000 $ 6,000
Current portion of other long-term debt 142 5,140
Accounts payable 18,080 21,049
Customer advances 14,188 13,124
Billings in excess of costs and estimated earnings on
uncompleted contracts 9,738 12,020
Accrued liabilities 19,764 29,595
--------- ---------
Total current liabilities 67,912 86,928
--------- ---------
Long-term debt 47,109 45,381
Other long-term liabilities 2,836 3,285
--------- ---------
Total long-term obligations 49,945 48,666
--------- ---------
Commitments and contingencies (See Note 11)
Company-obligated, mandatorily redeemable convertible preferred securities of
subsidiary DT Capital Trust holding solely convertible junior subordinated
debentures of the Company 36,604 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; 23,652,932 and
23,647,932 shares issued and outstanding at March 30, 2003 and
June 30, 2002, respectively 246 246
Additional paid-in capital 188,546 188,546
Accumulated deficit (36,753) (25,922)
Accumulated other comprehensive loss (1,590) (1,918)
Unearned portion of restricted stock (201) (470)
Less -
Treasury stock (988,488 shares at March 30, 2003 and June 30, 2002,
respectively), at cost (23,067) (23,067)
--------- ---------
Total stockholders' equity 127,181 137,415
--------- ---------
$ 281,642 $ 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 Nine months ended
March 30, March 24, 2002 March 30, March 24, 2002
2003 As Restated 2003 As Restated
------------ -------------- ------------ --------------
Net sales $ 55,556 $ 59,967 $ 187,266 $ 249,059
Cost of sales 46,119 49,714 154,777 200,279
------------ ------------ ------------ ------------
Gross profit 9,437 10,253 32,489 48,780
Selling, general and
administrative expenses 13,833 14,086 40,655 42,278
Restructuring charges (Note 10) --- 8,508 1,700 10,029
------------ ------------ ------------ ------------
Operating loss (4,396) (12,341) (9,866) (3,527)
Interest expense, net 1,856 3,006 4,838 9,371
Accrued dividends on Company-
obligated, mandatorily
redeemable convertible
preferred securities of subsidiary
DT Capital Trust holding solely
convertible junior
subordinated debentures of the
Company 401 1,528 1,203 4,433
------------ ------------ ------------ ------------
Loss before benefit for
income taxes (6,653) (16,875) (15,907) (17,331)
Benefit for income
taxes (2,080) (3,979) (5,076) (4,139)
------------ ------------ ------------ ------------
Net loss $ (4,573) $ (12,896) $ (10,831) $ (13,192)
============ ============ ============ ============
Net loss per common share:
Basic $ (0.19) $ (1.24) $ (0.46) $ (1.27)
Diluted $ (0.19) $ (1.24) $ (0.46) $ (1.27)
============ ============ ============ ============
Weighted average common
shares outstanding:
Basic 23,652,932 10,387,274 23,649,605 10,371,706
Diluted 23,652,932 10,387,274 23,649,605 10,371,706
============ ============ ============ ============
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 30, 2003
(DOLLARS IN THOUSANDS)
(UNAUDITED)
PAGE 4
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Accumulated Unearned
Additional other portion of
Common paid-in Accumulated comprehensive restricted Treasury
stock capital deficit loss stock stock Total
-----------------------------------------------------------------------------------------------
Balance, June 30, 2002 $ 246 $ 188,546 $ (25,922) $ (1,918) $ (470) $ (23,067) $ 137,415
Comprehensive loss:
Net loss (10,831)
Foreign currency translation 328
Total comprehensive loss
(10,503)
Amortization of earned portion
of restricted stock 269 269
-----------------------------------------------------------------------------------------------
Balance, March 30, 2003 $ 246 $ 188,546 $ (36,753) $ (1,590) $ (201) $ (23,067) $ 127,181
===============================================================================================
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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Nine Months Ended
March 30, March 24, 2002
2003 As Restated
--------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,831) $(13,192)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation 3,509 4,827
Amortization 1,771 2,503
Deferral of dividends on convertible trust preferred securities 1,203 4,433
Deferred taxes (3,453) (3,364)
Loss on disposal of assets --- 2,875
Other --- 370
(Increase) decrease in current assets, excluding the
effect of dispositions:
Accounts receivable 16,713 9,105
Costs and earnings in excess of amounts billed on uncompleted
contracts 2,149 40,908
Inventories (7,346) 4,374
Prepaid expenses and other 419 2,384
Increase (decrease) in current liabilities, excluding the effect of
dispositions:
Accounts payable (3,031) (18,286)
Customer advances 3,972 8,894
Billings in excess of costs and estimated earnings on uncompleted
contracts (5,191) ---
Accrued liabilities and other (10,510) (3,021)
-------- --------
Net cash provided (used) by operating activities (10,626) 42,810
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 3,131 18,875
Capital expenditures (2,658) (1,673)
-------- --------
Net cash provided by investing activities 473 17,202
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net paydowns on revolving loans (623) (53,643)
Payments on borrowings (4,958) (3,896)
Financing costs (352) (3,193)
Net proceeds from equity transactions --- 35
-------- --------
Net cash used by financing activities (5,933) (60,697)
-------- --------
Effect of exchange rate changes 101 375
-------- --------
Net decrease in cash (15,985) (310)
Cash and cash equivalents at beginning of period 18,847 5,505
-------- --------
Cash and cash equivalents at end of period $ 2,862 $ 5,195
======== ========
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 audited
consolidated financial statements and notes to the audited consolidated
financial statements included in the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 2002.
RECENT RESTATEMENT OF HISTORICAL FINANCIAL RESULTS
As publicly announced on August 6, 2002 (prior to the public
announcement of the Company's consolidated financial results for the
fiscal year ended June 30, 2002), the Company discovered that it was
required to make accounting adjustments to previously reported audited
consolidated financial results for the fiscal years ended June 24,
2001, June 25, 2000 and June 27, 1999, as well as its previously
reported unaudited consolidated financial results for the first three
quarters of fiscal 2002, due to an overstatement of the balance sheet
account entitled costs and estimated earnings in excess of amounts
billed on uncompleted contracts ("CIE"). The CIE balance is comprised
of estimated gross profit recognized to date plus actual
work-in-process costs incurred to date less billings/deposits to date.
The overstatement of CIE occurred at our Assembly Machines, Inc.
("AMI") subsidiary, located in Erie, Pennsylvania, which was part of
the Company's Precision Assembly segment until it was closed in
February 2003. This CIE overstatement resulted in a corresponding
understatement of cost of sales because CIE represents project costs
that have been expended, but are still available to be billed;
therefore, the overstatement in CIE included available to bill amounts
that should have been expensed to cost of sales in prior periods. The
cumulative amount of the accounting adjustments increased the aggregate
pre-tax loss reported during the impacted periods by $6,486 and
increased the aggregate net loss after taxes reported during the
impacted periods by $4,216. See Note 13 for the restatement of the
three and nine months ended March 24, 2002.
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. The Board of Directors authorized the
Audit and Finance Committee to conduct an independent investigation,
with the assistance of special counsel retained by the Committee, to
identify the causes of these accounting adjustments. The Committee
retained Katten Muchin Zavis Rosenman ("KMZR") as special counsel, and
KMZR engaged an independent accounting firm to assist in the
investigation. In addition, the Company investigated whether similar
issues existed at any other subsidiaries. At the conclusion of the
independent investigation, KMZR and the independent accounting firm
provided the Committee with an oral report of their findings. Due to
the time-sensitive nature of the independent investigation, no written
report was prepared for, or provided to, the Committee. As a result of
the investigations, the Company believes that the accounting issues
were confined to AMI and determined that the misstatement of the CIE
account at AMI was primarily the result of the former controller of
AMI, without instruction from, or the knowledge of, Company management,
(1) failing to properly account for manufacturing variances,
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 7
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(2) adding inappropriate costs to work-in-process amounts, (3)
understating amounts billed and/or customer deposits and (4) failing to
recognize certain losses, in each case on various projects during the
relevant time period. Using these miscalculations of CIE, the former
AMI controller made incorrect journal entries that were recorded in the
books and records of AMI.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
The accounts of the Company's foreign subsidiaries are maintained in
their respective local currencies. The accompanying consolidated
financial statements have been translated and adjusted to reflect U.S.
dollars in accordance with accounting principles generally accepted in
the United States. Specifically, the change in goodwill balances
between March 30, 2003 and June 30, 2002 is a result of foreign
currency translation effects within the Packaging Systems and Assembly
& Test segments.
3. STOCK COMPENSATION PLANS
In December 2002, the FASB issued Statement of Financial Account
Standards No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure - An Amendment of FAS 123" (SFAS 148). SFAS
148 amends SFAS 123, "Accounting for Stock-Based Compensation," to
provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, this SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results.
The Company applies APB 25 and related interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for the stock options because the options were granted with
an exercise price equal to the stock price on the date of grant.
Because future stock option awards may be granted, the pro forma
impacts shown below are not necessarily indicative of the impact in
future years.
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
----------------------------- ------------------------------------
MARCH 30, MARCH 24, 2002 MARCH 30, MARCH 24, 2002
2003 AS RESTATED 2003 AS RESTATED
---------- -------------- -------------- --------------
Net loss As reported $(4,573) $(12,896) $ (10,831) $ (13,192)
Pro forma $(4,630) $(12,983) $ (11,003) $ (13,453)
Diluted loss per common share As reported $ (0.19) $ (1.24) $ (0.46) $ (1.27)
Pro forma $ (0.20) $ (1.25) $ (0.47) $ (1.30)
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
2003 2002
---------- ----------
Expected life of options 5 years 5 years
Risk-free interest rate 3.17% 4.37%
Expected volatility of stock 84% 73%
Expected dividend yield 0.0% 0.0%
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. ASSET SALES
For the nine months ended March 24, 2002, the Company sold
substantially all of the assets of three divisions. For the nine months
ended March 30, 2003, the Company completed two sale/leaseback
transactions and sold two other facilities. The following table
summarizes certain information regarding these sales:
NET
CASH GAIN/(LOSS)
DATE OF SALE BUSINESS/FACILITY PROCEEDS ON DISPOSAL
------------------- --------------------------------------- ------------------ ------------------
For the Nine Months
Ended March 24, 2002:
---------------------
June 2001 Detroit Tool Metal Products Co. $ 14,250 $ (1,618)
July 2001 Scheu & Kniss 3,939 (6,200)
October 2001 Hansford Parts and Products 622 ---
------------------ ------------------
$ 18,811 $ (7,818)
================== ==================
For the Nine Months
Ended March 30, 2003:
---------------------
June 2002 Hyannis, Massachusetts $ 5,493 $ (1,128)
(sale/leaseback)
October 2002 Alcester, England (sale/leaseback) 679 ---
January 2003 Leominster, Massachusetts 1,300 (250)
March 2003 Erie, Pennsylvania 850 (645)
------------------ ------------------
$ 8,322 $ (2,023)
================== ==================
The losses associated with the sale of the three divisions in fiscal
2002 were recognized in fiscal 2001.
In June 2002, the Company completed a sale/leaseback agreement for the
Hyannis, Massachusetts facility and recorded a net loss on disposal of
the assets of $1,128. Cash proceeds of approximately $5,493 were used
to prepay the outstanding $5,000 of Industrial Revenue Bonds. See Note
4 for additional information.
In October 2002, the Company completed a sale/leaseback transaction of
its Packaging Systems segment Alcester, England facility. The Company
received net proceeds of approximately $679.
In January 2003, the Company completed the sale of its Packaging
Systems segment Leominster, Massachusetts facility after relocating to
a new leased facility in Leominster. The Company recorded an
approximate $250 charge in the third quarter of fiscal 2002 to
write-down the Leominster facility to fair market value. Proceeds of
approximately $1,300, which approximated book value after the
write-down, were used to reduce debt outstanding under the senior
credit facility.
In March 2003, the Company completed the sale of its Precision Assembly
segment Erie, Pennsylvania facility. Net proceeds of approximately
$850, which approximated book value after the write-down, were used to
reduce debt outstanding under the senior credit facility. The Company
wrote-down the Erie facility to its fair market value in the second
quarter of fiscal 2003 as part of the restructuring charge. See Note 10
for additional information.
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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5. FINANCING
As of March 30, 2003 and June 30, 2002, current and long-term debt
consisted of the following:
MARCH 30, JUNE 30,
2003 2002
------------------- -----------------
Term and revolving loans under senior secured credit
facility:
Term loan $ 5,996 $ 6,441
Revolving loans 45,663 44,846
Other debt 1,592 5,234
------------------- -----------------
53,251 56,521
Less - senior secured credit facility classified as
current 6,000 6,000
Less - current portions of other debt 142 5,140
------------------- -----------------
Long-term debt $ 47,109 $ 45,381
=================== =================
As a result of covenant defaults, the Company completed an amendment to
its senior credit facility on March 7, 2003 which provided a permanent
waiver of covenant defaults, established new covenants through the term
and reduced the revolving line of credit by $11,044. The amended senior
credit facility consists of a $5,996 term loan and a $54,267 revolving
loan (as of March 30, 2003) and matures on July 2, 2004.
The depressed market for capital goods, including our products, has
caused the Company in the past to violate financial covenants in its
senior credit facility related to earnings before interest, taxes,
depreciation and amortization (EBITDA). The Company has received
waivers for these defaults. The recent amendment to the Company's
senior credit facility sets new financial covenants related to EBITDA
beginning in April 2003. If the Company does not see improvements in
the overall economy and demand for its products, the Company may not be
able to satisfy these covenants in the fourth quarter of fiscal 2003,
in which case the Company would again request a waiver from its senior
lenders. If the Company does not obtain such a waiver upon a default,
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 will
not have sufficient funds to satisfy its obligations and it may not be
able to continue its operations as currently anticipated.
Significant terms of the amended agreement are as follows:
o $1,500 quarterly scheduled commitment reductions prorated between
the term and revolving loan commitments through June 2004;
o Advances under the revolver and letters of credit issued in
excess of $47,134 (priority advances) subject to a monthly asset
coverage test comprised of 65% of eligible accounts receivable
and 25% of eligible inventory;
o Interest rates for amounts borrowed under the credit facility are
based on Prime Rate plus 4.0% or Eurodollar Rate plus 4.5% for
all revolver advances up to $47,134 and Prime Rate plus 4.5% for
all priority advances in excess of $47,134. At March 30, 2003,
interest rates on outstanding indebtedness were approximately
8.25%;
o Monthly and quarterly financial covenants;
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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o Commitment fees of 0.50% per annum payable quarterly on any
unused portion of the revolving credit facility, an annual agency
fee of $150 and a 1% annual facility fee. The annual facility fee
will be forgiven if the debt is paid in full and the credit
facility is cancelled before the annual due dates; and
o Borrowings under the credit facility are secured by substantially
all of the assets of DTI and its domestic subsidiaries.
Based on outstanding revolver borrowings as of March 30, 2003 of
$46,586 (including $923 in outstanding letters of credit), the Company
had $7,682 of borrowing availability.
The Company also has a European credit facility of approximately
$4,390, of which approximately $1,401 was outstanding in issued bank
guarantees to customers as of March 30, 2003.
On June 26, 2002, the Company completed a sale/leaseback of the
facility in Hyannis and repaid the outstanding balance of $5,000 on
Massachusetts Industrial Finance Agency Multi-Mode Industrial
Development Revenue Bonds 1998 Series A on August 1, 2002.
6. COMPANY-OBLIGATED, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY DT CAPITAL TRUST HOLDING SOLELY CONVERTIBLE
JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY (CONVERTIBLE PREFERRED
SECURITIES OR TIDES)
The conversion price of the $35,000 outstanding TIDES (and the Junior
Debentures of the Company held by the DT Capital Trust) is $14.00 per
share, distributions on the TIDES payable are not required to be paid
from April 1, 2002 until July 2, 2004, and the maturity date of the
TIDES is May 31, 2008. Distributions are payable on the TIDES at 7.16%
beginning September 2004 through their maturity date of May 31, 2008.
However, annual dividend expense of $1,604 on the TIDES is being
recorded, reflecting an approximate effective yield of 4.6% over the
life of the TIDES. Distributions accrued during the period through July
2, 2004 are added to the amount outstanding ($36,604 at March 30, 2003
and $35,401 at June 30, 2002).
7. BUSINESS SEGMENTS
See "Item 1. Business. Markets and Products" in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2002 for a
description of the products and markets of the Company's four segments
- Material Processing, Precision Assembly, Packaging Systems and
Assembly and Test.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 11
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Net sales for the Company's reportable segments consisted of the
following:
Three months ended Nine months ended
March 24, March 24,
March 30, 2002 March 30, 2002
2003 As Restated 2003 As Restated
-------- ------------ -------- -----------
Net sales
Material Processing $17,493 $15,338 $ 64,170 $ 73,231
Precision Assembly 4,630 13,882 31,622 47,928
Packaging Systems 9,528 8,808 25,885 29,452
Assembly & Test 23,905 21,939 65,589 97,656
Divested businesses --- --- --- 792
------- ------- -------- --------
Consolidated total $55,556 $59,967 $187,266 $249,059
======= ======= ======== ========
The reconciliation of segment operating income (loss) to consolidated
loss before income taxes consisted of the following:
Three months ended Nine months ended
March 24, March 24,
March 30, 2002 March 30, 2002
2003 As Restated 2003 As Restated
--------- ----------- -------- -----------
Material Processing $ 524 $ 736 $ 3,689 $ 5,737
Precision Assembly (3,865) (2,228) (5,560) 1,235
Packaging Systems 1,007 (4,098) 932 (3,691)
Assembly & Test 227 (5,699) (2,514) (3,914)
------- -------- -------- --------
Operating loss
for reportable segments (2,107) (11,289) (3,453) (633)
Operating loss for divested
businesses --- --- --- (105)
Corporate (2,289) (1,052) (6,413) (2,789)
Interest expense, net (1,856) (3,006) (4,838) (9,371)
Dividends on Company-
obligated, mandatorily
redeemable convertible
preferred securities of
subsidiary DT Capital Trust
holding solely convertible
junior subordinated
debentures of the Company (401) (1,528) (1,203) (4,433)
------- -------- -------- --------
Consolidated loss before
income taxes $(6,653) $(16,875) $(15,907) $(17,331)
======= ======== ======== ========
The Company sold substantially all of the assets of the remaining
division in the Divested Businesses category in October 2001.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 12
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Total assets for the Company's reportable segments consisted of the
following:
AS OF AS OF
MARCH 30, 2003 JUNE 30, 2002
-------------- -------------
Total assets
Material Processing $ 64,205 $ 64,061
Precision Assembly 60,677 77,865
Packaging Systems 50,538 53,846
Assembly & Test 89,842 94,266
Corporate 16,380 18,372
--------- ---------
Consolidated total $ 281,642 $ 308,410
========= =========
8. SUPPLEMENTAL BALANCE SHEET INFORMATION
MARCH 30, 2003 JUNE 30, 2002
-------------- -------------
Accounts receivable
Trade receivables $ 40,571 $ 58,021
Less - allowance for doubtful accounts (2,287) (3,085)
--------- ---------
$ 38,284 $ 54,936
========= =========
Costs and estimated earnings in excess of amounts
billed on uncompleted contracts
Costs incurred on uncompleted contracts $ 157,027 $ 176,781
Estimated earnings 24,557 37,040
--------- ---------
181,584 213,821
Less - Billings to date (164,183) (196,553)
--------- ---------
$ 17,401 $ 17,268
========= =========
Included in the accompanying balance sheets:
Costs and estimated earnings in excess of amounts
billed $ 27,139 $ 29,288
Billings in excess of costs and estimated earnings (9,738) (12,020)
--------- ---------
$ 17,401 $ 17,268
========= =========
Inventories, net
Raw materials $ 14,439 $ 17,575
Work in process 26,962 12,404
Finished goods 2,679 4,292
Less - inventory reserves (9,957) (7,494)
--------- ---------
$ 34,123 $ 26,777
========= =========
Accrued liabilities
Accrued employee compensation and benefits $ 7,657 $ 10,258
Accrued warranty 2,640 3,422
Restructuring accrual 758 4,678
Other 8,709 11,237
--------- ---------
$ 19,764 $ 29,595
========= =========
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 13
--------------------------------------------------------------------------------
The Company capitalizes the initial engineering costs on multiple
systems orders and amortizes these costs to systems concurrent with
recognition of revenue on such systems. The Company has capitalized
$505 as of March 30, 2003 related to the process and equipment
development for Earthshell's biodegradable foam laminate packaging
equipment.
The change in the allowance for doubtful accounts during the nine
months ended March 30, 2003 resulted primarily from an outstanding
receivable balance of $903 being written off against the previously
established allowance account following the resolution during the first
quarter of fiscal 2003 of a customer lawsuit.
A summary and roll-forward of the warranty reserves were as follows:
Beginning Expense Charges Ending
Balance Balance
--------- ------- ------- -------
For the nine months
ended March 30, 2003
$3,422 $1,203 $(1,985) $2,640
9. INCOME TAXES
Management believes that no valuation allowance is necessary for the
deferred tax asset related to net operating loss carryforwards of
approximately $20,800 as of March 30, 2003. In arriving at that
conclusion, the Company considered the impact of deferred tax
liabilities and future projected taxable income. The amount of the
deferred tax asset considered realizable, however, could be reduced in
the near term if current estimates of future taxable income are
significantly revised.
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 manufacturing facilities in
Rochester, New York and Montreal, Quebec, and closing leased Packaging
Systems sales offices in Toronto, Canada and New Jersey. In addition,
the Company transferred its Converting Technologies operation in
Bristol, Pennsylvania to Hyannis, Massachusetts, its Assembly and Test
- Europe fabrication operation in Gawcott, UK to Buckingham, England,
and relocated its corporate offices from Springfield, Missouri to
Dayton, Ohio. The Company also recorded severance reserves related to
certain management changes and workforce reductions at several
locations. Substantially all employee terminations have occurred. The
Company was able to successfully negotiate an early termination of its
Springfield, Missouri office lease and recorded the resulting $200
benefit as a reduction in reserve in the first quarter of fiscal 2003.
On December 13, 2002, the Company announced the closure of its Erie,
Pennsylvania facility (also known as Assembly Machines, Inc.),
transferring manufacturing operations and the customer base to its
Buffalo Grove, Illinois facility as part of its Precision Assembly
segment. The Company completed the shutdown and sold the facility in
March 2003. The Company recorded a restructuring charge in December
2002 of $1,700, including severance costs of $627 for the termination
of 62 employees. The remaining restructuring charge of $1,073 includes
a $1,020 charge to write-down the land and building to the estimated
fair market value and $53 for other asset write-offs and
non-cancellable office and plant equipment leases.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 14
--------------------------------------------------------------------------------
The following table summarizes the changes in the restructuring
accruals during the first nine months of fiscal 2003:
Accrued as Reclassification/ Cash Non-Cash Accrued as
of June Additions to Reduction Charges to Charges to of March 30,
30, 2002 Reserve in Reserve Accrual Accrual 2003
------------ -------------- ----------------- ------------- ------------- --------------
Severance costs $1,431 $ 627 $ 100 $(2,158) $ --- $ ---
Future lease costs
on closed facilities 2,846 53 (200) (1,552) --- 758
Asset write-downs 307 1,020 (300) --- (1,027) ---
Other 94 --- --- (94) --- ---
------ ------- ------- ------- ----------- ---------
$4,678 $ 1,700 $ (400) $(3,893) $ (1,027) $758
====== ======= ======= ======= =========== =========
11. COMMITMENTS AND CONTINGENCIES
The Company is involved in legal and regulatory proceedings, as
described in "Part 1, Item 3. Legal Proceedings" of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2002.
Since the disclosure in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 2002, there have been no material
developments in previously reported legal or regulatory proceedings.
The Company is from time to time subject to claims and suits arising in
the ordinary course of business. Although the ultimate disposition of
such proceedings is not presently determinable, management does not
believe that the ultimate resolution of these matters will have a
material adverse effect on the Company's financial condition, results
of operations or cash flows. The Company maintains comprehensive
general liability insurance that it believes to be adequate for the
continued operation of its business.
12. ACCOUNTING PRONOUNCEMENT
In January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities," which addresses the
reporting and consolidation of variable interest entities as they
relate to a business enterprise. This interpretation incorporates and
supercedes the guidance set forth in ARB No. 51, "Consolidated
Financial Statements." It requires the consolidation of variable
interests into the financial statements of a business enterprise if
that enterprise holds a controlling interest via other means than the
traditional voting majority. The requirements of FIN 46 are effective
immediately for variable interest entities created after January 31,
2003 and are effective for the first reporting period after June 15,
2003 for variable interest entities created before February 1, 2003.
There have been no new variable interest entities created since January
31, 2003 and the Company does not expect there to be a material impact
on its future consolidated financial statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 15
--------------------------------------------------------------------------------
13. RESTATEMENT
As described in Note 1, the Company's consolidated statement of
operations for the three and nine months ended March 24, 2002 has been
restated. A comparison of previously reported and restated consolidated
statements of operations for these periods is presented below. The
impact of the restatement for the three months ended March 24, 2002 was
an increase to the Company's net loss of $142, and to the Company's net
loss per common share of $0.01. The impact of the restatement for the
nine months ended March 24, 2002 was an increase to the Company's net
loss of $189, and to the Company's net loss per common share of $0.02.
Consolidated Statement of Operations
-----------------------------------------------------------------------
Three months ended Nine months ended
March 24, 2002 March 24, 2002
------------------------------- --------------------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------ ------------ ------------ ------------
Net sales $ 60,184 $ 59,967 $ 248,772 $ 249,059
Cost of sales 49,712 49,714 199,701 200,279
------------ ------------ ------------ ------------
Gross profit 10,472 10,253 49,071 48,780
Selling, general and administrative expenses 14,086 14,086 42,278 42,278
Restructuring charges 8,508 8,508 10,029 10,029
------------ ------------ ------------ ------------
Operating loss (12,122) (12,341) (3,236) (3,527)
Interest expense 3,006 3,006 9,371 9,371
Dividends on Company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary
DT Capital Trust holding solely
convertible junior subordinated
debentures of the Company 1,528 1,528 4,433 4,433
------------ ------------ ------------ ------------
Loss before benefit for income taxes (16,656) (16,875) (17,040) (17,331)
Benefit for income taxes (3,902) (3,979) (4,037) (4,139)
------------ ------------ ------------ ------------
Net loss
(12,754) (12,896) (13,003) (13,192)
============ ============ ============ ============
Net loss per common share:
Basic $ (1.23) $ (1.24) $ (1.25) $ (1.27)
Diluted $ (1.23) $ (1.24) $ (1.25) $ (1.27)
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 10,387,274 10,387,274 10,371,706 10,371,706
Diluted 10,387,274 10,387,274 10,371,706 10,371,706
============ ============ ============ ============
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 16
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GENERAL OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of DT Industries, Inc.
for the three and nine months ended March 30, 2003 compared to the three and
nine months ended March 24, 2002. This discussion should be read in conjunction
with the audited consolidated financial statements and notes to the audited
consolidated financial statements included in our Annual Report on Form 10-K for
the fiscal year ended June 30, 2002 and the unaudited consolidated financial
statements and notes thereto included in this Quarterly Report on Form 10-Q.
See "Item 1. Business. Markets and Products" in our Annual Report on Form 10-K
for the fiscal year ended June 30, 2002 for a description of the products and
markets of our four segments - Material Processing, Precision Assembly,
Packaging Systems and Assembly and Test.
The continued depressed market demand for capital goods, including our products,
has negatively impacted our level of order intake and corresponding revenues and
operating profits across our four business segments. If improvements in the
overall economy and demand for our products are not forthcoming in the near
future, our future operating results will continue to be negatively affected.
This may result in us not being able to project adequate cash flow to support
the goodwill balance recorded on our balance sheet. If this situation arises, we
may be required to record, possibly in the fourth quarter of fiscal 2003, an
impairment of our goodwill.
Almost all of our net sales are derived from the sale and installation of
equipment and systems primarily under fixed-price contracts. We also derive net
sales from the sale of spare and replacement parts and from servicing installed
equipment and systems. We recognize revenue under the percentage of completion
method or upon delivery and acceptance in accordance with SAB 101.
We principally utilize the percentage of completion method of accounting to
recognize revenues and related costs for the sale and installation of equipment
and systems pursuant to customer contracts. These contracts are typically
engineering-driven design and build contracts of automated production equipment
and systems used to manufacture, test or package a variety of industrial and
consumer products. These contracts are generally for large dollar amounts and
require a significant amount of labor hours with durations ranging from three
months to over a year. Under the percentage of completion method, revenues and
related costs are measured based on the ratio of engineering and manufacturing
labor hours incurred to date compared to total estimated engineering and
manufacturing labor hours. Any revisions in the estimated total costs of the
contracts during the course of the work are reflected when the facts that
require the revisions become known.
For those contracts accounted for in accordance with SAB 101, we recognize
revenue upon shipment (FOB shipping point). We utilize this method of revenue
recognition for products produced in a standard manufacturing operation whereby
the product is built according to pre-existing bills of materials, with some
customization occurring. These contracts are typically of shorter duration (one
to three months) and have smaller contract values. The revenue recognition for
these products follows the terms of the contracts, which call for transfer of
title at time of shipment after factory acceptance tests with the customer. If
installation of the products is included in the contracts, revenue for the
installation portion of the contract is recognized when installation is
complete.
Costs and related expenses to manufacture products, primarily labor, materials
and overhead, are recorded as costs of sales when the related revenue is
recognized. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.
Selling, general and administrative expenses primarily consist of salary and
wages for employees, research and development costs, sales commissions,
marketing costs, legal and professional expenses.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 17
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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 the Private Securities Litigation Reform Act of 1995. 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", "believe", "expect",
"should", "estimates" and similar expressions used herein indicate such
forward-looking statements. Our actual results, performance, liquidity,
financial condition, prospects and opportunities could differ materially from
those expressed in, or implied by, these forward-looking statements as a result
of various risks, uncertainties and other factors, including the amount and
availability of, and our ability to comply with restrictions and covenants
relating to, our indebtedness under our senior credit facility, our ability to
achieve anticipated savings from our corporate restructuring and cost reduction
initiatives, 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, continued economic downturns in industries or markets
served, delays or cancellations of customer orders, delays in shipping dates of
products, significant cost overruns on projects, customer demand for new
products and applications, the loss of a key customer, excess product warranty
expenses, significant restructuring or other special non-recurring charges,
foreign currency exchange rate fluctuations, changes in interest rates,
increased inflation, collectibility of past due customer receivables, and any
adverse impact of restating our historical financial statements, including any
proceedings relating to the restatement. See "Risk Factors" in our Prospectus
dated January 14, 2003, as filed with the SEC, for a description of these and
other risks, uncertainties and factors.
You should not place undue reliance on any forward-looking statements. Except as
expressly required by the federal securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events, changed circumstances or any other reason.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 18
--------------------------------------------------------------------------------
RECENT RESTATEMENT OF HISTORICAL FINANCIAL RESULTS
As publicly announced on August 6, 2002 (prior to the public announcement of our
consolidated financial results for the fiscal year ended June 30, 2002), we
discovered that we were required to make accounting adjustments to our
previously reported audited consolidated financial results for the fiscal years
ended June 24, 2001, June 25, 2000 and June 27, 1999, as well as our previously
reported unaudited consolidated financial results for the first three fiscal
quarters of 2002, due to an overstatement of the balance sheet account entitled
costs and estimating earnings in excess of amounts billed on uncompleted
contracts ("CIE"). The CIE balance is comprised of estimated gross margins
recognized to date plus actual work-in-process costs incurred to date less
billings/deposits to date. The overstatement of CIE occurred at our Assembly
Machines, Inc. ("AMI") subsidiary, located in Erie, Pennsylvania, which was part
of our Precision Assembly segment until being closed in February 2003. This CIE
overstatement resulted in a corresponding understatement of cost of sales
because CIE represents project costs that have been expended, but are still
available to be billed; therefore, the overstatement in CIE included available
to bill amounts that should have been expensed to cost of sales in prior
periods. The cumulative amount of the accounting adjustments increased the
aggregate pre-tax loss reported during the impacted periods by $6.5 million and
increased the aggregate net loss after taxes reported during the impacted
periods by $4.2 million. Our restated consolidated statement of operations for
the three and nine months ended March 24, 2002 is included in Note 13 to our
consolidated financial statements included herein.
We discovered the accounting adjustments while beginning the transfer of the
sales and accounting functions at AMI to our Precision Assembly segment
headquarters in Buffalo Grove, Illinois in connection with the reorganization of
our operations. Our Board of Directors authorized the Audit and Finance
Committee to conduct an independent investigation, with the assistance of
special counsel retained by the Committee, to identify the causes of these
accounting adjustments. The Committee retained Katten Muchin Zavis Rosenman
("KMZR") as special counsel, and KMZR engaged an independent accounting firm to
assist in the investigation. In addition, we investigated whether similar issues
existed at any of our other units. At the conclusion of the independent
investigation, KMZR and the independent accounting firm provided the Committee
with an oral report of their findings. Due to the time-sensitive nature of the
independent investigation, no written report was prepared for, or provided to,
the Committee. As a result of the investigations, we believe that the accounting
issues were confined to AMI and determined that the misstatement of the CIE
account at AMI was primarily the result of the former controller of AMI, without
instruction from, or the knowledge of, our management, (1) failing to properly
account for manufacturing variances, (2) adding inappropriate costs to
work-in-process amounts, (3) understating amounts billed and/or customer
deposits and (4) failing to recognize certain losses, in each case on various
projects during the relevant time period. Using these miscalculations of CIE,
the former AMI controller made incorrect journal entries that were recorded in
the books and records of AMI.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 19
-------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
consolidated net sales represented by certain items reflected in our
consolidated statement of operations:
Three months ended Nine months ended
---------------------------- ---------------------------
March 24, March 24,
March 30, 2002 March 30, 2002
2003 As Restated 2003 As Restated
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 83.0 82.9 82.7 80.4
-------- -------- -------- --------
Gross profit 17.0 17.1 17.3 19.6
Selling, general and
administrative expenses 24.9 23.5 21.7 17.0
Restructuring charges --- 14.2 0.9 4.0
-------- -------- -------- --------
Operating income (loss) (7.9) (20.6) (5.3) (1.4)
Interest expense 3.3 5.0 2.6 3.8
Dividends on Company-obligated,
mandatorily redeemable
convertible preferred securities of
subsidiary DT Capital Trust 0.7 2.5 0.6 1.8
-------- -------- -------- --------
Loss before benefit for income
taxes (11.9) (28.1) (8.5) (7.0)
Benefit for income taxes (3.7) (6.6) (2.7) (1.7)
-------- -------- -------- --------
Net loss (8.2)% (21.5)% (5.8)% (5.3)%
======== ======== ======== ========
THREE MONTHS ENDED MARCH 30, 2003
COMPARED TO THREE MONTHS ENDED MARCH 24, 2002 (AS RESTATED)
Consolidated net sales for the three months ended March 30, 2003 were $55.6
million, a decrease of $4.4 million, or 7.4%, from $60.0 million for the three
months ended March 24, 2002.
Net sales by segment were as follows (in millions):
Three Months Ended
------------------------------------------------
Increase
March 30, 2003 March 24, 2002 (Decrease)
-------------- -------------- ------------
Material Processing $ 17.5 $ 15.3 $ 2.2
Precision Assembly 4.7 13.9 (9.2)
Packaging Systems 9.5 8.8 0.7
Assembly & Test 23.9 22.0 1.9
-------------- ------------ ------------
Total $ 55.6 $ 60.0 $ (4.4)
============== ============ ============
The increase in Material Processing segment sales primarily reflects an
unusually low sales level in the prior year quarter caused by a project
cancellation. The current year quarter primarily reflects an increase in sales
to the appliance industry and an increase in sales related to the segment's
process and equipment development for Earthshell's biodegradable foam laminate
packaging equipment. We expect to deliver the first Earthshell machine during
the fourth quarter of fiscal 2003 or early in the first quarter of fiscal 2004.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 20
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The Precision Assembly segment is substantially dependent on its core
electronics market. Our projects in backlog within the electronics market have
been delayed and future opportunities are currently uncertain. Sales of
electronics related systems in the third quarter accounted for 49% of total
segment sales for the quarter. We continue to pursue a number of opportunities
with new customers and have recently developed several new products/technologies
that we hope will generate future business for this segment.
In the Packaging Systems segment, we recognized increased sales in the quarter
primarily reflecting a strong shipping quarter. We expect sales in the fourth
quarter to be lower than the third quarter of FY2003 reflecting the softness in
the pharmaceutical market, the continued consolidation of companies within the
pharmaceutical industry and the lower number of new pharmaceuticals being
released to the market.
The Assembly & Test segment, which primarily serves the automotive, truck and
heavy equipment market, has experienced market softness for the last 24 months.
The current quarter reflects higher sales compared to an unusually low prior
year quarter that resulted from the substantial completion of a large diesel
engine assembly, test and material handling system in the prior year.
Gross profit decreased by $0.8 million, or 8.0%, to $9.4 million for the three
months ended March 30, 2003 versus $10.2 million for the three months ended
March 24, 2002. The gross margin decreased slightly to 17.0% in the third
quarter of fiscal 2003 from 17.1% in the third quarter of fiscal 2002. Gross
profit and margins continue to be impacted by reduced volumes and
under-absorption of overhead costs across all of the segments, the development
costs on the Earthshell packaging systems, and the non-recurring costs
associated with transitioning the Kalish and AMI product lines.
Selling, general and administrative (SG&A) expenses were $13.8 million for the
three months ended March 30, 2003, a decrease of $0.3 million, or 1.8%, compared
to $14.1 million for the three months ended March 24, 2002. The decrease does
not fully reflect the substantial cost cutting that we have recently completed,
the benefits of which we expect to obtain in the fourth quarter of fiscal 2003.
The current quarter reflects increased legal and professional fees related to
the amendment to the senior credit facility and our recent restatement of
historical financial results and public filings associated with the
recapitalization. This increase partially offsets the decrease in SG&A expenses
attributable to the restructurings across segments that reduced administrative
headcount. In addition, SG&A for the prior year quarter was lower due to several
non-recurring favorable items. The favorable SG&A items in the prior period
included termination of post-retirement plans and the resulting reductions in
reserves and the favorable settlement of contingencies related to asset
divestitures. SG&A expenses as a percentage of consolidated net sales increased
to 24.9% in the third quarter of fiscal 2003 from 23.5% in the third quarter of
fiscal 2002, reflecting the above items and the lower sales volume.
Research and development spending, part of SG&A, was $0.3 million in the third
quarter of fiscal 2003, down $0.7 million from the comparable prior year period.
The decrease resulted from completing research and development for four new
products that were introduced in the first quarter of fiscal 2003, for which R&D
expenditures were made in the comparable prior year period.
Operating losses were $4.4 million for the three months ended March 30, 2003
versus $12.3 million for the three months ended March 24, 2002.
Material Processing segment operating income decreased $0.2 million, or 28.8%,
to $0.5 million for the three months ended March 30, 2003 from $0.7 million for
the prior period. This segment's operating margin decreased to 3.0% in the
current quarter compared to 4.8% in the prior year quarter. The segment's
operating income and margins for the third quarter of fiscal 2003 were
negatively impacted by process and equipment development costs related to
Earthshell's biodegradable foam laminate packaging equipment.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 21
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Precision Assembly segment operating losses increased $1.7 million to $3.9
million for the three months ended March 30, 2003 from $2.2 million for the
prior period. This segment's operating margin increased to a loss of 83.5% in
the current quarter compared to 16.0% in the prior year quarter. Precision
Assembly sales were down 66.6% in the quarter resulting in increases in
unabsorbed manufacturing costs.
Packaging Systems segment recorded operating income of $1.0 million in the third
quarter, an increase of $5.1 million from the loss of $4.1 million in the third
quarter of the prior year. The prior year loss reflects $3.4 million of
restructuring charges primarily related to the shutdown of the Montreal, Quebec
(Kalish) facility. The improvement is primarily the result of the SG&A savings
resulting from the shutdown of the Montreal, Quebec (Kalish) facility and the
strong shipping quarter in the third quarter of fiscal 2003.
Assembly & Test segment operating income increased $5.9 million to income of
$0.2 million for the three months ended March 30, 2003 from a loss of $5.7
million for the prior period. The prior year loss reflects $3.3 million of
restructuring charges primarily related to the shutdown of the Rochester, New
York (Hansford) facility. The improvement in operating income for the segment
can be attributed to improved project performance, with the prior year being
impacted by a few problem projects. Operating margins for the Assembly & Test
segment improved to 0.9% from a loss of 26.0%.
The corporate head office expenses were $2.3 million for the three months ended
March 30, 2003 compared to $1.1 million for the prior period due to several
favorable non-recurring items recorded in the prior year period discussed above
in SG&A.
Interest expense decreased $1.2 million to $1.9 million for the three months
ended March 30, 2003 versus $3.0 million for the three months ended March 24,
2002. The decrease resulted from the lower outstanding borrowings resulting both
from the proceeds from the private placement of common stock on June 20, 2002
and the reductions in working capital throughout fiscal 2002. Funded debt has
been reduced from $75.9 million at March 24, 2002 to $53.3 million at March 30,
2003. Dividends on the convertible preferred securities of our wholly-owned
subsidiary trust were $0.4 and $1.5 million for the three months ended March 30,
2003 and March 24, 2002, respectively. The lower amount of dividends recorded
reflect the restructuring of the convertible trust preferred securities that was
completed on June 20, 2002. Dividend expense of $1.6 million is recorded
annually on the convertible trust preferred securities, reflecting an
approximate effective yield of 4.6% over the life of the securities, after
considering the period from April 1, 2002 until July 2, 2004 when distributions
are not required to be paid.
The benefit for income taxes for the three months ended March 30, 2003 and March
24, 2002 reflects an effective tax rate of approximately 31% and 24%,
respectively. The higher 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 consolidated book losses. Management believes that no valuation
allowance is necessary for the deferred tax asset related to net operating loss
carryforwards of approximately $20.8 million as of March 30, 2003. In arriving
at that conclusion, we considered the impact of deferred tax liabilities and
future projected taxable income. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if current estimates of
future taxable income are significantly revised.
Net loss was $4.6 million for the three months ended March 30, 2003 compared to
$12.9 million for the three months ended March 24, 2002. Basic and diluted loss
per share were $0.19 for the three months ended March 30, 2003 compared to $1.24
for the three months ended March 24, 2002. Basic and diluted weighted average
shares outstanding were approximately 23.7 and 10.4 million shares for the three
months ended March 30, 2003 and March 24, 2002, respectively. The increase in
weighted average shares outstanding reflects the recapitalization transaction on
June 20, 2002, including the private placement of 7.0 million shares of common
stock and the conversion of convertible trust preferred securities into
approximately 6.3 million shares of common stock.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 22
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NINE MONTHS ENDED MARCH 30, 2003
COMPARED TO NINE MONTHS ENDED MARCH 24, 2002 (AS RESTATED)
Consolidated net sales for the nine months ended March 30, 2003 were $187.3
million, a decrease of $61.8 million, or 24.8%, from $249.1 million for the nine
months ended March 24, 2002.
Net sales by segment were as follows (in millions):
Nine Months Ended
-------------------------------------------------
Increase
March 30, 2003 March 24, 2002 (Decrease)
--------------- --------------- -------------
Material Processing $ 64.2 $ 73.2 $ (9.0)
Precision Assembly 31.6 47.9 (16.3)
Packaging Systems 25.9 29.5 (3.6)
Assembly & Test 65.6 97.7 (32.1)
Divested businesses --- 0.8 (0.8)
--------------- --------------- -------------
Total $ 187.3 $ 249.1 $ (61.8)
=============== =============== =============
The decrease in Material Processing segment sales primarily reflects a $9.4
million decrease in sales to a consumer products company and a $7.9 million
decrease in sales to a significant tire manufacturer related to the completion
of projects during fiscal 2002. The Material Processing segment was able to
replace a portion of the sales with new sales to the appliance industry and a
number of new projects with new and repeat customers.
The Precision Assembly segment is substantially dependent on its core
electronics market. Our projects in backlog within the electronics market have
been delayed and future opportunities are currently uncertain. Sales of
electronics related systems for the nine months ended March 30, 2003 accounted
for 80% of total segment sales for the nine months.
Sales of the Material Processing and Precision Assembly segment were impacted in
the first quarter of fiscal 2003 by our failure to get customer acceptance on a
project. We settled with this customer and agreed to refund an agreed upon cash
amount. We 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. We negotiated a more favorable settlement than
originally estimated resulting in a $0.3 million recovery in the first quarter
of fiscal 2003.
In the Packaging Systems segment, we resolved a lawsuit with a customer in the
first quarter of fiscal 2003 which resulted in the customer returning a
packaging system to us and receiving a full refund of progress payments. As a
result, we reversed percentage of completion sales recognized to date of $1.4
million pertaining to this system during the first quarter of fiscal 2003. We
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.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 23
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The Assembly & Test segment, which primarily serves the automotive, truck and
heavy equipment market, has experienced market softness over an extended period.
Results for the prior year included revenue recognition on a diesel engine
assembly and material handling system that was substantially delivered in the
fourth quarter of fiscal 2002 and on several electronics assembly system chassis
subcontracted from the Precision Assembly segment. The segment has not replaced
these projects and the core automotive market remains depressed and very
competitive.
Gross profit decreased by $16.3 million, or 33.4%, to $32.5 million for the nine
months ended March 30, 2003 versus $48.8 million for the nine months ended March
24, 2002. The gross margin decreased to 17.3% for the nine months of fiscal 2003
from 19.6% for the nine months of fiscal 2002. Gross profit and margins continue
to be impacted by reduced volumes and under-absorption of overhead costs across
all of the segments, the incremental project costs related to several Hansford
projects that were assumed by the Precision Assembly and Assembly & Test
segments upon the shutdown of the Hansford facility, the development costs on
the Earthshell packaging systems, and the non-recurring costs associated with
transitioning the Kalish and AMI product lines associated with those facility
shutdowns.
Selling, general and administrative (SG&A) expenses were $40.7 million for the
nine months ended March 30, 2003, a decrease of $1.6 million, or 3.8%, compared
to $42.3 million for the nine months ended March 24, 2002. In connection with
the customer lawsuit resolution referenced above and resulting return of a
Packaging Systems segment sale, we reversed a previously recorded bad debt
expense of approximately $0.9 million in the first quarter of fiscal 2003. We
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
decrease in SG&A does not fully reflect the substantial cost cutting that we
have completed particularly in the restructurings of the Packaging Systems and
Assembly and Test segments that reduced administrative headcount. The current
year reflects increased legal and professional fees related to the amendment to
the senior credit facility and our recent restatement of historical financial
results and public filings associated with the recapitalization. In addition,
SG&A for the prior year was lower due to several non-recurring favorable items.
The favorable SG&A items in the prior period included reversals of bad debts
reserves from collections on delinquent accounts, 401K forfeitures income,
termination of post-retirement plans and the resulting reductions in reserves,
decreases in bonus accruals and reductions in workers compensation reserves.
SG&A expenses as a percentage of consolidated net sales increased to 21.7% for
the nine months of fiscal 2003 from 17.0% for the prior year period, reflecting
the above items and the lower sales volume.
Research and development spending, part of SG&A, was $1.7 million for the nine
months of fiscal 2003, down $0.6 million from the comparable prior year period.
The decrease resulted from completing research and development for four new
products that were introduced in the first quarter of fiscal 2003, for which
substantial R&D expenditures were made in the comparable prior year period.
On December 13, 2002, we announced the closure of our Erie, Pennsylvania
facility (also known as Assembly Machines, Inc.), transferring manufacturing
operations and the customer base to our Buffalo Grove, Illinois facility as part
of our Precision Assembly segment. We completed the shutdown in the third
quarter and completed the sale of the facility in March 2003. We recorded a
restructuring charge in December 2002 of $1.7 million, including severance costs
of $0.6 million for the termination of 62 employees. The remaining restructuring
charge of $1.1 million included a $1.0 million charge to write-down the land and
building to the estimated fair market value and $0.1 million for other asset
write-offs and non-cancellable office and plant equipment leases.
For the nine months ended March 24, 2002, restructuring charges totaled $10.0
million. The $10.0 million restructuring charge was comprised of the following
components:
o $4.5 million of severance costs associated with management changes and
workforce reductions;
o $2.0 million in idle facility costs primarily from the closure of the
Rochester, New York, and Gawcott, United Kingdom facilities as well as
the combination of the Montreal, Canada and Leominster, Massachusetts
manufacturing facilities, the Bristol, Pennsylvania and Hyannis,
Massachusetts manufacturing facilities and the combination of the
Swiftpack and King facilities in the United Kingdom;
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 24
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o $2.9 million of asset write-downs to record the assets to be disposed
of at net realizable value; and
o $0.6 million of other charges.
Operating loss was $9.9 million for the nine months ended March 30, 2003 versus
$3.5 million for the nine months ended March 24, 2002. Operating margin
decreased to a loss of 5.3% in the current year versus 1.4% in the prior year.
The following discusses the operating income/loss variances from the prior year
comparable period.
Material Processing segment operating income decreased $2.0 million, or 35.7%,
to $3.7 million for the nine months ended March 30, 2003 from $5.7 million for
the prior period. Operating margin decreased to 5.7% in the current year
compared to 7.8% in the prior year. Other than the 12.4% drop in sales, the
segment's operating income and margins were impacted by the process and
equipment development costs related to Earthshell's biodegradable foam laminate
packaging equipment. The prior year period's revenues and operating income were
favorably impacted by a project cancellation and resulting payment of a
cancellation fee by the customer, which accelerated revenue and profit
recognition on the project.
Precision Assembly segment operating income decreased $6.8 million to a loss of
$5.6 million for the nine months ended March 30, 2003 from operating income of
$1.2 million for the prior period. Operating margin decreased to a loss of 17.6%
in the current year compared to income of 2.6% in the prior year. Precision
Assembly sales were down 34.0% in the period resulting in increases in
unabsorbed manufacturing costs. Operating income for the segment also decreased
due to the $1.7 million restructuring charge to shutdown our Erie, Pennsylvania
facility, additional non-recurring costs of approximately $0.4 million
associated with the shutdown and additional project losses of approximately $2.2
million related to several Hansford projects that were assumed by the Precision
Assembly segment upon the shutdown of the Hansford facility.
Packaging Systems segment recorded operating income of $0.9 million for the nine
months ended March 30, 2003, an increase of $4.6 million, or 125%, from the loss
of $3.7 million in the prior year. Operating margin increased to 3.6% in the
current year compared to a loss of 12.5% in the prior year period. The prior
year loss reflects $3.4 million of restructuring charges primarily related to
the shutdown of the Montreal, Quebec (Kalish) facility. The improvement is also
a result of the SG&A savings resulting from the shutdown of the Montreal, Quebec
(Kalish) facility and the strong shipping quarter in the third quarter of fiscal
2003.
Assembly & Test segment operating loss decreased $1.4 million, or 35.8%, to $2.5
million for the nine months ended March 30, 2003 from $3.9 million for the prior
period. The prior year loss reflects $3.3 million of restructuring charges
primarily related the shutdown of the Rochester, New York (Hansford) facility.
Operating margin decreased to a loss of 3.8% in the current period compared to
4.0% in the prior year period. Assembly & Test segment sales were down 32.8% in
the period resulting in increases in unabsorbed manufacturing costs and lower
leverage on SG&A expenses. Operating income for the segment also decreased from
additional project losses of approximately $1.0 million related to several
Hansford projects that were assumed by the Assembly & Test segment upon the
shutdown of the Hansford facility. Operating margins for the Assembly & Test
segment have also declined due to the competitive pricing, particularly in the
automotive sector.
The corporate head office expenses increased $3.6 million to $6.4 million for
the nine months ended March 30, 2003 from $2.8 million for the prior period due
to approximately $4.0 million in several favorable non-recurring items recorded
in the prior year period discussed above in SG&A. We incurred increased legal
and professional fees in the current year related to the amendment to the senior
credit facility, the recent restatement of historical financial results and the
public filings associated with the recapitalization.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 25
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Interest expense decreased $4.5 million to $4.8 million for the nine months
ended March 30, 2003 versus $9.4 million for the nine months ended March 24,
2002. The decrease resulted from the lower outstanding borrowings resulting both
from the proceeds from the private placement of common stock on June 20, 2002
and the reductions in working capital throughout fiscal 2002. Dividends on the
convertible preferred securities of our wholly-owned subsidiary trust were $1.2
million and $4.4 million for the nine months ended March 30, 2003 and March 24,
2002, respectively. The lower amount of dividends recorded reflect the
restructuring of the convertible trust preferred securities that was completed
on June 20, 2002. Dividend expense of $1.6 million is recorded annually on the
convertible trust preferred securities, reflecting an approximate effective
yield of 4.6% over the life of the securities, after considering the period from
April 1, 2002 until July 2, 2004 when distributions are not required to be paid.
The benefit for income taxes for the nine months ended March 30, 2003 and March
24, 2002 reflects an effective tax rate of approximately 32% and 24%,
respectively. The higher 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 consolidated book losses.
Net loss was $10.8 million for the nine months ended March 30, 2003 compared to
$13.2 million for the nine months ended March 24, 2002. Basic and diluted loss
per share were $0.46 for the nine months ended March 30, 2003 compared to $1.27
for the nine months ended March 24, 2002. Basic and diluted weighted average
shares outstanding were approximately 23.6 and 10.4 million shares for the nine
months ended March 30, 2003 and March 24, 2002, respectively. The increase in
weighted average shares outstanding reflects the recapitalization transaction on
June 20, 2002, including the private placement of 7.0 million shares of common
stock and the conversion of convertible trust preferred securities into
approximately 6.3 million shares of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Activity
Net cash used by operating activities was $10.6 million for the nine months
ended March 30, 2003, compared to net cash provided by operating activities of
$42.8 million for the nine months ended March 24, 2002.
The net cash used primarily resulted from the net loss of $10.8 million. Net
increases in working capital balances used operating cash of $2.8 million. The
slightly higher working capital balances primarily reflect decreased accrued
liabilities largely due to the payments on employee compensation matters in
connection with the restructurings across the business segments. Project related
working capital has continued to decrease due to the lower volume of projects
and our working capital programs aimed at reducing inventories, collecting
receivables and negotiating better payment terms.
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 us for a number of large contracts, and
the amounts and timing of customer advances or progress payments associated with
certain contracts.
During the nine months ended March 30, 2003, we reduced our borrowings under our
senior credit facility and other debt agreements by $5.6 million. The proceeds
from the Hyannis facility sale-leaseback transaction in June 2002 provided the
funding for the paydown in August of $5.0 million of Industrial Revenue Bonds.
The cash balance at June 30, 2002 of $18.8 million was used to fund operations
and capital expenditures during the first nine months of fiscal 2003. We spent
$2.7 million in capital projects and incurred $0.4 million of financing costs
during the nine months ended March 30, 2003.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 26
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Management anticipates capital expenditures for fiscal 2003 to be in the range
of $3.5 to $4.0 million. This includes primarily only recurring replacement or
refurbishment of machinery and equipment. Funding for capital expenditures is
expected to be provided by cash from operating activities and through our credit
facility.
Senior Credit Facility and Preferred Securities
As a result of covenant defaults, we completed an amendment to our senior credit
facility on March 7, 2003 which provided a permanent waiver of covenant
defaults, established new covenants through the term and reduced the revolving
line of credit by approximately $11.0 million. The amended senior credit
facility consists of an approximate $6.0 term loan and an approximate $54.3
revolving loan (as of March 30, 2003) and matures on July 2, 2004.
We use borrowings under the senior credit facility to fund working capital
requirements and capital expenditures. Borrowings under the senior credit
facility are secured by substantially all of our domestic assets. Of the
revolving line of credit, $46.6 million was outstanding (including $0.9 million
in outstanding letters of credit) at March 30, 2003.
The depressed market for capital goods, including products, has caused us in the
past to violate financial covenants in our senior credit facility related to
earnings before interest, taxes, depreciation and amortization (EBITDA). We have
received waivers for these defaults. The recent amendment to our senior credit
facility sets new financial covenants related to EBITDA beginning in April 2003.
If we do not see improvements in the overall economy and demand for our
products, we may not be able to satisfy these covenants in the fourth quarter of
fiscal 2003, in which case we would again request a waiver from our senior
lenders. If we do not obtain such a waiver upon a default, our 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, we will not
have sufficient funds to satisfy our obligations and may not be able to continue
operations as currently anticipated.
At March 30, 2003, interest rates on outstanding indebtedness under the
revolving credit facility were approximately 8.25%. The credit facility requires
commitment fees of 0.50% per annum payable quarterly on any unused portion of
the revolving credit facility, an annual agency fee of $0.15 million and a 1%
annual facility fee. The annual facility fee will be forgiven if the debt is
paid in full and the credit facility is cancelled before the annual due dates.
In January 2003, we completed the sale of our Packaging Systems segment
Leominster, Massachusetts facility after relocating to a new leased facility in
Leominster. Proceeds of approximately $1.3 million were used to reduce debt
outstanding under the senior credit facility. In March 2003, we completed the
sale of our Precision Assembly segment Erie, Pennsylvania facility. Proceeds of
approximately $0.9 million were used to reduce debt outstanding under the senior
credit facility.
We believe that cash flows from operations, together with available borrowings
under our senior credit facility will be sufficient to meet our currently
anticipated working capital, capital expenditures and debt service needs up to
July 2, 2004. We will need to refinance or extend our senior credit facility in
order to satisfy our liquidity needs after July 2, 2004. If we are not able to
refinance or extend our senior credit facility and the indebtedness becomes due
on July 2, 2004, we will not have sufficient funds to satisfy our obligations
and we may not be able to continue our operations as currently anticipated.
In April 2003, we filed our fiscal 2002 tax returns, received a refund of
approximately $11.0 million and used the refund to pay down our senior credit
facility. The tax positions taken by us are expected to be reviewed by the
Internal Revenue Service and the ultimate outcome cannot be determined
currently. We have not recorded any tax benefits related to the refunds and will
not record any benefits until such time that we receive some agreement from the
Internal Revenue Service. Our current credit facility requires that all tax
refunds received be used to reduce the term loan and revolving line of credit.
We are in discussion with our senior lenders to modify the amount of the
commitment reduction required from the tax refunds received.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 27
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We also have outstanding $35.0 million of 7.16% convertible preferred securities
("TIDES"). The TIDES represent undivided beneficial ownership interests in our
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 us 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 our common stock at a conversion price of $14.00 per share.
Furthermore, the TIDES holders are entitled to receive cash distributions
starting July 2, 2004 at an annual rate of 7.16%, payable quarterly in arrears
on the last day of each calendar quarter. However, annual dividend expense of
$1,604 on the TIDES is being recorded, reflecting an approximate effective yield
of 4.6% over the life of the TIDES. Distributions accrued during the period
through July 2, 2004 are added to the amount outstanding ($36,604 at March 30,
2003). The TIDES mature on May 31, 2008.
We have guaranteed the payment of distributions and payments on liquidation of
the Trust or 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 liabilities for financial reporting purposes and instead
appear in the consolidated balance sheet between liabilities and stockholders'
equity, they represent obligations of us.
We also have a European credit facility of approximately $4.4 million, of which
approximately $1.4 million was outstanding in issued bank guarantees to
customers as of March 30, 2003.
BACKLOG
Our backlog is based upon customer purchase orders that we believe are firm.
Backlog by segment for the current and prior year period are as follows:
Backlog as of:
-------------------------------------------------------
March 30, 2003 June 30, 2002 March 24, 2002
-------------- -------------- --------------
Material Processing $ 55.0 $ 54.8 $ 50.5
Precision Assembly 7.9 24.7 26.9
Packaging Systems 9.2 15.0 18.3
Assembly and Test 44.2 48.3 51.5
------------- --------------- --------------
$ 116.3 $ 142.8 $ 147.2
============ ============ ==============
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.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 28
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We have generated a substantial portion of our net sales from a relatively small
number of customers. Our purchase orders typically have a duration of less than
12 months, and, therefore, we do not generally have a multi-year commitment from
our significant customers to continue their current level of work with us in the
future. The loss of, or reduced orders for products from, one or more of our
significant customers could have a material adverse effect on our future
operating results if we cannot replace the net sales from purchase orders for
those significant customers that are completed or reduced in a given period with
additional purchase orders from these or other current or future customers. In
addition, a delay in purchase orders from, or completion of projects for, one or
more of our significant customers, could have a material adverse impact on our
operating results in a particular quarterly period. Our top ten customers for
the nine months ended March 30, 2003 accounted for $92.6 million, or 49.4% of
total sales. The backlog of orders with those ten customers at March 30, 2003
was $60.4 million, or 51.9% of total backlog.
OUTLOOK
The weak economy continues to make forecasting extremely challenging. We
continue to actively bid numerous projects across all of our product lines.
However, customers are still postponing buying decisions, which is having a
negative impact on the new business pipeline. We experienced an increase in
orders in March and April of 2003 compared to recent months orders and expect
orders for the fourth quarter of fiscal 2003 to exceed the $55.0 to $60.0
million quarterly order rate experienced the past few quarters.
We introduced several new products during the first nine months of fiscal 2003
(some of which were discussed in our Quarterly Report on Form 10-Q for the first
quarter of fiscal 2003). Our Material Processing segment will be introducing its
PortaSep Centrifugal Immissible Fluid Separator at the upcoming 2003 NDIA - U.S.
Coast Guard Innovative Expo in May 2003. We expect these new products to provide
a competitive edge in the future and to start generating revenues in the fourth
quarter of fiscal 2003.
Due to our current fixed manufacturing costs, acceptable levels of gross profit
margins cannot be attained until our backlog returns to a sustainable level of
at least $150 million and all of those orders are recognized as sales. We are
continuing our cost cutting strategy to lower our break even level to revenue
levels of $60 to $65 million per quarter. We established cost cutting goals
across all segments with the ultimate objective of cutting $1.0 million in
indirect costs per month. In March 2003, we announced to our domestic employees
that we would be suspending all of our contributions to the 401(K) plan until
further notice. This is expected to provide savings of $0.7 million per quarter.
Company-wide salary reductions were implemented in March 2003 as one method to
achieving these cost cutting goals,including 15% salary reductions for executive
officers.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
In general, our business is not subject to seasonal variations in demand for its
products. However, because orders for certain of our products can be several
million dollars, a relatively limited number of orders can constitute a
meaningful percentage of our 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 our revenues. Certain of our revenues are
derived from fixed price contracts. To the extent that original cost estimates
prove to be inaccurate, profitability from a particular contract may be
adversely affected. Gross margins may vary between comparable periods as a
result of the variations in profitability of contracts for large orders of
special machines as well as product mix between the various types of custom and
proprietary equipment manufactured by us. Accordingly, 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.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND ITEMS 3 AND 4
PAGE 29
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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 our 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 in our exposure to market risk during the
nine months ended March 30, 2003 that would require an update to the disclosures
provided in our Form 10-K for the fiscal year ended June 30, 2002.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our periodic reports is recorded,
processed, summarized and reported on a timely and accurate basis, and that such
information is accumulated and communicated to our management, including our
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, we carried out an evaluation,
under the supervision and with the participation of our management, including
our President and Chief Executive Officer along with our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon the
foregoing, our President and Chief Executive Officer, along with our Chief
Financial Officer, concluded that our disclosure controls and procedures are
effective in timely alerting them to material information relating to us
(including our consolidated subsidiaries) required to be included in our
Exchange Act reports. There have been no significant changes in our internal
controls or in other factors which could significantly affect internal controls
subsequent to the date we carried out our evaluation.
DT INDUSTRIES, INC.
PART II. OTHER INFORMATION
PAGE 30
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ITEM 1. LEGAL PROCEEDINGS
We are involved in legal and regulatory proceedings, as described in "Part 1,
Item 3. Legal Proceedings" of our Annual Report on Form 10-K for the fiscal year
ended June 30, 2002.
Since the disclosure in our Annual Report on Form 10-K for the fiscal year ended
June 30, 2002, there have been no material developments in previously reported
legal and regulatory proceedings.
We are 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 our financial condition,
results of operations or cash flows. We maintain comprehensive general liability
insurance that we believe to be adequate for the continued operation of our
business.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See "Part II, Item 3. Defaults Under Senior Securities" of our Report on Form
10-Q for the three months ended December 29, 2002 for a description of previous
covenant defaults under our credit facility. The defaults referenced therein
were permanently waived pursuant to the amendment to our credit facility,
executed in March 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10 Thirteenth Amendment to the Fourth Amended and
Restated Credit Facilities Agreement, dated as of March 7, 2003,
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 other Borrowers listed therein
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
On February 7, 2003, a Current Report on Form 8-K was filed to
report, pursuant to Items 5 and 7 thereof, the Company's issuance
of a press release announcing earnings for the three months ended
December 29, 2002, among other things.
On March 17, 2003, a Current Report on Form 8-K was filed to
report, pursuant to Items 5 and 7 thereof, the Company's issuance
of a press release announcing the booking of certain customer
purchase orders, the expected sales for the third quarter ended
March 30, 2003 and the completion of the 13th Amendment to the
Company's senior credit facility.
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: May 14, 2003 /s/ John M. Casper
------------------------------
(Signature)
John M. Casper
Senior Vice President, Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
CERTIFICATION PURSUANT TO
THE SARBANES-OXLEY ACT OF 2002
I, Stephen J. Perkins, certify that:
1. I have reviewed this quarterly report on Form 10-Q of DT Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 /s/ Stephen J. Perkins
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(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: May 14, 2003 /s/ John M. Casper
----------------------------------------
(Signature)
John M. Casper
Senior Vice President - Finance and
Chief Financial Officer