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 24, 2002
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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 _______
The number of shares of Common Stock, $0.01 par
value, of the registrant outstanding as of
May 3, 2002 was 10,387,274.
DT INDUSTRIES, INC.
INDEX
PAGE 1
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Page
Number
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at March 24, 2002
and June 24, 2001 2
Consolidated Statement of Operations for the three and
nine months ended March 24, 2002 and March
25, 2001 3
Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended March 24,
2002 4
Consolidated Statement of Cash Flows for the nine
months ended March 24, 2002 and March
25, 2001 5
Notes to Consolidated Financial Statements 6-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-29
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 30
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 31
Signatures
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 2
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March 24, June 24,
2002 2001
--------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 5,195 $ 5,505
Accounts receivable, net 56,262 70,774
Costs and estimated earnings in excess of amounts
billed on uncompleted contracts 51,383 92,000
Inventories, net 30,570 40,865
Deferred income taxes 14,935 7,862
Prepaid expenses and other 2,556 4,635
--------- ---------
Total current assets 160,901 221,641
Property, plant and equipment, net 43,164 62,463
Goodwill, net 123,804 123,767
Other assets, net 5,319 6,830
--------- ---------
$ 333,188 $ 414,701
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior secured term and revolving
credit facility (Note 4) $ 68,836 $ 35,500
Current portion of long-term debt 426 651
Accounts payable 18,753 40,917
Customer advances 34,466 25,651
Accrued liabilities 34,530 37,143
--------- ---------
Total current liabilities 157,011 139,862
--------- ---------
Senior secured term and revolving credit facility (Note 4) -- 89,643
Other long-term debt 6,648 6,928
Other long-term liabilities 3,474 3,778
--------- ---------
Total long-term obligations 10,122 100,349
--------- ---------
Commitments and contingencies (Note 10)
Company-obligated, mandatorily redeemable
convertible preferred securities of
subsidiary DT Capital Trust holding
solely convertible junior subordinated
debentures of the Company 85,085 80,652
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding
Common stock, $0.01 par value; 100,000,000 shares
authorized; 10,387,274 and 10,337,274 shares
outstanding, at March 24, 2002 and June 24,
2001, respectively 113 113
Additional paid-in capital 126,824 127,853
Accumulated deficit (19,968) (6,965)
Cumulative translation adjustment (2,327) (2,058)
Unearned portion of restricted stock (604) (661)
Less -
Treasury stock (988,488 and 1,038,488 shares at
March 24, 2002 and June 24,
2001, respectively), at cost (23,068) (24,444)
--------- ---------
Total stockholders' equity 80,970 93,838
--------- ---------
$ 333,188 $ 414,701
========= =========
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 24, March 25, March 24, March 25,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales $ 60,184 $ 123,965 $ 248,772 $ 371,841
Cost of sales 49,712 103,371 199,701 306,567
------------ ------------ ------------ ------------
Gross profit 10,472 20,594 49,071 65,274
Selling, general and
administrative expenses 14,086 19,456 42,278 59,052
Restructuring charges (Note 11) 8,508 -- 10,029 --
Net loss on disposal of assets -- 558 -- 558
------------ ------------ ------------ ------------
Operating income (loss) (12,122) 580 (3,236) 5,664
Interest expense 3,006 3,776 9,371 11,455
Accrued dividends on Company-
obligated, mandatorily
redeemable convertible
preferred securities of
subsidiary DT Capital Trust
holding solely convertible
junior subordinated debentures
of the Company, at 7.16%
per annum 1,528 1,387 4,433 4,095
------------ ------------ ------------ ------------
Loss before benefit for
income taxes (16,656) (4,583) (17,040) (9,886)
Benefit for income taxes (3,902) (1,149) (4,037) (2,399)
------------ ------------ ------------ ------------
Net loss $ (12,754) $ (3,434) $ (13,003) $ (7,487)
============ ============ ============ ============
Net loss per common share:
Basic $ (1.23) $ (0.34) $ (1.25) $ (0.74)
Diluted $ (1.23) $ (0.34) $ (1.25) $ (0.74)
============ ============ ============ ============
Weighted average common
shares outstanding:
Basic 10,387,274 10,154,163 10,371,706 10,129,995
Diluted 10,387,274 10,154,163 10,371,706 10,129,995
============ ============ ============ ============
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 24, 2002
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 4
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Accumulated Unearned
other Additional portion of
Accumulated comprehensive Common paid-in Treasury restricted
deficit loss stock capital stock stock Total
----------- ------------- --------- ----------- --------- ---------- ------
Balance, June 24, 2001 $ (6,965) $(2,058) $ 113 $ 127,853 $ (24,444) (661) $ 93,838
Comprehensive loss:
Net loss (13,003)
Foreign currency translation (269)
Total comprehensive loss (13,272)
Issuance of 50,000 shares of
restricted stock (1,064) 1,376 (312) --
Amortization of earned portion
of restricted stock 369 369
Payment on stock subscriptions
receivable 35 35
---------- ------- --------- --------- --------- ----- --------
Balance, March 25, $ (19,968) $(2,327) $ 113 $ 126,824 $ (23,068) $(604) $ 80,970
========== ======= ========= ========= ========= ===== ========
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 24, March 25,
2002 2001
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,003) $ (7,487)
Adjustments to reconcile net loss to net cash
provided (used) by operating
activities:
Depreciation 4,827 7,243
Amortization 2,503 5,311
Deferred income tax provision (3,262) --
Loss on disposal of assets and asset write-downs 2,875 558
Other 370 --
(Increase) decrease in current assets,
excluding the effect of dispositions:
Accounts receivable 9,105 6,745
Costs and earnings in excess of amounts billed 40,617 (14,367)
Inventories 4,374 (15,739)
Prepaid expenses and other 2,384 (3,774)
Increase (decrease) in current liabilities,
excluding the effect of dispositions:
Accounts payable (18,286) (774)
Customer advances 8,894 19,178
Accrued liabilities and other (3,021) (2,657)
-------- --------
Net cash provided (used) by operating activities 38,377 (5,763)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 18,875 2,008
Capital expenditures (1,673) (2,649)
-------- --------
Net cash provided (used) by investing activities 17,202 (641)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from revolving loans (53,643) 3,791
Payments on borrowings (3,896) (1,611)
Deferral of dividends on convertible preferred securities 4,433 4,095
Financing costs (3,193) (1,160)
Net proceeds from equity transactions 35 72
-------- --------
Net cash provided (used) by financing activities (56,264) 5,187
-------- --------
Effect of exchange rate changes 375 (604)
-------- --------
Net decrease in cash (310) (1,821)
Cash and cash equivalents at beginning of period 5,505 8,705
-------- --------
Cash and cash equivalents at end of period $ 5,195 $ 6,884
======== ========
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 6
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1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of DT
Industries, Inc. (DTI or the Company) have been prepared in accordance
with the instructions for Form 10-Q and do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
However, in the opinion of management, the information includes all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results of operations for the periods
presented. Operating results for any quarter are not necessarily
indicative of the results for any other quarter or for the full year.
These statements should be read in conjunction with the consolidated
financial statements and notes to the consolidated financial statements
included in the Company's Form 10-K Annual Report for the fiscal year
ended June 24, 2001.
During the second quarter of fiscal 2002, the Company changed its
policy regarding the classification of unpaid progress billings on the
balance sheet. Under the new policy, unpaid progress billings are now
included in accounts receivable but were previously included in costs
and estimated earnings in excess of amounts billed on uncompleted
contracts on the balance sheet. As a result of this change in policy, a
reclassification of $25,859 was made to the June 24, 2001 balance sheet
which increased accounts receivable and decreased costs and estimated
earnings in excess of amounts billed on uncompleted contracts. Certain
other reclassifications have been made to prior year financial
statements for comparative purposes. These reclassifications had no
effect on net loss.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
The accounts of the Company's foreign subsidiaries are maintained in
their respective local currencies. The accompanying consolidated
financial statements have been translated and adjusted to reflect U.S.
dollars in accordance with accounting principles generally accepted in
the United States.
3. ASSET SALES
During the nine months ended March 24, 2002, the Company sold
substantially all of the assets of three business units. The following
table summarizes certain information regarding these sales:
NET
CASH LOSS
DATE OF SALE BUSINESS PROCEEDS ON DISPOSAL
---------------- -------------------------------------- -------- -----------
June 2001 Detroit Tool Metal Products Co. (DTMP) $14,250 $(1,618)
July 2001 Scheu & Kniss 3,939 (6,200)
October 2001 Hansford Parts and Products (HPP) 622 --
------- -------
$18,811 $(7,818)
======= =======
The losses associated with the sale of these business units were
recognized in the fourth quarter of fiscal 2001. The combined net sales
of DTMP and HPP (Other business segment) for the three and nine months
ended March 25, 2001 were $8,874 and $27,183, respectively. The
combined operating profit for DTMP and HPP for the three and nine
months ended March 25, 2001 was $144 and $878, respectively. The net
sales of Scheu & Kniss (Packaging business
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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segment) for the three and nine months ended March 25, 2001 were $1,394
and $4,177, respectively. The operating income (loss) for Scheu & Kniss
for the three and nine months ended March 25, 2001 was $40 and $(22),
respectively.
In March 2001, the Company completed the sale of substantially all of
the assets of Vanguard Technical Solutions, Inc., a wholly-owned
subsidiary of DT Industries, Inc., for $523. The loss on the sale,
including the write-off of certain remaining assets, was $1,152. The
Company also sold its corporate airplane in January 2001 for $1,465
recording a gain of $640.
4. FINANCING
As of March 24, 2002 and June 24, 2001, long-term debt consisted of the
following:
March 24, June 24,
2002 2001
--------- --------
Term and revolving loans under senior credit facility:
Term loan $ 6,919 $ 9,888
Revolving loans 61,917 115,255
Foreign currency denominated debt 1,882 1,459
Other long-term debt 5,192 6,120
-------- --------
Total debt 75,910 132,722
Less - senior credit facility maturing July 2, 2002 68,836 35,500
Less - current portion of other long-term debt 426 651
-------- --------
Long-term debt $ 6,648 $ 96,571
======== ========
The Company's senior credit facility includes an $89,944 revolving
credit facility and a $6,919 term credit facility and matures on July
2, 2002. Borrowings under the credit facility were subject to interest
at floating rates based on the prime rate plus 3% for domestic
borrowings and the Eurodollar rate plus 6% on foreign currency
borrowings through December 31, 2001. Effective December 31, 2001, the
prime rate increment increased to 3.5% and the Eurodollar rate
increment increased to 6.5%. Borrowings under the credit facility are
secured by substantially all of the assets of DTI and its domestic
subsidiaries.
As a result of its financial performance in the second and third
quarters of fiscal 2002, the Company was in default of certain
financial covenants under its senior agreement and another agreement.
The Company obtained a temporary waiver from its lenders which waived
these covenant defaults for the second and third quarter of fiscal 2002
through May 15, 2002. The waiver limited the borrowing availability on
the revolving credit facility to $83,000. The total borrowing
availability under the credit facility as of March 24, 2002 was
$18,061.
In August 2001, the Company extended the senior credit facility to July
2, 2002 through an amendment to the term and revolving loan agreements.
The amended agreement requires $35.5 million in scheduled principal
pre-payments from August 2001 through June 2002 as well as the use of
30% of the cash receipts of a specified contract to reduce the
principal balance of the term and revolving loan agreements, estimated
to be approximately $8.5 million assuming the contract cash receipts
are received in fiscal 2002. To date, the Company has made all required
payments under the amended agreement.
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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Subsequent to March 24, 2002, the Company and its lenders reached an
agreement-in-principle with respect to an amendment to its existing
credit facility that, among other things, will extend the maturity of
the agreement through July 2, 2004. The amendment will not become
effective until the Company completes the other components of its
recapitalization plan. The lenders have agreed-in-principle to waive
the financial covenant defaults until the amendment becomes effective.
The Company expects to execute an amendment reflecting such agreement
in the next few days. See Note 13, Subsequent Events.
If, however, the Company fails to complete its recapitalization plan by
July 2, 2002, and the senior credit facility expires as currently
scheduled on such date, the Company will not have sufficient cash to
satisfy its obligations under the credit facility, will not be able to
continue its operations as currently anticipated after that date and
may need to file for bankruptcy protection under Chapter 11 of the
Bankruptcy Code in order to continue operations with minimal disruption
and preserve the value of its assets.
5. COMPANY-OBLIGATED, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY DT CAPITAL TRUST HOLDING SOLELY CONVERTIBLE
JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY (CONVERTIBLE PREFERRED
SECURITIES)
On June 12, 1997, the Company completed a private placement to
institutional investors of 1,400,000 7.16% Convertible Preferred
Securities (liquidation preference of $50 per Convertible Preferred
Security). The placement was made through the Company's wholly owned
subsidiary, DT Capital Trust (Trust), a Delaware business trust. The
securities represent undivided beneficial ownership interests in the
Trust. The sole asset of the Trust is the $72,165 aggregate principal
amount of the 7.16% Convertible Junior Subordinated Deferrable Interest
Debentures Due 2012 of the Company, which were acquired by the Trust
with the proceeds from the offering as well as the sale of Common
Securities of the Trust to the Company. The Company's obligations under
the Convertible Junior Subordinated Debentures, the Indenture pursuant
to which they were issued, the Amended and Restated Declaration of
Trust of the Trust and the Guarantee of DTI, taken together, constitute
a full and unconditional guarantee by DTI of amounts due on the
Convertible Preferred Securities. The Convertible Preferred Securities
are convertible at the option of the holders at any time into the
common stock of DTI at an effective conversion price of $38.75 per
share, are redeemable at DTI's option after June 1, 2000 and are
mandatorily redeemable in 2012. The net proceeds of the offering of
approximately $67,750 were used by DTI to retire indebtedness. The
Company elected in September 1999 to defer interest payments on the
Convertible Junior Subordinated Debentures for up to five years. As a
result, quarterly distributions on the Convertible Preferred Securities
have also been deferred and DTI will not declare or pay dividends on
its common stock. Dividends on the Convertible Preferred Securities in
the amount of $15,085 have been deferred and accrued as of March 24,
2002 and are included in the principal amount of the securities.
Subsequent to March 24, 2002, the Company reached agreements-in-
principle with the holders of the Convertible Preferred Securities to
reduce the outstanding obligation by $50,085 through an exchange of a
portion of the Convertible Preferred Securities (and related
Convertible Junior Subordinated Debentures) for common stock, and to
amend the terms of the Convertible Preferred Securities (and related
Convertible Junior Subordinated Debentures) that remain outstanding.
The consummation of this transaction is subject to stockholder approval
of the common stock issuance and completion of the other components of
the Company's recapitalization plan. The Company expects to execute
documentation reflecting such agreement in the next few days. See Note
13, Subsequent Events.
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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6. BUSINESS SEGMENTS
In March 2002, the Company announced that it will re-align itself into
four business segments defined by process capability and technology.
The four segments are Precision Assembly, Assembly and Test, Packaging
Systems and Material Processing. The new structure is expected to allow
the Company to streamline product offerings, capitalize on combined
strength of units, reduce overlap in the marketplace and improve
capacity utilization. The Company currently is in the process of
implementing its integration plan and completing the systems required
to provide, analyze and review operation results for current and
historical periods by the newly defined segments. See Note 11 for
details of the integration plan. Management expects to begin reporting
based on the four business segments in the first quarter for the fiscal
year ending June 29, 2003.
Financial information for the Company's current reportable segments
consisted of the following:
Three Months Ended Nine Months Ended
March 24, March 25, March 24, March 25,
2002 2001 2002 2001
--------- --------- --------- ----------
Net sales
Automation $ 46,742 $ 95,409 $200,881 $277,277
Packaging 13,442 19,682 47,099 67,381
Other -- 8,874 792 27,183
-------- -------- -------- --------
Consolidated total $ 60,184 $123,965 $248,772 $371,841
======== ======== ======== ========
The reconciliation of segment operating income (loss) to consolidated
income (loss) before income taxes consisted of the following:
Three Months Ended Nine Months Ended
March 24, March 25, March 24, March 25,
2002 2001 2002 2001
--------- --------- --------- ---------
Automation $ (5,673) $ 4,422 $ 5,602 $ 16,673
Packaging
(5,397) (2,041) (5,944) (4,605)
-------- -------- -------- --------
Operating income (loss) for
reportable segments (11,070) 2,381 (342) 12,068
Operating income (loss) for
other businesses -- 144 (723) 878
Corporate (1,052) (1,945) (2,171) (7,282)
Interest expense (3,006) (3,776) (9,371) (11,455)
Accrued dividends on
Company-obligated,
mandatorily redeemable
convertible preferred
securities (1,528) (1,387) (4,433) (4,095)
-------- -------- -------- --------
Consolidated loss
before income taxes $(16,656) $ (4,583) $(17,040) $ (9,886)
======== ======== ======== ========
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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Included in operating income (loss) are the following unusual items:
Three Months Three Months Nine Months Nine Months
Segment/ Ended March 24, Ended March 25, Ended March 24, Ended March 25,
Unusual Item 2002 2001 2002 2001
--------------------------------- ---------------- --------------- --------------- ---------------
AUTOMATION:
Restructuring charges $ 5,033 $ -- $ 6,254 $ --
Loss on sale of net assets of
Vanguard Technical Solutions -- 1,152 -- 1,152
PACKAGING:
Restructuring charges 3,475 -- 3,775 --
Loss on disposal of assets -- 46 -- 46
CORPORATE
Gain on sale of corporate
airplane -- (640) -- (640)
Non-recurring legal,
professional, and
severance costs -- 800 -- 2,600
7. SUPPLEMENTAL BALANCE SHEET INFORMATION
March 24, 2002 June 24, 2001
-------------- -------------
Inventories, net:
Raw materials $ 20,450 $ 26,778
Work in process 11,969 18,549
Finished goods 3,004 6,090
Less provision for excess and obsolete inventories (4,853) (10,552)
-------- --------
$ 30,570 $ 40,865
======== ========
Accrued liabilities:
Accrued employee compensation and benefits $ 11,986 $ 13,570
Accrued warranty 3,076 3,244
Restructuring accrual 7,358 2,879
Other 12,110 17,450
-------- --------
$ 34,530 $ 37,143
======== ========
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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8. STOCK PLANS
During the first quarter of fiscal 2002, the Company issued 50,000
shares of restricted common stock of the Company with four-year vesting
periods. Upon issuance of the restricted shares, unearned compensation
expense equivalent to the market value at the date of grant was charged
to Stockholders' Equity and will be amortized to expense over the
vesting period. The lapsing of restrictions on these shares will be
accelerated in certain circumstances, one of which is a change in
control of the Company.
9. ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB approved Statement of Financial Accounting
Standards No. 141, "Business Combinations" (SFAS 141) and Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142).
SFAS 141 addresses financial accounting and reporting for business
combinations. The most significant impact of SFAS 141 is that the
purchase method of accounting must be used for all business
combinations initiated after June 30, 2001 and that specific criteria
are provided for recognizing intangible assets apart from goodwill.
SFAS 141 is effective for all fiscal years beginning after June 30,
2001. Adoption of SFAS 141 will not have a material impact on the
Company's financial position or results of operation.
SFAS 142 addresses the financial accounting and reporting for goodwill
and other intangible assets subsequent to their initial recognition.
Among the new requirements of SFAS 142 are:
- Goodwill and indefinite-lived intangible assets will no longer be
amortized;
- Goodwill and indefinite-lived intangible assets will be tested for
impairment at the reporting unit level annually;
- The amortization period of intangible assets that have finite
lives will no longer be limited to 40 years; and
- Additional financial statement disclosures about goodwill and
intangible assets will be required.
SFAS 142 is effective for fiscal years beginning after December 15,
2001, however, early adoption is permitted in certain instances.
In the first quarter of 2002 the Company elected to early adopt the
provisions of SFAS 142.
At March 24, 2002, the Company had one amortized intangible asset. This
asset is unpatented technology and the gross carrying amount and
accumulated amortization at March 24, 2002 were $576 and $279,
respectively.
The amortization expense related to the intangible asset was $29 and
$87 for the three and nine months ended March 24, 2002, respectively,
as well as for the three and nine months ended March 25, 2001.
Amortization expense is expected to be $116 for each of the fiscal
years 2002, 2003, 2004 and $44 for fiscal year 2005. The intangible
asset is held by a foreign subsidiary and the gross carrying amount,
accumulated amortization and amortization expense will vary depending
on the prevailing foreign currency exchange rate.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 12
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The changes in the carrying amount of goodwill for the nine months
ended March 24, 2002 are as follows:
Automation Packaging
Goodwill Segment Segment Total
---------------------------------- ----------------- ----------------- -----------------
Balance as of June 24, 2001 $ 95,458 $ 28,309 $ 123,767
Foreign currency translation 52 (15) 37
----------------- ----------------- -----------------
Balance as of March 24, 2002 $ 95,510 $ 28,294 $ 123,804
================= ================= =================
The carrying value of goodwill is assessed for recoverability by
management based on an analysis of future expected cash flows from the
underlying operations of the Company. During the fourth quarter of the
fiscal year ended June 24, 2001, management determined that the
goodwill recorded for certain subsidiaries had been impaired and
recorded an impairment charge of $38,219. The write-down of goodwill
was primarily a result of a continued decline in the financial results
of certain subsidiaries and management assumptions regarding future
performance and strategic planning. The Company calculated the present
value of expected cash flows to determine the fair value of the
subsidiaries using a discount rate of 12%, which represents the
weighted average cost of capital. Included in the goodwill write-down
was a full impairment charge of $5,943 related to the Stokes division.
This charge was based on a sales price outlined in a letter of intent
to sell such division, which established fair value of the division
based on a current transaction. The net loss on the disposal of Scheu &
Kniss included a full impairment of the related goodwill of $5,018.
Management will assess the recoverability of the carrying value of
goodwill in the fourth quarter of fiscal 2002.
The following table summarizes the effect of adoption of SFAS 142 on
net loss and loss per share:
For the three months ended
March 24, 2002 March 25, 2001
-------------------- ----------------------
Reported net loss $ (12,754) $ (3,434)
Add back: Goodwill amortization (net of tax) - 1,169
-------------------- ----------------------
Adjusted net loss $ (12,754) $ (2,265)
==================== ======================
BASIC AND DILUTED LOSS PER SHARE:
Reported net loss $ (1.23) $ (0.34)
Add back: Goodwill amortization (net of tax) - 0.12
-------------------- ----------------------
Adjusted net loss $ (1.23) $ (0.22)
==================== ======================
For the nine months ended
March 24, 2002 March 25, 2001
-------------------- ----------------------
Reported net loss $ (13,003) $ (7,487)
Add back: Goodwill amortization (net of tax) - 3,539
-------------------- ----------------------
Adjusted net loss $ (13,003) $ (3,948)
==================== ======================
BASIC AND DILUTED LOSS PER SHARE:
Reported net loss $ (1.25) $ ( 0.74)
Add back: Goodwill amortization (net of tax) - 0.35
-------------------- ----------------------
Adjusted net loss $ (1.25) $ (0.39)
==================== ======================
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 13
--------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES
The Company is involved in legal proceedings, including a Securities
Action, as previously described in Part 1, "Item 3. Legal Proceedings"
of the Company's Annual Report on Form 10-K for the fiscal year ended
June 24, 2001.
Since the end of the fiscal year ended June 24, 2001, there have been
no material developments in previously reported legal proceedings other
than as follows:
On October 4, 2001, the Federal District Court for the Western District
of Missouri granted the Company's motion to dismiss the Securities
Action, without prejudice. Pursuant to the Court's dismissal order, all
defendants were dismissed, but the plaintiffs were granted the right to
amend their complaint. On January 25, 2002, the plaintiffs filed their
Second Consolidated Class Action Complaint thereby reviving the
Securities Action. The Company and the individual defendants filed a
motion to dismiss this Second Consolidated Class Action Complaint on
March 11, 2002.
The Company intends to defend the Securities Action vigorously. While
it is not feasible to predict or determine the final outcome of the
Securities Action or similar proceedings, or to estimate the amounts or
potential range of loss with respect to these matters, management
believes the Company and its officers and directors have adequate
liability insurance to cover the liabilities, costs and expenses
arising out of the Securities Action, although there can be no
assurance that the insurance proceeds will be adequate to cover any
such losses. Further, there can be no assurance that an adverse outcome
with respect to the Securities Action will not have a material adverse
impact on the Company's financial condition, results of operations or
cash flow.
In addition to the above-described items, the Company is from time to
time subject to claims and suits arising in the ordinary course of
business. Although the ultimate disposition of such proceedings is not
presently determinable, management does not believe that the ultimate
resolution of these matters will have a material adverse effect on the
Company's financial condition, results of operations or cash flows. The
Company maintains comprehensive general liability insurance that it
believes to be adequate for the continued operation of its business.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 14
--------------------------------------------------------------------------------
11. RESTRUCTURING RESERVE
FISCAL 2002 RESTRUCTURING
During the third quarter of fiscal 2002, the Company announced its
integration plan, including the closure of four manufacturing
facilities as outlined below which resulted in $8,508 of restructuring
charges:
- Closure of its Rochester, New York facility by June 30, 2002 and
the transfer of the customer base of this facility primarily to
its Dayton, Ohio facility;
- Combination of its manufacturing operations in Montreal, Canada
with its Leominister, Massachusetts manufacturing operation into a
special purpose facility in Leominster, Massachusetts by first
quarter of fiscal 2003;
- Transfer of its manufacturing operations in Bristol, Pennsylvania
to Hyannis Massachusetts as part of its Converting Technologies
division by June 30, 2002; and
- Transfer of the Assembly and Test Europe fabrication operations
from Gawcott, United Kingdom to its Buckingham, England plant by
the first quarter of fiscal 2003. The Gawcott property will be
sold.
Additionally, in the second quarter of fiscal 2002, a restructuring
charge of $1,521 was recognized for additional severance costs
associated with management changes and workforce reductions at several
divisions as well as idle facility costs resulting from the
consolidation of two Packaging segment divisions.
Overall, the Company expects to achieve savings in the range of $5,000
to $6,000 annually in manufacturing overhead and operating costs as a
result of the fiscal 2002 restructuring.
The following table summarizes the components of the fiscal 2002
restructuring accruals:
RESTRUCTURING CHARGES TO AS OF MARCH 24,
ACCRUAL ACCRUAL 2002
------------------------------------------------------
Severance costs $ 4,500 $ (576) $ 3,924
Idle facility costs 2,030 --- 2,030
Asset write-downs 2,876 (2,876) ---
Other 623 --- 623
----------------------------------------------------
$ 10,029 (3,452) $ 6,577
====================================================
The Company has utilized $3,452 of the fiscal 2002 restructuring
accrual as of March 24, 2002 resulting in a remaining accrual of
$6,577. The restructuring accrual includes a two year accrual for the
rent of the Rochester, New York and Montreal, Quebec facilities.
Another approximately $1,000 of restructuring costs associated with
these facilities will be expensed as incurred. The remaining
restructuring costs are expected to be used by the end of September
2003.
The total number of employees to be terminated whose severance costs
are included above are approximately as follows:
Number of employees to be
Category terminated
---------------------------------------------------------------------------------
Engineering 209
Manufacturing 95
Selling, general and administrative 66
------------------------------
Total 370
==============================
Of the 370 employees to be terminated, approximately 200 employees have
been terminated at March 24, 2002.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 15
--------------------------------------------------------------------------------
FISCAL 2001 RESTRUCTURING
In the fourth quarter of fiscal 2001, a restructuring charge of $3,694
was established for severance costs associated with management changes
and workforce reductions, idle facility costs and personnel relocation
costs resulting from the Corporate office move and the closure of four
Packaging segment sales offices and non-cash asset write-downs. During
the fourth quarter of fiscal 2001, $815 of this reserve was used
resulting in a restructuring reserve accrual of $2,879 at June 24,
2001.
AS OF JUNE 24, CHARGES TO AS OF MARCH 24,
2001 ACCRUAL 2002
---------------------------------------------------
Severance costs $ 1,277 $ (1,073) $ 204
Idle facility costs 685 (272) 413
Relocation costs
544 (544) --
Asset write-downs
131 (131) --
Other
242 (78) 164
---------------------------------------------------
$ 2,879 $ (2,098) $ 781
===================================================
The Company has utilized $2,098 of the fiscal 2001 restructuring
accrual as of March 24, 2002 resulting in a remaining accrual of $781,
which is expected to be substantially used during fiscal 2002.
12. POST RETIREMENT BENEFIT PLAN CANCELLATION
Effective December 31, 2001, the Company cancelled all of its domestic
post retirement medical and life insurance benefit plans. As a result
of the cancellation, the Company reversed its post retirement benefit
obligation resulting in income of $1,325 for the nine months ended
March 24, 2002.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 16
--------------------------------------------------------------------------------
13. SUBSEQUENT EVENTS
Subsequent to March 24, 2002, the Company reached agreements-in-
principle to effect a major financial recapitalization transaction. The
recapitalization will strengthen the balance sheet by adding $63,654 to
stockholder's equity, net of transaction costs, and reducing
indebtedness by approximately $66,432. Upon completion of the financial
recapitalization, the Company will:
- Extend the maturity date of its senior credit facility from July
2, 2002 to July 2, 2004 and repay approximately $16,347 of
outstanding indebtedness under the facility and concurrently
reduce the lenders' commitments thereunder by approximately
$12,000;
- Sell 7,000,000 shares of common stock in a private placement to
several current stockholders at a purchase price of $3.20 per
share, for an increase in capital of $22,400, less expenses and
taxes;
- Reduce the Convertible Preferred Securities (and the related
Convertible Junior Subordinated Debentures) by approximately
$50,085 through an exchange of half of the outstanding amount,
plus all accrued and unpaid interest through March 31, 2002, for
6,260,658 shares of the Company's common stock at an exchange
price of $8.00 per share; and
- Amend the terms of the remaining $35,000 of Convertible Preferred
Securities (and the related Convertible Junior Subordinated
Debentures) by reducing the conversion price from $38.75 to $14.00
per share, shortening their maturity from May 31, 2012 to May 31,
2008, and providing that interest does not accrue during the
period from March 31, 2002 through July 2, 2004.
All parties to the financial recapitalization agreements have approved
them and the Company expects the agreements to be fully-executed in the
next few days.
Significant terms of the amendment to the credit facility will include:
- Two year extension of the maturity date of the agreement to July
2, 2004;
- The total commitment will be reduced to approximately $76,300,
comprising a revolving line of $70,000 and a $6,300 term loan;
- All required advances made under the credit facility and letters
of credit issued after the bank restructuring in excess of $53,000
will be subject to a monthly asset coverage test comprised of 65%
of eligible accounts receivable and 25% of eligible inventory;
- The interest rate per annum will be set at the Eurodollar Rate
plus 4.0% or the Prime Rate plus 3.5% for all revolver advances up
to $53,000 and the Prime Rate plus 4.0% for all revolver advances
in excess of $53,000;
- Required pro-rata reductions of the revolving loan commitment and
outstanding principal under the term loan of $1,500 per quarter
beginning September 30, 2002, and contains provisions to reduce
the commitment in September 2003 based on a calculation of fiscal
2003 excess cash flow; and
- Modified financial covenants in the credit facility related to
annual capital expenditure limitations, minimum EBITDA thresholds,
minimum quarterly net worth thresholds and other various financial
performance ratios
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 17
--------------------------------------------------------------------------------
The financial recapitalization is conditioned upon:
- the completion of each of the private placement, the Convertible
Preferred Securities restructuring and the amendment to the credit
facility;
- the Company obtaining stockholder approval for the issuance of
shares of common stock in the Convertible Preferred Securities
restructuring and the private placement; and
- other customary closing conditions.
The following table demonstrates the expected pro-forma effect of the
transactions discussed above:
As of March Pro forma Pro forma
24, 2002 adjustments March 24, 2002
--------------------------------------------------
Current portion of long-term debt $ 69,262 $ (16,347)(1) $ 52,915
Other long-term debt 6,648 --- 6,648
--------------------------------------------------
Total debt 75,910 (16,347) 59,563
Company-obligated, mandatorily
redeemable convertible preferred
securities of subsidiary DT Capital Trust
holding solely convertible junior
subordinated debentures of the
Company 85,085 (50,085)(2) 35,000
Stockholder's equity 80,970 63,654 (3) 144,624
--------------------------------------------------
Total capitalization $ 241,965 $ 2,778 $ 239,187
==================================================
Debt as % of Total
Capitalization 66.5% 39.5%
Debt to Equity Ratio 1.99:1 0.65:1
----------------
(1) Represents the net proceeds from the 7,000 shares of common stock issued to
current shareholders at $3.20 per share less estimated cash transaction
costs from the recapitalization of approximately $4,100 less the cash
taxes to be paid on the cancellation of debt income discussed in (3) below.
(2) Represents the negotiated exchange of outstanding amount and accrued
interest on the Convertible Preferred Securities for common stock
discussed in (3) below.
(3) Represents the additional $48,400 in capital stock and paid in capital,
net of allocated transaction costs, from the issuance of 7,000 shares of
common stock to current shareholders at $3.20 per share and the issuance
of approximately 6,300 shares of common stock to the holders of the
Convertible Preferred Securities in exchange for approximately $50,100 of
outstanding amount and accrued interest and the estimated cancellation of
debt income of approximately $15,200 net of estimated taxes, based on
currently-available information.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 18
--------------------------------------------------------------------------------
GENERAL OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of DT Industries, Inc.
(DTI or the Company) for the three and nine months ended March 24, 2002 compared
to the three and nine months ended March 25, 2001. This discussion should be
read in conjunction with the consolidated financial statements and notes to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 24, 2001.
The Company currently operates in two business segments, Automation and
Packaging. The Automation segment designs and builds integrated systems for the
assembly, test and handling of discrete products. The Packaging segment
manufactures tablet processing, counting and liquid filling systems and plastics
processing equipment, including thermoforming, blister packaging and
heat-sealing systems. In March 2002, the Company announced that it will realign
itself into four business segments defined by process capability and technology.
The four segments are Precision Assembly, Assembly and Test, Packaging Systems
and Material Processing. The new structure is expected to allow the Company to
streamline product offerings, capitalize on combined strength of units, reduce
overlap in the marketplace and improve capacity utilization. The Company
currently is in the process of implementing its integration plan and completing
the systems required to provide, analyze and review operation results for
current and historical periods by the newly defined segments and as such the
discussion that follows will continue to be broken down into the two current
business segments, Automation and Packaging. Management expects to begin
reporting based on the four business segments in the first quarter for the
fiscal year ending June 29, 2003.
The percentage of completion method of accounting is used by the Company to
recognize revenues and related costs. Under the percentage of completion method,
revenues for customer contracts are measured based on the ratio of engineering
and manufacturing labor hours incurred to date compared to total estimated
engineering and manufacturing labor hours or, for certain customer contracts,
the ratio of total costs incurred to date to total estimated costs. Any
revisions in the estimated total costs or values of the contracts during the
course of the work are reflected when the facts that require the revisions
become known. For contracts not accounted for under the percentage of completion
method, revenue is recognized when title transfers to unaffiliated customers.
All invoices that have been billed to customers, including progress billings
under the terms of the customer contracts, are recorded as accounts receivable.
Costs and related expenses to manufacture the products are recorded as cost of
sales when the related revenue is recognized. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
Gross margins may vary in a given period as a result of the variations in
profitability of contracts for large orders of automated production systems or
special machines. In addition, changes in the product mix in a given period
affect gross margins.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 19
--------------------------------------------------------------------------------
Certain information contained in this report, particularly the information
appearing in Part I, Item 1 under Note 4. "Financing," Note 5,
"Company-Obligated, Mandatorily Redeemable Convertible Preferred Securities of
Subsidiary DT Capital Trust Holding Solely Convertible Junior Subordinated
Debentures of the Company (Convertible Preferred Securities)," Note 6. "Business
Segments," Note 10. "Commitments and Contingencies" and Note 13. "Subsequent
Events"; in Part I, Item 2 under the headings "Results of Operations",
"Liquidity and Capital Resources", "Backlog", and "Seasonality and Fluctuations
in Quarterly Results"; and in Part II, Item 1 under the heading "Legal
Proceedings", includes forward-looking statements. These statements, comprising
all statements which are not historical, are based upon information currently
available to the Company regarding the Company's expectations about its future
results, performance, liquidity, financial condition, prospects and
opportunities, and the Company's ability to execute the financial
recapitalization agreements and consummate the financial recapitalization on a
timely basis. These statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The words "anticipate",
"believe", "expect", "should", "achieve", "to support", and similar expressions
used herein indicate such forward-looking statements. The Company's actual
results, performance, liquidity, financial condition, prospects and
opportunities could differ materially from those expressed in or implied by any
forward-looking statements as a result of various factors, including economic
downturns in industries or markets served, delays or cancellations of customer
orders, delays in shipping dates of products, significant cost overruns on
projects, excess product warranty expenses, collectability of past due customer
receivables, significant restructuring or other special, non-recurring charges,
foreign currency exchange rate fluctuations, delays in achieving anticipated
cost savings or in fully implementing project management systems, changes in
interest rates, increased inflation, the outcome of pending litigation related
to the previously announced restated financial statements, and the Company's
ability to implement operational and financial systems to manage the Company's
decentralized operations. The Company may suffer delays in signing and
consummating the financial recapitalization and there can be no assurance that
the Company will be able to execute the financial recapitalization documents
soon or consummate the financial recapitalization prior to July 2, 2002, which
is when the Company's credit facility currently matures and the private
placement purchasers and the holders of the Convertible Preferred Securities
will be able to terminate their agreements, if at all. The inability of the
Company to execute the financial recapitalization documents or consummate the
financial recapitalization on a timely basis could also cause the Company's
actual results, performance, liquidity, financial condition, prospects and
opportunities to differ materially from those expressed in or implied by any
forward-looking statements.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 20
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
consolidated net sales represented by certain items reflected in the Company's
consolidated statement of operations:
Three Months Ended Nine Months Ended
March 24, 2002 March 25, 2001 March 24, 2002 March 25, 2001
---------------- --------------- --------------- ---------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 82.6 83.4 80.3 82.4
------------- -------------- -------------- ---------------
Gross profit 17.4 16.6 19.7 17.6
Selling, general and administrative
expenses 23.4 15.7 17.0 15.9
Restructuring charges (Note 11) 14.1 --- 4.0 ---
Net loss on disposal of assets --- 0.4 --- 0.2
------------- -------------- -------------- ---------------
Operating income (loss) (20.1) 0.5 (1.3) 1.5
Interest expense 5.0 3.1 3.7 3.1
Dividends on Company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary DT
Capital Trust 2.6 1.1 1.8 1.1
------------- -------------- -------------- ---------------
Loss before benefit for income taxes (27.7) (3.7) (6.8) (2.7)
Benefit for income taxes (6.5) (0.9) (1.6) (0.7)
------------- -------------- -------------- ---------------
Net loss (21.2)% (2.8)% (5.2)% (2.0)%
============= ============== ============== ===============
THREE MONTHS ENDED MARCH 24, 2002
COMPARED TO THREE MONTHS ENDED MARCH 25, 2001
The comparability of the operating results for the third quarters of fiscal 2002
and 2001 was affected by the sale of substantially all of the assets of Vanguard
Technical Solutions in March 2001, Detroit Tool Metal Products Co. (DTMP) and
Scheu & Kniss in the first quarter of fiscal 2002, and Hansford Parts and
Products (HPP) in the second quarter of fiscal 2002. The following table
summarizes third quarter results for fiscal 2002, fiscal 2001 as reported, and
fiscal 2001 pro forma, excluding the operating results of the divisions sold (in
millions):
Three Months Ended
-----------------------------------------------------------------
March 25, Pro forma
March 24, 2001 Pro forma March 25,
2002 as reported adjustments 2001
----------------------------------------------------------------------------------------------------------
Net sales $ 60.2 $ 124.0 $ (10.7) $ 113.3
Gross profit $ 10.5 $ 20.6 $ (1.0) $ 19.6
Gross margin 17.4% 16.6% 9.5% 17.3%
Selling, general and administrative $ 14.1 $ 19.5 $ (1.1) $ 18.4
expenses
Restructuring charges (Note 11) $ 8.5 $ --- $ --- $ ---
Net loss on disposal of assets $ --- $ 0.5 $ (0.5) $ ---
Operating income $ (12.1) $ 0.6 $ 0.6 $ 1.2
Operating margin (20.1)% 0.5% (6.2)% 1.1%
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 21
--------------------------------------------------------------------------------
Consolidated net sales for the three months ended March 24, 2002 were $60.2
million, a decrease of $63.8 million, or 51.5%, from $124.0 million for the
three months ended March 25, 2001. Excluding the effect of the sale of DTMP,
Scheu & Kniss, and HPP, the decrease in sales was $53.1 million or 46.9%. Net
sales by segment were as follows (in millions):
Three Months Ended
------------------------------------------------------------------------------------------
Decrease Excluding
Sold Entities
March 25, 2001 as Pro forma Pro forma
March 24, 2002 reported Adjustments March 25, 2001
-------------- ----------------- ---------- -------------- ------------------
Automation $ 46.7 $ 95.4 $ (0.5) $ 94.9 $ (48.2)
Packaging 13.5 19.7 (1.3) 18.4 (4.9)
Other -- 8.9 (8.9) -- --
-------------- ----------------- ---------- -------------- ----------------
$ 60.2 $ 124.0 $ (10.7) $ 113.3 $ (53.1)
============== ================= ========== ============== ================
Automation segment sales decreased $48.2 million, or 50.8%, to $46.7 million
during the three months ended March 24, 2002, excluding the sales of Vanguard
Technical Solutions which was sold in March 2001. The decrease in sales is a
result of the softness in order activity across all markets over the prior 12-15
months. Automotive related sales decreased by approximately $20.1 million, or
45.9%, from the third quarter of fiscal 2001. Revenue related to a large capital
spending program initiated in fiscal 2000 for the automotive related tire market
was primarily recognized during fiscal 2000 and fiscal 2001 resulting in a $8.6
million decrease in automotive related sales in the third quarter of fiscal
2002. The remainder of the decline in automotive related sales can be attributed
to the general softness in the economy that has restrained customer capital
spending. Sales to the electronics market decreased approximately $17.5 million,
or 47.1%, from the third quarter of 2001. The decrease in sales to the
electronics market is a result of the unusually high level of capital programs
recognized in revenues in fiscal 2001 within the electronics market. The
remainder of the decrease in sales is primarily attributable to lower revenues
recognized in the heavy truck and other consumer markets also due to the
softness in the economy that has restrained customer spending.
Packaging segment sales decreased $4.9 million, or 26.6%, to $13.5 million
during the three months ended March 24, 2002, excluding the sales of Scheu &
Kniss which was sold in the first quarter of fiscal 2002. The decrease relates
primarily to lower sales of tablet packaging equipment to the pharmaceutical and
nutritional markets and lower sales of thermoforming equipment to the plastics
packaging market attributable to reduced capital spending in these markets as a
result of the economic downturn.
Sales from the Company's other businesses decreased $8.9 million as a result of
the sale of substantially all of the assets of DTMP in the first quarter of
fiscal 2002 and HPP in the second quarter of fiscal 2002.
Gross profit decreased $10.1 million, or 49.2%, to $10.5 million for the three
months ended March 24, 2002 from $20.6 million for the three months ended March
25, 2001. The gross margin increased to 17.4% from 16.6%. The decrease in gross
profit reflects the effect of the $63.8 million decrease in sales. The increase
in gross margin reflects slightly lower margins in the Automation segment and
improved gross margins in the Packaging segment.
The gross margins in the Automation segment decreased to 16.1% in the third
quarter of fiscal 2002 as compared to 16.7% in the third quarter of fiscal 2001.
Improved project performance was offset by unfavorable manufacturing overhead
variances from the lower activity levels. Automation segment margins are
expected to be impacted for the remainder of fiscal 2002 by lower capacity
utilization. The Packaging segment margins increased to 21.8% in the third
quarter of fiscal 2002 as compared to 19.4% in the third quarter of fiscal 2001.
This improvement in gross margin in the second quarter of fiscal 2002 is a
result of the fiscal 2001 restructurings, which reduced headcount and overhead
costs, and a more favorable product mix.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 22
--------------------------------------------------------------------------------
Selling, general, and administrative (SG&A) expenses were $14.1 million for the
three months ended March 24, 2002 compared to $19.5 million for the three months
ended March 25, 2001. The $5.4 million decrease in SG&A expenses is primarily a
result of the following items:
- $1.3 million decrease in amortization as a result of the
discontinuance of goodwill amortization in fiscal 2002. See discussion
below regarding the adoption of the new accounting standard related to
goodwill and intangible assets;
- $1.1 million decrease in SG&A expenses in the third quarter of fiscal
2002 resulting from the sale of Vanguard, Scheu & Kniss, DTMP and HPP;
- $0.8 million reversal of post retirement benefit accruals due to the
cancellation of these plans in fiscal 2002. This reversal of the
accruals resulted in income during the third quarter of fiscal 2002;
and
- $0.8 million of non-recurring special legal and professional expenses
which were included in SG&A during the third quarter of fiscal 2001.
The remaining variance is primarily attributed to the savings resulting from
fiscal 2001 and 2002 restructurings, including the sale of the corporate
airplane and the reduction of administrative headcount.
During the third quarter of fiscal 2002, the Company announced its integration
plan, including the closure of four manufacturing facilities as outlined below
which resulted in $8.5 million of restructuring charges:
- Closure of its Rochester, New York facility and the transfer of the
customer base of this facility primarily to its Dayton, Ohio facility;
- Combination of its Kalish manufacturing operations in Montreal, Canada
with its Leominister, Massachusetts manufacturing operation into a
special purpose facility in Leominster, Massachusetts;
- Transfer of its Stokes manufacturing operations in Bristol,
Pennsylvania to Hyannis Massachusetts as part of its Converting
Technologies division; and
- Transfer of the Assembly and Test Europe fabrication operations from
Gawcott, United Kingdom to its Buckingham, England plant. The Gawcott
property will be sold.
Additionally, severance costs associated with management changes and workforce
reductions at several divisions were also recorded during the third quarter.
The $8.5 million restructuring charge was comprised of the following components:
- $3.3 million of severance costs associated with management changes and
workforce reductions;
- $1.7 million in idle facility costs primarily from the closure of four
manufacturing facilities;
- $2.9 million of asset write-downs to record the assets to be disposed
of at net realizable value; and
- $0.6 million of other charges.
Another approximately $1.0 million of restructuring costs associated with the
Rochester, New York and Montreal, Quebec facilities will be exposed as incurred
over the next two years if these facilities are not sublet.
Overall, the Company expects to achieve savings in the range of $5 to $6 million
annually in manufacturing overhead and operating costs as a result of this
restructuring.
In the third quarter of fiscal 2001, the Company sold its corporate airplane and
substantially all of the net assets of its Vanguard business. Proceeds from the
sales of these assets were approximately $2.0 million resulting in a pre-tax
loss of $0.6 million.
Operating loss was $12.1 million for the three months ended March 24, 2002
versus operating income of $0.6 million for the three months ended March 25,
2001, as a result of the factors noted above.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 23
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Interest expense decreased $0.8 million, or 20.4%, to $3.0 million for the three
months ended March 24, 2002. The decrease resulted from the lower outstanding
borrowings as a result of the divestiture proceeds and lower working capital
requirements. Dividends on the convertible preferred securities were $1.5
million and $1.4 million for the three months ended March 24, 2002 and March 25,
2001, respectively. The dividends are currently being deferred and accrued.
The benefit for income taxes for the three months ended March 24, 2002 reflected
an effective tax rate of approximately 23%. The benefit for income taxes for the
three months ended March 24, 2002 was less than the statutory federal rate due
to the recording of valuation allowances against Canadian net tax loss
carryforwards. The benefit for income taxes for the three months ended March 25,
2001 reflected an effective tax rate of approximately 25%. The provision for
income taxes for the three months ended March 25, 2001 reflected book income
plus permanent differences, primarily non-deductible goodwill amortization
related to certain acquisitions, multiplied by statutory federal and applicable
state tax rates.
Net loss was $12.8 million for the three months ended March 24, 2002 versus a
net loss of $3.4 million for the three months ended March 25, 2001. Basic and
diluted loss per share were $(1.23) for the three months ended March 24, 2002
compared to basic and diluted loss per share of $(0.34) for the quarter ended
March 25, 2001. Basic and diluted weighted average shares outstanding were
approximately 10.4 million shares for the three months ended March 24, 2002 and
10.2 million for the three months ended March 25, 2001.
The Company adopted Statement of Financial Accounting Standard No. 142 (SFAS
142), "Goodwill and Other Intangible Assets" in the first quarter of fiscal
2002. Under SFAS 142, goodwill and indefinite lived intangible assets are not
amortized but are tested annually for impairment.
The following table summarizes the effect of adoption of SFAS 142 on net income
(loss) and earnings (loss) per share (EPS):
For the three months ended
March 24, 2002 March 25, 2001
----------------- ---------------
Reported net loss $ (12,754) $ (3,434)
Add back: Goodwill amortization (net of tax) - 1,169
----------- -----------
Adjusted net loss $ (12,754) $ (2,265)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE:
Reported net loss $ (1.23) $ (0.34)
Add back: Goodwill amortization (net of tax) - 0.12
----------- -----------
Adjusted net loss $ (1.23) $ (0.22)
=========== ===========
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 24
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NINE MONTHS ENDED MARCH 24, 2002
COMPARED TO NINE MONTHS ENDED MARCH 25, 2001
The comparability of the operating results for the nine months ended March 24,
2002 and the nine months ended March 25, 2001 was affected by the sale of
substantially all of the assets of Vanguard Technical Solutions, Scheu & Kniss,
DTMP and HPP. The following table summarizes results for the nine months ended
March 24, 2002, results for the nine months ended March 25, 2001 as reported,
and the results for the nine months ended March 25, 2001 pro forma, excluding
the operating results of the divisions sold (in millions):
Nine Months Ended
------------------------------------------------------------------
March 25, Pro forma
March 24, 2001 Pro forma March 25,
2002 as reported adjustments 2001
---------------------------------------------------------------------------------------------------------------------
Net sales $ 248.8 $ 371.8 $ (32.1) $ 339.7
Gross profit $ 49.1 $ 65.3 $ (3.4) $ 61.9
Gross margin 19.7% 17.6% 10.5% 18.2%
Selling, general, and administrative expenses $ 42.3 $ 59.1 $ (3.6) $ 55.5
Restructuring charges (Note 11) $ 10.0 $ -- $ -- $ --
Net loss on disposal of assets $ -- $ 0.5 $ (0.5) $ --
Operating income (loss) $ (3.2) $ 5.7 $ 0.6 $ 6.3
Operating margin (1.3)% 1.5% (2.1)% 1.9%
Consolidated net sales for the nine months ended March 24, 2002 were $248.8
million, a decrease of $123.0 million, or 33.1%, from $371.8 million for the
nine months ended March 25, 2001. Excluding the effect of the sale of DTMP,
Scheu & Kniss, and HPP, the decrease in sales was $90.6 million or 26.7%. Net
sales by segment were as follows (in millions):
March 25, 2001 Pro forma March 25, 2001 Increase
March 24, 2002 as reported adjustments as adjusted (Decrease)
-------------- -------------- ------------ -------------- -------------
Automation $ 200.9 $ 277.3 $ (1.9) $ 275.4 $ (74.5)
Packaging 47.1 67.4 (4.2) 63.2 (16.1)
Other 0.8 27.1 (26.0) 1.1 (0.3)
--------------------------------------------------------------------------------
$ 248.8 $ 371.8 $ (32.1) $ 339.7 $ 90.9
================================================================================
Automation segment sales decreased $74.5 million, or 27.1%, to $200.9 million
during the nine months ended March 24, 2002 after adjusting for the sale of
Vanguard Technical Solutions in March 2001. The decrease in sales is a result of
the softness in order activity over the prior 12-15 months. Automotive related
sales decreased by approximately $56.0 million, or 47%, from the nine months
ended March 25, 2001. Revenue related to a large capital spending program
initiated in fiscal 2000 for the automotive related tire market was primarily
recognized during fiscal 2000 and fiscal 2001 resulting in a $25.0 million
decrease in automotive related sales in the first nine months of fiscal 2002.
The remainder of the decline in automotive related sales can be attributed to
the general softness in the economy that has restrained customer capital
spending. Sales to the electronics market decreased approximately $27.0 million,
or 26%, from the first nine months of 2001. The decrease in sales to the
electronics market is a result of the unusually high level of capital programs
recognized in revenues in fiscal 2001 within the electronics market. Partially
offsetting the decreases in sales to our automotive related and electronics
market was a large order in the heavy trucking market, which generated
approximately $12.0 million in sales.
Packaging segment sales decreased $16.1 million, or 25.5%, to $47.1 million
during the nine months ended March 24, 2002 after adjusting for the sale of
Scheu and Kniss in the first quarter of fiscal 2002. The decrease relates
primarily to lower sales of tablet packaging equipment to the pharmaceutical and
nutritional markets and lower sales of thermoforming equipment to the plastics
packaging market attributable to reduced capital spending in these markets as a
result of the economic downturn.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 25
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Sales from the Company's other businesses decreased $26.3 million as a result of
the sale of substantially all of the assets of DTMP in the first quarter of
fiscal 2002 and of HPP in the second quarter of fiscal 2002.
Gross profit decreased $16.2 million, or 24.8%, to $49.1 million for the nine
months ended March 24, 2002 from $65.3 million for the nine months ended March
25, 2001. The gross margin increased to 19.7% from 17.6%. The decrease in gross
profit reflects the effect of the $123.0 million decrease in sales. The increase
in gross margin reflects improved margins in both the Automation and Packaging
segments. The gross margins in the Automation segment improved to 19.2% for the
nine months ended March 24, 2002 versus 18.1% for the nine months ended March
25, 2001. The increase in Automation gross margins is attributable to improved
project performance resulting from higher margins in the electronics market
gained from manufacturing efficiencies in the production of duplicate systems.
Automation segment margins are expected to be negatively impacted for the
remainder of fiscal 2002 by lower capacity utilization. The Packaging segment
margins increased to 22.1% for the nine months ended March 24, 2002 versus 18.5%
for the nine months ended March 25, 2001. This improvement in gross margin for
the nine months of fiscal 2002 is a result the fiscal 2001 restructurings which
reduced headcount and overhead costs and a more favorable product mix.
SG&A expenses decreased to $42.3 million for the nine months ended March 24,
2002 from $59.1 million for the nine months ended March 25, 2001. The $16.8
million decrease in SG&A expenses is primarily a result of the following items:
- $4.0 million decrease in amortization as a result of the
discontinuance of goodwill amortization in fiscal 2002. See discussion
below regarding the adoption of the new accounting standard related to
goodwill and intangible assets;
- $3.6 million decrease in SG&A expenses resulting from the sale of
Vanguard in the third quarter of fiscal 2001, Scheu & Kniss and DTMP
in the first quarter of fiscal 2002 and HPP in the second quarter of
fiscal 2002;
- $1.3 million reversal of post retirement benefit accruals due to the
cancellation of these plans in fiscal 2002. The reversal of the
accruals resulted in income during the second and third quarters of
fiscal 2002;
- $0.7 million recovery of accounts receivable in the second quarter of
fiscal 2002. These receivables had been fully reserved in the fourth
quarter of fiscal 2001; and
- $2.6 million in non-recurring legal, professional, consulting and
severance related expenses, which were included in SG&A in the first
nine months of fiscal 2001 related to the investigations into the
accounting errors discovered in fiscal 2000 at Kalish and Sencorp.
The remaining variance can be primarily attributed to the savings resulting from
the fiscal 2001 restructurings, including the sale of the corporate airplane and
the reduction of administrative headcount.
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:
- $4.5 million of severance costs associated with management changes and
workforce reductions;
- $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;
- $2.9 million of asset write-downs to record the assets to be disposed
of at net realizable value; and
- $0.6 million of other charges.
In the third quarter of fiscal 2001, the Company sold its corporate airplane and
substantially all of the net assets of its Vanguard business. Proceeds from the
sales of these assets were approximately $2.0 million resulting in a pre-tax
loss of $0.6 million.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 26
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For the nine months ended March 24, 2002 an operating loss of $3.2 million was
recognized compared to operating income of $5.7 million for the nine months
ended March 25, 2001. The $8.9 million decrease in operating income is a result
of the factors noted above.
Interest expense decreased $2.1 million, or 18.2%, to $9.4 million for the nine
months ended March 24, 2002. The decrease resulted from the lower outstanding
borrowings as a result of the divestiture proceeds and additional debt paydowns.
Dividends on the convertible preferred securities were $4.4 million and $4.1
million for the nine months ended March 24, 2002 and March 25, 2001,
respectively. The dividends are currently being deferred and accrued.
The benefit for income taxes for the nine months ended March 24, 2002 reflected
an effective tax rate of approximately 24.0%. The benefit for income taxes for
the three months ended March 24, 2002 was less than the statutory federal rate
due to the recording of valuation allowances against Canadian net tax loss
carryforwards. The benefit for income taxes for the nine months ended March 25,
2001 reflected an effective tax rate of approximately 24.0%. The provision for
income taxes for the nine months ended March 25, 2001 reflected book income plus
permanent differences, primarily non-deductible goodwill amortization related to
certain acquisitions, multiplied by statutory federal and applicable state tax
rates.
Net loss increased $5.5 million to $13.0 million for the nine months ended March
24, 2002 from $7.5 million for the nine months ended March 25, 2001. Basic and
diluted losses per share were $(1.25) for the nine months ended March 24, 2002
compared to basic and diluted losses per share of $(0.74) for the nine months
ended March 25, 2001. Basic and diluted weighted average shares outstanding were
approximately 10.4 million for the nine months ended March 24, 2002 and 10.1
million for the nine months ended March 25, 2001.
The Company adopted Statement of Financial Accounting Standard No. 142 (SFAS
142), "Goodwill and Other Intangible Assets" in the first quarter of fiscal
2002. Under SFAS 142, goodwill and indefinite lived intangible assets are not
amortized but are tested annually for impairment.
The following table summarizes the effect of adoption of SFAS 142 on net income
(loss) and earnings (loss) per share (EPS) in thousands:
For the nine months ended
March 24, 2002 March 25, 2001
-------------------- ----------------------
Reported net loss $ (13,003) $ (7,487)
Add back: Goodwill amortization (net of tax) - 3,539
---------- ----------
Adjusted net loss $ (13,003) $ (3,948)
========== ==========
BASIC AND DILUTED LOSS PER SHARE:
Reported net loss $ (1.25) $ (0.74)
Add back: Goodwill amortization (net of tax) - 0.35
---------- ----------
Adjusted net loss $ (1.25) $ (0.39)
========== ==========
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities of $38.4 million for the nine months
ended March 24, 2002 was primarily a result of net decreases in working capital.
The lower working capital balances primarily reflect decreased accounts
receivable, costs and earnings in excess of amounts billed on uncompleted
contracts (CIE), inventories and higher customer advances, partially offset by
lower accounts payable. The decrease in working capital balances is caused by
the lower business levels, better working capital management and the later
stages of completion for projects currently being manufactured primarily in the
automation segment.
Working capital balances can fluctuate significantly between periods as a result
of the significant costs incurred on individual contracts, the relatively large
amounts invoiced and collected by the Company for a number of large contracts,
and the amounts and timing of customer advances or progress payments associated
with certain contracts.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 27
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During the nine months ended March 24, 2002, the Company made $57.5 million in
payments under its senior credit facility and other agreements. The proceeds
from the assets sales in fiscal 2002 of $18.9 million and the $44.1 million of
decrease in working capital provided the funding for the reduction in
outstanding borrowings during the nine months ended March 24, 2002. The Company
paid $3.2 million in financing costs during the nine months ended March 24, 2002
and made capital expenditures of $1.7 million.
Management currently anticipates that capital expenditures in fiscal 2002 will
be approximately $3 million. This primarily consists of recurring replacement or
refurbishment of machinery and equipment. Funding for capital expenditures is
expected to be provided by cash from operating activities and through the
Company's credit facilities.
During the nine months ended March 25, 2001, the Company borrowed $2.2 million
on its revolving credit facility and received proceeds from the sale of its
corporate airplane and substantially all of the assets of Vanguard Technical
Solutions of $2.0 million. The funds were used primarily for working capital
requirements, capital expenditures of $2.6 million and financing costs of $1.2
million.
The Company's senior credit facility includes an $89.9 million revolving credit
facility and a $6.9 million term credit facility and matures on July 2, 2002.
Borrowings under the credit facility were subject to interest at floating rates
based on the prime rate plus 3.5% for domestic borrowings and the Eurodollar
rate plus 6.5% on foreign currency borrowings. Borrowings under the credit
facility are secured by substantially all of the assets of DTI and its domestic
subsidiaries. As a result of its financial performance in the second and third
quarters, the Company was in default of certain financial covenants under its
senior agreement and another agreement. The Company obtained a temporary waiver
from its lenders which waived these covenant defaults for the second and third
quarter of fiscal 2002 through May 15, 2002. The waiver limited the borrowing
availability on the revolving credit facility to $83.0 million. The total
borrowing availability under the credit facility as of March 24, 2002 was $18.1
million.
In August 2001, the Company extended the senior credit facility to July 2, 2002
through an amendment to the term and revolving loan agreements. The amended
agreement required $35.5 million in scheduled principal pre-payments from August
2001 through June 2002 as well as the use of 30% of the cash receipts of a
specified contract to reduce the principal balance of the term and revolving
loan agreements, estimated to be approximately $8.5 million assuming the
contract cash receipts are received in fiscal 2002. To date, the Company has
made all required payments under the amended agreement.
Subsequent to March 24, 2002, the Company and its lenders reached an
agreement-in-principle to an amendment to its existing credit facility that,
among other things, will extend the maturity of the agreement through July 2,
2004. The lenders have agreed-in-principle to waive the financial covenant
defaults until the amendment becomes effective. The amendment will not become
effective until the Company completes its recapitalization plan which includes:
- Selling 7.0 million of shares of common stock in a private placement
to several current stockholders at a purchase price of $3.20 per
share, for an increase in capital of $22.4 million less expenses and
taxes;
- Using approximately $16.3 million of the proceeds from the private
placement to repay outstanding indebtedness under the senior credit
facility; and
- Reducing the outstanding subordinated debt by approximately $50.1
million through an exchange of half of the aggregate principal amount
of the debt, plus all accrued interest through March 31, 2002 for
6,260,658 shares of DTI common stock at an exchange price of $8.00 per
share and amending the terms of the subordinated debt that remains
outstanding.
The amendment provides for a permanent waiver of the financial covenant defaults
upon completion of the recapitalization plan. The Company expects to execute
documents reflecting such agreements in the next few days. See Note 13
(Subsequent Events) to the Company's financial statements included herein for a
more detailed description of the recapitalization plan.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 28
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The Company believes that the recapitalization plan will help the Company meet
its liquidity and capital resource needs and position it to effectively operate
and grow its business. If, however, the Company fails to complete its
recapitalization plan by July 2, 2002, and the senior credit facility expires as
currently scheduled on such date, the Company will not have sufficient cash to
satisfy its obligations under the credit facility, will not be able to continue
its operations as currently anticipated after that date and may need to file for
bankruptcy protection under Chapter 11 of the Bankruptcy Code in order to
continue operations with minimal disruption and preserve the value of its
assets.
Because the Company's credit facility matures July 2, 2002, borrowings of $68.8
million under this facility have been presented within current liabilities in
the Company's March 24, 2002 consolidated balance sheet. As mentioned above,
subsequent to March 24, 2002, the Company and its lenders have agreed to an
amendment to its existing credit facility. The amendment will become effective
upon completion of the Company's recapitalization plan, which is conditioned
upon approval by the Company's stockholders of the issuance of common stock to
the holders of the Convertible Preferred Securities and the purchasers in the
private placement, as well as other customary closing conditions. The Company
expects to consummate this recapitalization plan prior to the maturity of the
senior credit facility on July 2, 2002.
The Company has implemented various cash management initiatives, including,
among other things, a reduction in discretionary capital expenditures, increased
focus on collections of accounts receivable, and accelerated payment terms from
customers. Additionally, as discussed earlier, the Company sold substantially
all of the net assets of Scheu & Kniss, DTMP, and HPP during the first two
quarters of fiscal 2002 for aggregate net cash proceeds of $18.8 million. The
Company was pursuing the sale of the Stokes division, a product line of the
Packaging segment, and the possible sale/leaseback of various owned properties.
Due primarily to adverse market conditions, the Company was not able to complete
the planned sale of the Stokes division and will instead close the Bristol,
Pennsylvania facility and transfer manufacturing of the Stokes product line to
Hyannis, Massachusetts as part of its Converting Technologies division.
Subsequent to March 24, 2002 the Company completed the sale of its extrusion
product line for $0.3 million which approximated book value. The Company
continues to pursue the sale/leaseback of various owned properties.
BACKLOG
The Company's backlog is based upon customer purchase orders that the Company
believes are firm. As of March 24, 2002, the Company had $147.2 million of
orders in backlog, which compares to a backlog of approximately $262.3 million
as of March 25, 2001. After adjusting the backlog for the sale of Scheu & Kniss,
DTMP and HPP, backlog at March 25, 2001 was approximately $251.1 million. Orders
for the three and nine months ended March 24, 2002 were approximately $55.9
million and $185.2 million, respectively. The orders for the three months ended
March 24. 2002 were reduced by a $9.4 million reversal of a portion of an order
which was recorded in December 2001 but has been delayed to a later phase of the
project.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 29
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The backlog for the Automation segment at March 24, 2002 was $122.7 million,
which decreased $105.4 million or 46.2% from a year ago. The decrease in backlog
reflects the unusually high backlog of orders of automation systems at March 25,
2001 from key electronics and tire markets. The Company has not been able to
replace this work with the current economic conditions affecting most of its
other markets. The Company remains cautious about order expectations for the
remainder of fiscal 2002. Backlog for the Packaging segment was $24.5 million, a
decrease of $1.7 million, or 6.5%, over the comparable period in fiscal 2001.
The decrease in backlog is primarily due to the soft order activity for tablet
packaging equipment and plastics thermoforming equipment in the first nine
months of fiscal 2002 and the sale of Scheu & Kniss. The sales of DTMP and HPP
also resulted in an $8.0 million decrease in backlog for other businesses.
The level of backlog at any particular time is not necessarily indicative of the
future operating performance of the Company. Additionally, certain 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. The Company expects that less than one-half of the orders in the
backlog will be recognized as sales during the fourth quarter.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
In general, the Company's business is not subject to seasonal variations in
demand for its products. However, because orders for certain of the Company's
products can be several million dollars, a relatively limited number of orders
can constitute a meaningful percentage of the Company's revenue in any one
quarterly period. As a result, a relatively small reduction or delay in the
number of orders can have a material impact on the timing of recognition of the
Company's revenues. Certain of the Company's revenues are derived from fixed
price contracts. To the extent that original cost estimates prove to be
inaccurate, profitability from a particular contract may be adversely affected.
Gross margins may vary between comparable periods as a result of the variations
in profitability of contracts for large orders of special machines as well as
product mix between the various types of custom and proprietary equipment
manufactured by the Company. Accordingly, results of operations of the Company
for any particular quarter are not necessarily indicative of results that may be
expected for any subsequent quarter or related fiscal year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk of the Company's Annual Report on Form 10-K for the
year ended June 24, 2001. There has been no material change to that information
that is required to be disclosed in this Quarterly Report on Form 10-Q.
DT INDUSTRIES, INC.
PART II. OTHER INFORMATION
PAGE 30
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ITEM 1. LEGAL PROCEEDINGS
The Company is involved in legal proceedings, including a Securities
Action, as previously described in Part 1, "Item 3. Legal Proceedings"
of the Company's Annual Report on Form 10-K for the fiscal year ended
June 24, 2001.
Since the end of the fiscal year ended June 24, 2001, there have been
no material developments in previously reported legal proceedings other
than as follows:
On October 4, 2001, the Federal District Court for the Western District
of Missouri granted the Company's motion to dismiss the Securities
Action, without prejudice. Pursuant to the Court's dismissal order, all
defendants were dismissed, but the plaintiffs were granted the right to
amend their complaint. On January 25, 2002, the plaintiffs filed their
Second Consolidated Class Action Complaint thereby reviving the
Securities Action. The Company and the individual defendants filed a
motion to dismiss this Second Consolidated Class Action Complaint on
March 11, 2002.
The Company intends to defend the Securities Action vigorously. While
it is not feasible to predict or determine the final outcome of the
Securities Action or similar proceedings, or to estimate the amounts or
potential range of loss with respect to these matters, management
believes the Company and its officers and directors have adequate
liability insurance to cover the liabilities, costs and expenses
arising out of the Securities Action, although there can be no
assurance that the insurance proceeds will be adequate to cover any
such losses. Further, there can be no assurance that an adverse income
with respect to the Securities Action will not have a material adverse
impact on the Company's financial condition, results of operations or
cash flow.
In addition to the above-described items, the Company is from time to
time subject to claims and suits arising in the ordinary course of
business. Although the ultimate disposition of such proceedings is not
presently determinable, management does not believe that the ultimate
resolution of these matters will have a material adverse effect on the
Company's financial condition, results of operations or cash flows. The
Company maintains comprehensive general liability insurance that it
believes to be adequate for the continued operation of its business.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See Management's Discussion and Analysis of Financial Conditions and
Results of Operations - Liquidity and Capital Resources.
DT INDUSTRIES, INC.
PART II. OTHER INFORMATION
PAGE 31
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99 Press release dated May 8, 2002 announcing a major
recapitalization transaction.
(b) Reports on Form 8-K:
On February 1, 2002, a Current Report on Form 8-K was filed to
report, pursuant to Items 5 and 7 thereof, the release of the
Company's earnings for the second quarter of fiscal 2002, among
other things.
DT INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DT INDUSTRIES, INC.
Date: May 8, 2002 /s/ John M. Casper
-----------------------------------
(Signature)
John M. Casper
Senior Vice President, Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)