FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 23, 2001
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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 February 1, 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 December 23, 2001
and June 24, 2001 2
Consolidated Statement of Operations for the three and
six months ended December 23, 2001 and December
24, 2000 3
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended December 23,
2001 4
Consolidated Statement of Cash Flows for the six
months ended December 23, 2001 and December
24, 2000 5
Notes to Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-24
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 24
Part II Other Information
Item 1. Legal Proceedings 25
Item 3. Defaults upon Senior Securities 25
Item 4. Submission of Matters to Vote of Security Holders 25
Item 6. Exhibits and Reports on Form 8-K 26
Signature
DT INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 2
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December 23, June 24,
2001 2001
------------ ---------
ASSETS
Current assets:
Cash and cash equivalents $ 5,575 $ 5,505
Accounts receivable, net 83,691 70,774
Costs and estimated earnings in excess of amounts
billed on uncompleted contracts 56,615 92,000
Inventories, net 30,881 40,865
Prepaid expenses and other 11,015 12,497
------------ ---------
Total current assets 187,777 221,641
Property, plant and equipment, net 47,051 62,463
Goodwill, net 124,001 123,767
Other assets, net 9,720 6,830
------------ ---------
$ 368,549 $ 414,701
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior secured term and revolving credit facility (Note 4) $ 97,213 $ 35,500
Current portion of other long-term debt 425 651
Accounts payable 20,063 40,917
Customer advances 34,011 25,651
Accrued liabilities 28,516 37,143
------------ ---------
Total current liabilities 180,228 139,862
------------ ---------
Senior secured term and revolving credit facility (Note 4) -- 89,643
Other long-term debt 6,515 6,928
Other long-term liabilities 4,395 3,778
------------ ---------
Total long-term obligations 10,910 100,349
------------ ---------
Commitments and contingencies (See Note 10)
Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust holding solely
convertible junior subordinated debentures of the Company 83,557 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 issued and outstanding at
December 23, 2001 and June 24, 2001, respectively 113 113
Additional paid-in capital 126,820 127,853
Accumulated deficit (7,214) (6,965)
Cumulative translation adjustment (2,057) (2,058)
Unearned portion of restricted stock (740) (661)
Less -
Treasury stock (988,488 and 1,038,488 shares at December
23, 2001 and June 24, 2001, respectively), at cost
(23,068) (24,444)
------------ ---------
Total stockholders' equity 93,854 93,838
------------ ---------
$ 368,549 $ 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 Six months ended
December 23, December 24, December 23, December 24,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales $ 88,104 $ 131,425 $ 188,588 $ 247,876
Cost of sales 70,488 106,750 149,989 203,197
------------ ------------ ------------ ------------
Gross profit 17,616 24,675 38,599 44,679
Selling, general and
administrative expenses 13,176 19,875 28,192 39,596
Restructuring charges (Note 11) 1,521 -- 1,521 --
------------ ------------ ------------ ------------
Operating income 2,919 4,800 8,886 5,083
Interest expense 3,198 4,218 6,365 7,679
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 1,465 1,365 2,905 2,707
------------ ------------ ------------ ------------
Loss before provision (benefit) for
income taxes (1,744) (783) (384) (5,303)
Provision (benefit) for income
taxes (636) 146 (135) (1,250)
------------ ------------ ------------ ------------
Net loss $ (1,108) $ (929) $ (249) $ (4,053)
============ ============ ============ ============
Net loss per common share:
Basic $ (0.11) $ (0.09) $ (0.02) $ (0.40)
Diluted $ (0.11) $ (0.09) $ (0.02) $ (0.40)
============ ============ ============ ============
Weighted average common
shares outstanding:
Basic 10,387,274 10,107,274 10,363,922 10,107,274
Diluted 10,387,274 10,107,274 10,363,922 10,107,274
============ ============ ============ ============
See accompanying Notes to Consolidated Financial Statements.
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 23, 2001
(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 (249)
Foreign currency translation 1
Total comprehensive loss (248)
Issuance of 50,000 shares of
restricted stock (1,064) 1,376 (312) --
Amortization of earned portion
of restricted stock 233 233
Payment on stock subscriptions
receivable 31 31
----------- ------------- ------- ---------- -------- ---------- ----------
Balance, December 23, 2001 $ (7,214) $ (2,057) $ 113 $ 126,820 $(23,068) $ (740) $ 93,854
=========== ============= ======= ========== ======== ========== ==========
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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Six Months Ended
December 23, December 24,
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (249) $ (4,053)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation 3,238 4,862
Amortization 1,655 3,452
Other 240 --
(Increase) decrease in current assets, excluding the
effect of dispositions:
Accounts receivable (18,324) 5,404
Costs and earnings in excess of amounts billed 35,384 (23,526)
Inventories 4,063 (6,365)
Prepaid expenses and other 1,641 (2,966)
Increase (decrease) in current liabilities, excluding the
effect of dispositions:
Accounts payable (16,976) (3,966)
Customer advances 8,439 12,251
Accrued liabilities (8,115) (4,289)
Other -- 149
------------ ------------
Net cash provided (used) by operating activities 10,996 (19,047)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 18,811 --
Capital expenditures (930) (1,799)
------------ ------------
Net cash provided (used) by investing activities 17,881 (1,799)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (paydowns) on revolving loans (26,578) 19,460
Payments on borrowings (2,848) (717)
Payment of financing costs (2,795) (808)
Deferral of dividends on convertible preferred securities 2,905 2,707
Net proceeds from equity transactions 31 72
------------ ------------
Net cash provided (used) by financing activities (29,285) 20,714
------------ ------------
Effect of exchange rate changes 478 (29)
------------ ------------
Net increase (decrease) in cash 70 (161)
Cash and cash equivalents at beginning of period 5,505 8,705
------------ ------------
Cash and cash equivalents at end of period $ 5,575 $ 8,544
============ ============
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 income (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
In the six months ended December 23, 2001, 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 six months
ended December 24, 2000 were $9,026 and $18,309, respectively. The
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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combined operating profit for DTMP and HPP for the three and six months
ended December 24, 2000 was $333 and $735, respectively. The net sales
of Scheu & Kniss (Packaging business segment) for the three and six
months ended December 24, 2000 were $1,471 and $2,896, respectively.
The operating loss for Scheu & Kniss for the three and six months ended
December 24, 2000 was $(43) and $(62), respectively.
4. FINANCING
As of December 23, 2001 and June 24, 2001, long-term debt consisted of
the following:
December 23, June 24,
2001 2001
------------ -----------
Term and revolving loans under senior secured credit facility:
Term loan $ 7,632 $ 9,888
Revolving loans 89,581 115,255
Foreign currency denominated debt 1,413 1,459
Other long-term debt 5,527 6,120
------------ -----------
104,153 132,722
Less - senior secured credit facility maturing July 2, 2002 97,213 35,500
Less - current portion of other long-term debt 425 651
------------ -----------
Long-term debt $ 6,515 $ 96,571
============ ===========
The Company's senior credit facility includes a $99,217 revolving
credit facility and a $7,632 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. Total borrowing availability under the credit facility as
of December 23, 2001 was $6,599.
As a result of its financial performance in the second quarter of
fiscal 2002, the Company is in default of the minimum trailing
twelve-month EBITDA and maximum funded debt to EBITDA financial
covenants under its senior credit agreement and another agreement. The
Company has obtained a temporary waiver from its lenders of such
defaults and expects to obtain from its lenders a permanent waiver of
such defaults. If, however, the Company fails to obtain a permanent
waiver of such defaults, the lenders could accelerate their debt, $80.3
million of which was outstanding as of January 30, 2002 under the
senior credit agreement, due to such defaults. If the lenders were to
accelerate their indebtedness, there can be no assurance that the
Company would be able to locate alternative sources of financing.
In August 2001, the Company extended the senior credit facility, which
was scheduled to mature on July 2, 2001, through an amendment to the
term and revolving loan agreement. The amended agreement requires the
following principal pre-payments on the term and revolving loan
agreements:
o $35,500 in scheduled principal pre-payments from August 2001
through June 2002;
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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o the use of 80-100% of the proceeds from the sale of assets by
the Company or its subsidiaries to reduce the principal
balance of the term and revolving loan agreements; and
o 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 $8,500 assuming the
contract cash receipts are received in fiscal 2002.
To date, the Company has made all required payments under the amended
agreement. As of January 30, 2002, the Company's total commitment under
the term and revolving senior credit facility that expires on July 2,
2002 was approximately $101,000.
Because the Company's senior credit facility matures on July 2, 2002,
borrowings of $97,213 under this facility have been presented within
current liabilities in the Company's December 23, 2001 consolidated
balance sheet. To meet its liquidity needs, the Company is, as
previously disclosed in the Company's most recent Form 10-K and
previous Form 10-Q, engaged in active discussions to refinance its
senior credit facility that expires on July 2, 2002. As part of this
refinancing, the Company is also actively exploring restructuring its
Company-obligated, Mandatorily Redeemable Convertible Preferred
Securities of subsidiary DT Capital Trust holding solely Convertible
Junior Subordinated Debentures of the Company (Convertible Preferred
Securities) and raising additional equity. The Company expects to
consummate this refinancing prior to the maturity of the senior credit
facility on July 2, 2002. However, there can be no assurance that such
refinancing will be completed by this date due to a number of factors,
including the Company's operating performance, general economic
conditions and market conditions. See Item 2, Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.
5. 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 $13,557 have been deferred and accrued as of December 23,
2001 and are included in the principal amount of the securities. As
part of its refinancing efforts, the Company is actively exploring
restructuring the Convertible Preferred Securities. See Note 4,
Financing, above and Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources.
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
Financial information for the Company's reportable segments consisted
of the following:
Three Months Ended Six Months Ended
December 23, December 24, December 23, December 24,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales
Automation $ 72,633 $ 97,511 $ 154,139 $ 181,868
Packaging 15,241 24,888 33,657 47,699
Other 230 9,026 792 18,309
------------ ------------ ------------ ------------
Consolidated total $ 88,104 $ 131,425 $ 188,588 $ 247,876
============ ============ ============ ============
December 23, 2001 June 24, 2001
----------------- -------------
Total assets
Automation $ 270,674 $ 298,020
Packaging 83,704 80,998
Other -- 23,401
Corporate 14,171 12,282
----------- ---------
Consolidated total $ 368,549 $ 414,701
=========== =========
In the six months ended December 23, 2001, the Company sold
substantially all of the assets of the Scheu & Kniss division in the
Packaging segment and DTMP and HPP in the Other business segment. See
Note 3.
The reconciliation of segment operating income (loss) to consolidated
income (loss) before income taxes consisted of the following:
Three Months Ended Six Months Ended
December 23, December 24, December 23, December 24,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Automation $ 4,126 $ 9,309 $ 11,275 $ 12,324
Packaging (1,085) (1,458) (547) (2,564)
------------ ------------ ------------ ------------
Operating income for
reportable segments 3,041 7,851 10,728 9,760
Operating income for
other businesses (37) 333 (106) 735
Corporate (85) (3,384) (1,736) (5,412)
Interest expense (3,198) (4,218) (6,365) (7,679)
Accrued dividends on
Company-obligated,
mandatorily redeemable
convertible preferred
securities (1,465) (1,365) (2,905) (2,707)
------------ ------------ ------------ ------------
Consolidated loss before
income taxes $ (1,744) $ (783) $ (384) $ (5,303)
============ ============ ============ ============
Corporate operating loss in both the three and six months ended December 24,
2000 includes approximately $1,800 of non-recurring legal, professional and
severance costs as a result of the accounting errors discovered in fiscal 2000
at Kalish and Sencorp.
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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7. SUPPLEMENTAL BALANCE SHEET INFORMATION
December 23, 2001 June 24, 2001
-------------------- -----------------
Inventories, net:
Raw materials $ 22,594 $ 26,778
Work in process 11,992 18,549
Finished goods 4,799 6,090
Less provision for excess and obsolete inventories (8,504) (10,552)
----------- -----------
$ 30,881 $ 40,865
=========== ===========
December 23, 2001 June 24, 2001
-------------------- -----------------
Accrued liabilities:
Accrued employee compensation and benefits $ 10,164 $ 13,570
Accrued warranty 3,021 3,244
Restructuring accrual 2,262 2,879
Other 13,069 17,450
----------- -----------
$ 28,516 $ 37,143
=========== ===========
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:
o Goodwill and indefinite-lived intangible assets will no longer be
amortized;
o Goodwill and indefinite-lived intangible assets will be tested for
impairment at the reporting unit level annually;
o The amortization period of intangible assets that have finite lives
will no longer be limited to 40 years; and
o Additional financial statement disclosures about goodwill and
intangible assets will be required.
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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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.
The following tables summarizes the Company's intangible assets at
December 23, 2001:
Gross
Carrying Accumulated
Amount Amortization
-------- ------------
AMORTIZED INTANGIBLE ASSET
Unpatented technology $ 582 $ 252
The amortization expense related to the intangible asset was $29 and
$58 for the three and six months ended December 23, 2001, respectively,
as well as for the three and six months ended December 24, 2000.
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.
The changes in the carrying amount of goodwill for the six months ended
December 23, 2001 are as follows:
Automation Packaging
Goodwill Segment Segment Total
---------------------------------- ------------- ------------- -------------
Balance as of June 24, 2001 $ 95,458 $ 28,309 $ 123,767
Foreign currency translation 103 131 234
------------- ------------- -------------
Balance as of December 23, 2001 $ 95,561 $ 28,440 $ 124,001
============= ============= =============
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 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 continue to assess the recoverability of the carrying
value of goodwill on an annual basis.
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 following table summarizes the effect of adoption of SFAS 142 on
net income (loss) and earnings (loss) per share:
For the three months ended
December 23, 2001 December 24, 2000
----------------- -----------------
Reported net loss $ (1,108) $ (929)
Add back: Goodwill amortization (net of tax) -- 1,166
----------------- -----------------
Adjusted net income (loss) $ (1,108) $ 237
================= =================
BASIC AND DILUTED LOSS PER SHARE:
Reported net loss $ (0.11) $ (0.09)
Add back: Goodwill amortization (net of tax) -- 0.12
----------------- -----------------
Adjusted net income (loss) $ (0.11) $ 0.03
================= =================
For the six months ended
December 23, 2001 December 24, 2000
----------------- -----------------
Reported net loss $ (249) $ (4,053)
Add back: Goodwill amortization (net of tax) -- 2,370
----------------- -----------------
Adjusted net loss $ (249) $ (1,683)
================= =================
BASIC AND DILUTED LOSS PER SHARE:
Reported net loss $ (0.02) $ (0.40)
Add back: Goodwill amortization (net of tax) -- 0.24
----------------- -----------------
Adjusted net loss $ (0.02) $ (0.16)
================= =================
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 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
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 13
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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.
11. RESTRUCTURING RESERVE
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.
In the second quarter of fiscal 2002, an additional 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.
The breakdown of the restructuring reserve as of June 24, 2001 and
December 23, 2001 was as follows:
AS OF JUNE 24, ADDITIONAL CHARGES TO AS OF DECEMBER 23,
2001 RESERVE ACCRUAL 2001
-------------- ---------- ---------- ------------------
Severance costs $ 1,277 $ 1,221 $ (1,222) $ 1 ,276
Idle facility costs 685 300 (186) 799
Relocation costs 544 -- (544) --
Other 373 -- (186) 187
-------------- ---------- ---------- ------------------
$ 2,879 $ 1,521 $ (2,138) $ 2,262
============== ========== ========== ==================
The Company has utilized $2,138 of the restructuring accrual as of
December 23, 2001 resulting in a remaining accrual of $2,262 expected
to be substantially used during fiscal 2002.
Additionally in January 2002, the Company announced the integration of
three automation segment divisions into the newly formed Precision
Assembly division. As part of the integration of these divisions, the
Company will close its Hansford division in Rochester, New York. The
closure is expected to be completed by the end of April 2002 and result
in a $4,000 restructuring charge in the third quarter of fiscal 2002.
The Company continues to review current operations with a goal of
further cost cuts and other measures to streamline operations and
enhance profitability.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 14
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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.
(DTI or the Company) for the three and six months ended December 23, 2001
compared to the three and six months ended December 24, 2000. 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 primarily 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.
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 upon shipment 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.
Certain information contained in this report, particularly the information
appearing in Part I, Item 1 under Note 4. "Financing," and Note 10. "Commitments
and Contingencies;" 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 the Company's
current expectations about the Company's future results, performance, liquidity,
financial condition, prospects and opportunities and are based on information
currently available to the Company. These statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The words "anticipate", "believe", "expect", 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, availability of financing when needed on
acceptable terms, including the Company's ability to successfully negotiate with
lenders to refinance its senior bank debt prior to its maturity on July 2, 2002,
the terms of any refinanced bank debt, restructured convertible preferred
securities and/or newly issued equity, 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.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 15
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
consolidated net sales represented by certain items reflected in the Company's
consolidated statement of operations:
Three Months Ended Six Months Ended
December 23, December 24, December 23, December 24,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 80.0 81.2 79.5 82.0
------------ ------------ ------------ ------------
Gross profit 20.0 18.8 20.5 18.0
Operating expenses 16.7 15.1 15.8 15.9
------------ ------------ ------------ ------------
Operating income 3.3 3.7 4.7 2.1
Interest expense 3.6 3.3 3.4 3.1
Dividends on Company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary DT
Capital Trust 1.7 1.0 1.5 1.1
------------ ------------ ------------ ------------
Loss before provision (benefit) for
income taxes (2.0) (0.6) (0.2) (2.1)
Provision (benefit) for income taxes (0.7) 0.1 (0.1) (0.5)
------------ ------------ ------------ ------------
Net loss (1.3)% (0.7)% (0.1)% (1.6)%
============ ============ ============ ============
THREE MONTHS ENDED DECEMBER 23, 2001
COMPARED TO THREE MONTHS ENDED DECEMBER 24, 2000
The comparability of the operating results for the second quarters of fiscal
2002 and 2001 was affected by the sale of substantially all of the assets of
Vanguard Technical Solutions in the third quarter of fiscal 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 second 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
----------------------------------------------------------------------
December 24, Pro forma
December 23, 2000 Pro forma December 24,
2001 as reported adjustments 2000
------------ ------------ ----------- ------------
Net sales $ 88.1 $ 131.4 $ (10.9) $ 120.5
Gross profit $ 17.6 $ 24.7 $ (1.6) $ 23.1
Gross margin 20.0% 18.8% 14.7% 19.2%
Operating expenses $ 14.7 $ 19.9 $ (1.2) $ 18.7
Operating income $ 2.9 $ 4.8 $ (0.4) $ 4.4
Operating margin 3.3% 3.7% 3.7% 3.6%
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 16
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Consolidated net sales for the three months ended December 23, 2001 were $88.1
million, a decrease of $43.3 million, or 33.0%, from $131.4 million for the
three months ended December 24, 2000. Net sales by segment were as follows (in
millions):
Three Months Ended Three Months Ended
December 23, 2001 December 24, 2000 Decrease
------------------ ------------------ --------
Automation $ 72.6 $ 97.5 $ (24.9)
Packaging 15.2 24.9 (9.7)
Other 0.3 9.0 (8.7)
-------- --------- --------
$ 88.1 $ 131.4 $ (43.3)
======== ========= ========
Automation segment sales decreased $24.9 million, or 25.5%, to $72.6 million
during the three months ended December 23, 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 $24.0 million, or
54%, from the second 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 $10.1
million decrease in automotive related sales in the second 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 $11.0 million,
or 28%, from the second 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. Partially
offsetting the decreases in sales to our automotive related and electronics
markets was an increase in sales recognized in the second quarter of fiscal 2002
to the heavy trucking and consumer products market.
Packaging segment sales decreased $9.7 million, or 38.8%, to $15.2 million
during the three months ended December 23, 2001. The decrease relates primarily
to lower sales of tablet packaging equipment to the pharmaceutical and
nutritional markets and thermoforming equipment to the plastics packaging market
attributable to reduced capital spending in these markets as a result of the
economic downturn. Additionally, the sale of Scheu & Kniss in the first quarter
of 2002 also contributed to a $1.5 million decrease in sales from the second
quarter of fiscal 2001.
Sales from the Company's other businesses decreased $8.7 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 $7.1 million, or 28.6%, to $17.6 million for the three
months ended December 23, 2001 from $24.7 million for the three months ended
December 24, 2000. The gross margin increased to 20.0% from 18.8%. The decrease
in gross profit reflects the effect of the $43.3 million decrease in sales. The
increase in gross margin reflects steady margins in the Automation segment and
improved gross margins in the Packaging segment. The gross margins in the
Automation segment remained steady at 19.9% in the second quarter of fiscal 2002
as compared to 20.3% in the second 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 19.9% in the second quarter of fiscal 2002 as
compared to 16.6% in the second 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 17
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Selling, general and administrative (SG&A) expenses were $13.2 million for the
three months ended December 23, 2001 compared to $19.9 million for the three
months ended December 24, 2000. The $6.7 million decrease in SG&A expenses is
primarily a result of the following items:
o $1.8 million in non-recurring legal, professional, consulting and
severance related expenses which were included in SG&A during the
second quarter of fiscal 2001. These expenses were related to the
investigations into the accounting errors discovered in fiscal 2000 at
Kalish and Sencorp;
o $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;
o $1.2 million decrease in SG&A expenses in the second quarter of fiscal
2002 resulting from the sale of Vanguard, Scheu & Kniss, DTMP and HPP;
and
o $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.
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.
SG&A expenses as a percentage of sales decreased slightly to 15.0% from 15.1% in
the second quarter of fiscal 2002 and 2001, respectively.
During the second quarter of fiscal 2002, a restructuring charge of $1.5 million
was recognized for additional severance costs associated with management changes
and workforce reductions at several of our divisions as well as idle facility
costs resulting from the consolidation of two Packaging segment divisions.
Operating income was $2.9 million for the three months ended December 23, 2001
versus $4.8 million for the three months ended December 24, 2000, as a result of
the factors noted above.
Interest expense decreased $1.0 million, or 24.1%, to $3.2 million for the three
months ended December 23, 2001 versus $4.2 million for the three months ended
December 24, 2000. 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 December 23, 2001 and December 24, 2000,
respectively. The dividends are currently being deferred and accrued.
The income tax benefit for the three months ended December 23, 2001 reflected an
effective tax rate of approximately 36%. The provision for income taxes for the
three months ended December 24, 2000 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 $1.1 million for the three months ended December 23, 2001 compared
to a net loss of $0.9 million for the three months ended December 24, 2000.
Basic and diluted losses per share were $(0.11) for the three months ended
December 23, 2001 and $(0.09) for the three months ended December 24, 2000.
Basic and diluted weighted average shares outstanding were 10.4 million shares
for the three months ended December 23, 2001 and 10.1 million for the three
months ended December 24, 2000.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 18
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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
December 23, 2001 December 24, 2000
----------------- -----------------
Reported net loss $ (1,108) $ (929)
Add back: Goodwill amortization (net of tax) -- 1,166
----------------- -----------------
Adjusted net income (loss) $ (1,108) $ 237
================= =================
BASIC AND DILUTED LOSS PER SHARE:
Reported net loss $ (0.11) $ (0.09)
Add back: Goodwill amortization (net of tax) -- 0.12
----------------- -----------------
Adjusted net income (loss) $ (0.11) $ 0.03
================= =================
SIX MONTHS ENDED DECEMBER 23, 2001
COMPARED TO SIX MONTHS ENDED DECEMBER 24, 2000
The comparability of the operating results for the six months ended December 23,
2001 and the six months ended December 24, 2000 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 six months ended
December 23, 2001, results for the six months ended December 24, 2000 as
reported, and the results for the six months ended December 24, 2000 pro forma,
excluding the operating results of the divisions sold (in millions):
Six Months Ended
----------------------------------------------------------------------
December 24, Pro forma
December 23, 2000 Pro forma December 24,
2001 as reported adjustments 2000
------------ ------------ ----------- ------------
Net sales $ 188.6 $ 247.9 $ (21.8) $ 226.1
Gross profit $ 38.6 $ 44.7 $ (2.4) $ 42.3
Gross margin 20.5% 18.0% 11.0% 18.7%
Operating expenses $ 29.7 $ 39.6 $ (2.4) $ 37.2
Operating income $ 8.9 $ 5.1 $ -- $ 5.1
Operating margin 4.7% 2.1% --% 2.3%
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 19
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Consolidated net sales for the six months ended December 23, 2001 were $188.6
million, a decrease of $59.3 million, or 23.9%, from $247.9 million for the six
months ended December 24, 2000. Net sales by segment were as follows (in
millions):
Six Months Ended Six Months Ended
December 23, 2001 December 24, 2000 Decrease
------------------ ------------------ --------
Automation $ 154.1 $ 181.9 $ (27.8)
Packaging 33.7 47.7 (14.0)
Other 0.8 18.3 (17.5)
---------- -------- --------
$ 188.6 $ 247.9 $ (59.3)
========== ======== ========
Automation segment sales decreased $27.8 million, or 15.2%, to $154.1 million
during the six months ended December 23, 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 $36.0 million, or 43%, from the six
months ended December 24, 2000. 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 $16.0
million decrease in automotive related sales in the six 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 $9.0 million,
or 14%, from the first six 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 $15.0 million in sales and a $10.0 million increase in sales in
our consumer products market.
Packaging segment sales decreased $14.0 million, or 29.4%, to $33.7 million
during the six months ended December 23, 2001. The decrease relates primarily to
lower sales of tablet packaging equipment to the pharmaceutical and nutritional
markets and thermoforming equipment to the plastics packaging market
attributable to reduced capital spending in these markets as a result of the
economic downturn. The sale of Scheu and Kniss in the first quarter of fiscal
2002 resulted in a $2.9 million decrease in the Packaging segment sales.
Sales from the Company's other businesses decreased $17.5 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 $6.1 million, or 13.6%, to $38.6 million for the six
months ended December 23, 2001 from $44.7 million for the six months ended
December 24, 2000. The gross margin increased to 20.5% from 18.0%. The decrease
in gross profit reflects the effect of the $59.3 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
20.1% for the six months ended December 23, 2001 versus 18.8% for the six months
ended December 24, 2000. Improved project performance was partially offset by
unfavorable manufacturing overhead variances from the lower activity levels. The
improved project performance resulted from higher margins in the electronics
market gained from manufacturing efficiencies in the production of duplicate
systems. Automation segment margins are expected to be impacted for the
remainder of fiscal 2002 by lower capacity utilization. The Packaging segment
margins increased to 22.2% for the six months ended December 23, 2001 versus
18.2% for the six months ended December 24, 2000. This improvement in gross
margin for the six months of fiscal 2002 is a result 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 20
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SG&A expenses decreased to $28.2 million for the six months ended December 23,
2001 from $39.6 million for the six months ended December 24, 2000. The $11.4
million decrease in SG&A expenses is primarily a result of the following items:
o $2.6 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;
o $2.4 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.
o $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
o $1.8 million in non-recurring legal, professional, consulting and
severance related expenses, which were included SG&A in the first six
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.
SG&A expenses as a percentage of sales decreased to 14.9% for the six months
ended December 23, 2001 from 16.0% for the six months ended December 24, 2000,
due to the reasons set forth above.
During the second quarter of fiscal 2002, a restructuring charge of $1.5 million
was recognized for additional severance costs associated with management changes
and workforce reductions at several of our divisions as well as idle facility
costs resulting from the consolidation of two Packaging segment divisions.
Operating income increased $3.8 million, or 74.8%, to $8.9 million for the six
months ended December 23, 2001 from $5.1 million for the six months ended
December 24, 2000, as a result of the factors noted above.
Interest expense decreased $1.3 million, or 17.1%, to $6.4 million for the six
months ended December 23, 2001 from $7.7 million for the six months ended
December 24, 2000. 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 $2.9 million and $2.7 million for
the six months ended December 23, 2001 and December 24, 2000, respectively. The
dividends are currently being deferred and accrued.
The provision for income taxes for the six months ended December 23, 2001 and
December 24, 2000 reflected an effective tax rate of approximately 35% and 24%.
The provision for income taxes for the six months ended December 24, 2000
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 decreased $3.9 million to $0.2 million for the six months ended
December 23, 2001 from $4.1 million for the six months ended December 24, 2000.
Basic and diluted losses per share were $(0.02) for the six months ended
December 23, 2001 compared to basic and diluted losses per share of $(0.40) for
the six months ended December 24, 2000, respectively. Basic and diluted weighted
average shares outstanding were 10.4 million for the six months ended December
23, 2001 and 10.1 million for the six months ended December 24, 2000.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 21
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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 six months ended
December 23, 2001 December 24, 2000
----------------- -----------------
Reported net loss $ (249) $ (4,053)
Add back: Goodwill amortization (net of tax) -- 2,370
----------------- -----------------
Adjusted net loss $ (249) $ (1,683)
================= =================
BASIC AND DILUTED LOSS PER SHARE:
Reported net loss $ (0.02) $ (0.40)
Add back: Goodwill amortization (net of tax) -- 0.24
----------------- -----------------
Adjusted net loss $ (0.02) $ (0.16)
================= =================
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities of $11.0 million for the six months
ended December 23, 2001 was primarily a result of net decreases in working
capital. The lower working capital balances primarily reflect decreased costs
and earnings in excess of amounts billed (CIE), decreased inventories and higher
customer advances, partially offset by increased accounts receivable and lower
accounts payable. The working capital balances generally reflect the lower
business levels and the later stages of completion for projects currently being
manufactured. The decrease in CIE and inventories is primarily in the Automation
segment and reflects the overall decreased project activity. The higher accounts
receivable balances are caused by the timing of customer progress billings.
Accounts payable decreased from the balance at June 24, 2001 largely due to the
decrease in Automation segment work in process in the first six months of fiscal
2002.
Working capital balances can fluctuate significantly between periods as a result
of the significant costs incurred on individual contracts and the relatively
large amounts invoiced and collected by the Company for a number of large
contracts, and the amounts and timing of customer advances or progress payments
associated with certain contracts.
During the six months ended December 23, 2001, the Company made $26.6 million in
payments under its senior credit facility and other agreements. The proceeds
from the assets sales in fiscal 2002 of $18.8 million and the $6.1 million
decrease in working capital provided the funding for the reduction in
outstanding borrowings during the six months ended December 23, 2001. The
Company paid $2.8 million in financing costs during the six months ended
December 23, 2001 as a result of the extension of the credit facility in August
2001 and made capital expenditures of $0.9 million.
Management currently anticipates that capital expenditures in fiscal 2002 will
be in the range of $4 to $6 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 six months ended December 24, 2000 the Company borrowed $19.5 million
on its revolving credit facility. The funds were used primarily for working
capital requirements, capital expenditures of $1.8 million and financing costs
of $0.8 million.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 22
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The Company's senior credit facility includes a $99.2 million revolving credit
facility and a $7.6 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% 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.
Total borrowing availability under the credit facility as of December 23, 2001
was $6.6 million.
As a result of its financial performance in the second quarter of fiscal 2002,
the Company is in default of the minimum trailing twelve-month EBITDA and
maximum funded debt to EBITDA financial covenants under its senior credit
agreement and another agreement. The Company has obtained a temporary waiver
from its lenders of such defaults and expects to obtain from its lenders a
permanent waiver of such defaults. If, however, the Company fails to obtain a
permanent waiver of such defaults, the lenders could accelerate their debt,
$80.3 million of which was outstanding as of January 30, 2002 under the senior
credit agreement, due to such defaults. If the lenders were to accelerate their
indebtedness, there can be no assurance that the Company would be able to locate
alternative sources of financing.
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 the following principal pre-payments on the term and
revolving loan agreements:
o $35.5 million in scheduled principal pre-payments from August 2001
through June 2002;
o the use of 80-100% of the proceeds from the sale of assets by the
Company's or its subsidiaries to reduce the principal balance of the
term and revolving loan agreements; and
o 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.
As of January 30, 2002, the Company's total commitment under the term and
revolving senior credit facility that expires on July 2, 2002 was approximately
$101.0 million.
Because the Company's credit facility matures within twelve months, borrowings
of $97.2 million under this facility have been presented within current
liabilities in the Company's December 23, 2001 consolidated balance sheet. To
meet its liquidity needs, the Company is, as previously disclosed in the
Company's most recent Form 10-K and previous Form 10-Q, engaged in active
discussions to refinance its senior credit facility that expires on July 2,
2002. As part of this refinancing, the Company is also actively exploring
restructuring its Convertible Preferred Securities and raising additional
equity. The Company expects to consummate this refinancing prior to the maturity
of the senior credit facility on July 2, 2002. However, there can be no
assurance that such refinancing will be completed by this date due to a number
of factors, including the Company's operating performance, general economic
conditions and market conditions.
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. 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 the
current economic situation, the Company was not able to complete the planned
sale of the Stokes division and is no longer actively pursuing the sale of the
business. The Company continues to pursue the sale of the Packaging product line
and the sale/leaseback of various owned properties.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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In January 2002, the Company announced the integration of three automation
segment divisions into the newly formed Precision Assembly division. As part of
the integration of these divisions, the Company will close its Hansford facility
in Rochester, New York. The closure is expected to be completed by the end of
April 2002 and result in a $4.0 million restructuring charge in the third
quarter. Additionally, in the first quarter of fiscal 2002 the Company announced
the consolidation of two divisions within each of the Automation and Packaging
business segments. One of the packaging facilities was closed in the second
quarter of fiscal 2002. The integration of these complementary businesses
continues the Company's ongoing strategy to improve capacity utilization and
productivity and is expected to provide combined annual savings of approximately
$4.5 to $5.0 million.
In conjunction with an amendment to the credit facility in September 1999, the
Company elected to defer interest payments on its convertible junior
subordinated debentures. The credit facility requires that the deferral continue
until the maturity of the credit facility. As a result, quarterly distributions
on the Convertible Preferred Securities are also being deferred and DTI is not
declaring or paying any dividends on its common stock. Dividends on the
Convertible Preferred Securities in the amount of $13.6 million have been
deferred and accrued as of December 23, 2001 and are included in the principal
amount of the securities.
Based on its ability to generate funds from operations and thereby increase the
availability of funds under its current credit facilities, the Company believes
that it will have sufficient funds available to meet its currently anticipated
operating, capital expenditure, interest and debt pre-payment requirements
through the remainder of fiscal 2002 if it is able to avoid acceleration of the
maturity of its senior bank debt by obtaining a permanent waiver of its current
default under the financial covenants described above. If the Company is not
able to satisfy its liquidity needs by consummating a refinancing prior to
maturity of its senior bank debt on July 2, 2002, the Company will not be able
to conduct its business as currently anticipated after that date and there will
be a significant adverse impact on the Company's operating results and financial
condition.
BACKLOG
The Company's backlog is based upon customer purchase orders that the Company
believes are firm. As of December 23, 2001, the Company had $151.4 million of
orders in backlog, which compares to a backlog of approximately $306.5 million
as of December 24, 2000.
The backlog for the Automation segment at December 23, 2001 was $128.1 million,
which decreased $136.3 million, or 51.5%, from a year ago. The decrease in
backlog reflects the unusually high backlog of orders of automation systems at
December 24, 2000 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 $23.3
million, a decrease of $9.2 million, or 28.4%, 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
six months of fiscal 2002 and the sale of Scheu & Kniss. The sales of DTMP and
HPP also resulted in a $9.6 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 believes that a majority of the orders in the backlog
will be recognized as sales during the current fiscal year.
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 24
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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 25
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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 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 Condition and Results of
Operations - Liquidity and Capital Resources, above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 8, 2001, the Annual Meeting of the Stockholders of DTI was held, at
which the following matters were voted upon:
1. Election of Directors. Each of the following nominees received the
number of votes set forth opposite his name:
FOR WITHHELD
----------- ----------
Class II Lee M. Liberman 6,616,161 3,145,228
(term expires 2004) Stephen J. Perkins 8,905,253 856,136
2. Ratification of Appointment of Accountants for the fiscal year ending
June 30, 2002. The vote to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants for the fiscal
year ending June 30, 2002 was 8,578,211 for, 1,178,802 against and
4,376 abstaining.
DT INDUSTRIES, INC.
PART II. OTHER INFORMATION
PAGE 26
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
On November 6, 2001, a Current Report on Form 8-K was filed to
report, pursuant to Items 5 and 7 thereof, Regulation FD
Disclosure regarding guidance in connection with the Company's
expected financial performance.
On November 1, 2001, a Current Report on Form 8-K was filed to
report, pursuant to Items 5 and 7 thereof, the release of the
Company's earnings for the three months ended September 23,
2001.
DT INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DT INDUSTRIES, INC.
Date: February 6, 2002 /s/ John M. Casper
-----------------------------------
(Signature)
John M. Casper
Senior Vice President, Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)