FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 28, 1997
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.)
1949 E. Sunshine, Suite 2-300, Springfield, Missouri 65804
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(Address of principal executive offices)
(Zip Code)
(417) 890-0102
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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 October 31, 1997 was 11,329,875.
<PAGE>
DT INDUSTRIES, INC.
Index
Page 1
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Page
Number
Part I Financial Information
Item 1. Financial Statements (Unaudited, except as noted)
Consolidated Balance Sheets at September 28, 1997
and June 29, 1997 (Audited) 2
Consolidated Statement of Operations for the three
months ended September 28, 1997 and September
29, 1996 3
Consolidated Statement of Changes in Stockholders'
Equity for the three months ended September 28,
1997 4
Consolidated Statement of Cash Flows for the three
months ended September 28, 1997 and September
29, 1996 5-6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signature
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Consolidated Balance Sheets
(Dollars in Thousands Except Per Share Data)
Page 2
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<TABLE>
<CAPTION>
September 28, June 29,
1997 1997
(Unaudited)
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,892 $ 2,821
Accounts receivable, net 78,357 68,538
Costs and estimated earnings in excess of
amounts billed on uncompleted contracts 78,583 51,643
Inventories, net 47,529 42,198
Prepaid expenses and other 10,689 7,051
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Total current assets 225,050 172,251
Property, plant and equipment, net 62,970 51,132
Goodwill, net 184,534 168,401
Other assets, net 6,396 3,412
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$ 478,950 $ 395,196
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 126 $ 1,527
Accounts payable 26,539 31,353
Customer advances 26,743 18,404
Accrued liabilities 44,044 29,986
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Total current liabilities 97,452 81,270
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Long-term debt 110,569 46,978
Deferred income taxes 4,839 6,435
Other long-term liabilities 5,684 5,246
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Total long-term obligations 121,092 58,659
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Commitments and contingencies (See Note 9)
Company-obligated, mandatorily redeemable
convertible preferred securities of
subsidiary DT Capital Trust holding
solely parent's convertible subordinated
debentures 70,000 70,000
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Stockholders' equity:
Preferred stock, $0.01 par value;
1,500,000 shares authorized; no shares
issued and outstanding
Common stock, $0.01 par value;
100,000,000 shares authorized;
11,303,125 and 11,300,875 shares
issued and outstanding at September 28,
1997 and June 29, 1997, respectively 113 113
Additional paid-in capital 133,400 133,370
Retained earnings 56,893 51,784
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Total stockholders' equity 190,406 185,267
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$ 478,950 $ 395,196
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
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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<TABLE>
<CAPTION>
Three Months Ended
September 28, September 29,
1997 1996
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<S> <C> <C>
Net sales $ 115,764 $ 82,635
Cost of sales 84,856 59,870
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Gross profit 30,908 22,765
Selling, general and administrative expenses 17,089 11,588
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Operating income 13,819 11,177
Interest expense 1,674 2,715
Dividends on Company-obligated, mandatorily
redeemable convertible preferred securities
of subsidiary DT Capital Trust holding
solely parent's convertible subordinated
debentures 1,253 ---
------------- -------------
Income before provision for income taxes
and extraordinary loss 10,892 8,462
Provision for income taxes 4,357 3,589
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Income before extraordinary loss 6,535 4,873
Extraordinary loss on debt refinancing
less applicable income tax benefits
of $800 and $216 1,200 324
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Net income $ 5,335 $ 4,549
============= =============
Primary earnings per common and
common equivalent share:
Income before extraordinary loss $ 0.55 $ 0.52
Extraordinary loss 0.10 0.04
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Net income $ 0.45 $ 0.48
============= =============
Fully diluted earnings per common
and common equivalent share:
Income before extraordinary loss $ 0.53 $ ---
Extraordinary loss 0.09 ---
------------- -------------
Net income $ 0.44 $ ---
============= =============
Weighted average common and common
equivalent shares outstanding:
Primary 11,866,066 9,415,738
Fully diluted(1) 13,678,453 ---
============= =============
</TABLE>
(1) For the quarter ended September 29, 1996, there was no dilutive effect.
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended September 28, 1997
(Dollars in Thousands Except Per Share Data)
Page 4
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<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, June 29, 1997 $ 113 $ 133,370 $ 51,784 $ 185,267
Exercise of stock options (unaudited) 30 30
Net income for the three months ended
September 28, 1997 (unaudited) 5,335 5,335
Cash dividend at $0.02 per common
share (unaudited) (226) (226)
---------- ---------- ---------- ----------
Balance, September 28, 1997
(unaudited) $ 113 $ 133,400 $ 56,893 $ 190,406
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Consolidated Statement of Cash Flows
(Dollars in Thousands)
(Unaudited)
Page 5
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<TABLE>
<CAPTION>
Three Months Ended
September 28, 1997 September 29, 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,335 $ 4,549
Adjustments to reconcile net income
to net cash used by operating
activities:
Depreciation 2,041 1,307
Amortization 1,372 1,087
Deferred income tax provision (2,543) 200
Loss on debt refinancing 2,000 540
Other (75) (312)
(Increase) decrease in current assets,
excluding the effect of acquisitions:
Accounts receivable
2,472 (1,072)
Costs and earnings in excess of
amounts billed (5,673) (16,512)
Inventories 600 (4,801)
Prepaid expenses and other (461) 2,787
Increase (decrease) in current liabilities,
excluding the effect of acquisitions:
Accounts payable (12,787) 8,214
Accrued liabilities 19 (3,917)
Customer advances 3,539 (678)
Other 70 16
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Net cash used by operating activities (4,091) (8,592)
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Cash flows from investing activities:
Capital expenditures (3,955) (2,417)
Acquisition of Mid-West Automation
Enterprises, Inc. stock, net of
cash acquired of $21,572 (75,179)
Acquisition of Lucas Assembly and
Test Systems net assets, net of
cash acquired of $91 (46,721)
Other (200)
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Net cash used by investing activities (50,676) (77,796)
------------------ ------------------
</TABLE>
(continued)
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Consolidated Statement of Cash Flows
(Dollars in Thousands)
(Unaudited)
(continued)
Page 6
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<TABLE>
<CAPTION>
Three Months Ended
September 28, 1997 September 29, 1996
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<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of term debt 62,450
Payments on borrowings (49,441) (197)
Net borrowings on revolving loans 112,190 28,009
Financing costs (715) (2,363)
Exercise of stock options 30 112
Dividends (226) (180)
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Net cash provided by financing activities 61,838 87,831
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Net increase in cash 7,071 1,443
Cash and cash equivalents at beginning of period 2,821 1,210
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Cash and cash equivalents at end of period $ 9,892 $ 2,653
================== ==================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
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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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 generally accepted accounting principles for
complete financial statements. However, in the opinion of management, such
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
thereto included in the Company's Form 10-K Annual Report for the fiscal
year ended June 29, 1997.
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.
3. Acquisitions
On July 29, 1997, the Company completed the acquisition of certain of the
net assets of Lucas Assembly and Test Systems (LATS), a division of
LucasVarity plc of England in a transaction accounted for under the
purchase method of accounting. LATS, which has been renamed Assembly
Technology and Test (ATT), is a designer and manufacturer of integrated
assembly and testing systems for automotive OEMs and their tier-one
suppliers with manufacturing facilities in the United States, the United
Kingdom and Germany. The purchase price of approximately $46,721 was
financed by borrowings under the new multi-currency revolving credit
facility. The purchase price has been preliminarily allocated to the
acquired assets and assumed liabilities based on their estimated fair value
at the date of acquisition. The excess of purchase price over the estimated
fair value of net assets acquired has been recorded as goodwill. The
accompanying consolidated financial statements include the results of ATT
from the date of acquisition.
In July 1996 and September 1996, respectively, the Company acquired the
stock of Mid-West Automation Enterprises, Inc. (Mid-West) and Hansford
Manufacturing Corporation (Hansford). See the consolidated financial
statements and notes thereto included in the Company's Form 10-K Annual
Report for the fiscal year ended June 29, 1997 for additional information
relating to these acquisitions.
<PAGE>
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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The following table sets forth pro forma information for DTI as if the
acquisitions of Mid-West, Hansford and ATT had taken place on June 30, 1997
and July 1, 1996, respectively. This information is unaudited and does not
purport to represent actual net sales, income before extraordinary loss and
primary earnings per share before extraordinary loss had the acquisitions
actually occurred on June 30, 1997 and July 1, 1996:
<TABLE>
<CAPTION>
PRO FORMA INFORMATION
FOR THE PERIODS (UNAUDITED)
June 30, 1997 July 1, 1996
to to
September 28, 1997 September 29, 1996
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<S> <C> <C>
Net sales $ 125,786 $ 123,815
Income before extraordinary loss $ 6,621 $ 5,058
Primary earnings per common and common
equivalent share before extraordinary loss $ 0.56 $ 0.54
Primary weighted average common and common
equivalent shares outstanding 11,866,066 9,415,738
</TABLE>
4. Financing
As of September 28, 1997 and June 29, 1997, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
September 28, 1997 June 29, 1997
(Unaudited)
------------------ ------------------
<S> <C> <C>
Term loans to banks $ 10,000 $ 30,347
Revolving loans to banks 100,195 17,639
Capital lease obligations and other
long-term debt 500 519
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110,695 48,505
Less-current portion of long-term debt 126 1,527
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$ 110,569 $ 46,978
================== ==================
</TABLE>
On July 21, 1997, the Company replaced its credit facilities with a new
$175,000 multi-currency revolving and term credit facility. The
multi-currency facility provides a $10,000 Canadian term loan and a
$165,000 revolving credit facility, which includes an approximate $80,000
sublimit for multi-currency borrowings in Pounds Sterling and Deutsche
Marks. Borrowings under the multi-currency facility bear interest at
floating rates based on the agent bank's base rate or LIBOR (at the option
of DTI), plus a specified percentage based on the ratio of funded debt to
operating cash flow and the ratings of DTI's corporate debt. The facility
requires commitment fees of 0.125% to 0.25% per annum (as determined by the
Company's ratio of funded debt to operating cash flow) payable quarterly on
any unused portion of the multi-currency facility. The agreement is secured
by the capital stock of each of the significant domestic subsidiaries and
65% of the capital stock of each significant foreign subsidiary of DTI. The
agreement contains certain financial and other covenants and restrictions,
which the Company was in compliance with at September 28, 1997, and matures
in July 2002. In conjunction with entering into the new credit facility,
the Company recognized an extraordinary loss in July 1997 of $1,200
attributable to the write-off of $2,000 of unamortized deferred financing
fees, net of related $800 tax benefit.
The Company also maintains a separate revolving credit facility of
approximately $3,000 through its Canadian subsidiary. At September 28,
1997, total borrowings under such facility was approximately $1,544.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
(Unaudited)
Page 9
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5. Company-Obligated, Mandatorily Redeemable Convertible Preferred Securities
of Subsidiary DT Capital Trust Holding Solely Parent's Convertible
Subordinated Debentures (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 newly-formed 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 which were acquired with the proceeds from the offering as well as
the sale of Common Securities 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 and are redeemable at DTI's
option after June 1, 2000 and mandatorily redeemable in 2012. The net
proceeds of the offering of approximately $67,750 were used by DTI to
retire indebtedness. A registration statement relating to resales of such
Convertible Preferred Securities was declared effective by the Securities
and Exchange Commission on September 2, 1997.
6. Earnings per share
The computation of primary earnings per share was based on the weighted
average number of outstanding common shares during the period plus, when
the effect was dilutive, common stock equivalents consisting of certain
shares subject to stock options and contingent purchase price payable in
common stock related to an acquired business. The common equivalent shares
arising from the effect of outstanding stock options were computed using
the treasury stock method, if dilutive. Fully diluted earnings per share
primarily reflect the effects of conversion of the Company's Convertible
Preferred Securities and elimination of the related dividends, net of
applicable income taxes.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share",
which changes the method of computation of earnings per share (EPS). SFAS
128 replaces Primary EPS with Basic EPS and replaces Fully Diluted EPS with
Diluted EPS. Basic EPS, unlike Primary EPS, does not consider dilution for
potentially dilutive securities. Diluted EPS uses an average share price
for the period whereas Fully Diluted EPS uses the greater of the average
share price or end-of-period share price. SFAS 128 is effective for periods
ending after December 15, 1997 and earlier adoption is not permitted. Basic
EPS prior to the extraordinary loss computed under SFAS 128 for the three
months ended September 28, 1997 was $0.58 on 11,301,875 weighted average
basic shares outstanding. Diluted EPS prior to the extraordinary loss
computed under SFAS 128 for the three months ended September 28, 1997 was
$0.53 on 13,672,486 weighted average diluted shares outstanding.
<PAGE>
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. Stock option plans
A summary of stock option transactions pursuant to the 1994 Employee Stock
Option Plan, the 1994 Directors Non-Qualified Stock Option Plan and the
1996 Long-Term Incentive Plan follows:
AVERAGE SHARES SUBJECT
PRICE TO OPTION
------------- --------------
Options outstanding at June 29, 1997 $ 17.58 939,650
Options granted $ 31.29 95,000
Options exercised $ 13.50 (2,250)
Options forfeited $ 13.50 (500)
--------------
Options outstanding at September 28, 1997 $ 18.85 1,031,900
==============
Exercisable at September 28, 1997 $ 14.41 152,288
==============
8. Supplemental balance sheet information
September 28, 1997 June 29, 1997
(Unaudited)
------------------ -------------
Inventories, net:
Raw materials $ 18,726 $ 13,117
Work in process 20,708 22,053
Finished goods 8,095 7,028
------------------ -------------
$ 47,529 $ 42,198
================== =============
Accrued liabilities:
Accrued employee compensation
and benefits $ 11,252 $ 11,860
Taxes payable and related reserves 10,515 4,321
Product liability 1,539 1,558
Other 20,738 12,247
------------------ -------------
$ 44,044 $ 29,986
================== =============
<PAGE>
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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9. Commitments and contingencies
The Company is a party to certain lawsuits involving employee matters,
product liability and other matters. Management and legal counsel do not
expect the outcome of any litigation to have a material adverse effect on
the Company's financial position, results of operations or liquidity.
As part of the H.G. Kalish Inc. (Kalish), Swiftpack Automation Ltd.
(Swiftpack) and Hansford acquisitions, DTI has agreed to make additional
payments of up to $3,000, $4,700 and $20,000, respectively, to the sellers.
The amount of the additional purchase prices will be determined by a
formula based on the earnings of the acquired businesses. The additional
purchase price specified within the Kalish agreement, based on earnings for
the three years after closing of the acquisition, may be paid in DTI stock
at the Company's option. Any additional purchase price specified within the
Swiftpack and Hansford agreements is payable in cash. Any additional
purchase price paid is expected to result in additional goodwill related to
these acquisitions.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 12
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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 months ended September 28, 1997
compared to the three months ended September 29, 1996. This discussion
should be read in conjunction with the consolidated financial statements
and notes to the consolidated financial statements thereto included in the
Company's Form 10-K for the fiscal year ended June 29, 1997.
In fiscal year 1997, the Company acquired the stock of Mid-West Automation
Enterprises, Inc. (Mid-West) and Hansford Manufacturing Corporation
(Hansford). During the three months ended September 28, 1997, the Company
acquired the assets of Lucas Assembly and Test Systems (LATS). LATS was
renamed Assembly Technology & Test (ATT). The acquisitions are elements of
a business strategy to acquire companies with proprietary products and
manufacturing capabilities which have strong market and technological
positions in the niche markets they serve and to accelerate the Company's
goal of providing customers a full range of integrated automated systems.
The Company believes that emphasis on complementary acquisitions of
companies serving target markets allows it to broaden its product offerings
and to provide customers a single source for complete integrated automation
systems. The acquisitions also expand the Company's base of customers,
creating greater opportunities for cross-selling among the various
divisions of the Company.
The Company operates in two business segments, Special Machines and
Components. The Special Machines segment designs and builds integrated
automation systems, custom equipment, and proprietary machines which
assemble, test or package industrial and consumer products. The Components
segment stamps and fabricates a range of standard and custom metal
components.
The percentage of completion method of accounting is used by the Company's
Special Machines segment 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. Revenue
from the sale of products manufactured by the Company's Components segment
is recognized upon shipment to the customer.
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 of the Special Machines segment 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 for the Special
Machines segment.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 13
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Certain information contained herein, particularly the information
appearing under the headings "Results of Operations", "Liquidity and
Capital Resources" and "Backlog", includes forward-looking statements.
These statements, comprising all statements herein which are not
historical, are based upon the Company's interpretation of what it believes
are significant factors affecting its businesses, including many
assumptions regarding future events, and are made pursuant to the safe
harbor provisions of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Actual
results could differ materially from those anticipated in any
forward-looking statements as a result of various factors, including
economic downturns in industries served, delays or cancellations of
customer orders, delays in shipping dates of products, significant cost
overruns on certain projects, foreign currency exchange rate fluctuations,
delays in achieving anticipated cost savings or in fully implementing
project management systems, and possible future acquisitions that may not
be complementary or additive. Additional information regarding certain
important factors that could cause actual results of operations or outcomes
of other events to differ materially from any such forward-looking
statement appears elsewhere herein, including under the heading
"Seasonality and Fluctuations in Quarterly Results"; and in the
Corporation's other filings with the Securities and Exchange Commission,
including its registration statement on Form S-3 (Registration No.
333-30909) and prospectus dated September 2, 1997 including the section
therein entitled "Risk Factors".
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of consolidated net sales represented by certain items reflected in the
Company's consolidated statement of operations:
Three Months Ended
September 28, September 29,
1997 1996
------------- -------------
Net sales 100.0% 100.0%
Cost of sales 73.3 72.5
------------- -------------
Gross profit 26.7 27.5
Selling, general and administrative
expenses 14.8 14.0
------------- -------------
Operating income 11.9 13.5
Interest expense 1.4 3.3
Dividends on Company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary
DT Capital Trust 1.1 ---
------------- -------------
Income before provision for income
taxes and extraordinary loss 9.4 10.2
Provision for income taxes 3.8 4.3
------------- -------------
Income before extraordinary loss 5.6 5.9
Extraordinary loss on debt refinancing 1.0 0.4
------------- -------------
Net income 4.6% 5.5%
============= =============
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 14
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THREE MONTHS ENDED SEPTEMBER 28, 1997
COMPARED TO THREE MONTHS ENDED SEPTEMBER 29, 1996
NET SALES
Consolidated net sales increased $33.2 million, or 40.1%, to $115.8 million
for the three months ended September 28, 1997 from $82.6 million for the
three months ended September 29, 1996. Of the $33.2 million increase in
sales, $27.4 million was due to the incremental sales of recently acquired
businesses, with the remaining $5.8 million, or 6.9%, increase relating to
increased sales from existing businesses. Recently acquired businesses
include Hansford in September 1996 and ATT in July 1997.
Sales by the Special Machines segment increased $31.2 million and sales by
the Components segment increased $2.0 million. The increase in sales by the
Special Machines segment was due to an increase in sales from existing
businesses of $3.8 million, or 5.3%, over the first quarter of fiscal 1997
and $27.4 million in incremental sales from recently-acquired businesses.
The growth in the existing businesses of the Special Machines segment
reflects the increase in business in assembly and test systems for the
automotive market and the continued expansion of markets for welding
systems and packaging lines. These increases were partially offset by
softness in the custom build-to-print business. The increase in sales by
the Components segment of $2.0 million, or 19.0%, was a result of increased
sales to a customer in the transportation industry and a customer in the
agricultural equipment industry. The increased sales to the customer in the
transportation industry reflect favorable industry trends and production of
new parts for this customer. The increased sales to the customer in the
agricultural equipment industry reflect the continued production of new
parts and the generally more favorable industry outlook.
GROSS PROFIT
Gross profit increased $8.1 million, or 35.8%, to $30.9 million for the
three months ended September 28, 1997 from $22.8 million for the three
months ended September 29, 1996, as a result of the sales increases
discussed above. The gross margin decreased to 26.7% from 27.5% as a result
of the lower margins from the recently-acquired businesses. Gross margin
exclusive of acquired operations increased to 28.5%, reflecting higher
Special Machines segment gross margins partially offset by lower gross
margins for the Components segment. The gross margins for the Special
Machines segment benefited from a more favorable product mix and margin
improvements resulting from implementation of project management systems.
The Components segment margins continue to remain below historical levels
as a result of production inefficiencies on new parts business. The Company
has discontinued producing certain low-margin parts and is focused on
products with respect to in which historical margin levels can be achieved.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES
SG&A expenses increased $5.5 million, or 47.5%, to $17.1 million for the
three months ended September 28, 1997 from $11.6 million for the three
months ended September 29, 1996. Approximately $3.8 million of the increase
was due to recently acquired businesses, with the remaining increase the
result of an increased investment in marketing activities; professional
fees related to the Company's selection of a new core business system,
human resource and tax consulting; and administrative personnel additions
associated with the overall growth of the Company. As a percentage of
consolidated net sales, SG&A expenses increased to 14.8% from 14.0%.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 15
- --------------------------------------------------------------------------------
OPERATING INCOME
Operating income increased $2.6 million, or 23.6%, to $13.8 million for the
three months ended September 28, 1997 from $11.2 million for the three
months ended September 29, 1996, as a result of the factors noted above.
The operating margin decreased to 11.9% from 13.5% in the prior year due to
the effect of recently-acquired businesses. The Company continues to focus
on the implementation of project management systems and other programs to
improve margins throughout the Company, particularly at ATT, which has
substantially lower margins than historical Company operating margins.
INTEREST EXPENSE
Interest expense decreased to $1.7 million for the three months ended
September 28, 1997 from $2.7 million for the three months ended September
29, 1996. Reduced debt levels and lower interest rates resulted in a the
decrease in interest expense. The proceeds from the common stock offering
in November 1996 and the Convertible Preferred Securities (defined below)
offering in June 1997 were used to reduce indebtedness. The Company
realized lower interest rates as a result of the lower debt levels and the
generally more favorable terms of the new multi-currency credit facility.
DIVIDENDS ON COMPANY-OBLIGATED, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY DT CAPITAL TRUST
Dividends on Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust (Convertible Preferred
Securities) were $1.3 million for the three months ended September 28,
1997. The Convertible Preferred Securities offering was completed in June
1997.
INCOME TAXES
Provision for income taxes increased to $4.4 million for the three months
ended September 28, 1997 from $2.7 million for the three months ended
September 29, 1996, reflecting an effective tax rate of approximately 40.0%
and 42.4% for each period, respectively. This rate differs from statutory
rates due to permanent differences primarily related to non-deductible
goodwill amortization on certain acquisitions.
NET INCOME, EXTRAORDINARY LOSS AND EARNINGS PER SHARE
Income before extraordinary loss increased to $6.5 million for the three
months ended September 28, 1997 from $4.9 million for the three months
ended September 29, 1996 as a result of the factors noted above. The
Company recognized an extraordinary loss in July 1997 of $1.2 million,
attributable to the write-off of $2.0 million unamortized deferred
financing fees, net of related $0.8 million tax benefit, in connection with
the refinancing of existing debt through the new multi-currency credit
facility. As a result, net income was $5.3 million. Primary earnings per
share before the extraordinary loss were $0.55 for the three months ended
September 28, 1997 versus $0.52 for the three months ended September 29,
1996. The weighted average common and common equivalent shares outstanding
for the three months ended September 28, 1997 were 11.9 million versus 9.4
million for the three months ended September 29, 1996. The increase is
primarily the result of the common stock offering in November 1996. Fully
diluted earnings per share before the extraordinary loss were $0.53 for the
three months ended September 28, 1997. The weighted average common and
common equivalent shares outstanding on a fully diluted
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 16
- --------------------------------------------------------------------------------
basis for the three months ended September 28, 1997 were 13.7 million.
Fully diluted earnings per share reflect the increase in weighted average
common and common equivalent shares outstanding as a result of the assumed
conversion of the Convertible Preferred Securities and the lower interest
expense, net of income taxes, assuming conversion to common stock.
LIQUIDITY AND CAPITAL RESOURCES
Net income plus non-cash operating charges provided $8.1 million of
operating cash flow for the quarter ended September 28, 1997, however, net
increases in working capital balances used operating cash of $12.2 million,
resulting in net cash used by operating activities of $4.1 million for the
quarter ended September 28, 1997. The increase in working capital resulted
from a significant decrease in trade payables and an increase in costs and
earnings in excess of amounts billed. These working capital changes reflect
the timing of projects in the Special Machines segment. The decrease in
trade payables is a result of payments for materials received generally at
the start of the assembly phase of a project. The increase in costs and
earnings in excess of amounts billed reflects the continued buildup of
inventory costs from the high level of manufacturing activity in the
Special Machines segment. These working capital requirements were partially
offset by an increase in customer advances on new projects and a slight
decrease in the accounts receivable balance from the June 29, 1997 level.
During the three months ended September 29, 1996, net cash used by
operating activities was $8.6 million. Net increases in working capital
balances resulted in the usage of net cash of $16.0 million, primarily as a
result of the increased level of manufacturing activity occurring at the
Company, particularly in the Special Machines segment. Additionally, the
Special Machines segment had been working on several significant individual
contracts which did not provide for advance payments. These factors
resulted in a $16.5 million increase in costs and earnings in excess of
amounts billed and a $4.8 million increase in inventory, partially offset
by the $8.2 million increase in accounts payable.
Working capital balances can fluctuate significantly between periods as a
result of the significant costs incurred on individual contracts and the
relatively large amount invoiced and collected by the Company for a number
of large contracts.
During the three months ended September 28, 1997, financing activities
raised $61.8 million, net of debt financing costs of $0.7 million and
dividends of $0.2 million, primarily to fund the acquisition of ATT for
$46.7 million, net of cash acquired. The net cash provided by financing
activities was also used to finance capital expenditures of $4.0 million
and fund working capital requirements. Financing activities consisted of
the renegotiation of the Company's credit facility as discussed below.
On July 21, 1997, the Company replaced the Second Amended and Restated
Credit Facilities Agreement and the foreign currency denominated term
facility which were outstanding at that time with a new $175 million
multi-currency revolving and term credit facility. The multi-currency
facility provides a $10 million Canadian term loan and a $165 million
revolving credit facility, which includes an approximate $80 million
sublimit for multi-currency borrowings in Pounds Sterling and Deutsche
Marks. Borrowings under the multi-currency facility bear interest at
floating rates based on the agent bank's base rate or LIBOR (at the option
of DTI) plus a specified percentage based on the ratio of funded debt to
operating cash flow and the ratings of DTI's corporate debt. The agreement
is secured by the capital stock of each of the significant domestic
subsidiaries and 65% of the capital stock of each significant foreign
subsidiary of DTI. The agreement contains certain financial and other
covenants and restrictions and matures in July 2002. In conjunction
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 17
- --------------------------------------------------------------------------------
with entering into the new credit facility, the Company recognized an
extraordinary loss in July 1997 of $1.2 million attributable to the
write-off of $2.0 million of unamortized deferred financing fees, net of
related $0.8 million tax benefit. The acquisition of certain of the net
assets of LATS, a division of LucasVarity plc of England on July 29, 1997
was financed by borrowings under the new multi-currency revolving credit
facility.
The Company also maintains a separate revolving credit facility of
approximately $3.0 million through its Canadian subsidiary. At September
28, 1997, total outstanding indebtedness under such facility was $1.5
million.
On June 12, 1997, the Company completed a private placement to
institutional investors of 1.4 million 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 newly-formed Delaware business
trust. The securities represent undivided beneficial ownership interests in
the Trust. The sole asset of the Trust is the $72.2 million aggregate
principal amount of the 7.16% Convertible Junior Subordinated Deferrable
Interest Debentures Due 2012 which were acquired with the proceeds from the
offering as well as the sale of Common Securities 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 and are
redeemable at DTI's option after June 1, 2000 and mandatorily redeemable in
2012. A registration statement relating to resales of such Convertible
Preferred Securities was declared effective by the Securities and Exchange
Commission on September 2, 1997.
To manage its exposure to fluctuations in interest rates, the Company
entered into an interest rate swap agreement in June 1995 for a notional
principal amount of $30 million, maturing June 29, 1998. Swap agreements
involve the exchange of interest obligations on fixed and floating
interest-rate debt without the exchange of the underlying principal amount.
The differential paid or received on the swap agreement is recognized as an
adjustment to interest expense. The swap agreement requires the Company to
pay a fixed rate of 6.06% in exchange for a floating rate payment equal to
the three month LIBOR determined on a quarterly basis with settlement
occurring on specific dates.
Management anticipates that capital expenditures in the current fiscal year
will range from approximately $17 million to $20 million. This includes
recurring replacement or refurbishment of machinery and equipment, and
purchases to improve production methods or processes or to expand
manufacturing capabilities, all of which, in the aggregate, are expected to
approximate fiscal 1997 capital expenditures. Incremental capital
expenditures in the current fiscal year will include the first year costs,
estimated to be over $4 million, of an approximate four-year implementation
of an integrated core business system and will also include adding capacity
at certain automation and packaging facilities. Funding for capital
expenditures will be provided by cash from operating activities and through
the Company's credit facilities.
The Company paid quarterly cash dividends of $0.02 share on September 15,
1997 to stockholders of record on September 2, 1997.
Based on its ability to generate funds from operations and 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 and capital expenditure requirements.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 18
- --------------------------------------------------------------------------------
BACKLOG
The Company's backlog is based upon customer purchase orders that the
Company believes are firm. As of September 28, 1997, the Company had $241.1
million of orders in backlog, which compares to a backlog of approximately
$179.1 million as of September 29, 1996. The increase is attributable to
the acquisitions of Hansford and ATT, partially offset by lower backlog of
existing businesses.
The backlog for the Special Machines segment at September 28, 1997 was
$234.5 million, which increased $66.0 million from a year ago. Excluding
the acquisition effect of Hansford and ATT, the Special Machines segment
backlog was down $18.7 million, or 11.1%. The lower backlog can be
attributed to the unusually large orders with a significant customer in the
electronics industry at the end of the prior year quarter and the decrease
in custom build-to-print machine orders, particularly RIGO thermoforming
machines for appliance manufacturers. Certain orders were postponed or
canceled in the first quarter of fiscal 1998 by a significant customer in
the electronics industry. The customer has informed the Company that
although their business is very strong, their current requirements for
automated assembly systems were affected by their decision to increase
utilization of existing equipment.
Backlog for the Components segment was $6.6 million, down $4.0 million or
37.5%. The lower Components segment backlog is a result of the Company's
efforts to discontinue production of low margin parts, including certain
customers who had placed orders equal to twelve months production. Such
advanced orders are unusual in the Components business. This focused
production is expected to better utilize capacity and increase overall
productivity and efficiency.
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 most of the
orders in the backlog will be recognized as sales during the current fiscal
year.
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 in the Special
Machines segment 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.
<PAGE>
DT INDUSTRIES, INC.
PART II. Other Information
Page 19
- --------------------------------------------------------------------------------
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Statement Regarding Computation of Earnings Per Share
(b) Reports on Form 8-K:
On August 5, 1997 a Current Report on Form 8-K was filed to
report, pursuant to Item 5 thereof, the acquisition of the assets of
Lucas Assembly and Test Systems.
On August 19, 1997 a Current Report on Form 8-K was filed to
report, pursuant to Item 5 thereof, the adoption of a Rights Plan and
declaration by the Board of Directors of the Company of a dividend
distribution of one Right for each outstanding share of Common Stock
of the Company to stockholders of record at the close of business on
September 2, 1997.
<PAGE>
DT INDUSTRIES, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DT INDUSTRIES, INC.
Date: November 12, 1997 /s/ Bruce P. Erdel
----------------------------------------
(Signature)
Bruce P. Erdel
Vice President - Finance and Secretary
(Principal Financing and Accounting
Officer)
<PAGE>
EXHIBIT INDEX
Page No. in Sequential
Exhibit No. Description Numbering System
- ----------- ----------- ----------------------
11 Statement Regarding Computation
of Earnings Per-Share
DT INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per-share amounts)
Three Months Ended
September 28, September 29,
1997 1996
------------- -------------
Income before extraordinary loss $ 6,535 $ 4,873
Extraordinary loss 1,200 324
------------- -------------
Net income $ 5,335 $ 4,549
============= =============
Primary:
Weighted average number of
shares outstanding 11,302 9,005
Add dilutive effect of stock options
based on treasury stock method using
average market price 441 297
Add shares contingently issuable to
the former owner of Kalish assuming
maintenance of current earnings 123 114
------------- -------------
Primary weighted average shares outstanding 11,866 9,416
============= =============
Primary earnings per share before
extraordinary loss $ 0.55 $ 0.52
Extraordinary loss 0.10 0.04
------------- -------------
Primary net income per share $ 0.45 $ 0.48
============= =============
Income before extraordinary loss $ 6,535 $ 4,873
Extraordinary loss 1,200 325
------------- -------------
Net income 5,335 4,549
Interest expense on mandatorily
redeemable convertible preferred
securities, net of applicable
income taxes 752
------------- -------------
Net income, adjusted $ 6,087 $ 4,549
============= =============
Fully Diluted:
Weighted average number of shares outstanding 11,302 9,005
Add dilutive effect of stock options based
on treasury stock method using average
market price or end of period, whichever
is greater 447 506
Add shares contingently issuable to the
former owner of Kalish assuming maximum
future earnings 123 118
Assumed conversion of manditorily redeemable
convertible preferred securities 1,806
------------- -------------
13,678 9,629
============= =============
Fully diluted earnings per share before
extraordinary loss $ 0.53 $ 0.51 a
Extraordinary loss 0.09 0.04 a
------------- -------------
Fully diluted net income per share $ 0.44 $ 0.47 a
============= =============
a The effect of common stock equivalents and/or other dilutive securities was
not material in this period; therefore, presentation on the income
statement was not considered necessary.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information (in thousands except per
share data) extracted from the Consolidated Balance Sheet at September 28, 1997
and the Consolidated Statement of Operations for the Three Months Ended
September 28, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1998
<PERIOD-END> SEP-28-1997
<EXCHANGE-RATE> 1
<CASH> 9,892
<SECURITIES> 0
<RECEIVABLES> 80,073
<ALLOWANCES> 1,716
<INVENTORY> 47,529
<CURRENT-ASSETS> 225,050
<PP&E> 80,918
<DEPRECIATION> 17,948
<TOTAL-ASSETS> 478,950
<CURRENT-LIABILITIES> 97,452
<BONDS> 110,569
0
0
<COMMON> 113
<OTHER-SE> 190,293
<TOTAL-LIABILITY-AND-EQUITY> 478,950
<SALES> 115,764
<TOTAL-REVENUES> 115,764
<CGS> 84,856
<TOTAL-COSTS> 84,856
<OTHER-EXPENSES> 17,075
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 1,674
<INCOME-PRETAX> 10,892
<INCOME-TAX> 4,357
<INCOME-CONTINUING> 6,535
<DISCONTINUED> 0
<EXTRAORDINARY> 1,200
<CHANGES> 0
<NET-INCOME> 5,335
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.44
</TABLE>
