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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-23400
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DT INDUSTRIES, INC.
[Exact name of registrant as specified in its charter]
DELAWARE 44-0537828
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Corporate Centre, Suite 2-300
1949 E. Sunshine 65804
Springfield, MO (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (417) 890-0102
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
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None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
Series A Preferred Stock, par value $.01 per share
Preferred Stock Purchase Rights
(Title of each class)
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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.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K X .
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As of September 14, 1998, the aggregate market value of the voting stock
held by non-affiliates of the registrant was $203,114,078 (based on the closing
sales price, on such date, of $20.125 per share).
As of September 14, 1998, there were 10,243,474 shares of common stock,
$0.01 par value outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement Dated September 28, 1998 (portion)(Part III).
Annual Report to Shareholders for the Fiscal Year Ended June 28, 1998
(portion) (Parts I, II and IV).
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<PAGE>
DT INDUSTRIES, INC.
INDEX TO FORM 10-K
Page
Part I
Item 1. Business................................................... 1
Item 2. Properties................................................. 11
Item 3. Legal Proceedings.......................................... 12
Item 4. Submission of Matters to a Vote of Security Holders........ 12
Information Regarding Forward Looking Statements........... 12
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 13
Item 6. Selected Financial Data.................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 13
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk ............................................... 13
Item 8. Financial Statements and Supplementary Data................ 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 13
Part III
Item 10. Directors and Executive Officers of the Registrant......... 14
Item 11. Executive Compensation..................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 14
Item 13. Certain Relationships and Related Transactions............. 14
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................... 15
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PART I
ITEM 1. BUSINESS
GENERAL
DT Industries, Inc. (together with its subsidiaries, the "Company" or
"DTI") is an engineering-driven designer, manufacturer and integrator of
automated production equipment and systems used to manufacture, test or package
a variety of industrial and consumer products. The Company is the largest
manufacturer of integrated assembly and test systems for discrete parts, as well
as integrated tablet packaging and processing systems, in North America.
Substantial growth opportunities are believed to be provided by certain trends
among its customers, including increased emphasis on manufacturing productivity
and flexibility, concurrent engineering of products and assembly systems,
globalization of manufacturing and markets, vendor rationalization and
outsourcing. To capitalize on these trends, DTI has implemented a business
strategy to provide, develop and acquire complementary technologies and
capabilities to supply customers with integrated processing, assembly, testing
and packaging systems for their products. As part of this strategy, the Company
seeks to cross-sell the products produced by acquired companies through its
larger company-wide sales force providing for greater geographic and customer
coverage. The Company operates in two business segments: Special Machines and
Components. Through acquisitions, internal growth and product development, the
Company's Special Machines business has grown from consolidated net sales of
$28.5 million in the fiscal year ended June 30, 1993 to fiscal 1998 consolidated
net sales of $471.8 million. In addition, the Company's Components business,
which produces precision metal components for a broad range of industrial
applications, has grown from consolidated net sales of $22.1 million in fiscal
1993 to consolidated net sales of $47.5 million in fiscal 1998.
Due to the significant acquisitions in recent years by the Special Machines
segment and the sale of the Knitting Elements division in fiscal 1998, as of and
for the fiscal year ended June 28, 1998, the Components segment has become less
significant to the Company as a whole and no longer qualifies for separate
disclosure as specified by Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise". The Company has
included certain separate disclosures for the Components segment in the fiscal
1998 consolidated financial statements to enhance comparability with prior
periods.
SPECIAL MACHINES SEGMENT. The Special Machines segment's products are used
in the electronics, automotive, pharmaceutical, nutritional, consumer products,
tire, electrical components, appliance, plastics, medical devices, hardware,
cosmetics and many other industries. Sales of these products also produce a
stream of recurring revenues from replacement parts and service as the Company's
substantial installed base of equipment is maintained and upgraded over time.
The Special Machines segment, which accounted for approximately 91% of the
Company's consolidated fiscal 1998 net sales, consists of two groups: DT
Automation and DT Packaging. Each group offers a class of products and services
that complement one another in terms of markets, engineering requirements,
product needs and systems capabilities.
DT Automation. DT Automation designs and builds a complete line of
integrated automated assembly and testing systems. Integrated systems combine a
variety of manufacturing technologies into a complete automated manufacturing
system. Core capabilities of DT Automation include systems integration,
medium/high speed indexing, synchronous/non-synchronous assembly,
flexible/reconfigurable assembly, high speed precision assembly, build-to-print,
material handling, cell control/data collection, lean manufacturing, precision
tools and dies, micron assembly, automated welding systems and large
thermoforming systems. The Company is the largest manufacturer of integrated
assembly and test systems for discrete parts in North America.
DT Packaging. DT Packaging designs and builds proprietary machines and
integrated systems used to perform processing and packaging tasks. Core
capabilities of DT Packaging include the design and manufacture of
thermoforming, blister packaging and foam extrusion systems, liquid filling
systems and a complete line of tablet processing and packaging systems. The
Company is the largest manufacturer of integrated tablet processing and
packaging systems in North America.
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COMPONENTS SEGMENT. The Components segment, which accounted for
approximately 9% of consolidated fiscal 1998 net sales, stamps and fabricates a
range of standard and custom metal components for the broad range of industries
including heavy trucking, agricultural equipment, appliance, recreational
products, and other consumer products.
The following table summarizes the acquisitions made by the Company,
segregated by business segment and core business group:
<TABLE>
<CAPTION>
ACQUISITION DATE BUSINESS
- ----------- ---- --------
<S> <C> <C>
Special Machines Segment
DT Automation:
Peer Division of Teledyne, July 1992 Designer and manufacturer of resistance and arc
Inc. ("Peer") welding systems and related parts
Detroit Tool and Engineering August 1992 Designer and manufacturer of integrated
Company ("DTE") manufacturing systems and custom equipment,
including tools and dies
Advanced Assembly August 1994 Designer, manufacturer and integrator of
Automation, Inc. ("AAA") automated production and testing systems
Assembly Machines, Inc. January 1996 Manufacturer of high-speed assembly systems
("AMI")
Mid-West Automation Enterprises, July 1996 Designer and manufacturer of integrated precision
Inc. ("Mid-West") assembly systems
Hansford Manufacturing September 1996 Designer and manufacturer of integrated precision
Corporation ("Hansford") assembly systems
Assembly Technology & Test, Inc. July 1997 Designer, manufacturer and integrator of
("ATT"), previously Lucas automated production and testing systems
Assembly & Test Systems
DT Packaging:
Sencorp Systems, Inc. ("Sencorp") August 1993 Designer and manufacturer of plastics processing
and packaging equipment, systems and related parts
Stokes-Merrill, Inc. December 1993 Designer and manufacturer of rotary presses,
("Stokes-Merrill") tablet counting equipment and related parts
Lakso Division of Package February 1995 Designer and manufacturer of automated packaging
Machinery Company ("Lakso") machinery, systems and related parts
Armac Industries, Co. ("Armac") February 1995 Designer and manufacturer of plastics processing
and packaging equipment
H.G. Kalish Inc. ("Kalish") August 1995 Designer, manufacturer and integrator of liquid
filling and tablet packaging systems
Swiftpack Automation Limited November 1995 Designer and manufacturer of packaging equipment,
("Swiftpack") primarily electronic counters
Scheu & Kniss, Inc. ("S&K") August 1998 Manufacturer of tablet press replacement parts
and rebuild services
Components Segment
Detroit Tool Metal Products Co. August 1992 Manufacturer of custom stamped metal components
("DTMP")
</TABLE>
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On May 1, 1998, the Company completed the sale of substantially all of the
assets of its non-core Knitting Elements division for $9.4 million. The division
was comprised of assets acquired from F. J. Potter Co., Inc. in August 1992, and
from Arrow Precision Elements, Inc. in September 1995.
In August 1998, the Company completed the acquisition of certain of the net
assets of Scheu & Kniss, Inc., a Louisville, Kentucky based manufacturer of
tablet press replacement parts and rebuild services serving primarily the
pharmaceutical, nutritional, battery and confectionery industries. The purchase
price of approximately $10.2 million was primarily financed by borrowings under
the Company's revolving credit facility. Annualized sales of Scheu & Kniss
approximate $7.5 million.
The Company is a Delaware corporation organized in January 1993 and the
successor to Peer Corporation, Detroit Tool Group, Inc. ("DTG") and Detroit Tool
and Engineering Company. Peer Corporation was organized in June 1992 to acquire
the Peer Division of Teledyne, Inc. and the stock of DTG, the sole stockholder
of DTE and DTMP. Through the acquisitions described above, internal growth and
product development, the Company has grown from consolidated net sales of $50.6
million in fiscal 1993 to $519.3 million in fiscal 1998.
The Company's principal executive offices are located at 1949 E. Sunshine,
Suite 2-300, Springfield, Missouri 65804 and its telephone number is
(417) 890-0102.
BUSINESS STRATEGY
The business strategy of DTI is to provide, develop and acquire
complementary technologies and capabilities to supply customers with integrated
assembly, testing and packaging systems for their products. DTI's goal is to
become the premier provider of engineered solutions. The Company expects to
achieve this goal by designing and delivering on-time, innovative solutions
which meet or exceed our customers' expectations while continuously improving
quality, service and cost. Key elements of the Company's strategy include the
following:
Acquisitions. The assembly, testing and packaging equipment markets are
highly fragmented. Special machines, for example, are characterized by a number
of industry niches in which few manufacturers compete. The Special Machines
segment has established its presence in particular niches through acquisitions,
and the Company intends to pursue additional acquisitions, or strategic
alliances, with companies which are established technical and market leaders.
The Company can provide its customers more complete integrated automation
systems by continuing to expand the breadth of its products and engineering
expertise, a capability the Company believes will enable it to benefit from its
customers' increasing demand for complete systems. Additionally, the Company
will continue to pursue acquisitions, or strategic alliances, with companies
which provide significant potential for cross-selling among the various product
lines and cost savings through more efficient utilization of manufacturing and
engineering capacity.
Product Line Expansion. Through acquisitions, product license arrangements
and strategic alliances, the Company has increased, and plans to continue to
increase, its engineering capabilities and product offerings. DT Packaging has
the capability to provide customers with fully integrated tablet processing and
packaging systems. DT Automation has increased its assembly systems capabilities
as more fully described in "Markets and Products" below. The Company's objective
is to provide customers with integrated automation solutions and systems
integration expertise, rather than single use equipment. The Company also uses
its engineering expertise and manufacturing capability to develop new products
and technology for markets the Company currently serves and to provide entree
into new markets.
Cross-Selling. Substantial cross-selling opportunities exist across the
product lines of the Special Machines segment. As the Company implements its
acquisition strategy and integrates acquired operations, it is able to expand
its product offerings and customer base. Since the inception of the Company's
cross-selling program four years ago, over $110 million in projects have been
developed through cross-selling. The Company expects this growth to continue as
a result of new opportunities created through the awareness and expansion of its
customer base.
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Leverage Engineering and Manufacturing Capabilities. The Company's
engineering strategy is to satisfy the growing demand for small, medium and
large complex, integrated automation solutions by utilizing the versatile
engineering expertise of its Special Machines businesses. The Company expects to
continue to acquire engineering and design expertise through acquisitions and
licensing arrangements. The Company intends to utilize its manufacturing
capacity and engineering capabilities fully by directing work to facilities with
specific capabilities and manufacturing strengths to best meet the customer's
needs.
International Expansion. The Company seeks to increase its international
sales through strategic alliances, international agents, foreign offices and
acquisitions. The Company acquired Canada-based Kalish, and the United
Kingdom-based Swiftpack during fiscal 1996, significantly enhancing its
international packaging presence. Also, continued international sales growth by
DT Packaging has resulted from the strategic alliance with Davis Standard
Corporation for the sales of foam extrusion systems. In fiscal 1997, DT
Automation continued to expand its international presence by forming an alliance
with a subsidiary of Claas KGaA opening a sales and service office in Beelen,
Germany. This alliance also allows the Company to market Claas KGaA's highly
regarded automation systems to the Company's existing customer base. The July
1997 acquisition of ATT provided DT Automation a stronger international presence
with manufacturing facilities in the United Kingdom and Germany, as well as the
United States. International sales accounted for approximately 35% of
consolidated net sales in fiscal 1998.
Continuous Improvement. In 1998 the Company launched a comprehensive
Continuous Improvement program based upon organizational values, core
competencies, vision, mission, and key performance indicators throughout the
organization. At the center of this continuous improvement program are key DTI
values of customer satisfaction, employee growth and respect, individual and
corporate integrity, innovative technology, global teamwork, environmental and
community responsibility and growth of shareholder value. The Company has
identified key performance indicators at all of its operating units which
directly relate to these values. The Company will measure the success of the
Continuous Improvement Program by monitoring these indicators. These performance
indicators include: improved quality, shorter lead times, improved on-time
delivery, continuous cost reduction and better communications.
MARKETS AND PRODUCTS
SPECIAL MACHINES. The Special Machines segment designs and builds a
complete line of automated production systems used to manufacture, test or
package products for a range of industries, including electronics, automotive,
pharmaceutical, nutritional, consumer products, tire, electrical components,
appliance, plastics, medical devices, hardware, cosmetics and many others. The
Company also manufactures custom production equipment for specific customer
applications, proprietary machines for specific industrial applications and
integrated systems which may combine features of custom and proprietary
equipment. The Special Machines segment consists of two core business groups: DT
Automation and DT Packaging.
DT AUTOMATION. DT Automation designs and builds a complete line of
automated assembly and test systems, special machines and large complex dies.
Sales from DT Automation accounted for approximately 68%, 63% and 45% of
consolidated net sales for fiscal 1998, 1997, and 1996, respectively.
Integrated Systems. Integrated systems combine a wide variety of
manufacturing technologies into a complete automated manufacturing system.
Utilizing advanced computers, robotics, vision systems and other technologies,
the Company provides a variety of capabilities including systems integration,
medium/high speed indexing, synchronous/non-synchronous assembly,
flexible/reconfigurable assembly, high speed precision assembly, build-to-print,
material handling, cell control/data collection, lean manufacturing, precision
tools and dies, micron assembly, automated welding systems and large
thermoforming systems for the electronics, automotive, appliance, electrical
components, and hardware industries. The Company offers this variety of
integrated systems for small or large, custom or standard automation
applications. The standardized automation applications utilize various machine
platforms and proprietary modular building blocks in carousel, in-line and
rotary assembly systems, all of which facilitate time-sensitive, concurrent
engineering projects where changes in tooling and processes can occur in an
advanced stage of system design.
4
<PAGE>
Custom Machines. The Company's custom machine building capabilities
include: engineering, project management, machining and fabrication of
components, installation of electrical controls, final assembly and testing. A
customer will usually approach the Company with a manufacturing objective, and
DTI will work with the customer to design, engineer, assemble, test and install
a machine to meet the objective. The customer often retains rights to the design
after delivery of the machine since the purchase contract typically includes the
design of the machine; however, the engineering and manufacturing expertise
gained in designing and building the machine is often reapplied by the Company
in projects for other customers.
Material Handling. The Company builds an automated electrified monorail
product offered in various capacity ranges from light weight systems to systems
transporting products weighing up to 8,800 pounds. This product can be applied
to a variety of material handling applications ranging from delivery systems for
the food industry to manufacturing processes involving manual and automation
interfaces for engine assembly and testing. The benefits of this product include
providing a clean, quiet, controlled transport with the flexibility to operate
in a variety of processes and production rates.
Automated Resistance and Arc Welding Systems. The Company manufactures and
sells a line of standard resistance welding equipment as well as special
automated welding systems designed and built for specific applications. Marketed
under the brand name Peer(TM), the Company's products are used in the
automotive, appliance and electrical industries to fabricate and assemble
components and subassemblies. The Company's resistance welding equipment is also
used in the manufacture of file cabinets, school and athletic lockers, store
display shelves, metal furniture and material storage products.
Tooling and Dies. The Company possesses considerable expertise in the
design, engineering and production of precision tools and dies. In addition,
personnel trained as tool and die makers often apply their skills to the
manufacture of the Company's special machines.
DT PACKAGING. The DT Packaging group designs and builds proprietary
machines and integrated systems which are marketed under individual brand names
and manufactured for specific industrial applications using designs owned or
licensed by the Company. Although these machines are generally cataloged as
specific models, they are usually modified for specific customer requirements
and often combined with other machines into integrated systems. Many customers
also request additional accessories and features which typically generate higher
revenues and enhanced profit opportunities. DT Packaging products include
thermoformers, blister packaging systems, extrusion systems, rotary presses and
complete integrated packaging systems. Packaging systems include: bottle
unscrambling, electronic and slat tablet counting/filling, cottoning, sealing
and capping, labeling, collating, cartoning, and liquid and tube filling. The
Company believes this equipment maintains a strong reputation among its
customers for quality, reliability and ease of operation and maintenance. The
Company also sells replacement parts and accessories for its substantial
installed base of machines. Sales from DT Packaging accounted for approximately
23%, 25% and 37% of consolidated net sales for fiscal 1998, 1997 and 1996,
respectively.
Thermoformers. A thermoformer heats plastic material and uses pressure
and/or a vacuum to mold it into a product. Marketed under the brand names
Sencorp(R) and Armac(TM), the Company's thermoformers are used by customers in
North America, Europe and Asia to form a variety of products including:
specialized cups, plates and food containers, trays for food and medical
products and other plastics applications.
The Company's thermoformers are sold primarily to custom formers who use
the machines to create thermoformed items which are sold to a variety of end
users. The Company also sells thermoformers directly to end users, including
large producers of electrical and healthcare products, cosmetics, hardware, and
other consumer products.
The Company produces a line of thermoformers of different sizes, heating
ovens, maximum draw depths and press capacities. Certain thermoformers produced
by the Company feature a fully integrated process control system to regulate the
thermoformer's functions. Depending upon the customer's requirements, the
control system is capable of networking with, or downloading to, the customer's
computers or other equipment and the Company's service center. This on-line
diagnostic capability allows the Company to provide real-time service and
support to its customers.
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Blister Packaging Systems. Blister packaging is a common method of
displaying consumer products for sale in hardware stores, convenience stores,
warehouse stores, drug stores and similar retail outlets. Batteries, cosmetics,
hardware items, electrical components, razor blades and toys are among the large
variety of products sold in a clear plastic blister or two-sided package. The
Company designs and manufactures machinery marketed under the brand names
Sencorp(R) and Armac(TM), which performs blister packaging by heat-sealing a
clear plastic bubble, or blister, onto coated paperboard, or by sealing
two-sided packages using heat or microwave technology.
The Company's blister packaging systems are primarily sold to manufacturers
of the end products. These customers, with higher volume production
requirements, may use a thermoformer in-line with a blister sealer to form
blisters, insert their product and seal the package in one continuous process,
referred to as a form/fill/seal configuration. Customers having relatively low
volume production often use a stand-alone blister sealing machine to seal
products in a package using blisters purchased from a custom former.
Extruders. An extrusion process is used to convert plastic resin and
additives into a continuous melt and to force such melt through a die to produce
a desired shape that is then cooled. Marketed under the brand name Sencorp(R),
the Company's foam extruders are used to produce products such as building
insulation, display board, meat trays, bottle wrap protection labels and egg
cartons. The Company's foam extruders are primarily sold to large plastics
companies that use the machines to create end products and sheet products. The
Company also manufactures reclaim extruders which process a variety of plastic
materials from ground form to finished pellet form.
Rotary Presses. The Company is the largest U.S. designer and manufacturer
of rotary tablet presses. The Company designs and manufactures rotary presses
used by customers in the airbag, candy, food supplement, ceramic, ordnance,
specialty chemical, and pharmaceutical industries to produce tablets. Marketed
under the brand name Stokes(TM), the Company's line of rotary presses includes
machines capable of producing 17,000 tablets per minute and other machines
capable of applying up to 40 tons of pressure. Products produced on the
Company's rotary presses include Lifesavers(R), and Breathsavers(R) brand mints,
Centrum(R) brand vitamins and inflation pellets for automotive airbags.
The Company has an agreement with Horn & Noack Pharmatechnick GmbH, for the
purpose of licensing German rotary press technology designed primarily for the
pharmaceutical and nutritional markets. The agreement gives the Company the
exclusive right to manufacture and market this press technology under the
Stokes(TM) brand name in North and Central America and non-exclusively in the
rest of the world, excluding Europe. The Company is marketing the pharmaceutical
press through DT Packaging, a leader in pharmaceutical filling and packaging
systems.
Packaging Systems. The Company designs, manufactures and distributes a
complete line of products utilized for packaging, liquid filling or tube filling
applications. The equipment manufactured by the Company, which includes bottle
unscramblers, slat counters, electronic counters, liquid fillers, cottoners,
cappers and labelers, collators and cartoners, can be sold as an integrated
system or individual units. These machines are marketed under the brand names of
Kalish(TM), Lakso(R), Merrill(R) and Swiftpack(TM) and are primarily delivered
to customers in the pharmaceutical, nutritional, food, cosmetic, toy and
chemical industries.
The Company benefits from a substantial installed base of Lakso(R) and
Merrill(R) slat counters in the aftermarket sale of slats. Slat counting
machines use a set of slats to meter the number of tablets or capsules to be
inserted into bottles. Each size or shape of tablet or capsule requires a
different set of slats. In addition, the practice in the pharmaceutical industry
is to use a different set of slats for each product, even if the tablets are the
same size.
Laboratory Machines, Tooling, Parts and Accessories. The Company produces a
line of small scale blister sealers and a line of tablet pressing equipment used
to test new materials and techniques, for quality control, laboratory or other
small run uses. The Company also sells parts and accessories for its proprietary
machines. In addition, the Company designs and builds special tools and dies
used in custom applications of its thermoforming systems, rotary presses and
slat counters.
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COMPONENTS. The Company's Components segment produces custom and precision
components for the heavy trucking, agricultural equipment, appliance, and
electrical industries. Sales from Components accounted for approximately 9%, 12%
and 18% of consolidated net sales for fiscal 1998, 1997 and 1996, respectively.
The Company completed the sale of substantially all of the assets of its
Knitting Elements division in May 1998 for $9.4 million.
Custom Stamping and Fabrication. The Company produces precision-stamped
steel and aluminum components through its stamping and fabrication operations.
The Company's stamping presses range in size from 32 tons to 1,500 tons, giving
the Company the flexibility to stamp flat rolled metal ranging in thickness from
.015 inches to .750 inches. Certain of the Company's presses can accommodate
dies up to 190 inches in length to perform several stamping functions in a
single press.
Through its Special Machines segment, the Company possesses considerable
expertise in the design, engineering and production of precision tools and dies.
The Company produces tools and dies for use in its own blanking and stamping
operations as well as for sale to other industrial customers. The Company
believes its tool and die design and engineering capabilities give it an
important competitive advantage in its Components segment.
MARKETING AND DISTRIBUTION
SPECIAL MACHINES. The Company's special machines and systems are sold
primarily through the Company's approximately 75 person direct sales force and
to a lesser extent through manufacturers' representatives and agents. Sales of
special machines and integrated systems require the Company's sales personnel to
have a high degree of technical expertise and extensive knowledge of the
industry served. The Company's sales force consists of specialists in each
primary market in which the Company's special machines are sold. Each operating
unit has a sales force experienced in the marketing of the equipment
historically produced by each respective business. The Company believes that
cross-selling among the members of the Special Machines segment and integration
of proprietary technology and custom equipment into total production automation
systems for selected industries provide the Company with expanded sales
opportunities.
The Company's special machines are sold throughout the world by more than
80 manufacturers' representatives and sales agents in nearly 50 countries. The
Company has sales and service offices in China, Canada, England and Germany.
International sales continue to grow as the business grows and more resources
are focused in the international arena. International sales were approximately
35% of consolidated net sales for fiscal 1998 compared to 30% and 22% of
consolidated net sales in fiscal 1997 and fiscal 1996, respectively.
COMPONENTS. The Company's custom stamping products are sold by the
Company's direct sales force.
MANUFACTURING AND RAW MATERIALS
SPECIAL MACHINES SEGMENT. The principal raw materials and components used
in the manufacturing of the Company's special machines include carbon steel,
stainless steel, aluminum, electronic components, pumps and compressors,
programmable logic controls, hydraulic components, conveyor systems, visual and
mechanical sensors, precision bearings and lasers. The Company is not dependent
upon any one supplier for raw materials or components used in the manufacture of
special machines. Certain customers specify sole source suppliers for components
of custom machines or systems. The Company believes there are adequate
alternative sources of raw materials and components of sufficient quantity and
quality.
DT AUTOMATION. Integrated systems to assemble and test various products are
designed and manufactured at the Company's facilities in Illinois, Michigan, New
York, Ohio, Pennsylvania, the United Kingdom and Germany where manufacturing
activity primarily consists of fabrication and assembly and, to a lesser extent,
machining. The facilities in Missouri house the machining, assembly and test
operations primarily used in the manufacture of tools and dies, custom special
machines, thermoforming and certain other integrated systems. Facilities in
Michigan and the United Kingdom manufacture the material handling
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systems. Another facility in Michigan houses the machining, assembly and test
operations used in the manufacture of resistance welding equipment and systems.
A number of manufacturing technologies are employed at these facilities
including: fabrication of stainless steel, direct numerically controlled
machinery, computer generated surface modeling of contoured components and fully
networked CAD/CAM capabilities.
DT PACKAGING. Special machines, integrated systems and related parts for
the Company's tablet packaging and liquid-filling equipment are designed and
assembled at the Company's facilities in Massachusetts, Illinois, Canada and the
United Kingdom from components made to the Company's specifications by
unaffiliated vendors. Rotary presses and related replacement parts are
manufactured and are assembled at the Company's facilities in Pennsylvania and
Kentucky. Special machines and integrated systems for the plastics packaging
industry are primarily manufactured at the two Company manufacturing facilities
in Massachusetts which include machining, fabrication and assembly.
COMPONENTS SEGMENT. The principal raw materials used in the Company's
components manufacturing processes include carbon steel, aluminum, stainless
steel, copper and other metals in coil or sheet form. The Company is not
dependent upon any one supplier for raw materials used in the manufacture of its
metal products. The Company believes there are adequate alternative sources of
raw materials of sufficient quantity and quality.
The Company's components manufacturing operations are primarily located at
the Company's facilities in Missouri. Operations conducted at that facility
include blanking, heavy and precision stamping using precision single stage,
progressive and transfer dies, cutting, punching, forming, welding, cleaning,
bonderizing and painting. The Company utilizes a Metalsoft(R) FabriVision
optical scanning system for prototyping and quality control.
FINANCIAL INFORMATOIN RELATING TO BUSINESS SEGMENTS, FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES
The Company operates predominantly in the business segments classified as
Special Machines and Components. During fiscal 1998, the Components segment
became less significant to the Company as a whole. The Company's principal
foreign operations consist of manufacturing, sales and service operations in
Canada, the United Kingdom and Germany. For certain financial information
concerning the Company's business segments, foreign and domestic operations and
export sales, see Note 15 of the Notes to Consolidated Financial Statements in
the Company's Annual Report to Shareholders, which is incorporated herein by
reference.
CUSTOMERS
The majority of the Company's sales is attributable to repeat customers,
some of which have been customers of the Company or its acquired businesses for
over twenty years. The Company believes such repeat business is indicative of
the Company's engineering capabilities, the quality of its products and overall
customer satisfaction.
Hewlett-Packard Company, a customer of the Company's Special Machines
segment, accounted for over 10% of the Company's consolidated net sales in
fiscal 1998. Hewlett-Packard Company and Ford Motor Company, customers of the
Company's Special Machines segment, each accounted for over 10% of the Company's
consolidated net sales in fiscal 1997. The Goodyear Tire & Rubber Company, a
customer of the Company's Special Machines segment, accounted for over 10% of
the Company's consolidated net sales in fiscal 1996. The Company's five largest
customers during fiscal 1998 accounted for approximately 35% of the Company's
consolidated net sales.
Certain purchasers of the Company's special machines make advance and
progress payments to the Company in connection with the manufacture of machinery
and systems. Sales of the Company's components are typically made without
advance or progress payments.
8
<PAGE>
BACKLOG
The Company's backlog is based upon customer purchase orders the Company
believes are firm. As of June 28, 1998, the Company had $224.8 million of orders
in backlog, which compares to a backlog of approximately $175.5 million as of
June 29, 1997. The acquisition of ATT increased the backlog $69.3 million at
June 28, 1998 in comparison to June 29, 1997. Excluding the effect of these
acquisitions, backlog would have been $155.5 million at June 28, 1998, a
decrease of $20.0 million, or 11.4%, from a year ago.
The backlog for the Special Machines segment at June 28, 1998 was $219.2
million, an increase of $51.2 million from a year ago. Excluding the effect of
acquisitions, the Special Machines backlog decreased $18.7 million. The Special
Machines backlog reflects the drop in orders with certain electronics customers.
Backlog for the Components segment was $5.6 million at June 28, 1998, a decrease
of $1.9 million, or 25.3%, from the $7.5 million backlog a year ago. The lower
Components segment backlog is a result of the Company's efforts to discontinue
production of various low margin parts coupled with the sale of the Knitting
Elements Division.
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 fiscal 1999.
COMPETITION
The market for the Company's special machines is highly competitive, with a
large number of companies advertising the sale of production machines. However,
the market for special machines is fragmented and characterized by a number of
industry niches in which few manufacturers compete. The market for products by
the Components segment is also highly regionally competitive and fragmented. The
Company's competitors vary in size and resources; most are smaller privately
held companies or subsidiaries of larger companies, some of which are larger
than the Company; and none competes with the Company in all product lines. In
addition, the Company may encounter competition from new market entrants. The
Company believes that the principal competitive factors in the sale of the
Company's special machines are quality, technology, on-time delivery, price and
service. The Company believes that the principal competitive factors in the sale
of the Company's components are price, technical capability, quality and on-time
delivery. The Company believes that it competes favorably with respect to each
of these factors.
ENGINEERING; RESEARCH AND DEVELOPMENT
The Company maintains engineering departments at all of its manufacturing
locations. The Company employs more than 550 people with experience in the
design of production equipment. In addition to design work relating to specific
customer projects, the Company's engineers develop new products and product
improvements designed to address the needs of the Company's target market niches
and to enhance the reliability, efficiency, ease of operation and safety of its
proprietary machines.
TRADEMARKS AND PATENTS
The Company owns and maintains the registered U.S. trademarks
AssemblyFlex(R), Lakso(R), Merrill(R), Mid-West(R) and Sencorp(R). Registrations
for Company trademarks are also owned and maintained in countries where such
products are sold and such registrations are considered necessary to preserve
the Company's proprietary rights therein.
The Company also has the rights to use the unregistered trademarks
Armac(TM), F.A.S.T.(TM), Hartridge(TM), Kalish(TM), Peer(TM), Stokes(TM) and
Swiftpack(TM). All of the trademarks listed above are used in connection with
the machines and systems marketed by the Special Machines Segment.
9
<PAGE>
The Company applies for and maintains patents where the Company believes
such patents are necessary to maintain the Company's interest in its inventions.
The Company does not believe that any single patent or group of patents is
material to either its Special Machines business or its Components business, nor
does it believe that the expiration of any one or a group of its patents would
have a material adverse effect upon its business or ability to compete in either
line of business. The Company believes that its existing patent and trademark
protection, however, provides it with a modest competitive advantage in the
marketing and sale of its proprietary products.
ENVIRONMENTAL AND SAFETY REGULATION
The Company is subject to environmental laws and regulations that impose
limitations on the discharge of pollutants into the environment and establish
standards for the treatment, storage and disposal of toxic and hazardous wastes.
The Company is also subject to the federal Occupational Safety and Health Act
and other state statutes. Except for costs incurred in connection with the
environmental cleanup of its property in Lebanon, Missouri, which was completed
in October 1995, costs of compliance with environmental, health and safety
requirements have not been material to the Company.
The Company believes it is in material compliance with all applicable
environmental and safety laws and regulations.
EMPLOYEES
At the end of August 1998, the Company had approximately 3,100 employees,
including those employed by Scheu & Kniss. None of the Company's employees are
covered under collective bargaining agreements. The Company has not experienced
any work stoppages in the last five years and considers its relations with
employees to be good.
10
<PAGE>
ITEM 2. PROPERTIES
The Company's administrative headquarters are located in Springfield,
Missouri. Set forth below is certain information with respect to the Company's
manufacturing facilities.
<TABLE>
<CAPTION>
Square
Footage Owned/
Location (approximate) Leased Lease Expiration Products
-------- ------------- ------ ---------------- --------
<S> <C> <C> <C> <C>
Special Machines Segment
DT Automation:
Lebanon, Missouri 300,000 Owned Special machines, integrated
systems, tools and dies
Buffalo Grove, Illinois 205,000 Leased July 31, 2003(1) Integrated precision assembly
63,000 Leased July 31, 2003(1) systems
20,000 Leased February 28, 2000(2)
Buckingham, England and 150,000 Owned Integrated assembly and testing
Gawcott, England 40,000 Owned systems
Dayton, Ohio 160,000 Leased July 1, 2016(3) Integrated assembly and testing
systems
Rochester, New York 87,000 Leased Sept. 30, 2006(3) Integrated precision assembly
26,000 Leased July 31, 2002(3) systems
Livonia, Michigan 86,000 Leased July 1, 2000(4) Integrated assembly and testing
20,000 Leased June 30, 2000(4) systems
Saginaw, Michigan 83,000 Owned Integrated assembly and testing
systems
Benton Harbor, Michigan 70,500 Owned Resistance and arc welding
equipment and systems
Erie, Pennsylvania 56,000 Owned High-speed assembly systems
Koblenz, Germany 9,000 Leased Dec. 31, 1998(5) Integrated assembly and testing
systems
DT Packaging:
Hyannis, Massachusetts & 98,000 Owned(6) Plastics processing and packaging
Fall River, Massachusetts 37,000 Leased Jan. 31, 2000(1) equipment
Montreal, Quebec 81,000 Leased Aug. 14, 2017 Tablet packaging, liquid filling
and tube filling equipment and
systems
Leominster, Massachusetts 60,000 Owned Tablet packaging equipment and
systems
Louisville, Kentucky 55,000 Owned(7) Tablet press parts and rebuild
services
Bristol, Pennsylvania 43,000 Leased May 31, 2000(1) Rotary presses
Niles, Illinois 30,000 Leased July 16, 2000(9) Tablet counters
Alcester, England 22,000 Owned Electronic counters
Components Segment
Lebanon, Missouri 200,000(8) Owned Metal products
</TABLE>
(1) The Company has an option to renew such lease for one additional five-year
term.
(2) The Company has an option to renew such lease for one additional term of
three years.
(3) The Company has an option to renew such lease for two additional terms of
five years.
(4) The Company has an option to renew such lease for one additional two-year
term.
(5) The Company has negotiated a new lease for a 33,000 square foot facility
currently under construction scheduled to be complete in October of 1998.
(6) This facility was purchased in July 1998.
(7) This facility was acquired in August 1998 through the acquisition of Scheu
& Kniss.
(8) Facility consists of two adjacent buildings of approximately 171,000 square
feet and 29,000 square feet, respectively. (9) The Company has an option to
renew such lease for an additional two-year term and a second additional
five-year term.
11
<PAGE>
The Company also leases other office, warehouse and service facilities in
Missouri, New Jersey, Canada, the United Kingdom, Germany and China. The Company
anticipates no significant difficulty in leasing alternate space at reasonable
rates in the event of the expiration, cancellation or termination of a lease
relating to any of the Company's leased properties.
To accommodate growth occurring at two of the Special Machines facilities,
the Company is in the process of expanding its plastics processing and packaging
systems facility in Hyannis, Massachusetts and its assembly and testing systems
facilities in Dayton, Ohio and Germany. Upon adding additional capacity at these
facilities, the Company believes that its principal owned and leased
manufacturing facilities will have sufficient capacity to accommodate future
internal growth without major additional capital improvements.
ITEM 3. LEGAL PROCEEDINGS
Product liability claims are asserted against the Company from time to time
for various injuries alleged to have resulted from defects in the manufacture
and/or design of the Company's products. At June 28, 1998, there were 21 such
claims pending. The Company does not believe that the resolution of such suits,
either individually or in the aggregate, will have a material adverse effect on
the Company's results of operations or financial condition. Product liability
claims are covered by the Company's comprehensive general liability insurance
policies, subject to certain deductible amounts. The Company has established
reserves for such deductible amounts, which it believes to be adequate based on
its previous claims experience. However, there can be no assurance that
resolution of product liability claims in the future will not have a material
adverse effect on the Company.
In addition to product liability claims, from time to time, the Company is
the subject of legal proceedings, including claims involving employee matters,
commercial matters and similar claims. There are no material claims currently
pending. The Company maintains comprehensive general liability insurance which
it believes to be adequate for the continued operation of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
---------------------------
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained in this report, particularly the information
appearing in Items 1, 3 and 7, 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. References to "opportunities", "growth potential",
"objectives" and "goals", the words "anticipate", "believe", "estimate",
"expect", and similar expressions used herein indicate such forward-looking
statements. Actual results could differ materially from those anticipated in any
forward-looking statements as a result of various factors, including economic
downturns in industries or markets served, delays or cancellations of customer
orders, delays in shipping dates of products, significant cost overruns on
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 in the text of Items 1, 3 and 7, and in particular under the headings
"Market Risk," "Seasonality and Fluctuations in Quarterly Results," Year 2000
Compliance" and "Cautionary Statements Regarding Forward-Looking Statements"
under Item 7.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is set forth under the caption
"Common Stock Information" appearing on page 40 of the Company's Annual Report
to Shareholders for the year ended June 28, 1998 ("the Annual Report"), which
information is incorporated herein by reference thereto.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "DTII". As of September 14, 1998, the number of record holders of
common stock was 66. Such record holders include several holders who are
nominees for an undetermined number of beneficial owners. The Company believes
that the number of beneficial owners of the shares of common stock issued and
outstanding at such date was approximately 2,700.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth under the captions
"Statement of Operations Data" and "Balance Sheet Data" on page 8 of the
Company's Annual Report, which information is incorporated herein by reference
thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is set forth on pages 8 through 19 of
the Company's Annual Report, which information is incorporated herein by
reference thereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is set forth on page 18 of the
Company's Annual Report, which information is incorporated herein by reference
thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are
presented under Item 14 and incorporated herein by reference thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A definitive proxy statement is being filed with the Securities and
Exchange Commission on or about September 28, 1998. The information required by
this item is set forth under the caption "Election of Directors" on pages 2
through 5, under the caption "Executive Officers" on page 8 and under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 15 of
the definitive proxy statement, which information is incorporated herein by
reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation" on pages 9 through 14 of the definitive proxy
statement, which information is incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" on pages 6
through 7 of the definitive proxy statement, which information is incorporated
herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Certain Transactions" on page 15 of the definitive proxy statement, which
information is incorporated herein by reference thereto.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries, included on pages 21 to 39 in the Annual Report, and the
report of independent accountants on page 20 of the Annual Report are
incorporated herein by reference thereto:
Consolidated Balance Sheets as of June 28, 1998 and June 29, 1997
Consolidated Statement of Operations for the Fiscal Years Ended
June 28, 1998, June 29, 1997 and June 30, 1996
Consolidated Statement of Changes in Stockholders' Equity for the
Fiscal Years Ended June 28, 1998, June 29, 1997 and June 30, 1996
Consolidated Statement of Cash Flows for the Fiscal Years Ended
June 28, 1998, June 29, 1997 and June 30, 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
Report of Independent Accountants on Financial
Statement Schedule S-1
Schedule VIII Valuation and Qualifying Accounts
and Reserves for the Fiscal Years Ended June 28,
1998, June 29, 1997 and June 30, 1996 S-2
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
3. Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as
part of this Report.
4. Reports on Form 8-K
On May 8, 1998, a Current Report on Form 8-K was filed to report,
pursuant to Item 5 thereof, the completion of the sale of the Knitting
Elements division for approximately $9.4 million. The Company also
reported, pursuant to item 5 thereof, the release of its earnings for
the three and nine month periods ended March 29, 1998.
On May 21, 1998, a Current Report on Form 8-K was filed to report,
pursuant to Item 5 thereof, the authorization by the Board of
Directors to repurchase an amount of common stock up to a total of 1
million shares.
On July 20, 1998, a Current Report on Form 8-K was filed to report,
pursuant to Item 5 thereof, the completion of the previously announced
repurchase of 1 million shares of common stock.
On August 6, 1998, a Current Report on Form 8-K was filed to report,
pursuant to Item 5 thereof, the release of the Company's earnings for
the quarter and fiscal year ended June 28, 1998.
On August 25, 1998, a Current Report on Form 8-K was filed to report,
pursuant to Item 5 thereof, the acquisition of substantially all of
the net assets of Scheu & Kniss, Inc.
On September 1, 1998, a Current Report on Form 8-K was filed to
report, pursuant to Item 5 thereof, the authorization by the Board of
Directors to repurchase up to an additional 1 million shares of common
stock.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Bruce P. Erdel
------------------------------------
Bruce P. Erdel
Senior Vice President - Finance
and Administration
Dated: September 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on September 28, 1998.
Signatures Title
---------- -----
* Chairman of the Board
- -------------------------------
James J. Kerley
* President, Chief Executive Officer and
- ------------------------------- Director
Stephen J. Gore (Principal Executive Officer)
/s/ Bruce P. Erdel Senior Vice President - Finance and
- ------------------------------- Administration
Bruce P. Erdel (Principal Financial and Accounting Officer)
* Director
- -------------------------------
William H.T. Bush
* Director
- -------------------------------
Charles A. Dill
* Director
- -------------------------------
Frank W. Jones
* President - Packaging Group and Director
- -------------------------------
Graham L. Lewis
* Director
- -------------------------------
Lee M. Liberman
* President - Automation Group and Director
- -------------------------------
John F. Logan
* Director
- -------------------------------
Charles Pollnow
*By: /s/ Bruce P. Erdel
--------------------------
Bruce P. Erdel
Attorney-In-Fact
- --------------------------
* Such signature has been affixed pursuant to the following Power of Attorney.
16
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Stephen J. Gore and Bruce P. Erdel as his
true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1998 Annual Report on Form 10-K of DT Industries, Inc.,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and ratifying and confirming all that
each said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders of
DT Industries, Inc.
Our audits of the consolidated financial statements of DT Industries, Inc.
and its subsidiaries, referred to in our report dated August 5, 1998, appearing
on page 20 of the fiscal 1998 Annual Report to Shareholders of DT Industries,
Inc. (which report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K), also included an audit of the
Financial Statement Schedule of DT Industries, Inc. listed at item 14 of this
Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
August 5, 1998
S-1
<PAGE>
DT INDUSTRIES, INC.
SCHEDULE VIII
Rule 12-09 Valuation and Qualifying Accounts and Reserves
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G
Balance at Charged to Charged to Purchase Balance at
Valuation and Beginning Costs and Other of Net End of
Reserve Accounts of Period Expenses Accounts Deductions Assets Period
<S> <C> <C> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED JUNE 28, 1998
Deferred Tax Assets Valuation
Allowance $ 1,029 ($ 31) $ 998
Accounts Receivable Reserve $ 1,849 $ 624 $ 0 ($ 461) $ 130(1) $ 2,142
(1) Reflects net increase to Accounts Receivable Reserves due to acquisition of
ATT and decrease due to Knitting Elements sale.
FOR THE FISCAL YEAR ENDED JUNE 29, 1997
Deferred Tax Assets Valuation
Allowance $ 1,029 $ 1,029
Accounts Receivable Reserve $ 1,294 $ 356 $ 0 ($ 373) $ 572(1) $ 1,849
(1) Reflects net increase to Accounts Receivable Reserves due to acquisition of
Mid-West and Hansford.
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
Deferred Tax Assets Valuation
Allowance $ 1,029 $ 1,029
Accounts Receivable Reserve $ 751 $ 167 $ 0 ($ 189) $ 565(1) $ 1,294
(1) Reflects net increase to Accounts Receivable Reserves due to acquisition of
Kalish, Arrow and AMI.
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of the Registrant (filed
with the Commission as Exhibit 3.1 to the Company's 1994
Registration Statement on Form S-1 Registration No. 33-75174,
filed with the Commission on February 11, 1994, as amended on
March 22, 1994 (the "1994 Registration Statement") and
incorporated herein by reference thereto)
3.2 Certificate of Amendment of Restated Certificate of Incorporation
of the Company dated November 11, 1996 (filed as Exhibit 99 to
the Company's Report on Form 8-K dated November 11, 1996 filed
with the Commission on November 21, 1996 and incorporated herein
by reference thereto)
3.3 Amended By-Laws of the Registrant (filed as Exhibit 3.2 to the
1994 Registration Statement and incorporated herein by reference
thereto)
4.1 Rights Agreement dated as of August 18, 1997 between DT
Industries, Inc. and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (filed as Exhibit 1 to the Company's Form 8-K dated
August 18, 1997, filed with the Commission on August 19, 1997 and
incorporated herein by reference thereto). The Rights Agreement
includes as Exhibit A thereto the Certificate of Designations,
Preferences and Rights of Series A Preferred Stock of DT
Industries, Inc., as Exhibit B thereto the Form of Rights
Certificate and as Exhibit C thereto the Summary of Rights to
Purchase Series A Preferred Stock.
10.1* Purchase and Stockholder Agreement, dated September 30, 1993, by
and between Detroit Tool and Engineering Company and Stephen J.
Gore (filed as Exhibit 10.1 to the 1994 Registration Statement
and incorporated herein by reference thereto)
10.2* Stock Pledge Agreement, dated September 30, 1993, by and between
Stephen J. Gore and Detroit Tool and Engineering Company (filed
as Exhibit 10.2 to the 1994 Registration Statement and
incorporated herein by reference thereto)
10.3* $84,600 Promissory Note, dated September 30, 1993, by Stephen J.
Gore to Detroit Tool and Engineering Company (filed as Exhibit
10.3 to the 1994 Registration Statement and incorporated herein
by reference thereto)
10.4* Letter Agreement, dated September 30, 1993, by Stephen J. Gore to
Detroit Tool and Engineering Company (filed as Exhibit 10.4 to
the 1994 Registration Statement and incorporated herein by
reference thereto)
10.5* Employment Agreement, dated September 19, 1990, by and between
Detroit Tool Group, Inc. and Stephen J. Gore (filed as Exhibit
10.5 to the 1994 Registration Statement and incorporated herein
by reference thereto)
10.6* Amendment to Promissory Note and Stock Pledge Agreement, dated
March 16, 1994, by and among DT Industries, Inc., Peer Investors,
L.P. and Stephen J. Gore (filed as Exhibit 10.6 to the 1994
Registration Statement and incorporated herein by reference
thereto)
10.7* DT Industries, Inc. Employee Stock Option Plan (filed as Exhibit
10.21 to the 1994 Registration Statement and incorporated herein
by reference thereto)
10.8* DT Industries, Inc. 1994 Directors Non-Qualified Stock Option
Plan (filed as Exhibit 10.22 to the 1994 Registration Statement
and incorporated herein by reference thereto)
- --------------------
* Management contract or compensatory plan or arrangement.
<PAGE>
10.9 Asset Purchase Agreement, dated as of August 28, 1995, by and
among H.G. Kalish, Inc., Kalish Machinery Ltd., Graham Lewis and
Kalish Canada Inc. (filed as Exhibit 2.1 to the Company's Report
on Form 8-K dated August 28, 1995 filed with the Commission on
September 11, 1995 and incorporated herein by reference thereto)
10.10 Agreement of Lease, dated April 30, 1997, between Teecan
Properties Inc. and Kalish Canada Inc. (filed as Exhibit 10.15 to
the Company's Annual Report on Form 10-K for the fiscal year
ended June 29, 1997 filed with the Commission on September 29,
1997 (the "1997 10-K") and incorporated herein by reference
thereto)
10.11 Lease Agreement, dated February 7, 1995, between Lanard &
Axibund, Inc., as agent, I-95 Business Center at Keystone Park-1,
as lessor, and Stokes-Merrill Corporation as lessee (filed as
Exhibit 10.46 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 25, 1995 filed with the Commission on
September 22, 1995 (the "1995 10-K") and incorporated herein by
reference thereto)
10.12* Purchase and Stockholder Agreement, dated November 30, 1993, by
and between Detroit Tool and Engineering Company and Bruce P.
Erdel (filed as Exhibit 10.55 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 26, 1994 filed with the
Commission on September 23, 1994 (the "1994 10-K") and
incorporated herein by reference thereto)
10.13* Stock Pledge Agreement, dated November 30, 1993, by and between
Bruce P. Erdel and Detroit Tool and Engineering Company (filed as
Exhibit No. 10.56 to the 1994 10-K and incorporated herein by
reference thereto)
10.14* $33,300 Promissory Note, dated November 30, 1993, by Bruce P.
Erdel to Detroit Tool and Engineering Company (filed as Exhibit
No. 10.57 to the 1994 10-K and incorporated herein by reference
thereto)
10.15* Letter Agreement, dated November 30, 1993, by and between Bruce
P. Erdel and Detroit Tool and Engineering Company (filed as
Exhibit No. 10.58 to the 1994 10-K and incorporated herein by
reference thereto)
10.16* Amendment to Promissory Note and Stock Pledge Agreement, dated
March 16, 1994, by and among DT Industries, Inc., Peer Investors,
L.P. and Bruce P. Erdel (filed as Exhibit No. 10.59 to the 1994
10-K and incorporated herein by reference thereto)
10.17 Agreement relating to the sale and purchase of 76,000 Ordinary
Shares of (pound)1 each in the capital of Swiftpack, dated as of
November 23, 1995 by and among Peter Harris and Others and DTUK
and the Company (filed as Exhibit 2.1 to the Company's Report on
Form 8-K dated November 23, 1995 filed with the Commission on
December 7, 1995 and incorporated herein by reference thereto)
10.18 Agreement and Plan of Merger, dated July 19, 1996, by and among
Automation Acquisition Corporation, DT Industries, Inc., Mid-West
Automation Enterprises, Inc. and the Stockholders listed therein
(filed as Exhibit 2.1 to the Company's Report on Form 8-K dated
July 19, 1996 filed with the Commission on August 5, 1996 and
incorporated herein by reference thereto)
10.19 Indemnification and Escrow Agreement, dated as of July 19, 1996,
by and among Mid-West Automation Enterprises, Inc., the
stockholders listed therein, and LaSalle National Trust, N.A., as
Escrow Agent (filed as Exhibit 2.2 to the Company's Report on
Form 8-K dated July 19, 1996 filed with the Commission on August
5, 1996 and incorporated herein by reference thereto)
- --------------------
* Management contract or compensatory plan or arrangement.
<PAGE>
10.20 Fourth Amended and Restated Credit Facilities Agreement, dated
July 21, 1997, among NationsBank, N.A. (successor by merger to
The Boatmen's National Bank of St. Louis) and any other persons
who become lenders as provided therein and DT Industries, Inc.
and the other borrowers listed on the signature pages thereof
(filed as Exhibit 10.31 to the 1997 10-K and incorporated herein
by reference thereto)
10.21 First Amendment to Fourth Amended and Restated Credit Facilities
Agreement, dated as of December 31, 1997, among Nations Bank,
N.A., as Administrative Agent, and Nations Bank, N.A. and the
other Lenders listed therein and DT Industries, Inc. and the
other Borrowers listed therein (filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 29, 1998 filed with the Commission on May 12, 1998 and
incorporated herein by reference thereto)
10.22 Second Amendment to Fourth Amended and Restated Credit Facilities
Agreement, dated as of April 30, 1998, among Nations Bank, N.A.,
as Administrative Agent, and Nations Bank, N.A. and the other
Lenders listed therein and DT Industries, Inc. and the other
Borrowers listed therein.
10.23 Third Amendment to Fourth Amended and Restated Credit Facilities
Agreement, dated as of August 26, 1998, among Nations Bank, N.A.,
as Administrative Agent, and Nations Bank, N.A. and the other
Lenders listed therein and DT Industries, Inc. and the other
Borrowers listed therein.
10.24 Lease dated as of February 20, 1996 by and between CityWide
Development Corporation and Advanced Assembly Automation, Inc.
(filed as Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 24, 1996 filed with the
Commission on May 3, 1996 and incorporated herein by reference
thereto)
10.25 Single-Tenant Industrial Business Lease dated July 19, 1996,
between American National Bank and Trust Company of Chicago, as
Trustee under Trust No. 63442, Landlord, and Mid-West Automation
Enterprises, Inc., an Illinois corporation and Mid-West
Automation Systems, Inc., an Illinois corporation, collectively,
Tenant (filed as Exhibit No. 10.58 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1996 filed with
the Commission on September 30, 1996 (the "1996 10-K") and
incorporated herein by reference thereto)
10.26* DT Industries, Inc. Amendment to 1994 Employee Stock Option Plan,
adopted May 16, 1996 (filed as Exhibit 10.59 to the 1996 10-K and
incorporated herein by reference thereto)
10.27* DT Industries, Inc. Second Amendment to 1994 Employee Stock
Option, adopted September 18, 1996 (filed as Exhibit 10.60 to the
1996 10-K and incorporated herein by reference thereto)
10.28* DT Industries, Inc. 1996 Long-Term Incentive Plan (filed as
Exhibit No. 10.61 to the 1996 10-K and incorporated herein by
reference thereto)
10.29* Employment and Noncompetition Agreement, dated August 28, 1995,
between Kalish Canada Inc. and Graham Lewis (filed as Exhibit No.
10.37 to the 1997 10-K and incorporated herein by reference
thereto)
10.30* Employment and Noncompetition Agreement, dated February 26, 1997,
between DT Industries, Inc. and Eugene R. Haffely (filed as
Exhibit No. 10.38 to the 1997 10-K and incorporated herein by
reference thereto)
10.31 Agreement and Plan of Merger dated September 23, 1996, by and
among H022 Corporation, a New York Corporation (the Buyer), DT
Industries, Inc., Hansford Manufacturing Corporation, a New York
Corporation and the Stockholder listed therein (filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 29, 1996 filed with the Commission on
November 8, 1996 and incorporated herein by reference thereto)
- --------------------
* Management contract or compensatory plan or arrangement.
<PAGE>
10.32 Indemnification and Escrow Agreement by and among Hansford
Manufacturing Corporation, DT Industries, Inc., the Stockholder
and Manufacturers and Traders Trust Company, a New York Bank, as
escrow agent (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 29, 1996
filed with the Commission on November 8, 1996 and incorporated
herein by reference thereto)
10.33 Lease Agreement by and between Van Buren N. Hansford, Jr., the
Stockholder and Landlord, and Hansford Manufacturing Corporation,
the Tenant, dated as of September 30, 1996 (filed as Exhibit 10.3
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 29, 1996 filed with the Commission on November 8,
1996 and incorporated herein by reference thereto)
10.34 Lease Agreement dated February 11, 1997 between Kersten Randolph
Street Property and Mid-West Automation Enterprises, Inc. (filed
as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 30, 1997 filed with the Commission on
May 12, 1997 and incorporated herein by reference thereto)
10.35 Amended and Restated Declaration of Trust of DT Capital Trust
dated as of June 1, 1997 among DT Industries, Inc., as Sponsor,
the Bank of New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee, and Stephen J. Gore, Bruce P.
Erdel and Gregory D. Wilson, as Trustees (filed as Exhibit 4.2 to
the Company's Registration Statement on Form S-3, Registration
No. 333-30909, filed with the Commission on July 8, 1997 (the
"1997 Registration Statement") and incorporated herein by
reference thereto)
10.36 Indenture for the 7.16% Convertible Junior Subordinated
Deferrable Interest Debentures Due 2012 dated as of June 1, 1997
among DT Industries, Inc. and The Bank of New York, as Trustee
(filed as Exhibit 4.3 to the 1997 Registration Statement and
incorporated herein by reference thereto)
10.37 Preferred Securities Guarantee Agreement dated June 12, 1997
between DT Industries, Inc., as Guarantor, and The Bank of New
York, as Preferred Guarantee Trustee (filed as Exhibit 4.6 to the
1997 Registration Statement and incorporated herein by reference
thereto)
10.38 Umbrella Agreement relating to the Sale and Purchase of Assets of
Lucas Assembly & Test Systems in the United Kingdom, Germany and
the United States of America, dated July 29, 1997 (filed as
Exhibit No. 10.52 to the 1997 10-K and incorporated herein by
reference thereto)
10.39 Agreement relating to the Sale and Purchase of the United States
Assets of Lucas Assembly & Test Systems, dated July 29, 1997, by
and among Lucas Automation & Control Engineering, Inc., Lucas
Industries plc and Assembly Technology & Test, Inc. (filed as
Exhibit No. 10.53 to the 1997 10-K and incorporated herein by
reference thereto)
10.40 Agreement relating to the Sale and Purchase of the English Assets
of Lucas Assembly & Test Systems, dated July 29, 1997, by and
among Lucas Limited, Assembly Technology & Test Limited, Lucas
Industries plc and Lucas Automation & Control Engineering Limited
(filed as Exhibit No. 10.54 to the 1997 10-K and incorporated
herein by reference thereto)
10.41 Agreement relating to the Sale and Purchase of the German Assets
of Lucas Assembly & Test Systems, dated July 29, 1997, by and
among Lucas Automation & Control Engineering GmbH, Lucas
Industries plc and Assembly Technologie & Automation GmbH (filed
as Exhibit No. 10.55 to the 1997 10-K and incorporated herein by
reference thereto)
10.42 Industrial Building Lease, dated July 1991, by and between The
Allen Group Inc. and Lucas Hartridge, Inc. (filed as Exhibit No.
10.56 to the 1997 10-K and incorporated herein by reference
thereto)
<PAGE>
11.0 Computation of Earnings Per Share
13.0 Annual Report to Shareholders (portion)
21.0 Subsidiaries of the Registrant
23.0 Consent of PricewaterhouseCoopers LLP
24.0 Powers of Attorney
SECOND AMENDMENT
to
FOURTH AMENDED AND RESTATED CREDIT FACILITIES AGREEMENT
among
NATIONSBANK, N.A., as "Administrative Agent"
and
NATIONSBANK, N.A.
and
THE OTHER LENDERS LISTED ON THE SIGNATURE PAGES HEREOF,
as "Lenders"
and
DT INDUSTRIES, INC.
and
THE OTHER BORROWERS LISTED ON THE SIGNATURE PAGES HEREOF,
as "Borrowers"
This SECOND AMENDMENT to FOURTH AMENDED AND RESTATED CREDIT FACILITIES
AGREEMENT (this "Amendment") is entered into as of April 30, 1998, by and among
DT INDUSTRIES, INC., a Delaware corporation, DT INDUSTRIES (UK) II LIMITED,
ASSEMBLY TECHNOLOGIE & AUTOMATION GMBH, KALISH CANADA INC., and DT CANADA INC.
(separately and collectively, "Borrower"), NATIONSBANK, N.A. ("NationsBank"), as
administrative agent ("Administrative Agent"), and the Lenders.
RECITALS:
A. Borrowers, Administrative Agent, and Lenders are party to that certain
Fourth Amended and Restated Credit Facilities Agreement dated as of July
21, 1997, as amended by that certain First Amendment thereto dated as of
December 31, 1997 (the "Original Loan Agreement").
B. DT Industries, Inc. (referred to herein and in the Original Loan Agreement
as "Domestic Borrower") has created a wholly-owned direct Subsidiary called
DT Resources, Inc. which is a "Significant Subsidiary" under the Original
Loan Agreement but which does not intend to guaranty any of the Loan
Obligations.
C. Detroit Tool Metal Products Co., a wholly-owned Subsidiary of Domestic
Borrower and a Covered Person, intends to sell all of the assets of its
knitting
<PAGE>
elements division to Hit Groep BV for total consideration of approximately
$9,400,000 on or about April 30, 1998.
D. Borrower desires to enter into industrial revenue bond financing from time
to time.
E. The Required Lenders have agreed to amend the Original Loan Agreement to
permit the transactions described in paragraphs B, C, and D above, on the
terms and conditions contained herein.
AMENDMENT
Therefore, in consideration of the mutual agreements herein and other sufficient
consideration, the receipt of which is hereby acknowledged, Borrower and Lenders
hereby amend the Original Loan Agreement as follows:
DEFINITIONS. Capitalized terms used and not otherwise defined herein have the
meanings given them in the Loan Agreement. All references to the "Agreement" or
the "Loan Agreement" in the Original Loan Agreement and in this Amendment shall
be deemed to be references to the Original Loan Agreement as it is amended
hereby and as it may be further amended, restated, extended, renewed, replaced,
or otherwise modified from time to time.
CONDITIONS TO EFFECTIVENESS OF AMENDMENT. This Amendment shall become effective
as of April 30, 1998 (the "Amendment Effective Date"), but only if this
Amendment has been executed by Borrower and the Required Lenders and each of the
documents and requirements listed in Exhibit 2 hereto have been duly executed,
delivered, and/or satisfied, as applicable, in form and substance satisfactory
to Administrative Agent and Required Lenders.
3. AMENDMENTS TO ORIGINAL LOAN AGREEMENT.
DISPOSAL OF PROPERTY. Section 14.6 of the Original Loan Agreement is hereby
amended by inserting the following words after the words "in the
aggregate": "except for the sale by Detroit Tool Metal Products Co. of the
assets of its knitting elements division of Hit Groep BV on or about April
30, 1998 for a total sale price of approximately $9,400,000 provided that
all of the proceeds of such sale, net of all transaction costs, are
promptly paid to Administrative Agent for the ratable benefit of the
Lenders, to be applied to the Revolving Loan and provided that such sale is
consummated on or before May 29, 1998, and except for lease or sale and
leaseback transactions undertaken in connection with Section 14.2.6 of this
Agreement."
2
<PAGE>
INDEBTEDNESS. Section 14.2 of the Original Loan Agreement is hereby amended
by inserting the following Section 14.2.6:
"14.2.6. Indebtedness of any Covered Person, other than German
Borrower, UK Borrower, or Canadian Borrowers with respect to the
proceeds of issued bonds on which the interest is tax exempt under
Section 103 of the Code, so long as the aggregate principal amount
outstanding with respect thereto does not at any time exceed
$15,000,000."
SECURITY INTERESTS. Section 14.4.9 of the Original Loan Agreement is hereby
amended by replacing the figure "$20,000,000" with the figure
"$25,000,000".
WAIVER. Lenders hereby waive the requirement imposed by Section 8.3 or any other
provision of the Loan Agreement which would require DT Resources, Inc. to
guaranty any of the Loan Obligations.
EFFECT OF AMENDMENT. The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of Administrative
Agent or Lenders under the Loan Agreement or any of the other Loan Documents,
nor constitute a waiver of any provision of the Loan Agreement, any of the other
Loan Documents or any existing Default or Event of Default, nor act as a release
or subordination of the Security Interests of Administrative Agent or Lenders
under the Security Documents. Each reference in the Loan Agreement to "the
Agreement", "hereunder", "hereof", "herein", or words of like import, shall be
read as referring to the Loan Agreement as amended by this Amendment.
REAFFIRMATION. Borrower hereby acknowledges and confirms that (i) except as
expressly amended hereby the Loan Agreement remains in full force and effect,
(ii) the Loan Agreement is in full force and effect, (iii) Borrower has no
defenses to its obligations under the Loan Agreement and the other Loan
Documents, and (iv) the Security Interests of Administrative Agent and Lenders
under the Security Documents secure all the Loan Obligations under the Loan
Agreement as amended by this Amendment, continue in full force and effect and
have the same priority as before this Amendment.
GOVERNING LAW. This Amendment has been executed and delivered in St. Louis,
Missouri, and shall be governed by and construed under the laws of the State of
Missouri without giving effect to choice or conflicts of law principles
thereunder.
3
<PAGE>
SECTION TITLES. The section titles in this Amendment are for convenience of
reference only and shall not be construed so as to modify any provisions of this
Amendment.
COUNTERPARTS; FACSIMILE TRANSMISSIONS. This Amendment may be executed in one or
more counterparts and on separate counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. Signatures to this Amendment may be given by facsimile or other
electronic transmission, and such signatures shall be fully binding on the party
sending the same.
INCORPORATION BY REFERENCE. Lenders and Borrower hereby agree that all of the
terms of the Loan Documents are incorporated in and made a part of this
Amendment by this reference.
STATUTORY NOTICE. The following notice is given pursuant to Section 432.045 of
the Missouri Revised Statutes; nothing contained in such notice will be deemed
to limit or modify the terms of the Loan Documents or this Amendment:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW
SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US
(CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE
AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER
AGREE IN WRITING TO MODIFY IT.
BORROWER AND LENDERS HEREBY AFFIRM THAT THERE IS NO UNWRITTEN ORAL CREDIT
AGREEMENT BETWEEN BORROWER AND LENDERS WITH RESPECT TO THE SUBJECT MATTER OF
THIS AMENDMENT.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first above written.
4
<PAGE>
DT INDUSTRIES, INC. a Delaware KALISH CANADA INC., a New Brunswick,
Corporation Canada corporation
By: /s/ Bruce P. Erdel By: /s/ Bruce P. Erdel
---------------------------------- ---------------------------------
Bruce P. Erdel, Vice President - Bruce P. Erdel, Vice President,
Finance and Secretary Treasurer, and Secretary
DT CANADA INC. a New Brunswick, ASSEMBLY TECHNOLOGIE & AUTOMATION
Canada corporation GMBH, a German limited liability
company
By: /s/ Bruce P. Erdel By: /s/ Bruce P. Erdel
---------------------------------- ---------------------------------
Bruce P. Erdel, Vice President, Bruce P. Erdel,
Treasurer and Secretary Geschaftsfuhrer
DT INDUSTRIES (UK) II LIMITED, a
corporation of England and Wales
By: /s/ Bruce P. Erdel
----------------------------------
Bruce P. Erdel, Director
5
<PAGE>
NATIONSBANK, N.A., as Administrative DRESDNER BANK AG NEW YORK AND
Agent and a Lender GRAND CAYMAN BRANCHES
By: /s/ Michael F. Murphy By: /s/ John W. Sweeney
---------------------------------- ---------------------------------
Michael F. Murphy John W. Sweeney
Vice President Assistant Vice President
By: /s/ Brigitte Sachin
---------------------------------
Brigitte Sachin
Assistant Treasurer
THE BANK OF NEW YORK THE BANK OF NOVA SCOTIA
By: /s/ William A. O'Daly By: /s/ F.C.H. Ashby
---------------------------------- ---------------------------------
William A. O'Daly F.C.H. Ashby
Vice President Senior Manager Loan Operations
THE SAKURA BANK, LIMITED BANK OF TOKYO-MITSUBISHI
NEW YORK BRANCH
By: By: /s/ Friedrich N. Wilms
---------------------------------- ---------------------------------
Name: Friedrich N. Wilms
Title: Attorney-In-Fact
6
<PAGE>
THE LONG-TERM CREDIT BANK OF THE SUMITOMO BANK, LIMITED
JAPAN, LTD.
By: /s/ Armund J. Schoen, Jr. By: /s/ J. H. Broadley
---------------------------------- ---------------------------------
Armund J. Schoen, Jr. J. H. Broadley
Senior Vice President Vice President
N.Y. Office
By: /s/ Brian M. Smith
---------------------------------
Brian M. Smith
Senior Vice President &
Regional Manager (East)
NATIONAL CITY BANK
By: /s/ Barry C. Robinson
----------------------------------
Barry C. Robinson
Vice President
7
<PAGE>
EXHIBIT 2
DOCUMENTS AND REQUIREMENTS
1. Second Amendment to Loan Agreement
2. Stock Pledge Agreement executed by DT Industries, Inc. with respect to 100%
of the capital stock of DT Resources, Inc., with original stock
certificates and stock powers executed in blank
3. Good Standing Certificate for DT Resources, Inc.
4. Secretary's Certificate for DT Resources, Inc., certifying Articles of
Incorporation, Bylaws, and Incumbency.
8
THIRD AMENDMENT
to
FOURTH AMENDED AND RESTATED CREDIT FACILITIES AGREEMENT
among
NATIONSBANK, N.A., as "Administrative Agent"
and
NATIONSBANK, N.A.
and
THE OTHER LENDERS LISTED ON THE SIGNATURE PAGES HEREOF,
as "Lenders"
and
DT INDUSTRIES, INC.
and
THE OTHER BORROWERS LISTED ON THE SIGNATURE PAGES HEREOF,
as "Borrowers"
This THIRD AMENDMENT to FOURTH AMENDED AND RESTATED CREDIT FACILITIES
AGREEMENT (this "Amendment") is entered into as of August 26, 1998, by and among
DT INDUSTRIES, INC., a Delaware corporation, DT INDUSTRIES (UK) II LIMITED,
ASSEMBLY TECHNOLOGIE & AUTOMATION GMBH, KALISH CANADA INC., and DT CANADA INC.
(separately and collectively, "Borrower"), NATIONSBANK, N.A. ("NationsBank"), as
administrative agent ("Administrative Agent"), and the Lenders.
RECITALS:
A. Borrower and Lenders are party to that certain Fourth Amended and Restated
Credit Facilities Agreement dated as of July 21, 1997, as amended by that
certain First Amendment thereto dated as of December 31, 1997, as further
amended by that certain Second Amendment thereto dated as of April 30, 1998
(the "Original Loan Agreement").
B. DT Industries, Inc. (referred to herein and in the Original Loan Agreement
as "Domestic Borrower") desires to have the ability to repurchase more of
its common stock than is permitted by the Original Loan Agreement.
C. The Required Lenders have agreed to amend the Original Loan Agreement to
permit such stock repurchase on the terms and conditions contained herein.
AMENDMENT
Therefore, in consideration of the mutual agreements herein and other sufficient
consideration, the receipt of which is hereby acknowledged, Borrower and Lenders
hereby amend the Original Loan Agreement as follows:
<PAGE>
1. DEFINITIONS. Capitalized terms used and not otherwise defined herein have
the meanings given them in the Loan Agreement. All references to the "Agreement"
or the "Loan Agreement" in the Original Loan Agreement and in this Amendment
shall be deemed to be references to the Original Loan Agreement as it is amended
hereby and as it may be further amended, restated, extended, renewed, replaced,
or otherwise modified from time to time.
2. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. This Amendment shall become
effective as of August 26, 1998 (the "Amendment Effective Date"), but only if
this Amendment has been executed by Borrower and the Required Lenders.
3. AMENDMENTS TO ORIGINAL LOAN AGREEMENT.
3.1. GLOSSARY. Exhibit 2.1 of the Original Loan Agreement is hereby amended
by deleting the definition of "Permitted Stock Repurchase" in its entirety and
replacing it with the following definition:
"Permitted Stock Repurchase - any purchase by Domestice Borrower of
its own common stock made on reasonable terms in an arm's length
transaction (including open market purchases) which does not cause the
total expenditures by Domestic Borrower in all such transactions, in
the aggregate (calculated on a cumulative basis beginning on the
Effective Date), to exceed $70,000,000."
4. EFFECT OF AMENDMENT. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of
Administrative Agent or Lenders under the Loan Agreement or any of the other
Loan Documents, nor constitute a waiver of any provision of the Loan Agreement,
any of the other Loan Documents or any existing Default or Event of Default, nor
act as a release or subordination of the Security Interests of Administrative
Agent or Lenders under the Security Documents. Each reference in the Loan
Agreement to "the Agreement", "hereunder", "hereof", "herein", or words of like
import, shall be read as referring to the Loan Agreement as amended by this
Amendment.
5. REAFFIRMATION. Borrower hereby acknowledges and confirms that (i) except as
expressly amended hereby the Loan Agreement remains in full force and effect,
(ii) the Loan Agreement is in full force and effect, (iii) Borrower has no
defenses to its obligations under the Loan Agreement and the other Loan
Documents, (iv) the Security Interests of Administrative Agent and Lenders under
the Security Documents secure all the Loan Obligations under the Loan Agreement
as amended by this Amendment, continue in full force and effect and have the
same priority as before this Amendment, and (v) Borrower has no claim against
Administrative Agent or any Lender arising from or in connection with the Loan
Agreement or the other Loan Documents, other than potential claims against
Lenders arising from penalties assessed against Borrower for the failure of
Borrower to pay any withholding Tax imposed by the United Kingdom prior to April
30, 1998.
2
<PAGE>
6. GOVERNING LAW. This Amendment has been executed and delivered in St. Louis,
Missouri, and shall be governed by and construed under the laws of the State of
Missouri without giving effect to choice or conflicts of law principles
thereunder.
7. SECTION TITLES. The section titles in this Amendment are for convenience of
reference only and shall not be construed so as to modify any provisions of this
Amendment.
8. COUNTERPARTS; FACSIMILE TRANSMISSIONS. This Amendment may be executed in
one or more counterparts and on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. Signatures to this Amendment may be given by facsimile or other
electronic transmission, and such signatures shall be fully binding on the party
sending the same.
9. INCORPORATION BY REFERENCE. Lenders and Borrower hereby agree that all of
the terms of the Loan Documents are incorporated in and made a part of this
Amendment by this reference.
10. STATUTORY NOTICE. The following notice is given pursuant to Section 432.045
of the Missouri Revised Statutes; nothing contained in such notice will be
deemed to limit or modify the terms of the Loan Documents or this Amendment:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW
SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US
(CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE
AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER
AGREE IN WRITING TO MODIFY IT.
BORROWER AND LENDERS HEREBY AFFIRM THAT THERE IS NO UNWRITTEN ORAL CREDIT
AGREEMENT BETWEEN BORROWER AND LENDERS WITH RESPECT TO THE SUBJECT MATTER OF
THIS AMENDMENT.
[the next page is the signature page]
3
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first above written.
DT INDUSTRIES, INC. a Delaware KALISH CANADA INC., a New Brunswick,
Corporation Canada corporation
By: /s/ Bruce P. Erdel By: /s/ Bruce P. Erdel
---------------------------------- ---------------------------------
Bruce P. Erdel, Senior Vice Bruce P. Erdel, Vice President
President - Finance and and Treasurer
Administration
DT CANADA INC. a New Brunswick, ASSEMBLY TECHNOLOGIE & AUTOMATION
Canada corporation GMBH, a German limited liability
company
By: /s/ Bruce P. Erdel By: /s/ Bruce P. Erdel
---------------------------------- ---------------------------------
Bruce P. Erdel, Vice President Bruce P. Erdel,
and Treasurer Geschaftsfuhrer
DT INDUSTRIES (UK) II LIMITED, a
corporation of England and Wales
By: /s/ Bruce P. Erdel
----------------------------------
Bruce P. Erdel, Director
[signature pages continue]
4
<PAGE>
NATIONSBANK, N.A., as Administrative DRESDNER BANK AG NEW YORK AND
Agent and a Lender GRAND CAYMAN BRANCHES
By: /s/ Michael F. Murphy By: /s/ Beverly G. Cason
---------------------------------- ---------------------------------
Michael F. Murphy Beverly G. Cason
Vice President Vice President
By: /s/ John W. Sweeney
---------------------------------
John W. Sweeney
Assistant Vice President
THE BANK OF NEW YORK THE BANK OF NOVA SCOTIA
By: /s/ Christine C. Bailey By: /s/ F.C.H. Ashby
---------------------------------- ---------------------------------
Christine C. Bailey F.C.H. Ashby
Assistant Vice President Senior Manager Loan Operations
THE SAKURA BANK, LIMITED BANK OF TOKYO-MITSUBISHI
NEW YORK BRANCH
By: /s/ Yasuhiro Terada By: /s/ Friedrich N. Wilms
---------------------------------- ---------------------------------
Yasuhiro Terada Friedrich N. Wilms
Senior Vice President Attorney-In-Fact
[signature pages continue]
5
<PAGE>
THE LONG-TERM CREDIT BANK OF THE SUMITOMO BANK, LIMITED
JAPAN, LTD.
By: By: /s/ J. H. Broadley
---------------------------------- ---------------------------------
J. H. Broadley
Vice President
N.Y. Office
By: /s/ Brian M. Smith
---------------------------------
Brian M. Smith
Senior Vice President &
Regional Manager (East)
NATIONAL CITY BANK
By: /s/ Barry C. Robinson
----------------------------------
Barry C. Robinson
Vice President
6
DT INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------
June 28, June 29,
1998 1997
-------- --------
<S> <C> <C>
Income before extraordinary loss $ 30,884 $ 26,381
Extraordinary loss 1,200 324
-------- --------
Net income $ 29,684 $ 26,057
======== ========
Basic:
Weighted average number of outstanding common shares 11,297 10,349
======== ========
Basic earnings per common share:
Income before extraordinary loss $ 2.73 $ 2.55
Extraordinary loss 0.10 0.03
-------- --------
Net income $ 2.63 $ 2.52
======== ========
Diluted:
Weighted average number of outstanding common shares 11,297 10,349
Add dilutive effect of stock options based on treasury
stock method using average market price 394 472
Add shares contingently issuable to the former
owner of Kalish 124 121
Shares issuable upon assumed conversion of the
Mandatorily Redeemable Convertible Preferred Securities 1,806 80
-------- --------
Diluted weighted average number of common shares and
dilutive potential common shares outstanding 13,621 11,022
======== ========
Net income $ 29,684 $ 26,057
Interest expense on Mandatorily Redeemable Convertible
Preferred Securities, net of applicable income taxes 3,008 151
-------- --------
Net income, adjusted $ 32,692 $ 26,208
======== ========
Diluted earnings per common share:
Income before extraordinary loss $ 2.49 $ 2.41
Extraordinary loss 0.09 0.03
-------- --------
Net income $ 2.40 $ 2.38
======== ========
</TABLE>
Exhibit 13
to
Report on Form 10-K
for
Fiscal Year Ended
June 28, 1998
by DT Industries, Inc.
Excerpts from Annual Report to Shareholders for the fiscal year
ended June 28, 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
June 28, June 29, June 30, June 25, June 26,
(In thousands, except per share data) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of operations data
Net sales $ 519,342 $ 396,110 $ 235,946 $ 147,369 $ 107,499
Cost of sales 380,126 285,044 172,568 109,678 79,555
---------- ---------- ---------- ---------- ----------
Gross profit 139,216 111,066 63,378 37,691 27,944
Selling, general and administrative 75,246 54,367 35,445 21,428 13,875
expenses
Loss on sale of assets of Knitting
Elements division 1,383 --- --- --- ---
---------- ---------- ---------- ---------- ----------
Operating income 62,587 56,699 27,933 16,263 14,069
Interest expense, net 6,509 11,088 4,799 1,849 3,506
Dividends on Company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary
DT Capital Trust holding solely
convertible junior subordinated
debentures of the Company 5,012 251 --- --- ---
---------- ---------- ---------- ---------- ----------
Income before income taxes and
extraordinary loss 51,066 45,360 23,134 14,414 10,563
Provision for income taxes 20,182 18,979 9,643 5,964 4,570
---------- ---------- ---------- ---------- ----------
Income before extraordinary loss 30,884 26,381 13,491 8,450 5,993
Extraordinary loss, net(1) 1,200 324 --- --- 179
---------- ---------- ---------- ---------- ----------
Net income $ 29,684 $ 26,057 $ 13,491 $ 8,450 $ 5,814
========== ========== ========== ========== ==========
Diluted earnings per common share
before extraordinary loss $ 2.49 $ 2.41 $ 1.50 $ 0.94 $ 1.10
========== ========== ========== ========== ==========
Diluted earnings per common share $ 2.40 $ 2.38 $ 1.50 $ 0.94 $ 1.07
========== ========== ========== ========== ==========
Diluted weighted average common shares
outstanding 13,621 11,022 9,001 9,000 5,458
========== ========== ========== ========== ==========
Balance sheet data
Working capital $ 108,440 $ 90,981 $ 26,161 $ 16,791 $ 8,846
Total assets 406,002 395,196 233,843 159,263 97,628
Total debt 90,011 48,505 79,327 37,353 432
Company-obligated, mandatorily redeemable
convertible preferred securities of
subsidiary DT Capital Trust holding
solely convertible junior subordinated
debentures of the Company 70,000 70,000 --- --- ---
Stockholders' equity 190,059 185,267 87,884 75,020 67,234
</TABLE>
1 Reflects costs incurred of $2,000, less applicable income tax benefits of
$800 in the fiscal year ended June 28, 1998, costs incurred of $540, less
applicable income tax benefits of $216 in the fiscal year ended June 29,
1997, and costs incurred of $314, less applicable income tax benefits of
$135 in the fiscal year ended June 26, 1994, related to the extinguishment
and refinancing of debt by the Company.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
DT Industries, Inc. (DTI or the Company) was formed through a series of
acquisitions beginning with the initial acquisitions of Detroit Tool Group, Inc.
and the Peer Division of Teledyne, Inc. in 1992. Subsequent to those
transactions, the Company or its subsidiaries completed a number of acquisitions
for the Special Machines and Components segments. The acquisitions are elements
of a strategic plan to acquire companies with proprietary products and
manufacturing capabilities which have strong market and technological positions
in the niche markets they serve and to further 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
has allowed it to broaden its product offerings and to provide customers a
single source for complete integrated automation systems. The acquisitions have
expanded the Company's base of customers and markets, creating greater
opportunities for cross-selling among the various divisions of the Company.
The Company has made the following acquisitions in the past three years
which affected the results of operations:
August 1995 H. G. Kalish Inc. (Kalish)
September 1995 Arrow Precision Elements, Inc. (Arrow)
November 1995 Swiftpack Automation Ltd. (Swiftpack)
January 1996 Assembly Machines, Inc. (AMI)
July 1996 Mid-West Automation Enterprises, Inc. (Mid-West)
September 1996 Hansford Manufacturing Corporation (Hansford)
July 1997 Lucas Assembly and Test Systems (LATS),
renamed Assembly Technology & Test (ATT)
In August 1998, after the close of fiscal 1998, the Company completed the
acquisition of certain of the net assets of Scheu & Kniss, Inc. for
approximately $10.2 million. Scheu & Kniss, located in Louisville, Kentucky, is
a manufacturer of tablet press replacement parts and rebuild services serving
primarily the pharmaceutical, nutritional, battery and confectionery industries.
Annualized sales of Scheu & Kniss approximate $7.5 million.
For a better understanding of the significant factors that influenced the
Company's performance during the past three years, the following discussion
should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere in this Annual Report.
The Company operates in two business segments: Special Machines, including
the Automation and Packaging Groups, 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 for the transportation, agricultural equipment,
appliance, heavy equipment, and electrical industries. The Knitting Elements
division of the Components segment, including Arrow Precision Elements, Inc.
noted previously, was sold in May 1998.
Due to the significant acquisitions in recent years by the Special Machines
segment and the sale of the Knitting Elements division, as of and for the fiscal
year ended June 28, 1998, the Components segment has become less significant to
the Company as a whole and no longer qualifies for separate disclosure as
specified by Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise." The Company has included
certain separate disclosures for the Components segment in the fiscal 1998
consolidated financial statements to enhance comparability with prior periods.
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Set forth below is certain financial data relating to each business segment
(in thousands):
Fiscal Year Ended
June 28, June 29, June 30,
1998 1997 1996
---------- ---------- ----------
Net sales
Special Machines
DTI Automation $ 355,052 $ 248,213 $ 106,217
DTI Packaging 116,803 100,435 87,667
---------- ---------- ----------
Total Special Machines 471,855 348,648 193,884
Components 47,487 47,462 42,062
---------- ---------- ----------
Total $ 519,342 $ 396,110 $ 235,946
========== ========== ==========
Gross profit
Special Machines $ 130,714 $ 100,215 $ 53,299
Gross margin 27.7% 28.7% 27.5%
Components 8,502 10,851 10,079
Gross margin 17.9% 22.9% 24.0%
---------- ---------- ----------
Total gross profit $ 139,216 $ 111,066 $ 63,378
Total gross margin 26.8% 28.0% 26.9%
========== ========== ==========
Operating income
Special Machines $ 68,237 $ 56,787 $ 26,557
Operating margin 14.5% 16.3% 13.7%
Components 3,391 6,966 6,934
Operating margin 7.1% 14.7% 16.5%
Corporate (9,041) (7,054) (5,558)
---------- ---------- ----------
Total operating income $ 62,587 $ 56,699 $ 27,933
Total operating margin 12.1% 14.3% 11.8%
========== ========== ==========
Depreciation and amortization expense
Special Machines $ 11,507 $ 8,891 $ 4,683
Components 1,491 1,258 1,038
Corporate 752 904 395
---------- ---------- ----------
Total $ 13,750 $ 11,053 $ 6,116
========== ========== ==========
Capital expenditures
Special Machines $ 12,754 $ 7,424 $ 6,145
Components 3,459 3,806 2,138
Corporate 1,101 620 1,966
---------- ---------- ----------
Total $ 17,314 $ 11,850 $ 10,249
========== ========== ==========
Identifiable assets
Special Machines $ 428,039 $ 357,337 $ 203,210
Components 25,170 34,812 28,528
Corporate 6,793 3,047 2,105
---------- ---------- ----------
Total $ 460,002 $ 395,196 $ 233,843
========== ========== ==========
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Gross margin of the Special Machines segment may vary from year to year 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 margin for the Special Machines
segment. The Special Machines segment's gross and operating margins were
expected to be lower in fiscal 1998 as a result of the acquisition of ATT in
July 1997. ATT's historical margins have been lower than the Special Machines
segment's historical margins.
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.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items reflected in the Company's
consolidated statement of operations:
<TABLE>
<CAPTION>
Fiscal Year Ended
June 28, June 29, June 30,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 73.2 72.0 73.1
---------- ---------- ----------
Gross profit 26.8 28.0 26.9
Selling, general and administrative expenses 14.5 13.7 15.1
Loss on sale of assets of Knitting Elements
division 0.2 --- ---
---------- ---------- ----------
Operating income 12.1 14.3 11.8
Interest expense 1.3 2.8 2.0
Dividends on Company-obligated, mandatorily
redeemable convertible preferred securities
of subsidiary DT Capital Trust holding solely
convertible junior subordinated debentures
of the Company 1.0 0.1 ---
---------- ---------- ----------
Income before provision for income taxes
and extraordinary loss 9.8 11.4 9.8
Provision for income taxes 3.9 4.8 4.1
---------- ---------- ----------
Income before extraordinary loss 5.9 6.6 5.7
Extraordinary loss on debt refinancing 0.2 0.1 ---
---------- ---------- ----------
Net income 5.7% 6.5% 5.7%
========== ========== ==========
</TABLE>
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES
Consolidated net sales increased $123.2 million, or 31.1%, to $519.3
million for the year ended June 28, 1998, from $396.1 million for the year ended
June 29, 1997. Of the $123.2 million increase in sales, $107.4 million was due
to the incremental sales of recently acquired businesses offset by the reduction
in sales from the disposition of the Knitting Elements division, with the
remaining $15.8 million, or 4.0%, 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 $123.2 million while sales
by the Components segment were substantially equal to fiscal 1997 at $47.5
million. The increase in sales by the Special Machines segment was due to an
increase in sales from existing businesses of $14.3 million, or 4.1%, over the
year ended June 29, 1997, and $108.9 million in incremental sales from recently
acquired businesses. Special Machines segment sales from existing businesses
increased due to the growth occurring in sales of packaging systems, including
thermoforming and extrusion systems and liquid and tablet packaging lines. Sales
of automated assembly and test systems were down slightly from the prior year
reflecting lower sales of assembly systems to certain customers in the
electronics industry partially offset by the growth in sales of welding systems,
custom build-to-print machines and sales of systems to customers in the
automotive industry. The Components segment sales were unchanged from the prior
year reflecting growth in sales of parts to customers in the transportation and
agricultural equipment industries offset by reduced sales of the Knitting
Elements business which was sold in May 1998.
GROSS PROFIT
Gross profit increased $28.1 million, or 25.3%, to $139.2 million for the
year ended June 28, 1998, from $111.1 million for the year ended June 29, 1997,
as a result of the sales increases discussed above. The gross margin decreased
to 26.8% from 28.0%, primarily as a result of acquired businesses. Gross margin
exclusive of acquired operations decreased to 27.7%, primarily reflecting the
decline in the gross margin of the Components segment. The Components segment's
gross margin continues to remain below historical levels as a result of
production inefficiencies. The Company believes it has taken steps to bolster
operating management and implement systems and processes to improve productivity
and profitability.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES
SG&A expenses increased $20.8 million, or 38.4%, to $75.2 million for the
year ended June 28, 1998, from $54.4 million for the year ended June 29, 1997.
The increase was primarily due to recently acquired businesses, with the
remaining increase the result of personnel additions, increased costs related to
compensation and incentive programs, professional fees, commissions and travel
costs, most of which related to the overall growth of the Company. The
additional professional fees pertained to the selection of the core business
system and various tax and human resource consulting projects. As a percentage
of consolidated net sales, SG&A expenses increased to 14.5% from 13.7%.
LOSS ON THE SALE OF ASSETS OF KNITTING ELEMENTS DIVISION
On May 1, 1998, the Company sold substantially all of the assets of its
non-core Knitting Elements division for $9.4 million. DTI incurred a
non-recurring, non-cash operating charge of $1.4 million related to the sale.
The loss, net of the estimated tax benefit, lowered diluted earnings per share
by $0.06.
OPERATING INCOME
Operating income increased $5.9 million, or 10.4%, to $62.6 million for the
year ended June 28, 1998, from $56.7 million for the year ended June 29, 1997,
as a result of the factors noted above. Excluding the Knitting Elements
divestiture, the operating margin decreased to 12.3% from 14.3% in the prior
year as a result of the lower operating margins of recently acquired businesses
and factors discussed above.
INTEREST EXPENSE
Interest expense decreased to $6.5 million for the year ended June 28,
1998, from $11.1 million for the year ended June 29, 1997. The decrease in
interest expense is the result of the public offering of common
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
stock in November 1996, the Convertible Preferred Securities (as defined below)
offering in June 1997 and operating cash flow in fiscal 1998 which allowed the
Company to retire debt.
DIVIDENDS ON COMPANY-OBLIGATED, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY DT CAPITAL TRUST
Dividends on the Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust holding solely the Company's
convertible subordinated debentures (Convertible Preferred Securities) were $5.0
million for the fiscal year ended June 28, 1998, and $0.3 million for the fiscal
year ended June 29, 1997. The Convertible Preferred Securities offering was
completed in June 1997.
INCOME TAXES
Provision for income taxes increased to $20.2 million for the year ended
June 28, 1998, from $19.0 million for the year ended June 29, 1997, reflecting
an effective tax rate of approximately 39.5% and 41.8% for each period,
respectively. This rate differs from statutory rates due to permanent
differences primarily related to non-deductible goodwill amortization on certain
acquisitions. The decrease in the effective tax rate in fiscal 1998 primarily
reflects the effect of lower state taxes.
NET INCOME, EXTRAORDINARY LOSSES AND EARNINGS PER SHARE
Income before extraordinary loss increased to $30.9 million for the year
ended June 28, 1998, from $26.4 million for the year ended June 29, 1997 as a
result of the factors noted above. Due to the extinguishments and refinancings
of debt in fiscal 1998 and 1997, the Company recognized extraordinary losses of
$1.2 million, or $0.10 per share, in July 1997 attributable to the write-off of
$2.0 million unamortized deferred financing fees, less applicable income tax
benefits of $0.8 million and $0.3 million, or $0.03 per share, in July 1996
attributable to the write-off of $0.5 million unamortized deferred financing
fees, less applicable income benefits of $0.2 million. As a result, net income
was $29.7 million for the year ended June 28, 1998, versus $26.1 million for the
year ended June 29, 1997.
Diluted earnings per common share before the extraordinary losses and after
the loss on the sale of assets of the Knitting Elements division in fiscal 1998
were $2.49 for the year ended June 28, 1998, versus $2.41 for the year ended
June 29, 1997. After the extraordinary losses, diluted earnings per common share
were $2.40 and $2.38 for the years ended June 28, 1998, and June 29, 1997,
respectively. On a diluted basis, weighted average common shares and dilutive
potential common shares outstanding for the year ended June 28, 1998, were 13.6
million versus 11.0 million for the year ended June 29, 1997. The increase in
weighted average common and dilutive potential common shares outstanding
reflects the 2.25 million shares of common stock issued in a public offering in
November 1996 and the assumed conversion of the Convertible Preferred
Securities.
Basic earnings per common share before the extraordinary losses were $2.73
for the year ended June 28, 1998, versus $2.55 for the year ended June 29, 1997.
After the extraordinary losses, basic earnings per common share were $2.63 and
$2.52 for the years ended June 28, 1998, and June 29, 1997, respectively. The
basic weighted average common shares outstanding for the year ended June 28,
1998 were 11.3 million versus 10.3 million for the year ended June 29, 1997. The
increase is primarily the result of the 2.25 million shares of common stock
issued in a public offering in November 1996. Prior year earnings per common
share and weighted average common and dilutive potential common shares
outstanding have been restated to reflect Statement of Financial Accounting
Standards No. 128, "Earnings Per Share."
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES
Consolidated net sales increased $160.2 million, or 67.9%, to $396.1
million for the year ended June 29, 1997, from $235.9 million for the year ended
June 30, 1996. Of the $160.2 million increase in sales, $139.3 million was due
to the incremental sales of recently acquired businesses, with the remaining
$20.9 million, or 8.8%, relating to increased sales from existing businesses.
Recently acquired businesses included Kalish in August 1995, Arrow in September
1995, Swiftpack in November 1995, AMI in January 1996, Mid-West in July 1996 and
Hansford in September 1996.
Sales by the Special Machines segment increased $154.8 million and sales by
the Components segment increased $5.4 million. The increase in sales by the
Special Machines segment was due to an increase in sales from existing
businesses of $16.7 million, or 8.6%, over the year ended June 30, 1996, and
$138.1 million in incremental sales from recently acquired businesses. Sales
from existing businesses were up due to the strong growth occurring in assembly
systems, welding systems, foam extrusion equipment and liquid and tablet
packaging systems. The increases in sales of assembly and welding systems
reflects international expansion by certain customers and DTI's increased
penetration into new markets. Foam extrusion equipment sales have grown
significantly, led by a strong international market. The growth in sales of
assembly, welding, foam extrusion and packaging systems was partially offset by
a decrease in sales of custom build-to-print machines. The increase in sales by
the Components segments was due to an increase in sales from existing businesses
of $4.2 million, or 9.9%, over the year ended June 30, 1996, and $1.2 million in
incremental sales relating to the Arrow acquisition. The increase in sales of
the Components segment is a result of the sales increases to a significant
customer in the agricultural equipment industry and sales to new customers in
new markets. These gains offset the substantial decline in sales to customers in
the transportation industry as a result of the trucking industry downturn.
GROSS PROFIT
Gross profit increased $47.7 million, or 75.2%, to $111.1 million for the
year ended June 29, 1997, from $63.4 million for the year ended June 30, 1996,
as a result of the sales increases discussed above and gross profit margin
improvement. The gross margin increased to 28.0% from 26.9%. Gross margin
exclusive of acquired operations increased to 27.7% reflecting a more favorable
product mix within the Special Machines segment. The Components segment gross
margin decreased to 22.9% from 24.0% primarily due to decreased productivity
resulting from the increase in new business and the related start up costs.
SG&A EXPENSES
SG&A expenses increased $19.0 million, or 53.4%, to $54.4 million for the
year ended June 29, 1997, from $35.4 million for the year ended June 30, 1996.
The increase was primarily due to recently acquired businesses, with the
remaining increase the result of personnel additions, increased costs related to
compensation and incentive programs, consulting fees and increased travel and
marketing costs, most of which related to the overall growth of the Company and
the development of group operating structures and systems. As a percentage of
consolidated net sales, SG&A expenses decreased to 13.7% from 15.1%. The
percentage decrease resulted primarily from lower SG&A expenses as a percentage
of sales associated with recently acquired businesses.
OPERATING INCOME
Operating income increased $28.8 million, or 103.0%, to $56.7 million for
the year ended June 29, 1997, from $27.9 million for the year ended June 30,
1996, as a result of the factors noted above. The operating margin increased to
14.3% from 11.8% in the prior year.
INTEREST EXPENSE
Interest expense increased to $11.1 million for the year ended June 29,
1997, from $4.8 million for the year ended June 30, 1996. The increase in
interest expense resulted primarily from the increase in the debt level of the
Company to finance recent acquisitions and meet working capital requirements
partially offset
-14-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
by the net proceeds of an offering of common stock in November 1996. The
Company's sale of Convertible Preferred Securities had little effect on interest
expense for fiscal 1997 as that offering was not completed until June 1997.
DIVIDENDS ON COMPANY-OBLIGATED, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY DT CAPITAL TRUST
Dividends on the Convertible Preferred Securities were $0.3 million for the
fiscal year ended June 29, 1997. The Convertible Preferred Securities offering
was completed in June 1997.
INCOME TAXES
Provision for income taxes increased to $19.0 million for the year ended
June 29, 1997, from $9.6 million for the year ended June 30, 1996, reflecting an
effective tax rate of approximately 42% for each period. This rate differs from
statutory rates due to permanent differences primarily related to non-deductible
goodwill amortization on certain acquisitions.
NET INCOME, EXTRAORDINARY LOSSES AND EARNINGS PER SHARE
Income before extraordinary loss increased to $26.4 million for the year
ended June 29, 1997, from $13.5 million for the year ended June 30, 1996, as a
result of the factors noted above. The Company recognized an extraordinary loss
of $0.3 million, or $0.03 per share, attributable to the write-off of $0.5
million unamortized deferred financing fees, net of related $0.2 million tax
benefit, due to the extinguishment and refinancing of the Company's debt in July
1996. As a result, net income was $26.1 million for the year ended June 29,
1997.
Diluted earnings per common share before the extraordinary loss were $2.41
for the year ended June 29, 1997, versus $1.50 for the year ended June 30, 1996.
On a diluted basis, weighted average common shares and dilutive potential common
shares outstanding for the year ended June 29, 1997, were 11.0 million versus
9.0 million for the year ended June 30, 1996. The increase is a result of the
issuance of common stock in November 1996 and the dilutive effect of certain
common stock equivalents, including stock options and the estimated contingent
shares which may be issuable in conjunction with the Kalish acquisition.
Basic earnings per common share before the extraordinary loss were $2.55
for the year ended June 29, 1997, versus $1.50 for the year ended June 30, 1996.
After the extraordinary loss, basic earnings per common share were $2.52 and
$1.50 for the years ended June 29, 1997 and June 30, 1996 respectively. The
basic weighted average common shares outstanding for the year ended June 29,
1997, were 10.3 million versus 9.0 million for the year ended June 30, 1996. The
increase is a result of the issuance of common stock in a public offering in
November 1996.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1998, net cash provided by operating activities was
approximately $43.8 million. During fiscal 1997, net cash used by operating
activities was approximately $0.7 million. During fiscal 1996, net cash provided
by operating activities was approximately $15.1 million. Net income plus
non-cash operating charges provided $46.8 million, $40.1 million and $20.7
million of operating cash flow in fiscal 1998, 1997 and 1996, respectively.
For the fiscal year ended June 28, 1998, net increases in working capital
balances used operating cash of $3.0 million. The increase in working capital
from June 29, 1997 reflects the growth in the packaging systems businesses,
primarily contributing to an increase in inventory and costs and earnings in
excess of amounts billed. These increases were partially offset by the lower
level of manufacturing activity related to certain electronics customers,
contributing to the overall decrease in accounts receivable.
In fiscal 1997, working capital balances increased $40.8 million primarily
due to a $26.5 million increase in accounts receivable and a $7.2 million
increase in inventory. These increases were driven by the increased level of
manufacturing activity in the Special Machines segment and a trend toward larger
dollar value and longer lead time projects as well as the strong level of
shipments in the final months of the year.
In fiscal 1996, working capital balances increased $5.6 million primarily
due to the increased investment in current assets as a result of the increased
sales and backlog, a decrease in customer advances due to
-15-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
unusually large advances at June 25, 1995, and large deposits to certain
suppliers at June 30, 1996.
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.
The generation of $43.8 million of cash from operations during fiscal 1998
was combined with additional net borrowings on the revolving credit agreements
of $40.8 million and the proceeds from the sale of assets of the Knitting
Elements division of $9.4 million to provide funding for the acquisition of ATT
for $46.7 million, capital expenditures of $17.3 million and the repurchase of
0.9 million shares of the Company's common stock for $24.4 million. The Company
completed the repurchase of an aggregate 1 million shares of common stock in
July 1998 at a total cost of $27.5 million. In August 1998, the Company's Board
of Directors authorized purchases of up to 1 million additional shares of the
Company's common stock. The repurchased shares will be used primarily for
employee stock option programs.
On July 21, 1997, the Company replaced the Second Amended and Restated
Credit Facilities Agreement and the foreign currency denominated term facility
then outstanding 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 sub-limit for multi-currency borrowings in Pounds
Sterling and Deutsche Marks. At June 28, 1998, the Company had borrowed $88.4
million under the multi-currency credit facility. 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. At June 28, 1998, interest rates on the multi-currency
credit facility ranged from 4.1% to 8.5%. 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 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 Company also maintains revolving credit facilities of approximately
$3.0 million through its foreign subsidiaries. At June 28, 1998, total
outstanding indebtedness under such facilities was approximately $1.4 million.
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 $72.2 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. The net
proceeds of the offering of approximately $67.8 million 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.
During fiscal 1997, the Company also completed the public offering of 2.25
million shares of its common stock at a price to the public of $34.50 per share,
raising $73.5 million after deducting issuance costs. The proceeds
-16-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
received by the Company from the offering were used to reduce indebtedness.
In August 1998, the Company completed the acquisition of the assets of
Scheu & Kniss, Inc., a Louisville, Kentucky-based manufacturer of tablet press
replacement parts and rebuild services serving primarily the pharmaceutical,
nutritional, battery and confectionery industries. The purchase price of
approximately $10.2 million was primarily financed by borrowings under the
Company's revolving credit facility. Annualized sales of Scheu & Kniss
approximate $7.5 million. As the transaction occurred subsequent to the end of
fiscal 1998, the balance sheet and results of operations of Scheu & Kniss are
excluded from the fiscal 1998 consolidated balance sheet and results of
operations of DTI. The pro forma effects of the Scheu & Kniss acquisition on the
Company's fiscal 1998 financial position and results of operations are not
material.
Capital expenditures were $17.3 million in fiscal 1998. Management
anticipates that capital expenditures for fiscal 1999 will range from
approximately $20 million to $25 million. This includes recurring replacement or
refurbishment of machinery and equipment and purchases to improve production
methods or processes or to expand manufacturing capabilities. Incremental
capital expenditures in fiscal 1999 are expected to include the purchase and
expansion of a previously leased packaging facility for approximately $7 million
and expected second year costs of approximately $7 million related to the
continued implementation of an integrated financial and operations core business
system. Implementation of the core business system across the Company's
operating units is expected to be substantially completed by the end of fiscal
2001. Funding for capital expenditures is expected to be provided by cash from
operating activities and through the Company's credit facilities.
The Company paid quarterly cash dividends of $0.02 per share on September
15, 1997, December 15, 1997, March 14, 1998 and June 15, 1998, to stockholders
of record on September 2, 1997, November 28, 1997, February 27, 1998, and May
29, 1998, respectively.
Based on its ability to generate funds from operations and the availability
of funds under its current credit facilities, the Company believes it will have
sufficient funds available to meet its currently anticipated operating and
capital expenditure requirements.
BACKLOG
The Company's backlog is based upon customer purchase orders the Company
believes are firm. As of June 28, 1998, the Company had $224.8 million of orders
in backlog, which compares to a backlog of approximately $175.5 million as of
June 29, 1997. The acquisition of ATT increased the backlog $69.3 million at
June 28, 1998, in comparison to June 29, 1997. Excluding the effect of this
acquisition, backlog would have been $155.5 million at June 28, 1998, a decrease
of $20.0 million, or 11.4%, from a year ago.
The backlog for the Special Machines segment at June 28, 1998, was $219.2
million, an increase of $51.2 million from a year ago. Excluding the effect of
the ATT acquisition, the Special Machines backlog decreased $18.1 million or
10.7%. This decrease is primarily the result of the drop in orders with certain
electronics customers. Backlog for the Components segment was $5.6 million at
June 28, 1998, a decrease of $1.9 million, or 25.3%, from the $7.5 million
backlog a year ago. The lower Components segment backlog is a result of the
Company's efforts to discontinue production of various low margin parts coupled
with the sale of the Knitting Elements division.
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 fiscal 1999.
OUTLOOK
Fiscal 1998 orders for the Special Machines segment were affected by lesser
demand from certain significant customers in the electronics industry, a trend
that is expected to continue into fiscal 1999. Additionally, certain significant
agricultural equipment customers within the Components segment are forecasting a
decrease in orders for certain parts, resulting in the expectation of lower
revenues in the first half of fiscal
-17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
1999. The combination of softness in backlog and the expected softness in order
opportunities in the near term for these significant customers is expected to
result in lower first half revenues for fiscal 1999.
FOREIGN OPERATIONS
The Company's primary foreign operations are conducted through its
subsidiaries in Canada, the United Kingdom and Germany. The functional
currencies of these subsidiaries are the currencies native to the specific
country in which the subsidiary is located. Foreign operations accounted for
approximately 18%, 7% and 12% of the Company's net sales and approximately 20%,
9% and 14% of the Company's earnings from operations in fiscal 1998, 1997 and
1996, respectively.
MARKET RISK
In the ordinary course of business, the Company is exposed to foreign
currency and interest rate risks. These exposures primarily relate to having
investments in assets denominated in foreign currencies and to changes in
interest rates. Fluctuations in currency exchange rates can impact operating
results, including net sales and operating expenses. The Company hedges certain
of its foreign currency exposure by borrowing in the local functional currency
in countries where the Company has significant assets denominated in foreign
currencies. Such borrowings include Pounds Sterling, Canadian dollars and
Deutsche Marks in the United Kingdom, Canada and Germany, respectively (see
Liquidity and Capital Resources). The Company may utilize derivative financial
instruments, including forward exchange contracts and swap agreements to manage
certain of its foreign currency and interest rate risks that it considers
practical to do so. The Company holds no material derivative financial
instruments at June 28, 1998. The Company does not enter into derivative
financial instruments for trading purposes. Market risks that the Company
currently has elected not to hedge primarily relate to its floating-rate debt.
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.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). The statement requires that the
Company report certain information if specific requirements are met about
operating segments of the Company including information about services,
geographic areas of operation and major customers. SFAS 131 is effective for
years beginning after December 15, 1997. The Company is reviewing the
applicability of SFAS 131 on its future reporting requirements.
YEAR 2000 COMPLIANCE
The Company utilizes software and related computer technologies essential
to its operations and to certain products that use two digits rather than four
to specify the year, which could result in a date recognition problem with the
transition to the year 2000. The Company has established a plan, utilizing
internal resources, to assess the potential impact of the year 2000 on the
Company's systems and operations and to implement solutions to address this
issue. The Company is presently in the assessment phase of its
-18-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
year 2000 plan which includes surveying the Company's suppliers, vendors and
service providers for year 2000 compliance. The Company expects to complete the
assessment phase by November 1998. The Company's plan for remediation includes a
combination of repair and replacement of affected systems. For substantially all
of the Company's internal systems, this remediation is an incidental consequence
of the ongoing implementation of a new integrated core business system. The
Company expects the remediation phase to be completed by June 1999 and for
testing to be conducted in July 1999. The Company expects that all critical
systems will be year 2000 compliant by July 31, 1999. As the Company is
presently in the assessment phase of its year 2000 plan, the costs of
remediation cannot be quantified at this time. The cost of implementation of an
integrated core business system which is year 2000 compliant has been included
in the Company's capital expenditures plan. The Company is dependent upon
various third parties, including certain product suppliers, to conduct its
business operations. The failure of mission-critical third parties to achieve
year 2000 compliance could have a material effect on the Company's operations.
The Company is diligently quantifying issues and developing contingency sources
to mitigate the risks associated with interruptions in its supply chain due to
year 2000 problems. The Company plans to develop a contingency plan by March
1999 in the event its systems or its mission-critical vendors do not achieve
year 2000 compliance. However, there can be no assurance that the Company will
not experience unanticipated costs and/or business interruptions due to year
2000 problems in its internal systems, its supply chain or from customer product
migration issues, or that such costs and/or interruptions will not have a
material adverse effect on the Company's consolidated results of operation.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained in this report, particularly the information
appearing in the Letter to Shareholders and in this section under the headings
"Results of Operations," "Liquidity and Capital Resources," "Backlog,"
"Outlook," "Market Risk" and "Year 2000 Compliance" 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. References to "opportunities,"
"growth potential," "objectives" and "goals," the words "anticipate," "believe,"
"estimate," "expect," and similar expressions used herein indicate such
forward-looking statements. 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."
-19-
<PAGE>
STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of DT Industries, Inc.,
have been prepared by management, which is responsible for their integrity and
objectivity. The statements have been prepared in conformity with generally
accepted accounting principles and include amounts based on management's best
estimates and judgements.
Management has established and maintains a system of internal control
designed to provide reasonable assurance that assets are safeguarded and that
the financial records reflect the authorized transactions of the Company. The
system of internal control includes widely communicated statements of policies
and business practices that are designed to require all employees to maintain
high ethical standards in the conduct of Company affairs. The internal controls
are augmented by organizational arrangements that provide for appropriate
delegation of authority and division of responsibility.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants. As part of their audit of
the Company's fiscal 1998 consolidated financial statements,
PricewaterhouseCoopers LLP considered the Company's system of internal control
to the extent they deemed necessary to determine the nature, timing and extent
of their audit tests.
The Board of Directors pursues its responsibility for the Company's
financial reporting through its Audit Committee, which is composed entirely of
outside directors. The Audit Committee meets periodically with the independent
accountants and management. The independent accountants have direct access to
the Audit Committee, with and without the presence of management
representatives, to discuss the results of their audit work and their comments
on the adequacy of internal accounting controls and the quality of financial
reporting.
/s/ Stephen J. Gore
Stephen J. Gore
President and Chief Executive Officer
/s/ Bruce P. Erdel
Bruce P. Erdel
Senior Vice President, Finance and Administration
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of DT Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of DT Industries, Inc. and its subsidiaries at June 28, 1998, and June
29, 1997, and the results of their operations and their cash flows for each of
the three fiscal years in the period ended June 28, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
August 5, 1998
-20-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
June 28, June 29,
(In thousands, except share and per share data) 1998 1997
- ---------------------------------------------------------------------------
Assets
Current assets:
Cash $ 6,915 $ 2,821
Accounts receivable, net 75,634 68,538
Costs and estimated earnings in
excess of amounts billed ($187,221
and $78,900, respectively) on
uncompleted contracts 66,910 51,643
Inventories, net 48,755 42,198
Prepaid expenses and other 8,931 7,051
---------- ----------
Total current assets 207,145 172,251
Property, plant and equipment, net 69,183 51,132
Goodwill, net 177,578 168,401
Other assets, net 6,096 3,412
---------- ----------
$ 460,002 $ 395,196
========== ==========
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ 55 $ 1,527
Accounts payable 33,627 31,353
Customer advances 13,573 11,232
Billings in excess of costs and
estimated earnings ($87,703
and $36,073, respectively) on
uncompleted contracts 8,218 7,172
Accrued liabilities 43,232 29,986
---------- ----------
Total current liabilities 98,705 81,270
---------- ----------
Long-term debt 89,956 46,978
Deferred income taxes 7,827 6,435
Other long-term liabilities 3,455 5,246
---------- ----------
101,238 58,659
---------- ----------
Commitments and contingencies (Notes 3 and 10)
Company-obligated, mandatorily redeemable
convertible preferred securities of
subsidiary DT Capital Trust holding
solely convertible junior subordinated
debentures of the Company 70,000 70,000
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value;
1,500,000 shares authorized;
no shares issued and outstanding
Common stock, $.01 par value;
100,000,000 shares authorized;
10,502,762 and 11,300,875 shares
issued and outstanding, respectively 113 113
Additional paid-in capital 134,608 133,370
Retained earnings 80,561 51,784
Cumulative translation adjustment (778) ---
Less -
Treasury stock (873,000 shares), at cost (24,445) ---
---------- ----------
Total stockholders' equity 190,059 185,267
---------- ----------
$ 460,002 $ 395,196
========== ==========
See accompanying Notes to Consolidated Financial Statements.
-21-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended
June 28, June 29, June 30,
(In thousands, except share and per share data) 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 519,342 $ 396,110 $ 235,946
Cost of sales 380,126 285,044 172,568
---------- ---------- ----------
Gross profit 139,216 111,066 63,378
Selling, general and administrative expenses 75,246 54,367 35,445
Loss on sale of assets of Knitting Elements
division (Note 3) 1,383 --- ---
---------- ---------- ----------
Operating income 62,587 56,699 27,933
Interest expense, net 6,509 11,088 4,799
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 5,012 251 --
---------- ---------- ----------
Income before provision for income taxes
and extraordinary loss 51,066 45,360 23,134
Provision for income taxes 20,182 18,979 9,643
---------- ---------- ----------
Income before extraordinary loss 30,884 26,381 13,491
Extraordinary loss on debt refinancing, net of income
tax benefits of $800 and $216, respectively 1,200 324 ---
---------- ---------- ----------
Net income $ 29,684 $ 26,057 $ 13,491
========== ========== ==========
Basic earnings per common share:
Income before extraordinary loss $2.73 $2.55 $1.50
Extraordinary loss 0.10 0.03 ---
---------- ---------- ----------
Net income $2.63 $2.52 $1.50
========== ========== ==========
Diluted earnings per common share:
Income before extraordinary loss $2.49 $2.41 $1.50
Extraordinary loss 0.09 0.03 ---
---------- ---------- ----------
Net income $2.40 $2.38 $1.50
========== ========== ==========
Weighted average common shares outstanding:
Basic 11,297,409 10,349,444 9,001,250
Diluted 13,621,481 11,022,080 9,001,250
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-22-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Cumulative
Common paid-in Retained translation Treasury
(In thousands) stock capital earnings adjustment stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 25, 1995 $ 90 $ 61,162 $ 13,768 $ --- $ --- $ 75,020
Exercise of stock options 17 17
Payments on stock subscriptions 76 76
receivable
Dividends declared and paid (720) (720)
Net income 13,491 13,491
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1996 90 61,255 26,539 --- --- 87,884
Issuance of common stock 23 73,474 73,497
Exercise of stock options 678 678
Payments on stock subscriptions 213 213
receivable
Issuance costs of Company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary
DT Capital Trust holding solely
convertible junior subordinated
debentures of the Company (2,250) (2,250)
Dividends declared and paid (812) (812)
Net income 26,057 26,057
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 29, 1997 113 133,370 51,784 --- --- 185,267
Exercise of stock options 1,119 1,119
Payments on stock subscriptions
receivable 119 119
Dividends declared and paid (907) (907)
Net income 29,684 29,684
Stock repurchase (24,445) (24,445)
Cumulative translation adjustment (778) (778)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 28, 1998 $ 113 $ 134,608 $ 80,561 $ (778) $ (24,445) $ 190,059
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-23-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
June 28, June 29, June 30,
(In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 29,684 $ 26,057 $ 13,491
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation 8,279 5,955 3,411
Amortization 5,471 5,098 2,705
Deferred income tax provision 203 2,612 981
Loss on debt refinancing 2,000 540
Loss on sale of assets of Knitting
Elements division 1,383
Other (190) (155) 116
(Increase) decrease in current assets,
excluding the effect of acquisitions:
Accounts receivable 4,127 (26,482) 4,274
Costs and earnings in excess of amounts billed (979) (2,935) (8,520)
Inventories (3,083) (7,212) 3,873
Prepaid expenses and other 1,604 3,171 (5,797)
Increase (decrease) in current liabilities,
excluding the effect of acquisitions:
Accounts payable (3,884) (3,015) 838
Accrued liabilities 981 (693) 189
Customer advances (2,460) (4,300) (3,765)
Billings in excess of costs and earnings on
uncompleted contracts 1,047 2,115 3,351
Other (356) (1,463) (62)
---------- ---------- ----------
Net cash provided (used) by
operating activities 43,827 (707) 15,085
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (17,314) (11,850) (10,249)
Acquisition of Kalish net assets, Arrow net
assets, Swiftpack stock and AMI stock, net
of cash acquired of $2,484 (29,614)
Acquisition of Mid-West stock and Hansford stock,
net of cash acquired of $21,573 (92,756)
Acquisition of Lucas Assembly and Test Systems
net assets, net of cash acquired of $91 (46,721)
Proceeds from the sale of assets of Knitting
Elements division 9,375
---------- ---------- ----------
Net cash used in investing activities (54,660) (104,606) (39,863)
---------- ---------- ----------
</TABLE>
(continued)
See accompanying Notes to Consolidated Financial Statements.
-24-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Fiscal Year Ended
June 28, June 29, June 30,
(In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of term debt $ $ 96,708 $ 37,031
Payments on borrowings (49,220) (129,518) (14,063)
Net borrowings from revolving loans 89,986 918 3,633
Debt issuance costs (947) (2,510) (632)
Net proceeds from issuance of
Company-obligated, mandatorily redeemable
convertible preferred securities of
subsidiary DT Capital Trust holding
solely convertible junior subordinated
debentures of the Company 67,750
Payment for repurchase of stock (24,445)
Net proceeds from issuance of common stock 1,119 74,175 17
Payments on stock subscriptions receivable 119 213 76
Dividends paid on common stock (907) (812) (720)
---------- ---------- ----------
Net cash provided by financing activities 15,705 106,924 25,342
---------- ---------- ----------
Effect of exchange rate changes (778) --- ---
---------- ---------- ----------
Net increase in cash 4,094 1,611 564
Cash and cash equivalents at beginning of period 2,821 1,210 646
---------- ---------- ----------
Cash and cash equivalents at end of period $ 6,915 $ 2,821 $ 1,210
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,233 $ 10,630 $ 4,280
Income taxes $ 11,447 $ 16,497 $ 6,369
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
The Company purchased Lucas Assembly and Test Systems, which has been renamed
Assembly Technology and Test (ATT) in fiscal 1998, Mid-West Automation
Enterprises, Inc. (Mid-West) and Hansford Manufacturing Corporation (Hansford)
in fiscal 1997; and H.G. Kalish Inc. (Kalish), Arrow Precision Elements, Inc.
(Arrow), Swiftpack Automation Limited (Swiftpack) and Assembly Machines, Inc.
(AMI) in fiscal 1996. The following table represents summary information with
respect to these acquisitions:
<TABLE>
<CAPTION>
Fiscal Year Ended
June 28, June 29, June 30,
(In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets acquired $ 56,283 $ 55,185 $ 25,447
Fair value assigned to goodwill 14,248 68,226 36,071
Cash paid (46,721) (92,756) (29,614)
---------- ---------- ----------
Liabilities assumed $ 23,810 $ 30,655 $ 31,904
========== ========== ==========
</TABLE>
See accompanying Notes to consolidated Financial Statements.
-25-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1 - BUSINESS
DT Industries, Inc. (DTI or the Company) is a leading designer,
manufacturer and integrator of automated production systems used to assemble,
test or package industrial and consumer products. The Company also produces
precision metal components, tools and dies for a broad range of applications.
The Company markets its products through three product groups: DTI Automation
and DTI Packaging, comprising the Special Machines segment, and DTI Components
(Components segment). The Company's operations are located in North America and
Europe, but its products are sold throughout the world.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies utilized by the Company in the preparation of the
financial statements conform to generally accepted accounting principles, and
require that management make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual amounts could differ from these estimates.
The significant accounting policies followed by the Company are described
below.
REVENUE RECOGNITION
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 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.
Cash deposits received from customers on contracts in progress are
reflected as customer advances in the consolidated balance sheet until the
related revenue is recognized in accordance with the procedures described above.
Costs and estimated earnings in excess of amounts billed on percentage of
completion contracts represent costs incurred and earnings recognized in excess
of customer advances received. Billings in excess of costs incurred and
estimated earnings on uncompleted contracts represent customer advances received
in excess of costs incurred and earnings recognized.
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.
FOREIGN CURRENCY TRANSLATION
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 on the basis presented
below.
Assets and liabilities are translated into U.S. dollars at year-end
exchange rates. Income and expense items are translated at average rates of
exchange prevailing during the year. Adjustments resulting from the process of
translating the consolidated amounts into U.S. dollars are accumulated in a
separate translation adjustment account, included in stockholders' equity.
Common stock and additional paid-in capital are translated at historical U.S.
dollar equivalents in effect at the date of acquisition. Foreign currency
transaction gains and losses are included in earnings currently. Foreign
currency transaction gains and losses were not material for all periods
presented.
CASH AND CASH EQUIVALENTS
All highly liquid debt instruments purchased with original maturities of
three months or less are classified as cash equivalents.
-26-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRATIONS OF CREDIT RISK
The Company sells a majority of its special machines to a wide range of
manufacturing companies. Products of the components segment are sold to
customers primarily in the agricultural equipment, heavy truck and heavy
equipment industries. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral, although many customers of
the Special Machines segment pay deposits to the Company prior to shipment of
its products. The Company maintains reserves for potential credit losses and
historically such losses have been within management's expectations. At June 28,
1998, the Company had no significant concentration of credit risk.
INVENTORIES
Domestic inventories are stated at the lower of cost, determined using the
last-in, first-out (LIFO) method, or market, with the exception of raw material
inventories and the material component of work in process inventories at certain
subsidiaries, including foreign subsidiaries, totaling approximately $24,595
which are accounted for using the first-in, first-out method (FIFO). For various
tax and statutory reasons, inventories of the Company's foreign subsidiaries are
stated at FIFO costs. The effects on financial position and results of
operations from applying the FIFO method for such material inventories and
inventories of foreign subsidiaries are immaterial. For other inventories
maintained on a LIFO basis, cost under the LIFO method approximates the FIFO
method. Inventories include the cost of materials, direct labor and
manufacturing overhead.
Obsolete or unsaleable inventories are reflected at their estimated
realizable values.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and is depreciated using
the straight-line method over the estimated useful lives of the assets which
range from 3 to 39.5 years. Properties held under capital leases are recorded at
the present value of the non-cancelable lease payments over the term of the
lease and are amortized over the shorter of the lease term or the estimated
useful lives of the assets.
Expenditures for repairs, maintenance and renewals are charged to income as
incurred. Expenditures which improve an asset or extend its estimated useful
life are capitalized. When properties are retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is included in income.
GOODWILL
The excess of the purchase price over the fair value of net assets acquired
in business combinations (goodwill) is capitalized and amortized on a
straight-line basis over periods ranging from 15 to 40 years. Goodwill
amortization charged to income for the years ended June 28, 1998, June 29, 1997,
and June 30, 1996, was approximately $4,876, $4,312 and $2,386, respectively.
Accumulated amortization at June 28, 1998, and June 29, 1997, was approximately
$13,914 and $9,916, respectively.
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. Management believes there has been no impairment at
June 28, 1998.
ENVIRONMENTAL LIABILITIES
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and that do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with
completion of a feasibility study or the Company's commitment to a formal plan
of action.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined the fair
value of financial instruments approximates book value at June 28, 1998, based
on terms currently available to the Company in financial markets.
INCOME TAXES
The Company files a consolidated federal income tax return which includes
its domestic subsidiaries. The Company has adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under
SFAS 109, the current or
-27-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
deferred tax consequences of a transaction are measured by applying the
provisions of enacted laws to determine the amount of taxes payable currently or
in future years. Deferred income taxes are provided for temporary differences
between the income tax bases of assets and liabilities, and their carrying
amounts for financial reporting purposes.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share,"
which changed the method of computation of earnings per share (EPS). SFAS 128,
which was adopted by the Company in fiscal 1998, requires the computation of
Basic EPS and Diluted EPS. Basic EPS is based on the weighted average number of
outstanding common shares during the period but does not consider dilution for
potentially dilutive securities. Diluted EPS reflects the effects of conversion
of the Company's Convertible Preferred Securities and elimination of the related
dividends, net of applicable income taxes, plus dilutive potential common shares
consisting of certain shares subject to stock options and contingent purchase
price payable in common stock related to an acquired business. The dilutive
potential common shares arising from the effect of outstanding stock options
were computed using the treasury stock method, if dilutive. Earnings per share
for fiscal 1997 and 1996 have been restated in accordance with SFAS 128. See
Note 13 for additional information.
EMPLOYEE STOCK-BASED COMPENSATION
The Company accounts for employee stock options in accordance with
Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees"
(APB 25). Under APB 25, the Company applies the intrinsic value method of
accounting. For employee stock options accounted for using the intrinsic value
method, no compensation expense is recognized because the options are granted
with an exercise price equal to the market value of the stock on the date of
grant. During fiscal 1997, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), became effective for the
Company. SFAS 123 prescribes the recognition of compensation expense based on
the fair value of options or stock awards determined on the date of grant.
However, SFAS 123 allows companies to continue to apply the valuation methods
set forth in APB 25. For companies that continue to apply the valuation methods
set forth in APB 25, SFAS 123 mandates certain pro forma disclosures as if the
fair value method had been utilized. See Note 8 for additional information.
FISCAL YEAR
The Company uses a 52-53 week fiscal year that ends on the last Sunday in
June.
NOTE 3 - ACQUISITIONS AND DISPOSITION
The following table summarizes certain information regarding the Company's
acquisitions during the past three years:
NET CASH
PURCHASE
DATE BUSINESS PRICE
- -------------- ------------------------------------- -------------
August 1995 H.G. Kalish Inc. $ 16,400
September 1995 Arrow Precision Elements, Inc. 3,000
November 1995 Swiftpack Automation Ltd. 18,400
January 1996 Assembly Machines, Inc. 6,700
July 1996 Mid-West Automation Enterprises, Inc. 75,179
September 1996 Hansford Manufacturing Corporation 17,577
July 1997 Lucas Assembly and Test Systems 46,721
During the past three fiscal years, the Company made seven acquisitions
which have significantly expanded its product lines. These acquisitions were
each accounted for under the purchase method of accounting and financed
primarily through bank borrowings, resulting in an increase in the Company's
debt. Results of operations of each acquired company have been included in the
Company's consolidated financial statements from the date of acquisition. The
purchase price of each acquisition was allocated to the assets and liabilities
acquired, 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
was, in each instance, recorded as goodwill.
-28-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As part of the Kalish and Swiftpack acquisitions, DTI has agreed to make
additional payments to the sellers determined by formulae based on the earnings
of the acquired businesses. The additional purchase price specified within the
Kalish agreement, based upon earnings from the acquisition date to June 28,
1998, amounted to $3,000 payable in stock or cash and was recorded in accrued
liabilities as of June 28, 1998. The additional purchase price accrued resulted
in additional goodwill related to this acquisition. The Company does not expect
to make any payments related to the Swiftpack agreement.
During December 1997, an agreement was reached with the former owner of
Hansford which finalized the purchase price and cancelled the earnout provisions
of the purchase agreement. No additional purchase price was paid as a result of
this agreement.
On May 1, 1998, the Company completed the sale of substantially all of the
assets of its non-core Knitting Elements division of Detroit Tool Metal Products
Co., a wholly owned subsidiary of DT Industries, Inc., for $9,375. The loss on
the sale was approximately $1,383. The loss, net of the estimated tax benefit,
reduced diluted earnings per share by $0.06.
The following table sets forth pro forma information for DTI as if all of
the previously discussed acquisitions had taken place on June 30, 1997, and July
1, 1996, respectively. The effect of the sale of the Knitting Elements division
is immaterial. This information is unaudited and does not purport to represent
actual revenue, net income and earnings per share had the acquisitions actually
occurred on June 30, 1997 and July 1, 1996, respectively.
Pro Forma Information
(unaudited)
-------------------------
June 28, June 29,
Fiscal Year Ended 1998 1997
- ----------------- ---------- ----------
Net sales $ 529,364 $ 525,627
Income before extraordinary loss $ 30,969 $ 27,293
Earnings per common share:
Basic $ 2.74 $ 2.64
Diluted $ 2.50 $ 2.49
NOTE 4 - FINANCING
Long-term debt consisted of the following:
June 28, June 29,
1998 1997
---------- ----------
Notes payable to bank under a term
and revolving loan agreement:
Term loan $ 10,000 $ 10,000
Revolving loan 78,420 16,068
Foreign currency denominated term facility,
refinanced in July 1997 20,347
Foreign currency denominated revolving
credit facilities 1,400 1,571
Other long-term debt (including capitalized
leases) maturing at various dates through
fiscal 2003 191 519
---------- ----------
90,011 48,505
Less - current portion 55 1,527
---------- ----------
$ 89,956 $ 46,978
========== ==========
On July 21, 1997 the Company replaced its credit facilities with a $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. At June 28,
1998, interest rates on the multi-currency facility ranged from 4.1% to 8.5%.
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, which matures in July 2002, contains certain financial and other
covenants and restrictions. The Company
-29-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
was in compliance with such covenants at June 28, 1998. 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 recognized an extraordinary loss in July 1996 of $324 attributable
to the write-off of $540 unamortized deferred financing fees, net of related
$216 tax benefit.
In addition, the Company has revolving credit facilities through its
foreign subsidiaries of approximately $3,000, of which approximately $1,400 was
outstanding at June 28, 1998.
NOTE 5 - COMPANY-OBLIGATED, MANDATORILY REDEEMABBE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY DT CAPITAL TRUST HOLDING SOLELY CONVERTIBLE JUNIOR
SUBORDINATED DEBENTURES OF THE COMPANY (CONVERTIBLE PREFERRED SECURITIES)
On June 12, 1997, the Company completed a private placement to
institutional investors of 1,400,000 7.16% Convertible Preferred Securities
(liquidation preference of $50 per Convertible Preferred Security). The
placement was made through the Company's wholly owned subsidiary, DT Capital
Trust (Trust), a Delaware business trust. The securities represent undivided
beneficial ownership interests in the Trust. The sole asset of the Trust is the
$72,165 aggregate principal amount of the 7.16% Convertible Junior Subordinated
Deferrable Interest Debentures Due 2012 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.
NOTE 6 - INCOME TAXES
Income before provision for income taxes and extraordinary losses was taxed
under the following jurisdictions:
June 28, June 29, June 30,
For the fiscal years ended 1998 1997 1996
- -----------------------------------------------------------------------
Domestic $ 45,895 $ 42,630 $ 20,539
Foreign 5,171 2,730 2,595
---------- ---------- ----------
$ 51,066 $ 45,360 $ 23,134
========== ========== ==========
The provision for income taxes charged to operations was as follows:
Fiscal Year Ended
----------------------------------------
June 28, June 29, June 30,
1998 1997 1996
---------- ---------- ----------
Current
U.S. Federal $ 12,416 $ 12,564 $ 6,474
State 673 2,789 1,373
Foreign 1,835 1,014 815
---------- ---------- ----------
Total current 14,924 16,367 8,662
---------- ---------- ----------
Deferred
U.S. Federal 4,809 2,111 734
State 333 397 125
Foreign 116 104 122
---------- ---------- ----------
Total deferred 5,258 2,612 981
---------- ---------- ----------
Total Provision $ 20,182 $ 18,979 $ 9,643
---------- ---------- ----------
The provision for income taxes for the fiscal years ended June 28, 1998,
and June 29, 1997, is net of income tax benefits of $800 and $216 respectively,
related to the extraordinary losses as described in Note 4.
-30-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
June 28, June 29,
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax liabilities
Depreciation $ 5,592 $ 5,331
Inventory costing capitalization, net 833 1,157
Earnings recognized under percentage of completion 2,432 3,207
Goodwill and intangibles amortization 2,797 2,401
Other 484 239
---------- ----------
Total deferred tax liabilities 12,138 12,335
---------- ----------
Deferred tax assets
Postretirement benefit accrual (634) (714)
Project and inventory reserves (3,900) (1,680)
Product liability reserves (488) (678)
Bad debt reserves (862) (632)
Other accruals (3,000) (3,435)
Other (636) (2,068)
---------- ----------
Total deferred tax assets (9,520) (9,207)
---------- ----------
Deferred tax assets valuation allowance 998 1,029
---------- ----------
Total net deferred tax liability 3,616 4,157
Current portion included in prepaid expenses and other 4,211 2,278
---------- ----------
Long-term deferred tax liability $ 7,827 $ 6,435
========== ==========
</TABLE>
The deferred tax assets valuation allowance has been recorded to reflect
the potential non-realization of certain deductible temporary differences.
The effective tax rates differ from the U.S. Federal income tax rate for
the following reasons:
<TABLE>
<CAPTION>
Fiscal year ended
----------------------------------------
June 28, June 29, June 30,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
Increase in rate resulting from:
Non-deductible goodwill amortization 2.2 2.2 1.8
State taxes 1.3 4.5 4.2
Other 1.0 0.1 0.7
---------- ---------- ----------
39.5% 41.8% 41.7%
========== ========== ==========
</TABLE>
NOTE 7 - RETIREMENT PLANS
The Company offers substantially all of its employees a retirement savings
plan under Section 401(k) of the Internal Revenue Code. Each employee may elect
to enter a written salary deferral agreement under which a maximum of 15% of
their salary, subject to aggregate limits required under the Internal Revenue
Code, may be contributed to the plan. The Company will match a percentage of the
employee's contribution up to a specified maximum percentage of their salary. In
addition, the Company generally is required to make a mandatory contribution and
may make a discretionary contribution from profits. During the fiscal years
ended June 28, 1998, June 29, 1997, and June 30, 1996, the Company made
contributions of approximately $3,023, $2,377 and $1,596, respectively.
In connection with the acquisition of ATT in fiscal 1998, the Company
recorded an aggregate net liability of $417 representing the excess of the
estimated projected benefit obligation (PBO) over the fair value of plan assets
relative to the defined benefit plans for its international division. The
following sets forth reconciliations of the PBO and fair value of plan assets
from the date of acquisition to June 28, 1998.
Reconciliation of Projected
Benefit Obligation from the
Date of Acquisition to
June 28, 1998
---------------------------
As of the acquisition date $ 13,874
Service cost 863
Interest cost 1,030
Actuarial loss 1,664
Other 253
---------------------------
As of June 28, 1998 $ 17,684
===========================
Reconciliation of the Fair
Value of Plan Assets from
the Date of Acquisition to
June 28, 1998
---------------------------
As of the acquisition date $ 13,457
Return on plan assets 2,740
Employer contribution 716
Other 253
---------------------------
As of June 28, 1998 $ 17,166
===========================
-31-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth the funded status of the defined benefit plans as
of June 28, 1998:
Projected benefit obligation $ 17,684
Fair value of plan assets 17,166
---------------------------
Excess of projected benefit obligation
over plan assets 518
Unrecognized net loss 49
---------------------------
Net pension liability $ 469
---------------------------
The following sets forth the defined benefit pension plans' net periodic
pension cost for the period from the date of acquisition to June 28, 1998:
For the Period from the Date of
Acquisition to June 28, 1998
-------------------------------
Service cost $ 863
Interest cost 1,030
Gain on net assets (2,094)
Other 253
-------------------------------
Net periodic pension cost $ 52
===============================
The weighted-average assumptions used to determine the PBO as of June 28,
1998 are as follows:
Discount rate 6.5%
Expected return on plan assets 8.5%
Rate of compensation increase 4.0%
NOTE 8 - STOCK OPTION PLANS
The Company has three stock option plans: the 1994 Employee Stock Option
Plan (Employee Plan), the 1994 Directors Non-Qualified Stock Option Plan
(Directors Plan) and the 1996 Long-Term Incentive Plan (LTIP Plan).
The Employee Plan provides for the granting of options to the Company's
executive officers and key employees to purchase shares of common stock at
prices equal to the fair market value of the stock on the date of grant. Options
to purchase up to 900,000 shares of common stock may be granted under the
Employee Plan. Options outstanding at June 28, 1998, entitle the holders to
purchase common stock at prices ranging between $10.25 and $34.50. Options
outstanding become exercisable over five years from the date of grant. The right
to exercise the options expires ten years from the date of grant or earlier if
an option holder ceases to be employed by the Company.
The Directors Plan provides for the granting of options to the Company's
directors, who are not employees of the Company, to purchase shares of common
stock at prices equal to the fair market value of the stock on the date of
grant. Options to purchase up to 100,000 shares of common stock may be granted
under the Directors Plan. Options outstanding at June 28, 1998, entitle the
holders to purchase common stock at prices ranging between $13.50 and $31.625
per share. Options become exercisable with respect to one-fourth of the shares
covered, thereby on each anniversary of the date of grant, commencing on the
second anniversary of such date. All options granted under the Directors Plan
expire ten years from the date of grant or earlier if a director leaves the
board of directors of the Company.
On September 18, 1996, the Board of Directors of the Company adopted the
LTIP Plan. The LTIP Plan provides for the granting of four types of awards on a
stand-alone, combination, or a tandem basis, specifically, nonqualified stock
options, incentive stock options, restricted shares and performance stock
awards. The LTIP Plan provides for the granting of up to 600,000 shares of
common stock, provided that the total number of shares with respect to which
awards are granted in any one year may not exceed 100,000 shares to any
individual employee, and the total number of shares with respect to which grants
of restricted stock and performance stock awards are made in any year shall not
exceed 50,000 shares to any individual employee.
-32-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Grants to date consist only of non-qualified stock options entitling the holders
to purchase common stock at prices ranging between $27.75 and $37.50. The
exercise price of such non-qualified stock options is equal to the fair market
value of the stock on the date of the grant. Options outstanding become
exercisable over five years from the date of grant. The right to exercise the
options expires ten years from the date of grant or earlier if an option holder
ceases to be employed by the Company.
A summary of the status of the Company's stock option plans as of June 28,
1998, June 29, 1997, and June 30, 1996, and changes during the years then ended
are presented below:
Weighted Average
Shares Exercise Price
- -----------------------------------------------------------------------
Fiscal 1998:
Outstanding at beginning of year 939,650 $ 17.58
Granted 236,500 $ 29.72
Exercised (74,887) $ 14.95
Forfeited (87,300) $ 19.15
-----------
Outstanding at end of year 1,013,963 $ 20.47
===========
Exercisable at end of year 206,338
===========
Fiscal 1997:
Outstanding at beginning of year 662,250 $ 13.86
Granted 376,950 $ 23.34
Exercised (49,625) $ 13.66
Forfeited (49,925) $ 15.62
-----------
Outstanding at end of year 939,650 $ 17.58
===========
Exercisable at end of year 122,625
===========
Fiscal 1996:
Outstanding at beginning of year 465,750 $ 13.71
Granted 239,000 $ 14.06
Exercised (1,250) $ 13.50
Forfeited (41,250) $ 13.36
-----------
Outstanding at end of year 662,250 $ 13.86
===========
Exercisable at end of year 88,250
===========
-33-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes certain information for options currently
outstanding and exercisable at June 28, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- --------------------------
Weighted Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$10-14 384,488 6 $ 13.30 171,763 $ 13.26
$15-19 290,975 7 $ 17.35 33,450 $ 15.98
$20-30 148,000 9 $ 28.00 1,125 $ 20.75
$31-38 190,500 8 $ 33.17 --
----------- -----------
1,013,963 206,338 $ 13.74
=========== ===========
</TABLE>
PRO FORMA DISCLOSURES
The Company applies APB 25 and related interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized
for the stock options because the options were granted with an exercise price
equal to the stock price on the date of grant. Had compensation costs for the
Company's stock option plans been determined based on the fair value of the
options on the grant dates consistent with the methodology prescribed by SFAS
123, the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below. Due to the adoption of the methodology
prescribed by SFAS 123, the pro forma results shown below only reflect the
impact of stock option awards granted in fiscal 1998 and 1997. Because future
stock option awards may be granted, the pro forma impact for fiscal 1998 and
1997 is not necessarily indicative of the impact in future years.
Fiscal Fiscal
1998 1997
- --------------------------------------------------------------------------
Net income As reported $ 29,684 $ 26,057
Pro forma $ 28,220 $ 25,276
Diluted earnings As reported $ 2.40 $ 2.38
per common share Pro forma $ 2.30 $ 2.31
The fair value of the options granted (which is amortized over the option
vesting period in determining the pro forma impact), is estimated on the date of
grant using the Black-Scholes multiple option-pricing model with the following
weighted average assumptions:
Fiscal Fiscal
1998 1997
- ----------------------------------------------------------------------------
Expected life of options 5 years 5 years
Risk-free interest rates 5.49 - 6.11% 6.07 - 6.64%
Expected volatility of stock 39% 40%
Expected dividend yield 0.3% 0.3%
The weighted average fair value of options granted during the years ended
June 28, 1998, and June 29, 1997, was $12.74 and $10.40 per share, respectively.
-34-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTIES
Affiliates of Harbour Group Investments II, L.P. (HGI, L.P.) were holders
of approximately 32.2% of the Company's common stock prior to their sale of
2,835,000 shares in a stock offering in November 1996, reducing their holdings
to less than 4.1%.
Under the terms of a management consulting and advisory services agreement,
the Company paid affiliates of HGI, L.P. fees totaling $847 and $783 in fiscal
1997 and 1996, respectively, related to corporate development services provided
in identifying, negotiating and consummating the Company's acquisitions. Fees
paid to affiliates of HGI, L.P. related to corporate development services were
included in the costs of the related acquisitions.
Under terms of management consulting and advisory services agreements,
Harbour Group Ltd. and Harbour Group Industries, Inc., charged the Company for
direct management and administrative services provided to the Company based on
actual, direct costs of such services. The charges, which are included in
selling, general and administrative expenses in the financial statements,
totaled approximately $393 and $285 for the fiscal years ended June 29, 1997,
and June 30, 1996, respectively.
In prior years, the Company issued 443,250 shares of the Company's common
stock at prices which approximated estimated fair value ranging from $1.26 to
$2.57 per share to members of management under agreements which allow management
to pay for the stock with cash and/or recourse notes receivable to the Company.
The recourse notes receivable were issued with interest rates ranging from 5.84%
to 6.28% and become due between September 2003 and January 2004. The notes are
reflected as a reduction to additional paid-in capital in the accompanying
consolidated financial statements.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases land, buildings, machinery, equipment and furniture
under various noncancelable operating lease agreements. At June 28, 1998, future
minimum lease payments under noncancelable operating leases were as follows:
Fiscal year:
1999 $ 5,988
2000 5,224
2001 4,341
2002 3,971
2003 3,589
2004 and thereafter 15,344
-----------
$ 38,457
===========
Total lease expense under noncancelable operating leases was approximately
$7,372, $5,652 and $3,103 for the years ended June 28, 1998, June 29, 1997, and
June 30, 1996, respectively. Commitments under capital leases are not
significant to the consolidated financial statements.
The Company is a party to various claims and lawsuits arising in the normal
course of business. It is the opinion of management, after consultation with
legal counsel, that those claims and lawsuits, when resolved, will not have a
material adverse effect on the financial position, cash flows, or results of
operations of the Company.
-35-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - DEPENDENCE ON SIGNIFICANT CUSTOMERS
Total net sales to a customer in the electronics industry were $85,241 in
fiscal 1998 from the Special Machines segment. Total net sales to customers in
the agricultural equipment industry, the heavy truck industry and the heavy
equipment industry were $13,681, $12,564 and $9,078, respectively from the
Components Segment.
Total net sales to a customer in the electronics industry were $89,062 and
total net sales to a customer in the automotive industry were $43,179 in fiscal
1997 from the Special Machines segment. Total net sales to a customer in the
agricultural equipment industry were $11,116 and total net sales to a customer
in the transportation industry were $10,023 in fiscal 1997 from the Components
segment.
Total net sales to a customer in the tire industry were $23,653 in fiscal
1996 from the Special Machines segment.
Trade receivables recorded for significant customers at June 28, 1998, and
June 29, 1997, were $11,051 and $29,449, respectively. No other customers
accounted for 10% or more of their respective total segment's sales in fiscal
1998, 1997 and 1996.
NOTE 12 - SUPPLEMENTAL BALANCE SHEET INFORMATION
June 28, June 29,
1998 1997
---------- ----------
Accounts receivable
Trade receivables $ 77,776 $ 70,387
Less - allowance for doubtful accounts 2,142 1,849
---------- ----------
$ 75,634 $ 68,538
========== ==========
Inventories, net
Raw materials $ 18,285 $ 13,117
Work in process 22,749 22,053
Finished goods 7,721 7,028
---------- ----------
$ 48,755 $ 42,198
========== ==========
Property, plant and equipment
Machinery and equipment $ 57,148 $ 44,557
Buildings and improvements 26,391 18,599
Land and improvements 5,664 2,348
Construction-in-progress 3,659 1,181
---------- ----------
92,862 66,685
Less - accumulated depreciation 23,679 15,553
---------- ----------
$ 69,183 $ 51,132
========== ==========
Accrued liabilities
Accrued employee compensation and benefits $ 13,645 $ 11,860
Taxes payable and related reserves 2,703 4,321
Other 26,884 13,805
---------- ----------
$ 43,232 $ 29,986
========== ==========
During fiscal 1998, the Company repurchased 873,000 shares of its common
stock. The shares have been reflected in the stockholders' equity section of the
consolidated balance sheet as of June 28, 1998 at cost of $24,445. The Company
completed the repurchase of an aggregate 1 million shares of common stock in
July 1998 at a total cost of $27,541. In August 1998, the Company's Board of
Directors authorized purchases of up to 1 million additional shares of the
Company's common stock. The repurchased shares will be used primarily for
employee stock option programs.
-36-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - EARNINGS PER SHARE OF COMMON STOCK
In accordance with SFAS 128, the following represents reconciliations of
income before extraordinary loss and weighted average shares outstanding between
basic and diluted earnings per share for the years ended June 28, 1998, June 29,
1997, and June 30, 1996:
<TABLE>
<CAPTION>
For the Year Ended
----------------------------------------------------------------------------------------------
June 28, 1998 June 29, 1997 June 30, 1996
---------------------------- ---------------------------- ----------------------------
Income before Income before Income before
extraordinary Shares extraordinary Shares extraordinary Shares
loss loss loss
------------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Basic $30,884 11,297 $26,381 10,349 $13,491 9,001
Effect of dilutive
securities:
Manditorily redeemable
convertible preferred
securities 3,008 1,806 151 80
Stock options 394 472
Contingent issuable
shares 124 121
------------- ---------- ------------- ---------- ------------- ----------
Diluted $33,892 13,621 $26,532 11,022 $13,491 9,001
============= ========== ============= ========== ============= ==========
</TABLE>
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1998, 1997 and 1996 appears
below.
The net income and diluted earnings per share for the first quarter of
fiscal 1998 and 1997 include the effect of the extraordinary losses on the
refinancing of debt as described in Note 4. Also, net income and diluted
earnings per share for the third quarter of fiscal 1998 include the loss on the
sale of assets of the Knitting Elements division ($844 after tax or $0.06 per
diluted share).
<TABLE>
<CAPTION>
Net sales Gross profit
------------------------------------- -------------------------------------
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
First $ 115,764 $ 82,635 $ 44,788 $ 30,908 $ 22,765 $ 11,241
quarter
Second 132,431 100,693 60,143 35,977 27,670 15,157
quarter
Third 132,561 103,359 59,866 36,507 29,707 16,434
quarter
Fourth 138,586 109,423 71,149 35,824 30,924 20,546
quarter
--------- --------- --------- --------- --------- ---------
$ 519,342 $ 396,110 $ 235,946 $ 139,216 $ 111,066 $ 63,378
--------- --------- --------- --------- --------- ---------
Diluted earnings
Net income per share
------------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
First $ 5,335 $ 4,549 $ 2,226 $ 0.44 $ 0.48 $ 0.25
quarter
Second 8,228 6,038 3,072 0.66 0.58 0.34
quarter
Third 7,714 7,216 3,396 0.62 0.61 0.38
quarter
Fourth 8,407 8,254 4,797 0.68 0.69 0.53
quarter
--------- --------- ---------
$ 29,684 $ 26,057 $ 13,491
--------- --------- ---------
</TABLE>
-37-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - SEGMENT INFORMATION
Worldwide operations data, as required by Statement of Financial Accounting
Standards No. 14, "Financial Reporting for Segments of a Business Enterprise,"
are listed below. Profitability of the Company's foreign operations by
geographic area was determined based on ultimate sales to unaffiliated
customers. Total Company profit was included in the geographic area of the
entity transacting the final sale. Transfers between geographic areas are at
prices established by agreement between the affected parties. The Company's
foreign operations are located in Canada, the United Kingdom and Germany.
The Company operates in two business segments, Special Machines (including
the Automation Group and Packaging Group) and Components. The Special Machines
segment designs and builds custom equipment, proprietary machines and integrated
systems. The Components segment stamps and fabricates a range of standard and
custom metal components.
Due to the significant acquisitions in recent years by the Special Machines
segment and the sale of the Knitting Elements division, as of and for the fiscal
year ended June 28, 1998, the Components segment has become less significant to
the Company as a whole and no longer qualifies for separate disclosure as
specified by Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise." The Company has included
certain separate disclosures for the Components segment in the fiscal 1998
consolidated financial statements to enhance comparability with prior periods.
<TABLE>
<CAPTION>
Domestic Foreign Eliminations Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
For the fiscal year ended June 28, 1998
Net sales to unaffiliated customers $ 455,216 $ 64,126 $ --- $ 519,342
Transfers between geographic areas --- 31,952 (31,952) ---
------------ ------------ ------------ ------------
Total revenue $ 455,216 $ 96,078 $ (31,952) $ 519,342
============ ============ ============ ============
Earnings from operations $ 53,770 $ 8,817 $ --- $ 62,587
============ ============ ============ ============
Identifiable assets $ 367,825 $ 92,177 $ --- $ 460,002
============ ============ ============ ============
For the fiscal year ended June 29, 1997
Net sales to unaffiliated customers $ 384,619 $ 11,491 $ --- $ 396,110
Transfers between geographic areas --- 16,473 (16,473) ---
------------ ------------ ------------ ------------
Total revenue $ 384,619 $ 27,964 $ (16,473) $ 396,110
============ ============ ============ ============
Earnings from operations $ 51,334 $ 5,365 $ --- $ 56,699
============ ============ ============ ============
Identifiable assets $ 351,104 $ 44,092 $ --- $ 395,196
============ ============ ============ ============
</TABLE>
During fiscal 1998, 1997 and 1996, export revenues included in domestic net
revenues to unaffiliated customers were approximately $115,461, $108,756 and
$34,803, respectively.
-38-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial information by business segment is as follows:
<TABLE>
<CAPTION>
Depreciation
Net sales to Earnings and
unaffiliated from Identifiable Capital amortization
customers operations assets expenditures expense
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended June 28, 1998
Special Machines $ 471,855 $ 68,237 $ 428,039 $ 12,754 $ 11,507
Components 47,487 3,391 25,170 3,459 1,491
Corporate --- (9,041) 6,793 1,101 752
-------------- -------------- -------------- -------------- --------------
$ 519,342 $ 62,587 $ 460,002 $ 17,314 $ 13,750
============== ============== ============== ============== ==============
Fiscal year ended June 29, 1997
Special Machines $ 348,648 $ 56,787 $ 357,337 $ 7,424 $ 8,891
Components 47,462 6,966 34,812 3,806 1,258
Corporate --- (7,054) 3,047 620 904
-------------- -------------- -------------- -------------- --------------
$ 396,110 $ 56,699 $ 395,196 $ 11,850 $ 11,053
============== ============== ============== ============== ==============
Fiscal year ended June 30, 1996
Special Machines $ 193,884 $ 26,557 $ 203,210 $ 6,145 $ 4,683
Components 42,062 6,934 28,528 2,138 1,038
Corporate --- (5,558) 2,105 1,966 395
-------------- -------------- -------------- -------------- --------------
$ 235,946 $ 27,933 $ 233,843 $ 10,249 $ 6,116
============== ============== ============== ============== ==============
</TABLE>
Earnings from operations in fiscal 1998 for the Components segment include the
$1,383 loss on the sale of assets of its Knitting Elements division.
NOTE 16 - SUBSEQUENT EVENT
In August 1998, the Company completed the acquisition of certain of the net
assets of Scheu & Kniss, Inc., a Louisville, Kentucky based manufacturer of
tablet press replacement parts and rebuild services serving primarily the
pharmaceutical, nutritional, battery and confectionery industries. The purchase
price of approximately $10.2 million was primarily financed by borrowings under
the Company's revolving credit facility. Annualized sales of Scheu & Kniss
approximate $7.5 million. As the transaction occurred subsequent to the end of
fiscal 1998, the balance sheet and results of operations of Scheu & Kniss are
excluded from the fiscal 1998 consolidated balance sheet and results of
operations of DTI. The pro forma effects of the Scheu & Kniss acquisition on the
Company's fiscal 1998 financial position and results of operations are not
material.
-39-
<PAGE>
CORPORATE AND INVESTOR INFORMATION
COMMON STOCK INFORMATION
The Company's Common Stock trades on the Nasdaq National Market System
under the symbol "DTII." As of August 28, 1998, the number of record holders of
the Common Stock was 65. The following table sets forth, for the quarters
indicated, the high and low sales prices for the Common Stock as reported by The
Nasdaq Stock Market and the cash dividends per share declared during such
periods.
Sales Prices Quarterly Cash
High Low Dividends
- ---------------- -------------- -------------- --------------
Fiscal 1998
Fourth quarter $39 $25 5/8 $0.02
Third quarter 38 3/4 32 1/8 $0.02
Second quarter 34 1/4 27 1/2 $0.02
First quarter 35 3/4 27 15/16 $0.02
Fiscal 1997
Fourth quarter $37 $24 5/8 $0.02
Third quarter 38 1/4 25 1/2 $0.02
Second quarter 42 1/2 32 1/4 $0.02
First quarter 34 1/2 17 3/4 $0.02
NOTICE OF ANNUAL MEETING
The annual meeting of stockholders of DT Industries, Inc. will be held
Thursday, November 5, 1998, at 10:00 a.m., at the Clarion Hotel, 3333 South
Glenstone Avenue, Springfield, Missouri 65804, (417) 883-6550.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, St. Louis, Missouri.
LEGAL COUNSEL
Dickstein Shapiro Morin & Oshinsky LLP, Washington, D.C.
INVESTOR RELATIONS
The Financial Relations Board, Inc., Chicago, Illinois.
TRANSFER AND DIVIDEND DISBURSING AGENT
ChaseMellon Shareholders Services, L.L.C.
85 Challenger Road, Overpeck Centre
Ridgefield Park, New Jersey 07660.
888-213-0965
FORM 10-K
A copy of the annual report on Form 10-K for the year ended June 28, 1998,
as filed with the Securities and Exchange Commission, may be obtained by any
stockholder of the company at no charge upon request in writing to: Bruce P.
Erdel, DT Industries, Inc., Corporate Centre, Suite 2-300, 1949 E. Sunshine,
Springfield, Missouri 65804.
-40-
<TABLE>
<CAPTION>
Jurisdiction of Names under which
Subsidiary Incorporation Subsidiaries do Business
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advanced Assembly Automation, Inc. Ohio Advanced Assembly Automation, Inc.
Armac Industries, Co. Delaware Armac Industries, Co.
Assembly Machines, Inc. Pennsylvania Assembly Machines, Inc.
Assembly Technology & Test, Inc. Delaware Assembly Technology & Test, Inc.
Assembly Technology & Test Limited England and Wales Assembly Technology & Test Limited
Assembly Technologie & Automation GmbH Germany Assembly Technologie & Automation GmbH
Detroit Tool and Engineering Company Delaware Detroit Tool and Engineering Company
Peer
Detroit Tool Metal Products Co. Missouri Detroit Tool Metal Products Co.
DT Canada Inc. New Brunswick, DT Canada Inc.
Canada
DT Capital Trust Delaware DT Capital Trust
DT Industries Foreign Sales Corporation Barbados, West DT Industries Foreign Sales Corporation
Indies
DT Industries (UK) Limited England and Wales DT Industries (UK) Limited
DT Industries (UK) II Limited England and Wales DT Industries (UK) II Limited
DT Resources, Inc. Delaware DT Resources, Inc.
Hansford Manufacturing Corporation New York Hansford Manufacturing Corporation
Kalish Canada Inc. New Brunswick, Kalish Canada Inc.
Canada
Pharma Group, Inc. Delaware Stokes-Merrill Corporation
Stokes
Merrill
Lakso
Kalish
Scheu & Kniss
Mid-West Automation Enterprises, Inc. Illinois Mid-West Automation Enterprises, Inc.
Mid-West Automation Systems, Inc. Illinois Mid-West Automation Systems, Inc.
Sencorp Systems, Inc. Delaware Sencorp Systems, Inc.
Swiftpack Automation Limited England and Wales Swiftpack Automation Limited
</TABLE>
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (No. 33-77882, No. 33-77884, No. 33-77888, and 333-2133),
of DT Industries, Inc. of our report dated August 5, 1998, appearing on page 20
of the fiscal 1998 Annual Report to Shareholders of DT Industries, Inc. (which
report and consolidated financial statements are incorporated by reference in
this Annual Report on Form 10-K). We also consent to the incorporation by
reference of our report on the Financial Statement Schedules, which appears on
page S-2 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
September 25, 1998
POWER OF ATTORNEY
BE IT KNOWN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Stephen J. Gore and Bruce P. Erdel as his
true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1998 Annual Report on Form 10-K of DT Industries, Inc.,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and ratifying and confirming all that
each said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ James J. Kerley
----------------------------------------
Printed Name: James J. Kerley
Date: July 31, 1998
<PAGE>
POWER OF ATTORNEY
BE IT KNOWN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Stephen J. Gore and Bruce P. Erdel as his
true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1998 Annual Report on Form 10-K of DT Industries, Inc.,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and ratifying and confirming all that
each said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ Stephen J. Gore
----------------------------------------
Printed Name: Stephen J. Gore
Date: September 18, 1998
<PAGE>
POWER OF ATTORNEY
BE IT KNOWN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Stephen J. Gore and Bruce P. Erdel as his
true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1998 Annual Report on Form 10-K of DT Industries, Inc.,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and ratifying and confirming all that
each said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ William H.T. Bush
----------------------------------------
Printed Name: William H.T. Bush
Date: July 31, 1998
<PAGE>
POWER OF ATTORNEY
BE IT KNOWN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Stephen J. Gore and Bruce P. Erdel as his
true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1998 Annual Report on Form 10-K of DT Industries, Inc.,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and ratifying and confirming all that
each said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ Charles A. Dill
----------------------------------------
Printed Name: Charles A. Dill
Date: 8/4, 1998
<PAGE>
POWER OF ATTORNEY
BE IT KNOWN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Stephen J. Gore and Bruce P. Erdel as his
true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1998 Annual Report on Form 10-K of DT Industries, Inc.,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and ratifying and confirming all that
each said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ Frank W. Jones
----------------------------------------
Printed Name: Frank W. Jones
Date: 8/3, 1998
<PAGE>
POWER OF ATTORNEY
BE IT KNOWN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Stephen J. Gore and Bruce P. Erdel as his
true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1998 Annual Report on Form 10-K of DT Industries, Inc.,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and ratifying and confirming all that
each said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ Graham L. Lewis
----------------------------------------
Printed Name: G. Lewis
Date: 3 August, 1998
<PAGE>
POWER OF ATTORNEY
BE IT KNOWN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Stephen J. Gore and Bruce P. Erdel as his
true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1998 Annual Report on Form 10-K of DT Industries, Inc.,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and ratifying and confirming all that
each said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ Lee M. Liberman
----------------------------------------
Printed Name: Lee M. Liberman
Date: August 17, 1998
<PAGE>
POWER OF ATTORNEY
BE IT KNOWN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Stephen J. Gore and Bruce P. Erdel as his
true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1998 Annual Report on Form 10-K of DT Industries, Inc.,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and ratifying and confirming all that
each said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ John F. Logan
----------------------------------------
Printed Name: John F. Logan
Date: 13 August, 1998
<PAGE>
POWER OF ATTORNEY
BE IT KNOWN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Stephen J. Gore and Bruce P. Erdel as his
true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the 1998 Annual Report on Form 10-K of DT Industries, Inc.,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and ratifying and confirming all that
each said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
/s/ Charles F. Pollnow
----------------------------------------
Printed Name: Charles F. Pollnow
Date: Aug. 4, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information (in thousands except per
share data) extracted from the Consolidated Balance Sheet as of June 28, 1998
and the Consolidated Statement of Operations for the Fiscal Year Ended June 28,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-28-1998
<PERIOD-START> JUN-30-1997
<PERIOD-END> JUN-28-1998
<EXCHANGE-RATE> 1
<CASH> 6,915
<SECURITIES> 0
<RECEIVABLES> 77,776
<ALLOWANCES> 2,142
<INVENTORY> 48,755
<CURRENT-ASSETS> 207,145
<PP&E> 92,862
<DEPRECIATION> 23,679
<TOTAL-ASSETS> 460,002
<CURRENT-LIABILITIES> 98,705
<BONDS> 89,956
0
0
<COMMON> 113
<OTHER-SE> 189,946
<TOTAL-LIABILITY-AND-EQUITY> 460,002
<SALES> 519,342
<TOTAL-REVENUES> 519,342
<CGS> 380,126
<TOTAL-COSTS> 380,126
<OTHER-EXPENSES> 76,005
<LOSS-PROVISION> 624
<INTEREST-EXPENSE> 11,521
<INCOME-PRETAX> 51,066
<INCOME-TAX> 20,182
<INCOME-CONTINUING> 30,884
<DISCONTINUED> 0
<EXTRAORDINARY> 1,200
<CHANGES> 0
<NET-INCOME> 29,684
<EPS-PRIMARY> 2.63
<EPS-DILUTED> 2.40
</TABLE>
