FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 27, 1998
Commission File Number: 0-23400
DT INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 44-0537828
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1949 E. Sunshine, Suite 2-300, Springfield, Missouri 65804
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(Address of principal executive offices)
(Zip Code)
(417) 890-0102
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(registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of Common Stock, $0.01 par value, of the registrant
outstanding as of October 30, 1998 was 9,996,437.
<PAGE>
DT INDUSTRIES, INC.
Index
Page 1
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Page
Number
Part I Financial Information
Item 1. Financial Statements (Unaudited, except as noted)
Consolidated Balance Sheets at September 27, 1998
and June 28, 1998 (Audited) 2
Consolidated Statement of Operations for the three
months ended September 27, 1998 and September 28,
1997 3
Consolidated Statement of Changes in Stockholders'
Equity for the three months ended September 27,
1998 4
Consolidated Statement of Cash Flows for the three
months ended September 27, 1998 and September 28,
1997 5-6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signature
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Consolidated Balance Sheets
(Dollars in Thousands Except Per Share Data)
Page 2
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<TABLE>
<CAPTION>
September 27, June 28,
1998 1998
(Unaudited)
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,611 $ 6,915
Accounts receivable, net 80,834 75,634
Costs and estimated earnings in excess of
amounts billed on uncompleted contracts 73,239 66,910
Inventories, net 53,998 48,755
Prepaid expenses and other 8,645 8,931
------------- -------------
Total current assets 221,327 207,145
Property, plant and equipment, net 74,800 69,183
Goodwill, net 181,935 177,578
Other assets, net 9,431 6,096
------------- -------------
$ 487,493 $ 460,002
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 321 $ 55
Accounts payable 33,398 33,627
Customer advances 28,290 21,791
Accrued liabilities 41,676 43,232
------------- -------------
Total current liabilities 103,685 98,705
------------- -------------
Long-term debt 119,433 89,956
Deferred income taxes 7,807 7,827
Other long-term liabilities 3,581 3,455
------------- -------------
Total long-term obligations 130,821 101,238
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Commitments and contingencies (See Note 10)
Company-obligated, mandatorily redeemable
convertible preferred securities of
subsidiary DT Capital Trust holding solely
convertible junior subordinated debentures
of the Company 70,000 70,000
------------- -------------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding
Common stock, $0.01 par value; 100,000,000 shares
authorized; 9,996,437 and 10,502,762 shares
outstanding at September 27, 1998 and June 28,
1998, respectively 113 113
Additional paid-in capital 134,652 134,608
Retained earnings 84,138 80,561
Cumulative translation adjustment (1,781) (778)
Less -
Treasury stock (1,382,700 and 873,000 shares
at September 27, 1998 and June 28, 1998,
respectively), at cost (34,135) (24,445)
------------- -------------
Total stockholders' equity 182,987 190,059
------------- -------------
$ 487,493 $ 460,002
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Consolidated Statement of Operations
(Dollars in Thousands Except Per Share Data)
(Unaudited)
Page 3
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<TABLE>
<CAPTION>
Three Months Ended
September 27, September 28,
1998 1997
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<S> <C> <C>
Net sales $ 112,907 $ 115,764
Cost of sales 84,682 84,856
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Gross profit 28,225 30,908
Selling, general and administrative expenses 18,781 17,089
------------- -------------
Operating income 9,444 13,819
Interest expense 2,036 1,674
Dividends on Company-obligated, mandatorily
redeemable convertible preferred securities
of subsidiary DT Capital Trust holding solely
convertible junior subordinated debentures of
the Company, at 7.16% per annum 1,253 1,253
------------- -------------
Income before provision for income taxes and
extraordinary loss 6,155 10,892
Provision for income taxes 2,370 4,357
------------- -------------
Income before extraordinary loss 3,785 6,535
Extraordinary loss on debt refinancing less
applicable income tax benefit of $800 --- 1,200
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Net income $ 3,785 $ 5,335
============= =============
Basic earnings per common share:
Income before extraordinary loss $ 0.37 $ 0.58
Extraordinary loss --- 0.11
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Net income $ 0.37 $ 0.47
============= =============
Diluted earnings per common share:
Income before extraordinary loss $ 0.37 $ 0.53
Extraordinary loss --- 0.09
------------- -------------
Net income $ 0.37 $ 0.44
============= =============
Weighted average common shares outstanding:
Basic 10,318,053 11,301,875
Diluted 12,413,389 13,672,486
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended September 27, 1998
(Dollars in Thousands Except Per Share Data)
Page 4
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<TABLE>
<CAPTION>
Compre- Cumulative Additional
hensive Retained translation Common paid-in Treasury
Income earnings adjustment stock capital stock Total
--------- ---------- ----------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 28, 1998 $ 80,561 $ (778) $ 113 $ 134,608 $(24,445) $ 190,059
Net income (unaudited) $ 3,785 3,785 3,785
Other comprehensive
income:
Foreign currency
translation
adjustments (unaudited) (1,003) (1,003) (1,003)
---------
Comprehensive income $ 2,782
=========
Exercise of stock options
(unaudited) 44 44
Cash dividend at $0.02
per common share (unaudited) (208) (208)
Stock repurchase (unaudited) (9,690) (9,690)
---------- ----------- -------- ---------- --------- ----------
Balance, September 27,
1998 (unaudited) $ 84,138 $(1,781) $ 113 $ 134,652 $(34,135) $ 182,987
========== =========== ======== ========== ========= ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Consolidated Statement of Cash Flows
(Dollars in Thousands)
(Unaudited)
Page 5
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<TABLE>
<CAPTION>
Three Months Ended
September 27, September 28,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,785 $ 5,335
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation 2,456 2,041
Amortization 1,325 1,372
Deferred income tax provision 20 (2,543)
Loss on debt refinancing 2,000
(Increase) decrease in current assets,
excluding the effect of acquisitions:
Accounts receivable (4,335) 2,472
Costs and earnings in excess of amounts billed (6,329) (5,673)
Inventories (3,236) 600
Prepaid expenses and other 980 (536)
Increase (decrease) in current liabilities,
excluding the effect of acquisitions:
Accounts payable (895) (12,787)
Customer advances 6,365 3,539
Accrued liabilities (2,133) 19
Other 125 70
------------- -------------
Net cash used by operating activities (1,872) (4,091)
------------- -------------
Cash flows from investing activities:
Capital expenditures (5,047) (3,955)
Acquisition of Scheu & Kniss net assets (10,352)
Acquisition of Lucas Assembly and Test Systems net
assets, net of cash acquired of $91 (46,721)
------------- -------------
Net cash used by investing activities (15,399) (50,676)
------------- -------------
</TABLE>
(continued)
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Consolidated Statement of Cash Flows
(Dollars in Thousands)
(Unaudited)
(continued)
Page 6
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<TABLE>
<CAPTION>
Three Months Ended
September 27, September 28,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Net borrowings on revolving loans $ 20,356 $ 112,190
Proceeds from issuance of debt 4,075
Payments on borrowings (12) (49,441)
Financing costs (715)
Exercise of stock options 44 30
Payments for repurchase of stock (9,690)
Dividends (208) (226)
------------- -------------
Net cash provided by financing activities 14,565 61,838
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Effect of exchange rate changes 402 ---
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Net (decrease) increase in cash (2,304) 7,071
Cash and cash equivalents at beginning of period 6,915 2,821
------------- -------------
Cash and cash equivalents at end of period $ 4,611 $ 9,892
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
(Unaudited)
Page 7
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1. Unaudited consolidated financial statements
The accompanying unaudited consolidated financial statements of DT
Industries, Inc. (DTI or the Company) have been prepared in accordance with
the instructions for Form 10-Q and do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. However, in the opinion of management, such
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations
for the periods presented. Operating results for any quarter are not
necessarily indicative of the results for any other quarter or for the full
year. These statements should be read in conjunction with the consolidated
financial statements and notes to the consolidated financial statements
thereto included in the Company's Form 10-K Annual Report for the fiscal
year ended June 28, 1998.
2. Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
The accounts of the Company's foreign subsidiaries are maintained in their
respective local currencies. The accompanying consolidated financial
statements have been translated and adjusted to reflect U.S. dollars in
accordance with generally accepted accounting principles.
3. Acquisitions and Disposition
In August 1998, the Company completed the acquisition of certain of the net
assets of Scheu & Kniss, Inc. (S&K), 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 $10.4 million was primarily
financed by borrowings under the Company's revolving credit facility. The
purchase price has been preliminarily allocated to the acquired assets and
assumed liabilities based on their estimated fair value at the date of
acquisition. The excess of purchase price over the estimated fair value of
net assets acquired has been recorded as goodwill. The accompanying
consolidated financial statements include the results of Scheu & Kniss from
the date of acquisition.
In July 1997, the Company acquired certain of the net assets of Lucas
Assembly and Test Systems, which has been renamed Assembly Technology and
Test (ATT). In May 1998, the Company sold substantially all of the assets
of its non-core Knitting Elements division. See the consolidated financial
statements and notes thereto included in the Company's Form 10-K Annual
Report for the fiscal year ended June 28, 1998 for additional information
relating to this acquisition and disposition.
The pro forma effects of the above acquisitions and the sale of the
Knitting Elements business in May 1998 are not material to the Company's
financial results for the three months ended September 27, 1998 and
September 28, 1997.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
(Unaudited)
Page 8
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4. Financing
As of September 27, 1998 and June 28, 1998, long-term debt consisted of the
following:
September 27, June 28,
1998 1998
(Unaudited)
------------- ------------
Term loan to banks $ 10,000 $ 10,000
Revolving loans to banks 101,400 79,820
Other long-term debt and capital
lease obligations 8,354 191
------------- ------------
119,754 90,011
Less-current portion of long-term debt 321 55
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$ 119,433 $ 89,956
============= ============
The Company maintains a $175,000 multi-currency revolving and term credit
facility. The 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 facility bear interest at floating rates based on the
agent bank's base rate or LIBOR (at the option of DTI), plus a specified
percentage based on the ratio of funded debt to operating cash flow and the
ratings of DTI's corporate debt. The facility requires commitment fees of
0.125% to 0.25% per annum (as determined by the Company's ratio of funded
debt to operating cash flow) payable quarterly on any unused portion of the
multi-currency facility. The agreement is secured by the capital stock of
each of the significant domestic subsidiaries and 65% of the capital stock
of each significant foreign subsidiary of DTI. The agreement contains
certain financial and other covenants and restrictions, which the Company
was in compliance with at September 27, 1998, and matures in July 2002. In
conjunction with entering into the 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.
On July 27, 1998, the Company's wholly-owned subsidiary, Sencorp Systems,
Inc., issued $7,100 of Massachusetts Industrial Finance Agency Multi-Mode
Industrial Development Revenue Bonds 1998 Series A (Bonds) to fund the
planned expansion of the Company's facility in Hyannis, Massachusetts. The
Bonds mature July 1, 2023 and bear interest at a floating rate determined
weekly by Bank Boston, the bond remarketing agent. The weekly rate is the
lowest per annum rate which would allow the bonds to be sold at a price
equal to 100% of the outstanding principal plus accrued interest. The
interest rate, which is not permitted to rise above 12%, was 4.10% as of
September 27, 1998. The proceeds from the Bonds are held in trust until
needed for the expansion. Approximately $3,000 has been received from the
Bonds as of September 27, 1998.
The Company's Board of Directors has authorized purchases of up to 2
million shares of the Company's common stock. Through September 27, 1998,
the Company has repurchased 1,382,700 shares of its common stock at a total
cost of $34,135, as reflected in the stockholders' equity section of the
consolidated balance sheet. The repurchased shares will be used primarily
for employee stock option programs.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
(Unaudited)
Page 9
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5. Company-Obligated, Mandatorily Redeemable Convertible Preferred Securities
of Subsidiary DT Capital Trust Holding Solely 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 newly-formed Delaware business trust. The
securities represent undivided beneficial ownership interests in the Trust.
The sole asset of the Trust is the $72,165 aggregate principal amount of
the 7.16% Convertible Junior Subordinated Deferrable Interest Debentures
Due 2012 which were acquired with the proceeds from the offering as well as
the sale of Common Securities to the Company. The Company's obligations
under the Convertible Junior Subordinated Debentures, the Indenture
pursuant to which they were issued, the Amended and Restated Declaration of
Trust of the Trust and the Guarantee of DTI, taken together, constitute a
full and unconditional guarantee by DTI of amounts due on the Convertible
Preferred Securities. The Convertible Preferred Securities are convertible
at the option of the holders at any time into the common stock of DTI at an
effective conversion price of $38.75 per share and are redeemable at DTI's
option after June 1, 2000 and mandatorily redeemable in 2012. The net
proceeds of the offering of approximately $67,750 were used by DTI to
retire indebtedness. A registration statement relating to resales of such
Convertible Preferred Securities was declared effective by the Securities
and Exchange Commission on September 2, 1997.
6. Earnings per share
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 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 the three months ended September 28, 1997 have been
restated in accordance with SFAS 128.
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
(Unaudited)
Page 10
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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 three months ended
September 27, 1998 and September 28, 1997.
<TABLE>
<CAPTION>
Three Months Ended
September 27, 1998 September 28, 1997
------------------------------- -------------------------------
Income before Income before
extraordinary Shares extraordinary Shares
loss (in 000s) loss (in 000s)
--------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Basic $ 3,785 10,318 $ 6,535 11,302
Effect of dilutive securities:
Mandatorily redeemable
convertible preferred securities 771 1,806 752 1,806
Stock options 166 441
Contingent issuable shares 123 123
--------------- ----------- --------------- -----------
Diluted $ 4,556 12,413 $ 7,287 13,672
=============== =========== =============== ===========
</TABLE>
7. Stock option plans
A summary of stock option transactions pursuant to the 1994 Employee Stock
Option Plan, the 1994 Directors Non-Qualified Stock Option Plan and the
1996 Long-Term Incentive Plan follows:
AVERAGE SHARE SUBJECT
PRICE TO OPTION
--------- -------------
Options outstanding at June 28, 1998 $ 20.47 1,013,963
Options granted $ 15.88 238,000
Options exercised $ 13.06 (3,375)
Options forfeited $ 29.68 (158,250)
-------------
Options outstanding at September 27, 1998 $ 17.95 1,090,338
=============
Exercisable at September 27, 1998 $ 14.74 263,176
=============
<PAGE>
DT INDUSTRIES, INC.
Item 1. Financial Statements
Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)
(Unaudited)
Page 11
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8. Supplemental balance sheet information
September 27, June 28,
1998 1998
(Unaudited)
------------- ------------
Inventories, net:
Raw materials $ 22,889 $ 18,285
Work in process 24,019 22,749
Finished goods 7,090 7,721
------------- ------------
$ 53,998 $ 48,755
============= ============
Accrued liabilities:
Accrued employee compensation and benefits $ 13,327 $ 13,645
Taxes payable and related reserves 2,296 2,703
Product liability 1,467 1,284
Other 24,586 25,600
------------- ------------
$ 41,676 $ 43,232
============= ============
9. Comprehensive income
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income", establishes standards for the reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income represents net income plus
certain items that are charged directly to stockholders' equity. The only
component of other comprehensive income for the Company relates to foreign
currency translation adjustments. The Company has adopted SFAS 130 for the
quarter ended September 27, 1998.
10. Commitments and contingencies
The Company is a party to certain lawsuits involving employee matters,
product liability and other matters. Management and legal counsel do not
expect the outcome of any litigation to have a material adverse effect on
the Company's financial position, results of operations or liquidity.
As part of the H. G. Kalish Inc. (Kalish) and Swiftpack Automation Limited
(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 on 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. Such amount was paid subsequent to the end
of the quarter through a combination of stock and cash. The additional
purchase price accrued resulted in additional goodwill related to this
acquisition. One of the directors of the Company is a controlling
shareholder of Kalish. The Company does not expect to make any payments
related to the Swiftpack agreement.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 12
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GENERAL OVERVIEW
The following discussion summarizes the significant factors affecting the
consolidated operating results and financial condition of DT Industries,
Inc. (DTI or the Company) for the three months ended September 27, 1998
compared to the three months ended September 28, 1997. This discussion
should be read in conjunction with the consolidated financial statements
and notes to the consolidated financial statements thereto included in the
Company's Form 10-K for the fiscal year ended June 28, 1998.
In fiscal year 1998, the Company acquired the assets of Lucas Assembly and
Test Systems (LATS) which was renamed Assembly Technology & Test (ATT).
During the three months ended September 27, 1998, the Company acquired the
assets of Scheu & Kniss, Inc. (S&K). These acquisitions are elements of a
business strategy to acquire companies with proprietary products and
manufacturing capabilities which have strong market and technological
positions in the niche markets they serve and to 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 allows it to broaden its product offerings and to
provide customers a single source for complete integrated automation
systems. The acquisitions also expand the Company's base of customers,
creating greater opportunities for cross-selling among the various
divisions of the Company.
The Company primarily operates in two business segments, Special Machines
and Components. The Special Machines segment is comprised of the Automation
and Packaging Groups. The Automation Group designs and builds integrated
systems for the assembly, test and handling of discrete products. The
Packaging Group manufactures tablet processing, counting and liquid filling
systems and plastics processing equipment including thermoforming, blister
packaging, heat sealing and foam extrusion. 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 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.
Costs and related expenses to manufacture the products are recorded as cost
of sales when the related revenue is recognized. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined.
Gross margins may vary in a given period as a result of the variations in
profitability of contracts for large orders of automated production systems
or special machines. In addition, changes in the product mix in a given
period affect gross margins.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 13
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Certain information contained herein, particularly the information
appearing under the headings "Results of Operations", "Liquidity and
Capital Resources", "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 and information 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".
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of consolidated net sales represented by certain items reflected in the
Company's consolidated statement of operations:
Three Months Ended
September 27, September 28,
1998 1997
------------- -------------
Net sales 100.0% 100.0%
Cost of sales 75.0 73.3
------------- -------------
Gross profit 25.0 26.7
Selling, general and administrative
expenses 16.6 14.8
------------- -------------
Operating income 8.4 11.9
Interest expense 1.8 1.4
Dividends on Company-obligated,
mandatorily redeemable
convertible preferred securities
of subsidiary DT Capital Trust 1.1 1.1
------------- -------------
Income before provision for income taxes
and extraordinary loss 5.5 9.4
Provision for income taxes 2.1 3.8
------------- -------------
Income before extraordinary loss 3.4 5.6
Extraordinary loss on debt refinancing --- 1.0
------------- -------------
Net income 3.4% 4.6%
------------- -------------
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 14
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THREE MONTHS ENDED SEPTEMBER 27, 1998
COMPARED TO THREE MONTHS ENDED SEPTEMBER 28, 1997
Consolidated net sales for the three months ended September 27, 1998 were
$112.9 million, a decrease of $2.9 million, or 2.5%, from $115.8 million
for the three months ended September 28, 1997. Net sales by group were as
follows (in millions):
Three Months Ended Three Months Ended Increase
September 27, 1998 September 28, 1997 (Decrease)
------------------ ------------------ ----------
Automation $ 82.9 $ 80.2 $ 2.7
Packaging 21.1 23.6 (2.5)
Other 8.9 12.0 (3.1)
------------------ ------------------ ----------
$ 112.9 $ 115.8 $ (2.9)
================== ================== ==========
The increase in sales by the Automation Group resulted primarily from the
incremental sales of the ATT acquisition in July 1997. Excluding the effect
of the ATT acquisition, sales from existing businesses were down $6.8
million, or 8.4%, over the first quarter of fiscal 1998. The decrease in
revenues reflects the decline in revenues to a significant customer in the
electronics industry. The Company has partially replaced this business over
the past twelve months with new customers serving the electronics, medical
products and food packaging industries. Sales to automotive customers were
lower in the first quarter reflecting some delays in the placement of
orders by these customers. The lower automotive and electronics business
was partially offset by increased build-to-print sales, primarily to the
tire industry.
The decrease in sales by the Packaging Group reflects the lower sales of
plastics processing equipment in the first quarter of fiscal 1999. Sales of
other packaging machinery, parts and service were higher for the three
months ended September 27, 1998 reflecting the acquisition of S&K in August
1998 and strong activity in the pharmaceutical and nutritional markets.
Sales from the Company's other businesses decreased $3.1 million for the
three months ended September 27, 1998 primarily as a result of the sale of
the Knitting Elements business. Lower revenues for stamping and fabrication
were caused by the decreased sales to agricultural equipment customers, the
loss of certain customers through planned attrition and product changes by
customers.
Gross profit decreased $2.7 million, or 8.7%, to $28.2 million for the
three months ended September 27, 1998 from $30.9 million for the three
months ended September 28, 1997. The gross margin decreased to 25.0% from
26.7%, the result of significantly lower gross margins on plastics
processing equipment, cost overruns on certain contracts for assembly and
welding equipment, the sale of the higher-margin Knitting Elements business
and lower margins on stamping and fabrication work. These factors were
partially offset by stronger gross margins on automotive projects.
SG&A expenses increased $1.7 million, or 9.9%, to $18.8 million for the
three months ended September 27, 1998. The increase was primarily due to
recently acquired businesses, with the remaining increase the result of an
increased investment in the sales function, including personnel additions,
increased travel costs and higher commissions. SG&A expenses as a
percentage of consolidated net sales increased to 16.6% from 14.8% in the
comparable period in fiscal 1998.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 15
- --------------------------------------------------------------------------------
Operating income decreased $4.4 million, or 31.7%, to $9.4 million for the
three months ended September 27, 1998 from $13.8 million for the three
months ended September 28, 1997, as a result of the factors noted above.
The operating margin decreased to 8.4% from 11.9% in the prior year.
Interest expense increased $0.4 million to $2.0 million for the three
months ended September 27, 1998 as a result of the increased debt
attributed to the stock buyback program and the acquisitions of ATT and
S&K partially offset by the cash flow from operations in fiscal 1998.
Income before extraordinary loss decreased $2.7 million, or 42.1%, to $3.8
million for the three months ended September 27, 1998, from $6.5 million
for the three months ended September 28, 1997. In connection with the
refinancing of debt, 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 tax benefit. Basic
and diluted earnings per share before the extraordinary loss were each
$0.37 for the three months ended September 27, 1998 compared to $0.58 and
$0.53, respectively, for the three months ended September 28, 1997. Basic
and diluted shares outstanding were lower in the current period primarily
as a result of the stock repurchase program. The Company had repurchased
approximately 1.4 million shares as of September 27, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net income plus non-cash operating charges provided $7.6 million of
operating cash flow for the quarter ended September 27, 1998. Net increases
in working capital balances used operating cash of $9.5 million, resulting
in net cash used by operating activities of $1.9 million for the quarter
ended September 27, 1998. The increase in working capital resulted from the
unfavorable changes in trade receivables, inventories, costs and earnings
in excess of amounts billed and accrued liabilities. The increase in trade
receivables was primarily caused by the special terms negotiated on a large
automotive project. Inventories increased from the June 1998 level as a
result of the reduced shipments of plastics processing equipment and the
substantial advance purchases of parts for multiple tablet presses. The
increase in costs and earnings in excess of amounts billed reflects the
buildup of costs as projects were delayed in the Automation Group. The
decrease in accrued liabilities was caused primarily by the payment of
year-end bonuses. These working capital increases were partially offset by
an increase in customer advances, primarily a few large special machines
projects for which advance payments were received.
During the three months ended September 27, 1998, the Company borrowed
$20.4 million on its revolving credit facility and raised another $4.1
million primarily through the issuance of the Bonds, as defined below. The
funds were used for the acquisition of Scheu & Kniss for $10.4 million,
purchases of the Company's stock of $9.7 million, capital expenditures of
$5.0 million and working capital requirements. Since inception of the
Company's share repurchase programs, the Company has purchased 1.4 million
shares of stock at a total cost of $34.1 million.
During the three months ended September 28, 1997, net cash used by
operating activities was $4.1 million. Net income plus non-cash operating
charges provided $8.1 million of operating cash flow. A net unfavorable
change in working capital balances resulted in cash used of $12.2 million
primarily due to a $12.8 million decrease in accounts payable. This
decrease resulted from payments for materials received generally at the
start of the assembly phase of projects.
Cash provided by financing activities of $61.8 million during the three
months ended September 28, 1997 was used to fund the acquisition of ATT for
$46.7 million, finance capital expenditures of $4.0 million and fund
working capital requirements.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 16
- --------------------------------------------------------------------------------
Working capital balances can fluctuate significantly between periods as a
result of the significant costs incurred on individual contracts and the
relatively large amount invoiced and collected by the Company for a number
of large contracts.
On July 27, 1998, the Company's wholly-owned subsidiary, Sencorp Systems,
Inc., issued $7.1 million of Massachusetts Industrial Finance Agency
Multi-Mode Industrial Development Revenue Bonds 1998 Series A (Bonds) to
fund the planned expansion of the Company's facility in Hyannis,
Massachusetts. The Bonds mature July 1, 2023 and bear interest at a
floating rate determined weekly by Bank Boston, the bond remarketing agent.
The weekly rate is the lowest per annum rate which would allow the bonds to
be sold at price equal to 100% of the outstanding principal plus accrued
interest. The interest rate, which is not permitted to rise above 12%, was
4.10% as of September 27, 1998. The proceeds from the Bonds are held in
trust until needed for the expansion. Approximately $3.0 million has been
received from the Bonds as of September 27, 1998.
In July 1997, the Company negotiated a $175 million multi-currency
revolving and term credit facility. The facility provides a $10 million
Canadian term loan and a $165 million revolving credit facility, which
includes an approximate $80 million sublimit for multi-currency borrowings
in Pounds Sterling and Deutsche Marks. Borrowings under the facility bear
interest at floating rates based on the agent bank's base rate or LIBOR (at
the option of DTI) plus a specified percentage based on the ratio of funded
debt to operating cash flow and the ratings of DTI's corporate debt. The
agreement is secured by the capital stock of each of the significant
domestic subsidiaries and 65% of the capital stock of each significant
foreign subsidiary of DTI. The agreement contains certain financial and
other covenants and restrictions and matures in July 2002.
Management anticipates that capital expenditures in the current fiscal year
will be approximately $20 million to $22 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 the current fiscal year
include the purchase and expansion of a previously leased packaging
facility for approximately $7 million and second year costs, estimated to
be approximately $4 million, of an approximate four-year implementation of
an integrated core business system. Funding for capital expenditures is
expected to be provided by cash from operating activities, through the
Company's credit facilities and the proceeds of issuance of the Bonds.
The Company paid quarterly cash dividends of $0.02 share on September 15,
1998 to stockholders of record on August 31, 1998.
Based on its ability to generate funds from operations and the availability
of funds under its current credit facilities, the Company believes that it
will have sufficient funds available to meet its currently anticipated
operating and capital expenditure requirements.
BACKLOG
The Company's backlog is based upon customer purchase orders that the
Company believes are firm. As of September 27, 1998, the Company had $206.2
million of orders in backlog, which compares to a backlog of approximately
$241.1 million as of September 28, 1997.
The backlog for the Automation Group at September 27, 1998 was $161.5
million, which decreased $35.3 million from a year ago. The lower backlog
can be attributed to the reduction in orders from a significant customer in
the electronics industry and the decrease in assembly system orders from
customers in the automotive industry. Backlog for the Packaging Group was
$39.4 million, an increase of $1.7 million over the comparable period in
fiscal 1998.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 17
- --------------------------------------------------------------------------------
The level of backlog at any particular time is not necessarily indicative
of the future operating performance of the Company. Additionally, certain
purchase orders are subject to cancellation by the customer upon
notification. Certain orders are also subject to delays in completion and
shipment at the request of the customer. The Company believes most of the
orders in the backlog will be recognized as sales during the current fiscal
year.
OUTLOOK
First quarter orders were $93.7 million resulting in the backlog of $206.2
million at September 27, 1998. First quarter orders were significantly
below expected levels needed to achieve Company forecasted growth levels
for fiscal 1999. October orders continued to be below expected order
levels. The Company believes that significant order opportunities remain,
but the Company continues to see substantial delays in the placement of
purchase orders. The Company's business with its significant electronics
customer remains soft. While the automotive backlog is currently below
planned levels, the Company anticipates continued receipt of orders from
automotive customers for the remainder of fiscal 1999. The Packaging
Group's orders were stronger than the prior year with the pharmaceutical
and nutritional markets offsetting lower orders of plastics processing
equipment. Orders for extrusion equipment are being affected by general
soft economic conditions in certain international markets. The stamping and
fabrication business has experienced a softness in sales to customers
serving the agricultural equipment industry, which is expected to continue
at least through the end of the fiscal year.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
In general, the Company's business is not subject to seasonal variations in
demand for its products. However, because orders for certain of the
Company's products can be several million dollars, a relatively limited
number of orders can constitute a meaningful percentage of the Company's
revenue in any one quarterly period. As a result, a relatively small
reduction or delay in the number of orders can have a material impact on
the timing of recognition of the Company's revenues. Certain of the
Company's revenues are derived from fixed price contracts. To the extent
that original cost estimates prove to be inaccurate, profitability from a
particular contract may be adversely affected. Gross margins 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.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information",
establishes standards for the disclosure of information relating to
operating segments. 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.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 18
- --------------------------------------------------------------------------------
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 has substantially completed the assessment
phase of its year 2000 plan which included surveying the Company's
suppliers, vendors and service providers for year 2000 compliance. The
Company is presently in the remediation phase of its year 2000 plan which
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 in the early stages of the remediation of
its year 2000 plan, the costs of remediation cannot be quantified at this
time. The Company's ongoing implementation of an integrated core business
system includes, among other things, year 2000 remediation. The overall
incremental cost of such implementation in fiscal year 1999 is expected to
be approximately $4.0 million and 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.
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 September 27,
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.
<PAGE>
DT INDUSTRIES, INC.
PART II. Other Information
Page 19
- --------------------------------------------------------------------------------
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Statement Regarding Computation of Earnings Per
Share
(b) Reports on Form 8-K:
On July 20, 1998, a Current Report on Form 8-K was filed to
report, pursuant to Item 5 thereof, that the Company had
completed the previously announced repurchase of 1 million shares
of its 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 three months 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, that the Company had
purchased substantially all of the assets and assumed certain
liabilities of Scheu & Kniss, Inc. on August 14, 1998.
On September 1, 1998, a Current Report on Form 8-K was filed to
report, pursuant to Item 5 thereof, that the Board of Directors
of the Company authorized the repurchase of up to an additional 1
million shares of its common stock.
<PAGE>
DT INDUSTRIES, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DT INDUSTRIES, INC.
Date: November 10, 1998 /s/ Bruce P. Erdel
-----------------------------------
(Signature)
Bruce P. Erdel
Senior Vice President - Finance
and Administration
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT INDEX
Page No. in Sequential
Exhibit No. Description Numbering System
- ----------- ----------- ----------------------
11 Statement Regarding Computation
of Earnings Per-Share
DT INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per-share amounts)
Three Months Ended
September 27, September 28,
1998 1997
------------- -------------
Income before extraordinary loss $ 3,785 $ 6,535
Extraordinary loss --- 1,200
------------- -------------
Net income $ 3,785 $ 5,335
============= =============
Basic:
Basic weighted average shares outstanding 10,318 11,302
============= =============
Basic earnings per share before
extraordinary loss $ 0.37 $ 0.58
Extraordinary loss --- 0.11
------------- -------------
Basic net income per share $ 0.37 $ 0.47
============= =============
Income before extraordinary loss $ 3,785 $ 6,535
Extraordinary loss --- 1,200
------------- -------------
Net income 3,785 5,335
Interest expense on Mandatorily
Redeemable Convertible Preferred
Securities, net of applicable
income taxes 771 752
------------- -------------
Net income, adjusted $ 4,556 $ 6,087
============= =============
Diluted:
Weighted average shares outstanding 10,318 11,302
Add dilutive effect of stock options
based on treasury stock method using
average market price 166 441
Add shares contingently issuable to the
former owner of Kalish 123 123
Assumed conversion of manditorily
redeemable convertible
preferred securities 1,806 1,806
------------- -------------
12,413 13,672
============= =============
Diluted earnings per share before
extraordinary loss $ 0.37 $ 0.53
Extraordinary loss --- 0.09
------------- -------------
Diluted net income per share $ 0.37 $ 0.44
============= =============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information (in thousands except
per share data) extracted from the unaudited Consolidated Balance Sheet at
September 27, 1998 and the unaudited Consolidated Statement of Operations
for the Three Months Ended September 27, 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> 3-MOS
<FISCAL-YEAR-END> JUN-27-1999
<PERIOD-END> SEP-27-1998
<EXCHANGE-RATE> 1
<CASH> 4,611
<SECURITIES> 0
<RECEIVABLES> 83,097
<ALLOWANCES> 2,263
<INVENTORY> 53,998
<CURRENT-ASSETS> 221,327
<PP&E> 100,499
<DEPRECIATION> 25,699
<TOTAL-ASSETS> 487,493
<CURRENT-LIABILITIES> 103,685
<BONDS> 119,433
0
0
<COMMON> 113
<OTHER-SE> 182,874
<TOTAL-LIABILITY-AND-EQUITY> 487,493
<SALES> 112,907
<TOTAL-REVENUES> 112,907
<CGS> 84,682
<TOTAL-COSTS> 84,682
<OTHER-EXPENSES> 18,781
<LOSS-PROVISION> 121
<INTEREST-EXPENSE> 3,289
<INCOME-PRETAX> 6,155
<INCOME-TAX> 2,370
<INCOME-CONTINUING> 3,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,785
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
