FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended MARCH 28, 1999
--------------------------
Commission File Number: 0-23400
DT INDUSTRIES, INC
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 44-0537828
- -------------------------------- --------------------------------
(State or other jurisdiction (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 April 30, 1999 was 10,107,274.
<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 March 28, 1999
and June 28, 1998 (Audited) 2
Consolidated Statement of Operations for the three
months and nine months ended March 28, 1999
and March 29, 1998 3
Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended March 28, 1999 4
Consolidated Statement of Cash Flows for the nine
months ended March 28, 1999 and March 29, 1998 5-6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 12-20
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 21
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>
March 28, June 28,
1999 1998
(Unaudited)
----------------------- -----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,406 $ 6,915
Accounts receivable, net 68,730 75,634
Costs and estimated earnings in excess of amounts
billed on uncompleted contracts 75,617 66,910
Inventories, net 57,310 48,755
Prepaid expenses and other 9,289 8,931
----------------------- --------------------------
Total current assets 221,352 207,145
Property, plant and equipment, net 75,261 69,183
Goodwill, net 179,643 177,578
Other assets, net 7,899 6,096
----------------------- --------------------------
$ 484,155 $ 460,002
======================= ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 317 $ 55
Accounts payable 29,275 33,627
Customer advances 18,670 21,791
Accrued liabilities 35,055 43,232
----------------------- --------------------------
Total current liabilities 83,317 98,705
----------------------- --------------------------
Long-term debt 131,183 89,956
Deferred income taxes 10,025 7,827
Other long-term liabilities 3,524 3,455
----------------------- --------------------------
Total long-term obligations 144,732 101,238
----------------------- --------------------------
Commitments and contingencies (See Note 10)
Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust holding
solely convertible 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; 10,107,274 and 10,502,762 shares outstanding
at March 28, 1999 and June 28, 1998, respectively 113 113
Additional paid-in capital 133,348 134,608
Retained earnings 85,318 80,561
Cumulative translation adjustment (1,895) (778)
Less -
Treasury stock (1,268,488 and 873,000 shares, at March
28, 1999 and June 28, 1998, respectively), at cost (30,778) (24,445)
----------------------- --------------------------
Total stockholders' equity 186,106 190,059
----------------------- --------------------------
$ 484,155 $ 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 Nine Months Ended
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
-------------- ----------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Net sales $ 104,097 $ 132,561 $ 328,631 $ 380,756
Cost of sales 79,604 96,054 250,338 277,364
-------------- ----------------- ------------------ ---------------------
Gross profit 24,493 36,507 78,293 103,392
Selling, general and
administrative expenses 20,716 19,680 60,021 55,898
Loss on sale of assets of Knitting
Elements division --- 1,383 --- 1,383
-------------- ----------------- ------------------ ---------------------
Operating income 3,777 15,444 18,272 46,111
Interest expense 1,724 1,546 5,783 5,102
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 3,759 3,759
-------------- ----------------- ------------------ ---------------------
Income before provision for
income taxes and
extraordinary loss 800 12,645 8,730 37,250
Provision for income taxes 308 4,931 3,361 14,773
-------------- ----------------- ------------------ ---------------------
Income before extraordinary
loss 492 7,714 5,369 22,477
Extraordinary loss on debt
refinancing less applicable
income tax benefits of $800 --- --- --- 1,200
-------------- ----------------- ------------------ ---------------------
Net income $ 492 $ 7,714 $ 5,369 $ 21,277
============== ================= ================== =====================
Basic earnings per common share:
Income before
extraordinary loss $ 0.05 $ 0.68 $ 0.53 $ 1.99
Extraordinary loss --- --- --- 0.11
-------------- ----------------- ------------------ ---------------------
Net income $ 0.05 $ 0.68 $ 0.53 $ 1.88
============== ================= ================== =====================
Diluted earnings per common share:
Income before extraordinary
loss $ 0.05 $ 0.62 $ 0.52 $ 1.81
Extraordinary loss --- --- --- 0.09
-------------- ----------------- ------------------ ---------------------
Net income $ 0.05 $ 0.62 $ 0.52 $ 1.72
============== ================= ================== =====================
Weighted average common shares outstanding:
Basic 10,107,274 11,341,028 10,163,246 11,321,735
Diluted 10,111,242 13,726,289 10,254,900 13,671,794
</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 NINE MONTHS ENDED MARCH 28, 1999
(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) $ 5,369 5,369 5,369
Other comprehensive
income:
Foreign currency translation
adjustments (unaudited)
(1,117) (1,117) (1,117)
---------
Comprehensive income (unaudited) $ 4,252
=========
Treasury stock activity
(unaudited)
(1,260) 3,652 2,392
Quarterly cash dividends of $0.02
per common share (unaudited) (612) (612)
Stock repurchase (unaudited) (9,985) (9,985)
--------------------------------------------------------------------------------
Balance, March 28, 1999
(unaudited) $ 85,318 $ (1,895)$ 113 $ 133,348 $ (30,778) $ 186,106
================================================================================
</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>
Nine months ended
March 28, 1999 March 29, 1998
---------------------- ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,369 $ 21,277
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation 7,723 6,448
Amortization 4,044 4,157
Deferred income tax provision 2,134 (3,613)
Loss on debt refinancing 2,000
Loss on sale of assets of Knitting Elements division 1,383
(Increase) decrease in current assets, excluding the
effect of acquisitions:
Accounts receivable 3,054 11,607
Cost and earnings in excess of amounts billed (8,707) 13,423
Inventories (6,548) (14,051)
Prepaid expenses and other 1,263 334
Increase (decrease) in current liabilities, excluding the
effect of acquisitions:
Accounts payable (6,902) (6,773)
Customer advances (3,255) 6,996
Accrued liabilities (444) (256)
Other 57 (232)
---------------------- ----------------------
Net cash (used) provided by operating activities (2,212) 42,700
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,185) (12,257)
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)
Other (1,429)
---------------------- ----------------------
Net cash used by investing activities (22,966) (58,978)
---------------------- ----------------------
</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>
Nine months ended
March 28, 1999 March 29, 1998
---------------------- ----------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving loans $ 34,190 $ 68,225
Proceeds from issuance of term debt 5,275
Payments on borrowings (128) (49,239)
Financing costs (915)
Exercise of stock options 119 909
Payments on stock subscriptions receivable 110
Payments for repurchase of stock (9,985)
Dividends (612) (678)
---------------------- ----------------------
Net cash provided by financing activities 28,859 18,412
---------------------- ----------------------
Effect of exchange rate changes (190) (412)
---------------------- ----------------------
Net increase in cash 3,491 1,722
Cash and cash equivalents at beginning of period 6,915 2,821
---------------------- ----------------------
Cash and cash equivalents at end of period $ 10,406 $ 4,543
====================== ======================
</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 AND FOREIGN CURRENCY TRANSLATION
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 $10,352 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 the 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 nine months ended March 28, 1999
and March 29, 1998.
<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 March 28, 1999 and June 28, 1998, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
March 28, 1999 June 28, 1998
(Unaudited)
-------------------- -----------------
<S> <C> <C>
Term loan to bank $ 10,000 $ 10,000
Revolving loans to banks 113,261 79,820
Other long-term debt and capital lease 8,239 191
obligations
-------------------- -----------------
131,500 90,011
Less-current portion of long-term debt 317 55
-------------------- -----------------
$ 131,183 $ 89,956
==================== =================
</TABLE>
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 March 28, 1999, 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 3.15% as of March 28, 1999. The
proceeds from the Bonds are held in trust until needed for the
expansion. Approximately $4,200 has been received from the Bonds as of
March 28, 1999.
The Company's Board of Directors has authorized purchases of up to 2
million shares of the Company's common stock. Through March 28, 1999,
the Company has repurchased 1,401,100 shares of its common stock at a
total cost of $34,430. The repurchased shares are being used 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 CAPITAL TRUST HOLDING SOLELY CONVERTIBLE
JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY (CONVERTIBLE PREFERRED
SECURITIES)
On June 12, 1997, the Company completed a private placement to
institutional investors of 1,400,000 7.16% Convertible Preferred
Securities (liquidation preference of $50 per Convertible Preferred
Security). The placement was made through the Company's wholly owned
subsidiary, DT Capital Trust (Trust), a Delaware business trust. The
securities represent undivided beneficial ownership interests in the
Trust. The sole asset of the Trust is the $72,165 aggregate principal
amount of the 7.16% Convertible Junior Subordinated Deferrable Interest
Debentures Due 2012 of the Company which were acquired with the
proceeds from the offering as well as the sale of common securities to
the Company. The Company's obligations under the Convertible Junior
Subordinated Debentures, the Indenture pursuant to which they were
issued, the Amended and Restated Declaration of Trust of the Trust and
the Guarantee of DTI, taken together, constitute a full and
unconditional guarantee by DTI of amounts due on the Convertible
Preferred Securities. The Convertible Preferred Securities are
convertible at the option of the holders at any time into the common
stock of DTI at an effective conversion price of $38.75 per share and
are redeemable at DTI's option after June 1, 2000 and mandatorily
redeemable in 2012. The net proceeds of the offering of approximately
$67,750 were used by DTI to retire indebtedness. A registration
statement relating to resales of such Convertible Preferred Securities
was declared effective by the Securities and Exchange Commission on
September 2, 1997.
6. EARNINGS PER SHARE
The following table represents the reconciliation of income before
extraordinary loss and weighted average shares outstanding between
basic and diluted earnings per share for the three and nine months
ended March 28, 1999 and March 29, 1998. The convertible preferred
securities were antidilutive for the three and nine months ended March
28, 1999 and have been excluded from the computation of diluted
earnings per share (share data in thousands).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
-------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary loss $ 492 $ 7,714 $ 5,369 $ 22,477
Adjustment for dividends on
convertibles, net of income tax effect --- 752 --- 2,256
-------------- -------------- ------------- ----------------
Income before extraordinary loss, adjusted $ 492 $ 8,466 $ 5,369 $ 24,733
============== ============== ============= ================
Denominator:
Basic weighted-average shares
outstanding 10,107 11,341 10,163 11,322
Effect of dilutive securities:
Mandatorily redeemable
convertible preferred securities --- 1,806 --- 1,806
Stock options 4 456 92 421
Contingent issuable shares --- 123 --- 123
-------------- -------------- ------------- ----------------
Weighted-average shares and
dilutive potential common shares 10,111 13,726 10,255 13,672
============== ============== ============= ================
</TABLE>
<PAGE>
DT INDUSTRIES, INC.
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
PAGE 10
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7. STOCK OPTION PLANS
A summary of stock option transactions pursuant to the 1994 Employee
Stock Option Plan, the 1994 Directors Non-Qualified Stock Option Plan
and the 1996 Long-Term Incentive Plan follows:
<TABLE>
<CAPTION>
AVERAGE SHARE SUBJECT
PRICE TO OPTION
------------------------ --------------------------
<S> <C> <C>
Options outstanding at June 28, 1998 $ 20.47 1,013,963
Options granted 15.93 252,250
Options exercised 13.34 (8,875)
Options forfeited 28.82 (188,325)
--------------------------
Options outstanding at March 28, 1999 17.80 1,069,013
==========================
Exercisable at March 28, 1999 15.86 351,423
==========================
</TABLE>
8. SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
March 28, 1999 June 28, 1998
(Unaudited)
---------------------- -----------------------------
<S> <C> <C>
Inventories, net:
Raw materials $ 19,854 $ 18,285
Work in process 25,044 22,749
Finished goods 12,412 7,721
---------------------- -----------------------------
$ 57,310 $ 48,755
====================== =============================
Accrued liabilities:
Accrued employee compensation and benefits $ 12,320 $ 13,645
Taxes payable and related reserves 2,782 2,703
Product liability 1,447 1,284
Other 18,506 25,600
---------------------- -----------------------------
$ 35,055 $ 43,232
====================== =============================
</TABLE>
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 three and nine months ended
March 28, 1999.
<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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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 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 and was paid in November 1998 through
a combination of stock and cash. The additional purchase price resulted
in additional goodwill related to this acquisition. One of the
directors of the Company was a controlling shareholder of Kalish prior
to its acquisition by DTI. The Company will not be required 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 and nine months
ended March 28, 1999, compared to the three and nine months ended March
29, 1998, respectively. 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
Annual Report on 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 nine months ended March 28, 1999, the Company
acquired the assets of Scheu & Kniss (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 statement 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
-------------- ----------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Net sales
100.0% 100.0% 100.0% 100.0%
Cost of sales
76.5 72.5 76.2 72.8
-------------- ----------------- ------------------ ---------------------
Gross profit
23.5 27.5 23.8 27.2
Selling, general and
administrative expenses
19.9 14.8 18.3 14.7
Loss on sale of assets of
Knitting Elements division --- 1.0 --- 0.4
-------------- ----------------- ------------------ ---------------------
Operating income 3.6 11.7 5.5 12.1
Interest expense 1.6 1.2 1.8 1.3
Dividends on Company-obligated,
mandatorily redeemable
convertible preferred securities
of subsidiary DT Capital Trust 1.2 1.0 1.1 1.0
-------------- ----------------- ------------------ ---------------------
Income before provision for
income taxes and
extraordinary loss 0.8 9.5 2.6 9.8
Provision for income taxes 0.3 3.7 1.0 3.9
-------------- ----------------- ------------------ ---------------------
Income before extraordinary
loss 0.5 5.8 1.6 5.9
Extraordinary loss on debt
refinancing --- --- --- 0.3
-------------- ----------------- ------------------ ---------------------
Net income 0.5% 5.8% 1.6% 5.6%
============== ================= ================== =====================
</TABLE>
<PAGE>
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 14
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 28, 1999
COMPARED TO THREE MONTHS ENDED MARCH 29, 1998
Consolidated net sales decreased $28.5 million, or 21.5%, to $104.1
million for the three months ended March 28, 1999 from $132.6 million
for the three months ended March 29, 1998. Net sales by group were as
follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended March Three Months Ended
28, 1999 March 29, 1998 (Decrease)
---------------------------- ------------------------- ----------------
<S> <C> <C> <C>
Automation $ 68.6 $ 91.8 $ (23.2)
Packaging 27.6 28.0 (0.4)
Other 7.9 12.8 (4.9)
---------------------------- ------------------------- ----------------
$ 104.1 $ 132.6 $ (28.5)
============================ ========================= ================
</TABLE>
Revenues from the Automation Group decreased primarily as a result of
lower sales to the electronics industry. Sales to a significant
electronics customer were down sharply compared to the prior year
quarter. The Company continues in its efforts to replace the business
of this electronics customer and has obtained several new customers in
various industries. Revenues recognized from new customers have
partially offset the decline in the electronics business. Sales of
other automation systems were generally below prior year levels as a
result of the slow bookings in the first half of the fiscal year.
Customer deferrals of order placement and delays in projects in backlog
have impacted revenue recognition across the Automation Group,
particularly sales to customers in the heavy equipment, automotive and
appliance industries.
The slight decrease in revenues from the Packaging Group resulted from
the combination of significantly lower sales of plastics processing
equipment, substantially offset by increased sales from the
acquisition of S & K in August 1998 and a moderate increase in sales
of packaging machinery systems. The decreased sales of plastics
processing equipment primarily reflects the continued softness in
sales of extrusion systems. The increased sales of packaging machinery
systems is primarily related to strong sales of tablet packaging
systems to customers in the pharmaceutical and nutritional industries.
Lower revenues from precision metal stamping and fabrication sales
combined with the sale of the Knitting Elements business in May 1998
resulted in the decreased sales of the Company's other businesses
compared to the third quarter of the prior year. The continued slowdown
in sales to the agricultural equipment industry was only slightly
offset by increased sales to the transportation industry resulting in
the lower metal stamping and fabrication revenues.
Gross profit decreased $12.0 million, or 32.9%, to $24.5 million for
the three months ended March 28, 1999 from $36.5 million for the three
months ended March 29, 1998. The gross margin decreased to 23.5% from
27.5%. The decrease reflects significantly lower margins on certain
contracts for welding systems and assembly systems equipment, lower
margins on stamping and fabrication work, plant inefficiencies caused
by the reduced level of manufacturing activity and product mix issues
related to differences in the Company's customer base as compared to
the prior year quarter. Gross margins on sales of packaging machinery
equipment were slightly lower than prior year levels although margins
on plastics processing equipment have returned to historical levels for
the quarter.
<PAGE>
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 15
- --------------------------------------------------------------------------------
SG&A expenses increased $1.0 million, or 5.3%, to $20.7 million for the
three months ended March 28, 1999 from $19.7 million for the three
months ended March 29, 1998. The increase was primarily due to the
increased investment in sales and marketing activities as the Company
continues in its efforts to expand its customer base. Additions of
sales personnel, increased quoting costs and travel costs and continued
participation in trade shows and industry events have contributed to
the higher expenses. The Company has also increased its research and
development efforts with an objective to accelerate improvements to its
technological position and develop new products and services. Due to
the higher operating expenses and lower sales, SG&A expenses, as a
percentage of consolidated net sales, increased to 19.9% from 14.8%.
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.
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, was
recorded in March 1998.
Operating income decreased $11.7 million, or 75.5%, to $3.8 million for
the three months ended March 28, 1999 from $15.4 million for the three
months ended March 29, 1998, as a result of the factors noted above.
The operating margin decreased to 3.6% from 12.7%, excluding the
Knitting Elements divestiture, in the prior year.
Interest expense increased to $1.7 million for the three months ended
March 28, 1999 from $1.5 million for the three months ended March 29,
1998 due to higher debt levels. The provision for income taxes
reflected an effective tax rate of approximately 38.5% and 39.0% for
each period, respectively. The effective tax rates differ from
statutory rates due primarily to non-deductible goodwill amortization
on certain acquisitions.
Net income decreased to $0.5 million for the three months ended March
28, 1999 from $7.7 million for the three months ended March 29, 1998 as
a result of the factors described above. Basic and diluted earnings per
share were $0.05 for the three months ended March 28, 1999 versus $0.68
and $0.62, respectively, for the three months ended March 29, 1998.
Basic weighted average shares outstanding for the three months ended
March 28, 1999 were 10.1 million versus 11.3 million for the three
months ended March 29, 1998. The decrease is primarily the result of
the repurchase of 1.4 million shares of the Company's stock since May
1998. Diluted weighted average shares outstanding for the three months
ended March 28, 1999 were 10.1 million versus 13.7 million for the
three months ended March 29, 1998. The decrease is primarily the result
of the exclusion of the antidilutive convertible securities coupled
with the repurchase of the Company's stock.
NINE MONTHS ENDED MARCH 28, 1999
COMPARED TO NINE MONTHS ENDED MARCH 29, 1998
Consolidated net sales decreased $52.2 million, or 13.7%, to $328.6
million for the nine months ended March 28, 1999 from $380.8 million
for the nine months ended March 29, 1998. Net sales by group were as
follows (in millions):
<TABLE>
<CAPTION>
Nine Months Ended March Nine Months Ended March
28, 1999 29, 1998 (Decrease)
---------------------------- ------------------------- ----------------
<S> <C> <C> <C>
Automation $ 225.4 $ 264.6 $ (39.2)
Packaging 77.8 79.7 (1.9)
Other 25.4 36.5 (11.1)
---------------------------- ------------------------- ----------------
$ 328.6 $ 380.8 $ (52.2)
============================ ========================= ================
</TABLE>
<PAGE>
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 16
- --------------------------------------------------------------------------------
Excluding the incremental sales of $9.5 million from the acquisition
of ATT in July 1997, sales by the Automation Group decreased $48.7
million, or 18.4% from the nine months ended March 29, 1998.
Automation Group revenues decreased largely as a result of lower sales
to the electronics industry. Sales to a substantial electronics
customer were significantly lower for the nine months ended March 28,
1999 compared to the comparable period in the prior year as they have
reduced their levels of capital spending. The Company continues to
gain new customers to replace this business and has recognized
revenues from several of these customers partially offsetting the
decline in business with this electronics customer. Sales of other
automation systems were generally below prior year levels as a result
of the slow bookings in the first half of the fiscal year. Customer
deferrals of order placement and delays in projects in backlog have
impacted revenue recognition across the Automation Group, particularly
sales to customers in the heavy equipment, automotive and appliance
industries.
Packaging Group sales decreased from the prior year nine months
primarily as a result of lower sales of plastics processing equipment.
Softness in extrusion system sales and plant inefficiencies which
resulted in revenue recognition delays contributed to the decreased
sales of plastics processing equipment. Strong sales of tablet counting
and packaging systems to customers in the pharmaceutical and
nutritional industries have partially offset the decrease. Sales of
packaging machinery parts and services by Scheu & Kniss, which was
acquired in August 1998, also offset a substantial portion of the
decrease.
The decreased revenues from the Company's other businesses reflect the
sale of the Knitting Elements business in May 1998 and substantially
lower sales of precision metal stamping and fabricating. Precision
metal stamping and fabrication sales decreased primarily due to the
continued economic slowdown in the agricultural industry and resulting
decreases in sales to agricultural equipment manufacturers. Also,
certain customers have been eliminated through product changes and
planned attrition. These decreases were partially offset by strong
sales to customers in the transportation industry.
Gross profit decreased $25.1 million, or 24.3%, to $78.3 million for
the nine months ended March 28, 1999 from $103.4 million for the nine
months ended March 29, 1998. The gross margin decreased to 23.8% from
27.2%. Within the Automation Group, this decrease resulted from lower
margins and losses on certain welding systems and assembly systems
projects, lower manufacturing efficiencies resulting from the decreased
level of manufacturing activity and product mix issues related to the
composition of the Company's customer base as compared to the prior
year. Within the Packaging Group, this decrease resulted from cost
overruns on plastics processing equipment partially offset by improved
margins related to product mix on tablet presses and counting
machinery. The stamping and fabrication business realized lower margins
for the nine month period as compared with the same period of the prior
fiscal year due to product mix and manufacturing inefficiencies
resulting from the lower volumes. Prior year financial results for the
Components segment included higher margin sales by the non-core
Knitting Elements business which was sold in May 1998.
SG&A expenses increased $4.1 million, or 7.4%, to $60.0 million for the
nine months ended March 28, 1999 from $55.9 million for the nine months
ended March 29, 1998. The increase was primarily due to increased
investment in sales and marketing activities as the Company continues
in its efforts to expand its customer base. Additions of sales
personnel, increased quoting costs and travel costs and continued
participation in trade shows and industry events have contributed to
the higher expenses. The Company has also increased its research and
development efforts with an objective to accelerate improvements to its
technological position and develop new products and services. Due to
the higher operating expenses and lower sales, SG&A expenses, as a
percentage of consolidated net sales, increased to 18.3% from 14.7%.
<PAGE>
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 17
- --------------------------------------------------------------------------------
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, was recorded in March
1998.
Operating income decreased $27.8 million, or 60.4%, to $18.3 million
for the nine months ended March 28, 1999 from $46.1 million for the
nine months ended March 29, 1998, as a result of the factors noted
above. The operating margin decreased to 5.5% from 12.5%, excluding the
Knitting Elements divestiture, in the prior year.
Interest expense increased to $5.8 million for the nine months ended
March 28, 1999 from $5.1 million for the nine months ended March 29,
1998. The increase in interest expense reflects the increased level of
debt associated with the stock repurchase program and the recent
acquisition of S&K. The provision for income taxes reflected an
effective tax rate of approximately 38.5% for the nine months ended
March 28, 1999 versus 39.7% for the nine months ended March 29, 1998.
The effective tax rates differ from statutory rates due primarily to
non-deductible goodwill amortization on certain acquisitions.
Income before extraordinary loss decreased to $5.4 million for the nine
months ended March 28, 1999 from $22.5 million for the nine months
ended March 29, 1998. An extraordinary loss was recognized in the 1998
fiscal year for costs incurred of $2.0 million, less applicable income
tax benefits of $0.8 million, related to the refinancing of debt in
July 1997. Basic and diluted earnings per share before the
extraordinary loss were $0.53 and $0.52, respectively, for the nine
months ended March 28, 1999 versus $1.99 and $1.81, respectively, for
the nine months ended March 29, 1998. Basic weighted average shares
outstanding for the nine months ended March 28, 1999 were 10.2 million
versus 11.3 million for the nine months ended March 29, 1998. The
decrease reflects the purchase of 1.4 million shares of the Company's
stock since May 1998. Diluted weighted average shares outstanding for
the nine months ended March 28, 1999 were 10.3 million versus 13.7
million for the nine months ended March 29, 1998. The decrease
primarily reflects the exclusion of antidilutive convertible securities
and the repurchase of the Company's stock.
LIQUIDITY AND CAPITAL RESOURCES
Net income plus non-cash operating charges provided $19.3 million of
operating cash flow for the nine months ended March 28, 1999. Net
increases in working capital balances used operating cash of $21.5
million, resulting in net cash used by operating activities of $2.2
million for the nine months ended March 28, 1999. The increase in
working capital primarily resulted from unfavorable changes in costs
and earnings in excess of amounts billed, inventories, trade accounts
payable and customer advances, partially offset by a favorable change
in trade accounts receivable. These changes are the result of the
following general situations within the business groups: Despite the
lower level of manufacturing activity within the Automation Group,
there has been an increase in accumulated costs on projects due
primarily to project delays and cost overruns. Within the Packaging
Group, inventories of plastics processing and packaging machinery have
increased to more normal levels after strong shipments in late fiscal
1998. Inventories of other packaging machinery have also increased as
the Company is now stocking some standard packaging machines to
facilitate quicker delivery. Trade accounts receivable have declined
across the business groups reflecting the lower level of sales during
the current period as compared to the end of fiscal 1998 and the
Company's increased collection efforts.
<PAGE>
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 18
- --------------------------------------------------------------------------------
During the nine months ended March 28, 1999, the Company borrowed $34.2
million on its revolving credit facility and raised another $5.3
million primarily through the issuance of Bonds, as discussed below.
These funds were used to finance the acquisition of Scheu & Kniss for
$10.4 million, repurchase $10.0 million of the Company's stock, pay
dividends of $0.6 million and finance capital expenditures of $11.2
million. The Company has purchased 1.4 million shares of its stock at a
total cost of $34.3 million under the stock repurchase program since
May 1998.
During the nine months ended March 29, 1998, net cash provided by
operating activities was $42.7 million. Net income plus non-cash
operating charges provided $31.7 million of operating cash flow. A net
favorable change in working capital balances generated cash of $11.0
million. The decrease in working capital resulted from the
manufacturing activity occurring in the assembly systems and packaging
businesses where several large dollar value longer lead-time projects
were shipped and there was a trend toward smaller assembly systems that
required smaller average working capital investments.
During the nine months ended March 29, 1998, net cash of $18.4 million
was provided by financing activities. The net cash provided by
financing and operating activities was used to fund the acquisition of
ATT for $46.7 million, net of cash acquired, finance capital
expenditures of $12.3 million and pay dividends of $0.7 million. The
Company incurred $0.9 million of financing costs in conjunction with
the renegotiation of the credit facility.
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.
In November 1998, DTI made an additional payment to the sellers of
Kalish as determined by formulae based on the earnings of the acquired
business. The additional purchase price specified within the Kalish
agreement, based on earnings from the acquisition date to June 28,
1998, amounted to $3.0 million and was paid through a combination of
stock and cash. One of the directors of the Company was a controlling
shareholder of Kalish prior to its acquisition by the Company.
On July 27, 1998, the Company's wholly-owned subsidiary, Sencorp
Systems, Inc. participated in the issuance of $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 a price equal to 100% of the outstanding principal plus
accrued interest. The interest rate, which is not permitted to rise
above 12%, was 3.15% as of March 28, 1999. The proceeds from the Bonds
are held in trust until needed for the expansion. Approximately $4.2
million has been received from the Bonds as of March 28, 1999.
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, which
the Company was in compliance with at March 28, 1999, and matures in
July 2002.
<PAGE>
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 19
- --------------------------------------------------------------------------------
Management anticipates that capital expenditures in the current fiscal
year will be approximately $17 million to $19 million. This includes
recurring replacement or refurbishment of machinery and equipment, and
purchases to improve production methods or processes or to expand
manufacturing capabilities. Significant 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 for business system implementations of approximately $4 million.
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 per share on
September 15, 1998, December 15, 1998 and March 15, 1999 to
stockholders of record on August 31, 1998, November 30, 1998 and March
5, 1999, respectively.
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 March 28, 1999, the Company had $203.8
million of orders in backlog, which compares to a backlog of
approximately $239.4 million as of March 29, 1998.
The backlog for the Automation Group at March 28, 1999 was $160.1
million, a decrease of $28.3 million from a year ago. The reduced
backlog is the result of substantially lower orders from a significant
customer in the electronics industry and reduced orders of other
automation systems reflecting significant order delays from customers
partially offset by strong orders of build-to-print machinery from the
tire industry. Backlog for the Packaging Group decreased $2.4 million,
or 5.6%, to $39.9 million from the $42.3 million backlog a year ago. An
unusually large backlog of tablet counting and packaging systems at
March 29, 1998 including several large systems has returned to more
historical levels over the last 12 months resulting in the decreased
Packaging Group backlog. This decrease was partially offset by an
increase in backlog of plastics processing equipment.
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 approximately one-half of the orders in the backlog
will be recognized as sales during the current fiscal year.
OUTLOOK
Orders for the third quarter were $117.7 million, slightly above orders
received in the third quarter of fiscal 1998. Orders for the nine
months ended March 28, 1999 were $307.0 million, $70.6 million or 18.7%
below the comparable prior year orders, resulting in the backlog of
$203.8 million at March 28, 1999. The backlog at March 28, 1999
includes orders for multiple units with shipments extending to fiscal
2001. These extended deliveries combined with the continuance of an
unusually high level of order delays and deferrals have lowered the
anticipated revenue outlook for the Automation Group. In the Packaging
Group, orders for plastics processing machinery and other packaging
machinery equipment remain steady although tentative. The Company
anticipates continuing softness in its stamping and fabrication
business due largely to the economic downturn being experienced by
customers in the agricultural equipment industry, partially offset by
expected strength in the transportation industry and new business.
Overall quoting remains strong across the business groups and bookings
for the fourth quarter are expected to improve over the third quarter
level.
<PAGE>
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 19
- --------------------------------------------------------------------------------
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.
Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities",
establishes accounting and reporting standards for derivative
instruments and for hedging activities and requires recognition of all
derivatives on the balance sheet measured at fair value. SFAS 133 is
effective for all fiscal quarters beginning after June 15, 1999. The
Company is continuing to evaluate the provisions of SFAS 133 to
determine its impact on financial position and results of operations.
YEAR 2000 COMPLIANCE
The costs of the planned year 2000 modifications and the dates by which
the Company expects to complete its plans are based on management's
best estimates, which were derived utilizing numerous assumptions of
future events, including the continued availability of certain
resources, third-party modification plans and other factors. Specific
factors that may cause differences between these estimates and actual
results include, without limitation, the availability and cost of
personnel trained in these areas, the ability to locate and correct all
relevant computer codes, changes in consulting fees and costs to
remediate or replace hardware and software, non-incremental costs
resulting from redeployment of internal resources, timely responses to
and corrections by third parties such as significant customers and
suppliers, and similar uncertainties.
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 and is implementing a plan, primarily 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 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.
<PAGE>
DT INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 20
- --------------------------------------------------------------------------------
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 and completed in July and August 1999. The Company expects
that all critical systems will be year 2000 compliant by August 31,
1999.
The total incremental cost of this project, comprised primarily of the
costs of the implementation of a new integrated core business system,
is expected to be approximately $7.5 million, including costs of
approximately $3.5 million incurred through the end of the Company's
1998 fiscal year and anticipated expenditures in fiscal year 1999 of
approximately $4.0 million which are included in the Company's capital
expenditures plan.
The Company's most likely worst case year 2000 scenario would be an
interruption in work or cash flow resulting from unanticipated problems
encountered with the information systems of the Company or of any of
the significant third parties with whom the Company does business. The
Company believes that the risk of significant business interruption due
to unanticipated problems with its own systems is low based on the
progress of the Company's year 2000 plan to date. The Company is
developing contingency plans, which are anticipated to be completed by
November 30, 1999, in the event unforeseen internal disruptions occur.
The Company believes its highest risk relates to significant suppliers
or customers failing to remediate their year 2000 issues in a timely
manner. Relating to its suppliers, the Company has identified and will
continue to identify alternative sources of supply of necessary
materials. The risk relating to the Company's customers includes delays
in receipt of payment due to a customer's unresolved year 2000 issues
and to customer product migration due to the Company's unresolved year
2000 issues. The Company's existing financial resources will help to
mitigate the impact of customer payment issues and the Company's year
2000 plan and contingency plans will help to mitigate the impact of
customer product migration. 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 payment and product migration issues, or
that such costs and/or interruptions will not have a material adverse
effect on the Company's consolidated financial condition or 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 March 28, 1999. 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 21
- --------------------------------------------------------------------------------
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 January 14, 1999, a Current Report on Form 8-K was filed to
report, pursuant to Item 5 thereof, the release by the Company of
its expectation of earnings for the three months ended December
27, 1998.
On February 11, 1999, 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 and six months ended December 27, 1998.
<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: May 7, 1999 /s/ BRUCE P. ERDEL
----------------------------------------
(Signature)
Bruce P. Erdel
Senior Vice President - Finance
and Administration
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT 11
DT INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- -------------------------------
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Income before extraordinary loss $ 492 $ 7,714 $ 5,369 $ 22,477
Extraordinary loss --- --- --- 1,200
------------- -------------- --------------- -------------
Net income $ 492 $ 7,714 $ 5,369 $ 21,277
============= ============== =============== =============
Basic:
Basic weighted average shares outstanding 10,107 11,341 10,163 11,322
============= ============== =============== =============
Basic earnings per share before
extraordinary loss $ 0.05 $ 0.68 $ 0.53 $ 1.99
Extraordinary loss --- --- --- 0.11
------------- -------------- --------------- -------------
Basic net income per share $ 0.05 $ 0.68 $ 0.53 $ 1.88
============= ============== =============== =============
Income before extraordinary loss $ 492 $ 7,714 $ 5,369 $ 22,477
Extraordinary loss --- --- --- 1,200
------------- -------------- --------------- -------------
Net income 492 7,714 5,369 21,277
Interest expense on Mandatorily Redeemable
Convertible Preferred Securities, net of
applicable income taxes --- 752 --- 2,256
------------- -------------- --------------- -------------
Net income, adjusted $ 492 $ 8,466 $ 5,369 $ 23,533
============= ============== =============== =============
Diluted:
Weighted average shares outstanding 10,107 11,341 10,163 11,322
Add dilutive effect of stock options based on
treasury stock method using average
market price 4 456 92 421
Add shares contingently issuable to the former
owner of Kalish --- 123 --- 123
Assumed conversion of mandatorily redeemable
convertible preferred securities --- 1,806 --- 1,806
------------- -------------- --------------- -------------
10,111 13,726 10,255 13,672
============= ============== =============== =============
Diluted earnings per share before
extraordinary loss $ 0.05 $ 0.62 $ 0.52 $ 1.81
Extraordinary loss --- --- --- 0.09
------------- -------------- --------------- -------------
Diluted net income per share $ 0.05 $ 0.62 $ 0.52 $ 1.72
============= ============== =============== =============
</TABLE>
NOTE: For the three and nine months ended March 28, 1999, the convertible
preferred securities were antidilutive and have been excluded from the
computation of diluted earnings per share.
<PAGE>
<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 as of March
28, 1999 and the Consolidated Statement of Operations for the Nine Months Ended
March 28, 1999 and is qualified in its entirety by reference to such financial
statements.
NOTE: For the three and nine months ended March 28, 1999, the convertible
preferred securities were antidilutive and have been excluded from the
computation of diluted earnings per share.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-27-1999
<PERIOD-END> MAR-28-1999
<EXCHANGE-RATE> 1
<CASH> 10,406
<SECURITIES> 0
<RECEIVABLES> 71,390
<ALLOWANCES> 2,660
<INVENTORY> 57,310
<CURRENT-ASSETS> 221,352
<PP&E> 106,050
<DEPRECIATION> 30,789
<TOTAL-ASSETS> 484,155
<CURRENT-LIABILITIES> 83,317
<BONDS> 131,183
0
0
<COMMON> 113
<OTHER-SE> 185,993
<TOTAL-LIABILITY-AND-EQUITY> 484,155
<SALES> 328,631
<TOTAL-REVENUES> 328,631
<CGS> 250,338
<TOTAL-COSTS> 250,338
<OTHER-EXPENSES> 59,921
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 9,542
<INCOME-PRETAX> 8,730
<INCOME-TAX> 3,361
<INCOME-CONTINUING> 5,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,369
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.52
</TABLE>
