FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 27, 1998
Commission File Number: 0-23400
DT INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 44-0537828
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
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 February 5, 1999 was 10,108,137.
---------------- ----------
<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 December 27, 1998
and June 28, 1998 (Audited) 2
Consolidated Statement of Operations for the
three and six months ended December 27, 1998
and December 28, 1997 3
Consolidated Statement of Changes in
Stockholders' Equity for the six months
ended December 27, 1998 4
Consolidated Statement of Cash Flows for the
six months ended December 27, 1998 and
December 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 12-21
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
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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December 27, June 28,
1998 1998
(Unaudited)
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 8,418 $ 6,915
Accounts receivable, net 66,180 75,634
Costs and estimated earnings in
excess of amounts billed on
uncompleted contracts 74,558 66,910
Inventories, net 55,576 48,755
Prepaid expenses and other 10,563 8,931
------------ ------------
Total current assets 215,295 207,145
Property, plant and equipment, net 75,599 69,183
Goodwill, net 180,059 177,578
Other assets, net 8,873 6,096
------------ ------------
$ 479,826 $ 460,002
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 321 $ 55
Accounts payable 29,768 33,627
Customer advances 22,492 21,791
Accrued liabilities 34,373 43,232
------------ ------------
Total current liabilities 86,954 98,705
------------ ------------
Long-term debt 125,393 89,956
Deferred income taxes 8,750 7,827
Other long-term liabilities 3,560 3,455
------------ ------------
Total long-term obligations 137,703 101,238
------------ ------------
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;
10,108,137 and 10,502,762 shares
outstanding at December 27, 1998
and June 28, 1998, respectively 113 113
Additional paid-in capital 133,348 134,608
Retained earnings 85,028 80,561
Cumulative translation adjustment (2,542) (778)
Less -
Treasury stock (1,267,625 and
873,000 shares at December 27,
1998 and June 28, 1998,
respectively), at cost (30,778) (24,445)
------------ ------------
Total stockholders' equity 185,169 190,059
------------ ------------
$ 479,826 $ 460,002
============ ============
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 Six Months Ended
December 27, December 28, December 27, December 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 111,627 $ 132,431 $ 224,534 $ 248,195
Cost of sales 86,052 96,454 170,734 181,310
------------ ------------ ------------ ------------
Gross profit 25,575 35,977 53,800 66,885
Selling, general and
administrative expenses 20,524 19,129 39,305 36,218
------------ ------------ ------------ ------------
Operating income 5,051 16,848 14,495 30,667
Interest expense 2,023 1,882 4,059 3,556
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 2,506 2,506
------------ ------------ ------------ ------------
Income before provision for
income taxes and
extraordinary loss 1,775 13,713 7,930 24,605
Provision for income taxes 683 5,485 3,053 9,842
------------ ------------ ------------ ------------
Income before extraordinary
loss 1,092 8,228 4,877 14,763
Extraordinary loss on debt
refinancing less applicable
income tax benefits of $800 --- --- --- 1,200
------------ ------------ ------------ ------------
Net income $ 1,092 $ 8,228 $ 4,877 $ 13,563
============ ============ ============ ============
Basic earnings per common share:
Income before
extraordinary loss $ 0.11 $ 0.73 $ 0.48 $ 1.31
Extraordinary loss --- --- --- 0.11
------------ ------------ ------------ ------------
Net income $ 0.11 $ 0.73 $ 0.48 $ 1.20
============ ============ ============ ============
Diluted earnings per common share:
Income before extraordinary
loss $ 0.11 $ 0.66 $ 0.47 $ 1.19
Extraordinary loss --- --- --- 0.09
------------ ------------ ------------ ------------
Net income $ 0.11 $ 0.66 $ 0.47 $ 1.10
============ ============ ============ ============
Weighted average common
shares outstanding:
Basic 10,066,888 11,322,312 10,191,387 11,312,088
Diluted 10,190,146 13,650,807 10,354,495 13,652,272
============ ============ ============ ============
</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 Six Months Ended December 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) $ 4,877 4,877 4,877
Other comprehensive income:
Foreign currency
translation
adjustments (unaudited) (1,764) (1,764) (1,764)
-----------
Comprehensive income $ 3,113
(unaudited) ===========
Treasury stock activity
(unaudited) (1,260) 3,652 2,392
Quarterly cash dividends
of $0.02 per common share
(unaudited) (410) (410)
Stock repurchase (unaudited) (9,985) (9,985)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 27, 1998
(unaudited) $ 85,028 $ (2,542) $ 113 $ 133,348 $ (30,778) $ 185,169
=========== =========== =========== =========== =========== ===========
</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>
Six Months Ended
December 27, 1998 December 28, 1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,877 $ 13,563
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 5,040 4,147
Amortization 2,687 2,700
Deferred income tax provision 321 (2,935)
Loss on debt refinancing --- 2,000
(Increase) decrease in current assets,
excluding the effect of acquisitions:
Accounts receivable 6,204 (6,726)
Costs and earnings in excess of amounts billed (7,648) 20,771
Inventories (4,813) (11,489)
Prepaid expenses and other (226) (797)
Increase (decrease) in current liabilities,
excluding the effect of acquisitions:
Accounts payable (5,113) (8,081)
Customer advances 567 (1,546)
Accrued liabilities (1,934) 8,527
Other 88 12
----------------- -----------------
Net cash provided by operating activities 50 20,146
----------------- -----------------
Cash flows from investing activities:
Capital expenditures (8,543) (7,405)
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 (20,324) (54,126)
----------------- -----------------
</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>
Six Months Ended
December 27, 1998 December 28, 1997
----------------- -----------------
<S> <C> <C>
Cash flows from financing activities:
Net borrowings on revolving loans $ 27,104 $ 93,275
Proceeds from issuance of debt 5,175 ---
Payments on borrowings (98) (48,912)
Financing costs --- (915)
Exercise of stock options 119 543
Payments for repurchase of stock (9,985) ---
Dividends (410) (453)
----------------- -----------------
Net cash provided by financing activities 21,905 43,538
----------------- -----------------
Effect of exchange rate changes (128) ---
----------------- -----------------
Net increase in cash 1,503 9,558
Cash and cash equivalents at beginning of period 6,915 2,821
----------------- -----------------
Cash and cash equivalents at end of period $ 8,418 $ 12,379
================= =================
</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 six months ended December 27, 1998 and December
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 December 27,1998 and June 28, 1998, long-term debt consisted of the
following:
December 27,1998 June 28, 1998
(Unaudited)
---------------- ----------------
Term loan to bank $ 10,000 $ 10,000
Revolving loans to banks 107,446 79,820
Other long-term debt and
capital lease obligations 8,268 191
---------------- ----------------
125,714 90,011
Less - current portion of
long-term debt 321 55
---------------- ----------------
$ 125,393 $ 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 December 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
proceeds from the Bonds are held in trust until needed for the expansion.
Approximately $4,100 has been received from the Bonds as of December 27,
1998.
The Company's Board of Directors has authorized purchases of up to 2
million shares of the Company's common stock. Through December 27, 1998,
the Company has repurchased 1,400,200 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 DT Capital Trust Holding Solely Convertible Junior
Subordinated Debentures of the Company (Convertible Preferred Securities)
On June 12, 1997, the Company completed a private placement to
institutional investors of 1,400,000 7.16% Convertible Preferred Securities
(liquidation preference of $50 per Convertible Preferred Security). The
placement was made through the Company's wholly owned subsidiary, DT
Capital Trust (Trust), a Delaware business trust. The securities represent
undivided beneficial ownership interests in the Trust. The sole asset of
the Trust is the $72,165 aggregate principal amount of the 7.16%
Convertible Junior Subordinated Deferrable Interest Debentures Due 2012
which were acquired with the proceeds from the offering as well as the sale
of Common Securities to the Company. The Company's obligations under the
Convertible Junior Subordinated Debentures, the Indenture pursuant to which
they were issued, the Amended and Restated Declaration of Trust of the
Trust and the Guarantee of DTI, taken together, constitute a full and
unconditional guarantee by DTI of amounts due on the Convertible Preferred
Securities. The Convertible Preferred Securities are convertible at the
option of the holders at any time into the common stock of DTI at an
effective conversion price of $38.75 per share and are redeemable at DTI's
option after June 1, 2000 and mandatorily redeemable in 2012. The net
proceeds of the offering of approximately $67,750 were used by DTI to
retire indebtedness. A registration statement relating to resales of such
Convertible Preferred Securities was declared effective by the Securities
and Exchange Commission on September 2, 1997.
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 six months ended December
27, 1998 and December 28, 1997 (share data in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
December 27, December 28, December 27, December 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary loss $ 1,092 $ 8,228 $ 4,877 $ 14,763
Adjustment for dividends on
convertibles, net of
income tax effect --- 752 --- 1,504
------------ ------------ ------------ ------------
Net earnings, adjusted $ 1,092 $ 8,980 $ 4,877 $ 16,267
============ ============ ============ ============
Denominator:
Basic weighted-average shares
outstanding 10,067 11,322 10,191 11,312
Effect of dilutive securities:
Mandatorily redeemable
convertible preferred securities --- 1,806 --- 1,806
Stock options 123 399 163 410
Contingent issuable shares --- 124 --- 124
------------ ------------ ------------ ------------
Weighted-average shares and
dilutive potential common shares 10,190 13,651 10,354 13,652
============ ============ ============ ============
</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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The convertible preferred securities were antidilutive for the three and
six months ended December 27, 1998 and have been excluded from the
computation of diluted earnings per share.
7. Stock option plans
A summary of stock option transactions pursuant to the 1994 Employee Stock
Option Plan, the 1994 Directors Non-Qualified Stock Option Plan and the
1996 Long-Term Incentive Plan follows:
Average Shares Subject
Price To Option
------- --------------
Options outstanding at June 28, 1998 $ 20.47 1,013,963
Options granted $ 15.94 242,250
Options exercised $ 13.34 (8,875)
Options forfeited $ 30.01 (160,625)
--------------
Options outstanding at December 27, 1998 $ 17.88 1,086,713
==============
Exercisable at December 27, 1998 $ 15.50 336,024
==============
8. Supplemental balance sheet information
<TABLE>
<CAPTION>
December 27, 1998 June 28, 1998
(Unaudited)
----------------- -----------------
<S> <C> <C>
Inventories, net:
Raw materials $ 19,972 $ 18,285
Work in process 25,641 22,749
Finished goods 9,963 7,721
----------------- -----------------
$ 55,576 $ 48,755
================= =================
Accrued liabilities:
Accrued employee compensation
and benefits $ 11,217 $ 13,645
Taxes payable and related reserves 3,988 2,703
Product liability 1,426 1,284
Other 17,742 25,600
----------------- -----------------
$ 34,373 $ 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 six months ended December 27, 1998.
<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 six months ended December 27,
1998 compared to the three and six months ended December 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 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 six months ended December 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
- --------------------------------------------------------------------------------
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 Six Months Ended
----------------------------- -----------------------------
December 27, December 28, December 27, December 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 77.1 72.8 76.0 73.1
------------ ------------ ------------ ------------
Gross profit 22.9 27.2 24.0 26.9
Selling, general and
administrative expenses 18.4 14.4 17.5 14.6
------------ ------------ ------------ ------------
Operating income 4.5 12.8 6.5 12.3
Interest expense 1.8 1.4 1.8 1.4
Dividends on Company-
obligated, mandatorily
redeemable convertible
preferred securities of
subsidiary DT Capital Trust 1.1 1.0 1.1 1.0
------------ ------------ ------------ ------------
Income before provision
for income taxes and
extraordinary loss 1.6 10.4 3.6 9.9
Provision for income taxes 0.6 4.2 1.4 4.0
------------ ------------ ------------ ------------
Income before
extraordinary loss 1.0 6.2 2.2 5.9
Extraordinary loss on debt
refinancing --- --- --- 0.5
------------ ------------ ------------ ------------
Net income 1.0% 6.2% 2.2% 5.4%
------------ ------------ ------------ ------------
</TABLE>
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 14
- --------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 27, 1998
COMPARED TO THREE MONTHS ENDED DECEMBER 28, 1997
Consolidated net sales decreased $20.8 million, or 15.7%, to $111.6 million
for the three months ended December 27, 1998 from $132.4 million for the
three months ended December 28, 1997. Net sales by group were as follows
(in millions):
Three Months Ended Three Months Ended Increase
December 27, 1998 December 28, 1997 (Decrease)
------------------ ------------------ ------------
Automation $ 73.9 $ 92.7 $ (18.8)
Packaging 29.1 28.1 1.0
Other 8.6 11.6 (3.0)
------------------ ------------------ ------------
$ 111.6 $ 132.4 $ (20.8)
================== ================== ============
The decrease in revenues of the Automation Group relates primarily to sales
to the electronics industry. Sales to a significant electronics customer
were substantially lower for the three months ended December 27, 1998
compared to the prior year quarter. The Company continues to aggressively
market its capabilities and has recognized revenues from several new
customers in various industries partially offsetting the decline in
business with this electronics customer. Sales of assembly machinery to
other core markets including automotive, appliance and heavy equipment were
lower in the quarter although offset by increases in sales to the tire
industry. Sales to automotive, appliance and heavy equipment customers were
impacted by customer delays in placing orders. These delays appeared to
result from customer product development and capital spending timing
issues.
The increase in sales by the Packaging Group was a result of the
acquisition of S&K in August 1998. Excluding the effect of the S&K
acquisition, sales from existing businesses were down slightly from the
second quarter of fiscal 1998. This decrease reflects significantly lower
sales of plastics processing equipment substantially offset by increased
sales of other packaging machinery equipment, primarily tablet packaging
systems and integrated lines. The decrease in sales of plastics processing
equipment can be attributed to the soft plastics packaging markets and to
plant inefficiencies which resulted in the delay in the recognition of
revenues on orders received.
Sales from the Company's other businesses were down $3.0 million from the
second quarter of fiscal 1998 primarily as a result of the sale of the
Knitting Elements business in May 1998. Sales of precision metal stampings
and fabrication were lower in the quarter due to the economic downturn in
the agricultural equipment industry partially offset by the strength in the
transportation industry.
Gross profit decreased $10.4 million, or 28.9%, to $25.6 million for the
three months ended December 27, 1998 from $36.0 million for the three
months ended December 28, 1997. The gross margin decreased to 22.9% from
27.2%. This decrease resulted from substantial margin degradation and
losses on certain welding systems and assembly systems projects, cost
overruns on plastics equipment projects, lower manufacturing efficiencies
resulting from the decreased level of manufacturing activity and product
mix. The Company continues to review and take corrective actions at
affected facilities. Gross margins on non-plastics related packaging
equipment showed improvement in the current year.
Selling, general and administrative expenses (SG&A) increased $1.4 million,
or 7.3%, to $20.5 million for the three months ended December 27, 1998 from
$19.1 million for the three months ended December 28, 1997. The increase
was largely associated with an increased investment in sales and marketing
activities, including personnel additions, higher quoting costs, greater
participation in trade shows and increased travel costs as the Company
focuses on broadening
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 15
- --------------------------------------------------------------------------------
its customer base. The Company also increased its spending in research and
development activities in its efforts to improve existing products, develop
new products and increase its technological position. Due to the higher
operating expenses and lower sales, SG&A expenses as a percentage of
consolidated net sales increased to 18.4% from 14.4%.
Operating income decreased $11.8 million, or 70.0%, to $5.1 million for the
three months ended December 27, 1998 from $16.8 million for the three
months ended December 28, 1997, as a result of the factors noted above. The
operating margin decreased to 4.5% from 12.8% in the prior year.
Interest expense increased to $2.0 million for the three months ended
December 27, 1998 from $1.9 million for the three months ended December 28,
1997. The provision for income taxes reflected an effective tax rate of
approximately 38.5% for the three months ended December 27, 1998 versus
40.0% for the three months ended December 28, 1997. The effective tax rates
differ from statutory rates primarily due to non-deductible goodwill
amortization on certain acquisitions.
Net income decreased to $1.1 million for the three months ended December
27, 1998 from $8.2 million for the three months ended December 28, 1997.
Basic and diluted earnings per share were $0.11 for the three months ended
December 27, 1998 compared to $0.73 and $0.66, respectively, for the three
months ended December 28, 1997. Basic weighted average shares outstanding
were 10.1 million for the three months ended December 27, 1998 versus 11.3
million for the three months ended December 28, 1997. The decrease reflects
the repurchase of 1.4 million shares of the Company's stock since May 1998.
Diluted weighted average shares outstanding decreased to 10.2 million for
the three months ended December 27, 1998 from 13.7 million for the three
months ended December 28, 1997. The decrease primarily reflects the
exclusion of antidilutive convertible securities and the repurchase of the
Company's stock.
SIX MONTHS ENDED DECEMBER 27, 1998
COMPARED TO SIX MONTHS ENDED DECEMBER 28, 1997
Consolidated net sales for the six months ended December 27, 1998 were
$224.5 million, a decrease of $23.7 million, or 9.5%, from $248.2 million
for the six months ended December 28, 1997. Net sales by group were as
follows (in millions):
Six Months Ended Six Months Ended
December 27, 1998 December 28, 1997 (Decrease)
----------------- ----------------- ----------
Automation $ 156.8 $ 172.8 $ (16.0)
Packaging 50.2 51.7 (1.5)
Other 17.5 23.7 (6.2)
----------------- ----------------- ----------
$ 224.5 $ 248.2 $ (23.7)
================= ================= ===========
Excluding the incremental sales of $9.5 million from the acquisition of ATT
in July 1997, sales by the Automation Group decreased $25.5 million, or
14.8%, from the six months ended December 28, 1997. The decrease in
revenues of the Automation Group relates primarily to sales to the
electronics industry. Sales to a significant electronics customer were
substantially lower for the six months ended December 27, 1998 compared to
the comparable prior year six months. The Company continues to aggressively
market its capabilities and has recognized revenues from several new
customers in various industries partially offsetting the decline in
business with this electronics customer. Sales of assembly machinery to
other core markets including automotive, appliance and heavy equipment were
lower for the six months although offset by increases in sales to the tire
industry. Sales to automotive, appliance and heavy equipment customers were
impacted by customer delays in placing orders. These delays appeared to
result from customer product development and capital spending timing
issues.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 16
- --------------------------------------------------------------------------------
The decreased sales by the Packaging Group resulted primarily from the
lower sales of plastics processing equipment. The decrease in sales of
plastics processing equipment can be attributed to the soft plastics
packaging markets and to plant inefficiencies which resulted in the delay
in the recognition of revenues on orders received. This decrease was
partially offset by increased sales of tablet processing and packaging
equipment and systems to customers in the pharmaceutical and nutritional
industries. Also offsetting the decrease were sales of packaging machinery
parts and services by Scheu & Kniss, which was acquired in August 1998.
The decreased revenues from the Company's other businesses primarily
reflect the sale of the Knitting Elements business in May 1998. Precision
metal stamping and fabrication sales decreased as a result of the economic
downturn in the agricultural equipment industry coupled with the loss of
certain customers because of product changes and planned attrition,
partially offset by increased sales to the transportation industry.
Gross profit decreased $13.1 million, or 19.6%, to $53.8 million for the
six months ended December 27, 1998 from $66.9 million for the six months
ended December 28, 1997. The gross margin decreased to 24.0% from 26.9%.
This decrease resulted from substantial margin degradation and losses on
certain welding systems and assembly systems projects, cost overruns on
plastics equipment projects, lower manufacturing efficiencies resulting
from the decreased level of manufacturing activity and product mix. The
Company continues to review and take corrective actions at affected
facilities. Gross margins on non-plastics related packaging equipment
showed improvement in the current year.
SG&A expenses increased $3.1 million, or 8.5%, to $39.3 million for the six
months ended December 27, 1998 from $36.2 million for the six months ended
December 28, 1997. The increase was largely associated with an increased
investment in sales and marketing activities, including personnel
additions, higher quoting costs, greater participation in trade shows and
increased travel costs as the Company focuses on broadening its customer
base. The Company also increased its spending in research and development
activities as it continues to take strides to improve existing products,
develop new products and increase its technological position. Due to the
higher operating expenses and lower sales, SG&A expenses as a percentage of
consolidated net sales increased to 17.5% from 14.6%.
Operating income decreased $16.2 million, or 52.7%, to $14.5 million for
the six months ended December 27, 1998 from $30.7 million for the six
months ended December 28, 1997, as a result of the factors noted above. The
operating margin decreased to 6.5% from 12.4% in the prior year.
Interest expense increased to $4.1 million for the six months ended
December 27, 1998 from $3.6 million for the six months ended December 28,
1997 as a result of the increased level of debt that is attributed to the
stock buyback program and the recent acquisition. The provision for income
taxes reflected an effective tax rate of approximately 38.5% for the six
months ended December 27, 1998 versus 40.0% for the six months ended
December 28, 1997. The effective tax rates differ from statutory rates
primarily due to non-deductible goodwill amortization on certain
acquisitions.
Income before extraordinary loss decreased to $4.9 million for the six
months ended December 27, 1998 from $14.8 million for the six months ended
December 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 unamortized deferred financing fees, net
of related $0.8 tax benefit. Basic and diluted earnings per share before
the extraordinary loss were $0.48 and $0.47, respectively, for the six
months ended December 27, 1998 compared to $1.31 and $1.19,
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 17
- --------------------------------------------------------------------------------
respectively, for the six months ended December 28, 1997. Basic weighted
average shares outstanding were 10.2 million for the six months ended
December 27, 1998 versus 11.3 million for the six months ended December 28,
1997. The decrease reflects the repurchase of 1.4 million shares of the
Company's stock since May 1998. Diluted weighted average shares outstanding
decreased to 10.4 million shares for the six months ended December 27, 1998
from 13.7 million for the six months ended December 28, 1997. 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 $12.9 million of
operating cash flow for the six months ended December 27, 1998. Net
increases in working capital balances used operating cash of $12.8 million,
resulting in net cash provided by operating activities of $0.1 million for
the six months ended December 27, 1998. The increase in working capital
resulted from the unfavorable changes in costs and earnings in excess of
amounts billed, inventories and trade payables, partially offset by the
decrease in trade receivables. The increase in current assets can be
attributed to generally less favorable payment terms and delayed
collections pending customer acceptance of equipment. Inventories increased
primarily in the Packaging Group as the Company now builds and stocks more
standard packaging machines to allow for quicker deliveries. Current
liabilities decreased from the June 1998 level due primarily to the
decreased manufacturing activity across the Company and the timing of
significant component purchases.
During the six months ended December 27, 1998, the Company borrowed $27.1
million on its revolving credit facility and raised another $5.2 million
primarily through the issuance of Bonds, as discussed below. The funds were
used to finance the purchase of Scheu & Kniss for $10.4 million, repurchase
$10.0 million of the Company's stock, fund capital expenditures of $8.5
million and pay dividends of $0.4 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 six months ended December 28, 1997, net cash provided by
operating activities was $20.1 million. Net income plus non-cash operating
charges provided $19.5 million of operating cash flow. A net favorable
change in working capital resulted in cash provided of $0.6 million. The
decrease in working capital resulted from a large percentage of orders
being at an early stage in the manufacturing process.
During the six months ended December 28, 1997, cash provided by financing
activities was $43.5 million, including $0.5 million from the exercise of
stock options. Operating activities generated another $20.1 during the six
months ended December 28, 1997. These funds were used primarily to finance
the acquisition of ATT for $46.7 million, finance capital expenditures of
$7.4 million and pay dividends of $0.5 million. The Company incurred $0.9
million of financing costs in renegotiating its credit facility in July
1997 as discussed below.
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.
In November 1998, DTI agreed to make 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. During the quarter, the Company also determined that a payment will
not be required to be made for any additional purchase price related to the
Swiftpack acquisition.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 18
- --------------------------------------------------------------------------------
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 a price equal to 100% of the outstanding principal plus accrued
interest. The proceeds from the Bonds are held in trust until needed for
the expansion. Approximately $4.1 million has been received from the Bonds
as of December 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 $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 expected 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 and December 15, 1998 to stockholders of record on August 31, 1998
and November 30, 1998, 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 December 27, 1998, the Company had $190.2
million of orders in backlog, which compares to a backlog of approximately
$257.1 million as of December 28, 1997.
The backlog for the Automation Group at December 27, 1998 was $149.1
million, which decreased $58.9 million from a year ago. The lower backlog
can be primarily attributed to the reduction in orders from a significant
customer in the electronics industry and customer deferrals of capital
equipment programs due to product development issues across several
industries served. Backlog for the Packaging Group was $36.9 million, a
decrease of $5.1 million from the comparable period in the prior year. This
decrease has primarily resulted from additional plant capacity and a
program of stocking standard machines allowing for faster deliveries.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 19
- --------------------------------------------------------------------------------
The level of backlog at any particular time is not necessarily indicative
of the future operating performance of the Company. Additionally, certain
purchase orders are subject to cancellation by the customer upon
notification. Certain orders are also subject to delays in completion and
shipment at the request of the customer. The Company believes that most of
the orders in the backlog will be recognized as sales during the current
fiscal year.
OUTLOOK
Orders for the six months ended December 27, 1998 were $189.3 million
resulting in the backlog of $190.2 million at December 27, 1998. This order
activity was well short of expected levels. Orders trends in January 1999
have not changed significantly from that experienced during the first six
months of the year. The Company believes orders for pending projects are
being delayed as customers continue to resolve product development issues
and determine appropriate timing for their capital spending. Quoting and
order activity with the Company's significant electronics customer remains
very soft. The Company continues to expect order activity in the Automation
Group to improve during the remaining months of fiscal 1999 as customers
resolve their product and timing issues. Quoting activity remains very
strong and a number of major programs with key customers are outstanding.
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 forecasted strength in
the transportation industry.
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 20
- --------------------------------------------------------------------------------
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 estiamtes 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.
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
signficant third parties with whom the Company does business. The Company
belives 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 Comapny is developing contingency
plans, which are anticipated to be completed by August 31, 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.
<PAGE>
DT INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 21
- --------------------------------------------------------------------------------
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 December 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 22
- --------------------------------------------------------------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders
On November 5, 1998, the Annual Meeting of the Stockholders of DTI was
held, at which the following matters were voted upon:
1. Election of Directors. Each of the following nominees received the
number of affirmative votes set forth opposite his name:
Class II Stephen J. Gore 9,625,726
(term expires 2001) Lee M. Liberman 9,627,126
Frank W. Jones 9,627,726
Class III Charles A. Dill 9,590,151
(term expires 1999)
2. Ratification of Appointment of Accountants for the fiscal year
ending June 27, 1999. The vote to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants for the
fiscal year ending June 27, 1999 was 9,628,086 for, 5,633 against
and 1,305 abstaining.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3 - Restated Certificate of Incorporation of DT
Industries, Inc. effective November 13, 1998.
Exhibit 4 - Amendment No.1 to the Rights Agreement by and
between DT Industries, Inc., a Delaware corporation, and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent as of
the 5th day of November, 1998.
Exhibit 11 - Statement Regarding Computation of Earnings Per
Share
(b) Reports on Form 8-K:
On November 5, 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 ended September 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: February 10, 1999 /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
- ----------- ----------- ----------------------
3 Restated Certificate of Incorporation
of DT Industries, Inc. effective
November 13, 1998.
4 Amendment No. 1 to the Rights Agreement
by and between DT Industries, Inc., a
Delaware corporation, and ChaseMellon
Shareholder Services, L.L.C., as Rights
Agent as of the 5th day of November, 1998.
11 Statement Regarding Computation of
Earnings Per Share
RESTATED CERTIFICATE OF INCORPORATION
OF
DT INDUSTRIES, INC.
DT Industries, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
1. The Corporation was originally incorporated on January 27, 1993 under
the name Detroit Tool and Engineering Company.
2. Pursuant to Section 245 of the General Corporation Law of the State of
Delaware, this Restated Certificate of Incorporation restates and integrates and
does not further amend the provisions of the Certificate of Incorporation of the
Corporation as heretofore amended or supplemented, and there is no discrepancy
between those provisions and the provisions of this Restated Certificate of
Incorporation.
3. This Restated Certificate of Incorporation has been duly adopted in
accordance with Section 245 of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of the Corporation is restated and
amended to read in its entirety as follows:
1. The name of the Corporation is DT Industries, Inc.
2. Its registered office in the State of Delaware is to be located at
1013 Centre Road, in the City of Wilmington, County of New Castle, Delaware
19805. Its registered agent at such address is CORPORATION SERVICE COMPANY.
3. The purpose of the Corporation is to engage in any awful acts or
activities for which corporations may be organized under the General Corporation
Law of the State of Delaware.
<PAGE>
4. The total number of shares of all classes of stock which the Corpora-
tion shall have authority to issue is 101,500,000 shares which shall be divided
into two classes as follows:
(a) 1,500,000 shares of Preferred Stock, $.01 par value (Preferred
Stock); and
(b) 100,000,000 shares of Common Stock, $.01 par value (Common Stock).
The designations, voting powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions of the above classes of stock and other general provisions relating
thereto shall be as follows:
A. Preferred Stock
(a) Shares of Preferred Stock may be issued in one or more series at
such time or times and for such consideration or considerations as the
Board of Directors may determine. All shares of any one series shall be of
equal rank and identical in all respects except that the dates from which
dividends accrue or accumulate with respect thereto may vary.
(b) The Board of Directors is expressly authorized at any time, and
from time to time, to provide for the issuance of shares of Preferred Stock
in one or more series, with such voting powers, full or limited, or without
voting powers, and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in
the resolution or resolutions providing for the issue thereof adopted by
the Board of Directors, and as are not stated and expressed in this
Restated Certificate of Incorporation, or any amendment thereto, including
(but without limiting the generality of the foregoing) the following:
2
<PAGE>
(i) The distinctive designation and number of shares comprising
such series, which number may (except where otherwise provided by the
Board of Directors in creating such series) be increased or decreased
(but not below the number of shares then outstanding) from time to
time by action of the Board of Directors.
(ii) The dividend rate or rates on the shares of such series and
the relation which such dividends shall bear to the dividends payable
on any other class of capital stock or on any other series of
Preferred Stock, the terms and conditions upon which and the periods
in respect of which dividends shall be payable, whether and upon what
conditions such dividends shall be cumulative and, if cumulative, the
date or dates from which dividends shall accumulate.
(iii) Whether the shares of such series shall be redeemable, and,
if redeemable, whether redeemable for cash, property or rights,
including securities of any other corporation, at the option of either
the holder or the Corporation or upon the happening of a specified
event, the limitations and restrictions with respect to such
redemption, the time or times when, the price or prices or rate or
rates at which the adjustments with which and the manner in which such
shares shall be redeemable, including the manner of selecting shares
of such series for redemption if less than all shares are to be
redeemed.
(iv) The rights to which the holders of shares of such series
shall be entitled, and the preferences, if any, over any other series
(or of any other series over such series), upon the voluntary or
involuntary liquidation, dissolution, distribution or winding up of
the Corporation, which rights may vary depending on whether such
liquidation, dissolution, distribution or winding up is voluntary or
involuntary, and, if voluntary, may vary at different dates.
3
<PAGE>
(v) Whether the shares of such series shall be subject to the
operation of a purchase, retirement or sinking fund, and, if so,
whether and upon what conditions such purchase, retirement or sinking
fund shall be cumulative or noncumulative, the extent to which and the
manner in which such fund shall be applied to the purchase or
redemption of the shares of such series for retirement or to other
corporate purposes and the terms and provisions relative to the
operation thereof.
(vi) Whether the shares of such series shall be convertible into
or exchangeable for shares of any other class or of any other series
of any class of capital stock of the Corporation, and, if so
convertible or exchangeable, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of such conversion or
exchange.
(vii) The voting powers, full and/or limited, if any, of the
shares of such series, and whether and under what conditions the
shares of such series (alone or together with the shares of one or
more other series having similar provisions) shall be entitled to vote
separately as a single class, for the election of one or more
additional directors of the Corporation in case of dividend arrearages
or other specified events, or upon other matters.
(viii) Whether the issuance of any additional shares of such
series, or of any shares of any other series, shall be subject to
restrictions as to issuance, or as to the powers, preferences or
rights of any such other series.
(ix) Any other preferences, privileges and powers and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of such series, as the Board of Directors
may deem advisable and as shall not be inconsistent with the
provisions of this Restated Certificate of Incorporation.
4
<PAGE>
(c) Unless and except to the extent otherwise required by law or
provided in the resolution or resolutions of the Board of Directors
creating any series of Preferred Stock pursuant to this Section 4(A), the
holders of the Preferred Stock shall have no voting power with respect to
any matter whatsoever.
(d) Shares of Preferred Stock redeemed, converted, exchanged,
purchased, retired or surrendered to the Corporation, or which have been
issued and reacquired in any manner, may, upon compliance with any
applicable provisions of the General Corporation Law of the State of
Delaware, be given the status of authorized and unissued shares of
Preferred Stock and may be reissued by the Board of Directors as part of
the series of which they were originally a part or may be reclassified into
and reissued as part of a new series or as a part of any other series, all
subject to the protective conditions or restrictions of any outstanding
series of Preferred Stock.
B. Common Stock
(a) Except as otherwise required by law or by any amendment to this
Restated Certificate of Incorporation, each holder of Common Stock shall
have one vote for each share of stock held by him on all matters voted upon
by the stockholders.
(b) Subject to the preferential dividend rights, if any, applicable to
shares of Preferred Stock and subject to applicable requirements, if any,
with respect to the setting aside of sums for purchase, retirement or
sinking funds for Preferred Stock, the holders of Common Stock shall be
entitled to receive, to the extent permitted by law, such dividends as may
be declared from time to time by the Board of Directors.
(c) In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of the Corporation, after
distribution in full of the preferential amounts, if any, to be distributed
to the holders of shares of Preferred Stock, holders of Common Stock shall
be entitled to receive all of the remaining assets of the Corporation of
whatever kind available for distribution to stockholders ratably in
proportion to the number of shares of Common Stock held by them
respectively. The
5
<PAGE>
Board of Directors may distribute in kind to the holders of Common Stock
such remaining assets of the Corporation or may sell, transfer or otherwise
dispose of all or any part of such remaining assets to any other
corporation, trust or entity, or any combination thereof, and may sell all
or any part of the consideration so received and distribute any balance
thereof in kind to holders of Common Stock. The merger or consolidation of
the Corporation into or with any other corporation, or the merger of any
other corporation into it, or any purchase or redemption of shares of stock
of the Corporation of any class, shall not be deemed to be a dissolution,
liquidation or winding up of the Corporation for the purposes of this
paragraph.
(d) Such numbers of shares of Common Stock as may from time to time be
required for such purpose shall be reserved for issuance (i) upon
conversion of any shares of Preferred Stock or any obligation of the
Corporation convertible into shares of Common Stock which is at the time
outstanding or issuable upon exercise of any options or warrants at the
time outstanding and (ii) upon exercise of any options or warrants at the
time outstanding to purchase shares of Common Stock.
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the Corporation.
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By a majority of the whole Board, to designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace
6
<PAGE>
any absent or disqualified member at any meeting of the committee. The by-laws
may provide that in the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not she/he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors, or in the by-laws
of the Corporation, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the by-laws of the Corporation; and,
unless the resolution or by-laws expressly so provide, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock.
To make, alter or repeal the by-laws of the Corporation.
When and as authorized by the stockholders in accordance with statute, to
sell, lease or exchange all or substantially all of the property and assets of
the Corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may consist in whole or
in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as its Board of Directors
shall deem expedient and for the best interests of the Corporation.
7. (a) The number of Directors that shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the by-laws of
the Corporation.
7
<PAGE>
(b) Directors of the Corporation shall be elected to hold office until
the expiration of the term for which they are elected, and until their
successors have been duly elected and qualified. The Directors of the
Corporation shall be divided into three classes as nearly equal in size as
practicable, hereby designated Class I, Class II and Class III. The term of
office of the initial Class I Directors shall expire at the next succeeding
annual meeting of stockholders, the term of the initial Class II Directors
shall expire at the second succeeding annual meeting of stockholders and
the term of office of the initial Class III Directors shall expire at the
third succeeding annual meeting of stockholders. For the purposes hereof,
the initial Class I, Class II and Class III Directors shall be those
Directors elected at the 1996 Annual Meeting of Stockholders and designated
as members of such class. At each annual meeting after the 1996 annual
meeting, Directors to replace those of a class whose terms expire at such
annual meeting shall be elected to hold office until the third succeeding
annual meeting and until their respective successors shall have been duly
elected and shall qualify. If the number of Directors that shall constitute
the whole Board of Directors is hereafter changed, as provided in Article
7(a) hereof, any newly created directorships or decrease in directorships
shall be so apportioned among the classes as to make all classes as nearly
equal in number as is practicable.
8. Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the by-laws of the Corporation.
9. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve
8
<PAGE>
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
General Corporation Law of the State of Delaware is amended after the date
hereof to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended. Any repeal
or modification of this Section 9 shall not increase the personal liability of
any director of the Corporation for any act or occurrence taking place prior to
such repeal or modification, or otherwise adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
10. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned have signed this Restated Certificate
of Incorporation and caused the corporate seal of the Corporation to be hereunto
affixed this 11th day of November, 1998.
/s/ Bruce P. Erdel
-------------------------------------------------
Bruce P. Erdel
Senior Vice President, Finance and Administration
Attest:
/s/ Dennis S. Dockins
- -------------------------------------
Dennis S. Dockins
Secretary
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO RIGHTS AGREEMENT ("Amendment") is made by and between DT
Industries, Inc., a Delaware corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (the "Rights Agent") as of the 5th
day of November, 1998.
Reference is made to the Rights Agreement dated as of August 18, 1997 (the
"Agreement") between the parties. Capitalized terms not defined herein shall
have the respective meanings set forth in the Agreement.
In accordance with Section 27 of the Agreement, the Company desires to amend the
Agreement, effective immediately, as follows:
1. Section 1(a) of the Agreement is hereby amended by deleting the phrase
"including a majority of the Continuing Directors" in the second sentence
thereof.
2. Section 1(m) of the Agreement is hereby deleted in its entirety.
3. Section 23(a) of the Agreement is hereby amended by deleting in its
entirety the provision following the semicolon in the first sentence
thereof.
4. Section 27 of the Agreement is hereby amended by deleting in its entirety
the parenthetical phrase contained in clause (iii) of the second sentence
thereof.
5. Section 29 of the Agreement is hereby amended by deleting the phrase
"(with, where specifically provided for herein, the concurrence of the
Continuing Directors)" from each of the introductory clause of the second
sentence thereof, clause (i) of the second sentence thereof, and the third
sentence thereof.
6. Except as specifically amended and set forth herein, the Agreement shall
remain unchanged and in full force and effect in accordance with its terms.
7. By execution of this Amendment, the Company hereby certifies to the Rights
Agent that the amendments to the Agreement reflected herein comply with
Section 27 of the Agreement.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
and delivered as of the date first written above.
DT INDUSTRIES, INC.
By: /s/Bruce P. Erdel
---------------------------------------
Name: Bruce P. Erdel
Title: Senior Vice President,
Finance and Administration
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By: /s/Linda M. Welch
---------------------------------------
Name: Linda M. Welch
Title: Assistant Vice President
DT INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
December 27, December 28, December 27, December 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income before extraordinary loss $ 1,092 $ 8,228 $ 4,877 $ 14,763
Extraordinary loss --- --- --- 1,200
------------ ------------ ------------ ------------
Net income $ 1,092 $ 8,228 $ 4,877 $ 13,563
============ ============ ============ ============
Basic:
Basic weighted average shares outstanding 10,067 11,322 10,191 11,312
============ ============ ============ ============
Basic earnings per share before
extraordinary loss $ 0.11 $ 0.73 $ 0.48 $ 1.31
Extraordinary loss --- --- --- 0.11
------------ ------------ ------------ ------------
Basic net income per share $ 0.11 $ 0.73 $ 0.48 $ 1.20
============ ============ ============ ============
Income before extraordinary loss $ 1,092 $ 8,228 $ 4,877 $ 14,763
Extraordinary loss --- --- --- 1,200
------------ ------------ ------------ ------------
Net income 1,092 8,228 4,877 13,563
Dividends on Mandatorily Redeemable
Convertible Preferred Securities,
net of applicable income taxes --- 752 --- 1,504
------------ ------------ ------------ ------------
Net income, adjusted $ 1,092 $ 8,980 $ 4,877 $ 15,067
============ ============ ============ ============
Diluted:
Weighted average shares outstanding 10,067 11,322 10,191 11,312
Add dilutive effect of stock options
based on treasury stock method using
average market price 123 399 163 410
Add shares contingently issuable to the
former owner of Kalish --- 124 --- 124
Assumed conversion of mandatorily
redeemable convertible preferred
securities --- 1,806 --- 1,806
------------ ------------ ------------ ------------
10,190 13,651 10,354 13,652
============ ============ ============ ============
Diluted earnings per share before
extraordinary loss $ 0.11 $ 0.66 $ 0.47 $ 1.19
Extraordinary loss --- --- --- 0.09
------------ ------------ ------------ ------------
Diluted net income per share $ 0.11 $ 0.66 $ 0.47 $ 1.10
============ ============ ============ ============
</TABLE>
Note: For the three and six months ended December 27, 1998, the convertible
preferred securities were antidilutive and have been excluded from the
computation of diluted earnings per share.
<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 December
27, 1998 and the unaudited Consolidated Statement of Operations for the Six
Months Ended December 27, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-27-1999
<PERIOD-END> DEC-27-1998
<EXCHANGE-RATE> 1
<CASH> 8,418
<SECURITIES> 0
<RECEIVABLES> 67,764
<ALLOWANCES> 1,584
<INVENTORY> 55,576
<CURRENT-ASSETS> 215,295
<PP&E> 103,742
<DEPRECIATION> 28,143
<TOTAL-ASSETS> 479,826
<CURRENT-LIABILITIES> 86,954
<BONDS> 125,393
0
0
<COMMON> 113
<OTHER-SE> 185,056
<TOTAL-LIABILITY-AND-EQUITY> 479,826
<SALES> 224,534
<TOTAL-REVENUES> 224,534
<CGS> 170,734
<TOTAL-COSTS> 170,734
<OTHER-EXPENSES> 39,305
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,565
<INCOME-PRETAX> 7,930
<INCOME-TAX> 3,053
<INCOME-CONTINUING> 4,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,877
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.47
</TABLE>
