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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 25, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0-23400
DT INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 44-0537828
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CORPORATE CENTRE, SUITE 2-300 65804
1949 E. SUNSHINE (Zip Code)
SPRINGFIELD, MO
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (417) 890-0102
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
Series A Preferred Stock, par value $.01 per share
Preferred Stock Purchase Rights
(Title of each class)
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 [ ] No. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of August 23, 2000, the aggregate market value of the voting stock held
by non-affiliates of the registrant was $96,507,625 (based on the closing sales
price of $9.875 per share, on such date, which was the last day on which such
stock was traded prior to the current suspension imposed by The Nasdaq Stock
Market).
As of October 10, 2000, there were 10,107,274 shares of common stock, $0.01
par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement Dated October 11, 2000 (portion) (Part III).
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DT INDUSTRIES, INC.
INDEX TO FORM 10-K
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 12
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 16
Item 8. Financial Statements and Supplementary Data................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 16
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 17
Item 11. Executive Compensation...................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 17
Item 13. Certain Relationships and Related Transactions.............. 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 18
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained in this report, particularly the information
appearing in Items 1, 3 and 7, includes forward-looking statements. These
statements comprising all statements herein which are not historical are based
upon the Company's interpretation of what it believes are significant factors
affecting its businesses, including many assumptions regarding future events,
and are made pursuant to the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. References to "opportunities", "growth potential",
"objectives" and "goals", the words "anticipate", "believe", "estimate",
"expect", and similar expressions used herein indicate such forward-looking
statements. Actual results could differ materially from those anticipated in any
forward-looking statements as a result of various factors, including economic
downturns in industries or markets served, delays or cancellations of customer
orders, delays in shipping dates of products, significant cost overruns on
certain projects, excess product warranty expenses, collectibility of past due
receivables, significant restructuring or other special, non-recurring charges,
foreign currency exchange rate fluctuations, delays in achieving anticipated
cost savings or in fully implementing project management systems, availability
of credit at acceptable terms, changes in interest rates, increased inflation,
the outcome of pending litigation related to the previously announced accounting
irregularities, and the Company's ability to implement operational and financial
systems to manage the Company's decentralized operations. Additional information
regarding certain important factors that could cause actual results of
operations or outcomes of other events to differ materially from any such
forward-looking statement appears elsewhere herein, including in the text of
Items 1, 3 and 7, and in particular under the headings "Recent Developments",
"Backlog", "Results of Operations", "Liquidity and Capital Resources", "Market
Risk", "Seasonality and Fluctuations in Quarterly Results" and "Cautionary
Statements Regarding Forward-Looking Statements" under Item 7.
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PART I
ITEM 1. BUSINESS
GENERAL
DT Industries, Inc. (together with its subsidiaries, the "Company" or
"DTI") is an engineering-driven designer, manufacturer and integrator of
automated production equipment and systems used to manufacture, test or package
a variety of industrial and consumer products. The Company is one of the largest
manufacturers of integrated assembly and test systems for discrete parts, as
well as integrated tablet processing and packaging systems in North America.
Although the Company has experienced declines in revenues and operating profits
from the historical highs achieved in fiscal 1998, growth opportunities are
believed to be provided by certain trends among its customers, including
increased emphasis on manufacturing productivity and flexibility, concurrent
engineering of products and assembly systems, globalization of manufacturing and
markets, vendor rationalization and outsourcing. To capitalize on these trends,
DTI has implemented a business strategy to provide, develop and market
complementary technologies and capabilities to supply customers with integrated
processing, assembly, testing and packaging systems for their products. As part
of this strategy, the Company seeks to sell the products produced by previously
acquired companies through its company-wide sales force providing for greater
geographic and customer coverage.
RECENT DEVELOPMENTS
RESTATEMENT OF FINANCIAL RESULTS
As publicly announced on August 23, 2000 (prior to the issuance of the
Company's consolidated financial statements as of and for the fiscal year ended
June 25, 2000), it was determined that the consolidated results reported in the
Company's Form 10-K as of and for the fiscal years ended June 27, 1999, June 28,
1998 and June 29, 1997, as well as the unaudited consolidated quarterly results
reported in the Company's Reports on Form 10-Q for the fiscal years ended June
25, 2000, June 27, 1999, June 28, 1998 and June 29, 1997, would need to be
restated for certain accounting irregularities at its Kalish subsidiary. The
Board of Directors authorized the Audit and Finance Committee (the "Committee")
to conduct an independent investigation, with the assistance of special counsel
retained by the Committee, to identify the causes of these discrepancies and to
make recommendations to ensure similar issues do not recur in the future. The
Committee retained Bryan Cave LLP as special counsel, and Bryan Cave LLP engaged
an independent accounting firm to assist in the investigation. In addition, the
Company investigated whether similar issues existed at any other subsidiaries.
As a result of the investigation, it was determined that certain assets
(primarily accounts receivable, inventories and related accounts and prepaid
expenses and other) were overstated at the Company's Kalish and Sencorp
subsidiaries due to accounting irregularities. At Kalish, consolidated results
as of and for the fiscal years ended June 25, 2000, June 27, 1999, June 28, 1998
and June 29, 1997 were impacted. At Sencorp, only consolidated results as of and
for the fiscal year ended June 25, 2000 were impacted.
On October 4, 2000, special counsel to the Committee submitted its report
to the Committee, which in turn reported to the Board of Directors on its
investigation into the accounting irregularities and its findings and
recommendations regarding such matters.
As a result, the consolidated financial statements as of and for the fiscal
years ended June 27, 1999, June 28, 1998 and June 29, 1997 as well as the
unaudited consolidated quarterly financial data as of and for the fiscal years
ended June 25, 2000, June 27, 1999, June 28, 1998 and June 29, 1997 have been
restated. The restated consolidated financial statements as of and for the
fiscal year ended June 27, 1999 and the consolidated statement of operations,
changes in stockholders' equity and cash flows as of and for the fiscal year
ended June 28, 1998 have been included in the consolidated financial statements
included herein. Comparisons of previously reported and restated financial
statements for all periods impacted by the restatement, including annual
financial statements and unaudited quarterly financial data, are set forth in
Notes 16 and 17 to the consolidated financial statements included herein.
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For the first three quarters in the fiscal year ended June 25, 2000, the
previously reported financial statements primarily included an understatement of
cost of sales by $8.4 million in the aggregate. After restating cost of sales,
the Company's income tax expense decreased by $3.0 million. The impact of the
accounting irregularities on reported operating results for the first three
quarters, in the aggregate, was to overstate gross profit and operating income
by $8.2 million, net income by $5.2 million and diluted earnings per share by
$0.52 per share.
For the fiscal year ended June 27, 1999, the previously reported financial
statements included an understatement of cost of sales by $4.0 million. After
restating cost of sales, the Company's income tax benefit increased by $0.7
million. The impact of the accounting irregularities on reported operating
results for the fiscal year ended June 27, 1999, was to overstate gross profit
and operating income by $4.0 million, understate net loss by $3.4 million and
understate diluted net loss per share by $0.34.
For the fiscal year ended June 28, 1998, the previously reported financial
statements included an understatement of cost of sales by $7.4 million. After
restating cost of sales, the Company's income tax expense decreased by $3.4
million. The impact of the accounting irregularities on reported operating
results for the fiscal year ended June 28, 1998, was to overstate gross profit
and operating income by $7.4 million, net income by $4.0 million and diluted
earnings per share by $0.30.
For the fiscal year ended June 29, 1997, the previously reported financial
statements included an understatement of cost of sales by $2.1 million. After
restating cost of sales, the Company's income tax expense decreased by $0.5
million. The impact of the accounting irregularities on reported operating
results for the fiscal year ended June 29, 1997, was to overstate gross profit
and operating income by $2.1 million, net income by $1.6 million and diluted
earnings per share by $0.15.
The Company expects to file amended quarterly reports on Form 10-Q for the
quarters ended March 26, 2000, December 26, 1999 and September 26, 1999, and an
amended annual report on Form 10-K for the year ended June 27, 1999 as soon as
practicable.
TIGHTER INTERNAL CONTROLS
The Committee received a report from special counsel, Bryan Cave LLP, after
a thorough investigation of the accounting irregularities with assistance from
an independent accounting firm engaged by special counsel. After consideration
of this report, the Committee submitted its findings and recommendations to the
full Board of Directors. In addition to the personnel actions described in
"Management Changes" below, the Board directed management to take action in the
following four areas to tighten internal controls to ensure that similar
problems do not occur again: (i) enforcement of the consistent and effective use
of cost accounting and financial control systems, (ii) implementation of
additional financial control systems, (iii) reinforcement of financial
management's responsibility for, and accountability of, the Company's financial
statements as well as the accuracy and integrity of the financial reporting
systems and controls (including provision of sufficient resources to discharge
those responsibilities), and (iv) reinforcement of the responsibility and
accountability of operating and senior management for the actual performance of
the Company. The Board has directed management and counsel to expeditiously
develop specific action items to address these concerns and solicit
recommendations of the Company's independent accountants and the Chief Financial
Officer to supplement actions taken to date. Management has commenced various
actions to date to begin to address each of the four areas noted above.
MANAGEMENT CHANGES
On September 12, 2000, James J. Kerley, the Company's Chairman of the
Board, was appointed as the Company's Interim Chief Executive Officer. The
Company's President and Chief Executive Officer, Stephen J. Gore, was
reappointed President and Chief Operating Officer. As of August 23, 2000, the
Board of Directors appointed Wayne W. Schultz, formerly the Company's Vice
President of Administration for the Automation Group, as Interim Senior Vice
President, Finance following the resignation of Bruce P. Erdel. As a result of
the investigation into accounting irregularities, Graham L. Lewis, President of
the Company's Packaging Machinery Group; Louis Pallay, Jr., President of the
Company's Kalish subsidiary; Kalish's senior
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financial officer; the senior financial officer of the Company's Sencorp
subsidiary; and Sencorp's general ledger accountant were terminated by the
Company. The Company is aggressively conducting searches for highly qualified
candidates to fill these vacant positions.
BANK AMENDMENT
As a result of the Company's financial results for fiscal 2000, the Company
was in default of a number of provisions of its credit agreement. After working
closely with the Company throughout the investigation, the Company's lenders
have (i) waived defaults of certain covenants and breaches of representations
and warranties, (ii) amended the financial covenants for fiscal 2001 to levels
the Company believes it can achieve, (iii) increased the interest rate on
borrowings made pursuant to the revolving credit facility, and (iv) provided
that a change of control (as defined) or the failure to maintain additional
management resources will constitute an event of default. The amount available
for borrowing under the Company's credit facility remains at $140 million,
subject to reductions in connection with certain asset sales and other
transactions, and the maturity date of this credit facility is still July 2,
2001.
REDUCING LEVERAGE/ENHANCING STOCKHOLDER VALUE
As previously announced, the Company has engaged Brown, Gibbons, Lang &
Company, L.P. to explore various strategies for reducing debt and enhancing
stockholder value. The Company is actively seeking to divest one or more
business units as part of this strategy.
LEGAL PROCEEDINGS
Following the Company announcements regarding the restatements of
previously reported financial statements, the Company, its Kalish subsidiary and
certain of their officers have been named as defendants in at least three
complaints in purported class action lawsuits. The complaints received by the
Company allege that, among other things, as a result of accounting
irregularities, the Company's previously issued financial statements were
materially false and misleading and thus constituted violations of federal
securities laws by the Company and certain officers. The actions allege that the
defendants violated Section 10(b) and Section 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder (the "Securities Actions").
The Securities Actions complaints seek damages in unspecified amounts. These
Securities Actions purport to be brought on behalf of purchasers of the
Company's Common Stock during various periods, all of which fall between
September 29, 1997 and August 23, 2000. The Company believes that additional
purported class action lawsuits similar to those described above may be filed.
The Company is currently evaluating these claims and possible defenses thereto
and intends to defend these suits vigorously.
While it is not feasible to predict or determine the final outcome of the
Securities Actions or similar proceedings, or to estimate the amounts or
potential range of loss with respect to these matters, management believes the
Company and its officers and directors have adequate liability insurance to
cover the liabilities, costs and expenses arising out of the Securities Actions,
although there can be no assurance that the insurance proceeds will be adequate
to cover any such losses. Further, there can be no assurance that an adverse
outcome with respect to the Securities Actions will not have a material adverse
impact on the Company's financial condition, results of operations or cash flow.
BUSINESS SEGMENTS
The Company operates in two significant business segments:
AUTOMATION SEGMENT
The Automation segment, which accounted for approximately 65% of the
Company's consolidated fiscal 2000 net sales, designs and builds a complete line
of integrated automated assembly and testing systems. Integrated systems combine
a variety of manufacturing technologies into a complete automated manufacturing
system. Core capabilities of the Company's Automation segment include systems
integration, medium/ high speed indexing, synchronous/non-synchronous assembly,
flexible/reconfigurable, high speed precision assembly, build-to-print, material
handling, cell control/data collection, lean manufacturing, precision tools
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and dies, micron assembly and automated welding systems. The Automation
segment's products are used in the electronics, automotive, consumer products,
tire, electrical components, appliance, medical devices, hardware and many other
industries. The Company is one of the largest manufacturers of integrated
assembly and test systems for discrete parts in North America.
PACKAGING SEGMENT
The Packaging segment, which accounted for approximately 26% of the
Company's consolidated fiscal 2000 net sales, designs and builds proprietary
machines and integrated systems used to perform processing and packaging tasks.
Core capabilities of the Company's Packaging segment include the design and
manufacture of thermoforming, blister packaging and foam extrusion systems,
liquid filling systems and a complete line of tablet processing and packaging
systems. The Packaging segment's products are primarily used in the
pharmaceutical, nutritional, cosmetics, consumer products and food industries.
Sales of these products also produce a stream of recurring revenues from
replacement parts and service as the Company's substantial installed base of
equipment is maintained and upgraded over time. The Company is the largest
manufacturer of integrated tablet processing and packaging systems in North
America.
The following table summarizes the companies comprising each business
segment:
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COMPANY ACQUISITION DATE BUSINESS
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AUTOMATION SEGMENT:
Peer Division ("Peer") July 1992 Designer and manufacturer of
resistance and arc welding systems
and related parts
Detroit Tool and Engineering Company August 1992 Designer and manufacturer of
("DTE") integrated manufacturing systems and
custom equipment, including tools and
dies
Advanced Assembly Automation, Inc. August 1994 Designer, manufacturer and integrator
("AAA") of automated production and testing
systems
Assembly Machines, Inc. ("AMI") January 1996 Manufacturer of high-speed assembly
systems
Mid-West Automation Enterprises, Inc. July 1996 Designer and manufacturer of
("Mid-West") integrated precision assembly systems
Hansford Manufacturing Corporation September 1996 Designer and manufacturer of
("Hansford") integrated precision assembly systems
Assembly Technology & Test, Inc., July 1997 Designer, manufacturer and integrator
Assembly Technology & Test Ltd., of automated production and testing
and Assembly Technologie & systems
Automation GmbH ("ATT"), previously
Lucas Assembly & Test Systems
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COMPANY ACQUISITION DATE BUSINESS
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PACKAGING SEGMENT:
Sencorp Systems, Inc. ("Sencorp") August 1993 Designer and manufacturer of plastics
processing and packaging equipment,
systems and related parts
Stokes-Merrill Division ("Stokes- December 1993 Designer and manufacturer of rotary
Merrill") presses, tablet counting equipment
and related parts
Lakso Division ("Lakso") February 1995 Designer and manufacturer of
automated packaging machinery,
systems and related parts
Armac Industries, Co. ("Armac") February 1995 Designer and manufacturer of plastics
processing and packaging equipment
Kalish Inc. ("Kalish") August 1995 Designer, manufacturer and integrator
of liquid filling and tablet
packaging systems
Swiftpack Automation Limited November 1995 Designer and manufacturer of
("Swiftpack") packaging equipment, primarily
electronic counters
Scheu & Kniss Division ("S&K") August 1998 Manufacturer of tablet press
replacement parts and rebuild
services
C.E. King Division July 1999 Designer and manufacturer of tablet
packaging, liquid filling and capping
equipment
</TABLE>
The Company is a Delaware corporation organized in January 1993 and the
successor to Peer Corporation, Detroit Tool Group, Inc. ("DTG") and Detroit Tool
and Engineering Company. Peer Corporation was organized in June 1992 to acquire
the Peer Division of Teledyne, Inc. and the stock of DTG, the sole stockholder
of DTE and Detroit Tool Metal Products Co. ("DTMP").
The Company's principal executive offices are located at 1949 E. Sunshine,
Suite 2-300, Springfield, Missouri 65804 and its telephone number is (417)
890-0102.
BUSINESS STRATEGY
The Company's Board of Directors, several months ago, began exploring
various strategic alternatives available to the Company aimed at reducing the
Company's leverage and repaying a portion or all of its senior secured
borrowings. On August 11, 2000, the Board of Directors approved the retention of
the investment banking firm of Brown, Gibbons, Lang & Company, LP to assist in
looking at various alternatives with particular emphasis on the possible
divestiture of one or more business units.
The long-term business strategy of DTI is to provide, develop and acquire
complementary technologies and capabilities to supply customers with integrated
assembly, testing and packaging systems for their products. DTI's goal is to
become the premier provider of engineered solutions. The Company expects to
achieve this goal by designing and delivering on-time, innovative solutions
which meet or exceed our customers' expectations while continuously improving
quality, service and cost. Key elements of the Company's strategy include the
following:
Operational Improvements. The Company is focused on improving operational
performance through greater use of risk assessment techniques on custom build
opportunities, higher quality and more detailed project proposals, a
strengthening of the skill set in applications engineering and project
management as well as an increased focus on working capital management. A "Best
Practices Methodology" has been initiated to address most of the performance
objectives. Management and employees are being evaluated on the basis of the
improvement of identified financial and operational benchmarks, both internally
and against industry competitors.
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Cost Reductions. The Company has continued to pursue cost reduction
measures throughout its businesses with a goal of lowering or maintaining the
current level of selling, general and administrative expenses, lowering indirect
manufacturing expenses and increasing profitability.
Leverage Engineering and Manufacturing Capabilities. The Company's
engineering strategy is to satisfy the growing demand for small, medium and
large complex, integrated automation solutions by utilizing the versatile
engineering expertise of its Automation businesses. The Company intends to
utilize its manufacturing capacity and engineering capabilities fully by
directing work to facilities with specific capabilities and manufacturing
strengths to best meet the customer's needs.
Cross-Selling. Substantial cross-selling opportunities exist across the
product lines of the Automation and Packaging segments. As the Company continues
to integrate operations and develop existing product lines, it is able to expand
its product offerings and customer base. The Company expects renewed growth as a
result of new opportunities created through the awareness and expansion of its
customer base.
Product Line Expansion. Through product license arrangements and strategic
alliances, the Company has increased and plans to continue to develop its
engineering capabilities and product offerings. DTI's Packaging segment has the
capability to provide customers with fully integrated tablet processing and
packaging systems. DTI's Automation segment has increased its assembly systems
capabilities as more fully described in "Markets and Products" below. The
Company's objective is to provide customers with integrated automation solutions
and systems integration expertise, rather than single use equipment. The Company
also uses its engineering expertise and manufacturing capability to develop new
products and technology for markets the Company currently serves and to provide
entree into new markets.
MARKETS AND PRODUCTS
AUTOMATION SEGMENT. The Automation segment designs and builds a complete
line of automated assembly and test systems, special machines and large complex
dies for a range of industries, including automotive, tire, recreational
products, appliance, electronics, medical device, electrical components,
hardware and many others. The Company also manufactures custom production
equipment for specific customer applications, proprietary machines for specific
industrial applications and integrated systems which may combine features of
custom and proprietary equipment. Sales from the Company's Automation segment
accounted for approximately 65%, 68% and 68% of consolidated net sales for
fiscal 2000, 1999 and 1998, respectively.
Integrated Systems. Integrated systems combine a wide variety of
manufacturing technologies into a complete automated manufacturing system.
Utilizing advanced computers, robotics, vision systems and other technologies,
the Company provides a variety of capabilities including systems integration,
medium/high speed indexing, synchronous/non-synchronous assembly,
flexible/reconfigurable assembly, high speed precision assembly, build-to-print,
material handling, cell control/data collection, lean manufacturing, precision
tools and dies, micron assembly and automated welding systems for the
electronics, automotive, appliance, electrical components, medical device and
hardware industries. The Company offers this variety of integrated systems for
small or large, custom or standard automation applications. The standardized
automation applications utilize various machine platforms and proprietary
modular building blocks in carousel, in-line, rotary and robotic assembly
systems, all of which facilitate time-sensitive, concurrent engineering projects
where changes in tooling and processes can occur in an advanced stage of system
design.
Custom Machines. The Company's custom machine building capabilities
include: engineering, project management, machining and fabrication of
components, installation of electrical controls, final assembly and testing. A
customer will usually approach the Company with a manufacturing objective, and
DTI will work with the customer to design, engineer, assemble, test and install
a machine to meet the objective. The customer often retains rights to the design
after delivery of the machine since the purchase contract typically includes the
design of the machine; however, the engineering and manufacturing expertise
gained in designing and building the machine is often reapplied by the Company
in projects for other customers.
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Material Handling. The Company builds an automated electrified monorail
product offered in various capacity ranges from lightweight systems to systems
transporting products weighing up to 8,800 pounds. This product can be applied
to a variety of material handling applications ranging from delivery systems for
the food industry to manufacturing processes involving manual and automation
interfaces for engine assembly and testing. The benefits of this product include
providing a clean, quiet, controlled transport with the flexibility to operate
in a variety of processes and production rates.
Automated Resistance and Arc Welding Systems. The Company manufactures and
sells a line of standard resistance welding equipment, as well as special
automated welding systems designed and built for specific applications. Marketed
under the brand name Peer(TM), the Company's products are used in the
automotive, appliance and electrical industries to fabricate and assemble
components and subassemblies. The Company's resistance welding equipment is also
used in the manufacture of file cabinets, school and athletic lockers, store
display shelves, metal furniture and material storage products.
Tooling and Dies. The Company possesses considerable expertise in the
design, engineering and production of precision tools and dies. In addition,
personnel trained as tool and die makers often apply their skills to the
manufacture of the Company's production machines.
PACKAGING SEGMENT. The Packaging segment designs and builds proprietary
machines and integrated systems which are marketed under individual brand names
and manufactured for specific industrial applications using designs owned or
licensed by the Company. Although these machines are generally cataloged as
specific models, they are usually modified for specific customer requirements
and often combined with other machines into integrated systems. Many customers
also request additional accessories and features, which typically generate
higher revenues and enhanced profit opportunities. The Packaging segment's
products include thermoformers, blister packaging systems, extrusion systems,
rotary presses and complete integrated packaging systems. Packaging systems
include: bottle unscrambling, electronic and slat tablet counting/filling,
cottoning, sealing and capping, labeling, collating, cartoning, and liquid and
tube filling. The Company believes this equipment maintains a strong reputation
among its customers for quality, reliability and ease of operation and
maintenance. The Company also sells replacement parts and accessories for its
substantial installed base of machines. Sales from DTI's Packaging segment
accounted for approximately 27%, 25% and 23% of consolidated net sales for
fiscal 2000, 1999 and 1998, respectively.
Thermoformers. A thermoformer heats plastic material and uses pressure
and/or a vacuum to mold it into a product. Marketed under the brand names
Sencorp(R) and Armac(TM), the Company's thermoformers are used by customers in
North America, Europe and Asia to form a variety of products including:
specialized cups, plates and food containers, trays for food and medical
products and other plastics applications.
The Company's thermoformers are sold primarily to custom formers who use
the machines to create thermoformed items which are sold to a variety of end
users. The Company also sells thermoformers directly to end users, including
large producers of electrical and healthcare products, cosmetics, hardware and
other consumer products.
The Company produces a line of thermoformers of different sizes, heating
ovens, maximum draw depths and press capacities. Certain thermoformers produced
by the Company feature a fully integrated process control system to regulate the
thermoformer's functions. Depending upon the customer's requirements, the
control system is capable of networking with, or downloading to, the customer's
computers or other equipment and the Company's service center. This on-line
diagnostic capability allows the Company to provide real-time service and
support to its customers.
Blister Packaging Systems. Blister packaging is a common method of
displaying consumer products for sale in hardware stores, convenience stores,
warehouse stores, drug stores and similar retail outlets. Batteries, cosmetics,
hardware items, electrical components, razor blades and toys are among the large
variety of products sold in a clear plastic blister or two-sided package. The
Company designs and manufactures machinery, marketed under the brand names
Sencorp(R) and Armac(TM), which performs blister packaging by heat-sealing a
clear plastic bubble, or blister, onto coated paperboard, or by sealing
two-sided packages using heat or microwave technology.
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The Company's blister packaging systems are primarily sold to manufacturers
of the end products. These customers, with higher volume production
requirements, may use a thermoformer in-line with a blister sealer to form
blisters, insert their product and seal the package in one continuous process,
referred to as a form/fill/seal configuration. Customers having relatively low
volume production often use a stand-alone blister sealing machine to seal
products in a package using blisters purchased from a custom former.
Extruders. An extrusion process is used to convert plastic resin and
additives into a continuous melt and to force such melt through a die to produce
a desired shape that is then cooled. Marketed under the brand name Sencorp(R),
the Company's foam extruders are used to produce products such as building
insulation, display board, meat trays, bottle wrap protection labels and egg
cartons. The Company's foam extruders are primarily sold to large plastics
companies that use the machines to create end products and sheet products. The
Company also manufactures reclaim extruders which process a variety of plastic
materials from ground form to finished pellet form.
Rotary Presses. The Company designs and manufactures rotary presses used by
customers in the airbag, candy, food supplement, ceramic, ordnance, specialty
chemical, and pharmaceutical industries to produce tablets. Marketed under the
brand name Stokes(TM), the Company's line of rotary presses includes machines
capable of producing 17,000 tablets per minute and other machines capable of
applying up to 40 tons of pressure. Products produced on the Company's rotary
presses include Lifesavers(R), and Breathsavers(R) brand mints, Centrum(R) brand
vitamins and inflation pellets for automotive airbags.
The Company has an agreement with Horn & Noack Pharmatechnick GmbH, for the
purpose of licensing German rotary press technology designed primarily for the
pharmaceutical and nutritional markets. The agreement gives the Company the
exclusive right to manufacture and market this press technology under the
Stokes(TM) brand name in North and Central America and non-exclusively in the
rest of the world, excluding Europe. The Company is marketing the pharmaceutical
press through its Packaging segment.
Packaging Systems. The Company designs, manufactures and distributes a
complete line of products utilized for packaging, liquid filling or tube filling
applications. The equipment manufactured by the Company, which includes bottle
unscramblers, slat counters, electronic counters, liquid fillers, cottoners,
cappers and labelers, collators and cartoners, can be sold as an integrated
system or individual units. These machines are marketed under the brand names of
Kalish(TM), Lakso(R), Merrill(R) and Swiftpack(TM) and are primarily delivered
to customers in the pharmaceutical, nutritional, food, cosmetic, toy and
chemical industries.
The Company benefits from a substantial installed base of Lakso(R) and
Merrill(R) slat counters in the aftermarket sale of slats. Slat counting
machines use a set of slats to meter the number of tablets or capsules to be
inserted into bottles. Each size or shape of tablet or capsule requires a
different set of slats. In addition, the practice in the pharmaceutical industry
is to use a different set of slats for each product, even if the tablets are the
same size.
Laboratory Machines, Tooling, Parts and Accessories. The Company produces a
line of small scale blister sealers and a line of tablet pressing equipment used
to test new materials and techniques, for quality control, laboratory or other
small run uses. The Company also sells parts and accessories for its proprietary
machines. In addition, the Company designs and builds special tools and dies
used in custom applications of its thermoforming systems, rotary presses and
slat counters.
OTHER BUSINESSES. The Company's other businesses produce precision-stamped
steel and aluminum components through its stamping and fabrication operations
for the light and heavy trucking, agricultural equipment, appliance, and
electrical industries. The Company's stamping presses range in size from 32 tons
to 1,500 tons, giving the Company the flexibility to stamp flat rolled metal
ranging in thickness from .015 inches to .750 inches. Certain of the Company's
presses can accommodate dies up to 190 inches in length to perform several
stamping functions in a single press.
MARKETING AND DISTRIBUTION
The Company's automation and packaging machines and systems are sold
primarily through the Company's approximately 75 person direct sales force and
to a lesser extent through manufacturers'
8
<PAGE> 11
representatives and agents. Sales of automation and packaging machines and
integrated systems require the Company's sales personnel to have a high degree
of technical expertise and extensive knowledge of the industry served. The
Company's sales force consists of specialists in each primary market in which
the Company's automation and packaging machines and systems are sold. Each
operating unit has a sales force experienced in the marketing of the equipment
and systems historically produced by each respective business. The Company
believes that cross-selling among the members of the Automation and Packaging
segments and integration of proprietary technology and custom equipment into
total production automation systems for selected industries provide the Company
with expanded sales opportunities.
The Company's automation and packaging machines and systems are sold
throughout the world by more than 80 manufacturers' representatives and sales
agents in nearly 50 countries. The Company has sales and service offices in
China, Canada, England and Germany. International sales were approximately 28%
of consolidated net sales for fiscal 2000 compared to 25% and 31% of
consolidated net sales in fiscal 1999 and fiscal 1998, respectively.
MANUFACTURING AND RAW MATERIALS
The principal raw materials and components used in the manufacturing of the
Company's automation and packaging machines and systems include carbon steel,
stainless steel, aluminum, electronic components, pumps and compressors,
programmable logic controls, hydraulic components, conveyor systems, visual and
mechanical sensors, precision bearings and lasers. The Company is not dependent
upon any one supplier for raw materials or components used in the manufacture of
automation and packaging machines and systems. Certain customers specify sole
source suppliers for components of custom machines or systems. The Company
believes there are adequate alternative sources of raw materials and components
of sufficient quantity and quality.
AUTOMATION SEGMENT. Integrated systems to assemble and test various
products are designed and manufactured at the Company's facilities in Illinois,
Michigan, New York, Ohio, Pennsylvania, the United Kingdom and Germany where
manufacturing activity primarily consists of fabrication and assembly and, to a
lesser extent, machining. The facilities in Missouri house the machining and
assembly operations primarily used in the manufacture of tools and dies, custom
special machines and certain other integrated systems. Facilities in Michigan
and the United Kingdom manufacture the material handling systems. Another
facility in Michigan houses the machining, assembly and test operations used in
the manufacture of welding equipment and systems. A number of manufacturing
technologies are employed at these facilities including: fabrication of
stainless steel, direct numerically controlled machinery, computer generated
surface modeling of contoured components and fully networked CAD/CAM
capabilities.
PACKAGING SEGMENT. Special machines, integrated systems and related parts
for the Company's tablet packaging and liquid-filling equipment are designed and
assembled at the Company's facilities in Massachusetts, Canada and two locations
in the United Kingdom from components made to the Company's specifications by
unaffiliated vendors. Rotary presses and related replacement parts are
manufactured and are assembled at the Company's facilities in Pennsylvania and
Kentucky. Special machines and integrated systems for the plastics packaging
industry are primarily manufactured at the Company's manufacturing facility in
Massachusetts which include machining, fabrication and assembly.
FINANCIAL INFORMATION RELATING TO BUSINESS SEGMENTS, FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES
The Company operates predominantly in the business segments classified as
Automation and Packaging. The Company's principal foreign operations consist of
manufacturing, sales and service operations in Canada, the United Kingdom and
Germany. For certain other financial information concerning the Company's
business segments, foreign and domestic operations and export sales, see the
consolidated financial statements included herein.
9
<PAGE> 12
CUSTOMERS
The majority of the Company's sales is attributable to repeat customers,
some of which have been customers of the Company or its acquired businesses for
over twenty years. The Company believes such repeat business is indicative of
the Company's engineering capabilities, the quality of its products and overall
customer satisfaction.
The Company's five largest customers during fiscal 2000 accounted for
approximately 31.2% of the Company's consolidated net sales. Hewlett-Packard
Company and Goodyear Tire & Rubber Company, customers of the Company's
Automation segment, each accounted for over 10% of the Company's consolidated
net sales during fiscal 2000.
Certain purchasers of the Company's automation and packaging machines and
systems make advance and progress payments to the Company in connection with the
manufacture of machinery and systems.
BACKLOG
The Company's backlog is based upon customer purchase orders the Company
believes are firm. As of June 25, 2000, the Company had $259.6 million of orders
in backlog, which compares to a backlog of approximately $180.0 million as of
June 27, 1999.
The Automation segment's backlog was $215.7 million as of June 25, 2000, an
increase of $77.3 million, or 55.8% from the prior year. The increase in backlog
reflects the orders from significant electronics and tire customers. Backlog for
the Packaging segment decreased slightly to $37.9 million due primarily to a
decrease in tablet processing and packaging machinery orders in the fourth
quarter of fiscal 2000.
The level of backlog at any particular time is not necessarily indicative
of the future operating performance of the Company. Additionally, certain
purchase orders are subject to cancellation by the customer upon notification.
Certain orders are also subject to delays in completion and shipment at the
request of the customer. The Company believes most of the orders in the backlog
will be recognized as sales during fiscal 2001.
COMPETITION
The market for the Company's automation and packaging machines and systems
is highly competitive, with a large number of companies advertising the sale of
production machines. However, the market for automation and packaging machinery
and systems is fragmented and characterized by a number of industry niches in
which few manufacturers compete. The Company's competitors vary in size and
resources; most of which are smaller, privately-held companies or subsidiaries
of larger companies, some of which are larger than the Company; and none of
which compete with the Company in all product lines. In addition, the Company
may encounter competition from new market entrants. The Company believes that
the principal competitive factors in the sale of the Company's automation and
packaging equipment and systems are quality, technology, on-time delivery, price
and service. The Company believes that it competes favorably with respect to
each of these factors.
ENGINEERING; RESEARCH AND DEVELOPMENT
The Company maintains engineering departments at all of its manufacturing
locations. The Company employs more than 325 people with experience in the
design of production equipment. In addition to design work relating to specific
customer projects, the Company's engineers develop new products and product
improvements designed to address the needs of the Company's target market niches
and to enhance the reliability, efficiency, ease of operation and safety of its
proprietary machines.
TRADEMARKS AND PATENTS
The Company and its subsidiaries own and maintain the registered trademarks
AMI(R), AMI 1(R), AssemblyFlex(R), Fabspec(R), Fillit(R), For and About the
Independent Telecommunity(R), Force-Flo Feeder(R),
10
<PAGE> 13
Lakso(R), Merrill(R), Micro-Scan(R), Mid-West(R), Mid-West Automation(R), MWA(R)
and design, Pacer(R), Pharmaveyor(R), Reformer(R), SK(R) and design, Sencorp(R),
Slat-Scan(R), Vali-Tab(R) and Versa-Press(R). Registrations for Company
trademarks are also owned and maintained in countries where such products are
sold and such registrations are considered necessary to preserve the Company's
proprietary rights therein.
The Company also has the rights to use the unregistered trademarks ATT(TM),
Armac(TM), F.A.S.T.(TM), Hartridge(TM), Kalish(TM), Oscar(TM) and design,
Peer(TM), Stokes(TM), Swiftpack(TM), Vector Place(TM) and Vector Place(TM) and
design. All of the trademarks listed above are used in connection with the
machines and systems marketed by the Automation and Packaging segments.
The Company applies for and maintains patents when the Company believes
such patents are necessary to maintain the Company's interest in its inventions.
The Company does not believe that any single patent or group of patents is
material to either its Packaging business or its Automation business, nor does
it believe that the expiration of any one or a group of its patents would have a
material adverse effect upon its business or ability to compete in either line
of business. The Company believes that its existing patent and trademark
protection, however, provides it with a modest competitive advantage in the
marketing and sale of its proprietary products.
ENVIRONMENTAL AND SAFETY REGULATION
The Company is subject to environmental laws and regulations that impose
limitations on the discharge of pollutants into the environment and establish
standards for the treatment, storage and disposal of toxic and hazardous wastes.
The Company is also subject to the federal Occupational Safety and Health Act
and other state statutes. Costs of compliance with environmental, health and
safety requirements have not been material to the Company.
The Company believes it is in material compliance with all applicable
environmental and safety laws and regulations.
EMPLOYEES
At the end of August 2000, the Company had approximately 2,900 employees.
None of the Company's employees are covered under collective bargaining
agreements. The Company has not experienced any work stoppages in the last five
years and considers its relations with employees to be good.
11
<PAGE> 14
ITEM 2. PROPERTIES
The Company's administrative headquarters are located in Springfield,
Missouri. Set forth below is certain information with respect to the Company's
manufacturing facilities.
<TABLE>
<CAPTION>
SQUARE
FOOTAGE OWNED/
LOCATION (APPROXIMATE) LEASED LEASE EXPIRATION PRODUCTS
-------- ------------- ------ ---------------- --------
<S> <C> <C> <C> <C>
AUTOMATION SEGMENT:
Lebanon, Missouri(1) 340,000 Owned Special machines,
integrated systems, tools
and dies
Buffalo Grove, Illinois 205,000 Leased July 31, 2003(3) Integrated precision
assembly systems
Buckingham, England and 150,000 Owned Integrated assembly and
Gawcott, England 40,000 Owned testing systems
Dayton, Ohio 200,000 Leased July 1, 2016(5) Integrated assembly and
23,000 Leased August 1, 2016 testing systems
Rochester, New York 87,000 Leased September 30, Integrated precision
2006(5) assembly systems
Livonia, Michigan 86,000 Leased July 31, 2001(6) Integrated assembly and
20,000 Leased May 31, 2002(6) testing systems
Saginaw, Michigan(1) 83,000 Owned Integrated assembly and
testing systems
Benton Harbor, 70,500 Owned Resistance and arc welding
Michigan(1) equipment and systems
Erie, Pennsylvania(1) 56,000 Owned High-speed assembly systems
Neuweid, Germany 33,000 Leased September 13, 2003 Integrated assembly and
testing systems
Tucson, Arizona 20,000 Leased August 31, 2004(4) Micron robotic assembly
PACKAGING SEGMENT:
Hyannis, 155,000 Owned Plastics processing and
Massachusetts(2) packaging equipment
Montreal, Quebec 81,000 Leased August 14, 2017 Tablet packaging, liquid
filling and tube filling
equipment and systems
Leominster, 60,000 Owned Tablet packaging equipment
Massachusetts(1) and systems
Louisville, Kentucky(1) 55,000 Owned Tablet press parts and
rebuild services
Bristol, Pennsylvania 43,000 Leased May 31, 2005(3) Rotary presses
Alcester, England 22,000 Owned Electronic counters
Surrey, England 19,000 Leased February 1, 2015 Electronic counters
OTHER:
Lebanon, Missouri(1) 200,000(7) Owned Metal products
Rochester, New York 26,000 Leased July 31, 2002(5) Metal products
</TABLE>
-------------------------
(1) This property secures the Company's senior credit facility.
(2) This property secures the Company's industrial revenue bonds issued in
connection with the expansion of the Sencorp facility and the Company's
senior credit facility.
(3) The Company has an option to renew such lease for one additional five-year
term.
(4) The Company has an option to renew such lease for one additional term of
three years.
(5) The Company has an option to renew such lease for two additional terms of
five years.
(6) The Company has an option to renew such lease for one additional two-year
term.
(7) Facility consists of two adjacent buildings of approximately 171,000 square
feet and 29,000 square feet, respectively.
12
<PAGE> 15
The Company also leases other office, warehouse and service facilities in
Missouri, New Jersey, California, Canada, the United Kingdom, Germany and China.
The Company does not anticipate any significant difficulty in leasing alternate
space at reasonable rates in the event of the expiration, cancellation or
termination of a lease relating to any of the Company's leased properties. The
Company believes that its principal owned and leased manufacturing facilities
will have sufficient capacity to accommodate future internal growth without
major additional capital improvements.
ITEM 3. LEGAL PROCEEDINGS
Following the Company's announcement regarding the restatements of
previously reported financial statements, the Company, its Kalish subsidiary and
certain of their officers have been named as defendants in at least three
complaints in purported class action lawsuits. The complaints received by the
Company allege that, among other things, as a result of accounting
irregularities, the Company's previously issued financial statements were
materially false and misleading and thus constituted violations of federal
securities laws by the Company and certain officers. The actions allege that the
defendants violated Section 10(b) and Section 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder (the "Securities Actions").
The Securities Actions complaints seek damages in unspecified amounts. These
Securities Actions purport to be brought on behalf of purchasers of the
Company's common stock during various periods, all of which fall between
September 29, 1997 and August 23, 2000. The Company believes that additional
purported class action lawsuits similar to those described above may be filed.
The Company is currently evaluating these claims and possible defenses thereto
and intends to defend these suits vigorously.
While it is not feasible to predict or determine the final outcome of the
Securities Actions or similar proceedings, or to estimate the amounts or
potential range of loss with respect to these matters, management believes the
Company and its officers and directors have adequate liability insurance to
cover the liabilities, costs and expenses arising out of the Securities Actions,
although there can be no assurance that the insurance proceeds will be adequate
to cover any such losses. Further, there can be no assurance that an adverse
outcome with respect to the Securities Actions will not have a material adverse
impact on the Company's financial condition, results of operations or cash flow.
Product liability claims are asserted against the Company from time to time
for various injuries alleged to have resulted from defects in the manufacture
and/or design of the Company's products. At June 25, 2000, there were 31 such
claims either pending or which may be asserted against the Company. The Company
does not believe that the resolution of such suits, either individually or in
the aggregate, will have a material adverse effect on the Company's financial
condition, results of operations or cash flow. Product liability claims are
covered by the Company's comprehensive general liability insurance policies,
subject to certain deductible amounts. The Company has established reserves for
such deductible amounts, which it believes to be adequate based on its previous
claims experience. However, there can be no assurance that resolution of product
liability claims in the future will not have a material adverse effect on the
Company's financial condition, results of operations or cash flow.
In addition to product liability claims, from time to time, the Company is
the subject of legal proceedings, including claims involving employee matters,
commercial matters and similar claims. There are no material claims currently
pending. The Company maintains comprehensive general liability insurance which
it believes to be adequate for the continued operation of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
13
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "DTIIE". As of September 15, 2000, the number of record holders of
common stock was 72. Such record holders include several holders who are
nominees for an undetermined number of beneficial owners. The Company believes
that the number of beneficial owners of the shares of common stock issued and
outstanding at such date was approximately 1,400.
The Nasdaq Stock Market halted trading in the Company's common stock on
August 23, 2000 pending receipt and review of certain specified information
pertaining to the restatement of the Company's consolidated financial
statements. The Company has requested continued listing on the Nasdaq National
Market, and its request will be considered at a hearing on October 20, 2000
before a panel authorized by the Nasdaq Stock Market.
The following table sets forth, for the quarters indicated, the high and
low sales prices for the common stock as reported by the Nasdaq Stock Market and
the cash dividends per share declared during such periods.
<TABLE>
<CAPTION>
SALES PRICES
--------------- QUARTERLY CASH
HIGH LOW DIVIDENDS
---- --- --------------
<S> <C> <C> <C>
FISCAL 2000
Fourth quarter.............................................. $13 1/8 $ 9 3/8 --
Third quarter............................................... 16 1/4 7 3/16 --
Second quarter.............................................. 8 1/8 5 5/16 --
First quarter............................................... 9 3/16 5 5/8 --
FISCAL 1999
Fourth quarter.............................................. $10 7/16 $ 6 3/4 $0.02
Third quarter............................................... 18 11/16 5 1/8 $0.02
Second quarter.............................................. 19 15 $0.02
First quarter............................................... 24 7/8 14 7/8 $0.02
</TABLE>
In conjunction with the September 1999 amendment to the credit facility,
the Company suspended payments of quarterly dividends.
14
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------------
JUNE 27, JUNE 28, JUNE 29,
JUNE 25, 1999 1998 1997 JUNE 30,
2000(1) AS RESTATED(2) AS RESTATED(2) AS RESTATED(2) 1996
-------- --------------- --------------- -------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales............................... $464,285 $442,084 $519,342 $396,110 $235,946
Cost of sales........................... 374,091 352,526 387,515 287,150 172,568
-------- -------- -------- -------- --------
Gross profit............................ 90,194 89,558 131,827 108,960 63,378
Selling, general and administrative
expenses.............................. 79,852 80,740 75,246 54,367 35,445
Restructuring charge.................... -- 2,500 -- -- --
Loss on sale of assets of Knitting
Elements division..................... -- -- 1,383 -- --
-------- -------- -------- -------- --------
Operating income........................ 10,342 6,318 55,198 54,593 27,933
Interest expense, net................... 10,305 7,742 6,509 11,088 4,799
Dividends on Company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary DT
Capital Trust holding solely
convertible junior subordinated
debentures of the Company............. 5,146 5,012 5,012 251 --
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary loss.................... (5,109) (6,436) 43,677 43,254 23,134
Provision (benefit) for income taxes.... (519) (1,301) 16,792 18,518 9,643
-------- -------- -------- -------- --------
Income (loss) before extraordinary
loss.................................. (4,590) (5,135) 26,885 24,736 13,491
Extraordinary loss, net(3).............. -- -- 1,200 324 --
-------- -------- -------- -------- --------
Net income (loss)....................... $ (4,590) $ (5,135) $ 25,685 $ 24,412 $ 13,491
======== ======== ======== ======== ========
Diluted earnings (loss) per common share
before extraordinary loss............. $ (0.45) $ (0.51) $ 2.19 $ 2.26 $ 1.50
======== ======== ======== ======== ========
Diluted earnings (loss) per common
share................................. $ (0.45) $ (0.51) $ 2.10 $ 2.23 $ 1.50
======== ======== ======== ======== ========
Diluted weighted average common shares
outstanding........................... 10,107 10,149 13,621 11,022 9,001
======== ======== ======== ======== ========
BALANCE SHEET DATA
Working capital......................... $124,017 $ 96,808 $103,023 $ 89,336 $ 26,161
Total assets............................ 481,070 453,265 451,700 393,426 233,843
Total debt.............................. 126,857 104,593 90,011 48,505 79,327
Company-obligated, mandatorily
redeemable convertible preferred
securities of subsidiary DT Capital
Trust holding solely convertible
junior subordinated debentures of the
Company............................... 70,000 70,000 70,000 70,000 --
Stockholders' equity(4)................. 165,083 170,276 184,642 183,622 87,884
</TABLE>
-------------------------
(1) Quarters as restated. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Restatements" and Notes 1
and 17 to the consolidated financial statements for a comparison of
previously reported and restated condensed quarterly financial data.
(2) As restated. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Restatements" and Notes 1 and 16 to
the consolidated financial statements for a comparison of previously
reported and restated financial statements.
(3) Reflects costs incurred of $2,000, less applicable income tax benefits of
$800 in the fiscal year ended June 28, 1998, as restated, and costs incurred
of $540, less applicable income tax benefits of $216 in the fiscal year
ended June 29, 1997, as restated, related to the extinguishment and
refinancing of debt by the Company.
(4) The Company's credit facility and the indenture governing the convertible
junior subordinated debentures currently prohibit the Company from declaring
or paying a cash dividend on its common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See the information under the caption "Management's Discussion and
Analysis" on pages 19 through 31.
15
<PAGE> 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the information under the caption "Market Risk" on page 30.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the consolidated financial statements and notes thereto on pages 32
through 59.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
16
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A definitive proxy statement is expected to be filed with the Securities
and Exchange Commission on October 13, 2000. The information required by this
item is set forth under the caption "Proposal One: Election of Directors", under
the caption "Executive Officers" and under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the definitive proxy statement, which
information is incorporated herein by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation" in the definitive proxy statement, which information is
incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
definitive proxy statement, which information is incorporated herein by
reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Certain Transactions" in the definitive proxy statement, which information is
incorporated herein by reference thereto.
17
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated Balance Sheets as of June 25, 2000 and June 27,
1999...................................................... 34
Consolidated Statement of Operations for the Fiscal Years
Ended June 25, 2000, June 27, 1999 and June 28, 1998...... 35
Consolidated Statement of Changes in Stockholders' Equity
for the Fiscal Years Ended June 25, 2000, June 27, 1999
and June 28, 1998......................................... 36
Consolidated Statement of Cash Flows for the Fiscal Years
Ended June 25, 2000, June 27, 1999 and June 28, 1998...... 37
Notes to Consolidated Financial Statements.................. 39
</TABLE>
2. FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants on Financial Statement
Schedule.................................................. S-1
Schedule VIII Valuation and Qualifying Accounts and Reserves
for the Fiscal Years Ended June 25, 2000, June 27, 1999
and June 28, 1998......................................... S-2
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. EXHIBITS
The exhibits listed on the accompanying Index to Exhibits are filed as part
of this Report.
4. REPORTS ON FORM 8-K
On June 28, 2000, a Current Report on Form 8-K was filed to report,
pursuant to Item 5 thereof, establishing that this year's annual meeting of
stockholders will be November 9, 2000.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
DT Industries, Inc. (DTI or the Company) was formed through a series of
acquisitions beginning with the initial acquisitions of Detroit Tool Group, Inc.
and the Peer Division of Teledyne, Inc. in 1992. Subsequent to those
transactions, the Company or its subsidiaries completed a number of
acquisitions. The acquisitions were elements of a strategic plan to acquire
companies with proprietary products and manufacturing capabilities which had
strong market and technological positions in the niche markets they served and
furthered the Company's goal of providing customers a full range of integrated
automated systems. The Company believes that emphasis on complementary
acquisitions of companies serving target markets has allowed it to broaden its
product offerings and to provide customers a single source for complete
integrated automation systems. The acquisitions expanded the Company's base of
customers and markets, creating greater opportunities for cross-selling among
the various divisions of the Company.
The terms of the amendment to the credit facility in September 1999
included certain restrictions on acquisitions. As such, the Company's focus is
now centered on operational improvements to increase profitability through
cost-containment measures, right-sizing of operations, the implementation of
performance metrics and overall continuous improvement programs.
The Company has made the following acquisitions in the past three years
which affected the results of operations:
<TABLE>
<S> <C>
July 1997............................ Lucas Assembly and Test Systems (LATS),
renamed Assembly Technology & Test (ATT)
August 1998.......................... Scheu & Kniss
July 1999............................ C. E. King
</TABLE>
RESTATEMENT OF FINANCIAL RESULTS
As publicly announced on August 23, 2000 (prior to the issuance of the
Company's consolidated financial statements as of and for the fiscal year ended
June 25, 2000), it was determined that the consolidated results reported in the
Company's Form 10-K as of and for the fiscal years ended June 27, 1999, June 28,
1998 and June 29, 1997, as well as the unaudited consolidated quarterly results
reported in the Company's Reports on Form 10-Q for the fiscal years ended June
25, 2000, June 27, 1999, June 28, 1998 and June 29, 1997, would need to be
restated for certain accounting irregularities at its Kalish subsidiary. The
Board of Directors authorized the Audit and Finance Committee (the "Committee")
to conduct an independent investigation, with the assistance of special counsel
retained by the Committee, to identify the causes of these discrepancies and to
make recommendations to ensure similar issues do not recur in the future. The
Committee retained Bryan Cave LLP as special counsel, and Bryan Cave LLP engaged
an independent accounting firm to assist in the investigation. In addition, the
Company investigated whether similar issues existed at any other subsidiaries.
As a result of the investigation, it was determined that certain assets
(primarily accounts receivable, inventories and related accounts and prepaid
expenses and other) were overstated at the Company's Kalish and Sencorp
subsidiaries due to accounting irregularities. At Kalish, consolidated results
as of and for the fiscal years ended June 25, 2000, June 27, 1999, June 28, 1998
and June 29, 1997 were impacted. At Sencorp, only consolidated results as of and
for the fiscal year ended June 25, 2000 were impacted.
On October 4, 2000, special counsel to the Committee submitted its report
to the Committee, which in turn reported to the Board of Directors on its
investigation into the accounting irregularities and its findings and
recommendations regarding such matters.
As a result, the consolidated financial statements as of and for the fiscal
years ended June 27, 1999, June 28, 1998 and June 29, 1997 as well as the
unaudited consolidated quarterly financial data as of and for the fiscal years
ended June 25, 2000, June 27, 1999, June 28, 1998 and June 29, 1997 have been
restated. The restated consolidated financial statements as of and for the
fiscal year ended June 27, 1999 and the
19
<PAGE> 22
consolidated statement of operations, changes in stockholders' equity and cash
flows as of and for the fiscal year ended June 28, 1998 have been included in
the consolidated financial statements included herein. Comparisons of previously
reported and restated financial statements for all periods impacted by the
restatement, including annual financial statements and unaudited quarterly
financial data, are set forth in Notes 16 and 17 to the consolidated financial
statements included herein.
For the first three quarters in the fiscal year ended June 25, 2000, the
previously reported financial statements primarily included an understatement of
cost of sales by $8.4 million in the aggregate. After restating cost of sales,
the Company's income tax expense decreased by $3.0 million. The impact of the
accounting irregularities on reported operating results for the first three
quarters, in the aggregate, was to overstate gross profit and operating income
by $8.2 million, net income by $5.2 million and diluted earnings per share by
$0.52 per share.
For the fiscal year ended June 27, 1999, the previously reported financial
statements included an understatement of cost of sales by $4.0 million. After
restating cost of sales, the Company's income tax benefit increased by $0.7
million. The impact of the accounting irregularities on reported operating
results for the fiscal year ended June 27, 1999, was to overstate gross profit
and operating income by $4.0 million, understate net loss by $3.4 million and
understate diluted net loss per share by $0.34.
For the fiscal year ended June 28, 1998, the previously reported financial
statements included an understatement of cost of sales by $7.4 million. After
restating cost of sales, the Company's income tax expense decreased by $3.4
million. The impact of the accounting irregularities on reported operating
results for the fiscal year ended June 28, 1998, was to overstate gross profit
and operating income by $7.4 million, net income by $4.0 million and diluted
earnings per share by $0.30.
For the fiscal year ended June 29, 1997, the previously reported financial
statements included an understatement of cost of sales by $2.1 million. After
restating cost of sales, the Company's income tax expense decreased by $0.5
million. The impact of the accounting irregularities on reported operating
results for the fiscal year ended June 29, 1997, was to overstate gross profit
and operating income by $2.1 million, net income by $1.6 million and diluted
earnings per share by $0.15.
The Company expects to file amended quarterly reports on Form 10-Q for the
quarters ended March 26, 2000, December 26, 1999 and September 26, 1999, and an
amended annual report on Form 10-K for the year ended June 27, 1999 as soon as
practicable.
OVERVIEW OF FISCAL 2000
Fiscal 2000 financial results were disappointing overall, although the
Company did see improvement in the Automation segment. The Automation segment
had improved orders, sales and margins in fiscal 2000. Backlog climbed to $215.7
million, up $77.3 million, or 55.8%, providing a strong foundation for expected
increased revenues in fiscal 2001.
The Company's fiscal 2000 results for the Packaging segment were
significantly less than expected. Overall, the Packaging segment's operating
profit was $0.5 million, down $7.9 million from fiscal 1999. As described above,
the issues primarily related to the Company's Kalish and Sencorp businesses,
both requiring restatements of prior period reported results.
The Company has replaced certain Kalish management and is actively
reviewing all aspects of the Kalish operations. The investigation and expanded
audit work have revealed significant margin erosion and losses on large,
integration projects. The issues at Sencorp were very similar to Kalish although
only the fiscal year ended June 25, 2000 was impacted at Sencorp. The
investigation and expanded audit work at Sencorp showed margin erosion and
project losses on large extrusion systems and special packaging machinery. The
Company is reviewing the product lines at Sencorp and Kalish for profitability
improvements and mitigation of project risks. Substantive changes in operations
and financial management methods, procedures and controls are expected to ensure
appropriate responsibility and accountability over projects and their
profitability.
20
<PAGE> 23
OVERVIEW OF FISCAL 1999
Fiscal 1999 financial results were significantly below prior year and
planned results. Fiscal 1999 was expected to be a transition year as a result of
a significant reduction in business with our largest customer as it was reducing
its capital spending due to adequate capacity. The Company had planned to
replace a significant portion of this revenue decrease with orders from new
customers. However, fiscal 1999 orders were $396.7 million, or 21% below the
prior year. Order activity reflected not only the lower activity of our largest
customer but the softness in capital spending in many of our other key markets,
including automotive, heavy equipment, agricultural equipment and appliance. The
Company's financial results were below the prior year's results throughout the
year due primarily to the lower sales levels and the resulting unfavorable
manufacturing efficiencies. Selling, general and administrative expenses
increased as the Company continued its pursuit of new business and development
of new products and technologies.
In the fourth quarter of fiscal 1999, the Company incurred a restated net
loss of $9.0 million on sales of $113.5 million. The fourth quarter results of
operations included special charges of $13.0 million. The special charges
included a charge of $9.8 million to cost of sales related to cost and
performance issues on three automation projects, a $2.5 million restructuring
charge and a $0.7 million bad debt reserve established for a receivable
currently being pursued in a legal action.
For a better understanding of the significant factors that influenced the
Company's performance during the past three years, the following discussion
should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere in this Annual Report on Form 10-K.
The Company primarily operates in two business segments, Automation and
Packaging. The Automation segment designs and builds integrated systems for the
assembly, test and handling of discrete products. The Packaging segment
manufactures tablet processing, counting and liquid filling systems and plastics
processing equipment including thermoforming, blister packaging, heat sealing
and foam extrusion.
Set forth below is certain financial data relating to each business
segment. Fiscal 1998 data has been restated to reflect segment presentation in
accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information". In
addition, the financial data provided for fiscal 1999 and fiscal 1998 has been
restated as a result of the accounting irregularities at Kalish and Sencorp. See
"Restatement of Financial Results" above and Notes 1 and 16 to the consolidated
financial statements appearing elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JUNE 27, JUNE 28,
JUNE 25, 1999 1998
2000 AS RESTATED AS RESTATED
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
NET SALES
Automation................................................ $302,788 $299,787 $355,052
Packaging................................................. 123,237 109,487 116,803
Other..................................................... 38,260 32,810 47,487
-------- -------- --------
Total................................................ $464,285 $442,084 $519,342
======== ======== ========
GROSS PROFIT
Automation................................................ $ 60,937 $ 53,385 $ 90,275
Gross margin........................................... 20.1% 17.8% 25.4%
Packaging................................................. 23,900 32,524 33,050
Gross margin........................................... 19.4% 29.7% 28.3%
Other..................................................... 5,357 3,649 8,502
Gross margin........................................... 14.0% 11.1% 17.9%
-------- -------- --------
Total gross profit................................... $ 90,194 $ 89,558 $131,827
Total gross margin................................... 19.4% 20.3% 25.4%
======== ======== ========
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JUNE 27, JUNE 28,
JUNE 25, 1999 1998
2000 AS RESTATED AS RESTATED
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING INCOME
Automation................................................ $ 15,366 $ 5,573 $ 47,436
Operating margin....................................... 5.1% 1.9% 13.4%
Packaging................................................. 526 8,400 13,412
Operating margin....................................... 0.4% 7.7% 11.5%
Other..................................................... 3,207 1,765 3,391
Operating margin....................................... 8.4% 5.4% 7.1%
Corporate................................................. (8,757) (9,420) (9,041)
-------- -------- --------
Total operating income............................... $ 10,342 $ 6,318 $ 55,198
Total operating margin............................... 2.2% 1.4% 10.6%
======== ======== ========
DEPRECIATION AND AMORTIZATION EXPENSE
Automation................................................ $ 9,181 $ 9,426 $ 8,714
Packaging................................................. 4,044 3,595 2,793
Other..................................................... 1,737 1,496 1,491
Corporate................................................. 1,498 947 752
-------- -------- --------
Total................................................ $ 16,460 $ 15,464 $ 13,750
======== ======== ========
CAPITAL EXPENDITURES
Automation................................................ $ 3,757 $ 3,889 $ 9,441
Packaging................................................. 2,056 9,327 3,313
Other..................................................... -- 1,624 3,459
Corporate................................................. 918 1,063 1,101
-------- -------- --------
Total................................................ $ 6,731 $ 15,903 $ 17,314
======== ======== ========
IDENTIFIABLE ASSETS
Automation................................................ $306,434 $272,816 $299,423
Packaging................................................. 138,924 142,828 118,414
Other..................................................... 22,022 21,325 25,170
Corporate................................................. 13,690 16,296 8,693
-------- -------- --------
Total................................................ $481,070 $453,265 $451,700
======== ======== ========
</TABLE>
The percentage of completion method of accounting is used by the Company 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.
For those contracts not accounted for under the percentage of completion
method, revenue is recognized upon shipment (defined primarily as FOB shipping
point) to unaffiliated customers.
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 margin may vary from year to year as a result of the variations in
profitability of contracts for large orders of automated production systems,
packaging systems or special machines. In addition, changes in the product mix
in a given period affect gross margin.
22
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items reflected in the Company's
consolidated statement of operations:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------
JUNE 27, JUNE 28,
JUNE 25, 1999 1998
2000 AS RESTATED(1) AS RESTATED(1)
-------- -------------- --------------
<S> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0%
Cost of sales.......................................... 80.6 79.7 74.6
----- ----- -----
Gross profit........................................... 19.4 20.3 25.4
Selling, general and administrative expenses........... 17.2 18.3 14.5
Restructuring charge................................... -- 0.6 --
Loss on sale of assets of Knitting Elements division... -- -- 0.3
----- ----- -----
Operating income....................................... 2.2 1.4 10.6
Interest expense....................................... 2.2 1.8 1.2
Dividends on Company-obligated, mandatorily redeemable
convertible preferred securities of subsidiary DT
Capital Trust holding solely convertible junior
subordinated debentures of the Company............... 1.1 1.1 1.0
----- ----- -----
Income (loss) before provision for income taxes and
extraordinary loss................................... (1.1) (1.5) 8.4
Provision (benefit) for income taxes................... (0.1) (0.3) 3.2
----- ----- -----
Income (loss) before extraordinary loss................ (1.0) (1.2) 5.2
Extraordinary loss on debt refinancing................. -- -- 0.2
----- ----- -----
Net income (loss)...................................... (1.0)% (1.2)% 5.0%
===== ===== =====
</TABLE>
-------------------------
(1) As restated. See "Restatement of Financial Results" and Notes 1 and 16 to
the consolidated financial statements.
FISCAL 2000 COMPARED TO FISCAL 1999 (RESTATED)
Consolidated net sales increased $22.2 million, or 5.0%, to $464.3 million
for the year ended June 25, 2000 from $442.1 million for the year ended June 27,
1999. Net sales by segment were as follows (in millions):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 25, 2000 JUNE 27, 1999 INCREASE
------------------- ------------------- --------
<S> <C> <C> <C>
Automation...................................... $302.8 $299.8 $ 3.0
Packaging....................................... 123.2 109.5 13.7
Other........................................... 38.3 32.8 5.5
------ ------ -----
$464.3 $442.1 $22.2
====== ====== =====
</TABLE>
Automation segment sales increased $3.0 million, or 1.0%, in fiscal 2000
primarily from the increased sales to the electronics industry and tire industry
offset by lower sales to automotive and recreational products markets. The
increased revenues from the electronics and tire markets can be attributed to
significant capital spending programs within these markets fueled by strong
demand for end products in the electronics market and manufacturing improvements
in tire production. The Company expects to see continued strong revenues in
fiscal 2001 in both of these markets. The Company's automotive markets were soft
in fiscal 2000 offsetting much of the increased sales from the electronics and
tire markets. The softness in the automotive markets can be primarily attributed
to the technology cycle in fuel systems, a cycle which the Company believes is
23
<PAGE> 26
currently improving. Sales were down significantly in the recreational products
market reflecting a significant amount of revenues in the prior year from a
large special project.
Packaging segment sales increased $13.7 million, or 12.6%, reflecting a
combination of significantly higher sales of plastics processing equipment,
including sales of extrusion and thermoforming systems, and the incremental
increase in sales as a result of the acquisition of C. E. King in July 1999 and
Scheu & Kniss in August 1998.
Sales from the Company's stamping and fabrication businesses were up $5.5
million, or 16.6% as a result of new customer sales in the light truck market
and the transfer of some stamping and fabrication production previously reported
in the Automation segment.
Gross profit increased $0.6 million, or 0.7%, to $90.2 million for the year
ended June 25, 2000 from $89.6 million for the year ended June 27, 1999. The
gross margin decreased to 19.4% from 20.3% primarily reflecting the decrease in
margins in the Packaging segment partially offset by the increase in gross
margins in the Automation segment and the stamping and fabrication businesses.
The decrease in Packaging segment gross margins to 19.4% in fiscal 2000
from 29.7% in fiscal 1999 resulted primarily from the issues at the Kalish and
Sencorp subsidiaries discussed previously. The Company is continuing to review
overall product line profitability at these businesses. The Company believes the
fiscal 2000 gross profit margins to be unusually low in comparison to fiscal
1999 because of a higher mix of larger, special machinery, for which the
investigation revealed significant cost overruns -- such as extrusion systems
and integrated packaging lines. The Company's other businesses in the Packaging
segment were also lower than the prior year from a combination of factors
including the significantly lower volume of engineering and manufacturing of
tablet presses and resulting unfavorable overhead variances, the acquisition of
C. E. King which produces lower margin counters, and a less favorable product
mix.
The Automation segment gross margins increased to 20.1% in fiscal 2000 from
17.8% in fiscal 1999. The increase is primarily a result of the significant
electronics work in fiscal 2000, which improved manufacturing capacity
utilization and replaced a nonrecurring low margin special project recognized in
fiscal 1999. The Company incurred $9.8 million of special charges to cost of
sales in the fourth quarter of fiscal 1999 related to cost and performance
issues on three automation projects.
The Company's stamping and fabrication businesses also showed improved
gross margins in fiscal 2000 reflecting the higher volumes and resulting
improved manufacturing overhead variances.
SG&A expenses decreased $0.8 million, or 1.1%, to $79.9 million for the
year ended June 25, 2000 from $80.7 million for the year ended June 27, 1999.
Incremental costs associated with newly-acquired and start-up businesses were
offset by cost containment measures taken across business segments and at the
Corporate office, including headcount reductions and lower discretionary
spending in the general and administrative and sales and marketing functions.
The incremental costs associated with newly-acquired and start-up businesses
resulted from the acquisitions of S&K in August 1998 and C.E. King in July 1999,
the July 1999 start-up of an advanced automation engineering group on the West
Coast targeting the high-growth medical and electronics markets and the
additional costs being incurred as a result of an agreement to assume the
marketing and distribution of a standard product line manufactured by the
Company. SG&A expenses as a percentage of consolidated net sales decreased to
17.2% in fiscal 2000 from 18.3% in fiscal 1999.
During the fourth quarter of fiscal 1999, the Company recorded a
restructuring charge of $2.5 million for severance costs associated with
management changes and workforce reductions, idle facility costs resulting from
the lower level of order activity and non-cash asset writedowns. The charge
includes severance costs of $1.7 million, idle facility costs of $0.4 million
and $0.4 million of asset writedowns and other charges. The Company had utilized
$0.4 million of the reserve in fiscal 1999 resulting in a remaining reserve of
$2.1 million at June 27, 1999, which was fully utilized during fiscal 2000. The
Company continues to review current operations with a goal of further cost cuts
and other measures to streamline operations and enhance profitability.
24
<PAGE> 27
Operating income increased $4.0 million, or 63.7%, to $10.3 million for the
year ended June 25, 2000 from $6.3 million for the year ended June 27, 1999, as
a result of the factors noted above. The operating margin increased to 2.2% in
fiscal 2000 from 1.4% in fiscal 1999.
Interest expense increased to $10.3 million for the year ended June 25,
2000 from $7.7 million for the year ended June 27, 1999. The increase in
interest expense primarily reflects the increased level of debt to fund working
capital needs and the increase in borrowing rates as a result of the September
1999 amendment to the credit facility.
The Company accrued $5.1 million and paid $5.0 million of dividends on the
Company-obligated, mandatorily redeemable convertible preferred securities of
subsidiary DT Capital Trust (Convertible Preferred Securities) for the years
ended June 25, 2000 and June 27, 1999, respectively. DT Capital Trust's only
assets are convertible junior subordinated debentures of the Company. Effective
September 1999, the Company elected to defer interest payments on the
convertible junior subordinated debentures. As a result, quarterly distributions
on the Convertible Preferred Securities have also been deferred.
Net loss was $4.6 million for the year ended June 25, 2000 versus $5.1
million for the year ended June 27, 1999. Basic and diluted loss per share were
$0.45 for the year ended June 25, 2000 versus basic and diluted loss per share
of $0.51 for the year ended June 27, 1999. Basic and diluted weighted average
shares outstanding were 10.1 million for the year ended June 25, 2000 and June
27, 1999.
FISCAL 1999 (RESTATED) COMPARED TO FISCAL 1998 (RESTATED)
Consolidated net sales decreased $77.2 million, or 14.9%, to $442.1 million
for the year ended June 27, 1999 from $519.3 million for the year ended June 28,
1998. Net sales by segment were as follows (in millions):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 27, 1999 JUNE 28, 1998 (DECREASE)
------------------- ------------------- ----------
<S> <C> <C> <C>
Automation.................................... $299.8 $355.0 $(55.2)
Packaging..................................... 109.5 116.8 (7.3)
Other......................................... 32.8 47.5 (14.7)
------ ------ ------
$442.1 $519.3 $(77.2)
====== ====== ======
</TABLE>
Excluding the incremental increase in sales of $9.5 million from the
acquisition of ATT in July 1997, Automation segment sales decreased $64.7
million, or 18.2%, from the year ended June 28, 1998. Decreased Automation
segment revenues resulted primarily from lower sales to the electronics
industry. Specifically, sales to a significant electronics customer were down
substantially in the year ended June 27, 1999 as compared to the year ended June
28, 1998. Soft order activity throughout the Automation segment during fiscal
1999 due to continued delays on certain projects also contributed to the
decreased sales revenues compared to the prior year to customers in the
automotive, heavy equipment and appliance industries.
Excluding the incremental sales of $5.5 million from the acquisition of S&K
in August 1998, Packaging segment sales decreased $12.8 million, or 11.0%, from
the year ended June 28, 1998 primarily from lower sales of plastics processing
equipment, particularly foam extrusion systems to international markets. Sales
of tablet counting and packaging systems to the pharmaceutical and nutritional
industries, which had been strong throughout the first three quarters of fiscal
1999, decreased during the fourth quarter resulting in sales slightly below the
prior year level.
The decreased revenues from the Company's other businesses reflect the sale
of the Knitting Elements business in May 1998 combined with significantly lower
sales of parts to agricultural equipment customers. An economic downturn in the
agricultural equipment industry resulted in the decreased revenues from sales of
precision metal stampings and fabrications to several customers serving this
market. Also, certain other customers of the precision metal stamping and
fabricating business have been eliminated through planned
25
<PAGE> 28
attrition and product changes. These decreases were partially offset by strong
sales to customers in the transportation industry.
Gross profit decreased $42.2 million, or 32.1%, to $89.6 million for the
year ended June 27, 1999 from $131.8 million for the year ended June 28, 1998.
The gross margin decreased to 20.3% in fiscal 1999 from 25.4% in fiscal 1998
primarily reflecting the decrease in margins in the Automation segment and the
stamping and fabrication businesses.
Automation segment gross margins decreased in fiscal 2000 to 17.8% from
25.4% in fiscal 1999 due primarily to substantial losses on certain assembly
systems and welding systems projects reflecting cost overruns and production
difficulties, manufacturing inefficiencies resulting from the lower volume of
manufacturing activity and unfavorable product mix changes in the Company's
customer base as compared to the prior year. As previously discussed, based on
facts and circumstances occurring or culminating in the fourth quarter of fiscal
1999, the Company recorded a charge of $9.8 million to cost of sales in the
fourth quarter related to three Automation projects to revise cost estimates to
reflect additional costs anticipated to bring the projects up to contract
specifications, to reflect anticipated final billings to recoup costs of
modifications incurred during the production process, and on one of the
projects, to reflect warranty costs expected to support the manufacturing
systems through the initial year of production.
Margins of the Company's metal stamping and fabrication business declined
due to lower manufacturing efficiencies resulting from the lower level of
manufacturing activity and unfavorable product mix issues compared to the prior
year.
Increased margins in the Packaging segment reflect improved margins on
sales of tablet counting and packaging machinery partially offset by cost
overruns and production inefficiencies on plastics processing equipment.
SG&A expenses increased $5.5 million, or 7.3%, to $80.7 million for the
year ended June 27, 1999 from $75.2 million for the year ended June 28, 1998. As
the Company continued to focus on sales and marketing efforts in order to extend
its customer base, the sales force was expanded contributing to increased
expenditures for travel and quoting costs. The Company has also increased its
participation in trade shows and other industry events. Research and development
activities were also increased during fiscal 1999 as compared to the prior year
in order to bolster the Company's technological position and create new products
and services. The Company also took a charge of $0.7 million to SG&A expense in
the fourth quarter of fiscal 1999 related to a receivable that is currently
being pursued in a legal action. As a percentage of consolidated net sales, SG&A
expenses increased to 18.3% from 14.5% in fiscal 1998.
During the fourth quarter of fiscal 1999, the Company recorded a
restructuring charge of $2.5 million for severance costs associated with
management changes and workforce reductions, idle facility costs resulting from
the lower level of order activity and non-cash asset writedowns. The charge
included severance costs of $1.7 million, idle facility costs of $0.4 million
and $0.4 million of asset writedowns and other charges.
Operating income decreased $48.9 million, or 88.6%, to $6.3 million for the
year ended June 27, 1999 from $55.2 million for the year ended June 28, 1998, as
a result of the factors noted above. The operating margin decreased to 2.0% in
fiscal 1999 from 10.9% in fiscal 1998, excluding the effects of the $2.5 million
restructuring charge in fiscal 1999 and the $1.4 million non-recurring, non-cash
charge related to the sale of the Company's non-core Knitting Elements division
in fiscal 1998.
Interest expense increased to $7.7 million for the year ended June 27, 1999
from $6.5 million for the year ended June 28, 1998. The increase in interest
expense primarily reflects the increased level of debt associated with the stock
repurchase program and the August 1998 acquisition of S&K. The stock repurchase
program was terminated in September 1999.
The Company paid $5.0 million of dividends on the Convertible Preferred
Securities for the years ended June 27, 1999 and June 28, 1998. Effective
September 1999, the Company elected to defer interest payments on the
convertible junior subordinated debentures. As a result, quarterly distributions
on the Convertible Preferred Securities have also been deferred.
26
<PAGE> 29
Income before extraordinary loss decreased $32.0 million for the year ended
June 27, 1999 from $26.9 million of income for the year ended June 28, 1998 to a
$5.1 million loss. An extraordinary loss was recognized in fiscal 1998 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 loss per
share before the extraordinary loss were $0.51 for the year ended June 27, 1999
versus basic and diluted earnings per share of $2.38 and $2.19, respectively,
for the year ended June 28, 1998. Basic weighted average shares outstanding for
the year ended June 27, 1999 were 10.1 million versus 11.3 million for the year
ended June 28, 1998. The decrease reflects the repurchase of 1.4 million shares
of the Company's stock since May 1998. Diluted weighted average shares
outstanding for the year ended June 27, 1999 were 10.1 million versus 13.6
million for the year ended June 28, 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 (loss) plus non-cash operating charges provided $16.0 million,
$11.4 million and $47.4 million of operating cash flow in fiscal 2000, 1999 and
1998, respectively.
Working capital balances increased $30.3 million during fiscal 2000 due
primarily to a significant increase in costs and earnings in excess of amounts
billed and accounts receivable from June 27, 1999 partially offset by an
increase in accounts payable primarily in the Automation segment. The increase
in costs and earnings in excess of amounts billed is primarily due to an
increase in work-in-process for a significant electronics customer in the
Automation segment. Accounts receivable increased as the Company finalized
collection of receivables related to several large contracts. These increases
were partially offset by an increase in accounts payable as a result of
management's attempts to conserve cash.
Working capital balances decreased $16.4 million during fiscal 1999 due
primarily to a significant decrease in accounts receivable from June 28, 1998
partially offset by an increase in inventory balances primarily in the Packaging
segment. The decrease in accounts receivable, which relates primarily to the
Automation segment, reflects the lower level of manufacturing activity in the
fourth quarter of fiscal 1999 versus the comparable period in 1998 and the
Company's increased efforts throughout fiscal 1999 to collect outstanding
receivables. Inventories of plastics processing equipment have risen to a more
constant level after strong shipments late in fiscal 1998 had decreased
inventories to below normal amounts. The Company also began stocking some
standard packaging machinery during fiscal 1999 to reduce lead times and
maintain manufacturing efficiencies.
Working capital balances can fluctuate significantly between periods as a
result of the significant costs incurred on individual contracts and the
relatively large amounts invoiced and collected by the Company for a number of
large contracts, and the amounts and timing of customer advances or progress
payments associated with certain contracts.
During the fiscal year ended June 25, 2000, the Company borrowed $26.1
million on its revolving credit facility to finance the growth in working
capital described above, to acquire the net assets of C.E. King for $2.1 million
and to fund capital expenditures of $6.7 million and financing fees of $1.3
million.
During the year ended June 27, 1999, the Company borrowed $8.2 million on
its revolving credit facility and raised another $6.5 million primarily through
the issuance of Bonds, as discussed below. These funds, combined with the $27.8
million of cash generated from operations, 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 $0.8 million and finance capital expenditures of $15.9
million.
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 for
each of the three years after the closing of the acquisition, prior to the
restatement described above. 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.
This additional purchase price was recorded as goodwill. Mr. Lewis, a director
of the Company, was the controlling shareholder of Kalish prior to its
acquisition by the Company. Because of
27
<PAGE> 30
the overstatement of certain asset accounts of the acquired business and the
resulting restatement of the Company's financial statements for fiscal years
1997 and 1998, the additional purchase price was recalculated to be zero. In
connection with the termination of Mr. Lewis' employment with the Company as of
October 5, 2000, the Board of Directors requested Mr. Lewis' immediate
resignation from the Board and the Company demanded the return of the additional
purchase price and any bonuses deemed unearned as a result of the restatements.
No amounts with respect thereto have been reflected in the June 25, 2000
consolidated financial statements.
On July 27, 1998, the Company's wholly-owned subsidiary, Sencorp Systems,
Inc., participated in the issuance of $7.0 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 Fleet Bank N.A., the bond remarketing agent. The
weekly rate is the lowest per annum rate which would allow the Bonds to be sold
at a price equal to 100% of the outstanding principal plus accrued interest. The
interest rate, which is not permitted to rise above 12%, was 4.9% as of June 25,
2000. In September 1999, the Company completed an amendment to the relevant bond
document, providing, among other things, for the permanent waiver of the
covenant defaults as of June 27, 1999, the establishment of revised financial
covenants and other requirements, including the furnishing of additional
collateral. The Company was not in compliance with the amended relevant bond
document's financial and other covenants at June 25, 2000. In October 2000, the
Company completed an amendment to the relevant bond document, providing for the
waiver of existing default of financial and other covenants at June 25, 2000,
the establishment of revised financial covenants and the imposition of
additional cash collateral.
On July 21, 1997, the Company replaced the Second Amended and Restated
Credit Facilities Agreement and the foreign currency denominated term facility
then outstanding with a $175 million multi-currency revolving and term credit
facility. The multi-currency facility provided for a $10 million Canadian term
loan and a $165 million revolving credit facility, which included an approximate
$80 million sub-limit for multi-currency borrowings in Pounds Sterling and
Deutsche Marks. In conjunction with entering into the credit facility, the
Company recognized an extraordinary loss in July 1997 of $1.2 million
attributable to the write-off of $2.0 million of unamortized deferred financing
fees, net of related $0.8 million tax benefit.
In September 1999 the Company completed an amendment to the credit
facility. The total line of credit as amended was $135 million, including a $125
million revolving credit facility and a $10 million term credit facility. In
accordance with the amended credit agreement, the revolving credit facility
increased in December 1999 to $130 million as the Company met certain operating
cash flow targets. Borrowings under the amended credit facility bore interest at
floating rates based on the prime rate plus 1 7/8% or LIBOR plus 3% (at the
option of DTI). At June 25, 2000, interest rates on the multi-currency facility
ranged from 7.22% to 11.38%. The credit facility, as amended, matures July 2,
2001. Borrowings under the amended credit facility are secured by substantially
all of the assets of DTI and its domestic subsidiaries. The amendment to the
credit facility established a revised set of financial and other covenants and
restrictions, including prohibition of acquisitions and payment of dividends
without the consent of the lenders. Total borrowing availability under the
amended credit facility as of June 25, 2000 was $19.4 million.
As a result of the Company's fiscal 2000 financial results, the Company was
in default of a number of provisions of the credit agreement. The Company and
the lenders further amended the credit agreement effective October 10, 2000. The
amendment to the Agreement includes provisions that amend the financial
covenants, waive certain existing defaults of covenants and breaches of
representations and warranties and increase the interest rate on borrowings made
pursuant to the facility. From October 10, 2000 until February 14, 2001, all
borrowings under the amended credit facility will bear interest at a floating
rate based on the prime rate plus 2 3/8%, except for foreign currency
borrowings, which will bear interest at a floating rate equal to LIBOR plus
3.5%. After February 15, 2001, such borrowings will bear interest at floating
rates based on the prime rate plus 2 5/8% or LIBOR plus 3.75%, as applicable.
The overall line of credit and maturity were not amended.
28
<PAGE> 31
The Company has initiated discussions with several lenders for purposes of
refinancing borrowings under its credit facilities, and intends to complete such
refinancing prior to July 2, 2001, although there can be no assurance that such
refinancing will be completed by this date. The Company has also implemented
other cash management initiatives for fiscal 2001, including maintaining the
lower level of capital spending achieved in fiscal 2000, increasing the focus on
collections of accounts receivable and accelerating payment terms from
customers, among other things. On a longer term basis, the Company has engaged
an investment banking firm to develop a program for divestiture of one or more
business units. This program was initiated in the first quarter of fiscal 2001.
In conjunction with the amendment to the credit facility in September 1999,
the Company elected to defer interest payments on the convertible junior
subordinated debentures. The amended credit facility requires that such deferral
continue until the maturity of the credit facility. As a result, quarterly
distributions on the Convertible Preferred Securities are being deferred and DTI
is not declaring or paying dividends on its common stock.
In July 1999, the Company completed the acquisition of certain of the net
assets of C. E. King, Ltd., a manufacturer of tablet counting, liquid filling
and capping equipment located in Chertsey, England. The purchase price of $2.1
million was primarily financed by borrowings under the Company's revolving
credit facility. As the transaction occurred subsequent to the end of fiscal
1999, the balance sheet and results of operations of the C. E. King net assets
are excluded from the fiscal 1999 consolidated balance sheet and results of
operations of DTI. The pro forma effects of the acquisition of C. E. King net
assets on the Company's fiscal 1999 financial position are not material.
Capital expenditures were $6.7 million in fiscal 2000. Management has
reduced anticipated capital expenditures for fiscal 2001 to a range of
approximately $6.0 million to $8.0 million. This includes recurring replacement
or refurbishment of machinery and equipment and purchases to improve production
methods or processes or to expand manufacturing capabilities. Funding for
capital expenditures is expected to be provided by cash from operating
activities and through the Company's credit facilities.
Based on its ability to generate funds from operations and the availability
of funds under its current credit facilities, the Company believes it will have
sufficient funds available to meet its currently anticipated operating, debt
service and capital expenditure requirements.
BACKLOG
The Company's backlog is based upon customer purchase orders the Company
believes are firm. As of June 25, 2000, the Company had $259.6 million of orders
in backlog, which compares to a backlog of approximately $180.0 million as of
June 27, 1999.
The Automation segment's backlog was $215.7 million as of June 25, 2000, an
increase of $77.3 million, or 55.8%, from the prior year. The increase in
backlog primarily reflects orders from significant electronics and tire
customers. Backlog for the Packaging segment decreased slightly to $37.9 million
due primarily to a decrease in tablet processing and packaging machinery orders
in the fourth quarter of fiscal 2000.
The level of backlog at any particular time is not necessarily indicative
of the future operating performance of the Company. Additionally, certain
purchase orders are subject to cancellation by the customer upon notification.
Certain orders are also subject to delays in completion and shipment at the
request of the customer. The Company believes most of the orders in the backlog
will be recognized as sales during fiscal 2001.
FOREIGN OPERATIONS
The Company's primary foreign operations are conducted through its
subsidiaries in Canada, the United Kingdom and Germany. The functional
currencies of these subsidiaries are the currencies native to the specific
country in which the subsidiary is located. Foreign operations accounted for
approximately $85.8 million, $89.1 million and $91.9 million of the Company's
net sales in fiscal 2000, 1999 and 1998, respectively.
29
<PAGE> 32
Earnings (loss) from operations for the Company's foreign operations were $(2.8)
million, $8.7 million and $5.5 million in fiscal 2000, 1999 and 1998,
respectively.
MARKET RISK
In the ordinary course of business, the Company is exposed to foreign
currency and interest rate risks. These exposures primarily relate to having
investments in assets denominated in foreign currencies and to changes in
interest rates. Fluctuations in currency exchange rates can impact operating
results, including net sales and operating expenses. The Company hedges certain
of its foreign currency exposure by borrowing in the local functional currency
in countries where the Company has significant assets denominated in foreign
currencies. Such borrowings include Pounds Sterling, Canadian dollars and
Deutsche Marks in the United Kingdom, Canada and Germany, respectively. 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 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.
If interest rates increase 1% in fiscal 2001, as compared to fiscal 2000,
the Company's interest expense would increase by approximately $0.8 million, and
net income would decrease by approximately $0.5 million. This amount has been
determined using the assumptions that the Company's outstanding floating-rate
debt, as of June 25, 2000, continued to be outstanding throughout fiscal 2001,
and that the average interest rates for these instruments increased 1% over
fiscal 2000. The model does not consider the effects of the reduced level of
potential overall economic activity that would exist in such an environment. In
the event of a significant change in interest rates, management would likely
take actions to further mitigate its exposure to this market risk. However, due
to the uncertainty of the specific actions that would be taken and their
possible effects, the sensitivity analysis assumes no change in the Company's
financial structure.
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.
NEW ACCOUNTING PRONOUNCEMENTS
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 to be measured at
fair value. In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133," which delayed the effective date of SFAS 133. SFAS 133 is
effective for the Company in fiscal 2001. The Company does not believe SFAS 133
will have a material impact on financial position or results of operations.
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 101
(SAB 101), "Revenue Recognition in Financial Statements," summarizes the SEC
staff's interpretations on the application of accounting principles generally
accepted in the United States to revenue recognition. SAB 101 is effective for
30
<PAGE> 33
the Company in the fourth quarter of fiscal 2001. The Company is continuing to
evaluate the provisions of SAB 101 to determine its impact on financial position
and results of operations.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained herein, particularly the information
appearing in the Letter to Shareholders and in this section under the headings
"Recent Developments", "Backlog", "Results of Operations", "Liquidity and
Capital Resources", "Backlog", "Outlook", "Market Risk" and "Seasonality and
Fluctuations in Quarterly Results" includes forward-looking statements. These
statements, comprising all statements herein which are not historical, are based
upon the Company's interpretation of what it believes are significant factors
affecting its businesses, including many assumptions regarding future events,
and are made pursuant to the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. References to "opportunities", "growth potential",
"objectives" and "goals", the words "anticipate", "believe", "estimate",
"expect", and similar expressions used herein indicate such forward-looking
statements. Actual results could differ materially from those anticipated in any
forward-looking statements as a result of various factors, including economic
downturns in industries served, delays or cancellations of customer orders,
delays in shipping dates of products, significant cost overruns on certain
projects, excess product warranty expenses, collectibility of past due customer
receivables, significant restructuring or other special, non-recurring charges,
foreign currency exchange rate fluctuations, delays in achieving anticipated
cost savings or in fully implementing project and information management
systems, availability of financing at acceptable terms, changes in interest
rates, increased inflation, the outcome of pending litigation related to the
previously announced accounting irregularities, the Company's ability to
implement operational and financial systems to manage the Company's
decentralized operations. 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 headings "Recent Developments", "Backlog",
"Results of Operations", "Liquidity and Capital Resources", "Market Risk" and
"Seasonality and Fluctuations in Quarterly Results".
31
<PAGE> 34
STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of DT Industries, Inc.,
have been prepared by management, which is responsible for their integrity and
objectivity. The statements have been prepared in conformity with accounting
principles generally accepted in the United States and include amounts based on
management's best estimates and judgements.
Management has established and maintains a system of internal control
designed to provide reasonable assurance that assets are safeguarded and that
the financial records reflect the authorized transactions of the Company. The
system of internal control includes widely communicated statements of policies
and business practices that are designed to require all employees to maintain
high ethical standards in the conduct of Company affairs. The internal controls
are augmented by organizational arrangements that provide for appropriate
delegation of authority and division of responsibility.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants, in accordance with auditing
standards generally accepted in the United States. As part of their audit of the
Company's fiscal 2000 consolidated financial statements, PricewaterhouseCoopers
LLP considered the Company's system of internal control to the extent they
deemed necessary to determine the nature, timing and extent of their audit
tests.
The Board of Directors pursues its responsibility for the Company's
financial reporting through its Audit and Finance Committee, which is composed
entirely of outside directors. The Audit and Finance Committee meets
periodically with the independent accountants and management. The independent
accountants have direct access to the Audit and Finance Committee, with and
without the presence of management representatives, to discuss the results of
their audit work and their comments on the adequacy of internal accounting
controls and the quality of financial reporting.
James J. Kerley
Chairman and Interim Chief Executive Officer
Wayne W. Schultz
Interim Senior Vice President, Finance
32
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of DT Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows, after the restatement described in Note 1, present
fairly, in all material respects, the financial position of DT Industries, Inc.
and its subsidiaries at June 25, 2000 and June 27, 1999, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended June 25, 2000, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
St. Louis, Missouri
October 4, 2000, except for Note 4
which is as of October 10, 2000
33
<PAGE> 36
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 27,
1999
JUNE 25, AS RESTATED
2000 (NOTES 1 AND 16)
-------- ----------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 8,705 $ 10,487
Accounts receivable, net............................... 58,924 50,006
Costs and estimated earnings in excess of amounts
billed ($129,078 and $219,645, respectively) on
uncompleted contracts................................. 94,925 65,806
Inventories, net....................................... 52,926 49,377
Prepaid expenses and other............................. 14,296 16,070
-------- --------
Total current assets................................. 229,776 191,746
Property, plant and equipment, net........................ 73,218 77,402
Goodwill, net............................................. 173,823 180,066
Other assets, net......................................... 4,253 4,051
-------- --------
$481,070 $453,265
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...................... $ 713 $ 384
Accounts payable....................................... 47,189 37,507
Customer advances...................................... 14,878 15,087
Billings in excess of costs and estimated earnings
($37,168 and $52,828, respectively) on uncompleted
contracts............................................. 7,533 6,837
Accrued liabilities.................................... 35,446 35,123
-------- --------
Total current liabilities............................ 105,759 94,938
-------- --------
Long-term debt............................................ 126,144 104,209
Deferred income taxes..................................... 10,375 10,442
Other long-term liabilities............................... 3,709 3,400
-------- --------
140,228 118,051
-------- --------
Commitments and contingencies (Note 10)
Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust
holding solely convertible junior subordinated
debentures of the Company.............................. 70,000 70,000
-------- --------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding
Common stock, $0.01 par value; 100,000,000 shares
authorized; 10,107,274 shares issued and
outstanding........................................... 113 113
Additional paid-in capital............................. 133,348 133,348
Retained earnings...................................... 64,378 68,968
Cumulative translation adjustment...................... (1,978) (1,375)
Less -
Treasury stock (1,268,488 shares) at cost............ (30,778) (30,778)
-------- --------
Total stockholders' equity........................... 165,083 170,276
-------- --------
$481,070 $453,265
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
34
<PAGE> 37
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------
JUNE 27, JUNE 28,
1999 1998
JUNE 25, AS RESTATED AS RESTATED
2000 (NOTES 1 AND 16) (NOTES 1 AND 16)
-------- ---------------- ----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Net sales.......................................... $ 464,285 $ 442,084 $ 519,342
Cost of sales...................................... 374,091 352,526 387,515
---------- ---------- ----------
Gross profit....................................... 90,194 89,558 131,827
Selling, general and administrative expenses....... 79,852 80,740 75,246
Restructuring charge (Note 14)..................... -- 2,500 --
Loss on sale of assets of Knitting Elements
division (Note 3)................................ -- -- 1,383
---------- ---------- ----------
Operating income................................... 10,342 6,318 55,198
Interest expense, net.............................. 10,305 7,742 6,509
Dividends on Company-obligated, mandatorily
redeemable convertible preferred securities of
subsidiary DT Capital Trust holding solely
convertible junior subordinated debentures of the
Company, at 7.16% per annum...................... 5,146 5,012 5,012
---------- ---------- ----------
Income (loss) before provision (benefit) for income
taxes and extraordinary loss..................... (5,109) (6,436) 43,677
Provision (benefit) for income taxes............... (519) (1,301) 16,792
---------- ---------- ----------
Income (loss) before extraordinary loss............ (4,590) (5,135) 26,885
Extraordinary loss on debt refinancing, net of
income tax benefits of $800...................... -- -- 1,200
---------- ---------- ----------
Net income (loss).................................. $ (4,590) $ (5,135) $ 25,685
========== ========== ==========
Basic earnings (loss) per common share:
Income (loss) before extraordinary loss.......... $ (0.45) $ (0.51) $ 2.38
Extraordinary loss............................... -- -- 0.11
---------- ---------- ----------
Net income (loss)................................ $ (0.45) $ (0.51) $ 2.27
========== ========== ==========
Diluted earnings (loss) per common share:
Income (loss) before extraordinary loss.......... $ (0.45) $ (0.51) $ 2.19
Extraordinary loss............................... -- -- 0.09
---------- ---------- ----------
Net income (loss)................................ $ (0.45) $ (0.51) $ 2.10
========== ========== ==========
Weighted average common shares outstanding:
Basic............................................ 10,107,274 10,149,215 11,297,409
Diluted.......................................... 10,107,274 10,149,215 13,621,481
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
35
<PAGE> 38
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK EQUITY
------ ---------- -------- ------------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 29, 1997 --
AS RESTATED (NOTES 1 AND 16)... $113 $133,370 $50,139 $ -- $ -- $183,622
Comprehensive income:
Net income................... 25,685
Foreign currency
translation............... (551)
Total comprehensive
income............... 25,134
Exercise of stock options...... 1,119 1,119
Payments on stock
subscriptions................ 119 119
Dividends declared and paid.... (907) (907)
Stock repurchase............... (24,445) (24,445)
---- -------- ------- ------- -------- --------
BALANCE, JUNE 28, 1998 --
AS RESTATED (NOTES 1 AND 16)... 113 134,608 74,917 (551) (24,445) 184,642
---- -------- ------- ------- -------- --------
Comprehensive loss:
Net loss..................... (5,135)
Foreign currency
translation............... (824)
Total comprehensive
loss................. (5,959)
Dividends declared and paid.... (814) (814)
Reissuance of treasury stock... (1,260) 3,652 2,392
Stock repurchase............... (9,985) (9,985)
---- -------- ------- ------- -------- --------
BALANCE, JUNE 27, 1999 --
AS RESTATED (NOTES 1 AND 16)... 113 133,348 68,968 (1,375) (30,778) 170,276
---- -------- ------- ------- -------- --------
Comprehensive loss:
Net loss..................... (4,590)
Foreign currency
translation............... (603)
Total comprehensive
loss................. (5,193)
---- -------- ------- ------- -------- --------
BALANCE, JUNE 25, 2000......... $113 $133,348 $64,378 $(1,978) $(30,778) $165,083
==== ======== ======= ======= ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
36
<PAGE> 39
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------
JUNE 27, JUNE 28,
1999 1998
JUNE 25, AS RESTATED AS RESTATED
2000 (NOTES 1 AND 16) (NOTES 1 AND 16)
-------- ---------------- ----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (4,590) $ (5,135) $ 25,685
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation............................................ 10,300 10,075 8,279
Amortization............................................ 6,160 5,389 5,471
Deferred income tax provision........................... 4,092 1,095 4,613
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..................................... (8,918) 20,928 4,778
Costs and earnings in excess of amounts billed on
uncompleted contracts................................. (29,119) 1,663 (1,538)
Inventories............................................. (1,705) (6,177) 2,710
Prepaid expenses and other.............................. (1,109) (4,512) 2,252
Increase (decrease) in current liabilities, excluding the
effect of acquisitions:
Accounts payable........................................ 9,682 7,549 (3,884)
Customer advances....................................... (341) 2,425 (3,505)
Billings in excess of costs and earnings on uncompleted
contracts............................................. 696 (1,345) 1,047
Accrued liabilities..................................... 800 (3,170) (728)
Other................................................... (278) (1,017) (4,766)
-------- -------- --------
Net cash provided (used) by operating activities...... (14,330) 27,768 43,797
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (6,731) (15,903) (17,314)
Acquisition of C.E. King net assets....................... (2,116) -- --
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)
Proceeds from the sale of assets of Knitting Elements
division................................................ -- -- 9,375
Other..................................................... (620) (1,778) --
-------- -------- --------
Net cash used in investing activities................... (9,467) (28,033) (54,660)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from revolving loans....................... 26,083 8,219 89,986
Proceeds from issuance of term debt....................... -- 6,544 --
Payments on borrowings.................................... (489) (277) (49,220)
Debt issuance costs....................................... (1,296) -- (947)
Payments for repurchase of stock.......................... -- (9,985) (24,445)
Net proceeds from issuance of common stock................ -- 119 1,119
Payments on stock subscriptions receivable................ -- -- 119
Dividends paid on common stock............................ -- (814) (907)
-------- -------- --------
Net cash provided by financing activities............... 24,298 3,806 15,705
-------- -------- --------
Effect of exchange rate changes............................. (2,283) 31 (748)
-------- -------- --------
Net increase (decrease) in cash............................. (1,782) 3,572 4,094
Cash and cash equivalents at beginning of period............ 10,487 6,915 2,821
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 8,705 $ 10,487 $ 6,915
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest................................................ $ 9,809 $ 7,161 $ 6,233
Income taxes............................................ $ (423) $ (1,674) $ 11,447
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(Continued)
37
<PAGE> 40
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company purchased C. E. King in fiscal 2000; Scheu & Kniss in fiscal
1999; and Lucas Assembly and Test Systems, renamed Assembly Technology & Test
(ATT), in fiscal 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
JUNE 25, JUNE 27, JUNE 28,
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Fair value of assets acquired............................... $ 1,856 $ 5,843 $ 56,283
Fair value assigned to goodwill............................. 915 5,351 14,248
Cash paid................................................... (2,116) (10,352) (46,721)
------- -------- --------
Liabilities assumed......................................... $ 655 $ 842 $ 23,810
======= ======== ========
</TABLE>
In November 1998, in connection with the additional payment to the sellers
of Kalish as described in Note 3, the Company reissued 123,700 shares of
treasury stock with a market value of $2,273 on the date of issuance.
See accompanying Notes to Consolidated Financial Statements.
38
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- BUSINESS
DT Industries, Inc. (DTI or the Company) is a leading designer,
manufacturer and integrator of automated production systems used to assemble,
test or package industrial and consumer products. The Company also produces
precision metal components, tools and dies for a broad range of applications.
The Company markets its products through two primary segments: Automation and
Packaging. The Company's operations are located in North America and Europe, but
its products are sold throughout the world.
RESTATEMENT OF FINANCIAL RESULTS
As publicly announced on August 23, 2000 (prior to the issuance of the
Company's consolidated financial statements as of and for the fiscal year ended
June 25, 2000), it was determined that the consolidated results reported in the
Company's Form 10-K as of and for the fiscal years ended June 27, 1999, June 28,
1998 and June 29, 1997, as well as the unaudited consolidated quarterly results
reported in the Company's Reports on Form 10-Q for the fiscal years ended June
25, 2000, June 27, 1999, June 28, 1998 and June 29, 1997, would need to be
restated for certain accounting irregularities at its Kalish subsidiary. The
Board of Directors authorized the Audit and Finance Committee (the "Committee")
to conduct an independent investigation, with the assistance of special counsel
retained by the Committee, to identify the causes of these discrepancies and to
make recommendations to ensure similar issues do not recur in the future. The
Committee retained Bryan Cave LLP as special counsel, and Bryan Cave LLP engaged
an independent accounting firm to assist in the investigation. In addition, the
Company investigated whether similar issues existed at any other subsidiaries.
As a result of the investigation, it was determined that certain assets
(primarily accounts receivable, inventories and related accounts and prepaid
expenses and other) were overstated at the Company's Kalish and Sencorp
subsidiaries due to accounting irregularities. At Kalish, consolidated results
as of and for the fiscal years ended June 25, 2000, June 27, 1999, June 28, 1998
and June 29, 1997 were impacted. At Sencorp, only consolidated results as of and
for the fiscal year ended June 25, 2000 were impacted.
As a result, the consolidated financial statements as of and for the fiscal
years ended June 27, 1999, June 28, 1998 and June 29, 1997 as well as the
unaudited consolidated quarterly financial data as of and for the fiscal years
ended June 25, 2000, June 27, 1999, June 28, 1998 and June 29, 1997 have been
restated. The restated consolidated financial statements as of and for the
fiscal year ended June 27, 1999 and the consolidated statement of operations,
changes in stockholders' equity and cash flows as of and for the fiscal year
ended June 28, 1998 have been included in the consolidated financial statements
included herein. Comparisons of previously reported and restated financial
statements for all periods impacted by the restatement, including annual
financial statements and unaudited quarterly financial data, are set forth in
Notes 16 and 17 to the consolidated financial statements included herein.
For the first three quarters in the fiscal year ended June 25, 2000, the
previously reported financial statements primarily included an understatement of
cost of sales by $8,440 in the aggregate. After restating cost of sales, the
Company's income tax expense decreased by $2,992. The impact of the accounting
irregularities on reported operating results for the first three quarters, in
the aggregate, was to overstate gross profit and operating income by $8,181, net
income by $5,189 and diluted earnings per share by $0.52 per share.
For the fiscal year ended June 27, 1999, the previously reported financial
statements included an understatement of cost of sales by $4,039. After
restating cost of sales, the Company's income tax benefit increased by $667. The
impact of the accounting irregularities on reported operating results for the
fiscal year ended June 27, 1999, was to overstate gross profit and operating
income by $4,039, understate net loss by $3,372 and understate diluted net loss
per share by $0.34.
For the fiscal year ended June 28, 1998, the previously reported financial
statements included an understatement of cost of sales by $7,389. After
restating cost of sales, the Company's income tax expense decreased by $3,390.
The impact of the accounting irregularities on reported operating results for
the fiscal
39
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
year ended June 28, 1998, was to overstate gross profit and operating income by
$7,389, net income by $3,999 and diluted earnings per share by $0.30.
For the fiscal year ended June 29, 1997, the previously reported financial
statements included an understatement of cost of sales by $2,106. After
restating cost of sales, the Company's income tax expense decreased by $461. The
impact of the accounting irregularities on reported operating results for the
fiscal year ended June 29, 1997, was to overstate gross profit and operating
income by $2,106, net income by $1,645 and diluted earnings per share by $0.15.
The Company expects to file amended quarterly reports on Form 10-Q for the
quarters ended March 26, 2000, December 26, 1999 and September 26, 1999, and an
amended annual report on Form 10-K for the year ended June 27, 1999 as soon as
practicable.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies utilized by the Company in the preparation of the
financial statements conform to accounting principles generally accepted in the
United States, and require that management make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual amounts could differ from these estimates.
The significant accounting policies followed by the Company are described
below.
REVENUE RECOGNITION
The percentage of completion method of accounting is used by the Company to
recognize revenues and related costs. Under the percentage of completion method,
revenues are measured based on the ratio of engineering and manufacturing labor
hours incurred to date compared to total estimated engineering and manufacturing
labor hours or, for certain customer contracts, the ratio of total costs
incurred to date to total estimated costs. Any revisions in the estimated total
costs or values of the contracts during the course of the work are reflected
when the facts that require the revisions become known.
For those contracts not accounted for under the percentage of completion
method, revenue is recognized upon shipment (defined primarily as FOB shipping
point) to unaffiliated customers.
Costs and related expenses to manufacture the products are recorded as cost
of sales when the related revenue is recognized. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined.
Cash deposits received from customers on contracts in progress are
reflected as customer advances in the consolidated balance sheet until the
related revenue is recognized in accordance with the procedures described above.
Costs and estimated earnings in excess of amounts billed on percentage of
completion contracts represent costs incurred and earnings recognized in excess
of customer advances received. Billings in excess of costs incurred and
estimated earnings on uncompleted contracts represent customer advances received
in excess of costs incurred and earnings recognized.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
40
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOREIGN CURRENCY TRANSLATION
The accounts of the Company's foreign subsidiaries are maintained in their
respective local currencies. The accompanying consolidated financial statements
have been translated and adjusted to reflect U.S. dollars on the basis presented
below.
Assets and liabilities are translated into U.S. dollars at year-end
exchange rates. Income and expense items are translated at average rates of
exchange prevailing during the year. Adjustments resulting from the process of
translating the consolidated amounts into U.S. dollars are accumulated in a
separate translation adjustment account, included in stockholders' equity.
Common stock and additional paid-in capital are translated at historical U.S.
dollar equivalents in effect at the date of acquisition. Foreign currency
transaction gains and losses are included in earnings currently. Foreign
currency transaction gains and losses were not material for all periods
presented.
CASH AND CASH EQUIVALENTS
All highly liquid debt instruments purchased with original maturities of
three months or less are classified as cash equivalents.
CONCENTRATIONS OF CREDIT RISK
The Company sells a majority of its machines to a wide range of
manufacturing companies. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral, although many customers pay
deposits to the Company prior to shipment of its products. The Company maintains
reserves for potential credit losses and historically such losses have been
within management's expectations. At June 25, 2000, the Company had no
significant concentrations of credit risk.
INVENTORIES
Domestic inventories are stated at the lower of cost, which approximates
the first-in, first-out (FIFO) method, or market. Inventories include the cost
of materials, direct labor and manufacturing overhead.
Obsolete or unsalable inventories are reflected at their estimated
realizable values.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and is depreciated using
the straight-line method over the estimated useful lives of the assets which
range from 3 to 39.5 years.
Expenditures for repairs, maintenance and renewals are charged to income as
incurred. Expenditures which improve an asset or extend its estimated useful
life are capitalized. When properties are retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is included in income.
GOODWILL
The excess of the purchase price over the fair value of net assets acquired
in business combinations (goodwill) is capitalized and amortized on a
straight-line basis over periods ranging from 15 to 40 years. Goodwill
amortization charged to income for the years ended June 25, 2000, June 27, 1999
and June 28, 1998 was approximately $5,230, $5,031 and $4,876, respectively.
Accumulated amortization at June 25, 2000 and June 27, 1999 was approximately
$23,725 and $18,275, respectively.
The carrying value of goodwill is assessed for recoverability by management
based on an analysis of future expected cash flows from the underlying
operations of the Company. Management believes there has been no impairment at
June 25, 2000.
41
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ENVIRONMENTAL LIABILITIES
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and that do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with
completion of a feasibility study or the Company's commitment to a formal plan
of action.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. These costs
approximated $4,907, $3,982 and $1,972 in fiscal 2000, fiscal 1999 and fiscal
1998, respectively, and are included as selling, general and administrative
expenses in the accompanying consolidated statement of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined the fair
value of financial instruments approximates book value at June 25, 2000, based
on terms currently available to the Company in financial markets.
INCOME TAXES
The Company files a consolidated federal income tax return which includes
its domestic subsidiaries. The Company accounts for income taxes pursuant to
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under SFAS 109, the current or deferred tax consequences of a
transaction are measured by applying the provisions of enacted laws to determine
the amount of taxes payable currently or in future years. Deferred income taxes
are provided for temporary differences between the income tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes.
EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128) requires the computation of basic (Basic EPS) and diluted (Diluted
EPS) earnings per share. Basic EPS is based on the weighted average number of
outstanding common shares during the period but does not consider dilution for
potentially dilutive securities. Diluted EPS reflects the effects of conversion
of the Company's Convertible Preferred Securities and elimination of the related
dividends, net of applicable income taxes, plus dilutive potential common shares
consisting primarily of certain shares subject to stock options. The dilutive
potential common shares arising from the effect of outstanding stock options
were computed using the treasury stock method, if dilutive. See Note 13 for
additional information.
EMPLOYEE STOCK-BASED COMPENSATION
The Company accounts for employee stock options in accordance with
Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees"
(APB 25). Under APB 25, the Company applies the intrinsic value method of
accounting. For employee stock options accounted for using the intrinsic value
method, no compensation expense is recognized because the options are granted
with an exercise price equal to the market value of the stock on the date of
grant. Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) prescribes the recognition of compensation
expense based on the fair value of options or stock awards determined on the
date of grant. However, SFAS 123 allows companies to continue to apply the
valuation methods set forth in APB 25. For companies that continue to apply the
valuation methods set forth in APB 25, SFAS 123 mandates certain pro forma
disclosures as if the fair value method had been utilized. See Note 8 for
additional information.
42
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPREHENSIVE INCOME
In 1999, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 requires the
components of comprehensive income to be disclosed in the financial statements.
Required disclosures for fiscal 1998 have been restated in accordance with SFAS
130.
FISCAL YEAR
The Company uses a 52-53 week fiscal year that ends on the last Sunday in
June.
ACCOUNTING PRONOUNCEMENTS
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 to be measured at
fair value. In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133," which delayed the effective date of SFAS 133. SFAS 133 is
effective for the Company in fiscal 2001. The Company does not believe SFAS 133
will have a material impact on financial position or results of operations.
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 101
(SAB 101), "Revenue Recognition in Financial Statements," summarizes the SEC
staff's interpretations on the application of accounting principles generally
accepted in the United States to revenue recognition. SAB 101 is effective for
the Company in the fourth quarter of fiscal 2001. The Company is continuing to
evaluate the provisions of SAB 101 to determine its impact on financial position
and results of operations.
NOTE 3 -- ACQUISITIONS AND DISPOSITION
The following table summarizes certain information regarding the Company's
acquisitions during the past three years:
<TABLE>
<CAPTION>
NET CASH
PURCHASE
DATE BUSINESS PRICE
---- -------- --------
<S> <C> <C>
July 1997................................... Lucas Assembly and Test Systems (ATT) $46,721
August 1998................................. Scheu & Kniss $10,352
July 1999................................... C. E. King $ 2,116
</TABLE>
During the past three fiscal years, the Company made three acquisitions
which have expanded its product lines. These acquisitions were each accounted
for under the purchase method of accounting and financed primarily through bank
borrowings, resulting in an increase in the Company's debt. Results of
operations of each acquired company have been included in the Company's
consolidated financial statements from the date of acquisition. The purchase
price of each acquisition was allocated to the assets and liabilities acquired,
based on their estimated fair value at the date of acquisition. The excess of
purchase price over the estimated fair value of net assets acquired was, in each
instance, recorded as goodwill.
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, prior
to the restatement described in Note 1. 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 through a combination of stock and
cash. This additional purchase price was recorded as goodwill. One of the
directors of the Company was a controlling shareholder of Kalish prior to its
acquisition by the Company. As a result of the restatement, the Company has made
a demand for
43
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
the return of the additional purchase price although no amounts with respect
thereto have been reflected in the accompanying June 25, 2000 consolidated
financial statements.
On May 1, 1998, the Company completed the sale of substantially all of the
assets of its non-core Knitting Elements division of Detroit Tool Metal Products
Co., a wholly owned subsidiary of DT Industries, Inc., for $9,375. The pre-tax
loss on the sale was approximately $1,383.
Due to the relative immaterial effect of the above-noted acquisitions and
divestiture, pro forma information has not been provided.
NOTE 4 -- FINANCING
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 27,
JUNE 25, 1999
2000 AS RESTATED
-------- -----------
<S> <C> <C>
Notes payable to bank under a term and revolving loan
agreement:
Term loan................................................. $ 10,000 $ 10,000
Revolving loan............................................ 106,928 84,483
Foreign currency denominated revolving credit facilities.... 2,260 1,832
Other long-term debt........................................ 7,669 8,278
-------- --------
126,857 104,593
Less -- current portion..................................... 713 384
-------- --------
$126,144 $104,209
======== ========
</TABLE>
On July 21, 1997 the Company replaced its credit facilities with a $175,000
multi-currency revolving and term credit facility. The multi-currency facility
provided a $10,000 Canadian term loan and a $165,000 revolving credit facility,
which included an approximate $80,000 sublimit for multi-currency borrowings in
Pounds Sterling and Deutsche Marks. Borrowings under the multi-currency facility
bore 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. In conjunction
with entering into the new credit facility, the Company recognized an
extraordinary loss in July 1997 of $1,200 attributable to the write-off of
$2,000 of unamortized deferred financing fees, net of related $800 tax benefit.
In September 1999, the Company completed an amendment to its $175,000
credit facility. The credit facility, as amended, was reduced to $135,000,
including a $125,000 revolving credit facility and a $10,000 term credit
facility. In accordance with the amended credit agreement, the revolving credit
facility increased in December 1999 to $130,000 as the Company met certain
operating cash flow targets. Borrowings under the amended credit facility bear
interest at floating rates based on the prime rate plus 1 7/8% or LIBOR plus 3%
(at the option of DTI). At June 25, 2000, interest rates on the multi-currency
facility ranged from 7.22% to 11.38%. The credit facility, as amended, matures
July 2, 2001. Borrowings under the amended credit facility are secured by
substantially all of the assets of DTI and its domestic subsidiaries. The
amendment to the credit facility established a revised set of financial and
other covenants and restrictions, including prohibition of acquisitions and
payment of dividends without the consent of the lenders. Total borrowing
availability under the amended credit facility as of June 25, 2000 was $19,438.
As a result of the Company's fiscal 2000 financial results, the Company was
in default of a number of provisions of the credit agreement. The Company and
the lenders further amended the credit agreement effective
44
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
October 10, 2000. The amendment to the Agreement includes provisions that amend
the financial covenants, waive certain existing defaults of covenants and
breaches of representations and warranties and increase the interest rate on
borrowings made pursuant to the facility. From October 10, 2000 until February
14, 2001, all borrowings under the amended credit facility will bear interest at
a floating rate based on the prime rate plus 2 3/8%, except for foreign currency
borrowings, which will bear interest at a floating rate equal to LIBOR plus
3.5%. After February 15, 2001, such borrowings will bear interest at floating
rates based on the prime rate plus 2 5/8% or LIBOR plus 3.75%, as applicable.
The overall line of credit and maturity were not amended.
On July 27, 1998, the Company's wholly-owned subsidiary, Sencorp Systems,
Inc., issued $7,000 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 Fleet
Bank, N.A., the bond remarketing agent. The weekly rate is the lowest per annum
rate which would allow the bonds to be sold at a price equal to 100% of the
outstanding principal plus accrued interest. The interest rate, which is not
permitted to rise above 12%, was 4.9% as of June 25, 2000. In September 1999,
the Company completed an amendment to the relevant bond document, providing the
establishment of revised financial covenants and other requirements, including
the furnishing of additional collateral. The Company was not in compliance with
the amended relevant bond document's financial and other covenants at June 25,
2000. In October 2000, the Company completed an amendment to the relevant bond
document, providing for the waiver of existing defaults of financial and other
covenants at June 25, 2000, the establishment of revised financial covenants and
the imposition of additional cash collateral.
At June 25, 2000 and June 27, 1999, the Company had repurchased 1,401,100
shares of its common stock at a total cost of $34,430, including fiscal 1999
purchases of 528,100 shares, at a total cost of $9,985. The repurchased shares
are being used for employee stock option programs. In conjunction with the
amendment of the amended credit facility the Company will make no further
repurchases of common stock without the consent of its lenders.
See Note 9 for other liquidity and capital resources matters.
NOTE 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. In conjunction with the amendment of the credit
facility, as discussed in Note 4, the Company elected to defer interest payments
on the Convertible Junior Subordinated Debentures. As a result, quarterly
distributions on the Convertible Preferred Securities have also been deferred
and DTI will not declare or pay dividends on its common stock.
45
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Dividends on the Convertible Preferred Securities in the amount of $5,146 have
been deferred and accrued as of June 25, 2000.
NOTE 6 -- INCOME TAXES
Income (loss) before provision for income taxes and extraordinary losses
was taxed under the following jurisdictions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JUNE 27, JUNE 28,
JUNE 25, 1999 1998
2000 AS RESTATED AS RESTATED
-------- ----------- -----------
<S> <C> <C> <C>
Domestic.................................................... $ 1,416 $(11,543) $41,269
Foreign..................................................... (6,525) 5,107 2,408
------- -------- -------
$(5,109) $ (6,436) $43,677
======= ======== =======
</TABLE>
The provision (benefit) for income taxes charged to operations was as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JUNE 27, JUNE 28,
JUNE 25, 1999 1998
2000 AS RESTATED AS RESTATED
-------- ----------- -----------
<S> <C> <C> <C>
Current
U. S. Federal............................................. $(2,168) $ (4,097) $ 9,329
State..................................................... (436) 29 477
Foreign................................................... (2,007) 1,672 2,373
------- -------- -------
Total current........................................ (4,611) (2,396) 12,179
------- -------- -------
Deferred
U. S. Federal............................................. 3,687 730 4,164
State..................................................... 311 227 333
Foreign................................................... 94 138 116
------- -------- -------
Total deferred......................................... 4,092 1,095 4,613
------- -------- -------
Total provision (benefit)................................... $ (519) $ (1,301) $16,792
======= ======== =======
</TABLE>
The provision for income taxes for the fiscal year ended June 28, 1998 is
net of income tax benefits of $800, related to the extraordinary loss described
in Note 4.
46
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
JUNE 27,
JUNE 25, 1999
2000 AS RESTATED
-------- -----------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Depreciation.............................................. $ 5,390 $ 5,856
Inventory costing capitalization, net..................... 473 964
Earnings recognized under percentage of completion........ 4,302 1,468
Goodwill and intangibles amortization..................... 4,483 3,852
Other..................................................... 1,555 1,547
------- --------
Total deferred tax liabilities.............................. 16,203 13,687
------- --------
DEFERRED TAX ASSETS
Project and inventory reserves............................ (3,266) (3,616)
Product liability reserves................................ (311) (488)
Bad debt reserves......................................... (741) (904)
Other accruals............................................ (3,851) (4,678)
Other..................................................... (1,514) (1,278)
------- --------
Total deferred tax assets................................... (9,683) (10,964)
------- --------
Deferred tax assets valuation allowance..................... 998 998
------- --------
Total net deferred tax liability............................ 7,518 3,721
Current portion included in prepaid expenses and other...... 2,857 6,721
------- --------
Long-term deferred tax liability............................ $10,375 $ 10,442
======= ========
</TABLE>
The deferred tax assets valuation allowance has been recorded to reflect
the potential non-realization of certain deductible temporary differences.
The effective tax rates differ from the U.S. Federal income tax rate for
the following reasons:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JUNE 27, JUNE 28,
JUNE 25, 1999 1998
2000 AS RESTATED AS RESTATED
-------- ----------- -----------
<S> <C> <C> <C>
Tax (benefit) at the U.S. statutory rate.................... $(1,788) $(2,253) $15,287
Non-deductible goodwill amortization........................ 1,098 1,144 1,156
State taxes................................................. (82) 162 526
Foreign sales corporation................................... (296) (354) (834)
Other....................................................... 549 -- 657
------- ------- -------
Provision (benefit) for income taxes........................ $ (519) $(1,301) $16,792
======= ======= =======
</TABLE>
NOTE 7 -- RETIREMENT PLANS
The Company offers substantially all of its employees a retirement savings
plan under Section 401(k) of the Internal Revenue Code. Each employee may elect
to enter a written salary deferral agreement under which a maximum of 15% of
their salary, subject to aggregate limits required under the Internal Revenue
Code, may be contributed to the plan. The Company will match a percentage of the
employee's contribution up to a specified maximum percentage of their salary. In
addition, the Company generally is required to make a mandatory contribution and
may make a discretionary contribution from profits.
During the fiscal years ended June 25, 2000, June 27, 1999 and June 28,
1998, the Company made contributions of approximately $4,118, $3,241 and $3,023,
respectively.
47
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
During fiscal 1999, the Company created a non-qualified deferred
compensation plan for certain executive employees. Each employee may elect to
enter a written salary deferral agreement under which a maximum of 15% of their
salary, less any amounts contributed under the 401(k) plan, may be contributed
to the plan. The Company will match a percentage of the employee's contribution
up to a specified maximum percentage of their salary. In addition, the Company
generally is required to make a mandatory retirement contribution.
In connection with the acquisition of ATT in fiscal 1998, the Company
assumed defined benefit plans for the international divisions. The following
sets forth reconciliations of the projected benefit obligations (PBO) of the
defined benefit plans:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------
JUNE 25, 2000 JUNE 27, 1999
------------- -------------
<S> <C> <C>
Beginning balance........................................... $22,703 $17,684
Service cost.............................................. 1,437 981
Interest cost............................................. 1,523 1,081
Actuarial loss (gain)..................................... (1,270) 3,741
Other..................................................... 605 154
Foreign currency translation.............................. (1,439) (938)
------- -------
Ending balance.............................................. $23,559 $22,703
======= =======
</TABLE>
The following sets forth the reconciliations of the fair value of plan
assets of the defined benefit plans:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------
JUNE 25, 2000 JUNE 27, 1999
------------- -------------
<S> <C> <C>
Beginning balance........................................... $22,076 $17,166
Return on plan assets..................................... 1,315 3,066
Employer contribution..................................... 701 770
Other..................................................... (106) 154
Foreign currency translation.............................. (920) 920
------- -------
Ending balance.............................................. $23,066 $22,076
======= =======
</TABLE>
The following sets forth the funded status of the defined benefit plans as
of:
<TABLE>
<CAPTION>
JUNE 25, 2000 JUNE 27, 1999
------------- -------------
<S> <C> <C>
Projected benefit obligation................................ $23,559 $22,703
Fair value of plan assets................................... 23,066 22,076
------- -------
Excess of projected benefit obligation over plan assets..... 493 627
Unrecognized net gain (loss)................................ 30 (116)
------- -------
Net pension liability....................................... $ 523 $ 511
======= =======
</TABLE>
The following sets forth the defined benefit pension plans' net periodic
pension cost:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------
JUNE 25, 2000 JUNE 27, 1999
------------- -------------
<S> <C> <C>
Service cost................................................ $ 1,437 $ 981
Interest cost............................................... 1,523 1,081
Expected return on plan assets.............................. (2,071) (1,906)
------- -------
Net periodic pension cost................................... $ 889 $ 156
======= =======
</TABLE>
48
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The weighted-average assumptions used to determine the PBO are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 25, 2000 JUNE 27, 1999
------------------ ------------------
<S> <C> <C>
Discount rate............................................... 6.75% 6.0%
Expected return on plan assets.............................. 8.5% 8.5%
Rate of compensation increase............................... 4.0% 4.0%
</TABLE>
NOTE 8 -- STOCK OPTION PLANS
The Company has three stock option plans: the 1994 Employee Stock Option
Plan (Employee Plan), the 1994 Directors Non-Qualified Stock Option Plan
(Directors Plan) and the 1996 Long-Term Incentive Plan (LTIP Plan).
The Employee Plan provides for the granting of options to the Company's
executive officers and key employees to purchase shares of common stock at
prices equal to the fair market value of the stock on the date of grant. Options
to purchase up to 900,000 shares of common stock may be granted under the
Employee Plan. Options outstanding at June 25, 2000 entitle the holders to
purchase common stock at prices ranging between $6.25 and $31.25. Options
outstanding become exercisable over five years from the date of grant. The right
to exercise the options expires ten years from the date of grant or earlier if
an option holder ceases to be employed by the Company.
The Directors Plan provides for the granting of options to the Company's
directors, who are not employees of the Company, to purchase shares of common
stock at prices equal to the fair market value of the stock on the date of
grant. Options to purchase up to 100,000 shares of common stock may be granted
under the Directors Plan. Options outstanding at June 25, 2000 entitle the
holders to purchase common stock at prices ranging between $5.75 and $30.25 per
share. Options outstanding become exercisable with respect to one-fourth of the
shares covered thereby on each anniversary of the date of grant, commencing on
the second anniversary of such date. All options granted under the Directors
Plan expire ten years from the date of grant or earlier if a director leaves the
board of directors of the Company.
The LTIP Plan provides for the granting of four types of awards on a stand
alone, combination, or a tandem basis, specifically, nonqualified stock options,
incentive stock options, restricted shares and performance stock awards. The
LTIP Plan provides for the granting of up to 600,000 shares of common stock,
provided that the total number of shares with respect to which awards are
granted in any one year may not exceed 100,000 shares to any individual
employee, and the total number of shares with respect to which grants of
restricted stock and performance stock awards are made in any year shall not
exceed 50,000 shares to any individual employee. Grants to date consist only of
non-qualified stock options entitling the holders to purchase common stock at
prices ranging between $6.25 and $37.50. The exercise price of such
non-qualified stock options is equal to the fair market value of the stock on
the date of the grant. Options outstanding become exercisable over five years
from the date of grant. The right to exercise the options expires ten years from
the date of grant or earlier if an option holder ceases to be employed by the
Company.
49
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of the status of the Company's stock option plans as of June 25,
2000, June 27, 1999 and June 28, 1998, and changes during the years then ended
are presented below:
<TABLE>
<CAPTION>
FISCAL 2000 FISCAL 1999 FISCAL 1998
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year......................... 1,011,938 $17.43 1,013,963 $20.47 939,650 $17.58
Granted........................ 449,000 7.83 252,250 15.93 236,500 29.72
Exercised...................... -- -- (8,875) 13.34 (74,887) 14.95
Forfeited...................... (132,425) 16.50 (245,400) 27.75 (87,300) 19.15
--------- --------- ---------
Outstanding at end of year..... 1,328,513 14.27 1,011,938 17.43 1,013,963 20.47
========= ========= =========
Exercisable at end of year..... 538,384 404,548 206,338
========= ========= =========
</TABLE>
The following table summarizes certain information for options currently
outstanding and exercisable at June 25, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5-14................................. 787,763 7 $10.36 312,184 $13.36
$15-19................................ 419,250 7 16.82 176,025 17.05
$20-30................................ 33,500 7 27.58 13,975 26.85
$31-38................................ 88,000 7 31.96 36,200 32.11
--------- -------
1,328,513 538,384
========= =======
</TABLE>
PRO FORMA DISCLOSURES
The Company applies APB 25 and related interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized
for the stock options because the options were granted with an exercise price
equal to the stock price on the date of grant. Had compensation costs for the
Company's stock option plans been determined based on the fair value of the
options on the grant dates consistent with the methodology prescribed by SFAS
123, the Company's net loss and diluted loss per common share would have changed
to the pro forma amounts indicated below. Due to the adoption of the methodology
prescribed by SFAS 123, the pro forma results shown below only reflect the
impact of stock option awards granted in fiscal 2000 and 1999. Because future
stock option awards may be granted, the pro forma impact for fiscal 2000 and
1999 is not necessarily indicative of the impact in future years.
<TABLE>
<CAPTION>
FISCAL
FISCAL 1999
2000 AS RESTATED
------ -----------
<S> <C> <C>
Net loss
As reported............................................... $(4,590) $(5,135)
Pro forma................................................. (5,356) (6,767)
Diluted loss per common share
As reported............................................... (0.45) (0.51)
Pro forma................................................. (0.53) (0.67)
</TABLE>
50
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The fair value of the options granted (which is amortized over the option
vesting period in determining the pro forma impact), is estimated on the date of
grant using the Black-Scholes multiple option-pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
FISCAL FISCAL
2000 1999
------ ------
<S> <C> <C>
Expected life of options.................................... 5 years 5 years
Risk-free interest rates.................................... 5.68 - 6.58% 4.54 - 5.27%
Expected volatility of stock................................ 54% 44%
Expected dividend yield..................................... 0.0% 0.4%
</TABLE>
The weighted average fair value of options granted during the years ended
June 25, 2000 and June 27, 1999 was $4.24 and $6.93 per share, respectively.
NOTE 9 -- LIQUIDITY AND CAPITAL RESOURCES
As indicated in Note 4, the Company's amended term loan and revolving
credit facilities mature on July 2, 2001 (during the first quarter of the fiscal
year ending June 30, 2002) and borrowings thereunder of approximately $119,188
are presented as long-term debt in the accompanying June 25, 2000 consolidated
balance sheet. However, given the July 2, 2001 maturity date, such borrowings
will be presented within current liabilities in the Company's September 24, 2000
consolidated balance sheet to be included in the Company's September 24, 2000
Form 10-Q.
The Company has initiated discussions with several lenders for purposes of
refinancing borrowings under its credit facilities, and expects to complete such
refinancing prior to July 2, 2001, although there can be no assurance that such
refinancing will be completed by this date. The Company has also implemented
other cash management initiatives for fiscal 2001, including a reduction in
discretionary capital expenditures, increased focus on collections of accounts
receivable, accelerated payment terms from customers, among other things. On a
longer term basis, the Company has engaged an investment banking firm to develop
a program for divestiture of one or more business units. This program was
initiated in the first quarter of fiscal 2001.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company leases land, buildings, machinery, equipment and furniture
under various noncancelable operating lease agreements. At June 25, 2000, future
minimum lease payments under noncancelable operating leases were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR:
------------
<S> <C>
2001.................................................. $ 7,901
2002.................................................. 7,001
2003.................................................. 6,221
2004.................................................. 3,614
2005.................................................. 2,744
2006 and thereafter................................... 13,049
-------
$40,530
=======
</TABLE>
Total lease expense under noncancelable operating leases was approximately
$7,247, $5,881 and $7,372 for the years ended June 25, 2000, June 27, 1999 and
June 28, 1998, respectively.
Following the Company's announcements regarding the restatements of
previously reported financial statements, the Company, its Kalish subsidiary and
certain of their officers have been named as defendants in at least three
complaints in purported class action lawsuits. The complaints received by the
Company allege that, among other things, as a result of accounting
irregularities, the Company's previously issued financial
51
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
statements were materially false and misleading and thus constituted violations
of federal securities laws by the Company and certain officers. The actions
allege that the defendants violated Section 10(b) and Section 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder (the
"Securities Actions"). The Securities Actions complaints seek damages in
unspecified amounts. These Securities Actions purport to be brought on behalf of
purchasers of the Company's Common Stock during various periods, all of which
fall between September 29, 1997 and August 23, 2000. The Company believes that
additional purported class action lawsuits similar to those described above may
be filed. The Company is currently evaluating these claims and possible defenses
thereto and intends to defend these suits vigorously.
While it is not feasible to predict or determine the final outcome of the
Securities Actions or similar proceedings, or to estimate the amounts or
potential range of loss with respect to these matters, management believes the
Company and its officers and directors have adequate liability insurance to
cover the liabilities, costs and expenses arising out of the Securities Actions,
although there can be no assurance that the insurance proceeds will be adequate
to cover any such losses. Further, there can be no assurance that an adverse
outcome with respect to the Securities Actions will not have a material adverse
impact on the Company's financial condition, results of operations or cash flow.
The Company is also a party to various claims and lawsuits arising in the
normal course of business. It is the opinion of management, after consultation
with legal counsel, that those claims and lawsuits, when resolved, will not have
a material adverse effect on the financial position, cash flows or results of
operations of the Company.
NOTE 11 -- DEPENDENCE ON SIGNIFICANT CUSTOMERS
Total net sales to a customer in the tire industry were $49,084 and total
net sales to a customer in the electronics industry were $47,568 in fiscal 2000.
No customers accounted for 10% or more of their respective total segment's
sales in fiscal 1999. Total net sales to a customer in the electronics industry
were $85,241 in fiscal 1998. Trade receivables recorded for significant
customers at June 25, 2000 were $2,139.
52
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12 -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
JUNE 27,
JUNE 25, 1999
2000 AS RESTATED
-------- -----------
<S> <C> <C>
ACCOUNTS RECEIVABLE
Trade receivables......................................... $ 62,173 $ 53,030
Less - allowance for doubtful accounts.................... 3,249 3,024
-------- --------
$ 58,924 $ 50,006
======== ========
INVENTORIES, NET
Raw materials............................................. $ 26,776 $ 21,835
Work in process........................................... 17,236 17,919
Finished goods............................................ 8,914 9,623
-------- --------
$ 52,926 $ 49,377
======== ========
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment................................... $ 73,062 $ 70,811
Buildings and improvements................................ 34,782 30,080
Land and improvements..................................... 6,770 6,924
Construction-in-progress.................................. 1,636 2,950
-------- --------
116,250 110,765
Less - accumulated depreciation........................... 43,032 33,363
-------- --------
$ 73,218 $ 77,402
======== ========
ACCRUED LIABILITIES
Accrued employee compensation and benefits................ $ 14,747 $ 12,291
Accrued warranty.......................................... 2,566 4,409
Dividends on convertible preferred securities............. 5,146 --
Other..................................................... 12,987 18,423
-------- --------
$ 35,446 $ 35,123
======== ========
</TABLE>
NOTE 13 -- EARNINGS (LOSS) PER SHARE OF COMMON STOCK
The following table represents reconciliations of income (loss) before
extraordinary loss and weighted average shares outstanding between basic and
diluted earnings (loss) per share for the years ended June 25, 2000, June 27,
1999 and June 28, 1998. The convertible preferred securities were antidilutive
for the years ended June 25, 2000 and June 27, 1999 and have been excluded from
the computation of diluted earnings per share (share data in thousands).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
---------------------------------------------------------------------------------
JUNE 27, 1999 JUNE 28, 1998
JUNE 25, 2000 AS RESTATED AS RESTATED
----------------------- ----------------------- -----------------------
LOSS BEFORE LOSS BEFORE INCOME BEFORE
EXTRAORDINARY EXTRAORDINARY EXTRAORDINARY
ITEMS SHARES ITEMS SHARES ITEMS SHARES
------------- ------ ------------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic......................... $(4,590) 10,107 $(5,135) 10,149 $26,885 11,297
Effect of dilutive securities:
Mandatorily redeemable
convertible preferred
securities............... 3,008 1,806
Stock options............... 394
Contingent issuable
shares................... 124
------- ------ ------- ------ ------- ------
Diluted....................... $(4,590) 10,107 $(5,135) 10,149 $29,893 13,621
======= ====== ======= ====== ======= ======
</TABLE>
53
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14 -- SPECIAL CHARGES
During the fourth quarter of fiscal 1999, the Company recorded $13,000 of
special charges. The special charges were comprised of a $9,800 charge to cost
of sales reflecting additional costs and provisions for estimated losses on
three large automation systems projects, a $2,500 restructuring charge described
below and a $700 charge to selling, general and administrative expenses for a
receivable currently being pursued in a legal action.
The restructuring charge of $2,500 comprised severance costs associated
with management changes and work force reductions, idle facility costs and
non-cash asset write-downs. The costs include the shut down of one packaging
manufacturing facility in July 1999. The restructuring reserve as of June 27,
1999 was fully utilized during the fiscal year ended June 25, 2000. The
breakdown of the restructuring reserve was as follows:
<TABLE>
<CAPTION>
BEGINNING CHARGES TO AS OF CHARGES TO AS OF
BALANCE RESERVE JUNE 27, 1999 RESERVE JUNE 25, 2000
--------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Severance costs........................ $1,749 $(256) $1,493 $(1,493) $--
Idle facility costs.................... 390 (126) 264 (264) --
Asset write-downs and other............ 361 -- 361 (361) --
------ ----- ------ ------- ---
$2,500 $(382) $2,118 $(2,118) $--
====== ===== ====== ======= ===
</TABLE>
NOTE 15 -- BUSINESS SEGMENTS
The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information", effective June 27, 1999. SFAS 131 requires disclosure of segment
information on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Accordingly,
segment information for fiscal 1998 has been restated to conform with the
requirements of SFAS 131.
The Company has two primary reportable segments: Automation and Packaging.
The operations of the Company's Automation segment design and build integrated
systems for the assembly, test and handling of discrete products. The Packaging
segment manufactures tablet processing, counting and liquid filling systems and
plastics processing equipment. The Company's reportable segments are
distinguished based on the nature of products manufactured and sold and types of
customers. The Company's other businesses produce custom and precision-stamped
steel and aluminum components through its stamping and fabrication operations.
The Company evaluates performance and allocates resources to reportable
segments primarily based on operating income. The accounting policies of the
reportable segments are the same as those described in the summary of
significant policies. Intersegment sales are not significant.
54
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Financial information for the Company's reportable segments consisted of
the following:
<TABLE>
<CAPTION>
FISCAL FISCAL 1999 FISCAL 1998
2000 AS RESTATED AS RESTATED
------ ----------- -----------
<S> <C> <C> <C>
NET SALES
Automation................................................ $302,788 $299,787 $355,052
Packaging................................................. 123,237 109,487 116,803
Other..................................................... 38,260 32,810 47,487
-------- -------- --------
Consolidated Total................................... $464,285 $442,084 $519,342
======== ======== ========
OPERATING INCOME
Automation................................................ $ 15,366 $ 5,573 $ 47,436
Packaging................................................. 526 8,400 13,412
Other..................................................... 3,207 1,765 3,391
Corporate................................................. (8,757) (9,420) (9,041)
-------- -------- --------
Consolidated Total................................... $ 10,342 $ 6,318 $ 55,198
======== ======== ========
ASSETS
Automation................................................ $306,434 $272,816 $299,423
Packaging................................................. 138,924 142,828 118,414
Other..................................................... 22,022 21,325 25,170
Corporate................................................. 13,690 16,296 8,693
-------- -------- --------
Consolidated Total................................... $481,070 $453,265 $451,700
======== ======== ========
CAPITAL EXPENDITURES
Automation................................................ $ 3,757 $ 3,889 $ 9,441
Packaging................................................. 2,056 9,327 3,313
Other..................................................... -- 1,624 3,459
Corporate................................................. 918 1,063 1,101
-------- -------- --------
Consolidated Total................................... $ 6,731 $ 15,903 $ 17,314
======== ======== ========
DEPRECIATION AND AMORTIZATION
Automation................................................ $ 9,181 $ 9,426 $ 8,714
Packaging................................................. 4,044 3,595 2,793
Other..................................................... 1,737 1,496 1,491
Corporate................................................. 1,498 947 752
-------- -------- --------
Consolidated Total................................... $ 16,460 $ 15,464 $ 13,750
======== ======== ========
</TABLE>
55
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The reconciliation of segment operating income to consolidated income
(loss) before income taxes and extraordinary loss consisted of the following:
<TABLE>
<CAPTION>
FISCAL FISCAL 1999 FISCAL 1998
2000 AS RESTATED AS RESTATED
------ ----------- -----------
<S> <C> <C> <C>
Automation.................................................. $ 15,366 $ 5,573 $47,436
Packaging................................................... 526 8,400 13,412
-------- ------- -------
Operating income for reportable segments.................. 15,892 13,973 60,848
Operating income for immaterial businesses.................. 3,207 1,765 3,391
Corporate................................................... (8,757) (9,420) (9,041)
Interest expense, net....................................... (10,305) (7,742) (6,509)
Dividends on Company-obligated, mandatorily redeemable
convertible preferred securities of subsidiary DT Capital
Trust holding solely convertible junior subordinated
debentures of the Company................................. (5,146) (5,012) (5,012)
-------- ------- -------
Consolidated income (loss) before income taxes and
extraordinary loss........................................ $ (5,109) $(6,436) $43,677
======== ======= =======
</TABLE>
Financial information related to the Company's operations by geographic
area consisted of the following:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
NET SALES
United States............................................. $334,099 $333,602 $357,146
International............................................. 130,186 108,482 162,196
-------- -------- --------
Consolidated Total..................................... $464,285 $442,084 $519,342
======== ======== ========
LONG-LIVED ASSETS
United States............................................. $ 62,284 $ 67,784 $ 59,027
International............................................. 10,934 9,618 10,156
-------- -------- --------
Consolidated Total..................................... $ 73,218 $ 77,402 $ 69,183
======== ======== ========
</TABLE>
Net sales are attributed to countries based on the shipping destination of
products sold. Long-lived assets consist of total property, plant and equipment,
net.
56
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 16 -- RESTATEMENT
As described in Note 1, the June 27, 1999, June 28, 1998 and June 29, 1997
financial statements have been restated. A comparison of previously reported and
restated financial statements follows:
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 27, JUNE 28, JUNE 29,
1999 JUNE 27, 1998 JUNE 28, 1997 JUNE 29,
AS PREVIOUSLY 1999 AS PREVIOUSLY 1998 AS PREVIOUSLY 1997
REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................ $ 10,487 $ 10,487 $ 6,915 $ 6,915 $ 2,821 $ 2,821
Accounts receivable, net............ 50,691 50,006 75,634 74,984 68,538 68,538
Costs and estimated earnings in
excess of amounts billed on
uncompleted contracts............. 64,894 65,806 66,910 67,469 51,643 51,643
Inventories, net.................... 56,876 49,377 48,755 41,193 42,198 40,428
Prepaid expenses and other.......... 12,320 16,070 8,931 8,282 7,051 7,051
-------- -------- -------- -------- -------- --------
Total current assets.............. 195,268 191,746 207,145 198,843 172,251 170,481
Property, plant and equipment, net.... 77,402 77,402 69,183 69,183 51,132 51,132
Goodwill, net......................... 180,066 180,066 177,578 177,578 168,401 168,401
Other assets, net..................... 4,051 4,051 6,096 6,096 3,412 3,412
-------- -------- -------- -------- -------- --------
$456,787 $453,265 $460,002 $451,700 $395,196 $393,426
======== ======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt... $ 384 $ 384 $ 55 $ 55 $ 1,527 $ 1,527
Accounts payable.................... 37,507 37,507 33,627 33,627 31,353 31,353
Customer advances................... 15,066 15,087 13,573 12,529 11,232 11,232
Billings in excess of costs and
estimated earnings on uncompleted
contracts......................... 6,837 6,837 8,218 8,218 7,172 7,172
Accrued liabilities................. 32,418 35,123 43,232 41,391 29,986 29,861
-------- -------- -------- -------- -------- --------
Total current liabilities......... 92,212 94,938 98,705 95,820 81,270 81,145
-------- -------- -------- -------- -------- --------
Long-term debt........................ 103,659 104,209 89,956 89,956 46,978 46,978
Deferred income taxes................. 8,376 10,442 7,827 7,827 6,435 6,435
Other long-term liabilities........... 3,400 3,400 3,455 3,455 5,246 5,246
-------- -------- -------- -------- -------- --------
115,435 118,051 101,238 101,238 58,659 58,659
-------- -------- -------- -------- -------- --------
Commitments and contingencies
Company-obligated, mandatorily
redeemable convertible preferred
securities of subsidiary DT Capital
Trust holding solely convertible
junior subordinated debentures of
the Company......................... 70,000 70,000 70,000 70,000 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 shares issued and
outstanding....................... 113 113 113 113 113 113
Additional paid-in capital.......... 133,348 133,348 134,608 134,608 133,370 133,370
Retained earnings................... 77,984 68,968 80,561 74,917 51,784 50,139
Cumulative translation adjustment... (1,527) (1,375) (778) (551) -- --
Less --
Treasury stock (1,268,488, 873,000
and 0 shares), at cost......... (30,778) (30,778) (24,445) (24,445) -- --
-------- -------- -------- -------- -------- --------
Total stockholders' equity........ 179,140 170,276 190,059 184,642 185,267 183,622
-------- -------- -------- -------- -------- --------
$456,787 $453,265 $460,002 $451,700 $395,196 $393,426
======== ======== ======== ======== ======== ========
</TABLE>
57
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1999 JUNE 27, 1998 JUNE 28, 1997 JUNE 29,
AS PREVIOUSLY 1999 AS PREVIOUSLY 1998 AS PREVIOUSLY 1997
REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 442,084 $ 442,084 $ 519,342 $ 519,342 $ 396,110 $ 396,110
Cost of sales........................... 348,487 352,526 380,126 387,515 285,044 287,150
---------- ---------- ---------- ---------- ---------- ----------
Gross profit............................ 93,597 89,558 139,216 131,827 111,066 108,960
Selling, general and administrative
expenses.............................. 80,740 80,740 75,246 75,246 54,367 54,367
Restructuring charge.................... 2,500 2,500 -- -- -- --
Loss on sale of assets of Knitting
Elements division..................... -- -- 1,383 1,383 -- --
---------- ---------- ---------- ---------- ---------- ----------
Operating income........................ 10,357 6,318 62,587 55,198 56,699 54,593
Interest expense, net................... 7,742 7,742 6,509 6,509 11,088 11,088
Dividends on Company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary DT
Capital Trust holding solely
convertible junior subordinated
debentures of the Company, at 7.16%
per annum............................. 5,012 5,012 5,012 5,012 251 251
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before provision for
income taxes and extraordinary loss... (2,397) (6,436) 51,066 43,677 45,360 43,254
Provision (benefit) for income taxes.... (634) (1,301) 20,182 16,792 18,979 18,518
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
loss.................................. (1,763) (5,135) 30,884 26,885 26,381 24,736
Extraordinary loss on debt refinancing,
net of income tax benefits of $800 and
$216, respectively.................... -- -- 1,200 1,200 324 324
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....................... $ (1,763) $ (5,135) $ 29,684 $ 25,685 $ 26,057 $ 24,412
========== ========== ========== ========== ========== ==========
Basic earnings per common share:
Income (loss) before extraordinary
loss................................ $ (0.17) $ (0.51) $ 2.73 $ 2.38 $ 2.55 $ 2.40
Extraordinary loss.................... -- -- 0.10 0.11 0.03 0.03
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)..................... $ (0.17) $ (0.51) $ 2.63 2.27 $ 2.52 $ 2.37
========== ========== ========== ========== ========== ==========
Diluted earnings per common share:
Income (loss) before extraordinary
loss................................ $ (0.17) $ (0.51) $ 2.49 $ 2.19 $ 2.41 $ 2.26
Extraordinary loss.................... -- -- 0.09 0.09 0.03 0.03
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)..................... $ (0.17) $ (0.51) $ 2.40 $ 2.10 $ 2.38 $ 2.23
========== ========== ========== ========== ========== ==========
Weighted average common shares
outstanding:
Basic................................. 10,149,215 10,149,215 11,297,409 11,297,409 10,349,444 10,349,444
Diluted............................... 10,181,800 10,149,215 13,621,481 13,621,481 11,022,080 11,022,080
========== ========== ========== ========== ========== ==========
</TABLE>
58
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 17 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
As described in Note 1, the unaudited quarterly information for the three
months ended September 26, 1999, December 26, 1999 and March 26, 2000 and for
the interim periods in the fiscal years ended June 27, 1999, June 28, 1998 and
June 29, 1997 have been restated.
Unaudited quarterly financial data for the fiscal years ended June 25,
2000, June 27, 1999, June 28, 1998 and June 29, 1997 are as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER
AS PREVIOUSLY 1ST QUARTER AS PREVIOUSLY 2ND QUARTER AS PREVIOUSLY 3RD QUARTER
REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED 4TH QUARTER
------------- ----------- ------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended June 25, 2000
--------------------------
Net sales................. $100,969 $101,129 $107,982 $107,982 $121,895 $121,995 $133,179
Cost of sales............. 78,086 81,078 82,835 85,588 93,263 95,958 111,467
Gross profit.............. 22,883 20,051 25,147 22,394 28,632 26,037 21,712
Operating income.......... 3,037 204 5,775 3,022 8,944 6,349 767
Net income (loss)......... (338) (2,137) 873 (887) 2,733 1,103 (2,669)
Diluted earnings (loss)
per share............... (0.03) (0.21) 0.09 (0.09) 0.27 0.11 (0.26)
</TABLE>
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
AS PREVIOUSLY 1ST QUARTER AS PREVIOUSLY 2ND QUARTER AS PREVIOUSLY 3RD QUARTER AS PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED REPORTED
------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended June 27, 1999
--------------------------
Net sales................. $112,907 $112,907 $111,627 $111,627 $104,097 $104,097 $113,453
Cost of sales............. 84,682 85,754 86,052 86,768 79,604 80,166 98,149
Gross profit.............. 28,225 27,153 25,575 24,859 24,493 23,931 15,304
Operating income (loss)... 9,444 8,372 5,051 4,334 3,777 3,214 (7,915)
Net income (loss)......... 3,785 3,121 1,092 647 492 143 (7,132)
Diluted earnings (loss)
per share............... 0.37 0.31 0.11 0.06 0.05 0.01 (0.70)
Year ended June 28, 1998
--------------------------
Net sales................. $115,764 $115,764 $132,431 $132,431 $132,561 $132,561 $138,586
Cost of sales............. 84,856 86,316 96,454 98,001 96,054 97,860 102,762
Gross profit.............. 30,908 29,448 35,977 34,430 36,507 34,701 35,824
Operating income.......... 13,819 12,359 16,848 15,301 15,544 15,015 16,376
Net income................ 5,335 4,430 8,228 7,269 7,714 6,594 8,407
Diluted earnings per
share................... 0.44 0.38 0.66 0.59 0.62 0.54 0.68
Year ended June 29, 1997
--------------------------
Net sales................. $ 82,635 $ 82,635 $100,693 $100,693 $103,359 $103,359 $109,423
Cost of sales............. 59,870 60,268 73,023 73,555 73,652 74,177 78,499
Gross profit.............. 22,765 22,367 27,670 27,138 29,707 29,182 30,924
Operating income.......... 11,177 10,780 13,908 13,377 14,952 14,429 16,662
Net income................ 4,549 4,301 6,038 5,708 7,216 6,891 8,254
Diluted earnings per
share................... 0.48 0.45 0.58 0.54 0.61 0.58 0.69
<CAPTION>
4TH QUARTER
AS RESTATED
-----------
<S> <C>
Year ended June 27, 1999
--------------------------
Net sales................. $113,453
Cost of sales............. 99,838
Gross profit.............. 13,615
Operating income (loss)... (9,602)
Net income (loss)......... (9,046)
Diluted earnings (loss)
per share............... (0.89)
Year ended June 28, 1998
--------------------------
Net sales................. $138,586
Cost of sales............. 105,338
Gross profit.............. 33,248
Operating income.......... 12,523
Net income................ 7,392
Diluted earnings per
share................... 0.59
Year ended June 29, 1997
--------------------------
Net sales................. $109,423
Cost of sales............. 79,150
Gross profit.............. 30,273
Operating income.......... 16,007
Net income................ 7,512
Diluted earnings per
share................... 0.66
</TABLE>
59
<PAGE> 62
NOTICE OF ANNUAL MEETING
The annual meeting of stockholders of DT Industries, Inc. will be held
Thursday, November 9, 2000, at 10:00 a.m., at the Sheraton Hotel, 2431 North
Glenstone Avenue, Springfield, Missouri 65803, (417) 831-3131.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, St. Louis, Missouri
LEGAL COUNSEL
Blackwell Sanders Peper Martin LLP, Kansas City, Missouri; Katten Muchin
Zavis, Chicago, Illinois
TRANSFER AND DIVIDEND DISBURSING AGENT
ChaseMellon Shareholder Services, L.L.C., 85 Challenger Road, Overpeck
Centre, Ridgefield Park, New Jersey 07660, (888) 213-0965
FORM 10-K
A copy of the annual report on Form 10-K for the year ended June 25, 2000,
as filed with the Securities and Exchange Commission, may be obtained by any
stockholder of the company at no charge upon request in writing to: Dennis S.
Dockins, DT Industries, Inc., Corporate Centre, Suite 2-300, 1949 E. Sunshine,
Springfield, Missouri 65804.
60
<PAGE> 63
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of the Registrant
effective November 13, 1998 (filed with the Commission as
Exhibit 3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 27, 1998 filed with the
Commission on February 10, 1999 and incorporated herein by
reference thereto)
3.3 Amended and Restated By-Laws of the Registrant (filed as
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 26, 1999 filed with the
Commission on February 9, 2000 and incorporated herein by
reference thereto)
4.1 Rights Agreement dated as of August 18, 1997 between DT
Industries, Inc. and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent (filed as Exhibit 1 to the Company's
Form 8-K dated August 18, 1997, filed with the Commission on
August 19, 1997 and incorporated herein by reference
thereto). The Rights Agreement includes as Exhibit A thereto
the Certificate of Designations, Preferences and Rights of
Series A Preferred Stock of DT Industries, Inc., as Exhibit
B thereto the Form of Rights Certificate and as Exhibit C
thereto the Summary of Rights to Purchase Series A Preferred
Stock
4.2 Amendment No. 1 to the Rights Agreement by and between DT
Industries, Inc. and ChaseMellon Shareholder Services,
L.L.C., dated as of November 5, 1998 (filed with the
Commission as Exhibit 10 to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 27, 1998, filed
with the Commission on February 10, 1999 and incorporated
hereby by reference thereto)
10.1* Purchase and Stockholder Agreement, dated September 30,
1993, by and between Detroit Tool and Engineering Company
and Stephen J. Gore (filed as Exhibit 10.1 to the 1994
Registration Statement and incorporated herein by reference
thereto)
10.2* Stock Pledge Agreement, dated September 30, 1993, by and
between Stephen J. Gore and Detroit Tool and Engineering
Company (filed as Exhibit 10.2 to the 1994 Registration
Statement and incorporated herein by reference thereto)
10.3* $84,600 Promissory Note, dated September 30, 1993, by
Stephen J. Gore to Detroit Tool and Engineering Company
(filed as Exhibit 10.3 to the 1994 Registration Statement
and incorporated herein by reference thereto)
10.4* Letter Agreement, dated September 30, 1993, by Stephen J.
Gore to Detroit Tool and Engineering Company (filed as
Exhibit 10.4 to the 1994 Registration Statement and
incorporated herein by reference thereto)
10.5* Employment Agreement, dated September 19, 1990, by and
between Detroit Tool Group, Inc. and Stephen J. Gore (filed
as Exhibit 10.5 to the 1994 Registration Statement and
incorporated herein by reference thereto)
10.6* Amendment to Promissory Note and Stock Pledge Agreement,
dated March 16, 1994, by and among DT Industries, Inc., Peer
Investors, L.P. and Stephen J. Gore (filed as Exhibit 10.6
to the 1994 Registration Statement and incorporated herein
by reference thereto)
10.7* DT Industries, Inc. Employee Stock Option Plan (filed as
Exhibit 10.21 to the 1994 Registration Statement and
incorporated herein by reference thereto)
10.8* DT Industries, Inc. 1994 Directors Non-Qualified Stock
Option Plan (filed as Exhibit 10.22 to the 1994 Registration
Statement and incorporated herein by reference thereto)
10.9 Agreement of Lease, dated April 30, 1997, between Teecan
Properties Inc. and Kalish Canada Inc. (filed as Exhibit
10.15 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 29, 1997 filed with the Commission on
September 29, 1997 (the "1997 10-K") and incorporated herein
by reference thereto)
</TABLE>
61
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.10* Purchase and Stockholder Agreement, dated November 30, 1993,
by and between Detroit Tool and Engineering Company and
Bruce P. Erdel (filed as Exhibit 10.55 to the Company's
Annual Report on Form 10-K for the fiscal year ended June
26, 1994 filed with the Commission on September 23, 1994
(the "1994 10-K") and incorporated herein by reference
thereto)
10.11* Stock Pledge Agreement, dated November 30, 1993, by and
between Bruce P. Erdel and Detroit Tool and Engineering
Company (filed as Exhibit No. 10.56 to the 1994 10-K and
incorporated herein by reference thereto)
10.12* $33,300 Promissory Note, dated November 30, 1993, by Bruce
P. Erdel to Detroit Tool and Engineering Company (filed as
Exhibit No. 10.57 to the 1994 10-K and incorporated herein
by reference thereto)
10.13* Letter Agreement, dated November 30, 1993, by and between
Bruce P. Erdel and Detroit Tool and Engineering Company
(filed as Exhibit No. 10.58 to the 1994 10-K and
incorporated herein by reference thereto)
10.14* Amendment to Promissory Note and Stock Pledge Agreement,
dated March 16, 1994, by and among DT Industries, Inc., Peer
Investors, L.P. and Bruce P. Erdel (filed as Exhibit No.
10.59 to the 1994 10-K and incorporated herein by reference
thereto)
10.15 Fourth Amended and Restated Credit Facilities Agreement,
dated July 21, 1997, among Bank of America, N.A., formerly
NationsBank, N.A. (successor by merger to The Boatmen's
National Bank of St. Louis), and any other persons who
become lenders as provided therein and DT Industries, Inc.
and the other borrowers listed on the signature pages
thereof (filed as Exhibit 10.31 to the 1997 10-K and
incorporated herein by reference thereto)
10.16 First Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of December 31, 1997, among
Bank of America, N.A., formerly NationsBank, N.A., as
Administrative Agent, and Bank of America, N.A. and the
other Lenders listed therein and DT Industries, Inc. and the
other Borrowers listed therein (filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 29, 1998 filed with the Commission on May 12,
1998 and incorporated herein by reference thereto)
10.17 Second Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of April 30, 1998, among Bank
of America, N.A., formerly NationsBank, N.A., as
Administrative Agent, and Bank of America, N.A. and the
other Lenders listed therein and DT Industries, Inc. and the
other Borrowers listed therein (filed as Exhibit 10.22 to
the Company's Annual Report on Form 10-K for the fiscal year
ended June 28, 1998 filed with the Commission on September
25, 1998 (the "1998 10-K") and incorporated herein by
reference thereto)
10.18 Third Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of August 26, 1998, among
Bank of America, N.A., formerly NationsBank, N.A., as
Administrative Agent, and Bank of America, N.A. and the
other Lenders listed therein and DT Industries, Inc. and the
other Borrowers listed therein (filed as Exhibit 10.23 to
the 1998 10-K and incorporated herein by reference thereto)
10.19 Fourth Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of September 24, 1999, among
Bank of America, N.A., formerly NationsBank, N.A., as
Administrative Agent, and Bank of America, N.A. and the
other Lenders listed therein and DT Industries, Inc., and
the other Borrowers listed therein (filed as Exhibit 10 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 26, 1999 filed with the Commission on
November 9, 1999 and incorporated herein by reference
thereto)
</TABLE>
62
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.20 Fifth Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of December 1, 1999, among
Bank of America, N.A., formerly NationsBank, N.A., as
Administrative Agent, and Bank of America, N.A. and the
other Lenders listed therein and DT Industries, Inc. and the
other Borrowers listed therein (filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 26, 1999 filed with the Commission on
February 9, 2000 and incorporated herein by reference
thereto)
10.21 Sixth Amendment to Fourth Amended and Restated Credit
Facilities Agreement, dated as of June 26, 2000, among Bank
of America, N.A., formerly NationsBank, N.A., as
Administrative Agent, and Bank of America, N.A. and the
other Lenders listed therein and DT Industries, Inc. and the
other Borrowers listed therein
10.22 Lease dated as of February 20, 1996 by and between CityWide
Development Corporation and Advanced Assembly Automation,
Inc. (filed as Exhibit 10 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 24, 1996 filed with
the Commission on May 3, 1996 and incorporated herein by
reference thereto)
10.23 Single-Tenant Industrial Business Lease dated July 19, 1996,
between American National Bank and Trust Company of Chicago,
as Trustee under Trust No. 63442, Landlord, and Mid-West
Automation Enterprises, Inc., an Illinois corporation and
Mid-West Automation Systems, Inc., an Illinois corporation,
collectively, Tenant (filed as Exhibit No. 10.58 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 filed with the Commission on September
30, 1996 (the "1996 10-K") and incorporated herein by
reference thereto)
10.24* DT Industries, Inc. Amendment to 1994 Employee Stock Option
Plan, adopted May 16, 1996 (filed as Exhibit 10.59 to the
1996 10-K and incorporated herein by reference thereto)
10.25* DT Industries, Inc. Second Amendment to 1994 Employee Stock
Option Plan, adopted September 18, 1996 (filed as Exhibit
10.60 to the 1996 10-K and incorporated herein by reference
thereto)
10.26* DT Industries, Inc. 1996 Long-Term Incentive Plan (filed as
Exhibit 10.61 to the 1996 10-K and incorporated herein by
reference thereto)
10.27* Employment and Noncompetition Agreement, dated August 28,
1995, between Kalish Canada Inc. and Graham Lewis (filed as
Exhibit No. 10.37 to the 1997 10-K and incorporated herein
by reference thereto)
10.28 Lease Agreement by and between Van Buren N. Hansford, Jr.,
the Stockholder and Landlord, and Hansford Manufacturing
Corporation, the Tenant, dated as of September 30, 1996
(filed as Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 29, 1996 filed
with the Commission on November 8, 1996 and incorporated
herein by reference thereto)
10.29 Amended and Restated Declaration of Trust of DT Capital
Trust dated as of June 1, 1997 among DT Industries, Inc., as
Sponsor, the Bank of New York, as Property Trustee, The Bank
of New York (Delaware), as Delaware Trustee, and Stephen J.
Gore, Bruce P. Erdel and Gregory D. Wilson, as Trustees
(filed as Exhibit 4.2 to the Company's Registration
Statement on Form S-3, Registration No. 333-30909, filed
with the Commission on July 8, 1997 (the "1997 Registration
Statement") and incorporated herein by reference thereto)
10.30 Indenture for the 7.16% Convertible Junior Subordinated
Deferrable Interest Debentures Due 2012 dated as of June 1,
1997 among DT Industries, Inc. and The Bank of New York, as
Trustee (filed as Exhibit 4.3 to the 1997 Registration
Statement and incorporated herein by reference thereto)
10.31 Preferred Securities Guarantee Agreement dated June 12, 1997
between DT Industries, Inc., as Guarantor, and The Bank of
New York, as Preferred Guarantee Trustee (filed as Exhibit
4.6 to the 1997 Registration Statement and incorporated
herein by reference thereto)
</TABLE>
63
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.32 Industrial Building Lease, dated July 1991, by and between
The Allen Group Inc. and Lucas Hartridge, Inc. (filed as
Exhibit 10.56 to the 1997 10-K and incorporated herein by
reference thereto)
10.33* DT Industries, Inc. Directors Deferred Compensation Plan
(filed as Exhibit 10.37 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 27, 1999 filed with
the Commission on September 27, 1999 and incorporated herein
by reference thereto)
10.34* DT Industries, Inc. Non-Qualified Deferred Compensation Plan
(filed as Exhibit 10.38 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 27, 1999 filed with
the Commission on September 27, 1999 and incorporated herein
by reference thereto)
10.35* First Amendment to DT Industries, Inc. Non-Qualified
Deferred Compensation Plan
10.36* Separation, Consulting, Non-Competition and Release
Agreement between John F. Logan and DT Industries, Inc.
dated as of December 31, 1999
21.0 Subsidiaries of the Registrant
23.0 Consent of PricewaterhouseCoopers LLP
24.0 Powers of Attorney
24.1 Substitute Power of Attorney
</TABLE>
-------------------------
* Management contract or compensatory plan or arrangement.
64
<PAGE> 67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DT INDUSTRIES, INC.
By: /s/ WAYNE W. SCHULTZ
------------------------------------
Wayne W. Schultz
Interim Senior Vice
President -- Finance
Dated: October 10, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on October 10, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
* Chairman of the Board and Interim Chief Executive
--------------------------------------------- Officer
James J. Kerley (Principal Executive Officer)
* President, Chief Operating Officer and Director
---------------------------------------------
Stephen J. Gore
/s/ WAYNE W. SCHULTZ Interim Senior Vice President -- Finance
--------------------------------------------- (Principal Financial and Accounting Officer)
Wayne W. Schultz
* Director
---------------------------------------------
William H.T. Bush
* Director
---------------------------------------------
Charles A. Dill
Director
---------------------------------------------
Graham L. Lewis
* Director
---------------------------------------------
Lee M. Liberman
* Director
---------------------------------------------
John F. Logan
* Director
---------------------------------------------
Charles Pollnow
*By: /s/ WAYNE W. SCHULTZ
---------------------------------------
Wayne W. Schultz
Attorney-In-Fact
</TABLE>
-------------------------
* Such signature has been affixed pursuant to the following Power of Attorney.
65
<PAGE> 68
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of DT Industries, Inc.
Our audits of the consolidated financial statements of DT Industries, Inc.
and its subsidiaries, referred to in our report dated October 4, 2000, except as
to Note 4 which is as of October 10, 2000, appearing in this Form 10-K, also
included an audit of the Financial Statement Schedule of DT Industries, Inc.
listed in item 14 of this Form 10-K. In our opinion, the Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
October 4, 2000, except for
Note 4 to the consolidated
financial statements which
is as of October 10, 2000
S-1
<PAGE> 69
DT INDUSTRIES, INC.
SCHEDULE VIII
RULE 12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G
-------- ---------- ---------- ---------- ---------- -------- -----------
BALANCE AT CHARGED TO CHARGED TO PURCHASE BALANCE AT
VALUATION AND BEGINNING COSTS AND OTHER OF NET END OF
RESERVE ACCOUNTS OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS ASSETS PERIOD
---------------- ---------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED JUNE 25, 2000
Deferred Tax Assets Valuation
Allowance........................ $ 998 $ 998
Accounts Receivable Reserve........ $3,024 $ 854 ($629) $3,249
FOR THE FISCAL YEAR ENDED JUNE 27, 1999
Deferred Tax Assets Valuation
Allowance........................ $ 998 $ 998
Accounts Receivable Reserve........ $2,142 $1,321 ($439) $3,024
FOR THE FISCAL YEAR ENDED JUNE 28, 1998
Deferred Tax Assets Valuation
Allowance........................ $1,029 ($ 31) $ 998
Accounts Receivable Reserve........ $1,849 $ 624 ($461) $130(1) $2,142
</TABLE>
(1) Reflects increase to Accounts Receivable Reserves due to acquisition of ATT
and decrease due to Knitting Elements sale.
S-2