UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 5, 2002
DT INDUSTRIES, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-23400 44-0537828
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(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.
907 W. FIFTH STREET, DAYTON, OH 45407
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (937) 586-5600
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ITEM 5. OTHER EVENTS AND REQUIRED FD DISCLOSURE.
As previously announced, the Company has reorganized its operations
from two business segments into four new business segments. The Company began
reporting financial results for its four new business segments in its Form 10-Q
for the fiscal quarter ended September 29, 2002. As required by Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information," consolidated financial statements issued
by the Company in the future will reflect modifications to its reportable
segments resulting from this organizational change, including reclassification
of all comparable prior period segment information. Accordingly, the Company's
audited consolidated financial statements for the fiscal years ended June 25,
2000, June 24, 2001 and June 30, 2002 and as of June 24, 2001 and June 30, 2002
included in this Form 8-K reflect in Notes 10 and 15 the required
reclassification resulting from the new basis of segment reporting.
The information included in this Form 8-K impacts only disclosures
related to segment results, and does not in any way restate or revise the
financial position, results of operations or cash flows in any of the Company's
previously reported consolidated financial statements.
2
DT INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of PricewaterhouseCoopers LLP, independent public
accountants............................................... 4
Consolidated Balance Sheets as of June 30, 2002 and June 24,
2001 (As Restated)........................................ 5
Consolidated Statement of Operations for the Fiscal Years
Ended June 30, 2002, June 24, 2001 (As Restated) and June
25, 2000 (As Restated).................................... 6
Consolidated Statement of Changes in Stockholders' Equity
for the Fiscal Years Ended June 30, 2002, June 24, 2001
(As Restated) and June 25, 2000 (As Restated)............. 7
Consolidated Statement of Cash Flows for the Fiscal Years
Ended June 30, 2002, June 24, 2001 (As Restated) and June
25, 2000 (As Restated).................................... 8
Notes to Consolidated Financial Statements.................. 9
3
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, changes in stockholders' equity and cash
flows, after the restatement described in Notes 1 and 16, present fairly, in all
material respects, the financial position of DT Industries, Inc. and its
subsidiaries at June 30, 2002 and June 24, 2001, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended June 30, 2002 in conformity with accounting principles generally accepted
in the United States of America. 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 of America 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 our opinion.
As described in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," effective June 25, 2001.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
August 22, 2002, except for Notes 10 and 15
which are as of December 4, 2002
CONSOLIDATED BALANCE SHEETS
JUNE 24,
2001
JUNE 30, AS RESTATED
2002 (NOTES 1 AND 16)
--------- -----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 18,847 $ 5,505
Accounts receivable, net.................................. 54,936 70,774
Costs and estimated earnings in excess of amounts billed
on uncompleted contracts............................... 29,288 85,805
Inventories, net.......................................... 26,777 40,865
Prepaid expenses and other................................ 8,809 14,665
-------- --------
Total current assets................................... 138,657 217,614
Property, plant and equipment, net.......................... 37,329 62,463
Goodwill, net............................................... 125,538 123,767
Other assets, net........................................... 6,886 6,830
-------- --------
$308,410 $410,674
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of other long-term debt................... $ 5,140 $ 651
Senior secured term and revolving credit facility......... 6,000 35,500
Accounts payable.......................................... 21,049 40,917
Customer advances......................................... 13,124 16,809
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 12,020 8,842
Accrued liabilities....................................... 29,595 37,143
-------- --------
Total current liabilities.............................. 86,928 139,862
-------- --------
Long-term debt.............................................. 45,381 96,571
Other long-term liabilities................................. 3,285 3,778
-------- --------
48,666 100,349
-------- --------
Commitments and contingencies (Note 9)
Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust
holding solely convertible junior subordinated debentures
of the Company............................................ 35,401 80,652
-------- --------
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; 23,647,932 and 10,337,274 shares
outstanding at June 30, 2002 and June 24, 2001,
respectively........................................... 246 113
Additional paid-in capital................................ 188,546 127,853
Accumulated deficit....................................... (25,922) (10,992)
Accumulated other comprehensive loss...................... (1,918) (2,058)
Unearned portion of restricted stock...................... (470) (661)
Less --
Treasury stock (988,488 and 1,038,488 shares at June
30, 2002 and June 24, 2001, respectively), at cost... (23,067) (24,444)
-------- --------
Total stockholders' equity............................. 137,415 89,811
-------- --------
$308,410 $410,674
======== ========
See accompanying Notes to Consolidated Financial Statements.
5
CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED
-------------------------------------------------
JUNE 24, JUNE 25,
2001 2000
JUNE 30, AS RESTATED AS RESTATED
2002 (NOTES 1 AND 16) (NOTES 1 AND 16)
----------- ---------------- ----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Net sales........................................ $ 326,276 $ 511,102 $ 464,285
Cost of sales.................................... 261,011 437,017 375,418
----------- ----------- -----------
Gross profit..................................... 65,265 74,085 88,867
Selling, general and administrative expenses..... 55,603 90,494 79,852
Goodwill impairment (Note 10).................... -- 38,219 --
Restructuring charge (Note 14)................... 10,332 3,694 --
Net loss on disposal of assets (Note 3).......... 1,128 8,473 --
----------- ----------- -----------
Operating income (loss).......................... (1,798) (66,795) 9,015
Interest expense, net............................ 12,198 14,891 10,305
Dividends on Company-obligated, mandatorily
redeemable convertible preferred securities of
subsidiary DT Capital Trust holding solely
convertible junior subordinated debentures of
the Company.................................... 4,834 5,506 5,146
----------- ----------- -----------
Loss before benefit for income taxes............. (18,830) (87,192) (6,436)
Benefit for income taxes......................... (3,900) (14,120) (983)
----------- ----------- -----------
Net loss......................................... $ (14,930) $ (73,072) $ (5,453)
Gain on conversion of trust preferred securities,
net of tax..................................... 16,587 -- --
----------- ----------- -----------
Income (loss) available to common stockholders... $ 1,657 $ (73,072) $ (5,453)
=========== =========== ===========
Income (loss) available to common stockholders
per common share:
Basic.......................................... $ 0.15 $ (7.18) $ (0.54)
Diluted........................................ $ 0.15 $ (7.18) $ (0.54)
=========== =========== ===========
Weighted average common shares outstanding:
Basic.......................................... 10,733,249 10,172,811 10,107,274
Diluted........................................ 10,750,743 10,172,811 10,107,274
See accompanying Notes to Consolidated Financial Statements.
6
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
RETAINED ACCUMULATED UNEARNED
EARNINGS/ OTHER ADDITIONAL PORTION OF TOTAL
(ACCUMULATED COMPREHENSIVE COMMON PAID-IN TREASURY RESTRICTED STOCKHOLDERS'
DEFICIT) LOSS STOCK CAPITAL STOCK STOCK EQUITY
------------ ------------- ------ ---------- -------- ---------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
BALANCE, JUNE 27, 1999 -- AS
RESTATED (NOTES 1 AND 16)... $ 67,533 $(1,375) $113 $133,348 $(30,778) $ -- $168,841
Comprehensive loss:
Net loss.................... (5,453)
Foreign currency
translation............... (603)
Total comprehensive
loss.................... (6,056)
-------- ------- ---- -------- -------- ----- --------
BALANCE, JUNE 25, 2000 -- AS
RESTATED (NOTES 1 AND 16)... 62,080 (1,978) 113 133,348 (30,778) -- 162,785
-------- ------- ---- -------- -------- ----- --------
Comprehensive loss:
Net loss.................... (73,072)
Foreign currency
translation............... (80)
Total comprehensive
loss.................... (73,152)
Issuance of 230,000 shares of
restricted stock to
executive management........ (5,567) 6,334 (767) --
Amortization of earned portion
of restricted stock......... 106 106
Payment on stock subscriptions
receivable.................. 72 72
-------- ------- ---- -------- -------- ----- --------
BALANCE, JUNE 24, 2001 -- AS
RESTATED (NOTES 1 AND 16)... (10,992) (2,058) 113 127,853 (24,444) (661) 89,811
-------- ------- ---- -------- -------- ----- --------
Comprehensive loss:
Net loss.................... (14,930)
Foreign currency
translation............... 140
Total comprehensive
loss.................... (14,790)
Gain on conversion of trust
preferred securities, net of
tax......................... 16,587 16,587
Issuance of 50,000 shares of
restricted stock to
executive management........ (1,064) 1,377 (313) --
Amortization of earned portion
of restricted stock......... 504 504
Issuance of 7,000,000 shares
of common stock at $3.20 per
share in offering, net of
transaction fees............ 70 21,128 21,198
Issuance of 6,260,658 shares
of common stock in exchange
for trust preferred
securities and distributions
thereon, net of transaction
fees........................ 63 24,007 24,070
Payments on stock
subscriptions receivable.... 35 35
-------- ------- ---- -------- -------- ----- --------
BALANCE, JUNE 30, 2002........ $(25,922) $(1,918) $246 $188,546 $(23,067) $(470) $137,415
======== ======= ==== ======== ======== ===== ========
See accompanying Notes to Consolidated Financial Statements.
7
CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED
----------------------------------------------
JUNE 24, 2001 JUNE 25, 2000
JUNE 30, AS RESTATED AS RESTATED
2002 (NOTES 1 AND 16) (NOTES 1 AND 16)
-------- ---------------- ----------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(14,930) $(73,072) $ (5,453)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation............................................ 6,466 9,240 10,300
Amortization............................................ 3,339 7,163 6,160
Deferred income tax provision........................... (579) (14,045) 4,092
Goodwill impairment (Note 10)........................... -- 38,219 --
Net loss on disposal of assets (Note 3)................. 1,128 8,473 --
Other asset write-downs................................. 2,940 1,457 --
Deferral of dividends on convertible trust preferred
securities............................................ 4,834 5,506 5,146
(Increase) decrease in current assets, excluding the
effect of acquisitions/dispositions:
Accounts receivable..................................... 10,431 13,391 (8,918)
Costs and estimated earnings in excess of amounts billed
on uncompleted contracts.............................. 57,116 (20,274) (27,792)
Inventories............................................. 8,167 10,310 (1,705)
Prepaid expenses and other.............................. 1,684 7,549 (1,573)
Increase (decrease) in current liabilities, excluding the
effect of acquisitions/dispositions:
Accounts payable........................................ (15,990) (6,272) 9,682
Customer advances....................................... (3,606) 2,836 (341)
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. 2,579 1,309 696
Accrued liabilities and other........................... (8,155) (403) (4,624)
-------- -------- --------
Net cash provided by (used in) operating
activities....................................... 55,424 (8,613) (14,330)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (2,923) (3,178) (6,731)
Acquisition of C.E. King net assets..................... -- (2,116)
Proceeds from the disposal of assets (Note 3)........... 24,465 2,049 --
Other................................................... -- (7) (620)
-------- -------- --------
Net cash provided by (used in) investing
activities....................................... 21,542 (1,136) (9,467)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayments of) revolving loans..... (75,257) 10,494 26,083
Payments on borrowings.................................. (4,403) (1,661) (489)
Financing costs......................................... (5,932) (1,547) (1,296)
Net proceeds from equity transactions................... 21,233 72 --
-------- -------- --------
Net cash provided by (used in) financing
activities....................................... (64,359) 7,358 24,298
-------- -------- --------
Effect of exchange rate changes............................. 735 (809) (2,283)
-------- -------- --------
Net increase (decrease) in cash............................. 13,342 (3,200) (1,782)
Cash and cash equivalents at beginning of period............ 5,505 8,705 10,487
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 18,847 $ 5,505 $ 8,705
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest................................................ $ 8,981 $ 12,515 $ 9,809
Income taxes............................................ $ (2,430) $ (1,737) $ (423)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
The Company purchased C. E. King in fiscal 2000.
FISCAL YEAR ENDED
----------------------------------------------
JUNE 30, JUNE 24, JUNE 25,
2002 2001 2000
-------- ---------------- ----------------
Fair value of assets acquired............................... -- -- $ 1,856
Fair value assigned to goodwill............................. -- -- 915
Cash paid................................................... -- -- (2,116)
------- ------- -------
Liabilities assumed......................................... -- -- $ 655
======= ======= =======
See Note 1 for discussion of the financial recapitalization transaction that
occurred in June 2002 wherein certain of the outstanding TIDES and all accrued
and unpaid distributions were exchanged for common shares of the Company.
See accompanying Notes to Consolidated Financial Statements.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- BUSINESS
DT Industries, Inc. (DTI or the Company) 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.
Through fiscal 2002, the Company marketed 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.
Recent Restatement of Historical Financial Results
As publicly announced on August 6, 2002 (prior to the public announcement
of our consolidated financial results for the fiscal year ended June 30, 2002),
we discovered that we were required to make accounting adjustments to our
previously reported audited consolidated financial results for the fiscal years
ended June 24, 2001, June 25, 2000 and June 27, 1999, as well as our previously
reported unaudited consolidated financial results for the first three fiscal
quarters of 2002, due to an overstatement of the balance sheet account entitled
costs and estimated earnings in excess of amounts billed on uncompleted
contracts ("CIE"). The CIE balance is comprised of estimated gross margins
recognized to date plus actual work-in-process costs incurred to date less
billings/deposits to date. The overstatement of CIE occurred at our Assembly
Machines, Inc. ("AMI") subsidiary, a small facility located in Erie,
Pennsylvania that has historically been part of our Automation segment. This CIE
overstatement resulted in a corresponding understatement of cost of sales
because CIE represents project costs that have been expended, but are still
available to be billed; therefore, the overstatement in CIE included available
to bill amounts that should have been expensed to cost of sales in prior
periods. The cumulative amount of the accounting adjustments increased the
aggregate pre-tax loss reported during the impacted periods by $6.5 million and
increased the aggregate net loss after taxes reported during the impacted
periods by $4.2 million. Our restated audited consolidated financial statements
as of, and for the fiscal year ended, June 24, 2001 and our restated audited
consolidated statement of operations, changes in stockholders' equity and cash
flows for the year ended June 25, 2000 are included on pages F-3 through F-6 and
Note 16 to the audited consolidated financial statements included herein.
Restated selected consolidated financial data for those two fiscal years, as
well as the fiscal year ended June 27, 1999, is included under "Item 6. Selected
Financial Data." Restated unaudited consolidated quarterly financial data for
the fiscal years ended June 30, 2002 and June 24, 2001 is included in Note 17 to
the audited consolidated financial statements included herein.
The Company discovered the accounting adjustments while beginning the
transfer of the sales and accounting functions at AMI to our DT Precision
Assembly segment headquarters in Buffalo Grove, Illinois in connection with the
reorganization of the Company's operations described in Note 15. The Board of
Directors authorized the Audit and Finance Committee to conduct an independent
investigation, with the assistance of special counsel retained by the Committee,
to identify the causes of these accounting adjustments. The Committee retained
Katten Muchin Zavis Rosenman ("KMZR") as special counsel, and KMZR 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 investigations, the Company believes that the accounting
issues were confined to AMI and determined that the misstatement of the CIE
account at AMI was primarily the result of the former controller of AMI, without
instruction from, or the knowledge of, Company management, (1) failing to
properly account for manufacturing variances, (2) adding inappropriate costs to
work-in-process amounts, (3) understating amounts billed and/or customer
deposits and (4) failing to recognize certain losses, in each case on various
projects during the relevant time period. Using these miscalculations of CIE,
the former AMI controller made incorrect journal entries that were recorded in
the books and records of AMI.
Recapitalization
On June 20, 2002, the Company consummated a major financial
recapitalization transaction comprised of an amendment to its senior credit
facility (the "Bank Amendment"), a restructuring of its TIDES
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
securities (the "TIDES Exchange") and the sale of 7.0 million shares of its
common stock for $3.20 per share in a private placement (the "Private
Placement"). Each component of the financial recapitalization is described
below.
Bank Amendment
Pursuant to the Bank Amendment:
- the Company's lenders permanently waived previous financial covenant
defaults resulting from its financial performance in fiscal 2002;
- the maturity date of the Company's senior credit facility was extended
from July 2, 2002 to July 2, 2004;
- the total commitment under the facility was reduced to $76.4 million,
comprised of a $70.0 million revolver and a $6.4 million term loan;
- a monthly asset coverage test (65% of eligible accounts and 25% of
eligible inventory) was established for all revolver advances in excess
of $53.0 million;
- the interest rate was reset at the Eurodollar Rate plus 4% or the Prime
Rate plus 3.5% for all revolver advances up to $53.0 million and the
Prime Rate plus 4% for all revolver advances in excess of $53.0 million;
and
- $1,500 quarterly pro rata reductions of the revolving loan commitment and
term loan are required during fiscal 2003.
See Note 4 for additional information on the Bank Amendment.
TIDES Exchange
As part of the financial recapitalization, the Company consummated the
TIDES Exchange, whereby:
- the TIDES holders exchanged $35.0 million of outstanding TIDES and $15.1
million of accrued and unpaid distribution thereon into 6,260,658 shares
of common stock of the Company at a price of $8.00 per share;
- the maturity date of the remaining $35.0 million of TIDES was shortened
from May 31, 2012 to May 31, 2008;
- the conversion price of the remaining TIDES was reduced from $38.75 per
share to $14.00 per share;
- the TIDES holders agreed to a "distribution holiday" pursuant to which
distributions on the remaining TIDES will not accrue from April 1, 2002
through July 2, 2004; and
- provided that the Company make the first distribution payment following
the "distribution holiday," it will have the right from time to time to
defer distributions on the TIDES through their maturity in 2008.
See Note 5 for additional information on the TIDES Exchange.
Private Placement
On June 20, 2002, the Company consummated the Private Placement to several
stockholders of 7.0 million shares of its common stock at $3.20 per share. The
Company used the proceeds of this offering to repay indebtedness of
approximately $18.5 million under the Company's senior credit facility and to
pay transaction expenses of approximately $3.9 million.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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, judgments and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of net sales and
expenses during the reporting period. Actual amounts could differ from these
estimates.
During fiscal 2002, the Company changed its policy regarding the
classification of unpaid progress billings on the balance sheet. Under the new
policy, unpaid progress billings are now included in accounts receivable but
were previously included in costs and estimated earnings in excess of amounts
billed on uncompleted contracts on the balance sheet. As a result of this change
in policy, a reclassification of $25,859 was made to the June 24, 2001 balance
sheet that increased accounts receivable and decreased costs and estimated
earnings in excess of amounts billed on uncompleted contracts. Certain other
reclassifications have been made to prior year financial statements for
comparative purposes. These reclassifications had no effect on net losses.
The significant accounting policies followed by the Company are described
below.
Revenue Recognition
Almost all of the Company's net sales are derived from the sale and
installation of equipment and systems primarily under fixed-price contracts. The
Company also derives net sales from the sale of spare and replacement parts and
servicing installed equipment and systems. The Company recognizes revenue under
the percentage of completion method or upon delivery and acceptance in
accordance with SAB 101.
The Company principally utilizes the percentage of completion method of
accounting to recognize revenues and related costs for the sale and installation
of equipment and systems pursuant to customer contracts. These contracts are
typically engineering-driven design and build contracts of automated production
equipment and systems used to manufacture, test or package a variety of
industrial and consumer products. These contracts are generally for large dollar
amounts and require a significant amount of labor hours with durations ranging
from three months to over a year. Under the percentage of completion method,
revenues and related costs are measured based on the ratio of engineering and
manufacturing hours incurred to date compared to total estimated engineering and
manufacturing labor hours. Any revisions in the estimated total costs of the
contracts during the course of the work are reflected when the facts that
require the revisions become known.
For those contracts accounted for in accordance with SAB 101, revenue is
recognized upon shipment (FOB shipping point). The Company utilizes this method
of revenue recognition for products produced in a standard manufacturing
operation whereby the product is built according to pre-existing bills of
materials, with some customisation occurring. These contracts are typically of
shorter duration (one to three months) and have smaller contract values. The
revenue recognition for these products follows the terms of the contracts, which
calls for transfer of title at time of shipment after factory acceptance tests
with the customer. If installation of the products is included in the contracts,
revenue for the installation portion of the contract is recognized when
installation is complete.
Costs and related expenses to manufacture products, primarily labor,
materials and overhead, 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.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of revenues by fiscal year recognized under the two methods of
accounting is as follows:
FISCAL YEAR ENDED
----------------------------------------------
JUNE 30, 2002 JUNE 24, 2001 JUNE 25, 2000
------------- ------------- --------------
Percentage of completion....................... $223,650 $374,167 $306,716
Delivery and acceptance under SAB 101.......... 102,626 136,935 157,569
-------- -------- --------
Total..................................... $326,276 $511,102 $464,285
======== ======== ========
Progress billings and cash deposits received from customers on contracts in
process recognized under percentage of completion accounting method are
reflected as costs and estimated earnings in excess of amounts billed on
uncompleted contracts or billings in excess of costs and estimated earnings on
uncompleted contracts in the consolidated balance sheet. Progress billings and
cash deposits received from customers on contracts in process recognized upon
delivery and acceptance are reflected as customer advances in the consolidated
balance sheet. Costs and estimated earnings in excess of amounts billed on
uncompleted contracts represent costs and earnings recognized in excess of
customer advances billed or collected. Billings in excess of costs and estimated
earnings on uncompleted contracts represent customer advances received in excess
of costs incurred and earnings recognized. See Note 12 for additional
information.
Capitalization of Certain Engineering Costs
The Company capitalizes the initial engineering costs on multiple systems
orders and amortizes these costs to systems in backlog concurrent with
recognition of revenue on such systems. The Company did not capitalize any
engineering costs in fiscal 2002. During fiscal 2001, the Company capitalized
approximately $2,400 of initial engineering costs of which approximately $1,300
remained unamortized as of June 24, 2001. The remaining $1,300 was amortized
during fiscal 2002.
Warranty Accrual
The Company routinely incurs warranty cost after projects are installed and
closed. The Company records these costs as warranty charges and are included in
cost of sales. Warranty costs are estimated at the time a project is closed
based on the Company's historical warranty experience and consideration of any
known warranty issues.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Foreign Currency Translation
The accounts of the Company's foreign subsidiaries are maintained in their
respective local currencies. The accompanying consolidated financial statements
have been translated and adjusted to reflect U.S. dollars on the basis presented
below.
Assets and liabilities are translated into U.S. dollars at year-end
exchange rates. Income and expense items are translated at average rates of
exchange prevailing during the year. Adjustments resulting from the process of
translating the consolidated amounts into U.S. dollars are accumulated in a
separate translation adjustment account, included in stockholders' equity.
Common stock and additional paid-in capital are translated at historical U.S.
dollar equivalents in effect at the date of acquisition. Foreign currency
transaction
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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. As of June 30, 2002,
the Company had $5,493 of cash received upon the sale of the Hyannis,
Massachusetts facility that was restricted for the prepayment of the Sencorp
Industrial Revenue Bonds that were paid in full in August 2002. See Note 4 for
additional information.
Concentrations of Credit Risk and Allowance for Doubtful Accounts
The Company sells its production equipment and systems to a range of
manufacturing companies. However, historically the Company's top five customers
have accounted for at least 25% of the Company's consolidated net sales. 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 monitors its exposure at each
balance sheet date and adjusts the allowance account for amounts estimated to be
uncollectible. The Company maintains a specific policy for its allowance for
doubtful accounts as it relates to significantly past due receivables and
requires amounts to be reserved for unless certain indicators from the customer
exist that indicate future payments will be made. At June 30, 2002, the Company
had trade receivables from a significant Automation segment customer of $19,262,
most of which was collected subsequent to year-end.
Inventories
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. Obsolescence is determined by analyzing historical and
forecasted future usage and/or inventory aging. Inventory that has not had
activity during the past year is fully reserved. The portion of the reserve
related to excess inventory is determined by analyzing historical and forecasted
usage against the amount of inventory on hand.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are 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 expensed as
incurred. Expenditures that 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 and Intangible Assets
In June 2001, the Financial Accounting Standards Board (FASB) approved
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 142 addresses the financial accounting and
reporting for goodwill and other intangible assets subsequent to their initial
recognition. Among the new requirements of SFAS 142 are:
- Goodwill and indefinite-lived intangible assets will no longer be
amortized;
- Goodwill and indefinite-lived intangible assets will be tested for
impairment at the reporting unit level annually;
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- The amortization period of intangible assets that have finite lives will
no longer be limited to 40 years; and
- Additional financial statement disclosures about goodwill and intangible
assets will be required.
SFAS 142 is effective for fiscal years beginning after December 15, 2001,
however, early adoption was permitted in certain instances. In the first quarter
of fiscal 2002, the Company elected to early-adopt the provisions of SFAS 142.
Discontinuance of goodwill amortization reduced pre-tax amortization expense by
$5,287 in fiscal 2002. The carrying value of goodwill will continue to be
assessed for recoverability by management at least on an annual basis. See Note
10 for additional information.
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 $3,445, $2,785 and $4,907 in fiscal 2002, 2001 and 2000,
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 30, 2002, based
on terms currently available to the Company in financial markets.
Income Taxes
The Company files a consolidated federal income tax return which includes
its domestic subsidiaries. The Company has adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under
SFAS 109, the current or 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.
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
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the disclosure of the components of comprehensive
income or loss in the financial statements. The components of comprehensive
income (loss) included in the Company's financial statements are net loss and
foreign currency translation, which are disclosed in the consolidated statement
of changes in stockholders' equity.
Fiscal Year
The Company uses a 52-53 week fiscal year that ends on the last Sunday in
June.
Accounting Pronouncements
Asset Retirement Obligations
In June 2001, the FASB approved Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This statement applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset. This statement is
effective for the Company in fiscal 2003. The Company does not expect this
statement to have a material impact on its financial position or results of
operation.
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued Statement of Financial Account Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). SFAS 144 addresses financial accounting and reporting for the impairment
or disposal of long-lived assets and supercedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The objective of FAS 144 is to establish one
accounting model for long-lived assets to be disposed of by sale. The provisions
of this statement are effective for the Company in fiscal 2003. The Company does
not expect this statement to have a material impact on its financial position or
results of operations.
Rescission of Prior Statements
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002" (SFAS 145). SFAS
145 rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and an amendment of that statement, FASB Statement No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
for Motor Carriers." This statement amends FASB Statement No. 13, "Accounting
for Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
similar to sale-leaseback transactions. The provisions of this statement are
effective for the Company in fiscal 2003. The Company does not expect this
statement to have a material impact on its financial position or result of
operations.
Costs Associated with Exit or Disposal Activities
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(SFAS 146). SFAS 146 addresses financial accounting and reporting costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The principal difference between this
statement and Issue 94-3 relates to its requirements for recognition of a
liability for a cost associated with an exit or disposal activity. This
statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. Under Issue
94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at
the date of an entity's commitment to an exit plan. A fundamental conclusion
reached by the Board in this statement is that an entity's commitment to a plan,
by itself, does not create a present obligation to others that meets the
definition of a liability. Therefore, this statement eliminates the definition
and requirements for recognition of exit costs in Issue 94-3. The provisions of
this statement are effective for exit or disposal activities that are initiated
after December 31, 2002, at which date the Company will adopt such provisions.
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS
Acquisitions
In July 1999, the Company acquired C.E. King for a net cash purchase price
of $2,116. This acquisition was 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 C.E. King have been
included in the Company's consolidated financial statements from the date of
acquisition. The purchase price of the 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 recorded as goodwill.
Dispositions
The following table summarizes certain information regarding the Company's
disposal of assets during the past three fiscal years:
NET CASH GAIN OR (LOSS)
DATE OF SALE BUSINESS OR ASSET PROCEEDS ON DISPOSAL
------------ -------------------------------------------------- -------- -----------------
SALES OCCURRING DURING FISCAL YEAR ENDED JUNE 24, 2001
January 2001... Corporate airplane $ 1,465 $ 640
March 2001..... Vanguard Technical Solutions, Inc. (Vanguard) 523 (1,249)
SALES OCCURRING DURING FISCAL YEAR ENDED JUNE 30, 2002
June 2001...... Detroit Tool Metal Products Co. (DTMP) $14,250 $(1,618)
July 2001...... Scheu & Kniss (S&K) 3,939 (6,200)
October 2001... Hansford Parts and Products (HPP) 622 --
June 2002...... Hyannis, Massachusetts facility 5,524 (1,128)
The losses on the sale of DTMP and S&K are reflected in the net loss on
disposal of assets line on the consolidated statement of operations for the
fiscal year ended June 24, 2001. Included in current assets,
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
property plant and equipment, and current liabilities as of June 24, 2001 were
$11,585, $13,224 and $6,596, respectively, of the amounts disposed of subsequent
to fiscal 2001 year end related to the sale of DTMP and S&K.
The net sales and operating loss of HPP in fiscal 2002 were $792 and $129,
respectively. The combined net sales and operating profit of Vanguard, DTMP, S&K
and HPP in fiscal 2001 were $46,335 and $1,124, respectively.
In the fourth quarter of fiscal 2002, the Company entered into a
sale/leaseback agreement for the Hyannis, Massachusetts facility and recorded a
net loss on disposal of the assets of $1,128. In conjunction with the agreement,
the Company removed the facility, which had a carrying value of $6,502 at June
30, 2002, from the accounting records and recorded the cash proceeds of
approximately $5,493. Using the cash proceeds, on August 1, 2002, the Company
prepaid the Industrial Revenue Bonds of $5,000 that were issued in 1998 to fund
the expansion of the facility. See Note 4 for additional information. The
Company will have lease expense, on a go-foward basis, of approximately $800
annually.
NOTE 4 -- FINANCING
Long-term debt consisted of the following at the end of the last two fiscal
years:
JUNE 30, JUNE 24,
2002 2001
-------- --------
Term and revolving loans under senior credit facility:
Term loan................................................. $ 6,441 $ 9,888
Revolving loans........................................... 44,846 115,255
Foreign currency denominated revolving credit facilities.... -- 1,459
Other long-term debt........................................ 5,234 6,120
------- --------
56,521 132,722
Less -- current portion of senior credit facility........... 6,000 35,500
Less -- current portions of other long-term debt............ 5,140 651
------- --------
$45,381 $ 96,571
======= ========
On June 20, 2002, the Company extended the senior credit facility, which
was scheduled to mature on July 2, 2002, through an amendment to the term and
revolving loan agreement. The amended agreement calls for periodic reductions in
both its revolving credit facility and term commitments. Significant terms of
the amended agreement are:
- Extended the maturity of the agreement to July 2, 2004;
- Waived certain existing defaults of covenants through the end of June
2002, and established new financial covenants through the end of June
2004;
- Requires $1,500 quarterly scheduled commitment reductions beginning
September 30, 2002, prorated between the term and revolving loan
commitments through June 2004;
- The total commitment of the term loan remained at $6,441 and the revolver
was reduced to $70,000 from $83,700;
- Requires all advances under the revolver and letters of credit issued in
excess of $53,000 (priority advances) to be subject to a monthly asset
coverage test comprised of 65% of eligible accounts receivable and 25% of
eligible inventory. Eligible accounts receivable exclude amounts over 90
days past invoice date, progress billings, foreign receivables of
domestic subsidiaries (unless covered by a letter of credit or the debtor
maintains a credit rating of BBB+, determined by Standard & Poor's
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Rating Service or Baa2, determined by Moody's Investors Service),
receivables of foreign subsidiaries and receivables subject to any
security interest. Eligible inventory excludes inventory not located in
the United States, work-in-process, excess and obsolete inventory
reserves, and inventory subject to any security interest. At June 30,
2002, the asset coverage was sufficient to have the full $17,000 of
priority advances available and there were no priority advances
outstanding;
- Established floating interest rates for the credit facility based on
Prime Rate plus 3.5% or Eurodollar rate plus 4.0% for all revolver
advances up to $53,000 and Prime Rate plus 4.0% for all priority advances
in excess of $53,000; and
- The credit facility allows for issuance of letters of credit subject to
the overall commitment level and restricts payment of dividends.
At June 30, 2002, interest rates on outstanding indebtedness under the
revolving credit facility ranged from 7.94% to 8.25%. Through December 31, 2001,
borrowings were based on Prime Rate plus 3% for domestic borrowings or the
Eurodollar rate plus 6% on foreign currency borrowings. After December 31, 2001
and through June 20, 2002, the Prime Rate increment increased to 3.5% and the
Eurodollar rate increment increased to 6.5%. Subsequent to June 20, 2002,
pursuant to the amended loan agreement, the interest rates were as stated above.
The amended facility requires commitment fees of 0.50% per annum payable
quarterly on any unused portion of the revolving credit facility, an annual
agency fee of $150, a 1% amendment fee paid June 20, 2002, and a 1% annual
facility fee. The annual facility fee will be forgiven if the debt is paid in
full and the credit facility is cancelled before the annual due dates. Total
borrowing availability under the credit facility, as of June 30, 2002, was
$22,800. Borrowings under the credit facility are secured by substantially all
of the assets of DTI and its domestic subsidiaries.
On July 27, 1998, the Company's wholly-owned subsidiary, Sencorp Systems,
Inc., participated in the issuance of $7,000 of Massachusetts Industrial Finance
Agency Multi-Mode Industrial Development Revenue Bonds 1998 Series A (Bonds) to
fund the expansion of the Company's facility in Hyannis, Massachusetts. The
Bonds were scheduled to mature July 1, 2023. On June 26, 2002, the Company
completed a sale/leaseback of the facility in Hyannis and notified the bond
trustee of its intent to prepay the outstanding balance of $5,000 on August 1,
2002. On August 1, 2002, the Bonds were fully paid and retired.
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 several
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 Convertible Preferred Securities
represent undivided beneficial ownership interests in the Trust. The sole assets
of the Trust are the 7.16% Convertible Junior Subordinated Deferrable Interest
Debentures Due 2012 (Junior Debentures) issued by the Company that were acquired
with the proceeds from the offering as well as the sale of common securities of
the Trust 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, irrevocable and unconditional guarantee by
DTI of amounts due on the Convertible Preferred Securities. As originally
structured, the Convertible Preferred Securities were 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 were mandatorily redeemable in 2012.
The Convertible Preferred Securities are redeemable at the Company's option
after June 1, 2000.
On June 20, 2002, the Company completed a financial recapitalization
transaction pursuant to which, among other things, in the TIDES Exchange the
holders of the Convertible Preferred Securities agreed to
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
restructure the Convertible Preferred Securities (and the Junior Debentures of
the Company held by the Trust) such that, among other things, $35,000 of the
outstanding Convertible Preferred Securities plus approximately $15,085 in
accrued and unpaid distributions on the Convertible Preferred Securities were
exchanged for 6,260,658 shares of common stock. The conversion price of the
remaining $35,000 outstanding Convertible Preferred Securities (and the Junior
Debentures of the Company held by the Trust) was lowered to $14.00 per share,
the distributions on the Convertible Preferred Securities do not accrue from
April 1, 2002 until July 2, 2004, and the maturity date of the Convertible
Preferred Securities was accelerated to May 31, 2008. Dividend expense of $1,604
annually on the remaining Convertible Preferred Securities will be recorded
reflecting an approximate effective yield of 4.6% over the life of the remaining
Convertible Preferred Securities.
As a result of the TIDES Exchange, the Company recorded a gain on
conversion of the trust preferred securities of $16,587, net of tax of $8,787,
in June 2002. The shares were valued for book and tax purposes based on the
market price of the Company's common stock on the closing date of the TIDES
Exchange. The gain on conversion of the trust preferred securities was recorded
directly to equity and has been reflected on the consolidated statement of
operations below net loss to arrive at income available to common stockholders
in fiscal 2002.
NOTE 6 -- INCOME TAXES
Loss before benefit for income taxes was taxed under the following
jurisdictions:
FISCAL YEAR ENDED
------------------------------------
JUNE 24, JUNE 25,
JUNE 30, 2001 2000
2002 AS RESTATED AS RESTATED
-------- ----------- -----------
Domestic.................................................... $ (8,146) $(73,803) $ 89
Foreign..................................................... (10,684) (13,389) (6,525)
-------- -------- -------
$(18,830) $(87,192) $(6,436)
======== ======== =======
The benefit for income taxes charged to operations was as follows:
FISCAL YEAR ENDED
------------------------------------
JUNE 24, JUNE 25,
JUNE 30, 2001 2000
2002 AS RESTATED AS RESTATED
-------- ----------- -----------
Current
U. S. Federal............................................. $(10,380) $ (237) $(2,632)
State..................................................... 1,148 (296) (436)
Foreign................................................... -- (473) (2,007)
-------- -------- -------
Total current.......................................... (9,232) (1,006) (5,075)
-------- -------- -------
Deferred
U. S. Federal............................................. 5,050 (8,584) 3,687
State..................................................... 282 (1,273) 311
Foreign................................................... -- (3,257) 94
-------- -------- -------
Total deferred......................................... 5,332 (13,114) 4,092
-------- -------- -------
Total benefit............................................. $ (3,900) $(14,120) $ (983)
======== ======== =======
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Deferred tax assets (liabilities) are comprised of the following:
JUNE 24,
JUNE 30, 2001
2002 AS RESTATED
-------- -----------
DEFERRED TAX ASSETS
Net operating loss (NOL) carryforwards.................... $12,839 $12,792
Project and inventory reserves............................ 3,407 6,242
Bad debt reserves......................................... 824 2,967
Goodwill and intangibles amortization/impairment.......... -- 2,183
Other accruals............................................ 5,461 5,428
Other..................................................... 1,665 501
------- -------
Total deferred tax assets................................... 24,196 30,113
DEFERRED TAX LIABILITIES
Depreciation.............................................. $(2,519) $(5,181)
Earnings recognized under percentage of completion........ (3,081) (3,776)
Goodwill and intangibles amortization/impairment.......... (637) --
Other..................................................... (2,257) (583)
------- -------
Total deferred tax liabilities.............................. (8,494) (9,540)
------- -------
Deferred tax assets valuation allowance..................... (13,816) (8,846)
------- -------
Total net deferred tax assets............................... 1,886 11,727
Current portion included in prepaid expenses and other...... 1,886 7,915
------- -------
Long-term portion included in other assets, net and deferred
income taxes, respectively................................ $ -- $ 3,812
======= =======
The deferred tax assets valuation allowance has been recorded to reflect
the potential non-realization of primarily NOL carryforwards in Canada and
deductible temporary differences in Canada. The remaining deferred tax assets
relating to domestic companies are more likely than not to be realized.
At June 30, 2002 the Company had available domestic NOL carryforwards for
income tax reporting purposes of approximately $3,900, which will begin to
expire in 2021. Additionally, at June 30, 2002 the Company had Canadian NOL
carryforwards of approximately $15,067.
Kalish, Inc., a wholly-owned Canadian subsidiary of the Company, agreed to
an assessment by the Canadian Customs and Revenue Agency for its tax years 1996
through 2001. The additional taxable income agreed to in the assessment was
offset by NOL carryforwards and credits that would have otherwise been included
in the deferred tax asset valuation allowance. As the majority of the assessment
relates to transfer pricing adjustments, the Company has submitted a Competent
Authority request pursuant to the United States-Canada Income Tax Treaty to
reflect the results of the Canadian audit in the Company's United States income
tax returns for the same periods. While the final outcome of these proceedings
cannot be predicted, the Company believes it is adequately reserved for this
matter.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The effective tax rates differ from the U.S. Federal income tax rate for
the following reasons:
FISCAL YEAR ENDED
------------------------------------
JUNE 24, JUNE 25,
JUNE 30, 2001 2000
2002 AS RESTATED AS RESTATED
-------- ----------- -----------
Benefit at the U.S. statutory rate.......................... $(6,591) $(30,517) $(2,253)
Deferred tax assets valuation allowance..................... 4,970 7,848 --
Non-deductible goodwill amortization/impairment............. -- 9,881 1,098
State taxes................................................. (700) (1,100) (82)
Canadian loss deduction..................................... (1,645) -- --
Foreign sales corporation................................... -- -- (296)
Other....................................................... 66 (232) 550
------- -------- -------
Benefit for income taxes.................................... $(3,900) $(14,120) $ (983)
======= ======== =======
The above income tax disclosures exclude the effect of the gain on
conversion of preferred securities as described in Note 5.
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 17% 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 30, 2002, June 24, 2001 and June 25, 2000, the Company made
contributions of approximately $3,549, $4,557 and $4,118, respectively.
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 17% 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 Assembly Technology and Test, Ltd. 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:
FISCAL YEAR ENDED
-------------------
JUNE 30, JUNE 24,
2002 2001
-------- --------
Beginning balance........................................... $24,525 $23,559
Service cost.............................................. 1,186 1,175
Interest cost............................................. 1,720 1,525
Actuarial loss (gain)..................................... 183 (28)
Other..................................................... 602 (265)
Foreign currency translation.............................. 2,402 (1,441)
------- -------
Ending balance.............................................. $30,618 $24,525
======= =======
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Included in the Other line item above for fiscal year 2002 were $1,614 of
curtailments, ($610) of settlements, ($395) of benefits paid, $228 of employee
contributions and ($235) of expenses.
The following sets forth the reconciliations of the fair value of plan
assets of the defined benefit plans:
FISCAL YEAR ENDED
-------------------
JUNE 30, JUNE 24,
2002 2001
-------- --------
Beginning balance........................................... $23,170 $23,066
Return on plan assets..................................... (2,508) 1,186
Employer contributions.................................... 901 648
Other..................................................... (1,007) (263)
Foreign currency translation.............................. 1,791 (1,467)
------- -------
Ending balance.............................................. $22,347 $23,170
======= =======
Included in the Other line item above for fiscal year 2002 were settlements
of ($610), benefits paid of ($390), employee contributions of $228 and expenses
of ($235).
The following sets forth the funded status of the defined benefit plans as
of the end of the last two fiscal years:
JUNE 30, JUNE 24,
2002 2001
-------- --------
Projected benefit obligation................................ $30,618 $24,525
Fair value of plan assets................................... 22,347 23,170
------- -------
Excess of projected benefit obligation over plan assets..... 8,271 1,355
Unrecognized loss........................................... (7,607) (827)
------- -------
Net pension liability....................................... $ 664 $ 528
======= =======
The following sets forth the defined benefit pension plans' net periodic
pension cost:
FISCAL YEAR ENDED
------------------------------
JUNE 30, JUNE 24, JUNE 25,
2002 2001 2000
-------- -------- --------
Service cost................................................ $ 1,186 $ 1,175 $ 1,437
Interest cost............................................... 1,720 1,525 1,523
Expected return on plan assets.............................. (2,031) (2,167) (2,071)
Other....................................................... 2,184 -- --
------- ------- -------
Net periodic pension cost................................... $ 3,059 $ 533 $ 889
======= ======= =======
Included in the Other line item above for fiscal year 2002 were $1,614 of
curtailments, $195 of settlements and $375 of unrecognized loss.
The weighted-average assumptions used to determine the PBO are as follows:
FISCAL YEAR ENDED
-------------------
JUNE 30, JUNE 24,
2002 2001
-------- --------
Discount rate............................................... 6.0% 6.75%
Expected return on plan assets.............................. 8.5% 8.5%
Rate of compensation increase............................... 3.5% 4.0%
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Effective December 31, 2001, the Company cancelled all of its domestic post
retirement medical and life insurance benefit plans. As a result of the
cancellation, the Company reversed its post retirement benefit obligation
resulting in income of $1,325 in fiscal year 2002.
NOTE 8 -- STOCK COMPENSATION PLANS
The Company has three stock incentive 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 30, 2002 entitle the holders to
purchase common stock at prices ranging between $3.40 and $31.25 per share.
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 30, 2002 entitle the
holders to purchase common stock at prices ranging between $4.19 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 the following four types of
awards on a stand alone, combination, or a tandem basis: 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. Grants to date consist of restricted shares and non-qualified
stock options entitling the holders to purchase common stock at prices ranging
between $4.19 and $37.50 per share. 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.
During fiscal 2002, the Company issued 50,000 shares of restricted common
stock of the Company with four-year vesting periods under the LTIP Plan. Upon
issuance of the restricted shares, unearned compensation expense equivalent to
the market value at the date of grant was charged to Stockholders' Equity and
will be amortized to expense over the vesting period. The lapsing of
restrictions on these shares will be accelerated in certain circumstances, one
of which is a change in control of the Company.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of the status of the Company's stock incentive plans as of June
30, 2002, June 24, 2001 and June 25, 2000, and changes during the years then
ended are presented below:
FISCAL 2002 FISCAL 2001 FISCAL 2000
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
Outstanding at beginning of
year......................... 1,129,138 $13.95 1,328,513 $14.27 1,011,938 $17.43
Granted........................ 125,500 $ 6.21 72,000 $ 4.39 449,000 $ 7.83
Exercised...................... -- -- -- -- -- --
Forfeited...................... (246,871) $13.61 (271,375) $12.49 (132,425) $16.50
--------- --------- ---------
Outstanding at end of year..... 1,007,767 $13.14 1,129,138 $13.95 1,328,513 $14.27
========= ========= =========
Exercisable at end of year..... 697,617 706,450 538,384
========= ========= =========
The following table summarizes certain information for options currently
outstanding and exercisable at June 30, 2002:
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ----------- -------- ----------- --------
$3-14................................... 658,855 6 $ 9.46 382,205 $11.59
$15-19.................................. 271,212 4 $16.92 242,712 $17.02
$20-30.................................. 21,500 5 $27.06 18,600 $26.90
$31-38.................................. 56,200 5 $32.36 54,100 $32.41
--------- -------
1,007,767 697,617
========= =======
Pro Forma Disclosures
The Company applies APB 25 and related interpretations in accounting for
its stock incentive plans. Accordingly, no compensation cost has been recognized
for the stock options granted under these plans 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 incentive 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 income (loss) available to
common stockholders and income (loss) available to common stockholders per
diluted share would have been the pro forma amounts indicated below. Because
future stock option awards may be granted, the pro forma impacts shown below are
not necessarily indicative of the impact in future years.
FISCAL FISCAL 2001 FISCAL 2000
2002 AS RESTATED AS RESTATED
------ ----------- -----------
Income (loss) available to common stockholders... As reported $1,657 $(73,072) $(5,453)
Pro forma $1,309 $(73,639) $(6,219)
Income (loss) available to common stockholders
per diluted share.............................. As reported $ 0.15 $ (7.18) $ (0.54)
Pro forma $ 0.12 $ (7.24) $ (0.62)
24
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:
FISCAL FISCAL FISCAL
2002 2001 2000
------- ------- -------
Expected life of options.................................... 5 years 5 years 5 years
Risk-free interest rate..................................... 4.37% 5.22% 6.21%
Expected volatility of stock................................ 73% 69% 54%
Expected dividend yield..................................... 0.0% 0.0% 0.0%
The weighted average fair value of options granted during the years ended
June 30, 2002, June 24, 2001 and June 25, 2000 was $3.91, $2.63 and $4.24 per
share, respectively.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
The Company leases land, buildings, machinery, equipment and furniture
under various noncancelable operating lease agreements. At June 30, 2002, future
minimum lease payments under noncancelable operating leases were as follows:
FISCAL YEAR:
------------
2003........................................................ $ 6,726
2004........................................................ 4,255
2005........................................................ 2,720
2006........................................................ 2,552
2007........................................................ 2,446
2008 and thereafter......................................... 9,378
-------
$28,077
=======
Total lease expense under noncancelable operating leases was approximately
$6,227, $7,133 and $7,247 for the years ended June 30, 2002, June 24, 2001 and
June 25, 2000, respectively. Commitments under capital leases are not
significant to the consolidated financial statements.
Following the Company's announcements in August and September 2000 of the
restatements of previously reported financial statements, DTI, its Kalish
subsidiary and certain of directors and officers were named as defendants in
five complaints in putative class action lawsuits. During fiscal 2001, these
actions were consolidated into a single class action styled In re DT Industries,
Inc. Securities Litigation and an amended complaint was filed (the "Securities
Action") adding the Company's Sencorp subsidiary and certain additional officers
and directors as defendants. As of the end of fiscal 2002, the Securities Action
was pending in the United States District Court for the Western District of
Missouri (the "Court"). The Consolidated Amended Complaint asserted causes of
action under Section 10(b), and Rule 10b-5 promulgated thereunder, and Section
20(a) of the Securities Exchange Act of 1934, and alleged, among other things,
that the accounting adjustments caused our previously issued financial
statements to be materially false and misleading. The Consolidated Amended
Complaint also sought damages in an unspecified amount and was purported to be
brought on behalf of purchasers of our common stock during various periods, all
of which fall between September 29, 1997 and August 23, 2000.
On October 4, 2001, the Court granted our motion to dismiss the Securities
Action, without prejudice. Pursuant to the Court's dismissal order, all
defendants were dismissed, but the plaintiffs were granted the right to amend
their complaint. The plaintiffs filed their Second Amended Consolidated Class
Action Complaint on
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
January 25, 2002 (the "Second Complaint"), thereby reviving the Securities
Action. On March 11, 2002, DTI and the other defendants filed a motion to
dismiss the Second Complaint.
The Court granted our motion to dismiss the Second Complaint, with
prejudice, on July 16, 2002. Pursuant to the Court's dismissal order, all
defendants were dismissed and a judgment was entered in favor of the defendants.
The plaintiffs did not appeal the Court's decision, so the Court's dismissal
order is final and non-appealable, and the plaintiffs can neither further amend
their complaint nor submit a new complaint in connection with the
above-referenced restatements.
The staff of the Securities and Exchange Commission (the "Commission") is
conducting an investigation of the accounting practices at the Company's Kalish
and Sencorp subsidiaries that led to the restatements of its consolidated
financial statements for fiscal years 1997, 1998 and 1999 and the first three
quarters of fiscal 2000, as well as the issues at AMI that led to the accounting
adjustments to the Company's previously reported audited consolidated financial
results for the fiscal years ended June 24, 2001, June 25, 2000 and June 27,
1999, as well as its previously reported unaudited consolidated financial
results for the first three fiscal quarters of 2002. The Company is cooperating
fully with the Commission in connection with its investigation and cannot
currently predict the duration or outcome of the investigation.
In November 1998, pursuant to the agreement by which the Company acquired
Kalish, Mr. Graham L. Lewis, a former executive officer and director of DTI,
received an additional payment based on Kalish's earnings for each of the three
years after the closing. As a result of the prior restatement due to accounting
practices at Kalish, the Company believes that the additional payment should not
have been made. During fiscal 2001, the Company commenced legal action against
Mr. Lewis in Superior Court, Civil Division in Montreal, Quebec to recover this
payment and certain bonuses paid to Mr. Lewis. Mr. Lewis has counter-sued for
wrongful termination and is seeking to recover monetary damages, including
severance, loss of future income, emotional distress and harm to reputation,
equal to $2.8 million Canadian dollars. There has been no discovery in these
actions. Management believes that the Company's suit against Mr. Lewis has
merit. Management further believes that Mr. Lewis' counter-suit is without
merit. The Company intends to pursue vigorously its claims against Mr. Lewis and
defend against his counter-suit.
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 its products. At June 30, 2002, there are currently 10 such
claims either pending or that may be asserted against the Company. The Company
does not believe that the resolution of these claims, either individually or in
the aggregate, will have a material adverse effect on its 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 these 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 involving employee, commercial,
general liability and similar claims, that are incidental to the ordinary course
of its business. There are no such material claims currently pending. The
Company maintains comprehensive general liability insurance that it believes to
be adequate for the continued operation of our business.
NOTE 10 -- GOODWILL AND INTANGIBLE ASSETS
SFAS 142, as explained in Note 1, is effective for fiscal years beginning
after December 15, 2001. However, early adoption was permitted in certain
instances. In the first quarter of fiscal 2002, the Company elected to
early-adopt the provisions of SFAS 142. Discontinuance of goodwill amortization
reduced pre-tax
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
amortization expense by $5,287 in fiscal 2002. The carrying value of goodwill
will continue to be assessed for recoverability by management at least on an
annual basis.
The changes in the carrying amount of goodwill for fiscal year 2002 were as
follows:
MATERIAL PRECISION PACKAGING ASSEMBLY &
PROCESSING ASSEMBLY SYSTEMS TEST
GOODWILL SEGMENT SEGMENT SEGMENT SEGMENT TOTAL
------- ------- ------- ------- -----
Balance as of June 24, 2001 $ 12,578 $ 47,912 $ 28,309 $ 34,968 $ 123,767
Foreign currency translation -- -- 1,314 457 1,771
------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 2002 $ 12,578 $ 47,912 $ 29,623 $ 35,425 $ 125,538
==================================================================================================================
At June 30, 2002, the Company had one amortized intangible asset. This
asset is unpatented technology and the gross carrying amount and accumulated
amortization at June 30, 2002 were $576 and $308, respectively.
The amortization expense related to the intangible asset was $116 for the
fiscal year ended June 30, 2002 and June 24, 2001. Amortization expense is
expected to be $116 for each of the fiscal years through 2004 and $44 for fiscal
2005. The gross carrying amount, accumulated amortization and amortization
expense will vary depending on the prevailing foreign currency exchange rate.
Previous to the adoption of SFAS 142, the excess of the purchase price over
the fair value of net assets acquired in business combinations (goodwill) was
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
24, 2001 and June 25, 2000 was approximately $5,296 and $5,230, respectively.
Accumulated amortization at June 30, 2002 and June 24, 2001 was approximately
$28,372. A reconciliation of reported income (loss) available to common
stockholders and income (loss) available to common stockholders per share to the
amounts adjusted for the exclusion of goodwill amortization for the last three
completed fiscal years is as follows:
FISCAL YEAR ENDED
------------------------------------
JUNE 24, JUNE 25,
JUNE 30, 2001 2000
2002 AS RESTATED AS RESTATED
-------- ----------- -----------
Reported income (loss) available to common stockholders..... $1,657 $(73,072) $(5,453)
Add back: Goodwill amortization (net of tax)................ -- 4,701 4,731
------ -------- -------
Adjusted income (loss) available to common stockholders..... $1,657 $(68,371) $ (722)
====== ======== =======
DILUTED LOSS PER SHARE:
Reported income (loss) available to common stockholders..... $ 0.15 $ (7.18) $ (0.54)
Add back: Goodwill amortization (net of tax)................ -- 0.46 0.47
------ -------- -------
Adjusted income (loss) available to common stockholders..... $ 0.15 $ (6.72) $ (0.07)
====== ======== =======
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's reporting units, according to SFAS 142. The
Company's reporting units represent the various components of the Company's
segments for which discrete financial information is available and management
regularly reviews the results. All goodwill has been assigned to reporting
units. Each year the Company generates operating forecasts at the reporting unit
level, upon which the future expected cash flows are based. Under SFAS 142, the
impairment analysis is a two-step process whereby, in the first step, the fair
value of the Company's reporting units (as estimated using discounted future
cash flows) is compared to the respective carrying value of the reporting unit
as an indication of whether impairment exists. If the carrying value exceeds the
fair value, a second step is required whereby the fair value of the reporting
unit is allocated to all of the assets and liabilities of the reporting unit
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
resulting in an implied fair value of goodwill that is then compared to the
carrying value of goodwill. During the fiscal year ended June 30, 2002,
management determined that the goodwill recorded had not been impaired. The
Company calculated the present value of expected cash flows to determine the
fair value of the reporting units using a discount rate of 10%, which represents
the weighted average cost of capital.
Upon adoption of SFAS 142 in the first quarter of fiscal 2002, the Company
completed the transitional goodwill impairment analysis and found there to be no
impairment. The transitional impairment test followed the same guidelines as the
annual impairment test discussed above.
During the fourth quarter of fiscal 2001, management determined that an
assessment of the recoverability of goodwill by division was necessary. The
decision was based on a continuing decline in the operating results of certain
divisions and management assumptions regarding future performance based on the
overall economic recession and an evaluation of the organizational and
operational structure of the Company. The assessment was performed at the
divisional level as the divisions maintain distinctively identifiable goodwill
and represent the lowest level of identifiable cash flows. The Company
determined that goodwill recorded for certain divisions had been impaired and
recorded an impairment charge of $38,219 in accordance with SFAS 121. The fair
value of the goodwill was based on discounted expected future cash flows of the
related division, except as described below regarding the Stokes division.
The components of the fiscal 2001 goodwill write-off were as follows:
Material Processing segment
Sencorp (Hyannis, Massachusetts) $ 10,730
Stokes (Bristol, Pennsylvania) 5,943
--------
16,673
Precision Assembly segment
Mid-West (Buffalo Grove, Illinois) 10,000
Packaging Systems segment
Kalish (Montreal, Quebec) 7,353
Assembly & Test segment
Hansford (Rochester, New York) 4,193
--------
$ 38,219
========
Each of these components relates to assets to be held and used, other than
the Stokes portion, which at the time of the analysis was under a letter of
intent to be sold. The value stated in the letter of intent was used as the fair
market value for purposes of determining goodwill impairment for the Stokes
division. The proposed sale of Stokes was ultimately terminated and it is
currently being rationalized into our Hyannis, Massachusetts operation. The
total fiscal 2001 impairment charge related to the Stokes division was $9,249 of
which $5,943 was for goodwill impairment, $2,738 was for excess and obsolete
inventory and $568 was for other asset write downs. The goodwill impairment is
included in the goodwill impairment charge separately disclosed on the statement
of operations, the excess and obsolete inventory charge is included in cost of
sales and the other asset write-downs are included in selling, general and
administrative expenses. During fiscal 2001, prior to the charges discussed
above, the Stokes division had revenues of $6,707 and an operating loss of
$1,238. At June 24, 2001, the carrying value of the net assets of Stokes was
approximately $3,693. The net loss on the disposal of Scheu & Kniss recorded in
fiscal 2001, as discussed in Note 3, included a full impairment of the related
goodwill of $5,018.
NOTE 11 -- DEPENDENCE ON SIGNIFICANT CUSTOMERS
Total net sales to a customer in the electronics industry were $99,578,
$141,884 and $47,568 in fiscal 2002, 2001, and 2000 respectively. Total net
sales to a customer in the tire industry were $38,690 and $49,084 in fiscal 2001
and 2000, respectively.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Trade receivables recorded for the significant customer in the electronics
industry at June 30, 2002 were $19,262, most of which was collected subsequent
to year-end.
NOTE 12 -- SUPPLEMENTAL BALANCE SHEET INFORMATION
JUNE 24,
JUNE 30, 2001
2002 AS RESTATED
-------- -----------
ACCOUNTS RECEIVABLE
Trade receivables......................................... $ 58,021 $ 79,695
Less -- allowance for doubtful accounts................... (3,085) (8,921)
-------- --------
$ 54,936 $ 70,774
======== ========
COSTS AND ESTIMATED EARNINGS IN EXCESS OF AMOUNTS BILLED ON
UNCOMPLETED CONTRACTS
Costs incurred on uncompleted contracts................... $176,781 $285,114
Estimated earnings........................................ 37,040 37,757
-------- --------
213,821 322,871
Less -- Billings to date.................................. (196,553) (245,908)
-------- --------
$ 17,268 $ 76,963
======== ========
Included in the accompanying balance sheets:
Costs and estimated earnings in excess of amounts
billed................................................. $ 29,288 $ 85,805
Billings in excess of costs and estimated earnings........ (12,020) (8,842)
-------- --------
$ 17,268 $ 76,963
======== ========
INVENTORIES, NET
Raw materials............................................. $ 16,652 $ 26,778
Work in process........................................... 10,958 18,549
Finished goods............................................ 4,292 6,090
Less -- inventory reserves................................ (5,125) (10,552)
-------- --------
$ 26,777 $ 40,865
======== ========
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment................................... $ 50,187 $ 68,887
Buildings and improvements................................ 23,022 35,575
Land and improvements..................................... 5,964 7,112
Construction-in-progress.................................. 809 280
-------- --------
79,982 111,854
Less -- accumulated depreciation.......................... (42,653) (49,391)
-------- --------
$ 37,329 $ 62,463
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 24,
JUNE 30, 2001
2002 AS RESTATED
-------- -----------
======== ========
ACCRUED LIABILITIES
Accrued employee compensation and benefits................ $ 10,258 $ 13,570
Accrued warranty.......................................... 3,422 3,244
Restructuring accrual..................................... 4,678 2,879
Other..................................................... 11,237 17,450
-------- --------
$ 29,595 $ 37,143
======== ========
The Company routinely incurs warranty costs after projects are installed
and completed. The Company reserves for such warranty costs based on its
historical warranty experience and consideration of any known warranty issues.
A summary and rollforward of the warranty reserves for the previous three
fiscal years are as follows:
BEGINNING BALANCE EXPENSE CHARGES ENDING BALANCE
----------------- ------- ------- --------------
Fiscal 2002.......................... $3,244 $1,753 $(1,575) $3,422
Fiscal 2001.......................... 2,527 2,772 (2,055) 3,244
Fiscal 2000.......................... 4,995 1,098 (3,566) 2,527
NOTE 13 -- WRITE-DOWN OF ASSETS
The Company wrote down $21,809 of assets in the fourth quarter of fiscal
2001. A summary and roll-forward of the specific reserves are as follows:
RESERVE AT FISCAL FISCAL 2002 RESERVE AT
JUNE 24, 2002 WRITE-OFFS/ JUNE 30,
2001 EXPENSE DISPOSALS RECOVERIES DISPOSITIONS 2002
----------- ------- ----------- ---------- ------------ ----------
Inventory...................... $10,552 $1,303 $(5,753) $ (282) $(695) $5,125
Accounts receivable............ 8,921 1,208 (4,277) (2,498) (269) 3,085
The Company recorded inventory related charges of $9,811 (excess and
obsolete reserves and fair market value adjustments) in the fourth quarter of
fiscal 2001 resulting in an ending inventory reserve of $10,552. The Company
also took other inventory-related write-offs of $2,218 in June 2001, primarily
related to work-in-process items deemed unrecoverable by management.
The $9,811 charge, which increased excess and obsolete reserves and
adjusted certain inventory items to fair market value was comprised of the
following items:
- a charge of $1,400 to write-down the remaining assets of the discontinued
extrusion product line to an estimated fair market value of $400. The
product line was sold in fiscal year 2002 for $200 resulting in an
additional loss of $200 in fiscal year 2002;
- a charge of $2,738 related to excess and obsolete inventory of the Stokes
division based on a letter of intent to sell the Stokes assets. The sale
of the net assets of the Stokes division did not ultimately occur; and
- a charge of $5,673 related to various divisions that were determined to
have excess or obsolete inventory issues or inventory market value
concerns.
The inventory reserves established in fiscal 2001 assumed an estimated
salvage value on certain of the inventory items being reserved. The Company was
not able to achieve the estimated salvage value as it disposed of the inventory
in fiscal 2002 partially accounting for the incremental expense in fiscal 2002.
The
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Company's disposal activity during fiscal 2002 consisted of selling items for
scrap value, returning items to suppliers for credit and throwing items away.
The Company's inventory reserve balance as of June 30, 2002 is expected to be
substantially utilized in fiscal 2003. The Packaging segment accounts for $4,092
of the reserve at June 30, 2002, of which $2,176 is related to replacement parts
held at facilities closed in fiscal 2002 and deemed obsolete. The Company
anticipates disposing of these items in fiscal 2003.
The Company recorded $8,330 of accounts receivable write-offs in the fourth
quarter of fiscal 2001 resulting in an accounts receivable allowance for
doubtful accounts of $8,921 at June 24, 2001. Of this total, $4,500 related to
two specific projects for which the Company determined it would not be able to
collect. The remaining reserve relates to accounts deemed by management to be
uncollectible. Due to increased collection efforts, $2,498 of the accounts
receivable reserved for were collected in 2002 and therefore the related
reserves were reversed.
In addition to the above amounts, the Company also took an additional
charge of $1,450 in the fourth quarter of fiscal 2001 primarily related to
write-offs of fixed assets. The fixed asset write-off consisted primarily of
software development costs for systems that were expected to be rolled out
company-wide, which the new management team decided not to pursue.
The inventory related charges of $12,029 and the write-offs of fixed assets
of $1,450 were included in cost of sales in the statement of operations. The
accounts receivable write-offs of $8,330 were included in selling, general and
administrative expenses.
NOTE 14 -- RESTRUCTURING
During fiscal 2002, the Company announced several actions in connection
with its restructuring plan as outlined below. These actions resulted in an
aggregate of $10,332 of restructuring charges in fiscal 2002 after the fiscal
2001 restructuring charge reversal discussed below.
- Closure of its Rochester, New York facility, including termination of
employees in the fourth quarter of 2002 and the transfer of the customer
base of this facility primarily to its Dayton, Ohio and Buffalo Grove,
Illinois facilities. The closure was announced January 24, 2002. The
restructuring costs, which totaled $3,648 were recorded in the third
quarter of fiscal 2002 and included severance costs of $1,334 for the
termination of 114 employees. As of June 30, 2002, four employees
remained for final administrative duties, all of whom were discharged by
the end of the first quarter of fiscal 2003. The remaining restructuring
costs include $1,068 for future facility lease and related costs, $1,146
for assets write-offs and $100 for office equipment lease terminations
and miscellaneous other charges. The asset write-offs include the
remaining value of leasehold improvements, the computer system and show
machines.
- Closure of its Montreal, Quebec facility, including termination of
employees in August 2002, and the transfer of its customer base and
assets to its operations in Leominster, Massachusetts. The closure was
announced March 22, 2002. The restructuring costs of $2,299 were recorded
in the third quarter of fiscal 2002 and included severance costs of $993
for the termination of approximately 83 employees, partially offset by a
reversal of $451 associated with severance accrual recorded in fiscal
2001. 75 employees remained at June 30, 2002, 70 of which were terminated
by the end of the first quarter of fiscal 2003. The remaining
restructuring costs include $664 for future facility lease and related
costs, $1,056 for asset write-offs and $37 of other costs. The asset
write-offs include the remaining value of leasehold improvements,
computer system and other.
- Transfer of its manufacturing operations in Bristol, Pennsylvania to
Hyannis, Massachusetts as part of its Converting Technologies division.
The closure was announced March 22, 2002 and completed in September 2002.
The restructuring costs of $892 were recorded in the third quarter of
fiscal 2002 and included severance costs of $272 for the termination of
15 employees. Up to 10 employees are expected
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
to remain in Bristol for sales and engineering support. As of June 30,
2002, there were no terminations. By the end of the first quarter of
fiscal 2003, 12 employees were terminated. The remaining restructuring
costs include $400 of asset write-offs, $192 for future facility lease
and related costs and $28 of other costs. The asset write-offs include
the remaining value of leasehold improvements.
- Transfer of the Assembly and Test-Europe fabrication operations from
Gawcott, United Kingdom to its Buckingham, England plant in the fourth
quarter of fiscal 2002. The restructuring costs of $1,206 were recorded
in the third quarter of fiscal 2002 and included estimated severance
costs of $908 for the termination of 43 employees, all of whom were
terminated by June 30, 2002. The restructuring costs include $264 for
future lease payments and $34 of other costs.
- The Company recognized additional restructuring charges of $2,287 in
fiscal 2002 ($1,521 in the second quarter, $463 in the third quarter, and
$303 in the fourth quarter) primarily related to severance costs
associated with management changes and workforce reductions at several
divisions, as well as future lease payments resulting from the
consolidation of two Packaging segment divisions. The restructuring
charge included severance costs of $1,747 for the termination of 125
employees, $300 for future lease payments and $240 of asset write-offs.
All of the employees were terminated by June 30, 2002.
The following table summarizes the components of the fiscal 2002
restructuring accruals:
NON-CASH AS OF
RESTRUCTURING CASH CHARGES CHARGES TO JUNE 30,
CHARGE TO ACCRUAL ACCRUAL 2002
------------- ------------ ---------- --------
Severance costs.................................. $ 5,254 $(3,823) $ -- $1,431
Future lease costs on closed facilities.......... 2,488 -- -- 2,488
Asset write-downs................................ 2,842 -- (2,535) 307
Other............................................ 199 (199) -- --
------- ------- ------- ------
$10,783 $(4,022) $(2,535) $4,226
======= ======= ======= ======
The Company has utilized $6,557 of the fiscal 2002 restructuring accrual as
of June 30, 2002 resulting in a remaining balance of $4,226. The future lease
commitment on closed facilities includes a two-year accrual for the Rochester,
New York and Montreal, Quebec facilities. The remaining restructuring charges
are expected to be used by the end of September 2003.
FISCAL 2001 RESTRUCTURING
In the fourth quarter of fiscal 2001, a restructuring charge of $3,694 was
established for severance costs associated with management changes and workforce
reductions, future lease costs on idle facilities and personnel relocation costs
resulting from the corporate office move and the closure of four Packaging
segment sales offices and non-cash asset write-downs.
The Company's fiscal 2001 restructuring plan consisted of the following
actions:
- Closure of Canadian operation's sales offices, including the termination
of 64 employees. These offices were closed in the fourth quarter of 2001.
In addition, there was a headcount reduction at the Montreal location.
These people were notified of termination in the fourth quarter of fiscal
2001. Total severance costs were $706 and future lease costs on rented
office space for the sales offices was $300. As mandated by Canadian law,
a six-month waiting period is required before termination after notice is
given. After notification, during the six-month period, a number of
employees left voluntarily and therefore received no benefits.
Accordingly, an amount of $451 was reversed to income in fiscal 2002 and
is included in the roll-forward.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- Consolidation of two of the Company's United Kingdom operations, which
included the termination of 28 employees in the first quarter of fiscal
2002 at a cost of $500.
- Relocation of the corporate offices from Springfield, Missouri to Dayton,
Ohio. Total moving costs incurred were $949 in the fourth quarter of
2001, which included personnel relocation costs of $747 and other moving
costs of $202. These moving costs were recognized when incurred. In
addition, the Company accrued future lease costs on the idle office space
in Springfield of $575. Lastly, severance of $545 was recorded for the
termination of 10 employees at the Springfield office.
The rollforward of the restructuring accrual related to fiscal 2001 is as
follows:
AS OF CASH NON-CASH AS OF
JUNE 24, CHARGES TO CHARGES TO REVERSAL JUNE 30,
2001 ACCRUAL ACCRUAL IN 2002 2002
-------- ---------- ---------- -------- --------
Severance costs............................... $1,277 $ (826) $ -- $(451) $ --
Future lease costs............................ 685 (327) -- -- 358
Relocation costs.............................. 544 (544) -- -- --
Asset write-downs............................. 131 -- (131) -- --
Other......................................... 242 (148) -- -- 94
------ ------- ----- ----- ----
$2,879 $(1,845) $(131) $(451) $452
====== ======= ===== ===== ====
The Company utilized $1,976 of the fiscal 2001 restructuring accrual as of
June 30, 2002 and reversed $451 in fiscal 2002, resulting in a remaining accrual
of $452, which is expected to be used during fiscal 2003.
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.
The Company primarily operated in two business segments through fiscal 2002 -
Automation and Packaging. The Company announced in March 2002 the reorganization
of its operations into four business segments: Material Processing, Precision
Assembly, Packaging Systems and Assembly and Test. See "Item 1. Business.
Markets and Products" in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 2002 for a description of the products and markets of these
four segments. This new structure is designed to allow the Company to streamline
product offerings, capitalize on the combined strength of operating units,
reduce overlap in the marketplace and improve capacity utilization, internal
controls, financial reporting and disclosure controls.
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.
33
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:
FISCAL FISCAL FISCAL
2002 2001 2000
AS RESTATED AS RESTATED
(SEE NOTES 1 (SEE NOTES 1
AND 16) AND 16)
--------- --------- ---------
NET SALES
Material Processing $ 95,368 $ 127,722 $ 143,942
Precision Assembly 69,701 120,612 78,123
Packaging Systems 41,081 52,465 60,514
Assembly & Test 119,334 164,200 136,571
Divested businesses 792 46,103 45,135
--------- --------- ---------
Consolidated Total $ 326,276 $ 511,102 $ 464,285
========= ========= =========
OPERATING INCOME (LOSS)
Material Processing $ 8,693 $ (21,600) $ 11,431
Precision Assembly 3,756 (11,431) 274
Packaging Systems (3,711) (13,928) (59)
Assembly & Test (4,369) 2,148 3,835
Divested businesses 565 (8,173) 2,291
Corporate (6,732) (13,811) (8,757)
--------- --------- ---------
Consolidated Total $ (1,798) $ (66,795) $ 9,015
========= ========= =========
ASSETS
Material Processing $ 64,061 $ 80,529 $ 114,634
Precision Assembly 77,865 106,080 120,564
Packaging Systems 53,846 52,171 70,052
Assembly & Test 94,266 132,334 125,039
Divested businesses -- 27,278 34,793
Corporate 18,372 12,282 13,690
--------- --------- ---------
Consolidated Total $ 308,410 $ 410,674 $ 478,772
========= ========= =========
CAPITAL EXPENDITURES
Material Processing $ 1,836 $ 1,165 $ 3,863
Precision Assembly 110 106 75
Packaging Systems 354 616 513
Assembly & Test 499 391 713
Divested businesses 9 522 649
Corporate 115 378 918
--------- --------- ---------
Consolidated Total $ 2,923 $ 3,178 $ 6,731
========= ========= =========
DEPRECIATION AND AMORTIZATION
Material Processing $ 2,383 $ 3,789 $ 4,129
Precision Assembly 916 2,589 2,808
Packaging Systems 1,043 2,020 1,881
Assembly & Test 1,930 3,673 3,999
Divested businesses 33 1,876 2,145
Corporate 3,500 2,456 1,498
--------- --------- ---------
Consolidated total $ 9,805 $ 16,403 $ 16,460
========= ========= =========
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Included in operating income (loss) are the following unusual items:
FISCAL FISCAL FISCAL
2002 2001 2000
-------- -------- ------
GOODWILL IMPAIRMENT
Material Processing -- $ 16,673 --
Precision Assembly -- 10,000 --
Packaging Systems -- 7,353 --
Assembly & Test -- 4,193 --
-------- -------- ----
Total -- $ 38,219 --
======== ======== ====
RESTRUCTURING CHARGE
Material Processing $ 1,060 -- --
Precision Assembly 461 119 --
Packaging Systems 2,839 1,506 --
Assembly & Test 5,972 -- --
Corporate -- 2,069 --
-------- -------- ----
$ 10,332 $ 3,694 --
======== ======== ====
GAIN (LOSS) ON DISPOSAL OF ASSETS
Material Processing $ (1,128) $ 2 --
Precision Assembly -- -- --
Packaging Systems -- (48) --
Assembly & Test
Divested businesses -- (9,067) --
Corporate -- 640 --
-------- -------- ----
Total $ (1,128) $ (8,473) --
======== ======== ====
In addition to the unusual items noted above, the Corporate operating loss in
fiscal 2001 included approximately $3,487 of non-recurring legal and
professional fees associated with the investigations into the prior years
accounting irregularities.
The reconciliation of segment operating income (loss) to consolidated loss
before benefit for income taxes consisted of the following:
FISCAL FISCAL FISCAL
2002 2001 2000
AS RESTATED AS RESTATED
(SEE NOTES 1 (SEE NOTES 1
AND 16) AND 16)
-------- -------- --------
Material Processing $ 8,693 $(21,600) $ 11,431
Precision Assembly 3,756 (11,431) 274
Packaging Systems (3,711) (13,928) (59)
Assembly & Test (4,369) 2,148 3,835
-------- -------- --------
Operating income (loss) for reportable segments 4,369 (44,811) 15,481
Operating income for sold businesses 565 (8,173) 2,291
Corporate (6,732) (13,811) (8,757)
Interest expense, net (12,198) (14,891) (10,305)
Dividends on Company-obligated, mandatorily redeemable convertible preferred
securities of subsidiary DT Capital Trust holding solely convertible junior
subordinated debentures of the Company (4,834) (5,506) (5,146)
-------- -------- --------
Consolidated loss before benefit for income taxes $(18,830) $(87,192) $ (6,436)
======== ======== ========
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Financial information related to the Company's operations by geographic area
consisted of the following:
FISCAL FISCAL FISCAL
2002 2001 2000
-------- -------- --------
NET SALES
United States $180,751 $321,207 $334,099
Far East 45,138 41,804 8,870
Europe 61,460 106,469 69,073
Canada/Latin America 32,681 41,547 46,837
Other 6,246 75 5,406
-------- -------- --------
Consolidated Total $326,276 $511,102 $464,285
======== ======== ========
LONG-LIVED ASSETS
United States $ 28,764 $ 53,593 $ 62,284
United Kingdom 7,354 7,213 7,926
Other International 1,211 1,657 3,008
-------- -------- --------
Consolidated total $ 37,329 $ 62,463 $ 73,218
======== ======== ========
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 of accumulated depreciation.
NOTE 16 -- RESTATEMENT
As described in Note 1, the Company's balance sheet as of, and statement of
operations for, the fiscal year ended June 24, 2001 and the Company's statement
of operations for the fiscal year ended June 25, 2000 have been restated. A
comparison of previously reported and restated financial statements for these
periods is presented below. The impact of these restatements resulted in
increases to the Company's net loss of $1,729 and $863, and to the Company's net
loss per common share of $0.17 per share and $0.09 per share, for fiscal 2001
and 2000, respectively.
Included in the Company's June 27, 1999 restated retained earnings is an
adjustment of $1,435 related to the cumulative impact of the restatement related
to fiscal 1999.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED BALANCE SHEET
JUNE 24, 2001
AS PREVIOUSLY JUNE 24, 2001
REPORTED AS RESTATED
------------- -------------
Assets
Current assets:
Cash................................................... $ 5,505 $ 5,505
Accounts receivable, net............................... 70,774 70,774
Costs and estimated earnings in excess of amounts
billed on uncompleted contract........................ 92,000 85,805
Inventories, net....................................... 40,865 40,865
Prepaid expenses and other............................. 12,497 14,665
-------- --------
Total current assets................................... 221,641 217,614
Property, plant and equipment, net.......................... 62,463 62,463
Goodwill, net............................................... 123,767 123,767
Other assets, net........................................... 6,830 6,830
-------- --------
$414,701 $410,674
======== ========
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt...................... $ 36,151 $ 36,151
Accounts payable....................................... 40,917 40,917
Customer advances...................................... 25,651 25,651
Accrued liabilities.................................... 37,143 37,143
-------- --------
Total current liabilities................................. 139,862 139,862
-------- --------
Long-term debt.............................................. 96,571 96,571
Other long-term liabilities................................. 3,778 3,778
-------- --------
100,349 100,349
Commitments and contingencies
Company-obligated, mandatorily redeemable convertible
preferred securities of subsidiary DT Capital Trust
holding solely convertible junior subordinated debentures
of the Company............................................ 80,652 80,652
Stockholders' equity:
Common stock........................................... 113 113
Additional paid-in capital............................. 127,853 127,853
Retained earnings (accumulated deficit)................ (6,965) (10,992)
Accumulated other comprehensive loss................... (2,058) (2,058)
Unearned portion of restricted stock................... (661) (661)
Less -- Treasury stock................................. (24,444) (24,444)
-------- --------
Total stockholders' equity........................... 93,838 89,811
-------- --------
$414,701 $410,674
======== ========
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED
--------------------------------------------------------------
JUNE 24, 2001 JUNE 25, 2000
AS PREVIOUSLY JUNE 24, 2001 AS PREVIOUSLY JUNE 25, 2000
REPORTED AS RESTATED REPORTED AS RESTATED
------------- ------------- -------------- -------------
Net sales................................ $ 511,102 $ 511,102 $ 464,285 $ 464,285
Cost of sales............................ 434,357 437,017 374,091 375,418
----------- ----------- ----------- -----------
Gross profit............................. 76,745 74,085 90,194 88,867
Selling, general and administrative
expenses............................... 90,494 90,494 79,852 79,852
Goodwill impairment...................... 38,219 38,219 -- --
Restructuring charge..................... 3,694 3,694 -- --
Net loss on disposal of assets........... 8,473 8,473 -- --
----------- ----------- ----------- -----------
Operating income (loss).................. (64,135) (66,795) 10,342 9,015
Interest expense, net.................... 14,891 14,891 10,305 10,305
Dividends on Company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary DT
Capital Trust holding solely
convertible junior subordinated
debentures of the Company.............. 5,506 5,506 5,146 5,146
----------- ----------- ----------- -----------
Loss before benefit for income taxes..... (84,532) (87,192) (5,109) (6,436)
Benefit for income taxes................. (13,189) (14,120) (519) (983)
----------- ----------- ----------- -----------
Net loss................................. $ (71,343) $ (73,072) $ (4,590) $ (5,453)
----------- ----------- ----------- -----------
Net loss per common share:
Basic and Diluted...................... $ (7.01) $ (7.18) $ (0.45) $ (0.54)
Weighted average common shares
outstanding:
Basic and Diluted...................... 10,172,811 10,172,811 10,107,274 10,107,274
NOTE 17 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
As described in Note 1, the unaudited quarterly information for the first
three fiscal quarters of the fiscal year ended June 30, 2002 and the four fiscal
quarters of the fiscal year ended June 24, 2001 have been restated. A comparison
of previously reported and restated unaudited quarterly financial information is
presented below.
1ST QUARTER 2ND QUARTER 3RD QUARTER
AS 1ST QUARTER AS 2ND QUARTER AS 3RD QUARTER
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED 4TH QUARTER
----------- ----------- ----------- ----------- ----------- ----------- -----------
YEAR ENDED JUNE 30, 2002
Net sales....................... $100,484 $100,431 $88,104 $88,661 $ 60,184 $ 59,967 $77,217
Cost of sales................... 79,501 79,832 70,488 70,733 49,712 49,714 60,732
Gross profit.................... 20,983 20,599 17,616 17,928 10,472 10,253 16,485
Operating income (loss)......... 5,967 5,583 2,919 3,231 (12,122) (12,341) 1,729
Net income (loss)............... 859 609 (1,108) (905) (12,754) (12,896) (1,738)
Diluted earnings (loss) per
share......................... 0.08 0.06 (0.11) (0.09) (1.23) (1.24) (0.12)
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
AS 1ST QUARTER AS 2ND QUARTER AS 3RD QUARTER AS
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED
----------- ----------- ----------- ----------- ----------- ----------- -----------
YEAR ENDED JUNE 24, 2001
Net sales............... $116,451 $116,451 $131,425 $131,425 $123,965 $123,965 $139,261
Cost of sales........... 96,446 96,918 106,750 107,519 103,371 103,971 127,790
Gross profit............ 20,005 19,533 24,675 23,906 20,594 19,994 11,471
Operating income
(loss)................ 284 (188) 4,800 4,031 580 (20) (69,799)
Net income (loss)....... (3,124) (3,431) (929) (1,429) (3,434) (3,824) (63,856)
Diluted earnings (loss)
per share............. (0.31) (0.34) (0.09) (0.14) (0.34) (0.38) (6.17)
4TH QUARTER
AS
RESTATED
-----------
YEAR ENDED JUNE 24, 2001
Net sales............... $139,261
Cost of sales........... 128,609
Gross profit............ 10,652
Operating income
(loss)................ (70,618)
Net income (loss)....... (64,388)
Diluted earnings (loss)
per share............. (6.22)
The principal unusual items which affected the quarterly results for the
fiscal years ended June 30, 2002 and June 24, 2001 include the following pre-tax
items:
Second quarter 2002:
- A $1,521 restructuring charge included in operating expenses.
Third quarter 2002:
- A $8,508 restructuring charge included in operating expenses.
Fourth quarter 2002:
- A $1,128 loss on disposal of the Hyannis facility, included in operating
expenses.
Third quarter 2001:
- A $1,249 loss on the sale of substantially all of the assets of Vanguard
Technical Solutions, Inc., included in operating expenses; and
- A $640 gain on the sale of the corporate airplane, included in operating
expenses.
Fourth quarter 2001:
- A $38,219 charge related to the write down of goodwill included in
operating expenses;
- A $7,915 loss recorded on the disposal of net assets included in
operating expenses;
- A $3,694 restructuring charge included in operating expenses; and
- A $21,809 charge related to the write-down and provision of assets,
$13,479 of which primarily related to inventory and is included in cost
of sales, and the remaining $8,330, primarily related to accounts
receivable, which is included in operating expenses.
See Note 3 regarding the dispositions of assets and Notes 13 and 14
regarding the write-down of assets and restructuring.
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 its 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. Almost all of the Company's net sales are derived from fixed price
contracts. Therefore, 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, the Company's results of operations
for any particular quarter are not necessarily indicative of results that may be
expected for any subsequent quarter or related fiscal year.
39
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS. The following exhibits are filed herewith.
Ex. 99 Consent of Independent Accountants
40
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 5, 2002
DT INDUSTRIES, INC.
By: /s/ Dennis S. Dockins
--------------------------------------
Dennis S. Dockins
General Counsel and Secretary
41