S&P puts DT Industries on watch

Standard & Poor's put DT Industries Inc. on CreditWatch negative including its $130 million revolving credit facility due 2002 at B-.

S&P said the action is because of DT's very weak operating results amid a challenging industry environment.

DT Industries has suffered from falling sales and poor profitability during the past few years, primarily because of the weak U.S. manufacturing sector and low industrial capital investment, S&P said. The company's equipment is used to manufacture, test, or package a variety of industrial and consumer products. Sales declined 30% during the fourth quarter of the fiscal year ended June 29, 2003.

DT Industries reported an EBIT loss (before restructuring charges and asset write-downs) of $2.5 million during the fourth quarter and $10.7 million for the full year. Poor capacity utilization and a highly competitive environment negatively affected results.

Various cost-saving actions during 2003 have helped to soften the impact of weak industry demand. DT Industries recently announced additional steps to further reduce costs, including the closure and consolidation of several facilities. Although these measures are expected to improve efficiency and reduce the company's break-even point, a meaningful turnaround in profitability and cash flow generation will not occur until demand increases, S&P noted.

S&P confirms FHC Health

Standard & Poor's confirmed FHC Health Systems Inc.'s counterparty credit rating at B and withdrew its B rating on the company's previously proposed but now scrapped senior secured revolving credit facility and $250 million senior unsecured redeemable debentures. The outlook is stable.

S&P said the action reflects improved earnings and the expected fourth quarter 2003 refinancing of a significant portion of the present debt currently due between 2003 and 2006. Offsetting factors include the reduced financial flexibility and additional cash flow strain from the servicing of current debt and redeemable preferred stock compared with the withdrawn senior secured revolving credit facility and the withdrawn $250 million senior unsecured redeemable debenture.

Pretax earnings, after debt servicing, are projected to be about $50 million and $25 million in 2003 and 2004, respectively. The decline in 2004 earnings is the result of S&P's expectation that the renewal terms on the large public sector contract constituting 29% of consolidated revenue in 2002 will result in reduced profitability.

Fixed-charge coverage is expected to exceed 1.3x. Debt to capital is expected to remain near current levels. The company is expected to refinance a significant portion of the present debt currently due between 2003 and 2006 in the fourth quarter of 2003, S&P said.

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