Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
SEPTEMBER 27, 2002 1-11781
DAYTON SUPERIOR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0676346
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
7777 Washington Village Dr., Suite 130
Dayton, Ohio 45459
- -------------------------------------- ----------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 937-428-6360
------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
----- -----
4,008,160 Common Shares were outstanding as of November 8, 2002
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Dayton Superior Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
As of September 27, 2002 and December 31, 2001
(Amounts in thousands)
(Unaudited)
September 27, December 31,
2002 2001
--------- ---------
ASSETS
Current assets:
Cash $ 4,134 $ 4,989
Accounts receivable, net of allowances for doubtful accounts and
sales returns and allowances of $5,569 and $7,423 73,758 51,628
Inventories, net (Note 3) 53,833 47,900
Prepaid expenses and other current assets 4,588 9,637
Prepaid income taxes 110 1,225
Future income tax benefits 7,314 7,962
--------- ---------
Total current assets 143,737 123,341
--------- ---------
Rental equipment, net (Note 3) 63,841 71,323
--------- ---------
Property, plant and equipment 101,523 100,052
Less accumulated depreciation (40,973) (39,931)
--------- ---------
Net property, plant and equipment 60,550 60,121
--------- ---------
Goodwill and intangible assets, net of accumulated amortization (Note 3) 116,645 136,626
Other assets 3,852 5,432
--------- ---------
Total assets $ 388,625 $ 396,843
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 4) $ 5,878 $ 5,001
Accounts payable 27,849 27,340
Accrued compensation 15,833 19,935
Other accrued liabilities 15,665 14,122
--------- ---------
Total current liabilities 65,225 66,398
Long-term debt, net (Note 4) 300,249 286,945
Deferred income taxes 9,933 13,365
Other long-term liabilities 10,956 13,414
--------- ---------
Total liabilities 386,363 380,122
--------- ---------
Shareholders' equity:
Common shares 102,130 102,044
Loans to shareholders (2,781) (3,030)
Treasury shares, at cost, 33,697 and 29,288 shares in 2002 and 2001,
respectively (1,184) (979)
Cumulative other comprehensive loss (505) (589)
Accumulated deficit (95,398) (80,725)
--------- ---------
Total shareholders' equity 2,262 16,721
--------- ---------
Total liabilities and shareholders' equity $ 388,625 $ 396,843
========= =========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
2
Dayton Superior Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For The Three and Nine Fiscal Months Ended September 27, 2002 and
September 28, 2001
(Amounts in thousands)
(Unaudited)
Three Fiscal Months Ended Nine Fiscal Months Ended
---------------------------- ----------------------------
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales $ 105,285 $ 109,326 $ 290,293 $ 303,747
Cost of sales 68,662 69,969 190,566 196,933
--------- --------- --------- ---------
Gross profit 36,623 39,357 99,727 106,814
Selling, general and administrative expenses 21,349 23,026 67,365 73,798
Facility closing and severance expenses (Note 7) 2,285 1,338 2,859 4,658
Amortization of goodwill and intangibles 150 985 301 2,976
--------- --------- --------- ---------
Income from operations 12,839 14,008 29,202 25,382
Other expenses
Interest expense 8,468 8,947 24,881 26,691
Other expense, net 59 89 209 93
--------- --------- --------- ---------
Income (loss) before provision (benefit) for
income taxes 4,312 4,972 4,112 (1,402)
Provision (benefit) for income taxes 1,725 2,972 1,645 (56)
--------- --------- --------- ---------
Net income (loss) before cumulative effect of change in
accounting principle 2,587 2,000 2,467 (1,346)
Cumulative effect of change in accounting principle, net
of income tax benefit of $2,754 (Note 3) - - (17,140) -
--------- --------- --------- ---------
Net income (loss) $ 2,587 $ 2,000 $ (14,673) $ (1,346)
========= ========= ========= =========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
3
Dayton Superior Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For The Nine Fiscal Months Ended September 27, 2002 and September 28, 2001
(Amounts in thousands)
(Unaudited)
September 27, September 28,
2002 2001
-------- --------
Cash Flows From Operating Activities:
Net loss $(14,673) $ (1,346)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation 15,089 14,622
Amortization of goodwill and intangibles 301 2,976
Cumulative effect of change in accounting principle (Note 3) 17,140 -
Deferred income taxes (30) (1,661)
Amortization of deferred financing costs and debt discount 1,721 1,675
Gain on sales of rental equipment and property, plant and equipment (14,284) (7,404)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (22,130) (16,135)
Inventories (5,933) (3,373)
Accounts payable 509 8,268
Accrued liabilities and other long-term liabilities (5,656) 4,181
Prepaid expenses and other assets 6,997 2,928
-------- --------
Net cash provided by (used in) operating activities (20,949) 4,731
-------- --------
Cash Flows From Investing Activities:
Property, plant and equipment additions (8,390) (6,958)
Proceeds from sales of property, plant and equipment 1,999 -
Rental equipment additions (8,605) (18,670)
Proceeds from sales of rental equipment 20,838 12,112
Acquisitions (Note 2) - (40,707)
-------- --------
Net cash provided by (used in) investing activities 5,842 (54,223)
-------- --------
Cash Flows From Financing Activities:
Repayments of long-term debt (2,959) (27,949)
Issuance of long-term debt 14,737 78,250
Proceeds from sale/leaseback transaction 2,258 -
Purchase of treasury shares (205) (998)
Repayment of loans to shareholders 249 -
Issuance of common shares, net of issuance costs 86 5,501
Financing costs incurred - (791)
-------- --------
Net cash provided by financing activities 14,166 54,013
-------- --------
Effect of Exchange Rate Changes on Cash 86 (160)
-------- --------
Net increase (decrease) in cash (855) 4,361
Cash, beginning of period 4,989 1,782
Cash, end of period $ 4,134 $ 6,143
======== ========
Supplemental Disclosures:
Cash paid (refunded) for income taxes, net $ 432 $ (1,344)
Cash paid for interest 17,914 20,176
Issuance of common shares in conjunction with acquisition - 2,842
Issuance of common shares and loans to shareholders - 998
Property, plant and equipment additions on capital lease 1,740 -
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
4
Dayton Superior Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
For The Three and Nine Fiscal Months Ended September 27, 2002 and
September 28, 2001
(Amounts in thousands)
(Unaudited)
Three Fiscal Months Ended Nine Fiscal Months Ended
-------------------------------- --------------------------------
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net income (loss) $ 2,587 $ 2,000 $(14,673) $ (1,346)
Other comprehensive income (loss):
Foreign currency translation adjustment (91) (169) 84 (229)
-------- -------- -------- --------
Comprehensive income (loss) $ 2,496 $ 1,831 $(14,589) $ (1,575)
======== ======== ======== ========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
5
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 2002 AND SEPTEMBER 28, 2001
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The interim consolidated financial statements included herein have been
prepared by management of Dayton Superior Corporation (the "Company"),
without audit, and include, in the opinion of management, all adjustments
necessary to state fairly the information set forth therein. Any such
adjustments were of a normal recurring nature. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States have been omitted, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that these unaudited consolidated financial statements be
read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's annual financial statements for the
year ended December 31, 2001. The interim results may not be indicative of
future periods.
(2) ACQUISITIONS
(a) ANCONCCL INC. --On June 19, 2001, the Company acquired the stock of
AnconCCL Inc., dba BarLock ("BarLock"), for approximately $9,900 in
cash, including acquisition costs. The payment was funded through the
Company's credit facility. The business is being operated as part of
the Company's concrete accessories business.
The acquisition has been accounted for as a purchase, and the results
of BarLock have been included in the accompanying financial statements
since the date of acquisition. The purchase price has been allocated
based on the fair values of the assets acquired (approximately $10,800,
including goodwill of $7,100) and liabilities assumed (approximately
$900). Pro forma financial information is not required as this was not
a significant acquisition.
(b) AZTEC CONCRETE ACCESSORIES, INC. --On January 4, 2001, the Company
acquired the stock of Aztec Concrete Accessories, Inc. ("Aztec") for
approximately $32,800, including acquisition costs. The payment of the
purchase price consisted of cash of approximately $29,900 and 105,263
common shares valued at approximately $2,900. The cash portion was
funded through the issuance of 189,629 common shares valued at
approximately $5,100 to Odyssey Investment Partners Fund, LP
("Odyssey"), and an increase of approximately $24,800 to the credit
facility. The business is being operated as part of the Company's
concrete accessories business.
6
The acquisition has been accounted for as a purchase, and the results
of Aztec have been included in the accompanying consolidated financial
statements since the date of acquisition. The purchase price has been
allocated based on the fair values of the assets acquired
(approximately $44,000, including goodwill of approximately $35,400)
and liabilities assumed (approximately $11,200, including a deferred
compensation liability of approximately $7,700). Pro forma financial
information is not required as this was not a significant acquisition.
(3) ACCOUNTING POLICIES
The interim consolidated financial statements have been prepared in accordance
with the accounting policies described in the notes to the Company's
consolidated financial statements for the year ended December 31, 2001. While
management believes that the procedures followed in the preparation of interim
financial information are reasonable, the accuracy of some estimated amounts is
dependent upon facts that will exist or calculations that will be made at year
end. Examples of such estimates include changes in the deferred tax accounts and
management bonuses. Any adjustments pursuant to such estimates during the fiscal
quarter were of a normal recurring nature.
(a) FISCAL QUARTER --The Company's fiscal year end is December 31. The
Company's fiscal quarters are defined as the periods ending on the
Friday nearest to the end of March, June and September.
(b) INVENTORIES --The Company values all inventories at the lower of
first-in, first-out ("FIFO") cost or market. The Company provides net
realizable value reserves which reflect the Company's best estimate of
the excess of the cost of potential obsolete and slow moving inventory
over the expected net realizable value. Following is a summary of the
components of inventories as of September 27, 2002, and December 31,
2001:
September 27, December 31,
2002 2001
-------- --------
Raw materials $ 11,704 $ 11,581
Work in progress 3,460 3,624
Finished goods 40,305 34,639
-------- --------
55,469 49,844
Net realizable value reserve (1,636) (1,944)
-------- --------
$ 53,833 $ 47,900
======== ========
(c) RENTAL EQUIPMENT--Rental equipment is manufactured or purchased by the
Company for resale and for rent to others on a short-term basis. Rental
equipment is recorded at the lower of FIFO cost or market and is
depreciated over the estimated useful life of the equipment, three to
fifteen years, on a straight-line basis. The balances as of September
27, 2002 and December 31, 2001 are net of accumulated depreciation of
$23,917 and $20,002, respectively. Rental revenues and cost of sales
associated with rental revenue are as follows:
7
Three Fiscal Months Ended Nine Fiscal Months Ended
----------------------------- -----------------------------
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Rental revenue $10,573 $14,966 $32,089 $40,239
Cost of sales 3,415 3,070 10,113 10,054
------- ------- ------- -------
Gross profit $ 7,158 $11,896 $21,976 $30,185
======= ======= ======= =======
Effective January 1, 2002, the Company changed its accounting estimates
relating to the depreciable life of a portion of its rental fleet. The
change was based upon a study performed by the Company that showed that
the useful life of certain items within the rental fleet was shorter
than the fifteen-year life previously assigned. The study showed that a
three-year life was more appropriate based upon the nature of these
products. These products include smaller hardware and accessories that
accompany steel forms and the recently introduced European forming
systems. As a result of the change, the Company recorded incremental
depreciation of approximately $1,000 in the three months ended
September 27, 2002 and approximately $3,100 in the first nine months of
2002, which is reflected in cost of goods sold in the accompanying
September 27, 2002 consolidated statement of operations.
Effective January 1, 2001, the Company changed its accounting estimates
relating to the depreciable life of a portion of its rental fleet. The
change was based upon a study performed by the Company that showed that
the renovation of the plywood surface of certain products within the
rental fleet extended the useful life beyond normal repair and
maintenance. Accordingly, the Company began capitalizing rather than
expensing these renovation related expenditures. Simultaneously, the
useful lives of the plywood surface was reduced from fifteen years to
three years to match the useful life of the renovation. As a result of
the change, the Company recorded incremental depreciation of
approximately $2,300 in the nine months ended September 28, 2001, which
is reflected in cost of goods sold in the accompanying September 28,
2001 consolidated statement of operations.
(d) NEW ACCOUNTING PRONOUNCEMENTS--In July 2002, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities." The standard requires companies to recognize
costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are
associated with a restructuring or other exit or disposal activity.
Statement 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company has not yet
assessed the impact of the adoption of this standard on its
consolidated financial position, results of operations or cash flows.
8
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 revises
the accounting for future business combinations to only allow the
purchase method of accounting. In addition, the two statements preclude
amortization of goodwill for periods beginning after December 15, 2001.
Instead, an annual review of the recoverability of the goodwill and
intangible assets is required. Certain other intangible assets continue
to be amortized over their estimated useful lives.
The Company adopted SFAS No. 142 effective January 1, 2002. As a result
of adopting SFAS No. 142, the Company recorded a non-cash charge in the
first quarter of 2002 of $17,140 ($19,894 of goodwill, less an income
tax benefit of $2,754), which is reflected as a cumulative effect of
change in accounting principle. This amount does not affect the
Company's ongoing operations. The goodwill arose from the acquisitions
of Dur-O-Wal in 1995, Southern Construction Products in 1999, and
Polytite in 2000, all of which manufacture and sell metal accessories
used in masonry construction. The masonry products market has
experienced weaker markets and significant price competition, which has
had a negative impact on the product line's earnings and fair value.
The following is a reconciliation from reported net income/(loss) to
net income/(loss) adjusted for the amortization of goodwill:
Three Fiscal Months Nine Fiscal Months
Ended Ended
----------------------------- ------------------------------
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
-------------- ------------- -------------- --------------
Net income (loss) before cumulative effect
of change in accounting principle, as
reported $ 2,587 $ 2,000 $ 2,467 $(1,346)
Amortization of goodwill, net of tax benefit - 843 - 2,531
------- ------- ------- -------
Net income before cumulative effect of
change in accounting principle, as
adjusted $ 2,587 $ 2,843 $ 2,467 $ 1,185
======= ======= ======= =======
(e) Reclassifications--Certain reclassifications have been made to the 2001
amounts to conform to their 2002 classifications.
9
(4) CREDIT ARRANGEMENTS
Following is a summary of the Company's long-term debt as of September 27, 2002
and December 31, 2001:
September 27, December 31,
2002 2001
------------- ------------
Revolving credit facility, weighted average interest rate of 5.0% $ 16,650 $ 2,000
Acquisition credit facility, weighted average interest rate of 4.7% 9,250 9,250
Term Loan Tranche A, weighted average interest rate of 4.7% 20,221 22,161
Term Loan Tranche B, weighted average interest rate of 5.2% 97,761 98,500
Senior Subordinated Notes, interest rate of 13.0% 170,000 170,000
Debt discount on Senior Subordinated Notes (10,634) (11,297)
Debentures previously held by Dayton Superior Capital Trust,
interest rate of 9.1%, due on demand 1,122 1,214
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0%
95 118
Capital lease obligation 1,662 -
--------- ---------
Total long-term debt 306,127 291,946
Less current maturities (5,878) (5,001)
--------- ---------
Long-term portion $ 300,249 $ 286,945
========= =========
As of September 27, 2002, the Company's credit facility consisted of (i) a
$50,000 revolving credit facility maturing June 2006, (ii) a $30,000 acquisition
facility, converting from revolving loans into term loans three years from the
closing and maturing June 2006 and (iii) term loan facilities in an aggregate
principal amount of $122,000, consisting of a $23,500 tranche A facility
maturing June 2006 and a $98,500 tranche B facility maturing June 2008.
The credit facility provides that the Company will repay (i) the tranche A
facility in quarterly installments commencing March 2002, (ii) the tranche B
facility in quarterly installments, commencing March 2002 and (iii) the
acquisition facility, in equal quarterly installments commencing in June 2004.
The credit facility has several interest rate options, which reprice on a
short-term basis.
At September 27, 2002, the Company had outstanding letters of credit of
approximately $6,300, and the Company had available borrowings of approximately
$27,000 under its revolving credit facility.
The average borrowings, maximum borrowings, and weighted average interest rates
on the revolving credit facility and its predecessor for the periods indicated
were as follows:
Three Fiscal Months Ended Nine Fiscal Months Ended
------------------------------ -------------------------------
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Revolving Credit Facility:
Average borrowing $22,258 $ 7,529 $17,081 $11,413
Maximum borrowing 27,925 12,425 29,275 26,425
Weighted average interest rate 5.8% 7.8% 6.2% 8.1%
10
The credit facility contains certain restrictive covenants, which require that,
among other things, the Company maintain a minimum interest coverage ratio, not
exceed a certain leverage ratio, maintain a minimum EBITDA, as defined, and
limit its capital expenditures. The Company was in compliance with its loan
covenants as of September 27, 2002.
On October 23, 2002, the Company obtained an amendment to the senior credit
facility to relax certain financial ratios that the Company was required to
maintain. The adjustments will affect the next eight fiscal quarters, beginning
with the quarter ended December 31, 2002.
The Senior Subordinated Notes (the "Notes") have a principal amount of $170,000
and mature in June 2009. The Notes were issued at a discount, which is being
accreted to the face value using the effective interest method and is reflected
as interest expense. The Notes were issued with warrants that allow the holder
to purchase 117,276 of the Company's Common Shares for $0.01 per share. The
Company's wholly-owned domestic subsidiaries (Aztec Concrete Accessories, Inc.;
Trevecca Holdings, Inc.; Dayton Superior Specialty Chemical Corp.; Symons
Corporation; and Dur-O-Wal, Inc.) have guaranteed the Notes. The wholly-owned
foreign subsidiaries of the Company are not guarantors of the Notes and do not
have any credit arrangements senior to the Notes. Following are the supplemental
consolidating condensed balance sheets as of September 27, 2002 and December 31,
2001, as well as the supplemental consolidating condensed statements of
operations for the three and nine fiscal months ended September 27, 2002 and
September 28, 2001 and cash flows for the nine fiscal months ended September 27,
2002 and September 28, 2001.
11
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Balance Sheet
As of September 27, 2002
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Cash $ 4,042 $ (670) $ 762 $ - $ 4,134
Accounts receivable, net 38,160 33,590 2,008 - 73,758
Inventories 25,346 27,640 847 - 53,833
Intercompany 59,779 (59,619) (160) - -
Other current assets 6,274 5,588 150 - 12,012
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS 133,601 6,529 3,607 - 143,737
Rental, net 5,847 57,953 41 - 63,841
Property, plant and equipment, net 25,622 34,756 172 - 60,550
Investment in subsidiaries 123,041 - - (123,041) -
Other assets 55,053 65,444 - - 120,497
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 343,164 $ 164,682 $ 3,820 $(123,041) $ 388,625
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt $ 5,878 $ - $ - $ - $ 5,878
Accounts payable 13,209 14,216 424 - 27,849
Accrued liabilities 21,127 10,130 241 - 31,498
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 40,214 24,346 665 - 65,225
Long-term debt, net 300,249 - - - 300,249
Other long-term liabilities 2,083 18,619 187 - 20,889
Total shareholders' equity 618 121,717 2,968 (123,041) 2,262
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 343,164 $ 164,682 $ 3,820 $(123,041) $ 388,625
========= ========= ========= ========= =========
12
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Balance Sheet
As of December 31, 2001
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Cash $ 2,714 $ 832 $ 1,443 $ - $ 4,989
Accounts receivable, net 20,014 30,516 1,098 - 51,628
Inventories 23,030 23,925 945 - 47,900
Intercompany 58,692 (58,584) (108) - -
Other current assets 9,046 9,594 184 - 18,824
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS 113,496 6,283 3,562 - 123,341
Rental equipment, net 6,256 65,009 58 - 71,323
Property, plant and equipment, net 23,708 36,222 191 - 60,121
Investment in subsidiaries 122,864 - - (122,864) -
Other assets 55,899 86,159 - - 142,058
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 322,223 $ 193,673 $ 3,811 $(122,864) $ 396,843
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current maturities of long-term debt $ 5,001 $ - $ - $ - $ 5,001
Accounts payable 12,579 14,548 213 - 27,340
Accrued liabilities 20,004 13,742 311 - 34,057
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 37,584 28,290 524 - 66,398
Long-term debt, net 286,945 - - - 286,945
Other long-term liabilities 4,461 22,132 186 - 26,779
Total shareholders' equity (deficit) (6,767) 143,251 3,101 (122,864) 16,721
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT) $ 322,223 $ 193,673 $ 3,811 $(122,864) $ 396,843
========= ========= ========= ========= =========
13
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Three Fiscal Months Ended September 27, 2002
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 56,602 $ 47,075 $ 1,608 $105,285
Cost of sales 34,523 33,314 825 68,662
-------- -------- -------- --------
Gross profit 22,079 13,761 783 36,623
Selling, general and administrative
expenses 8,781 12,159 409 21,349
Facility closing and severance expenses 1,644 641 - 2,285
Amortization of goodwill and intangibles 56 94 - 150
Management fees (75) - 75 -
-------- -------- -------- --------
Income from operations 11,673 867 299 12,839
Other expenses
Interest expense 8,240 228 - 8,468
Other expense (income), net (72) 107 24 59
-------- -------- -------- --------
Income before provision for income taxes 3,505 532 275 4,312
Provision for income taxes 1,402 213 110 1,725
-------- -------- -------- --------
Net income $ 2,103 $ 319 $ 165 $ 2,587
======== ======== ======== ========
14
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Three Fiscal Months Ended September 28, 2001
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 52,232 $ 54,435 $ 2,659 $109,326
Cost of sales 34,846 33,442 1,681 69,969
-------- -------- -------- --------
Gross profit 17,386 20,993 978 39,357
Selling, general and administrative
expenses 9,024 13,617 385 23,026
Facility closing and severance expenses 110 1,228 - 1,338
Amortization of goodwill and intangibles 574 411 - 985
Management fees (75) - 75 -
-------- -------- -------- --------
Income from operations 7,753 5,737 518 14,008
Other expenses
Interest expense 8,838 109 - 8,947
Other expense, net - 89 - 89
-------- -------- -------- --------
Income (loss) before provision (benefit)
for income taxes (1,085) 5,539 518 4,972
Provision (benefit) for income taxes 3,647 (436) (239) 2,972
-------- -------- -------- --------
Net income (loss) $ (4,732) $ 5,975 $ 757 $ 2,000
======== ======== ======== ========
15
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Nine Fiscal Months Ended September 27, 2002
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 134,752 $ 151,259 $ 4,282 $ 290,293
Cost of sales 81,912 106,440 2,214 190,566
--------- --------- --------- ---------
Gross profit 52,840 44,819 2,068 99,727
Selling, general and administrative
expenses 29,130 37,060 1,175 67,365
Facility closing and severance expenses 2,129 730 - 2,859
Amortization of goodwill and intangibles 197 104 - 301
Management fees (225) - 225 -
--------- --------- --------- ---------
Income from operations 21,609 6,925 668 29,202
Other expenses
Interest expense 24,327 554 - 24,881
Other expense, net 37 119 53 209
Income (loss) before provision (benefit)
for income taxes (2,755) 6,252 615 4,112
Provision (benefit) for income taxes (1,102) 2,501 246 1,645
--------- --------- --------- ---------
Net income (loss) before cumulative effect of
change in accounting principle (1,653) 3,751 369 2,467
Cumulative effect of change in accounting
principle, net of income tax benefit of
$2,754 - (17,140) - (17,140)
--------- --------- --------- ---------
Net income (loss) $ (1,653) $ (13,389) $ 369 $ (14,673)
========= ========= ========= =========
16
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Nine Fiscal Months Ended September 28, 2001
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 145,715 $ 150,923 $ 7,109 $ 303,747
Cost of sales 96,685 95,745 4,503 196,933
--------- --------- --------- ---------
Gross profit 49,030 55,178 2,606 106,814
Selling, general and administrative
expenses 29,039 43,494 1,265 73,798
Facility closing and severance expenses 2,045 2,613 - 4,658
Amortization of goodwill and intangibles 1,487 1,489 - 2,976
Management fees (225) - 225 -
--------- --------- --------- ---------
Income from operations 16,684 7,582 1,116 25,382
Other expenses
Interest expense 26,256 435 - 26,691
Other expense (income), net (3) 96 - 93
--------- --------- --------- ---------
Income (loss) before provision (benefit)
for income taxes (9,569) 7,051 1,116 (1,402)
Provision (benefit) for income taxes (383) 282 45 (56)
--------- --------- --------- ---------
Net income (loss) $ (9,186) $ 6,769 $ 1,071 $ (1,346)
========= ========= ========= =========
17
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Nine Fiscal Months Ended September 27, 2002
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,653) $(13,389) $ 369 $(14,673)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 5,432 11,641 38 17,111
Cumulative effect of change in
accounting principle - 17,140 - 17,140
Deferred income taxes (30) - - (30)
Gain on sales of rental equipment and
fixed assets (764) (13,499) (21) (14,284)
Change in assets and liabilities (8,903) (16,067) (1,243) (26,213)
-------- -------- -------- --------
Net cash used in operating activities (5,918) (14,174) (857) (20,949)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (5,364) (2,976) (50) (8,390)
Proceeds from sales of fixed assets 1,094 877 28 1,999
Rental equipment additions (482) (8,103) (20) (8,605)
Proceeds from sales of rental equipment 544 20,242 52 20,838
-------- -------- -------- --------
Net cash provided by (used in)
investing activities (4,208) 10,040 10 5,842
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net 11,778 - - 11,778
Proceeds from sale/leaseback transaction 633 1,597 28 2,258
Redemption of Class A common shares and
purchase of treasury shares (205) - - (205)
Repayment of loans to shareholders 249 - - 249
Issuance of common shares 86 - - 86
Intercompany (1,087) 1,035 52 -
-------- -------- -------- --------
Net cash provided by financing activities 11,454 2,632 80 14,166
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 86 86
-------- -------- -------- --------
Net increase (decrease) in cash 1,328 (1,502) (681) (855)
CASH, beginning of period 2,714 832 1,443 4,989
-------- -------- -------- --------
CASH, end of period $ 4,042 $ (670) $ 762 $ 4,134
======== ======== ======== ========
18
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Nine Fiscal Months Ended September 28, 2001
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,186) $ 6,769 $ 1,071 $ (1,346)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 6,366 12,872 35 19,273
Deferred income taxes (1,661) - - (1,661)
Gain on sales of rental equipment and
fixed assets (419) (6,918) (67) (7,404)
Change in assets and liabilities, net of
the effects of acquisitions (4,330) 2,063 (1,864) (4,131)
-------- -------- -------- --------
Net cash provided by (used in)
operating activities (9,230) 14,786 (825) 4,731
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (3,106) (3,804) (48) (6,958)
Rental equipment additions (1,200) (17,428) (42) (18,670)
Proceeds from sale of rental equipment 963 11,015 134 12,112
Acquisitions, net (40,707) - - (40,707)
-------- -------- -------- --------
Net cash provided by (used in)
investing activities (44,050) (10,217) 44 (54,223)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net 50,301 - - 50,301
Purchase of treasury shares (791) - - (791)
Issuance of common shares (998) - - (998)
Financing costs incurred 5,501 - - 5,501
Intercompany 1,455 (2,536) 1,081 -
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 55,468 (2,536) 1,081 54,013
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (160) (160)
-------- -------- -------- --------
Net increase in cash 2,188 2,033 140 4,361
CASH, beginning of period 1,603 (825) 1,004 1,782
-------- -------- -------- --------
CASH, end of period $ 3,791 $ 1,208 $ 1,144 $ 6,143
======== ======== ======== ========
19
(5) STOCK OPTION PLANS
The Company has a stock option plan, which provides for an option exercise price
equal to the stock's market price on the date of grant. The options are
accounted for under APB Opinion No. 25, under which no compensation costs have
been recognized. Had compensation cost for these plans been determined
consistent with Statement of Financial Accounting Standards No.123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), the Company's net income (loss) for
the three and nine fiscal months ended September 27, 2002 and September 28, 2001
would have been reduced to the following pro forma amounts:
Three Fiscal Months Nine Fiscal Months
Ended Ended
------------------------------- ------------------------------
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net income (loss) As Reported $2,587 $2,000 $(14,673) $(1,346)
Pro Forma 2,550 1,816 (14,807) (1,909)
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
A summary of the activity of the Company's stock option plans for the nine
fiscal months ended September 27, 2002 is presented in the table below:
Weighted Average
Number of Exercise Price Per
Share Shares
------- ---------
Outstanding at December 31, 2001 541,258 $ 24.17
Granted 107,839 27.50
Exercised (3,050) 2.29
Cancelled (5,666) 24.49
------- ---------
Outstanding at September 27, 2002 640,381 $ 24.83
======= =========
(6) SEGMENT REPORTING
The Company operates in three segments: concrete accessories, concrete forming
systems, and paving products. The segments are differentiated by their products
and services, all of which serve the construction industry.
Sales between segments are recorded at normal selling price by the selling
division and at cost for the buying division, with the profit recorded as an
intersegment elimination. Segment assets include accounts receivable;
inventories; property, plant, and equipment; rental equipment; and an allocation
of goodwill. Corporate and unallocated assets include cash, prepaid income
taxes, future tax benefits, and financing costs. Export sales and sales by
non-U.S. affiliates are not significant.
20
Information about the income (loss) of each segment and the reconciliations to
the consolidated amounts for the three and nine fiscal months ended September
27, 2002 and September 28, 2001 is as follows:
Three Fiscal Months Nine Fiscal Months
Ended Ended
------------------------------ ----------------------------
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- ------------
Concrete Accessories $ 55,490 $ 60,702 $ 158,993 $ 170,592
Concrete Forming Systems 31,685 32,900 86,834 92,707
Paving Products 18,110 15,724 44,466 40,448
--------- --------- --------- ---------
Net sales to external customers $ 105,285 $ 109,326 $ 290,293 $ 303,747
========= ========= ========= =========
Concrete Accessories $ 1,348 $ 1,707 $ 3,986 $ 4,272
Concrete Forming Systems 2,521 2,048 6,543 5,478
Paving Products 841 1,074 2,036 2,369
--------- --------- --------- ---------
Net sales to other segments $ 4,710 $ 4,829 $ 12,565 $ 12,119
========= ========= ========= =========
Concrete Accessories $ 7,281 $ 9,606 $ 22,020 $ 21,441
Concrete Forming Systems 6,867 5,707 12,950 9,842
Paving Products 2,931 2,565 5,595 5,199
Corporate (1,469) (1,153) (4,539) (4,391)
Intersegment Eliminations (2,771) (2,717) (6,824) (6,709)
--------- --------- --------- ---------
Income from operations $ 12,839 $ 14,008 $ 29,202 $ 25,382
========= ========= ========= =========
Concrete Accessories $ 2,688 $ 3,147 $ 8,206 $ 9,585
Concrete Forming Systems 4,455 5,011 13,636 14,991
Paving Products 1,325 789 3,039 2,115
--------- --------- --------- ---------
Interest expense $ 8,468 $ 8,947 $ 24,881 $ 26,691
========= ========= ========= =========
Concrete Accessories $ 4,563 $ 6,690 $ 13,642 $ 12,083
Concrete Forming Systems 2,349 776 (762) (5,069)
Paving Products 1,640 1,776 2,595 3,084
Corporate (1,469) (1,553) (4,539) (4,791)
Intersegment Eliminations (2,771) (2,717) (6,824) (6,709)
--------- --------- --------- ---------
Income (loss) before income taxes $ 4,312 $ 4,972 $ 4,112 $ (1,402)
========= ========= ========= =========
Concrete Accessories $ 1,031 $ 1,035 $ 3,275 $ 3,643
Concrete Forming Systems 3,596 3,208 10,520 9,971
Paving Products 391 274 1,099 823
Corporate 67 70 195 185
--------- --------- --------- ---------
Depreciation $ 5,085 $ 4,587 $ 15,089 $ 14,622
========= ========= ========= =========
Concrete Accessories $ 37 $ 880 $ 120 $ 2,568
Concrete Forming Systems 94 64 104 274
Paving Products 19 41 77 134
--------- --------- --------- ---------
Amortization of goodwill and intangibles $ 150 $ 985 $ 301 $ 2,976
========= ========= ========= =========
21
Information regarding capital expenditures by segment and the reconciliation to
the consolidated amounts for the three and nine fiscal months ended September
27, 2002 and September 28, 2001 is as follows:
Three Fiscal Months Ended Nine Fiscal Months Ended
--------------------------- ---------------------------
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Concrete Accessories $ 475 $ 1,626 $ 2,610 $ 4,107
Concrete Forming Systems 948 630 2,281 1,925
Paving Products 439 309 3,443 794
Corporate 10 10 56 132
------- ------- ------- -------
Property, Plant and Equipment Additions $ 1,872 $ 2,575 $ 8,390 $ 6,958
======= ======= ======= =======
Concrete Accessories $ 139 $ 449 $ 565 $ 1,261
Concrete Forming Systems 2,444 7,909 8,040 17,409
------- ------- ------- -------
Rental Equipment Additions $ 2,583 $ 8,358 $ 8,605 $18,670
======= ======= ======= =======
Information regarding each segment's assets and the reconciliation to the
consolidated amounts as of September 27, 2002 and December 31, 2001 is as
follows:
As of
-------------------------------------
September 27, 2002 December 31, 2001
------------------ -----------------
Concrete Accessories $186,074 $212,008
Concrete Forming Systems 135,354 135,302
Paving Products 39,988 24,858
Corporate and Unallocated 27,209 24,675
-------- --------
Total Assets $388,625 $396,843
======== ========
22
(7) FACILITY CLOSING AND SEVERANCE EXPENSES
During the third quarter of 2002, the Company approved and began implementing
plans to exit certain of its distribution facilities and to reduce overall
Company headcount in order to keep its cost structure in alignment with its net
sales. The total anticipated cost of the facility closure and severance was
$2,285, and encompassed approximately 100 employee terminations. The total
estimated exit costs are comprised of approximately $1,685 related to employee
involuntary termination benefits, approximately $430 related to lease
termination costs, and approximately $170 related to other post-closing
maintenance costs. Accordingly, the Company incurred and recorded a facility
closing and severance expense of $2,285 in the third quarter of 2002.
During the second quarter of 2002, the Company approved and began implementing
plans to exit one of its distribution facilities and to reduce overall Company
headcount in order to keep its cost structure in alignment with its net sales.
The total anticipated cost of the facility closure and severance was $440, and
encompassed approximately eight employee terminations. The total estimated exit
costs are comprised of approximately $190 related to employee involuntary
termination benefits, approximately $220 related to lease termination costs, and
approximately $30 related to other post-closing maintenance costs. Accordingly,
the Company incurred and recorded a facility closing and severance expense of
approximately $440 in the second quarter of 2002.
During 2001, the Company approved and began implementing two plans to exit
certain manufacturing and distribution facilities and to reduce overall Company
headcount. As a result of the continued implementation of the plans, the Company
has incurred $134 of facility closing and severance expense in 2002, which is
related primarily to facility relocation activities.
As of September 27, 2002, approximately $2,400 of the amounts accruable at the
time of the plans' approval is included in "Other Accrued Liabilities" in the
accompanying September 27, 2002 balance sheet.
Below is a summary of the amounts charged against the facility closing and
severance reserves in 2002:
Nine Fiscal Months Ended
September 27, 2002
------------------------
Balance at December 31, 2001 $ 2,900
Facility Closing and Severance Expense 2,859
Items Charged Against Reserve:
Involuntary Termination Costs (1,749)
Lease Termination Costs (484)
Other Post-Closing Costs (1,122)
-------
Balance at September 27, 2002 $ 2,404
=======
23
(8) SALE/LEASEBACK TRANSACTION
In July 2002, the Company completed a transaction for the sale and leaseback of
its forklift fleet. The transaction resulted in proceeds of $2,258 and a gain of
$276 which was deferred and is being amortized over the term of the leases. The
unamortized deferred gain at September 27, 2002 was $276. A portion of the fleet
was recorded as a capital lease and an initial capital lease obligation of
$1,740 was recorded. The remaining fleet is recorded as an operating lease.
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We believe we are the largest North American manufacturer and distributor of
metal accessories and forms used in concrete construction and of metal
accessories used in masonry construction. Although almost all of our products
are used in concrete or masonry construction, the function and nature of the
products differ widely. As of September 27, 2002, we had three principal
operating divisions, which are organized around the following product lines:
- Concrete Accessories;
- Concrete Forming Systems; and
- Paving Products.
ACQUISITIONS
We have completed and integrated two acquisitions since the beginning of 2001.
These acquisitions are summarized in the following table:
Purchase Price
Date Business Acquired Division (In millions)
---- ----------------- -------- -------------
January 2001 Aztec Concrete Accessories Concrete Accessories $32.8
June 2001 BarLock Concrete Accessories 9.9
25
RESULTS OF OPERATIONS
The following table summarizes our results of operations as a percentage of net
sales.
THREE FISCAL MONTHS NINE FISCAL MONTHS
ENDED ENDED
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 65.2 64.0 65.6 64.8
----- ----- ----- -----
Gross profit 34.8 36.0 34.4 35.2
Selling, general and administrative expenses 20.3 21.1 23.2 24.3
Facility closing and severance expenses 2.2 1.2 1.0 1.5
Amortization of goodwill and intangibles 0.1 0.9 0.1 1.0
----- ----- ----- -----
Income from operations 12.2 12.8 10.1 8.4
Interest expense, net 8.0 8.2 8.6 8.8
Other expense, net 0.1 0.1 0.1 -
----- ----- ----- -----
Income (loss) before provision (benefit) for
income taxes 4.1 4.5 1.4 (0.4)
Provision for income taxes 1.6 2.7 0.6 -
----- ----- ----- -----
Net income (loss) before cumulative effect of change
in accounting principle 2.5 1.8 0.8 (0.4)
Cumulative effect of change in accounting principle - - (5.9) -
----- ----- ----- -----
Net income (loss) 2.5% 1.8% (5.1)% (0.4)%
===== ===== ===== =====
COMPARISON OF THREE FISCAL MONTHS ENDED SEPTEMBER 27, 2002 AND SEPTEMBER 28,
2001
NET SALES
Net sales decreased $4.0 million, or 3.7%, to $105.3 million in the third
quarter of 2002 from $109.3 million in the third quarter of 2001. The following
table summarizes net sales by segment:
Three Fiscal Months Ended
----------------------------------------------------------------
September 27, 2002 September 28, 2001
--------------------------- ---------------------------
Net Sales % Net Sales % % Change
--------- ----- --------- ----- --------
Concrete accessories $ 56,838 54.0% $ 62,409 57.1% (8.9)%
Concrete forming systems 34,206 32.5 34,948 31.9 (2.1)
Paving products 18,951 18.0 16,798 15.4 12.8
Intersegment eliminations (4,710) (4.5) (4,829) (4.4) (2.5)
--------- ----- --------- ----- ----
Net sales $ 105,285 100.0% $ 109,326 100.0% (3.7)%
========= ===== ========= ===== ====
26
Net sales of concrete accessories decreased $5.6 million, or 8.9%, to $56.8
million in the third quarter of 2002 from $62.4 million in the third quarter of
2001. This was due to unfavorable volume and pricing as the concrete accessories
markets were weaker in the third quarter of 2002 compared to 2001.
Net sales of concrete forming systems decreased 2.1% to $34.2 million for the
third quarter of 2002 compared to $34.9 million in the third quarter of 2001.
This was also due to unfavorable rental revenues and pricing as the concrete
forming systems markets were weaker in the third quarter of 2002 compared to
2001.
Net sales of paving products increased $2.2 million, or 12.8%, in the third
quarter of 2002 compared to the third quarter of 2001. In the first quarter of
2002, state funding for highway construction projects was down as a result of
the recession and continued delays in activity on some larger airport runway
projects as a result of the September 11, 2001 terrorist attacks. During the
second and third quarters of 2002, state funding was released for these
projects, and accordingly the paving products division benefited from this
increased volume.
GROSS PROFIT
Gross profit for the third quarter of 2002 was $36.6 million, a decrease of $2.8
million from $39.4 million in the third quarter of 2001. This was due to the
unfavorable sales volume and pricing discussed previously, as well as $1.0
million of additional depreciation expense from the change in accounting
estimate in 2002. These factors were offset partially by the cost savings
realized from the implementation of the 2001 and 2002 facility closing and
severance plans.
Gross margin was 34.8% in the third quarter of 2002, decreasing from 36.0% in
the same quarter of 2001. This was due to the unfavorable sales volume and
unfavorable pricing, both of which are attributable to our markets being weaker
in 2002 compared to 2001. Gross margins were also unfavorably impacted by a
shift in the mix of products sold, as paving products, which have lower gross
margins, increased and rental revenue, which has a higher gross margin,
decreased between periods. These factors were offset partially by the increased
sales of used rental fleet, and the cost savings realized from the
implementation of the 2001 and 2002 facility closing and severance plans.
OPERATING EXPENSES
Selling, general, and administrative expenses ("SG&A expenses") decreased $1.7
million to $21.3 million in the third quarter of 2002, from $23.0 million in the
third quarter of 2001, primarily due to the cost savings realized from the
implementation of the 2001 and 2002 facility closing and severance plans.
During the third quarter of 2002, we approved and began implementing plans to
exit certain of our distribution facilities and to reduce overall headcount to
keep our cost structure in alignment with our net sales. The total anticipated
cost of the facility closure and severance is $2.3 million, and is to encompass
approximately 100 employee terminations. The total estimated exit costs are
comprised of approximately $1.7 million related to employee involuntary
termination benefits, approximately $0.4 million related to lease termination
27
costs and $0.2 million related to other post-closing maintenance costs.
Accordingly, we recorded a facility closing and severance expense of
approximately $2.3 million in the third quarter of 2002.
During 2001, we approved and began implementing two plans to exit certain
manufacturing and distribution facilities and to reduce overall headcount. As a
result of the implementation of the plans, we incurred $1.3 million of facility
closing and severance expense in the third quarter of 2002.
Below is a summary of the amounts charged against the facility closing and
severance reserves in 2002:
Three Fiscal Months
Ended September 27,
2002
--------
Balance at June 28, 2002 $1.4
Facility Closing and Severance Expense 2.3
Items Charged Against Reserve:
Involuntary Termination Costs (0.8)
Lease Termination Costs (0.2)
Other Post-Closing Costs (0.3)
--------
Balance at September 27, 2002 $2.4
========
Amortization of goodwill and intangibles decreased to $0.2 million in the third
quarter of 2002 from $1.0 million in the third quarter of 2001 due to the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 142
"Goodwill and Other Intangible Assets." This statement precludes amortization of
goodwill for periods beginning after December 15, 2001. Instead, an annual
review of the recoverability of the goodwill and intangible assets is required.
Certain other intangible assets continue to be amortized over their estimated
useful lives. The adoption of the new accounting standard will result in a
reduction in annual amortization expense of approximately $3.7 million. The
amount of amortization expense recognized in the third quarter of 2001, which
was not recognized in the third quarter of 2002 was approximately $0.8 million.
OTHER EXPENSES
Interest expense decreased to $8.5 million in the third quarter of 2002 from
$8.9 million in the third quarter of 2001 due to lower interest rates in the
third quarter of 2002 compared to 2001.
28
INCOME BEFORE INCOME TAXES
Income before income taxes in the third quarter of 2002 was $4.3 million as
compared to $5.0 million in the third quarter of 2001 and was comprised of the
following:
Three Fiscal Months Ended
-------------------------------
September 27, September 28,
2002 2001
------------- -------------
Concrete accessories $ 4,563 $ 6,690
Concrete forming systems 2,349 776
Paving products 1,640 1,776
Corporate (1,469) (1,553)
Intersegment eliminations (2,771) (2,717)
------- -------
Income before income taxes $ 4,312 $ 4,972
======= =======
Concrete accessories' income before income taxes of $4.6 million in the third
quarter of 2002 decreased from $6.7 million in the third quarter of 2001. This
was due to the decreased sales volume, unfavorable pricing and unfavorable mix
due to weaker markets in 2002 compared to 2001 offset partially by the benefit
of the cost reduction initiatives implemented by management, the reduction in
amortization expense with the adoption of SFAS No. 142, and lower interest
expense as a result of lower interest rates. In addition, the facility closing
and severance charge recorded in the third quarter of 2002 was $1.8 million
compared to $0.5 million in the third quarter of 2001.
Concrete forming systems' income before income taxes of $2.3 million in the
third quarter of 2002 increased $1.5 million from $0.8 million in the third
quarter of 2001. This was due to the benefit of the cost reduction initiatives
implemented by management, lower interest expense as a result of lower interest
rates, and the increased sales of used rental fleet. These were offset partially
by decreased sales volume, unfavorable pricing and unfavorable mix and $1.0
million of additional depreciation expense from the change in accounting
estimate in 2002.
Income before income taxes from paving products decreased to $1.6 million in the
third quarter of 2002 from $1.8 million in the third quarter of 2001. This was
due to the increased interest expense as a result of average borrowings being
higher in 2002 offset partially by higher net sales volume in the third quarter
of 2002. The increase in average borrowings was due primarily to an inventory
build as a result of the first quarter 2002 delays in releasing state funding
for highway construction projects and delays in activity on some larger airport
runway projects, and increased spending on the construction of a new
manufacturing facility in Birmingham, AL.
29
Corporate expenses in the third quarter of 2002 decreased slightly from the
third quarter of 2001 as a result of the cost reduction initiatives implemented
by management.
Elimination of profit on intersegment sales was virtually flat between periods.
NET INCOME
The effective tax rate decreased to 40.0% in the third quarter of 2002 from
59.8% in the third quarter of 2001. The reduction in the effective tax rate is
due to the adoption of SFAS No. 142, which eliminated non-deductible goodwill
amortization in the third quarter of 2002. Net income for the third quarter of
2002 was $2.6 million compared to $2.0 million in the second quarter of 2001 due
to the factors described above.
COMPARISON OF NINE FISCAL MONTHS ENDED SEPTEMBER 27, 2002 AND SEPTEMBER 28, 2001
NET SALES
Net sales decreased $13.4 million, or 4.4%, to $290.3 million in the first nine
months of 2002 from $303.7 million in the first nine months of 2001. The
following table summarizes net sales by segment:
Nine Fiscal Months Ended
--------------------------------------------------------
September 27, 2002 September 28, 2001
-------------------------- ---------------------------
Net Sales % Net Sales % % Change
---------- ---------- -------------- --------- --------
Concrete accessories $ 162,979 56.1% $ 174,864 57.6% (6.8)%
Concrete forming systems 93,377 32.2 98,185 32.3 (4.9)
Paving products 46,502 16.0 42,817 14.1 8.6
Intersegment eliminations (12,565) (4.3) (12,119) (4.0) 3.7
--------- ----- --------- -----
Net sales $ 290,293 100.0% $ 303,747 100.0% (4.4)%
========= ===== ========= =====
Net sales of concrete accessories decreased $11.9 million, or 6.8%, to $163.0
million in the first nine months of 2002 from $174.9 million in the first nine
months of 2001. This was due to unfavorable volume and pricing as the concrete
accessories markets were weaker in the first nine months of 2002 compared to
2001. This was partially offset by increased sales as a result of the BarLock
acquisition, which contributed $3.2 million.
Net sales of concrete forming systems decreased 4.9% to $93.4 million for the
first nine months of 2002 compared to $98.2 million in the first nine months of
2001. This was also due to unfavorable rental revenues and pricing as the
concrete forming systems markets were weaker in the first nine months of 2002
compared to 2001.
Net sales of paving products increased $3.7 million, or 8.6%, in the first nine
months of 2002 compared to the first nine months of 2001 due to an increase in
volume as a result of the Transportation Equity Act for the 21st Century, known
as TEA-21.
30
GROSS PROFIT
Gross profit for the first nine months of 2002 was $99.7 million, a decrease of
$7.1 million from $106.8 million in the first nine months of 2001. This was due
to the unfavorable sales volume and pricing discussed previously, offset
partially by the cost savings realized from the implementation of the 2001 and
2002 facility closing and severance plans.
Gross margin was 34.4% in the first nine months of 2002, decreasing from 35.2%
last year. This was due to the unfavorable sales volume and unfavorable pricing,
both of which are attributable to our markets being weaker in 2002 compared to
2001. Gross margins were also unfavorably impacted by a shift in the mix of
products sold, as paving products have lower gross margins. These were offset
partially by the increased sales of used rental fleet, and the cost savings
realized from the implementation of the 2001 and 2002 facility closing and
severance plans.
OPERATING EXPENSES
Selling, general, and administrative expenses ("SG&A expenses") decreased $6.4
million to $67.4 million in the first nine months of 2002, from $73.8 million in
the first nine months of 2001, primarily due to the cost savings realized from
the implementation of the 2001 and 2002 facility closing and severance plans and
the receipt of approximately $0.2 million, net of recovery expenses, from Royal
Surplus Lines Insurance Co. to cover certain costs related to the EFCO
litigation. These factors were offset partially by the increased SG&A expenses
as a result of the BarLock acquisition.
During the third quarter of 2002, we approved and began implementing plans to
exit certain of our distribution facilities and to reduce overall headcount in
order to keep our cost structure in alignment with our net sales. The total
anticipated cost of the facility closure and severance is $2.3 million, and is
to encompass approximately 100 employee terminations. The total estimated exit
costs are comprised of approximately $1.7 million related to employee
involuntary termination benefits, approximately $0.4 million related to lease
termination costs and $0.2 million related to other post-closing maintenance
costs. Accordingly, we recorded a facility closing and severance expense of
approximately $2.3 million in the third quarter of 2002.
During the second quarter of 2002, we approved and began implementing plans to
exit one of our distribution facilities and to reduce overall headcount in order
to keep our cost structure in alignment with our net sales. The total
anticipated cost of the facility closure and severance is $0.4 million, and is
to encompass approximately eight employee terminations. The total estimated exit
costs are comprised of approximately $0.2 million related to employee
involuntary termination benefits, and approximately $0.2 million related to
lease termination costs and other post-closing maintenance costs. Accordingly,
we recorded a facility closing and severance expense of approximately $0.4
million in the first nine months of 2002 related to this plan.
31
During 2001, we approved and began implementing plans to exit certain
manufacturing and distribution facilities and to reduce overall headcount in
order to keep our cost structure in alignment with our net sales. The total
anticipated cost of the facility closures and severance was $4.7 million, and
was to encompass approximately 200 employee terminations. Of this amount,
approximately $3.3 million was expensed during the second quarter of 2001. The
total estimated exit costs were comprised of approximately $1.7 million related
to employee involuntary termination benefits, approximately $0.7 million related
to lease termination costs, approximately $1.0 million related to relocation
activities and approximately $1.2 million related to other post-closing
maintenance costs. As a result of the continued implementation of the plans, we
incurred approximately $0.2 million of facility closing and severance expense in
2002, which is related primarily to facility relocation activities.
Below is a summary of the amounts charged against the facility closing and
severance reserves in 2002:
Nine Fiscal Months
Ended September 27,
2002
-------------------
Balance at December 31, 2001 $ 2.9
Facility Closing and Severance Expense 2.9
Items Charged Against Reserve:
Involuntary Termination Costs (1.7)
Lease Termination Costs (0.5)
Other Post-Closing Costs (1.2)
------
Balance at September 27, 2002 $ 2.4
======
Amortization of goodwill and intangibles decreased to $0.3 million in the first
nine months of 2002 from $3.0 million in the first nine months of 2001 due to
the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142
"Goodwill and Other Intangible Assets." This statement precludes amortization of
goodwill for periods beginning after December 15, 2001. Instead, an annual
review of the recoverability of the goodwill and intangible assets is required.
Certain other intangible assets continue to be amortized over their estimated
useful lives. The adoption of the new accounting standard will result in a
reduction in annual amortization expense of approximately $3.7 million. The
amount of amortization expense recognized in the first nine months of 2001,
which was not recognized in the first nine months of 2002 was approximately $2.7
million.
OTHER EXPENSES
Interest expense decreased to $24.9 million in the first nine months of 2002
from $26.7 million in the first nine months of 2001 due to lower interest rates
in the first nine months of 2002 compared to 2001, offset partially by increased
long-term debt resulting from the acquisition of BarLock in June 2001.
32
INCOME (LOSS) BEFORE INCOME TAXES
Income before income taxes in the first nine months of 2002 was $4.1 million as
compared to a loss of $1.4 million in the first nine months of 2001 and was
comprised of the following:
Nine Fiscal Months Ended
--------------------------------
September 27, September 28,
2002 2001
-------------- --------------
Concrete accessories $ 13,642 $ 12,083
Concrete forming systems (762) (5,069)
Paving products 2,595 3,084
Corporate (4,539) (4,791)
Intersegment eliminations (6,824) (6,709)
-------- ---------
Income (loss) before income taxes $ 4,112 $ (1,402)
======== =========
Concrete accessories' income before income taxes of $13.6 million in the first
nine months of 2002 increased from $12.1 million in the first nine months of
2001. This was due to the benefit of the cost reduction initiatives implemented
by management, the benefit provided from the acquisition of BarLock, the
reduction in amortization expense with the adoption of SFAS No. 142, and lower
interest expense as a result of lower interest rates. In addition, the facility
closing and severance charge recorded in the first nine months of 2001 was $3.4
million compared to $2.2 million in the first nine months of 2002. These were
offset partially by the decreased sales volume, unfavorable pricing and
unfavorable mix in the existing business due to weaker markets in 2002 compared
to 2001.
Concrete forming systems' loss before income taxes was $0.8 million in the first
nine months of 2002 compared to a loss of $5.1 million in the first nine months
of 2001. This was due to the benefit of the cost reduction initiatives
implemented by management, lower interest expense as a result of lower interest
rates, and the increased sales of used rental fleet. In addition, the facility
closing and severance charge recorded in the first nine months of 2001 was $1.1
million compared to $0.6 million in the first nine months of 2002. These were
offset partially by the decreased sales volume, unfavorable pricing and
unfavorable mix in the existing business due to weaker markets in 2002 compared
to 2001.
Income before income taxes from paving products decreased to $2.6 million in the
first nine months of 2002 from $3.1 million in the first nine months of 2001.
This was due primarily to an unfavorable mix of product sales, as well as higher
interest expense as a result of higher average borrowings in 2002. The increase
in average borrowings was due primarily to an inventory build as a result of the
first quarter 2002 delays in releasing state funding for highway construction
projects and delays in activity on some larger airport runway projects, and
increased spending on the construction of a new manufacturing facility in
Birmingham, AL. These were partially offset by the benefit of increased net
sales volume in the first nine months of 2002.
33
Corporate expenses decreased to $4.5 million in the first nine months of 2002
from $4.8 million in the first nine months of 2001 as a result of the cost
reduction initiatives implemented by management.
Elimination of profit on intersegment sales was $6.8 million in the first nine
months of 2002 compared to $6.7 million in the first nine months of 2001.
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
The effective tax rate increased to 40.0% in the first nine months of 2002 from
4.0% in the first nine months of 2001. The increase in the effective tax rate is
due to the Company not recording an income tax benefit in 2001 on the pre-tax
losses due to the unfavorable impact of non-deductible goodwill amortization for
purposes of determining taxable income (losses). Net income before cumulative
effect of change in accounting principle for the first nine months of 2002 was
$2.5 million compared to a loss of $1.3 million in the first nine months of 2001
due to the factors described above.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No.
142 "Goodwill and Other Intangible Assets." SFAS No. 141 revises the accounting
for future business combinations to only allow the purchase method of
accounting. In addition, the two statements preclude amortization of goodwill
for periods beginning after December 15, 2001. Instead, an annual review of the
recoverability of the goodwill and intangible assets is required. Certain other
intangible assets continue to be amortized over their estimated useful lives.
We adopted SFAS No. 142 effective January 1, 2002. As a result of adopting SFAS
No. 142, we recorded a non-cash charge in the first half of 2002 of $17.1
million ($19.9 million of goodwill, less an income tax benefit of $2.8 million),
which is reflected as a cumulative effect of change in accounting principle.
This amount does not affect our ongoing operations. The goodwill arose from the
acquisitions of Dur-O-Wal in 1995, Southern Construction Products in 1999, and
Polytite in 2000, all of which manufacture and sell metal accessories used in
masonry construction. The masonry products market has experienced weaker markets
and significant price competition, which has had a negative impact on the
product line's earnings and fair value.
34
The following is a reconciliation from reported net income (loss) to net income
(loss) adjusted for the amortization of goodwill:
Nine Fiscal Months Ended
-------------------------------
September 27, September 28,
2002 2001
-------------- -------------
Net income (loss) before cumulative effect of change in accounting
principle, as reported $ 2,467 $(1,346)
Amortization of goodwill, net of tax benefit - 2,531
------- -------
Net income before cumulative effect of change in accounting principle,
as adjusted $ 2,467 $ 1,185
======= =======
NET LOSS
The net loss for the first nine months of 2002 was $14.7 million compared to a
loss of $1.3 million in the first nine months of 2001 due to the factors
described above.
LIQUIDITY AND CAPITAL RESOURCES
Our key statistics for measuring liquidity and capital resources are net cash
provided by (used in) operating activities, capital expenditures, amounts
available under the revolving credit facility and cash gap, which is used to
control working capital. Cash gap is defined as the number of days of
outstanding accounts receivable, plus the number of days of inventory on hand,
less the number of days of outstanding accounts payable.
Our capital requirements relate primarily to capital expenditures, debt service
and the cost of acquisitions. Historically, our primary sources of financing
have been cash from operations, borrowings under our revolving line of credit
and the issuance of long-term debt and equity.
Net cash used in operating activities in the first nine months of 2002 was $20.9
million and was comprised of the following:
Net loss $ (14.7)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 15.1
Amortization of goodwill and intangibles 0.3
Cumulative effect of change in accounting principle 17.1
Amortization of deferred financing costs and debt discount 1.7
Gain on sales of rental equipment and property, plant and equipment (14.3)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (22.1)
Inventories (5.9)
Accounts payable 0.5
Accrued liabilities and other long-term liabilities (5.6)
Other, net 7.0
-------
Net cash used in operating activities $ (20.9)
=======
35
Our investing activities consisted of net proceeds from the sales of fixed
assets and rental equipment of $5.8 million in the first nine months of 2002,
compared to net capital expenditures of $13.5 million in the first nine months
of 2001. This improvement is due to our conscious effort to control spending.
As of September 27, 2002, we had long-term debt and capital lease obligations of
$306.1 million, comprised of: (a) $170.0 million in principal amount of Senior
Subordinated Notes, with a net book value of $159.4 million, (b) $143.9 million
outstanding of a $202.0 million credit facility, which consists of a $50.0
million revolving credit facility, a $30.0 million acquisition facility, a $23.5
million term loan under the tranche A facility and a $98.5 million term loan
under the tranche B facility, (c) $1.1 million of debentures previously held by
the Dayton Superior Capital Trust, (d) a $0.1 million note to the City of
Parsons, Kansas, and (e) a $1.6 million capital lease obligation related to the
sale/leaseback transaction we entered into in the third quarter of 2002.
At September 27, 2002, we had outstanding letters of credit of $6.3 million, and
we had available borrowings of $27.0 million under our revolving credit
facility. Approximately $9.3 million of the $30.0 million acquisition facility,
$20.2 million of the $23.5 million tranche A facility, and $97.8 million of the
$98.5 million tranche B facility were outstanding.
Our net borrowings for the first nine months of 2002 were $11.8 million, which
was primarily due to the seasonal build in working capital.
As part of our continuing procurement cost reduction program, we entered into a
sale/leaseback transaction for our forklift fleet. In conjunction with this
transaction, we received $2.3 million in proceeds from the sale.
At September 27, 2002, working capital was $78.5 million, compared to $56.9
million at December 31, 2001. The increase in working capital is attributable to
normal seasonal working capital growth.
For the first nine months of 2002, our average cash gap days were 76, which is
eight days unfavorable from the 68 days reported in the first nine months of
2001. This is primarily due to increased inventory in the paving products
segment because of the early 2002 delays in activity on some highway
construction and airport runway projects and a large receipt of foreign steel in
the quarter.
We believe our liquidity, capital resources and cash flows from operations are
sufficient to fund planned capital expenditures, working capital requirements
and debt service in the absence of additional acquisitions.
On October 23, 2002, we obtained an amendment to our senior credit facility to
relax certain financial ratios that we were required to maintain. The
adjustments will affect the next eight fiscal quarters, beginning with the
quarter ended December 31, 2002.
36
We intend to fund future acquisitions with cash, securities, or a combination of
cash and securities, to the extent we use cash for all or part of any
acquisitions. We expect to raise such cash from operations or from borrowings
under our credit facility or, if feasible and attractive, issuances of long-term
debt or additional common shares.
SEASONALITY
Our operations are seasonal in nature with approximately 55% of sales
historically occurring in the second and third quarters. Working capital and
borrowings fluctuate with sales volume.
INFLATION
We do not believe inflation had a significant impact on our operations over the
past two years. In the past, we have been able to pass along a portion of the
effect of increases in the price of steel, our principal raw material. There can
be no assurance we will be able to continue to pass on the cost of such
increases in the future. The United States has recently imposed tariffs on
certain steel imported into the United States, which may have the effect of
increasing steel prices. At this point, we are unable to determine the impact
that these tariffs will have on our results of operations.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes, and future filings by us on Form 10-K, Form 10-Q, and
Form 8-K, and future oral and written statements by us and our management may
include certain forward-looking statements, including (without limitation)
statements with respect to anticipated future operating and financial
performance, growth opportunities and growth rates, acquisition and divestitive
opportunities and other similar forecasts and statements of expectation. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and "should," and variations of these words and similar expressions,
are intended to identify these forward-looking statements. Forward-looking
statements by us and our management are based on estimates, projections, beliefs
and assumptions of management and are not guarantees of future performance. We
disclaim any obligation to update or revise any forward-looking statement based
on the occurrence of future events, the receipt of new information, or
otherwise.
Actual future performance, outcomes and results may differ materially from those
expressed in forward-looking statements made by us and our management as the
result of a number of important factors. Representative examples of these
factors include (without limitation) the cyclical nature of nonresidential
building and infrastructure construction activity, which can be affected by
factors outside our control such as weakness in the general economy, a decrease
in governmental spending, interest rate increases, and changes in banking and
tax laws; our ability to successfully identify, finance, complete and integrate
acquisitions; increases in the price of steel (our principal raw material) and
our ability to pass along such price increases to our customers; the effects of
weather and seasonality on the construction industry; increasing consolidation
of our customers; the mix of products we sell; the competitive nature of our
industry; and the amount of debt we must service. This list is not intended to
be exhaustive, and additional information can be found in our annual report on
Form 10-K for the year ended December 31, 2001. In addition to these factors,
actual
37
future performance, outcomes and results may differ materially because of other,
more general, factors including (without limitation) general industry and market
conditions and growth rates, domestic economic conditions, governmental and
public policy changes and the continued availability of financing in the
amounts, at the terms and on the conditions necessary to support our future
business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At September 27, 2002, we had financial instruments that were sensitive to
changes in interest rates. These financial instruments consist of $170.0 million
of principal amount of fixed rate Senior Subordinated Notes, with a book value
of $159.4 million, a $202.0 million credit facility, of which $143.9 million was
outstanding, $1.2 million in other fixed-rate, long-term debt, and $1.6 million
in capital lease obligations related to the sale/leaseback transaction.
The Senior Subordinated Notes bear interest at 13.0% on the $170.0 million of
principal and mature in 2009. The estimated fair value of the notes is $141.1
million.
Our credit facility has several interest rate options, which re-price on a
short-term basis. Accordingly, the fair value of the credit facility
approximates its $143.9 million face value. The weighted average interest rates
at September 27, 2002 range from 4.7% to 5.2%.
Other long-term debt consists of a.) $1.1 million of debentures previously held
by the Dayton Superior Capital Trust, with a fair value of $1.8 million and b.)
a $0.1 million, 7.0% loan due in installments of $32 thousand per year with an
estimated fair value of $0.1 million.
In the ordinary course of our business, we also are exposed to price changes in
raw materials (particularly steel bar and rod and steel flat plate) and products
purchased for resale. The prices of these items can change significantly due to
changes in the markets in which our suppliers operate. We generally do not use
financial instruments to manage our exposure to changes in commodity prices.
ITEM 4. CONTROLS AND PROCEDURES
Within the ninety days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of the Company's
management, including our Chief Executive Officer along with our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, our Chief Executive Officer along with our Chief Financial Officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in our periodic SEC filings.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
we carried out this evaluation.
38
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As described in Dayton Superior's Annual Report on Form 10-K for the year ended
December 31, 2001, Dayton Superior's Symons Corporation subsidiary is a
defendant in a declaratory judgment action filed in the California Superior
Court in San Francisco by Royal Surplus Lines Insurance Co., Symons' primary
insurance carrier, and Symons' excess insurance carriers. The insurance carriers
are seeking a declaration that Symons is not entitled to insurance coverage
under their policies for the claims made by Symons to recover certain defense
costs and damages paid by Symons in 1999 in a civil action brought by EFCO Corp.
The excess insurance carriers have not asserted claims that would entitle them
to the award of damages against Symons.
In June 2002, Symons settled its claims against Royal. In addition to the net
$0.2 million partial payment that Royal had paid to Symons in 1999 in the
defense of the underlying EFCO case, Royal paid an additional approximately $1.9
million ($1.1 million net of recovery costs) to Symons in the fourth quarter of
2001, after deducting the self-insured retention required under the insurance
policy. In June of 2002, Royal paid an additional approximately $0.8 million
($0.2 million net of recovery costs) to Symons in final settlement of its
defense and indemnity obligations under its primary insurance policies. Under
the terms of the final settlement, Royal gave up its right to reclaim any
amounts it has paid to Symons. Symons is proceeding against the excess insurance
carriers in this lawsuit to recover certain amounts it paid in the EFCO case.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 22, 2002, the Company sold 14,546 Common Shares to Stephen R. Morrey at
an aggregate purchase price of $400,015 ($27.50 per share) in connection with
the employment of Mr. Morrey by the Company as its President and Chief Executive
Officer. The purchase was partially financed by a loan to Mr. Morrey by the
Company in the amount of $350,015. The shares were issued in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act of
1933, as amended, for transactions not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. See Index to Exhibit following the signature page to this
report for a list of Exhibits.
(b) REPORTS on Form 8-K. During the quarter ended September 27, 2002, we did
not file any Current Reports on Form 8-K.
39
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAYTON SUPERIOR CORPORATION
---------------------------
DATE: November 11, 2002 BY: /s/ Alan F. McIlroy
---------------------- ---------------------------
Alan F. McIlroy
Vice President and
Chief Financial Officer
40
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Item 307 of
Regulation S-K
I, Stephen R. Morrey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dayton Superior
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in
material respects the financial condition, results of operations and
cash flows of Dayton Superior Corporation as of, and for the periods
presented in this quarterly report;
4. Dayton Superior Corporation's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
Dayton Superior Corporation and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to Dayton Superior Corporation,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of Dayton Superior Corporation's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. Dayton Superior Corporation's other certifying officers and I have
disclosed, based on our most recent evaluation, to Dayton Superior
Corporation's auditors and the audit committee of Dayton Superior
Corporation's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Dayton Superior
Corporation's ability to record, process, summarize and report
financial data and have identified for Dayton Superior
Corporation's auditors any material weaknesses in internal
controls; and
41
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in Dayton Superior
Corporation's internal controls; and
6. Dayton Superior Corporation's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
November 11, 2002 /s/ Stephen R. Morrey
Stephen R. Morrey
President and Chief Executive Officer
42
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Item 307 of
Regulation S-K
I, Alan F. McIlroy, certify that:
7. I have reviewed this quarterly report on Form 10-Q of Dayton Superior
Corporation;
8. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
9. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in
material respects the financial condition, results of operations and
cash flows of Dayton Superior Corporation as of, and for the periods
presented in this quarterly report;
10. Dayton Superior Corporation's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
Dayton Superior Corporation and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to Dayton Superior Corporation,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of Dayton Superior Corporation's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
11. Dayton Superior Corporation's other certifying officers and I have
disclosed, based on our most recent evaluation, to Dayton Superior
Corporation's auditors and the audit committee of Dayton Superior
Corporation's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Dayton Superior
Corporation's ability to record, process, summarize and report
financial data and have identified for Dayton Superior
Corporation's auditors any material weaknesses in internal
controls; and
43
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in Dayton Superior
Corporation's internal controls; and
12. Dayton Superior Corporation's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
November 11, 2002 /s/ Alan F. McIlroy
Alan F. McIlroy
Vice President and Chief Financial Officer
44
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
(10) Material Contracts
10.1 Amended and Restated Employment Agreement dated as of July 15,
2002 between Dayton Superior Corporation and John A. Ciccarelli
10.2 Subscription Agreement dated as of July 22, 2002 between Dayton
Superior Corporation and Stephen R. Morrey
10.3 Secured Promissory Note dated July 22, 2002 between Dayton
Superior Corporation and Stephen R. Morrey
10.4 Secured Promissory Note dated July 22, 2002 between Dayton
Superior Corporation and Stephen R. Morrey
10.5 Repayment and Stock Pledge Agreement dated as of July 22, 2002
between Dayton Superior Corporation and Stephen R. Morrey
10.6 Letter Agreement dated August 27, 2002 between Dayton Superior
Corporation and Dennis Haggerty
(99) Additional Exhibits
99.1 Sarbanes-Oxley Section 906 Certification of President and Chief
Executive Officer
99.2 Sarbanes-Oxley Section 906 Certification of Vice President and
Chief Financial Officer
45