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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11781
DAYTON SUPERIOR CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-0676346
(State of incorporation) (I.R.S. Employer Identification No.)
7777 Washington Village Dr.
Suite 130
Dayton, Ohio 45459
(Address of principal executive office)
Registrant's telephone number, including area code: (937) 428-6360
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Junior Subordinated
Debentures
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the act). Yes ___ No X.
As of March 31, 2003, there were 4,010,160 common shares outstanding, all of
which were privately held and not traded on a public market. As of June 28,
2002, none of the outstanding shares were held by non-affiliates.
PART I
In this Annual Report on Form 10-K, unless otherwise noted, the terms "Dayton
Superior," "we," "us" and "our" refer to Dayton Superior Corporation and its
subsidiaries.
ITEM 1. BUSINESS.
AVAILABLE INFORMATION
The Company files annual, quarterly, and current reports, and other
documents with the Securities and Exchange Commission (SEC) under the Securities
Exchange Act of 1934. The public may read and copy any materials that the
Company files with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, NW, Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Also, the SEC maintains an Internet website that contains reports and
information statements, and other information regarding issuers, including the
Company, that file electronically with the SEC. The public can obtain any
documents that the Company files with the SEC at http://www.sec.gov.
GENERAL
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. In many of our product lines, we
believe we are the market leader and lowest cost manufacturer competing
primarily in two segments of the construction industry: infrastructure
construction, such as highways, bridges, utilities, water and waste treatment
facilities and airport runways, and non-residential building, such as schools,
stadiums, prisons, retail sites, commercial offices and manufacturing
facilities. For the year ended December 31, 2002, our net sales were $378.3
million.
We derive our revenue from a mix of sales of consumable products and the
sale and rental of engineered equipment. We believe that the breadth of our
product offerings and national distribution network allow us to maintain a large
customer base that prefers a "one-stop" supplier. We manufacture the substantial
majority of our 20,000 products, which we sell under a number of
well-established brand names. Our national distribution system, which we believe
is the largest in our industry, allows us to efficiently cross-sell and
distribute newly developed and acquired product lines on a nationwide basis.
Through our network of 44 service/distribution centers, we serve over 7,000
customers, comprised of independent distributors and a broad array of precast
concrete manufacturers, general contractors, subcontractors and metal
fabricators. This nationwide customer base provides us with geographically
dispersed sales.
As of December 31, 2002, we had three principal business units, which were
organized around the following product lines:
2
Concrete Accessories (Dayton/Richmond(R)). We believe we are the leading
North American manufacturer of concrete accessories, which are used in
connecting forms for poured-in-place concrete walls, anchoring or bracing for
walls and floors, supporting bridge framework and positioning steel reinforcing
bars, as well as masonry products, which are placed between layers of brick and
concrete blocks and covered with mortar to provide additional strength to walls.
For the year ended December 31, 2002, our concrete accessories business unit had
net sales to external customers of $204.8 million, or 54% of our total
consolidated net sales.
Concrete Forming Systems (Symons(R)). We believe we are the leading North
American manufacturer of concrete forming systems, which are reusable,
engineered forms and related accessories used in the construction of concrete
walls, columns and bridge supports to hold concrete in place while it hardens.
Sales from concrete forming systems and related accessories represented
approximately 68% and rental revenue represented approximately 32% of Symons'
total net sales in 2002. For the year ended December 31, 2002, our concrete
forming systems business unit had net revenues to external customers of $118.8
million, or 31% of our total consolidated net sales.
Paving Products (American Highway Technology(R)). We believe we are the
leading North American manufacturer of welded dowel assemblies and dowel
baskets, which are paving products used in the construction and rehabilitation
of concrete roads, highways and airport runways to extend the life of the
pavement. These consumable products are used to transfer dynamic loads between
adjacent slabs of concrete roadway. For the year ended December 31, 2002, our
paving products business unit had net sales to external customers of $54.7
million, or 15% of our total consolidated net sales.
Each of our three principal business units also sells specialty
construction chemicals that are used in conjunction with its other products.
PRODUCTS
Although almost all of our products are used in concrete or masonry
construction, the function and nature of the products differ widely. Most of our
products are consumable, providing us with a source of recurring revenue. In
addition, while our products represent a relatively small portion of a
construction project's total cost, our products assist in ensuring the on-time,
quality completion of those projects. We continually attempt to increase the
number of products we offer by using engineers and product development teams to
introduce new products and refine existing products.
CONCRETE ACCESSORIES. Our concrete accessories business unit manufactures
and sells concrete accessories primarily under the Dayton/Richmond(R), Aztec(R)
and BarLock(R) brand names and masonry products under the Dur-O-Wal(R) brand
name. For the year ended December 31, 2002, net sales of our concrete
accessories business unit to external customers accounted for $204.8 million, or
54% of our total net sales.
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Concrete accessories include:
- WALL-FORMING PRODUCTS. Wall-forming products include shaped metal
ties and accessories that are used with modular forms to hold
concrete in place when walls are poured at a construction site or
are prefabricated off site. These products, which generally are
not reusable, are made of steel wire or plastic or a combination
of both materials. We generally manufacture these products on
customized high-speed automatic equipment.
- BRIDGE DECK PRODUCTS. Bridge deck products are metal assemblies
of varying designs used to support the formwork used by
contractors in the construction and rehabilitation of bridges.
- BAR SUPPORTS. Bar supports are non-structural steel, plastic, or
cementious supports used to position rebar within a horizontal
slab or form to be filled with concrete. Metal bar supports are
often plastic or epoxy coated, galvanized or equipped with
plastic tips to prevent creating a conduit for corrosion of the
embedded rebar.
- SPLICING PRODUCTS. Splicing products are used to join two pieces
of rebar together while at a construction site without the need
for extensive preparation of the rebar ends.
- PRECAST AND PRESTRESSED CONCRETE CONSTRUCTION PRODUCTS. Precast
and prestressed concrete construction products are metal
assemblies of varying designs used in the manufacture of precast
concrete panels and prestressed concrete beams and structural
members. Precast concrete panels and prestressed concrete beams
are fabricated away from the construction site and transported to
the site. Precast concrete panels are used in the construction of
prisons, freeway sound barrier walls, external building facades
and other similar applications. Prestressed concrete beams use
multiple strands of steel cable under tension embedded in
concrete beams to provide rigidity and bearing strength, and
often are used in the construction of bridges, parking garages
and other applications where long, unsupported spans are
required.
- TILT-UP CONSTRUCTION PRODUCTS. Tilt-up construction products
include a complete line of inserts, lifting hardware and
adjustable beams used in the tilt-up method of construction, in
which the concrete floor slab is used as part of a form for
casting the walls of a building. After the cast walls have
hardened on the floor slab, a crane is used to "tilt-up" the
walls, which then are braced in place until they are secured to
the rest of the structure. Tilt-up construction generally is
considered to be a faster method of constructing low-rise
buildings than conventional poured-in-place concrete
construction. Some of our tilt-up construction products can be
rented as well as sold.
- FORMLINER PRODUCTS. Formliner products include plastic and
elastomeric products that adhere to the inside face of forms to
provide shape to the surface of the concrete.
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- CHEMICAL PRODUCTS. Chemical products sold by our concrete
accessories business unit include a broad spectrum of chemicals
for use in concrete construction, including form release agents,
bond breakers, curing compounds, liquid hardeners, sealers, water
repellents, bonding agents, grouts and epoxies, and other
chemicals used in the pouring and placement of concrete.
- MASONRY PRODUCTS. Masonry products are wire products sold under
the Dur-O-Wal(R) name that improve the performance and longevity
of masonry walls by providing crack control, greater elasticity
and higher strength to withstand seismic shocks and better
resistance to rain penetration.
CONCRETE FORMING SYSTEMS. Our concrete forming systems business unit
manufactures, sells and rents reusable modular concrete forming systems
primarily under the Symons(R) name. These products include standard and
specialty concrete forming systems, shoring systems and accessory products. To
capitalize on the durability and relatively high unit cost of prefabricated
forming equipment, we also rent forming products. For the year ended December
31, 2002, net sales of our concrete forming systems business unit to external
customers accounted for $118.8 million, or 31% of our total net sales.
Our concrete forming system products include:
- CONCRETE FORMING SYSTEMS. Concrete forming systems are reusable,
engineered modular forms which hold liquid concrete in place on
concrete construction jobs while it hardens. Standard forming
systems are made of steel and plywood and are used in the
creation of concrete walls and columns. Specialty forming systems
consist primarily of steel forms that are designed to meet
architects' specific needs for concrete placements. Both standard
and specialty forming systems and related accessories are sold
and rented for use.
- SHORING SYSTEMS. Shoring systems, including aluminum beams and
joists, post shores and shoring frames are used to support deck
and other raised forms while concrete is being poured.
- ARCHITECTURAL PAVING PRODUCTS. Architectural Paving Products are
used to apply decorative texture and coloration to concrete
surfaces while concrete is being poured.
- CONSTRUCTION CHEMICALS. Construction chemicals sold by the
concrete forming systems business unit include form release
agents, sealers, water repellents, grouts and epoxies and other
chemicals used in the pouring, stamping and placement of
concrete.
5
PAVING PRODUCTS. Our paving products business unit sells products,
primarily consisting of welded dowel assemblies and dowel baskets, used in the
construction and rehabilitation of roads, highways and airport runways to extend
the life of the pavement. This business unit sells paving products primarily
under the American Highway Technology(R) name, but we also offer some paving
products under the Dayton/Richmond(R) name. We manufacture welded dowel
assemblies primarily using automated and semi-automated equipment. For the year
ended December 31, 2002, net sales of paving products accounted for $54.7
million, or 15% of our total net sales.
Paving products include:
- WELDED DOWEL ASSEMBLIES AND DOWEL BASKETS. Welded dowel
assemblies and dowel baskets are used to transfer dynamic loads
between two adjacent slabs of concrete roadway. Metal dowels are
part of a dowel basket design that is imbedded in two adjacent
slabs to transfer the weight of vehicles as they move over a
road.
- CORROSIVE-PREVENTING EPOXY COATINGS. Corrosive-preventing epoxy
coatings are used for infrastructure construction products and a
wide range of industrial and construction uses.
- CONSTRUCTION CHEMICALS. Construction chemicals sold by our paving
products business unit include curing compounds used in concrete
road construction.
MANUFACTURING
We manufacture the substantial majority of the products we sell. Most of
our concrete accessories and paving products are manufactured in 18 facilities
throughout the United States, although a majority of our service/distribution
facilities also can produce smaller lots of some products. Our production
volumes enable us to design and build or custom modify much of the equipment we
use to manufacture these products, using a team of experienced manufacturing
engineers and tool and die makers.
By developing our own automatic high-speed manufacturing equipment, we
believe we generally have achieved significantly greater productivity, lower
capital equipment costs, lower scrap rates, higher product quality, faster
changeover times, and lower inventory levels than most of our competitors. In
addition, our concrete accessories business unit's ability to "hot-dip"
galvanize masonry products provides it with an advantage over many competitors'
manufacturing masonry wall reinforcement products, which lack this internal
capability. We also have a flexible manufacturing setup and can make the same
products at several locations using short and discrete manufacturing lines.
We manufacture our concrete forming systems at two facilities in the United
States. These facilities incorporate semi-automated and automated production
lines, heavy metal presses, forging equipment, stamping equipment, robotic
welding machines, drills, punches, and other heavy machinery typical for this
type of manufacturing operation.
We generally operate our manufacturing facilities on two shifts per
day, five days per week (six days per week during peak months and, in some
instances, three shifts), with the number of employees increasing or decreasing
as necessary to satisfy demand on a seasonal basis.
6
DISTRIBUTION
We distribute our products through over 3,000 independent distributors, and
our own network of 44 service/distribution centers located in the United States
and Canada.
Distribution centers by segment are as follows:
Concrete Accessories 24
Concrete Forming Systems 16
Paving Products 4
Some locations carry more than one of our product lines. We ship most of our
products to our service/distribution centers from our manufacturing plants;
however, a majority of our centers also are able to produce smaller batches of
some products on an as-needed basis to fill rush orders.
We have an on-line inventory tracking system for the concrete accessories
and paving products businesses, which enables our customer service
representatives to identify, reserve and ship inventory quickly from any of our
locations in response to telephone orders.
Our system provides us with a competitive advantage since our service
representatives are able to answer customer questions about availability and
shipping dates while still on the telephone. We primarily use third-party common
carriers to ship our products.
We also use our distribution system to sell products which are manufactured
by others. These products usually are sold under our brand names and often are
produced for us on an exclusive basis. Sales of these products allow us to
utilize our distribution network to increase sales without making significant
capital investments. We believe there is an increasing trend among our
distributors to consolidate into larger entities, which could result in
increased price competition.
SALES AND MARKETING
We employ approximately 300 sales and marketing personnel, of whom
approximately 60% are field sales people and 40% are customer service
representatives. Sales and marketing personnel are located in all of our
locations. We produce product catalogs and promotional materials that illustrate
certain construction techniques in which our products can be used to solve
typical construction problems. We promote our products through seminars and
other customer education efforts and work directly with architects and engineers
to secure the use of our products whenever possible.
We consider our engineers to be an integral part of the sales and marketing
effort. Our engineers have developed proprietary software applications to
conduct extensive pre-testing on both new products and construction projects.
7
CUSTOMERS
We have over 7,000 customers of which approximately 50% purchase our
products for resale. Our customer base is geographically diverse, with no
customer accounting for more than 10% of net sales in 2002. Customers who
purchase our products for resale generally do not sell our products exclusively.
CONCRETE ACCESSORIES. Our concrete accessories business unit has
approximately 3,800 customers, consisting of distributors, rebar fabricators,
precast and prestressed concrete manufacturers, brick and concrete block
manufacturers, general contractors and sub-contractors. We estimate that
approximately 80% of the customers of this business unit purchase our products
for resale. The largest customer of the business unit accounted for 7% of the
business unit's 2002 net sales.
Our concrete accessories business unit has instituted a certified dealer
program for those dealers who handle our tilt-up construction products. This
program was established to educate dealers in the proper use of our tilt-up
products and to assist them in providing engineering assistance to their
customers. Certified dealers are not permitted to carry other manufacturers'
tilt-up products, which we believe are incompatible with ours and, for that
reason, could be unsafe if used with our products. The business unit currently
has 79 certified tilt-up construction product dealers.
CONCRETE FORMING SYSTEMS. Our concrete forming systems business unit has
approximately 3,000 customers, consisting of distributors, precast and
prestressed concrete manufacturers, general contractors and subcontractors. We
estimate that approximately 90% of the customers of this business unit are the
end-users of its products, while approximately 12% of those customers purchase
its products for resale or re-rent. This business unit's largest customer
accounted for 9% of the business unit's 2002 net sales.
PAVING PRODUCTS. Our paving products business unit has approximately 200
customers, consisting primarily of distributors of construction supplies and, to
a lesser extent, general contractors and subcontractors. This business unit's
largest customer accounted for 18% of the business unit's 2002 net sales.
RAW MATERIALS
Our principal raw materials are steel wire rod, steel hot rolled bar, metal
stampings and flat steel, aluminum sheets and extrusions, plywood, cement and
cementitious ingredients, liquid chemicals, zinc, plastic resins and
injection-molded plastic parts. We currently purchase materials from over 2,000
vendors and are not dependent on any single vendor or small group of vendors for
any significant portion of our raw material purchases. Steel, in its various
forms, constitutes approximately 25% of our cost of sales. The U.S. Government
has recently imposed tariffs on certain imported steel. At this point, we are
unable to determine the impact that these tariffs will have on our results of
operations.
8
COMPETITION
Our industry is highly competitive in most product categories and
geographic regions. We compete with a limited number of full-line national
manufacturers of concrete accessories, concrete forming systems and paving
products, and a much larger number of regional manufacturers and manufacturers
with limited product lines. We believe competition in our industry is largely
based on, among other things, price, quality, breadth of product lines,
distribution capabilities (including quick delivery times) and customer service.
Due primarily to factors such as freight rates, quick delivery times and
customer preference for local suppliers, some local or regional manufacturers
and suppliers may have a competitive advantage over us in a given region. We
believe the size, breadth and quality of our product lines provide us with
advantages of scale in both distribution and production relative to our
competitors.
TRADEMARKS AND PATENTS
We sell most products under the registered trade names Dayton Superior(R),
Dayton/Richmond(R), Symons(R), Aztec(R), BarLock(R), Conspec(R), Edoco(R),
Dur-O-Wal(R) and American Highway Technology(R), which we believe are widely
recognized in the construction industry and, therefore, are important to our
business. Although some of our products (and components of some products) are
protected by patents, we do not believe these patents are material to our
business. We have 124 trademarks and 144 patents.
EMPLOYEES
As of December 31, 2002, we employed approximately 700 salaried and 1,200
hourly personnel, of whom approximately 600 of the hourly personnel and four of
the salaried personnel are represented by labor unions. Employees at our
Miamisburg, Ohio; Parsons, Kansas; Des Plaines, Illinois; New Braunfels, Texas;
Tremont, Pennsylvania; Long Beach, California; and Aurora, Illinois
manufacturing/distribution plants and our service/distribution center in
Atlanta, Georgia are covered by collective bargaining agreements. We believe we
have good employee and labor relations.
SEASONALITY
Our operations are seasonal in nature, with approximately 55% of our sales
historically occurring in the second and third quarters. Working capital and
borrowings fluctuate with sales volume.
9
BACKLOG
We typically ship most of our products, other than paving products and most
specialty forming systems, within one week and often within 24 hours after we
receive the order. Other product lines, including paving products and specialty
forming systems, may be shipped up to six months after we receive the order,
depending on our customer's needs. Accordingly, we do not maintain significant
backlog, and backlog as of any particular date is not representative of our
actual sales for any succeeding period.
RECENT DEVELOPMENTS
In an effort to reduce cost and enhance customer responsiveness, we have
consolidated our overhead structure from five marketing arms down to two
beginning January 1, 2003. The new marketing arms include Dayton Superior
Construction Products Group and the Symons Group. We also established a Supply
Chain Management Group that is responsible for manufacturing and distribution
for the majority of our products. In addition, we have set up a Financial Shared
Services Group, which further centralizes our accounting functions.
ITEM 2. PROPERTIES.
Our corporate headquarters are located in leased facilities in Dayton,
Ohio. We believe our facilities provide adequate manufacturing and distribution
capacity for our needs. We also believe all of the leases were entered into on
market terms. Our other principal facilities are located throughout North
America, as follows:
Leased/ Size
Location Use Principal Business Unit Owned (Sq. Ft.)
- --------------------- ------------------------------- ------------------------ ------- ---------
Birmingham, Alabama Manufacturing/Distribution Concrete Accessories and
Paving Products Leased 285,000
Des Plaines, Illinois Manufacturing/Distribution Concrete Forming Systems
and Symons Headquarters Owned 171,650
Miamisburg, Ohio Manufacturing/Distribution and Concrete Accessories
Dayton/Richmond Headquarters Owned 126,000
Parsons, Kansas Manufacturing/Distribution Concrete Accessories and
Paving Products Owned 98,250
Aurora, Illinois Manufacturing/Distribution Concrete Accessories Owned 109,000
Kankakee, Illinois Manufacturing/Distribution and Paving Products
American Highway Technology
Headquarters Leased 107,900
Tremont, Pennsylvania Manufacturing/Distribution Concrete Accessories Owned 86,000
New Braunfels, Texas Manufacturing/Distribution Concrete Forming Systems Owned 89,600
Fontana, California Manufacturing/Distribution Concrete Accessories Leased 114,275
Parker, Arizona Manufacturing/Distribution Concrete Accessories Leased 60,000
Modesto, California Manufacturing/Distribution Paving Products Leased 55,000
Centralia, Illinois Manufacturing/Distribution Concrete Accessories Owned 53,500
Atlanta, Georgia Service/Distribution Concrete Accessories Leased 49,392
Grand Prairie, Texas Service/Distribution Concrete Accessories Leased 45,000
Seattle, Washington Service/Distribution Concrete Accessories Leased 40,640
Toronto, Ontario Manufacturing/Distribution Concrete Accessories Leased 45,661
Oregon, Illinois Service/Distribution Concrete Accessories Owned 39,000
Kansas City, Kansas Manufacturing/Distribution Concrete Accessories Owned 33,000
Folcroft, Pennsylvania Service/Distribution Concrete Accessories Owned 32,000
10
ITEM 3. LEGAL PROCEEDINGS.
ENVIRONMENTAL MATTERS
Our businesses are subject to regulation under various and changing
federal, state and local laws and regulations relating to the environment and to
employee safety and health. These environmental laws and regulations govern the
generation, storage, transportation, disposal and emission of various
substances. Permits are required for operation of our businesses (particularly
air emission permits), and these permits are subject to renewal, modification
and, in certain circumstances, revocation. We believe we are in compliance with
these laws and permitting requirements. Our businesses also are subject to
regulation under various and changing federal, state and local laws and
regulations which allow regulatory authorities to compel (or seek reimbursement
for) cleanup of environmental contamination at sites now or formerly owned or
operated by our businesses and at facilities where their waste is or has been
disposed.
We expect to incur ongoing capital and operating costs to maintain
compliance with currently applicable environmental laws and regulations;
however, we do not expect those costs, in the aggregate, to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for our common shares. As of
March 31, 2003, there were 29 holders of our common shares.
On October 29, 2002, we sold 2,000 Common Shares to Dennis Haggerty at an
aggregate purchase price of $55,000 ($27.50 per share) in connection with the
employment of Mr. Haggerty as our Vice President of Supply Chain Management. 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.
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ITEM 6. SELECTED FINANCIAL DATA.
(All dollar amounts in thousands, except share data)
The earnings statement data and the balance sheet data presented below
have been derived from our consolidated financial statements and should be read
in conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Consolidated Financial Statements and Notes
thereto, included elsewhere herein.
Year Ended December 31,
----------------------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- -------- ---------
EARNINGS STATEMENT DATA:
Net sales $ 378,284 $ 393,700 $ 367,845 $322,170 $ 282,849
Cost of sales 249,408 254,430 229,523 201,445 178,499
--------- --------- --------- -------- ---------
Gross profit 128,876 139,270 138,322 120,725 104,350
Selling, general and administrative
expenses 91,221 97,532 92,941 79,819 72,316
Facility closing and severance
expenses 5,399(1) 7,360(3) 2,517(4) -- --
Amortization of goodwill and
intangibles 603 3,912 2,508 2,369 2,213
--------- --------- --------- -------- ---------
Income from operations 31,653 30,466 40,356 38,537 29,821
Interest expense, net 33,967 35,024 22,574 11,661 11,703
Lawsuit judgment -- -- 15,341(5) -- --
Loss on disposals of property, plant
and equipment 1,115 -- -- -- --
Other expense (income), net 80 95 293 230 (202)
--------- --------- --------- -------- ---------
Income (loss) before provision
(benefit) for income taxes, extra-
ordinary item and cumulative
effect of change in accounting
principle (3,509) (4,653) 2,148 26,646 18,320
Provision (benefit) for income taxes (386) (1,179) 1,471 11,991 8,244
--------- --------- --------- -------- ---------
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle (3,123) (3,474) 677 14,655 10,076
Extraordinary loss, net of income
tax benefit -- -- (4,812)(6) -- --
--------- --------- --------- -------- ---------
Income (loss) before cumulative
effect of change in accounting
principle (3,123) (3,474) (4,135) 14,655 10,076
Cumulative effect of change in
accounting principle, net of
income tax benefit (17,140)(2) -- -- -- --
--------- --------- --------- -------- ---------
Net income (loss) (20,263) (3,474) (4,135) 14,655 10,076
--------- --------- --------- -------- ---------
Dividends on Company-obligated
mandatorily redeemable convertible
trust preferred securities, net of
income tax benefit -- -- 583 320 --
--------- --------- --------- -------- ---------
Net income (loss) available to
common shareholders $ (20,263) $ (3,474) $ (4,718) $ 14,335 $ 10,076
========= ========= ========= ======== =========
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As of December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
--------- -------- -------- -------- --------
BALANCE SHEET:
Working capital $ 65,751 $ 56,943 $ 60,868 $ 50,469 $ 39,727
Total assets 373,971 396,843 335,418 278,679 253,620
Long-term debt (including current
portion) 299,536 291,946 245,925 105,173 118,205
Company-obligated mandatorily
redeemable convertible trust
preferred securities -- -- -- 19,556 --
Shareholders' equity (deficit) (4,241) 16,721 13,196 88,772 74,588
(1) During the second quarter of 2002, we approved and began implementing plans
to exit one of our distribution facilities and to reduce our 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 was
$0.4 million, and encompassed eight employee terminations. The total
estimated exit costs were comprised of approximately $0.2 million related
to employee involuntary termination benefits, and approximately $0.2
million related to lease termination costs. Accordingly, we incurred and
recorded a facility closing and severance expense of approximately $0.4
million in 2002.
During the third quarter of 2002, we approved and began implementing plans
to exit certain of our distribution facilities and to reduce our 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 was
$2.3 million, and encompassed approximately 100 employee terminations. The
total estimated exit costs were comprised of approximately $1.7 million
related to employee involuntary termination benefits, approximately $0.4
million related to lease termination costs, and approximately $0.2 million
related to other post-closing maintenance costs. Accordingly, we incurred
and recorded a facility closing and severance expense of $2.3 million in
2002.
During the fourth quarter of 2002, we approved and began implementing plans
to reduce our overall headcount in order to keep our cost structure in
alignment with our net sales. The total anticipated cost of the severance
was $2.5 million, and encompassed approximately 80 employee terminations.
Accordingly, we incurred and recorded severance expense of $2.5 million
during the fourth quarter of 2002.
During 2001, we approved and began implementing two plans to exit certain
manufacturing and distribution facilities and to reduce our overall
headcount. As a result of the continued implementation of the plans, we
have incurred approximately $0.2 million of facility closing and severance
expense in 2002, which is related primarily to facility relocation of
operations, which are required to be expensed as incurred rather than
accrued in advance.
The total expense related to the above activities in 2002 of approximately
$5.4 million was comprised of $4.4 million of employee involuntary
termination benefits, approximately $0.6 million of lease termination
costs, and approximately $0.4 million of other post-closing maintenance
costs.
13
(2) 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.
We adopted SFAS No. 142 effective January 1, 2002. As a result of adopting
SFAS No. 142, we recorded a non-cash charge in 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.
(3) During the second quarter of 2001, we approved and began implementing plans
to exit seven manufacturing and distribution facilities and to reduce our
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 approximately $5.7 million and the estimated number of
employee terminations was approximately 400. The total estimated exit costs
are comprised of approximately $2.4 million related to employee involuntary
termination benefits, approximately $0.7 million related to lease
termination costs, approximately $1.1 million related to relocation of
operations and approximately $1.5 million related to other post-closing
maintenance costs. Accordingly, we recorded a facility closing and
severance expense of approximately $5.7 million in 2001.
During the fourth quarter of 2001, we approved and began implementing a
plan to exit one additional manufacturing facility and further reduce our
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
was $1.7 million, and was to encompass approximately 100 employee
terminations. The total estimated costs were comprised of approximately
$1.3 million related to employee involuntary termination benefits,
approximately $0.1 million related to lease termination costs and
approximately $0.3 million related to other post-closing maintenance costs.
Accordingly, we recorded a facility closing and severance expense of
approximately $1.7 million in 2001.
The total expense related to the above activities in 2001 of approximately
$7.4 million was comprised of approximately $3.7 million of employee
involuntary termination benefits, approximately $0.8 million of lease
termination costs, approximately $1.1 million related to relocation of
operations, and approximately $1.8 million of other post-closing
maintenance costs.
14
(4) During 2000, as a result of the acquisition of Conspec, we approved and
began implementing a plan to consolidate certain of our existing
operations. In conjunction with the consolidation, two of our facilities
were closed. Accordingly, a facility closing and severance expense of
approximately $2.5 million was recorded during 2000, of which approximately
$0.4 million related to idle machinery and equipment write-offs, and
approximately $2.1 million related to future lease payments and employee
severance.
(5) Symons was a defendant in a civil suit brought by EFCO Corp., a competitor
of Symons in one portion of their business. EFCO Corp. alleged that Symons
engaged in false advertising, misappropriation of trade secrets,
intentional interference with contractual relations, and certain other
activities. After a jury trial, preliminary damages of approximately $14.0
million were awarded against Symons in January 1999. In ruling on
post-trial motions in April 1999, the Judge dismissed EFCO's claim of
intentional interference with contractual relations, but increased the
damages awarded to EFCO by $0.1 million and enjoined both parties from
engaging in certain conduct.
Symons appealed the trial court's decision to the United States Court of
Appeals for the Eighth Circuit. A three-judge panel issued its decision on
July 18, 2000, affirming the district court's ruling in all respects. On
August 1, 2000, Symons filed a petition for a rehearing before the full
court of appeals. The petition for a rehearing was denied by the court of
appeals on September 20, 2000.
In October 2000, Symons satisfied the judgment of $14.1 million,
post-judgment interest of $1.1 million, and defense costs of $0.1 million,
by payment to EFCO from our cash on hand and from our revolving credit
facility.
(6) During June 2000, in connection with the recapitalization, we refinanced
our existing bank indebtedness. Additionally, the Dayton Superior Capital
Trust, which held solely debentures, was dissolved. The Company-obligated
mandatorily redeemable convertible trust preferred securities converted to
debentures having the right to receive cash in the amount of $22.00, plus
accrued dividends, per preferred security. As a result we recorded an
extraordinary loss of $4.8 million, comprised of the following:
Expense deferred financing costs on previous long-term debt $ 2.7
Prepayment premium on extinguishments of long-term debt and
interest rate swap agreements 0.5
Expense issuance costs on Company-obligated mandatorily redeemable
convertible trust preferred securities 1.7
Prepayment premium on conversion of Company-obligated mandatorily
redeemable convertible trust preferred securities into debentures 2.1
Financing cost for unused long-term debt commitment 0.8
------
7.8
Income tax benefit (3.0)
------
Extraordinary loss $ 4.8
======
15
ITEM 7. 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. We have three principal business units, which are
organized around the following product lines:
- Concrete Accessories (Dayton/Richmond(R));
- Concrete Forming Systems (Symons(R)); and
- Paving Products (American Highway Technology(R)).
Through our business units, we design, manufacture and distribute metal
accessories and forms to independent distributors for resale to contractors,
brokers and other manufacturers. In some of our product lines, we also may sell
directly to end users and may provide equipment for rental.
In June 1998, The Transportation Equity Act for the 21st Century, known as
"TEA-21" was enacted. TEA-21 authorized $218 billion in federal spending on
highway and infrastructure projects through the year 2003 and represented a 44%
increase over the 1991 Intermodal Surface Transportation Act, the previous
six-year federal program. At a minimum, $162 billion of the $218 billion has
been allocated to highway and bridge programs. Our paving products business unit
began to benefit from TEA-21 during the second half of 1999 and we have
continued to see these benefits through 2002.
On March 21, 2003, the U.S. Senate approved a fiscal year 2004 budget
resolution amendment that would provide an increase in federal highway and
transit investment in 2003 with the reauthorization of TEA-21. The Senate
Environment and Public Works (EPW) Committee recommended an investment of $255
billion, along with $56 billion for transit, over a six-year period.
The discussion of our results of operations that follows includes
information for Symons, Dur-O-Wal and the other acquisitions only from the dates
that we acquired each of those companies.
CONCRETE ACCESSORIES (DAYTON/RICHMOND(R))
Our concrete accessories business unit derives its revenues from the sale
of products primarily to independent distributors. We also provide some
equipment on a rental basis. Our concrete accessories business unit manufactures
substantially all of the products it sells, which are shipped to customers based
on orders. We design and manufacture or customize most of the machines we use to
produce concrete accessories, and these proprietary designs allow for quick
changeover of machine set-ups. This flexibility, together with our extensive
distribution system, enable this business unit to deliver many of its products
within 24 hours of a customer order. Therefore, product inventories are
maintained at relatively low levels.
16
Cost of sales for our concrete accessories business unit consists primarily of
purchased steel and other raw materials, as well as the costs associated with
manufacturing, assembly, testing, inter-facility freight and associated
overhead.
CONCRETE FORMING SYSTEMS (SYMONS(R))
Our concrete forming systems business unit derives its revenues from the
sale and rental of engineered, reusable modular systems and related accessories
to independent distributors and contractors. Sales of concrete forming systems
and specific consumables represent approximately 68% of the revenues of this
business unit, and rentals represent the remaining 32%. Rental equipment also
can be sold as used equipment. The business unit's products include systems with
steel frames and a plywood face, also known as Steel-Ply(R), and systems that
use steel in both the frame and face. All-steel forming systems are
characterized by larger, project-driven orders, which increases backlog relative
to the Steel-Ply(R) forms which are held in inventory for rental and sale. Our
concrete forming systems business unit manufactures and assembles Steel-Ply(R)
forms and outsources some of the manufacturing involved in all-steel forms. This
outsourcing strategy allows us to fulfill larger orders without increased
overhead. Cost of sales for our concrete forming systems business unit consists
primarily of purchased steel, specialty plywood, and other raw materials;
depreciation and maintenance of rental equipment, inter-facility freight and the
costs associated with manufacturing, assembly and overhead.
PAVING PRODUCTS (AMERICAN HIGHWAY TECHNOLOGY(R))
Our paving products business unit derives its revenues from sales to
independent distributors and contractors. Orders from customers are affected by
state and local governmental infrastructure expenditures and their related bid
processes. This is our business unit most affected by the demand expected to be
generated as a consequence of TEA-21. Due to the project-oriented nature of
paving jobs, these products generally are made to order. This serves to keep
inventories low but increases the importance of backlog in this business unit.
Our paving products division manufactures nearly all of its products. Cost of
sales for our paving products business unit consists primarily of steel, as well
as the costs associated with manufacturing and overhead.
ACQUISITIONS
We have completed four acquisitions since the beginning of 2000. These are
summarized in the following table:
Purchase Price
Date Business Acquired Business Unit (in millions)
- ---- ----------------- ------------- --------------
February 2000 Polytite Concrete Accessories $ 1.6
July 2000 Conspec Concrete Accessories 24.3
January 2001 Aztec Concrete Accessories 32.8
June 2001 BarLock Concrete Accessories 9.9
17
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percentage of net sales for the periods indicated.
2002 2001 2000
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of sales 65.9 64.6 62.4
----- ----- -----
Gross profit 34.1 35.4 37.6
Selling, general and administrative expenses 24.1 24.8 25.2
Facility closing and severance expenses 1.4 1.9 0.7
Amortization of goodwill and intangibles 0.2 1.0 0.7
----- ----- -----
Total operating expenses 25.7 27.7 26.6
----- ----- -----
Income from operations 8.4 7.7 11.0
Interest expense, net 9.0 8.9 6.1
Non-recurring item - lawsuit judgment -- -- 4.2
Loss on disposals of property, plant, and equipment 0.3 -- --
Other expense, net -- -- 0.1
----- ----- -----
Income (loss) before provision (benefit) for income taxes,
extraordinary item and cumulative effect of change in
accounting principle (0.9) (1.2) 0.6
Provision (benefit) for income taxes (0.1) (0.3) 0.4
----- ----- -----
Income (loss) before extraordinary item and cumulative effect of
change in accounting principle (0.8) (0.9) 0.2
Extraordinary loss, net of income tax benefit -- -- (1.3)
----- ----- -----
Loss before cumulative effect of change in accounting principle (0.8) (0.9) (1.1)
Cumulative effect of change in accounting principle, net of
income tax benefit (4.5) -- --
----- ----- -----
Net loss (5.3) (0.9) (1.1)
Dividends on Company-obligated mandatorily
redeemable convertible trust preferred
securities, net of income tax benefit -- -- 0.2
----- ----- -----
Net loss available to common shareholders (5.3)% (0.9)% (1.3)%
===== ===== =====
18
COMPARISON OF YEARS ENDED DECEMBER 31, 2002 AND 2001
Net Sales
Our 2002 net sales were $378.3 million, a 3.9% decrease from $393.7 million
in 2001.
The following table summarizes our net sales by segment for the periods
indicated:
YEARS ENDED DECEMBER 31,
----------------------------------------------------
2002 2001
------------------------ -----------------------
(IN THOUSANDS)
NET SALES % NET SALES % % CHANGE
--------- ----- --------- ----- --------
Concrete accessories ....... $ 209,799 55.4% $ 223,919 56.9% (6.3)%
Concrete forming systems ... 126,941 33.6 133,530 33.9 (4.9)
Paving products ............ 57,123 15.1 51,378 13.0 11.2
Intersegment eliminations .. (15,579) (4.1) (15,127) (3.8) 3.0
--------- ----- --------- -----
Net sales ......... $ 378,284 100.0% $ 393,700 100.0% (3.9)%
========= ===== ========= =====
Net sales of concrete accessories decreased by 6.3% to $209.8 million in
2002 from $223.9 million in 2001. This decrease was primarily due to unfavorable
volume and pricing as the concrete accessories markets were weaker in 2002
compared to 2001.
Net sales of concrete forming systems decreased by 4.9% to $126.9 million
in 2002 from $133.5 million in 2001 due to unfavorable rental revenues and
pricing as the concrete forming systems markets were weaker in 2002 compared to
2001.
Net sales of paving products increased by 11.2% to $57.1 million in 2002
from $51.4 million in 2001 due to an increase in volume as a result of new
marketing initiatives implemented in 2002 and the continued benefit from the
Transportation Equity Act for the 21st Century, known as TEA-21.
Gross Profit
Gross profit for 2002 was $128.9 million, a $10.4 million decrease from the
$139.3 million reported for 2001. This was primarily due to the unfavorable
volume and pricing discussed previously. In addition, a change in accounting
estimate relating to the depreciable lives of a portion of the rental fleet
reduced 2002 gross profit by $2.0 million. These were partially offset by the
cost savings realized from the implementation of the 2001 and 2002 facility
closing and severance plans. Gross profit was 34.1% of sales in 2002, decreasing
from 35.4% in 2001. The decrease from 2001 was due to the unfavorable sales
volume and pricing, a higher mix of lower gross profit paving products, a lower
mix of higher gross profit concrete forming systems and concrete accessories
products, a lower mix of higher gross profit rental revenues and higher medical
and insurance costs. These were partially offset by a higher mix of sales of
higher gross profit used rental fleet in the concrete forming systems segment,
and the cost savings realized from the implementation of the 2001 and 2002
facility closing and severance plans.
19
Operating Expenses
Our selling, general, and administrative expenses ("SG&A expenses")
decreased $6.3 million to $91.2 million in 2002 from $97.5 million in 2001, as a
result of the cost reduction initiatives implemented by management in 2001 and
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 approximately $0.4 million, and encompassed eight employee terminations. The
total estimated exit costs were comprised of approximately $0.2 million related
to employee involuntary termination benefits, and approximately $0.2 million
related to lease termination costs. Accordingly, the Company incurred and
recorded a facility closing and severance expense of approximately $0.4 million
in 2002.
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 to keep its cost structure in alignment with its net
sales. The total anticipated cost of the facility closure and severance was $2.3
million, and encompassed approximately 100 employee terminations. The total
estimated exit costs were comprised of approximately $1.7 million related to
employee involuntary termination benefits, approximately $0.4 million related to
lease termination costs, and approximately $0.2 million related to other
post-closing maintenance costs. Accordingly, the Company incurred and recorded a
facility closing and severance expense of $2.3 million in 2002.
During the fourth quarter of 2002, the Company approved and began
implementing plans to reduce overall Company headcount to keep its cost
structure in alignment with its net sales. The total anticipated cost of the
severance was $2.5 million, and encompassed approximately 80 employee
terminations. Accordingly, the Company incurred and recorded severance expense
of $2.5 million in the fourth 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 approximately $0.2 million of facility closing and severance
expense in 2002, which is related primarily to facility relocation of
operations, which are required to be expensed as incurred rather than accrued in
advance.
The total expense related to the above activities in 2002 of approximately
$5.4 million was comprised of $4.4 million of employee involuntary termination
benefits, approximately $0.6 million of lease termination costs, and
approximately $0.4 million of other post-closing maintenance costs.
20
During the second quarter of 2001, the Company approved and began
implementing plans to exit seven manufacturing and distribution facilities and
to reduce overall Company headcount to keep its cost structure in alignment with
its net sales. The total anticipated cost of the facility closures and severance
was approximately $5.7 million and the estimated number of employee terminations
was approximately 400. The total estimated exit costs are comprised of
approximately $2.4 million related to employee involuntary termination benefits,
approximately $0.7 million related to lease termination costs, approximately
$1.1 million related to relocation of operations and approximately $1.5 million
related to other post-closing maintenance costs. Accordingly, the Company
recorded a facility closing and severance expense of approximately $5.7 million
in 2001.
During the fourth quarter of 2001, the Company approved and began
implementing a plan to exit one additional manufacturing facility and further
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 $1.7 million, and encompassed approximately 100 employee
terminations. The total estimated costs are comprised of approximately $1.3
million related to employee involuntary termination benefits, approximately $0.1
million related to lease termination costs and approximately $0.3 million
related to other post-closing maintenance costs. Accordingly, the Company
recorded a facility closing and severance expense of approximately $1.7 million
in 2001.
The total expense related to the above activities in 2001 of approximately
$7.4 million was comprised of approximately $3.7 million of employee involuntary
termination benefits, approximately $0.8 million of lease termination costs,
approximately $1.1 million related to relocation of operations, and
approximately $1.8 million of other post-closing maintenance costs.
Below is a summary of the amounts charged against the facility closing and
severance reserves in 2002 and 2001:
Year Ended Year Ended
December 31, 2002 December 31, 2001
----------------- -----------------
Beginning Balance $ 2.9 $ 1.9
Facility Closing and Severance Expense 5.4 7.4
Items Charged Against Reserve:
Involuntary Termination Benefits (3.0) (2.4)
Lease Termination Costs (0.6) (1.3)
Relocation of Operations (0.3) (1.1)
Other Post-closing Costs (1.0) (1.6)
------ ------
Ending Balance $ 3.4 $ 2.9
====== ======
21
Amortization of goodwill and intangibles decreased $3.3 million to $0.6
million in 2002 from $3.9 million in 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.
Other Expenses
Interest expense decreased to $34.0 million in 2002 from $35.0 million in
2001 primarily due to lower interest rates in 2002.
The loss on disposals of property, plant and equipment was $1.1 million in
2002, which related to the write-off of certain assets that were disposed of in
conjunction with our facility closing plans.
Income (Loss) Before Provision (Benefit) for Income Taxes, and Cumulative
Effect of Change in Accounting Principle
The loss before income taxes and cumulative effect of change in accounting
principle in 2002 was $(3.5) million as compared to $(4.7) million in 2001, and
was comprised of the following:
YEARS ENDED
DECEMBER 31,
-----------------------
2002 2001
-------- --------
(IN THOUSANDS)
Concrete accessories ...................................... $ 13,315 $ 14,684
Concrete forming systems .................................. (1,762) (5,637)
Paving products ........................................... 296 224
Intersegment eliminations ................................. (8,646) (8,050)
Corporate ................................................. (6,712) (5,874)
-------- --------
Loss before benefit for income taxes, and cumulative
effect of change in accounting principle $ (3,509) $ (4,653)
======== ========
Concrete accessories' income before provision for income taxes of $13.3
million in 2002 decreased from $14.7 million in 2001, due to the unfavorable
sales volume and pricing. In addition, concrete accessories recorded a loss on
disposals of property, plant and equipment of $1.1 million in 2002, which
resulted from our facility closing and severance plans. These were partially
offset by the benefit of the cost reductions implemented by management, lower
amortization expense with the adoption of SFAS No. 142, lower facility closing
and severance expenses, and lower interest expense as a result of lower interest
rates in 2002 compared to 2001.
22
Concrete forming systems' loss before income taxes was $(1.8) million in
2002 compared to a loss of $(5.6) million in 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 higher
gross profit used rental fleet. These were partially offset by the decreased
sales volume, unfavorable pricing and unfavorable mix of lower rental revenues
in the existing business due to weaker markets in 2002 compared to 2001.
Income before provision for income taxes from paving products increased to
$0.3 million in 2002 from $0.2 million in 2001. This was due to the benefit of
the increased net sales volume in 2002, lower amortization expense with the
adoption of SFAS No. 142, and lower facility closing and severance expenses in
2002 compared to 2001. These were partially offset by an unfavorable mix of
product sales, and higher interest expense as a result of higher average
borrowings in 2002. The increase in average borrowings was due primarily to
increased spending on the construction of the new manufacturing facility in
Birmingham, Alabama.
Corporate expenses increased to $6.7 million in 2002 from $5.9 million in
2001 due to higher facility closing and severance expenses, higher consulting
fees associated with the facility closing and severance plans, higher insurance
costs and selective additions to the management team in 2002.
Elimination of gross profit on intersegment sales increased to $8.6 million
in 2002 from $8.1 million in 2001 due to higher intersegment sales.
Net Income (Loss) Before Cumulative Effect of Change in Accounting
Principle
The effective tax rate in 2002 was 11.0%, which is different from the
statutory rate, primarily due to the unfavorable impact of permanent book/tax
differences. The net loss before cumulative effect of change in accounting
principle for 2002 was $3.1 million compared to a loss of $3.5 million in 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.
23
We adopted SFAS No. 142 effective January 1, 2002. As a result of adopting
SFAS No. 142, we recorded a non-cash charge in 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 or our cash flow. 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 loss to net loss
adjusted for the amortization of goodwill:
Year Ended
December 31, December 31,
2002 2001
------------ ------------
Net loss before cumulative effect of change in accounting
principle, as reported $(3,123) $(3,474)
Amortization of goodwill, net of tax benefit -- 3,375
------- -------
Net loss before cumulative effect of change in accounting
principle, as adjusted $(3,123) $ (99)
======= =======
Net Loss
The net loss for 2002 was $20.3 million compared to a loss of $3.5 million
in 2001 due to the factors described above.
COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2000
Net Sales
Our 2001 net sales reached a record $393.7 million, a 7.0% increase from
$367.8 million in 2000.
The following table summarizes our net sales by segment for the periods
indicated:
YEARS ENDED DECEMBER 31,
-------------------------------------------
2001 2000
------------------- -------------------
(IN THOUSANDS)
NET SALES % NET SALES % % CHANGE
--------- ----- --------- ----- ---------
Concrete accessories ....... $ 223,919 56.9% $ 201,833 54.9% 10.9%
Concrete forming systems ... 133,530 33.9 136,456 37.1 (2.1)
Paving products ............ 51,378 13.0 42,985 11.7 19.5
Intersegment eliminations .. (15,127) (3.8) (13,429) (3.7) 12.6
--------- ----- --------- -----
Net sales ......... $ 393,700 100.0% $ 367,845 100.0% 7.0%
========= ===== ========= =====
24
Net sales of concrete accessories increased by 10.9% to $223.9 million in
2001 from $201.8 million in 2000. This increase was primarily due to the
acquisitions of Aztec, which contributed $18.3 million, and BarLock, which
contributed $4.5 million. This was partially offset by decreases in the existing
business due to the Company's weaker markets in 2001 compared to 2000.
Net sales of concrete forming systems decreased by 2.1% to $133.5 million
in 2001 from $136.5 million in 2000 due primarily to a reduction in purchasing
of forms resulting from the Company's weaker markets in 2001 compared to 2000.
Net sales of paving products increased by 19.5% to $51.4 million in 2001
from $43.0 million in 2000 due to an increase in volume as a result of TEA-21,
and the increased presence in California following the opening in late 2000 of a
new manufacturing facility in Modesto, California.
Gross Profit
Gross profit for 2001 was $139.3 million, a $1.0 million increase over the
$138.3 million reported for 2000. Gross profit increased $3.0 million due to the
cost reduction initiative implemented by management. A change in accounting
estimate relating to the depreciable lives of a portion of the rental fleet
reduced 2001 gross profit by $2.3 million. Gross margin was 35.4% in 2001,
decreasing from 37.6% in 2000. The decrease from 2000 was due to a higher mix of
lower gross margin paving products, a lower mix of higher gross margin concrete
forming systems products, lower margins achieved on masonry products within the
Concrete Accessories Division due to price competition, higher freight and
energy costs, and lower absorption of fixed costs.
Operating Expenses
Our selling, general, and administrative expenses ("SG&A expenses")
increased $4.6 million to $97.5 million in 2001 from $92.9 million in 2000, as a
result of recent acquisitions, which totaled approximately $6.3 million, offset
partially by the cost reduction initiatives implemented by management and the
receipt of approximately $1.1 million, net of recovery expenses, from Royal
Surplus Lines Insurance Co. of certain defense costs related to the EFCO
litigation.
During the second quarter of 2001, the Company approved and began
implementing plans to exit seven manufacturing and 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
closures and severance was approximately $5.7 million and the estimated number
of employee terminations was approximately 400. The total estimated exit costs
are comprised of approximately $2.4 million related to employee involuntary
termination benefits, approximately $0.7 million related to lease termination
costs, approximately $1.1 million related to relocation of operations and
approximately $1.5 million related to other post-closing maintenance costs.
Accordingly, the Company recorded a facility closing and severance expense of
approximately $5.7 million in 2001.
25
During the fourth quarter of 2001, the Company approved and began
implementing a plan to exit one additional manufacturing facility and further
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 $1.7 million, and was to encompass approximately 100 employee
terminations. The total estimated costs are comprised of approximately $1.3
million related to employee involuntary termination benefits, approximately $0.1
million related to lease termination costs and approximately $0.3 million
related to other post-closing maintenance costs. Accordingly, the Company
recorded a facility closing and severance expense of approximately $1.7 million
in 2001.
The total expense related to the above activities in 2001 of approximately
$7.4 million was comprised of approximately $3.7 million of employee involuntary
termination benefits, approximately $0.8 million of lease termination costs,
approximately $1.1 million related to relocation of operations, and
approximately $1.8 million of other post-closing maintenance costs. Below is a
summary of the amounts charged against the facility closing and severance
reserve in 2001:
Year Ended Year Ended
December 31, 2001 December 31, 2000
----------------- -----------------
Beginning Balance $ 1.9 $ --
Facility Closing and Severance Expense 7.4 2.1
Items Charged Against Reserve:
Involuntary Termination Benefits (2.4) --
Lease Termination Costs (1.3) --
Relocation of Operations (1.1) --
Other Post-closing Costs (1.6) (0.2)
------ ------
Ending Balance $ 2.9 $ 1.9
====== ======
Amortization of goodwill and intangibles increased to $3.9 million in 2001
from $2.5 million in 2000, due to the acquisitions of Aztec and BarLock in 2001,
as well as the full year impact of goodwill amortization relating to the July
2000 Conspec acquisition.
Other Expenses
Interest expense increased to $35.0 million in 2001 from $22.6 million in
2000 primarily due to increased long-term debt resulting from the
recapitalization and the acquisitions of Aztec and BarLock.
Symons was a defendant in a civil suit brought by EFCO Corp., a competitor
of Symons in one portion of their business. EFCO Corp. alleged that Symons
engaged in false advertising, misappropriation of trade secrets, intentional
interference with contractual relations, and certain other activities. After a
jury trial, preliminary damages of approximately $14.1 million were awarded
against Symons in 1999, and both parties were enjoined from engaging in certain
conduct. The Company recorded a $15.3 million charge in 2000 after its
unsuccessful appeal.
26
In October 2000, Symons satisfied the judgment of $14.1 million,
post-judgment interest of $1.1 million, and reimbursement of EFCO's defense
costs of $0.1 million, by payment to EFCO from the Company's cash on hand and
from the Company's revolving credit facility.
Symons has made a claim to its primary and excess insurance carriers for
"advertising injury" and other claims under its insurance policies to recover
its defense costs and for indemnification of the false advertising and the
misappropriation of trade secrets portions of the EFCO judgment.
Income (Loss) Before Provision (Benefit) for Income Taxes and Extraordinary
Item
The loss before income taxes and extraordinary item in 2001 was $(4.7)
million as compared to income of $2.1 million in 2000, and was comprised of the
following:
YEARS ENDED
DECEMBER 31,
------------------------
2001 2000
-------- --------
(IN THOUSANDS)
Concrete accessories .............................................. $ 14,684 $ 18,098
Concrete forming systems .......................................... (5,637) (5,546)
Paving products ................................................... 224 2,363
Intersegment eliminations ......................................... (8,050) (6,970)
Corporate ......................................................... (5,874) (5,797)
-------- --------
Income (loss) before provision (benefit) for income taxes
and extraordinary item $ (4,653) $ 2,148
======== ========
Concrete accessories' income before provision for income taxes of $14.7
million in 2001 decreased from $18.1 million in 2000, due to higher interest
expense of $4.5 million, and $3.8 million of facility closing and severance
expenses recorded in 2001, partially offset by the contributions from higher net
sales and the cost reduction initiatives implemented by management.
Concrete forming systems' loss before income taxes was $(5.6) million in
2001 compared to a loss of $(5.5) million in 2000. The 2001 results included a
$2.3 million charge for the change in accounting estimate. The 2000 results
included a $15.3 million non-recurring lawsuit judgment. Excluding these items,
the income (loss) before income taxes from concrete forming systems was $(3.3)
million for 2001 versus $9.8 million for 2000, due to the shortfall in sales of
forms, higher interest expense of $6.7 million, facility closing and severance
expense of $1.2 million and higher operating costs, such as energy and freight.
Income before provision for income taxes from paving products decreased to
$0.2 million in 2001 from $2.4 million in 2000, due to higher interest expense
of $1.6 million and $1.8 million related to facility closing and severance
expenses, offset partially by the increased sales volumes as a result of
increased TEA-21 spending.
Corporate expenses increased slightly to $5.9 million in 2001 from $5.8
million in 2000.
27
Elimination of gross profit on intersegment sales increased to $8.1 million
in 2001 from $7.0 million in 2000 due to higher intersegment sales.
Net Income (Loss)
The effective tax rate in 2001 was 25.3%, which is due to the unfavorable
impact of non-deductible goodwill amortization for purposes of determining
taxable income (losses). The loss before extraordinary item for 2001 was $(3.5)
million compared to income of $0.7 million in 2000 due to the factors described
above.
As described in footnote 1 to the consolidated financial statements, the
Company's recapitalization resulted in an extraordinary loss of $4.8 million in
2000.
LIQUIDITY AND CAPITAL RESOURCES
Our key statistics for measuring liquidity and capital resources are net
cash provided by operating activities, capital expenditures, and amounts
available under our revolving credit facility.
Our capital requirements relate primarily to capital expenditures, debt
service and the cost of acquisitions. Historically, our primary sources of
financing have been cash generated from operations, borrowings under our
revolving credit facility and the issuance of long-term debt and equity.
Net cash (used in) provided by operating activities for 2002 and 2001 was
($17.3 million) and $8.2 million, respectively.
Our investing activities consisted of net proceeds from the sale of fixed
assets and rental equipment of $8.0 million in 2002, compared to net capital
expenditures of $12.9 million in 2001.
Our capital expenditures in 2002 included additions to the rental fleet of
$18.4 million and net property, plant, and equipment additions of $9.3 million,
offset by $35.6 million of proceeds from sales of rental equipment.
28
As of December 31, 2002, our long-term debt consisted of the following:
Revolving credit facility, weighted average interest rate of 6.0% $ 10.1
Acquisition credit facility, weighted average interest rate of 4.6% 9.2
Term Loan Tranche A, weighted average interest rate of 4.6% 19.4
Term Loan Tranche B, weighted average interest rate of 5.2% 97.5
Senior Subordinated Notes, interest rate of 13.0% 170.0
Debt discount on Senior Subordinated Notes (10.4)
Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1% 1.1
Capital lease obligation 2.5
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 0.1
------
Total long-term debt 299.5
Less current portion (7.0)
------
Long-term portion $292.5
======
At December 31, 2002, of the $50.0 million revolving credit facility that
was available to us, $10.1 million of borrowings were outstanding, along with
$8.7 million of letters of credit, with the remaining $31.2 million available
for borrowing. Approximately $9.2 million of the $30.0 million acquisition
facility had been drawn and was outstanding. Of the $23.5 million tranche A
facility, $22.3 million had been drawn and $19.4 million was outstanding at
December 31, 2002. All of the $98.5 million tranche B facility had been drawn
and approximately $97.5 million was outstanding at December 31, 2002.
Our long-term debt borrowings, net of repayments for the year ended
December 31, 2002 were $3.9 million.
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 with an
initial capital lease obligation of $1.7 million. Subsequent purchases of
forklifts under capital leases were $1.0 million, and the outstanding balance at
December 31, 2002 was $2.5 million.
The Company may from time to time seek to retire its outstanding debt
through cash purchases and/or exchanges for equity securities, in open market
purchases, privately negotiated transactions or otherwise. Such repurchases or
exchanges, if any, will depend on prevailing market conditions, the Company's
liquidity requirements, contractual restrictions and other factors. The amounts
involved may be material.
At December 31, 2002, working capital was $65.8 million, compared to $56.9
million at December 31, 2001. The increase in our working capital is due to
higher accounts receivable as we used our ability to selectively extend terms to
our stronger customers in order to minimize price erosion and maintain market
share. Prepaid income taxes and future income tax benefits combined increased
due to the taxable losses incurred in 2002. Accounts payable decreased from 2001
due to the timing of receipt and payment for raw materials. Accrued liabilities
in total decreased from 2001 to 2002 due primarily to the timing of insurance
payment and payments on liabilities assumed from acquisitions. In addition,
required accruals have decreased in conjunction with the lower net sales volumes
and the reductions in number of facilities and headcount as a result of our
facility closing and severance plans.
29
We believe our liquidity, capital resources and cash flows from operations
are sufficient, in the absence of additional acquisitions, to fund the capital
expenditures we have planned and our working capital and debt service
requirements.
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 future acquisitions, we expect to raise the cash primarily from our business
operations, from borrowings under our credit agreement or, if feasible and
attractive, by issuing long-term debt or additional common shares.
SEASONALITY
Our operations are seasonal, with approximately 55% of sales historically
occurring in the second and third quarters of the year. Our working capital and
borrowings fluctuate with the volume of our sales.
INFLATION
We do not believe inflation has had a significant impact on our operations
over the past three years. In the past, we have been able to pass along to our
customers a portion of increases in the price of steel (our principal raw
material). We may not be able to pass on steel price increases in the future.
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to allowance for doubtful accounts, inventories,
investments, long-lived assets, income taxes, insurance reserves, restructuring
liabilities, environmental contingencies and litigation. We base our estimates
on historical experience and on various other assumptions that we believe are
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
critical accounting policies affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements.
INVENTORIES - The Company values all inventories at the lower of first-in,
first-out ("FIFO") cost or market and includes all costs directly associated
with manufacturing products: materials, labor and manufacturing overhead. 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.
RENTAL EQUIPMENT - Rental equipment is manufactured 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 method.
30
INCOME TAXES - The Company has generated deferred tax assets or liabilities
due to temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance against deferred tax assets at the balance sheet
date is not considered necessary because it is more likely than not the deferred
tax assets will be fully realized. The Company records liabilities relating to
income taxes utilizing known obligations and estimates of potential obligations.
REVENUE RECOGNITION - We recognize revenue from product sales when the
product is shipped from our facilities and risk of loss and title have passed to
the customer or, at the customer's written request and where the customer has
made a fixed commitment to purchase goods on a fixed schedule consistent with
the customer's business and where risk of ownership has passed to the buyer, the
goods are set-aside in storage and the Company does not retain any specific
performance obligations such that the earning process is not complete. For
transactions where we have not obtained customer acceptance, revenue is deferred
until the terms of acceptance are satisfied. On rental equipment sales, revenue
is recognized and recorded on the date of shipment. Rental revenues are
recognized ratably over the terms of the rental agreements.
INSURANCE RESERVES - The Company is self-insured for certain of its group
medical, workers' compensation and product and general liability claims. The
Company has stop loss insurance coverage at various per occurrence and per annum
levels depending on type of claim. The Company consults with third party
administrators to estimate the reserves required for these claims. Actual claims
experience can impact these calculations and, to the extent that subsequent
claim costs vary from estimates, future earnings could be impacted and the
impact could be material. No material revisions were made to the estimates for
the years ended December 31, 2002, 2001 and 2000.
PENSION LIABILITIES - Pension and other retirement benefits, including all
relevant assumptions required by accounting principles generally accepted in the
United States of America, are evaluated each year. Due to the technical nature
of retirement accounting, outside actuaries are used to provide assistance in
calculating the estimated future obligations. Since there are many estimates and
assumptions involved in retirement benefits, differences between actual future
events and prior estimates and assumptions could result in adjustments to
pension expenses and obligations. Such assumptions include the discount rate,
rate of increase in compensation levels, and the expected long-term rate of
return on the related assets.
ACCOUNTS RECEIVABLE ALLOWANCE - We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
RESERVE FOR CONTINGENCIES - We have other loss exposures, such as
restructuring liabilities and litigation. Establishing loss reserves for these
matters requires us to estimate and make judgments in regards to risk exposure
and ultimate liability. We establish accruals for these exposures; however, if
our exposure exceeds our estimates we could be required to record additional
charges.
31
RECENTLY ISSUED ACCOUNTING STANDARDS
Recent Accounting Pronouncements are discussed in the Summary of
Significant Accounting Policies in the Notes to the Consolidated Financial
Statements.
FORWARD-LOOKING STATEMENTS
This Form 10-K 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 our 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 (the principal raw material in our
products) 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 of
factors is not intended to be exhaustive, and additional information concerning
relative risk factors can be found in our Registration Statement on Form S-4
(Reg. No. 333-41392) filed with the Securities and Exchange Commission. In
addition to these factors, actual 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.
32
COMMITMENTS
Scheduled payments of long-term debt, future minimum lease payments under
capital leases, and future lease payments under non-cancelable operating leases
at December 31, 2002 were as follows:
Long-term Capital Operating Sale-
Year Debt Leases Leases Leaseback Total
- ---------- --------- ------- --------- --------- --------
2003 $ 6,283 $ 796 $ 4,478 $ 175 $ 11,732
2004 9,639 707 3,262 - 13,608
2005 11,491 558 2,540 - 14,589
2006 31,683 414 2,048 - 34,145
2007 47,034 274 587 - 47,895
Thereafter 201,273 149 85 - 201,507
-------- ------ ------- ----- --------
$307,403 $2,898 $13,000 $ 175 $323,476
33
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of December 31, 2002, we had financial instruments which were sensitive
to changes in interest rates. These financial instruments consist of:
- $170.0 million of Senior Subordinated Notes;
- $202.0 million credit facility, consisting of:
- $50.0 million revolving credit facility, $10.1 million of which
was outstanding at December 31, 2002;
- $30.0 million acquisition facility, $9.2 million of which was
drawn and outstanding at December 31, 2002;
- $23.5 million term loan tranche A, $22.3 million of which has
been drawn and $19.4 million was outstanding at December 31,
2002; and
- $98.5 million term loan tranche B, all of which has been drawn
and $97.5 million was outstanding at December 31, 2002;
- $2.5 million in capital lease obligations
- $1.2 million in other fixed-rate, long term debt.
Our $170.0 million of senior subordinated notes 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 net book
value of the notes at December 31, 2002 was $159.6 million. The notes were
issued with warrants that allow the holder to purchase 117,276 of the Company's
Class A Common Shares for $0.01 per share. The senior subordinated notes have an
interest rate of 13.0%. The estimated fair value of the notes is $146.2 million
as of December 31, 2002.
Our $202.0 million credit facility has several interest rate options which
reprice on a short-term basis. Accordingly, the fair value of the credit
facility approximates its $136.2 million face value. The weighted average
interest rate as of December 31, 2002 was 5.1%.
Our other long-term debt at December 31, 2002 consisted of $1.1 million of
9.1% junior subordinated debentures previously held by the Dayton Superior
Capital Trust with an estimated fair value of $1.8 million, and a $0.1 million,
7% loan due in annual installments of $31,500 per year with an estimated fair
value as of December 31, 2002 of $0.1 million.
In the ordinary course of our business, we also are exposed to price
changes in raw materials (particularly steel rod and steel bar) 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,
however, use financial instruments to manage our exposure to changes in
commodity prices.
34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Dayton Superior Corporation
Dayton, Ohio
We have audited the accompanying consolidated balance sheet of Dayton Superior
Corporation (an Ohio corporation) and Subsidiaries (the "Company") as of
December 31, 2002, and the related statements of operations, shareholders'
deficit, and cash flows for the year then ended. Our audit also included the
2002 financial statement schedule listed at Item 15(a)(2). These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
2002 consolidated financial statements and financial statement schedule based on
our audit. The consolidated financial statements and financial statement
schedule as of December 31, 2001, and for each of the two years in the period
then ended, before the revisions described in Note 3(d) and Note 14 to the
consolidated financial statements, were audited by other auditors who have
ceased operations. Those auditors expressed an unqualified opinion on those
financial statements and stated that such 2001 and 2000 financial statement
schedule, when considered in relation to the 2001 and 2000 basic financial
statements taken as a whole, presented fairly in all material respects, the
information set forth therein, in their report dated January 25, 2002.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2002 consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2002, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the 2002 financial statement schedule,
when considered in relation to the 2002 basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.
As discussed in Note 3(d) to the consolidated financial statements, in 2002 the
Company changed its method of accounting for goodwill and other intangible
assets to adopt Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets."
35
As discussed above, the consolidated financial statements of Dayton Superior
Corporation and Subsidiaries as of December 31, 2001 and for the two years in
the period then ended were audited by other auditors who have ceased operations.
These consolidated financial statements have been revised as follows: (a) as
described in Note 3(d), these consolidated financial statements have been
revised to include the transitional disclosures required by Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets",
which was adopted by the Company as of January 1, 2002. Our audit procedures
with respect to the disclosures in Note 3(d) with respect to 2001 and 2000
included (i) comparing the previously reported net loss to the previously issued
consolidated financial statements and the adjustments to reported net loss
representing amortization expense (including any related tax effects) recognized
in those periods to the Company's underlying records obtained from management,
and (ii) testing the mathematical accuracy of the reconciliation of adjusted net
loss to reported net loss and (b) as described in Note 14, these consolidated
financial statements and related notes as of December 31, 2001 and for the two
years in the period ended December 31, 2001, have been revised to provide
disaggregations of certain financial statement amounts and note disclosures. Our
audit procedures with respect to the financial statement amounts and note
disclosures described in Note 14 included (i) comparing the previously reported
amounts to the Company's underlying records obtained from management and (ii)
testing the mathematical accuracy of the disaggregation. In our opinion, such
disclosures are appropriate and have been properly applied. However, we were not
engaged to audit, review, or apply any procedures to the 2001 and 2000
consolidated financial statements of the Company other than with respect to such
disclosures. Accordingly, we do not express an opinion or any other form of
assurance on the 2001 and 2000 consolidated financial statements taken as a
whole.
Deloitte & Touche LLP
Dayton, Ohio
February 14, 2003
36
Report Of Independent Public Accountants
To Dayton Superior Corporation:
We have audited the accompanying consolidated balance sheets of Dayton Superior
Corporation (an Ohio corporation) and Subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of operations, shareholders'
equity, cash flows and comprehensive income (loss) for each of the three years
in the period ended December 31, 2001. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dayton Superior Corporation and
Subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Part IV, Item
14(a)(2) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
January 25, 2002
NOTE: The report of Arthur Andersen LLP presented above is a copy of a
previously issued Arthur Andersen LLP report. This report has not been reissued
by Arthur Andersen LLP nor has Arthur Andersen LLP provided a consent to the
inclusion of its report in this Form 10-K.
NOTE: The consolidated financial statements as of December 31, 2001 and for the
two years in the period then ended have been revised to include: (i) the
transitional disclosures required by Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (see Note 3(d)) and (ii)
disaggregations of certain financial statement amounts and note disclosures (see
Note 14). The report of Arthur Andersen LLP presented above does not extend to
these changes.
37
Dayton Superior Corporation And Subsidiaries
Consolidated Balance Sheets
As of December 31
(Amounts in thousands, except share amounts)
ASSETS (Note 4) 2002 2001
--------- ---------
Current assets:
Cash $ 2,404 $ 4,989
Accounts receivable, net of allowances for doubtful accounts and
sales returns and allowances of $4,861 and $7,423 61,165 51,628
Inventories (Note 3) 47,911 47,900
Prepaid expenses and other current assets 7,054 9,637
Prepaid income taxes 4,009 1,225
Future income tax benefits (Notes 3 and 8) 6,194 7,962
--------- ---------
Total current assets 128,737 123,341
--------- ---------
Rental equipment, net (Note 3) 63,160 71,323
--------- ---------
Property, plant and equipment (Note 3)
Land and improvements 5,536 5,860
Building and improvements 26,268 26,461
Machinery and equipment 72,042 67,731
--------- ---------
103,846 100,052
Less accumulated depreciation (42,600) (39,931)
--------- ---------
Net property, plant and equipment 61,246 60,121
--------- ---------
Goodwill (Notes 2 and 3) 107,328 126,810
Intangible assets, net of accumulated amortization (Notes 2 and 3) 8,405 9,816
Other assets 5,095 5,432
--------- ---------
Total assets $ 373,971 $ 396,843
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt (Note 4) $ 6,991 $ 5,001
Accounts payable 25,667 27,340
Accrued compensation and benefits 20,948 19,935
Other accrued liabilities 9,380 14,122
--------- ---------
Total current liabilities 62,986 66,398
Long-term debt (Note 4) 292,545 286,945
Deferred income taxes (Notes 3 and 8) 11,919 13,365
Other long-term liabilities (Note 7) 10,762 13,414
--------- ---------
Total liabilities 378,212 380,122
--------- ---------
Commitments and contingencies (Note 10)
Shareholders' equity (deficit) (Note 6)
Class A common shares; no par value; 5,000,000 shares authorized;
4,043,857 and 4,026,402 shares issued and 4,010,160 and
3,997,114 shares outstanding 102,525 102,044
Loans to shareholders (2,878) (3,030)
Class A treasury shares, at cost, 36,747 and 29,288 shares in 2002 and 2001 (1,184) (979)
Cumulative other comprehensive loss (1,716) (589)
Accumulated deficit (100,988) (80,725)
--------- ---------
Total shareholders' equity (deficit) (4,241) 16,721
--------- ---------
Total liabilities and shareholders' equity (deficit) $ 373,971 $ 396,843
========= =========
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
38
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31
(Amounts in thousands)
2002 2001 2000
--------- --------- ---------
Net sales (Note 3) $ 378,284 $ 393,700 $ 367,845
Cost of sales 249,408 254,430 229,523
--------- --------- ---------
Gross profit 128,876 139,270 138,322
Selling, general and administrative expenses 91,221 97,532 92,941
Facility closing and severance expenses (Note 11) 5,399 7,360 2,517
Amortization of goodwill and intangibles 603 3,912 2,508
--------- --------- ---------
Income from operations 31,653 30,466 40,356
Other expenses
Interest expense 33,967 35,024 22,574
Non-recurring item - lawsuit judgment (Note 10b) -- -- 15,341
Loss on disposals of property, plant and equipment 1,115 -- --
Other expense 80 95 293
--------- --------- ---------
Income (loss) before provision (benefit) for income taxes,
extraordinary item and cumulative effect of change in
accounting principle (3,509) (4,653) 2,148
Provision (benefit) for income taxes (Note 8) (386) (1,179) 1,471
--------- --------- ---------
Income (loss) before extraordinary item and cumulative effect of
change in accounting principle (3,123) (3,474) 677
Extraordinary loss, net of income tax benefit of $2,949 (Note 1) -- -- (4,812)
--------- --------- ---------
Loss before cumulative effect of change in accounting principle (3,123) (3,474) (4,135)
Cumulative effect of change in accounting principle, net of income tax
benefit of $2,754 (Note 3d) (17,140) -- --
--------- --------- ---------
Net loss (20,263) (3,474) (4,135)
Dividends on Company-obligated mandatorily redeemable convertible trust
preferred securities, net of income tax benefit of $389 -- -- 583
--------- --------- ---------
Net loss available to common shareholders $ (20,263) $ (3,474) $ (4,718)
========= ========= =========
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
39
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficit)
Years Ended December 31, 2002, 2001, and 2000
(Amounts in thousands, except share amounts)
Class A Class A Retained
Common Shares Treasury Shares Other Earnings
---------------------- Loans to ----------------- Comprehensive (Accumulated
Shares Amount Shareholders Shares Amount Loss Deficit) Total
--------- --------- ------------ ------ ------- ------- ------------ --------
Balance as
December 31, 1999 5,962,200 $ 47,417 -- 19,017 $ (387) $ (254) $ 41,996 $ 88,772
Net loss (4,135) (4,135)
Dividends on Company-
obligated mandatorily
redeemable convertible
trust preferred securities (583) (583)
Foreign currency translation (86) (86)
adjustment
Exercise of stock options,
net 344,353 5,106 (2,039) 3,067
Retirement of Class A
treasury shares (19,017) (349) (19,017) 387 (38) --
Issuance of Class A common
shares and warrants, net
of issuance costs 3,492,205 90,477 90,477
Redemption of Class A
common shares (6,085,751) (49,825) (114,491) (164,316)
---------- --------- --------- -------- ------- ------- --------- --------
Balances at December 31, 2000 3,693,990 92,826 (2,039) -- -- (340) (77,251) 13,196
Net loss (3,474) (3,474)
Foreign currency translation (249) (249)
adjustment
Issuance of Class A
common shares 323,278 8,986 (909) 8,077
Purchase of Class A
treasury shares 51 29,288 (979) (928)
Exercise of stock options, net 9,134 232 (133) 99
---------- --------- --------- -------- ------- ------- --------- --------
Balances at December 31, 2001 4,026,402 $ 102,044 $ (3,030) 29,288 $ (979) $ (589) $ (80,725) $ 16,721
Net loss (20,263) (20,263)
Foreign currency translation 92 92
adjustment
Change in minimum pension
liability (net of income
tax benefit of $151) (1,219) (1,219)
Issuance of Class A
common shares 17,455 481 (350) 131
Purchase of Class A
common shares 7,459 (205) (205)
Repayments of loans to
shareholders 502 502
---------- --------- --------- -------- ------- ------- --------- --------
Balance at December 31, 2002 4,043,857 $ 102,525 $ (2,878) 36,747 $(1,184) $(1,716) $(100,988) $ (4,241)
========== ========= ========= ======== ======= ======= ========= ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
40
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31
(Amounts in thousands)
2002 2001 2000
-------- -------- ---------
Cash Flows From Operating Activities:
Net loss $(20,263) $ (3,474) $ (4,135)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Extraordinary loss -- -- 4,812
Cumulative effect of change in accounting principle (Note 3d) 17,140 -- --
Depreciation 20,850 18,290 12,613
Amortization of goodwill and intangibles 603 3,912 2,508
Deferred income taxes 3,228 (2,972) (975)
Amortization of deferred financing costs, debt discount, and
issuance costs on Company-obligated mandatorily redeemable
convertible trust preferred securities 2,335 2,251 1,349
Net gain on sales of rental equipment and property,
plant and equipment (20,851) (14,184) (9,846)
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable (9,537) 7,348 (7,292)
Inventories (11) (1,410) (1,386)
Prepaid expenses and other assets 2,119 (8,533) (1,441)
Prepaid income taxes (2,784) 2,710 (2,713)
Accounts payable (1,673) 671 1,549
Accrued liabilities and other long-term liabilities (8,406) 3,614 2,818
-------- -------- ---------
Net cash provided by (used in) operating activities (17,250) 8,223 (2,139)
-------- -------- ---------
Cash Flows From Investing Activities:
Property, plant and equipment additions (11,277) (9,924) (11,678)
Proceeds from sale of fixed assets 2,010 169 195
Rental equipment additions (18,411) (25,933) (18,110)
Proceeds from sales of rental equipment 35,641 22,742 17,309
Acquisitions (Note 2) -- (40,850) (25,054)
Refund of purchase price on acquisitions -- 143 2,148
-------- -------- ---------
Net cash provided by (used in) investing activities 7,963 (53,653) (35,190)
-------- -------- ---------
Cash Flows From Financing Activities:
Repayments of long-term debt (4,141) (48,532) (122,185)
Issuance of long-term debt 8,050 93,751 239,171
Proceeds from sale/leaseback transaction 2,258 -- --
Prepayment premium on extinguishments of long-term debt and
interest rate swap agreements (Note 1) -- -- (476)
Financing cost on unused long-term debt commitment -- -- (750)
Issuance of common shares, net of issuance costs 131 5,334 93,544
Redemption of common shares and purchase of treasury shares (205) (928) (164,316)
Repayments of loans to shareholders, net 502 -- --
Financing costs incurred -- (791) (9,761)
Dividends on Company-obligated mandatorily redeemable convertible
trust preferred securities, net of income tax benefit -- -- (583)
-------- -------- ---------
Net cash provided by financing activities 6,595 48,834 34,644
-------- -------- ---------
Effect of Exchange Rate Changes on Cash 107 (197) (86)
-------- -------- ---------
Net increase (decrease) in cash (2,585) 3,207 (2,771)
Cash, beginning of year 4,989 1,782 4,553
-------- -------- ---------
Cash, end of year $ 2,404 $ 4,989 $ 1,782
======== ======== =========
Supplemental Disclosures:
Cash paid (refunded) for income taxes $ (1,149) $ (1,532) $ 1,494
Cash paid for interest 31,862 32,348 20,501
Purchase of equipment on capital lease 2,758 -- --
Issuance of Class A common shares and loans to shareholders 350 909 2,039
Conversion of Company-obligated mandatorily redeemable convertible
trust preferred securities into long-term debt -- -- 23,375
Issuance of warrants attached to senior subordinated notes -- -- 3,166
Issuance of Class A common shares in conjunction with acquisitions -- 2,842 --
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
41
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Comprehensive Loss
Years Ended December 31
(Amounts in thousands)
2002 2001 2000
-------- ------- -------
Net loss $(20,263) $(3,474) $(4,135)
Dividends on Company-obligated
mandatorily redeemable convertible trust
preferred securities -- -- (583)
Other comprehensive income
Foreign currency translation adjustment 92 (249) (86)
Change in minimum pension liability (net of
income tax benefit of $151) (1,219) -- --
-------- ------- -------
Comprehensive loss $(21,390) $(3,723) $(4,804)
======== ======= =======
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
42
Dayton Superior Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
(Dollar amounts in thousands, except share and per share amounts)
(1) The Company
The accompanying consolidated financial statements include the accounts of
Dayton Superior Corporation and its wholly-owned subsidiaries (collectively
referred to as the "Company"). All intercompany transactions have been
eliminated.
The Company believes it is the largest North American manufacturer and
distributor of metal accessories and forms used in concrete construction
and of metal accessories used in masonry construction. The Company has a
distribution network consisting of 18 manufacturing/distribution plants and
26 service/distribution centers in the United States and Canada. The
Company employs approximately 700 salaried and 1,200 hourly personnel, of
whom approximately 600 of the hourly personnel and four of the salaried
personnel are represented by labor unions. There is one collective
bargaining agreement expiring in 2003, covering hourly employees at the
Parsons, Kansas facility.
On January 19, 2000, the Company signed a definitive merger agreement with
an affiliate of Odyssey Investment Partners, LLC ("Odyssey"), the manager
of a New York based private equity investment fund, for $27.00 per share in
cash. The transaction was completed on June 16, 2000 and was recorded as a
recapitalization. Accordingly, the Company has not recorded any goodwill or
purchase accounting adjustments, but will remain subject to certain
ownership requirements.
In connection with the recapitalization, the Company refinanced its
existing bank indebtedness. Additionally, the Dayton Superior Capital
Trust, which held solely debentures, was dissolved. The Company-obligated
mandatorily redeemable convertible trust preferred securities converted to
debentures having the right to receive cash in the amount of $22.00, plus
accrued interest, per preferred security.
As a result, the Company recorded an extraordinary loss in 2000 of $4,812
from the early extinguishment of long-term debt, comprised of the
following:
Expense deferred financing costs on previous long-term debt $ 2,719
Prepayment premium on extinguishments of long-term debt and interest
rate swap agreements 476
Expense issuance costs on Company-obligated mandatorily redeemable
convertible trust preferred securities 1,691
Prepayment premium on conversion of Company-obligated mandatorily
redeemable convertible trust preferred securities into debentures 2,125
Financing cost for unused long-term debt commitment 750
-------
7,761
Income tax benefit (2,949)
-------
Extraordinary loss $ 4,812
=======
43
(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 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.
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 $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.
(c) CONSPEC MARKETING AND MANUFACTURING CO., INC. - On July 17, 2000, the
Company acquired all of the stock of Conspec Marketing & Manufacturing
Co., Inc., and related entities ("Conspec", now known as Dayton
Superior Specialty Chemical Corp.), for $24,300 in cash, including
acquisitions costs, a payment of approximately $1,000 in 2001 for a
tax election, and net of a working capital reduction of approximately
$100 received in 2001. The payments were 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 Conspec 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 $29,600, including goodwill of $19,500) and liabilities
assumed (approximately $5,300). Pro forma financial information is not
required as this was not a significant acquisition.
44
(d) POLYTITE MANUFACTURING CORP. - On February 9, 2000, the Company
acquired substantially all of the assets and assumed certain of the
liabilities of Polytite Manufacturing Corp. ("Polytite") for
approximately $1,600 in cash, including acquisition costs. 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 Polytite 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 $2,100, including goodwill of $1,500) and liabilities
assumed (approximately $500). Pro forma financial information is not
required as this was not a significant acquisition.
(3) Summary of Significant Accounting Policies
(a) 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 December 31, 2002 and December 31,
2001:
December 31, December 31,
2002 2001
------------ ------------
Raw materials $ 15,984 $ 11,581
Work in progress 3,069 3,624
Finished goods 29,932 34,639
-------- --------
48,985 49,844
Net realizable value reserve (1,074) (1,944)
-------- --------
$ 47,911 $ 47,900
======== ========
(b) Rental Equipment - Rental equipment is manufactured 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 method. The balances as of December 31, 2002
and 2001 are net of accumulated depreciation of $24,181 and $20,002,
respectively. Rental revenues and cost of sales associated with rental
revenue are as follows:
For the year ending
-----------------------------------------
December 31, December 31, December 31,
2002 2001 2000
------------ ------------ ------------
Rental revenue $42,801 $54,577 $55,441
Cost of sales 14,096 12,101 8,889
------- ------- -------
Gross profit $28,705 $42,476 $46,552
======= ======= =======
45
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 $4,000 in 2002,
which is reflected in cost of goods sold in the accompanying December
31, 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 2001, which is reflected in cost of goods sold
in the accompanying December 31, 2001 consolidated statement of
operations.
(c) Property, Plant and Equipment - Property, plant and equipment are
valued at cost and depreciated using straight-line methods over their
estimated useful lives of 10-30 years for buildings and improvements
and 3-10 years for machinery and equipment.
Leasehold improvements are amortized over the lesser of the term of
the lease or the estimated useful life of the improvement.
Improvements and replacements are capitalized, while expenditures for
maintenance and repairs are charged to expense as incurred.
Included in the cost of property, plant and equipment are assets
obtained through capital leases, all included in machinery and
equipment. As of December 31, 2002 the cost of assets under capital
lease is $2,758, net of accumulated depreciation of $256. Depreciation
expense related to machinery and equipment under capital lease was
$256 for the period ended December 31, 2002.
(d) Goodwill and Intangible Assets - Amortization is provided over the
term of the loan (7 to 9 years) for deferred financing costs, the term
of the agreement (5 years) for non-compete agreements, and over the
estimated useful life (3 years) for intellectual property.
Amortization of non-compete agreements and intellectual property is
reflected as "Amortization of goodwill and intangibles" in the
accompanying consolidated statements of operations. The estimated
aggregate amortization expense for each of the next three years is as
follows: $533 in 2003, $515 in 2004, and $286 in 2005. Amortization of
deferred financing costs is reflected as "Interest expense" in the
accompanying consolidated statements of operations. The estimated
aggregate interest expense for each of the next five years related to
the amortization of deferred financing costs is as follows: $1,391 in
2003, $1,365 in 2004, $1,336 in 2005, $1,116 in 2006, and $841 in
2007. Intangible assets consist of the following at December 31:
46
2002 2001
-------- --------
Deferred financing costs $ 10,550 $ 10,550
Intellectual property 690 690
Covenants not to compete 1,595 996
-------- --------
12,835 12,236
Less: accumulated amortization (4,430) (2,420)
-------- --------
$ 8,405 $ 9,816
======== ========
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 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 in the accompanying December 31, 2002
consolidated statement of operations. 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 loss to net loss
adjusted for the amortization of goodwill:
Year Ended
--------------------------------------------
December 31, December 31, December 31,
2002 2001 2000
------------ ------------ ------------
Net loss before cumulative effect of change
in accounting principle, as reported $(3,123) $(3,474) $(4,135)
Amortization of goodwill, net of tax benefit -- 3,375 2,181
------- ------- -------
Net loss before cumulative effect of change
in accounting principle, as adjusted $(3,123) $ (99) $(1,954)
======= ======= =======
(e) Income Taxes - Deferred income taxes are determined by applying
current statutory tax rates to the cumulative temporary differences
between the carrying value of assets and liabilities for financial
reporting and tax purposes.
47
(f) Environmental Remediation Liabilities - The Company accounts for
environmental remediation liabilities in accordance with the American
Institute of Certified Public Accountants issued Statement of Position
96-1, "Environmental Remediation Liabilities," ("SOP 96-1"). The
Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable.
Accruals for estimated losses from environmental remediation
obligations generally are recognized no later than completion of the
remedial feasibility study. Such accruals are adjusted as further
information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are not
discounted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets when their
receipt is deemed probable.
(g) Foreign Currency Translation Adjustment - The financial statements of
foreign subsidiaries and branches are maintained in their functional
currency (Canadian dollars) and are then translated into U.S. dollars.
The balance sheets are translated at end of year rates while revenues,
expenses and cash flows are translated at weighted average rates
throughout the year. Translation adjustments, which result from
changes in exchange rates from period to period, are accumulated in a
separate component of shareholders' equity. Transactions in foreign
currencies are translated into U.S. dollars at the rate in effect on
the date of the transaction. Changes in foreign exchange rates from
the date of the transaction to the date of the settlement of the asset
or liability are recorded as income or expense.
(h) Revenue Recognition - We recognize revenue from product sales when the
product is shipped from our facilities and risk of loss and title have
passed to the customer or, at the customer's written request and where
the customer has made a fixed commitment to purchase goods on a fixed
schedule consistent with the customer's business and where risk of
ownership has passed to the buyer, the goods are set-aside in storage
and the Company does not retain any specific performance obligations
such that the earning process is not complete. For transactions where
we have not obtained customer acceptance, revenue is deferred until
the terms of acceptance are satisfied. On rental equipment sales,
revenue is recognized and recorded on the date of shipment. Rental
revenues are recognized ratably over the terms of the rental
agreements.
(i) Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the balance sheet date and the reported amounts of revenues and
expenses during the year. Actual results could differ from those
estimates. Examples of accounts in which estimates are used include
the reserve for excess and obsolete inventory, the allowance for
doubtful accounts and sales returns and allowances, the accrual for
self-insured employee medical claims, the self-insured product and
general liability accrual, the self-insured workers' compensation
accrual, accruals for litigation losses, the valuation allowance for
deferred tax assets, actuarial assumptions used in determining pension
benefits, and actuarial assumptions used in determining other
post-retirement benefits.
48
(j) New Accounting Pronouncements - In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires that an obligation associated with
the retirement of a tangible long-lived asset be recognized as a
liability when incurred. Subsequent to initial measurement, an entity
recognizes changes in the amount of the liability resulting from the
passage of time and revisions to either the timing or amount of
estimated cash flows. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002. The
Company does not believe this pronouncement will have a material
impact on its consolidated financial position, results of operations,
or cash flows.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," and the
accounting and reporting provisions of Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," that
address the disposal of a segment of a business. The Statement also
amends Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. The Statement
is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those
fiscal years, and generally would be applied prospectively for
disposal activities initiated by a commitment to a plan made after the
entity's initial adoption of the Statement. The adoption of this
pronouncement did not have a material impact on the Company's
consolidated financial position, results of operations, or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 eliminates the requirement to
classify gains and losses from the extinguishment of indebtedness as
extraordinary, requires certain lease modifications to be treated the
same as a sale-leaseback transaction, and makes other non-substantive
technical corrections to existing pronouncements. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002, with earlier
adoption encouraged. The Company does not believe this pronouncement
will have a material impact on its consolidated financial position,
results of operations, or cash flows.
In July 2002, the FASB issued Statement of 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 is assessing the impact of the adoption of this standard and
does not believe this pronouncement will have a material impact on its
consolidated financial position, results of operations or cash flows.
49
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." SFAS 148 amends
FASB statement No. 123, "Accounting for Stock-Based Compensation."
Although it does not require use of fair value method of accounting
for stock-based employee compensation, it does provide alternative
methods of transition. It also amends the disclosure provisions of
Statement 123 and APB Opinion No. 28, "Interim Financial Reporting,"
to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect
to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. SFAS
No. 148's amendment of the transition and annual disclosure
requirements is effective for fiscal years ending after December 15,
2002. The amendment of disclosure requirements of Opinion No. 28 is
effective for interim periods beginning after December 15, 2002.
Although the Company has not changed to the fair value method, the
disclosure requirements of this statement have been adopted.
In November 2002, the FASB issued Interpretation (FIN) No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45
elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements in this interpretation are
required for financial statements of periods ending after December 15,
2002. The initial measurement provisions of the interpretation are
applicable on a prospective basis for guarantees issued or modified
after December 31, 2002. The Company does not believe this
pronouncement will have a material impact on its consolidated
financial position, results of operations, or cash flows.
In January 2003, the FASB issued Interpretation (FIN) No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of APB
No. 50." FIN No. 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN No. 46 is
effective for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, the provisions of FIN No. 46 must
be applied for the first interim or annual period beginning after June
15, 2003. The Company does not believe this pronouncement will have a
material impact on our financial position, results of operations and
cash flows.
(k) Stock Options - The Company measures compensation cost for stock
options issued using the intrinsic value-based method of accounting in
accordance with Accounting Principles Board Opinion (APB) No. 25. If
compensation cost for the Company's stock options had been determined
based on the fair value method of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and net income per
share would have been reduced to the unaudited pro forma amounts as
follows:
50
2002 2001 2000
-------- ------- -------
Net income (loss)
available to common
shareholders: As Reported $(20,263) $(3,474) $(4,718)
Deduct: Total stock-based employee
compensation expense determined
under fair value-based method for
all awards, net of related tax effect (284) (633) (1,068)
-------- ------- -------
Pro Forma $(20,547) (4,107) (5,786)
======== ======= =======
(4) Credit Arrangements
The Company has a credit facility that consists of (i) a $50,000 revolving
credit facility maturing June 2006, (ii) a $30,000 acquisition facility,
converting from revolving loans into term loans four 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 December 31, 2002, the Company had outstanding letters of credit of
approximately $8,700, and the Company had available borrowings of
approximately $31,200 under its revolving credit facility.
The average borrowings, maximum borrowings, and weighted average interest
rate on the revolving credit facility and its predecessors for the periods
indicated are as follows:
For the year ended
-----------------------------------------
December 31, December 31, December 31,
2002 2001 2000
----------- ------------ ------------
Average borrowings ................................. $15,156 $ 8,980 $ 5,965
Maximum borrowing .................................. 29,275 26,425 16,420
Weighted average interest rate, including commitment
fee for unused portion of revolving credit
facility ......................................... 6.4% 10.4% 10.6%
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 December 31, 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 affect the eight fiscal quarters, beginning with
the quarter ended December 31, 2002.
The credit facility is secured by substantially all assets of the Company.
51
The Company has an Economic Development Loan from the city of Parsons,
Kansas. The loan is payable in quarterly installment of $8 through July
2005. The loan is secured by real estate in Parsons.
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 $397, which was deferred and is being amortized over
the term of the leases. Amortization expense during the year ended December
31, 2002 was approximately $100. The unamortized deferred gain at December
31, 2002 was approximately $300. 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.
Following is a summary of the Company's long-term debt as of December 31,
2002 and 2001:
2002 2001
------- --------
Revolving credit facility, weighted average interest rate of 6.0% $10,050 $ 2,000
Acquisition credit facility, weighted average interest rate of 4.6% 9,250 9,250
Term Loan Tranche A, weighted average interest rate of 4.6% 19,391 22,161
Term Loan Tranche B, weighted average interest rate of 5.2% 97,516 98,500
Senior Subordinated Notes, interest rate of 13.0% 170,000 170,000
Debt discount on Senior Subordinated Notes (10,374) (11,297)
Debentures previously held by Dayton Superior Capital Trust, payable on demand,
interest rate of 9.1% 1,110 1,214
Capital lease obligation 2,507 -
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 86 118
------- --------
Total long-term debt 299,536 291,946
Less current portion (6,991) (5,001)
------- --------
Long-term portion $292,545 $286,945
======== ========
Scheduled maturities of long-term debt and future minimum lease payments
under capital leases are:
Long-term Capital
Year Debt Leases Total
----------------------------- --------- -------- --------
2003 $ 6,283 $ 796 $ 7,079
2004 9,639 707 10,346
2005 11,491 558 12,049
2006 31,683 414 32,097
2007 47,034 274 47,308
Thereafter 201,273 149 201,422
-------- ------ --------
Long-Term Debt and Lease Payments 307,403 2,898 310,301
Less: Debt Discount (10,374) - (10,374)
Less: Amounts Representing Interest - (391) (391)
-------- ------ --------
$297,029 $2,507 $299,536
======== ====== ========
52
The fair value of the Senior Subordinated Notes, based on the last trade
price of $86 per unit, was $146,200 at December 31, 2002. The fair market
value of the Company's other fixed rate long-term debt is estimated using
discounted cash flow analyses based on current incremental borrowing rates
for similar types of borrowing arrangements. At December 31, 2002, the
estimated fair value of the debentures previously held by Dayton Superior
Capital Trust is $1,763. The estimated fair value of the City of Parsons,
Kansas Economic Development Loan is $60. The estimated fair value of the
credit facility approximates its face value, as this facility has variable
interest rates tied to market rates.
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 Class A
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 with respect to the Notes
and do not have any credit arrangements senior to the Notes. The following
supplemental consolidated condensed balance sheets as of December 31, 2002
and 2001, the supplemental consolidated condensed statements of operations
and cash flows for the years ended December 31, 2002, 2001 and 2000 depict
in separate columns, the parent company, those subsidiaries which are
guarantors, those subsidiaries which are non-guarantors, elimination
adjustments and the consolidated total. This financial information may not
necessarily be indicative of the result of operations or financial position
of the subsidiaries had they been operated as independent entities.
53
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Balance Sheet
As of December 31, 2002
Dayton Non
Superior Guarantor Guarantor
Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Cash $ 1,605 $ (687) $ 1,486 $ -- $ 2,404
Accounts receivable, net 30,223 30,487 455 -- 61,165
Inventories 23,408 23,180 1,323 -- 47,911
Intercompany 56,498 (56,414) (84) -- --
Other current assets 8,555 8,539 163 -- 17,257
--------- --------- ------- --------- ---------
TOTAL CURRENT ASSETS 120,289 5,105 3,343 -- 128,737
Rental equipment, net 4,268 58,846 46 -- 63,160
Property, plant and equipment, net 25,690 35,378 178 -- 61,246
Investment in subsidiaries 123,041 -- -- (123,041) --
Other assets 53,497 67,331 -- -- 120,828
--------- --------- ------- --------- ---------
TOTAL ASSETS $ 326,785 $ 166,660 $ 3,567 $(123,041) $ 373,971
========= ========= ======= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current maturities of long-term debt $ 6,991 $ -- $ -- $ -- $ 6,991
Accounts payable 13,983 11,407 277 -- 25,667
Accrued liabilities 18,022 12,152 154 -- 30,328
--------- --------- ------- --------- ---------
TOTAL CURRENT LIABILITIES 38,996 23,559 431 -- 62,986
Long-term debt 292,545 -- -- -- 292,545
Other long-term liabilities 5,730 16,763 188 -- 22,681
Total shareholders' equity (deficit) (10,486) 126,338 2,948 (123,041) (4,241)
--------- --------- ------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT) $ 326,785 $ 166,660 $ 3,567 $(123,041) $ 373,971
========= ========= ======= ========= =========
54
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
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 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 $ 322,223 $ 193,673 $ 3,811 $(122,864) $396,843
========= ========= ======= ========= ========
55
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Year Ended December 31, 2002
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 180,863 $ 188,340 $9,081 $ 378,284
Cost of sales 121,538 121,866 6,004 249,408
--------- --------- ------ ---------
Gross profit 59,325 66,474 3,077 128,876
Selling, general and administrative expenses 40,422 49,188 1,611 91,221
Facility closing and severance expenses 3,827 1,572 -- 5,399
Amortization of goodwill and intangibles 373 230 -- 603
Management fees (300) -- 300 --
--------- --------- ------ ---------
Income from operations 15,003 15,484 1,166 31,653
Other expenses
Interest expense 33,101 866 -- 33,967
Loss on disposals of property, plant and
equipment 728 387 -- 1,115
Other expense (income), net (35) 44 71 80
--------- --------- ------ ---------
Income (loss) before provision (benefit)
for income taxes and cumulative effect of
change in accounting principle (18,791) 14,187 1,095 (3,509)
Provision (benefit) for income taxes (2,067) 1,561 120 (386)
--------- --------- ------ ---------
Income (loss) before cumulative effect of
change in accounting principle (16,724) 12,626 975 (3,123)
Cumulative effect of change in accounting
principle, net of income tax benefit of $2,754 -- (17,140) -- (17,140)
--------- --------- ------ ---------
Net income (loss) $ (16,724) $ (4,514) $ 975 $ (20,263)
========= ========= ====== =========
56
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Year Ended December 31, 2001
Dayton Non
Superior Guarantor Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 183,365 $200,939 $9,396 $ 393,700
Cost of sales 122,039 126,480 5,911 254,430
--------- -------- ------ ---------
Gross profit 61,326 74,459 3,485 139,270
Selling, general and administrative expenses 38,006 57,983 1,543 97,532
Facility closing and severance expenses 442 6,918 -- 7,360
Amortization of goodwill and intangibles 1,980 1,932 -- 3,912
Management fees (300) -- 300 --
--------- -------- ------ ---------
Income from operations 21,198 7,626 1,642 30,466
Other expenses
Interest expense 34,463 561 -- 35,024
Other expense (income), net -- 95 -- 95
--------- -------- ------ ---------
Income (loss) before provision for income
taxes (13,265) 6,970 1,642 (4,653)
Provision (benefit) for income taxes (3,361) 1,766 416 (1,179)
--------- -------- ------ ---------
Net income (loss) $ (9,904) $ 5,204 $1,226 $ (3,474)
========= ======== ====== =========
57
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Year Ended December 31, 2000
Dayton Non
Superior Guarantor Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 186,683 $ 171,493 $9,669 $ 367,845
Cost of sales 117,708 105,895 5,920 229,523
--------- --------- ------ ---------
Gross profit 68,975 65,598 3,749 138,322
Selling, general and administrative expenses 41,653 49,124 2,164 92,941
Facility closing and severance expenses 1,860 657 -- 2,517
Amortization of goodwill and intangibles 1,784 724 -- 2,508
Management fees (850) 689 161 --
--------- --------- ------ ---------
Income from operations 24,528 14,404 1,424 40,356
Other expenses
Interest expense 22,669 (95) -- 22,574
Non-recurring item - Lawsuit judgment -- 15,341 -- 15,341
Other expense, net 216 77 -- 293
--------- --------- ------ ---------
Income (loss) before provision (benefit)
for income taxes and extraordinary item 1,643 (919) 1,424 2,148
Provision (benefit) for income taxes 826 (10) 655 1,471
--------- --------- ------ ---------
Income (loss) before extraordinary item 817 (909) 769 677
Extraordinary loss, net of income tax benefit (4,812) -- -- (4,812)
--------- --------- ------ ---------
Net income (loss) (3,995) (909) 769 (4,135)
Dividends on Company-obligated mandatorily
redeemable convertible trust preferred
securities, net of income tax benefit 583 -- -- 583
--------- --------- ------ ---------
Net income (loss) available to common
shareholders $ (4,578) $ (909) $ 769 $ (4,718)
========= ========= ====== =========
58
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Year Ended December 31, 2002
Dayton Non
Superior Guarantor Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(9,514) $(11,724) $ 975 $(20,263)
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
principle -- 17,140 -- 17,140
Depreciation and amortization 7,712 16,026 50 23,788
Deferred income taxes 3,228 -- -- 3,228
Gain on sales of rental equipment and
fixed assets (572) (20,247) (32) (20,851)
Change in assets and liabilities, net of
the effects of acquisitions (5,834) (13,460) (998) (20,292)
------- -------- ------- --------
Net cash provided by (used in)
operating activities (4,980) (12,265) (5) (17,250)
------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (6,658) (4,489) (130) (11,277)
Proceeds from sales of fixed assets 1,105 877 28 2,010
Rental equipment additions (758) (17,619) (34) (18,411)
Proceeds from sale of rental equipment 3,018 32,550 73 35,641
------- -------- ------- --------
Net cash provided by (used in)
investing activities (3,293) 11,319 (63) 7,963
------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (4,141) -- -- (4,141)
Issuance of long-term debt 8,050 -- -- 8,050
Proceeds from sale/leaseback transaction 633 1,597 28 2,258
Issuance of common shares, net of issuance
costs 131 -- -- 131
Redemption of common shares and purchase of
treasury shares (205) -- -- (205)
Repayment of loans to shareholders, net 502 -- -- 502
Intercompany 2,194 (2,170) (24) --
------- -------- ------- --------
Net cash provided by (used in)
financing activities 7,164 (573) 4 6,595
------- -------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- -- 107 107
------- -------- ------- --------
Net increase (decrease) in cash (1,109) (1,519) 43 (2,585)
CASH, beginning of year 2,714 832 1,443 4,989
------- -------- ------- --------
CASH, end of year $ 1,605 $ (687) $ 1,486 $ 2,404
======= ======== ======= ========
59
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Year ended December 31, 2001
Dayton Non
Superior Guarantor Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,904) $ 5,204 $ 1,226 $ (3,474)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 8,483 15,928 42 24,453
Deferred income taxes (2,972) -- -- (2,972)
Gain on sales of rental equipment and
fixed assets (1,062) (13,039) (83) (14,184)
Change in assets and liabilities, net of
the effects of acquisitions (9,109) 15,049 (1,540) 4,400
-------- -------- ------- --------
Net cash provided by (used in)
operating activities (14,564) 23,142 (355) 8,223
-------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (4,065) (5,679) (180) (9,924)
Proceeds from sales of fixed assets 34 132 3 169
Rental equipment additions (1,565) (24,317) (51) (25,933)
Proceeds from sale of rental equipment 2,193 20,390 159 22,742
Acquisitions (40,707) -- -- (40,707)
-------- -------- ------- --------
Net cash used in investing activities (44,110) (9,474) (69) (53,653)
-------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (48,532) -- -- (48,532)
Issuance of long-term debt 93,751 -- -- 93,751
Issuance of Class A common shares 5,334 -- -- 5,334
Financing costs incurred (791) -- -- (791)
Purchase of treasury shares (928) -- -- (928)
Intercompany 10,951 (12,011) 1,060 --
-------- -------- ------- --------
Net cash provided by (used in)
financing activities 59,785 (12,011) 1,060 48,834
-------- -------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- -- (197) (197)
-------- -------- ------- --------
Net increase in cash 1,111 1,657 439 3,207
CASH, beginning of year 1,603 (825) 1,004 1,782
-------- -------- ------- --------
CASH, end of year $ 2,714 $ 832 $ 1,443 $ 4,989
======== ======== ======= ========
60
Dayton Superior Corporation And Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Year ended December 31, 2000
Dayton Non
Superior Guarantor Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,995) $ (909) $ 769 $ (4,135)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Extraordinary loss 4,812 -- -- 4,812
Depreciation and amortization 7,192 9,242 36 16,470
Deferred income taxes (1,150) (104) 279 (975)
Gain on sales of rental equipment and
fixed assets (1,041) (8,757) (48) (9,846)
Change in assets and liabilities, net of
the effects of acquisitions (152) (7,500) (813) (8,465)
--------- -------- ------- ---------
Net cash provided by (used in)
operating activities 5,666 (8,028) 223 (2,139)
--------- -------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (7,063) (4,537) (78) (11,678)
Proceeds from sales of fixed assets 32 163 -- 195
Rental equipment additions (1,939) (16,106) (65) (18,110)
Proceeds from sale of rental equipment 2,500 14,723 86 17,309
Acquisitions (25,054) -- -- (25,054)
Refunds of purchase price on acquisitions 2,148 -- -- 2,148
--------- -------- ------- ---------
Net cash used in investing activities (29,376) (5,757) (57) (35,190)
--------- -------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (122,185) -- -- (122,185)
Issuance of long-term debt 239,171 -- -- 239,171
Prepayment premium on extinguishments of
long-term debt and interest rate swap
agreements (476) -- -- (476)
Financing cost on unused long-term debt
commitment (750) -- -- (750)
Issuance of Class A common shares 93,544 -- -- 93,544
Redemption of Class A common shares (164,316) -- -- (164,316)
Financing costs incurred (9,761) -- -- (9,761)
Dividends on Company-obligated mandatorily
redeemable convertible trust preferred
securities, net of income tax benefit (583) -- -- (583)
Intercompany (12,819) 13,321 (502) --
--------- -------- ------- ---------
Net cash provided by (used in)
financing activities 21,825 13,321 (502) 34,644
--------- -------- ------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- -- (86) (86)
--------- -------- ------- ---------
Net decrease in cash (1,885) (464) (422) (2,771)
CASH, beginning of year 3,488 (361) 1,426 4,553
--------- -------- ------- ---------
CASH, end of year $ 1,603 $ (825) $ 1,004 $ 1,782
========= ======== ======= =========
61
(5) Company-obligated Mandatorily Redeemable Convertible Trust Preferred
Securities
In October 1999, the Company completed an underwritten public offering of
1,062,500 Company-obligated mandatorily redeemable convertible trust
preferred securities at a price of $20 per security. Net proceeds to the
Company after issuance costs were $19,554. The securities were issued by a
limited purpose Delaware trust which used the proceeds to purchase from the
Company the same principal amount of convertible junior subordinated
debentures. The securities were guaranteed by the Company on a subordinated
basis.
As a result of the recapitalization, the trust was dissolved. The
securities converted to debentures having the right to receive cash in the
amount of $23,375 ($22.00 per preferred security), plus accrued interest.
As of December 31, 2002, $22,265 of the debentures had been redeemed.
Interest is payable on the preferred securities at the rate of 9.1%.
(6) Common Shares
(a) Stock Option Plan - Upon consummation of the recapitalization, the
Company adopted the 2000 Stock Option Plan of Dayton Superior
Corporation ("Stock Option Plan"). The Stock Option Plan permits the
grant of stock options to purchase 683,159 common shares. Options to
purchase 147,225, 5,506 and 473,016 common shares were granted during
2002, 2001, and 2000, respectively. Options that are cancelled may be
reissued.
The Stock Option Plan constitutes the amendment and merger into one
plan of four previous option plans and governs options that remain
outstanding following the recapitalization, as well as new option
grants. The terms of the new option grants are as follows:
- Options to purchase 22,997 common shares were exercisable when
granted.
- Options to purchase 30,850 common shares became exercisable in
2002.
- Options to purchase 6,426 common shares will become exercisable
in 2003.
- Options to purchase 8,392 common shares will become exercisable
in 2004.
- Options to purchase 6,250 common shares will become exercisable
in 2005.
- The remaining options to purchase 513,053 common shares are
eligible to become exercisable in installments over one to five
years based on the Company's performance, but, in any case,
become exercisable no later than nine years after the grant date.
- These options may be subject to accelerated vesting upon certain
change in control events based on Odyssey's return on investment.
62
Under the Stock Option Plan, the option exercise price equals the
stock's market price on date of grant. The Company accounts for these
plans 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) available to common shareholders would have been
reduced to the following pro forma amounts:
2002 2001 2000
-------- ------- -------
Net income (loss)
available to common
shareholders: As Reported $(20,263) $(3,474) $(4,718)
Deduct: Total stock-based employee
compensation expense determined
under fair value-based method for
all awards, net of related tax effect (284) (633) (1,068)
-------- ------- -------
Pro Forma $(20,547) (4,107) (5,786)
======== ======= =======
A summary of the status of the Company's stock option plans at
December 31, 2002, 2001, and 2000, and changes during the years then
ended is presented in the table and narrative below:
Number of Weighted Average
Shares Exercise Price Per Share
--------- ------------------------
Outstanding at December 31, 1999 442,283 9.28
Granted at a weighted average fair value of $7.65 473,016 27.00
Exercised (344,353) 8.85
-------- ------
Outstanding at December 31, 2000 570,946 24.22
Granted at a weighted average fair value of $7.65 5,506 27.50
Exercised (9,134) 21.20
Cancelled (26,060) 27.00
-------- ------
Outstanding at December 31, 2001 541,258 24.17
Granted at a weighted average fair value of $5.43 147,225 27.50
Exercised (3,050) 2.29
Cancelled (13,749) 25.21
-------- ------
Outstanding at December 31, 2002 671,684 $25.00
======== ======
63
Price ranges and other information for stock options outstanding at
December 31, 2002 are as follows:
Outstanding Exercisable
--------------------------------------- -----------------------
Weighted Weighted
Average Weighted Average
Exercise Average Exercise
Range of Exercise Prices Shares Price Remaining Life Shares Price
------------------------ ------ -------- -------------- ------ --------
$ 1.96 - $ 4.00 40,887 $ 2.45 1.7 years 40,887 $ 2.45
$12.50 - $12.63 4,929 12.56 4.5 4,929 12.56
$16.81 - $19.91 38,264 18.11 5.6 38,264 18.11
$27.00 - $27.50 587,604 27.12 8.0 104,012 27.04
------- ------ --------- ------- ------
671,684 $25.00 7.5 years 188,092 $19.50
======= ====== ========= ======= ======
The fair value of each option grant is estimated on the date of grant
using the Black Scholes options pricing model with the following
weighted average assumptions used for grants in 2002, 2001, and 2000,
respectively:
2002 2001 2000
---------- --------- --------
Risk-free interest rates 3.70% 5.55% 5.55%
Expected dividend yield 0% 0% 0%
Expected lives 6 years 6 years 6 years
Expected volatility 0.00% 0.00% 0.00%
(b) Treasury Shares - During 2002 and 2001, the Company repurchased common
shares from former employees in conjunction with the facility closing
and severance plans discussed in Note 11. There were 7,459 shares
repurchased in 2002 for $205, and 29,288 shares repurchased in 2001
for $979.
(7) Retirement Plans
(a) Company-Sponsored Pension Plans - The Company's pension plans cover
virtually all hourly employees not covered by multi-employer pension
plans and provide benefits of stated amounts for each year of credited
service. The Company funds such plans at a rate that meets or exceeds
the minimum amounts required by applicable regulations. The plans'
assets are primarily invested in mutual funds comprised primarily of
common stocks and corporate and U.S. government obligations.
64
Postretirement Benefits - The Company provides postretirement health
care benefits on a contributory basis and life insurance benefits for
Symons salaried and hourly employees who retired prior to May 1, 1995.
PENSION PENSION SYMONS SYMONS
BENEFITS BENEFITS POSTRETIREMENT POSTRETIREMENT
2002 2001 BENEFITS 2002 BENEFITS 2001
-------- -------- -------------- --------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 7,059 $ 6,166 $ 820 $ 774
Service cost 428 439 -- --
Interest cost 502 454 57 61
Amendments 120 -- -- --
Actuarial loss (gain) 479 301 27 93
Benefits paid (361) (301) (183) (108)
------- ------- ----- -----
Benefit obligation at end of year $ 8,227 $ 7,059 $ 721 $ 820
======= ======= ===== =====
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 6,716 $ 6,247 $ -- $ --
Actual return (loss) on plan assets (457) 206 -- --
Employer contribution 914 564 183 108
Benefits paid (361) (301) (183) (108)
------- ------- ----- -----
Fair value of plan assets at end of year $ 6,812 $ 6,716 $ -- $ --
======= ======= ===== =====
FUNDED STATUS $(1,415) $ (343) $(720) $(820)
Unrecognized prior service cost (32) (147) 192 216
Unrecognized net loss (gain) 1,402 (94) (39) (66)
------- ------- ----- -----
Net amount recognized $ (45) $ (584) $(567) $(670)
======= ======= ===== =====
AMOUNTS RECOGNIZED IN THE STATEMENT OF
FINANCIAL POSITION CONSIST OF:
Accrued benefit liability $(1,415) $ (584) $(567) $(670)
Accumulated other comprehensive income 1,370 -- -- --
------- ------- ----- -----
Net amount recognized $ (45) $ (584) $(567) $(670)
======= ======= ===== =====
ASSUMPTIONS AS OF DECEMBER 31
Discount rate 6.75% 7.25% 6.75% 7.50%
Expected return on plan assets 8% 8% N/A N/A
Rate of compensation increase N/A N/A N/A N/A
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 428 $ 439 $ -- $ --
Interest cost 502 454 57 61
Expected return on plan assets (560) (494) -- --
Amortization of prior service cost (5) (6) 24 24
------- ------- ----- -----
Net periodic pension cost $ 365 $ 393 $ 81 $ 85
======= ======= ===== =====
As of December 31, 2002 and 2001, the plan had accumulated benefit
obligations in excess of plan assets and the accumulated benefit
obligation was equal to the projected benefit obligation.
65
For purposes of determining the liability for other postretirement
health care benefits, the weighted average assumed rate of increase in
the per capita cost of covered benefits is 8.5% for 2003 gradually
decreasing from 2004 to 2009 until an ultimate rate of 5.00% is
assumed for the years 2010 and beyond. Assumed health care cost trend
rates have a significant effect on the amounts reported for the health
care plan. A one percentage point change in assumed health care cost
trend rates would have the following effects:
1 Percentage Point 1 Percentage Point
Increase Decrease
------------------ ------------------
Effect on total of service and interest cost
components $ 6 $ (5)
Effect on the postretirement benefit obligation 91 (81)
(b) Multi-Employer Pension Plan - Approximately 11% of the Company's
employees are currently covered by collectively bargained,
multi-employer pension plans. Contributions are determined in
accordance with the provisions of negotiated union contracts and
generally are based on the number of hours worked. The Company does
not have the information available to determine its share of the
accumulated plan benefits or net assets available for benefits under
the multi-employer pension plans. The aggregate amount charged to
expense under these plans was $347, $380, and $274, for the years
ended December 31, 2002, 2001, and 2000, respectively.
(c) 401(k) Savings Plan - Most employees are eligible to participate in
Company sponsored 401(k) savings plans. Company matching contributions
vary from 0% to 50% according to terms of the individual plans and
collective bargaining agreements. The aggregate amount charged to
expense under these plans was $993, $1,000, and $918, for the years
ended December 31, 2002, 2001, and 2000, respectively.
(d) Retirement Contribution Account - The Company has a defined
contribution plan for substantially all salaried employees. No
contributions are permitted by employees, and the Company contributes
1.5% to 6.0% of eligible compensation, depending on the age of the
employee. The amount charged to expense for the years ended December
31, 2002, 2001 and 2000 was $1,791, $1,905 and $1,559, respectively.
(8) Income Taxes
The following is a summary of the components of the Company's income tax
provision for the years ended December 31, 2002, 2001, and 2000:
2002 2001 2000
------- ------- -------
Currently payable (receivable):
Federal $(3,397) $ (258) $ 1,782
State and local (354) 555 475
Deferred (future tax benefit) 3,365 (1,476) (786)
------- ------- -------
Total provision (benefit) $ (386) $(1,179) $ 1,471
======= ======= =======
66
The effective income tax rate differs from the statutory federal income tax
rate for the years ended December 31, 2002, 2001, and 2000 for the
following reasons:
2002 2001 2000
------ ------ ------
Statutory income tax rate 34.0% 34.0% 34.0%
State income taxes (net of federal
tax benefit) (4.1) 4.0 4.3
Nondeductible goodwill
amortization and other
permanent differences (8.6) (12.7) 30.2
Foreign income taxes (10.3) -- --
----- ----- ----
Effective income tax rate 11.0% 25.3% 68.5%
===== ===== ====
The components of the Company's future income tax benefits and deferred tax
liabilities as of December 31, 2002 and 2001 are as follows:
2002 2001
-------- --------
Current deferred taxes:
Inventory reserves $ 668 $ 490
Accounts receivable reserves 876 2,778
Accrued liabilities 4,628 4,678
Other 22 16
-------- --------
Total 6,194 7,962
-------- --------
Long-term deferred taxes:
Accelerated depreciation (18,504) (18,594)
Other long-term liabilities 3,993 4,271
Other 2,592 958
-------- --------
Total (11,919) (13,365)
-------- --------
Net deferred taxes $ (5,725) $ (5,403)
======== ========
For federal income tax purposes, the Company has federal net operating tax
loss carryforwards of $1,769, which expire over a three year period
beginning in 2019. The Company also has state net operating tax loss
carryforwards of $758, which expire over a period of five to twenty years
beginning in 2006.
(9) Segment Reporting
The Company operates primarily in three segments: concrete accessories
(Dayton/Richmond(R) and Dur-O-Wal(R)), concrete forming systems
(Symons(R)), and paving products (American Highway Technology(R)). The
segments are differentiated by their products and services, all of which
serve the construction industry.
67
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.
Information about the income (loss) of each segment and the reconciliations
to the consolidated amounts for the years ended December 31, 2002, 2001,
and 2000 is as follows:
2002 2001 2000
-------- --------- ---------
Concrete Accessories $ 204,791 $ 218,366 $ 197,208
Concrete Forming Systems 118,834 126,478 130,213
Paving Products 54,659 48,856 40,424
--------- --------- ---------
Net sales to external customers $ 378,284 $ 393,700 $ 367,845
========= ========= =========
Concrete Accessories $ 5,008 $ 5,553 $ 4,625
Concrete Forming Systems 8,107 7,052 6,243
Paving Products 2,464 2,522 2,561
--------- --------- ---------
Net sales to other segments $ 15,579 $ 15,127 $ 13,429
========= ========= =========
Concrete Accessories $ 10,920 $ 12,390 $ 8,078
Concrete Forming Systems 18,246 19,793 13,058
Paving Products 4,801 2,841 1,438
--------- --------- ---------
Interest expense $ 33,967 $ 35,024 $ 22,574
========= ========= =========
Concrete Accessories $ 13,315 $ 14,684 $ 18,098
Concrete Forming Systems (1,762) (5,637) (5,546)
Paving Products 296 224 2,363
Intersegment Eliminations (8,646) (8,050) (6,970)
Corporate (6,712) (5,874) (5,797)
--------- --------- ---------
Income (loss) before income taxes $ (3,509) $ (4,653) $ 2,148
========= ========= =========
Concrete Accessories $ 4,764 $ 5,033 $ 4,865
Concrete Forming Systems 14,310 12,105 6,696
Paving Products 1,488 1,133 967
Corporate 288 19 85
--------- --------- ---------
Depreciation $ 20,850 $ 18,290 $ 12,613
========= ========= =========
Concrete Accessories $ 157 $ 3,315 $ 2,207
Concrete Forming Systems 229 420 148
Paving Products 217 177 153
--------- --------- ---------
Amortization of goodwill and intangibles $ 603 $ 3,912 $ 2,508
========= ========= =========
68
Information regarding each segment's assets and the reconciliation to the
consolidated amounts as of December 31, 2002 and 2001 is as follows:
2002 2001
-------- --------
Concrete Accessories $180,619 $214,412
Concrete Forming Systems 133,059 135,302
Paving Products 38,235 21,309
Corporate and Unallocated 22,058 25,820
-------- --------
Total Assets $373,971 $396,843
======== ========
Information regarding capital expenditures by segment and the
reconciliation to the consolidated amounts for the years ended December 31,
2002, 2001 and 2000 is as follows:
2002 2001 2000
------- ------ -------
Concrete Accessories $ 4,525 $ 6,088 $ 6,820
Concrete Forming Systems 2,842 2,610 1,951
Paving Products 3,819 881 1,937
Corporate 91 345 970
------- ------- -------
Property, Plant, and Equipment Additions $11,277 $ 9,924 $11,678
======= ======= =======
Concrete Accessories $ 864 $ 1,664 $ 2,041
Concrete Forming Systems 17,547 24,269 16,069
------- ------- -------
Rental Equipment Additions $18,411 $25,933 $18,110
======= ======= =======
(10) Commitments and Contingencies
(a) Operating Leases - Rental expense for property, plant and equipment
(principally office and warehouse facilities and office equipment) was
$6,318, $6,599, and $4,731, for the years ended December 31, 2002,
2001 and 2000, respectively. Lease terms generally range from one to
ten years and some contain renewal options.
Aggregate minimum annual rental commitments under non-cancelable
operating leases are as follows:
Operating Leases Sale-Leaseback Total
---------------- -------------- --------
2003 $ 4,478 $175 $ 4,653
2004 3,262 - 3,262
2005 2,540 - 2,540
2006 2,048 - 2,048
2007 587 - 587
Thereafter 85 - 85
------- ---- -------
Total $13,000 $175 $13,175
======= ==== =======
69
(b) Litigation - Symons was a defendant in a civil suit brought by EFCO
Corp., a competitor of Symons in one portion of their business. EFCO
Corp. alleged that Symons engaged in false advertising,
misappropriation of trade secrets, intentional interference with
contractual relations, and certain other activities. After a jury
trial, preliminary damages of approximately $14,100 were awarded
against Symons in 1999, and both parties were enjoined from engaging
in certain conduct. The Company recorded a $15,000 charge in the
second quarter of 2000 after its unsuccessful appeal.
In October 2000, Symons satisfied the judgment of $14,100,
post-judgment interest of $1,134, and reimbursement of EFCO's defense
costs of $107, by payment to EFCO from the Company's cash on hand and
from the Company's revolving credit facility.
Symons has made a claim to its primary and excess insurance carriers
for "advertising injury" and other claims under its insurance policies
to recover its defense costs and for indemnification of the false
advertising and the misappropriation of trade secrets portions of the
EFCO judgment.
From time to time, the Company is involved in various legal
proceedings arising out of the ordinary course of business. None of
the matters in which the Company is currently involved, either
individually, or in the aggregate, is expected to have a material
adverse effect on the Company's business or financial condition.
(c) Self-Insurance - The Company is self-insured for certain of its group
medical, workers' compensation and product and general liability
claims. The Company has stop loss insurance coverage at various per
occurrence and per annum levels depending on the type of claim. The
Company consults with third party administrators to estimate the
reserves required for these claims. No material revisions were made to
the estimates for the years ended December 31, 2002, 2001 and 2000.
The Company has reserved $6,890, and $6,911 as of December 31, 2002
and 2001, respectively.
(d) Severance Obligations - The Company has employment agreements with its
executive management and severance agreements with certain of its key
management-level personnel, with annual base compensation ranging in
value from $80 to $390. The agreements generally provide for salary
continuation in the event of termination without cause for periods of
one to two years. The agreements also contain certain non-competition
clauses. As of December 31, 2002, the remaining aggregate commitment
under these severance agreements if all individuals were terminated
without cause was approximately $3,932.
(11) Facility Closing and Severance Expenses
During 2000, as a result of the acquisition of Conspec, the Company
approved and began implementing a plan to consolidate certain of the
Company's existing operations. In conjunction with the consolidation, two
of the Company's facilities were closed. Accordingly, a facility closing
and severance expense of approximately $2,500 was recorded during 2000, of
which approximately $400 related to idle machinery and equipment
write-offs, and approximately $2,100 related to future lease payments and
employee severance.
70
During the second quarter of 2001, the Company approved and began
implementing plans to exit seven manufacturing and 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
closures and severance was approximately $5,700 and the estimated number of
employee terminations was approximately 400. The total estimated exit costs
are comprised of approximately $2,400 related to employee involuntary
termination benefits, approximately $700 related to lease termination
costs, approximately $1,100 related to relocation of operations and
approximately $1,500 related to other post-closing maintenance costs.
Accordingly, the Company recorded a facility closing and severance expense
of approximately $5,700 in 2001.
During the fourth quarter of 2001, the Company approved and began
implementing a plan to exit one additional manufacturing facility and
further 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 $1,700, and was to encompass
approximately 100 employee terminations. The total estimated costs are
comprised of approximately $1,300 related to employee involuntary
termination benefits, approximately $100 related to lease termination costs
and approximately $300 related to other post-closing maintenance costs.
Accordingly, the Company recorded a facility closing and severance expense
of approximately $1,700 in 2001.
The total expense related to the above activities in 2001 of approximately
$7,400 was comprised of approximately $3,700 of employee involuntary
termination benefits, approximately $800 of lease termination costs,
approximately $1,100 related to relocation of operations, and approximately
$1,800 of other post-closing maintenance costs.
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 approximately $440, and encompassed eight employee
terminations. The total estimated exit costs were comprised of
approximately $190 related to employee involuntary termination benefits and
approximately $250 related to lease termination costs and other
post-closing maintenance costs. Accordingly, the Company incurred and
recorded a facility closing and severance expense of approximately $440 in
2002.
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 approximately $2,285 and encompassed
approximately 100 employee terminations. The total estimated exit costs
were 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 severance
and closing expense of approximately $2,285 in 2002.
During the fourth quarter of 2002, the Company approved and began
implementing plans to reduce overall Company headcount in order to keep its
cost structure in alignment with its net sales. The total anticipated cost
of the severance was approximately $2,500 and encompassed approximately 80
employee terminations. Accordingly, the Company incurred and recorded
severance expense of $2,500 in 2002.
71
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 incurred approximately $200 of facility closing and
severance expense in 2002, which is related primarily to facility
relocation of operations, which are required to be expensed as incurred
rather than accrued in advance.
The total expense related to the above activities in 2002 of approximately
$5,400 was comprised of approximately $4,400 of employee involuntary
termination benefits, approximately $600 of lease termination costs, and
approximately $400 of other post-closing maintenance costs.
Below is a summary of the amounts charged against the facility closing and
severance reserve in 2002 and 2001:
Year Ended Year Ended
December 31, 2002 December 31, 2001
----------------- -----------------
Beginning Balance $ 2,908 $ 1,920
Facility Closing and Severance Expense 5,399 7,360
Items Charged Against Reserve:
Involuntary Termination Benefits (3,045) (2,400)
Lease Termination Costs (638) (1,300)
Relocation of Operations (256) (1,100)
Other Post-closing Costs (989) (1,572)
------- -------
Ending Balance $ 3,379 $ 2,908
======= =======
(12) Related Party Transactions
During 2002, the Company reimbursed Odyssey for $228 of out-of-pocket
expenses. In conjunction with the acquisition of Aztec Concrete
Accessories, Inc. ("Aztec"), the Company paid Odyssey a $350 fee, plus
out-of-pocket expenses of $107 during 2001. In conjunction with the
recapitalization and the related financing transactions, the Company paid
Odyssey a fee of $4,000, plus out-of-pocket expenses of $699 during 2000.
72
(13) Quarterly Financial Information (Unaudited)
2002
--------------------------------------------------------------
First Second Third Fourth Full
Quarterly Operating Data Quarter Quarter Quarter Quarter Year
------------------------ ------- ------- ------- ------- ------
Net sales $78,502 $106,506 $105,285 $87,991 $378,284
Gross profit 26,517 36,587 36,623 29,149 128,876
Income (loss) before cumulative effect of
change in accounting principle (3,010) 2,890 2,587 (5,590) (3,123)
2001
--------------------------------------------------------------
First Second Third Fourth Full
Quarterly Operating Data Quarter Quarter Quarter Quarter Year
------------------------ ------- ------- ------- ------- ------
Net sales $83,357 $111,064 $109,326 $89,953 $393,700
Gross profit 26,610 40,847 39,357 32,456 139,270
Net income (loss) (4,591) 1,245 2,000 (2,128) (3,474)
2000
--------------------------------------------------------------
First Second Third Fourth Full
Quarterly Operating Data Quarter Quarter Quarter Quarter Year
------------------------ ------- ------- ------- ------- ------
Net sales $76,505 $98,000 $107,717 $85,623 $367,845
Gross profit 27,131 37,233 41,970 31,988 138,322
Income (loss) before extraordinary item 473 (2,972) 3,870 (694) 677
(14) Prior Year Disaggregations
Certain revisions have been made to the accompanying consolidated financial
statements and related notes as of December 31, 2001. In order to maintain
consistency and comparability between periods presented, disaggregations of
certain financial statement amounts and note disclosures have been made to
conform to the financial statement presentation of the current period as
follows:
- Consolidated Balance Sheets - Intangible assets for 2001 have
been disclosed separately from goodwill.
- Notes to Consolidated Financial Statements - Note 3, Summary of
Significant Accounting Policies - Note 3(d) - Intangible assets
for 2001 have been disclosed separately from goodwill.
73
Dayton Superior Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 2002, 2001 and 2000
(Amounts in thousands)
Additions Deductions
--------------------------------------- ----------------------
Charges for
Balance at Charged to Which Balance
Beginning Costs and Reserves at End
of Year Expenses Other Were Created of Year
---------- ---------- ----- ------------ -------
Allowances for Doubtful Accounts and
Sales Returns and Allowances
For the year ended December 31, 2002 $7,423 $1,848 $ - $(4,410) $4,861
For the year ended December 31, 2001 5,331 2,156 102(1) (166) 7,423
For the year ended December 31, 2000 5,589 2,740 - (2,998) 5,331
(1) Acquisition of BarLock and Aztec Concrete Accessories, Inc.
74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As discussed in the Current Report on Form 8-K that we filed with the
Commission on June 10, 2002, we appointed Deloitte & Touche LLP as our
new independent public accountant effective as of June 10, 2002 and we
dismissed Arthur Andersen LLP as our independent public accountant
effective as of June 10, 2002.
75
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the name, age and position of our executive
officers and directors as of March 31, 2003.
Name Age Position
- ------------------- ---- ---------------------------------------------------------------
John A. Ciccarelli 63 Chairman of the Board of Directors
Stephen R. Morrey 48 President, Chief Executive Officer and Director
Raymond E. Bartholomae 56 Vice President and General Manager, Symons
Dennis P. Haggerty 51 Vice President, Supply Chain Management
Steven C. Huston 48 Vice President, General Counsel and Secretary
Mark K. Kaler 45 Vice President and General Manager, Construction Products Group
Alan F. McIlroy 52 Vice President and Chief Financial Officer
Thomas W. Roehrig 37 Vice President of Corporate Accounting
John M. Rutherford 42 Treasurer and Assistant Secretary
Stephen Berger 63 Director
William F. Hopkins 39 Director
Douglas W. Rotatori 42 Director
- ----------
John A. Ciccarelli has been a Director since 1994 and Chairman of our Board
of Directors since 2000. Mr. Ciccarelli was President from 1989 until 2002 and
Chief Executive Officer from 1994 until 2002.
Stephen R. Morrey has been President, Chief Executive Officer and a
Director since July 2002. From June 2001 to July 2002, Mr. Morrey was President
of Alcoa Automotive Castings. From 1999 to June 2001, he was Vice President of
Operations for the Occupant Safety Systems Division of TRW. From 1995 to 1999,
Mr. Morrey served as Vice President of Operations for the Airbags Worldwide,
Steering Wheels North America Division of TRW.
Raymond E. Bartholomae has been employed by Symons since January 1970 and
has been Vice President and General Manager, Symons, since February 1998.
Dennis P. Haggerty has been Vice President, Supply Chain Management since
October 2002. From October 2001 to October 2002, he was Director of Business
Development/Quality for Alcoa Automotive Castings. From February 2000 to October
2001, he was Executive Vice President for Ventra Plastics. From May 1999 to
February 2000, Mr. Haggerty was Vice President for Ventra Plastics Europe. From
1997 to May 1999, he served as Director of Operations for TRW.
Steven C. Huston has been Vice President, General Counsel and Secretary
since January 2003. From January 2002 to January 2003, he was Deputy General
Counsel and Assistant Secretary. Mr. Huston was in private practice from
February 2001 through December 2001, and prior to that, served as Counsel -
North America for Wm. Wrigley Jr. Company from March 1997 to February 2001.
Mark K. Kaler has been Vice President and General Manager, Construction
Products Group since October 2002. From April 1996 to October 2002, Mr. Kaler
was Vice President and General Manager, American Highway Technology.
76
Alan F. McIlroy has been Vice President and Chief Financial Officer since
July 1997.
Thomas W. Roehrig has been Vice President of Corporate Accounting since
February 2003. From April 1998 to February 2003, Mr. Roehrig served as Corporate
Controller.
John M. Rutherford has been Treasurer and Assistant Secretary since
February 1998.
Stephen Berger is currently chairman of Odyssey Investment Partners, LLC.
Prior to joining Odyssey Investment Partners, LLC, Mr. Berger was a general
partner of Odyssey Partners, LP. Mr. Berger also is a director of Transdigm,
Inc., a supplier of highly engineered commercial and military aircraft parts.
William F. Hopkins has been a member and Managing Principal of Odyssey
Investment Partners, LLC since 1997. From 1994 to 1996, Mr. Hopkins was a
principal in the private equity investing group of Odyssey Partners, LP. Mr.
Hopkins also is a director of Transdigm, Inc., a supplier of highly engineered
commercial and military aircraft parts.
Douglas W. Rotatori has been a principal of Odyssey Investment Partners,
LLC since 1998. From 1995 to 1998, Mr. Rotatori was a principal with Wellspring
Capital Management, LLC.
We have five directors. Each director is elected to serve until the next
annual meeting of shareholders or until a successor is elected. Our executive
officers are elected by the directors to serve at the pleasure of the directors.
There are no family relationships between any of our directors or executive
officers.
77
COMPENSATION OF DIRECTORS
Our directors, all of whom are employed by us or Odyssey, do not receive
any compensation for their service as directors.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the 2002, 2001, and 2000 compensation for
our chairman, the chief executive officer and each of the other four most highly
compensated executive officers who were serving as executive officers at
December 31, 2002.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- ---------- -------------
SHARES LONG
OTHER ANNUAL UNDERLYING TERM INCENTIVE ALL
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS PAYOUTS OTHER
POSITION YEAR ($) ($) ($) (#)(2) ($) COMPENSATION($)(1)
- ------------------------ ------ -------- -------- ------------ ---------- ------------- ------------------
John A. Ciccarelli 2002 $390,000 $100,000 $0 0 $0 $16,000
Chairman of the Board 2001 380,769 91,475 0 0 0 13,600
of Directors 2000 347,981 300,000 0 120,072 0 13,000
Stephen R. Morrey 2002 $173,077 $235,000 $77,102(3) 100,000 $0 $0
President and Chief
Executive Officer
Raymond E. Bartholomae 2002 $210,000 $120,000 $0 0 $0 $16,000
Vice President and 2001 206,750 90,000 0 0 0 13,600
General Manager, 2000 197,000 121,404 0 46,688 0 10,600
Symons
Mark K. Kaler 2002 $184,077 $110,000 $0 0 $0 $13,000
Vice President and 2001 149,231 160,214 0 0 0 7,650
General Manager, 2000 129,250 110,000 0 44,496 0 7,400
Construction Products
Group
Alan F. McIlroy 2002 $240,000 $45,000 $0 0 $0 $13,000
Vice President and 2001 236,539 96,406 0 0 0 11,050
Chief Financial Officer 2000 223,577 130,000 0 46,688 0 10,600
Michael C. Deis, Sr. 2002 $230,000 $35,000 $0 0 $0 $13,000
Vice President of 2001 220,769 44,926 0 0 0 11,050
Operations, Supply 2000 184,904 120,000 0 68,543 0 10,600
Chain Group
- -------------
(1) Consists of:
Matching 401(k) Contributions Contributions to 401(k) Savings Plan
------------------------------------ ------------------------------------
2002 2001 2000 2002 2001 2000
------ ------ ------ ------ ------ ------
Mr. Ciccarelli $4,000 $3,400 $3,400 $12,000 $10,200 $9,600
Mr. Morrey 0 0 0 0 0 0
Mr. Bartholomae 4,000 3,400 3,400 12,000 10,200 7,200
Mr. Kaler 4,000 3,400 3,400 9,000 4,250 4,000
Mr. McIlroy 4,000 3,400 3,400 9,000 7,650 7,200
Mr. Deis 4,000 3,400 3,400 9,000 7,650 7,200
78
(2) Options to purchase common shares were granted under our stock option plans
at an exercise price of $27.50 per share (in the case of options granted in
2002), $27.00 per share (in the case of options granted in 2000). The 2002
and 2000 options become exercisable based on a combination of service and
performance factors.
(3) Relocation expense paid by us of $70,402, car allowance of $6,325 and
excess group term life insurance benefits of $375.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of the executive
officers named in the Summary Compensation Table and four other executive
officers. Generally, each employment agreement provides:
- The term of employment is from one to four years from the date
the agreement was signed.
- The annual base salary, which may be increased by our Board of
Directors in its discretion, is as follows:
John A. Ciccarelli.............. $390,000
Stephen R. Morrey............... 375,000
Raymond E. Bartholomae.......... 235,000
Mark K. Kaler................... 227,000
Alan F. McIlroy................. 240,000
Michael C. Deis, Sr............. 230,000
- Each executive officer is entitled to participate in our
executive annual bonus plan and in our various other employee
benefit plans and arrangements which are applicable to senior
officers.
- If an executive officer is terminated without cause during the
term of his employment agreement, he will be entitled to receive
a pro rata share of his bonus for the year of termination, to
continue to receive his annual base salary for a period of 12 or
24 months and to continue coverage under our medical and dental
programs for from one to three years on the same basis as he was
entitled to participate prior to his termination.
- Each executive officer is prohibited from competing with us
during the term of his employment under the employment agreement
and for from one to two years following termination of his
employment or expiration of the term of his employment agreement.
If an executive officer continues to provide services to us
following the expiration of the term of his employment agreement,
however, and we then terminate his employment without cause, he
will be prohibited from competing with us during the following
two-year period only if we elect to pay him a pro rata share of
his bonus for the year of termination, continue his annual base
salary for a period of 24 months, and continue his coverage under
our medical and dental programs for one year.
79
Mr. Morrey's employment agreement differs from the other agreements
described above in the following respects:
- He serves as a director as well as President and Chief Executive
Officer.
- His agreement automatically will be extended for additional
one-year periods unless either of us notifies the other of
termination not later than 90 days before the end of a term.
- He received in 2002 a one-time signing bonus of $100,000 and
reimbursement for certain expenses he incurred in connection with
his move to the Dayton, Ohio area. He also received in 2002 a
loan in the amount of $350,000 (which is fully recourse to him
only with respect to $175,000), which he applied toward the
purchase of 14,545 of our common shares at a price of $27.50 per
share.
- He receives an annual car allowance, payment of the annual
membership fee in a country, alumni or social club of his choice
and hanger fees for his personal aircraft (up to a specified
maximum amount), payment for reasonable expenses incurred by him
for professional assistance with taxes and financial management
consistent with our current practices and reimbursement for
reasonable travel and business expenses incurred by him in the
use of his personal aircraft for performance of his duties, in
accordance with our procedures.
Mr. Ciccarelli's employment agreement differs from the other agreements
described above in the following respects:
- He serves as non-executive Chairman of the Board.
- He is employed through December 31, 2004, which is his retirement
date.
- His salary is fixed, and he is not entitled to receive a cash
bonus for any year after 2002.
- He receives an annual car allowance, payment of annual membership
fees for membership in two country, alumni, or social clubs of
his choice and payment for reasonable expenses incurred by him
for professional assistance with taxes and financial management,
consistent with our current practices.
- If he elects in the future to purchase common shares pursuant to
the exercise of pre-emptive rights, we or one of our affiliates
will lend him up to $500,000 to pay for the shares. The loan will
be secured by the shares purchased and will be on a recourse
basis with interest at the applicable federal rate, although
payment of the interest will be deferred until the shares are
sold.
- He may, through July 15, 2007 (unless his employment is
terminated by us for cause or by him without good reason) require
us to purchase some of his common shares at their fair market
value if our EBITDA reaches specified levels. If he intends to
exercise stock options, we or an affiliate will lend him the
amount of the exercise price plus the amount
80
of his income tax liability. This loan generally would be on the
same terms as the loan to purchase shares described above.
- He grants to Odyssey Investment Partners Fund, LP an irrevocable
proxy to vote his common shares.
However, in accordance with section 402 of the Sarbanes/Oxley Act of 2002,
the Company is prohibited from making a loan to any executive officer or
director of the Company.
MANAGEMENT STOCKHOLDERS' AGREEMENT
In connection with the consummation of the recapitalization, we along with
Odyssey and our employee stockholders, including the officers named in the
Summary Compensation Table (the "Management Stockholders"), entered into a
Management Stockholders' Agreement (the "Management Stockholders' Agreement")
which governs our common shares, options to purchase our common shares and
shares acquired upon exercise of options.
The Management Stockholders' Agreement provides that except for certain
transfers to family members and family trusts, no Management Stockholder may
transfer common stock except in accordance with the Management Stockholders'
Agreement.
The Management Stockholders' Agreement also provides that, upon termination
of the employment of a Management Stockholder, the Management Stockholder has
certain put rights and we have certain call rights regarding his or her common
stock.
If the provisions of any law, the terms of credit and financing
arrangements or our financial circumstances would prevent us from making a
repurchase of shares pursuant to the Management Stockholders' Agreement, we will
not make the purchase until all such prohibitions lapse, and will then also pay
the Management Stockholder a specified rate of interest on the repurchase price.
The Management Stockholders' Agreement further provides that in the event
of certain transfers of common shares by Odyssey, the Management Stockholders
may participate in such transfers and/or Odyssey may require the Management
Stockholders to transfer their shares in such transactions, in each case on a
pro rata basis.
Certain Management Stockholders are entitled to participate on a pro rata
basis with, and on the same terms as, Odyssey in any future offering of common
shares.
81
FISCAL 2002 STOCK OPTION GRANTS
The stock options granted in 2002 to Stephen R. Morrey in the Summary
Compensation Table are shown in the following table. The table also shows the
hypothetical gains that would exist for the options at the end of their ten year
terms, assuming compound rates of stock appreciation of 5% and 10%,
respectively. The actual future value of the options will depend on the market
or appraised value of the common shares.
OPTION GRANTS IN LAST FISCAL YEAR
-------------------------------------------------------
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SHARES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------------
NAME GRANTED(#) IN 2002 ($/SH) DATE 5%($) 10%($)
- ----------------- ---------- ----------- -------- ---------- ---------- -----------
Stephen R. Morrey 100,000(1) 67.9% $27.50 7/15/12 $1,072,896 $3,208,905
- ------------
(1) All options were granted under the 2000 Stock Option Plan effective June
16, 2000 with an exercise price of $27.50 per share, which represents the
fair market value of a Common Share on the date the options were granted.
The options are divided into two different parts, both of which have a
different vesting schedule. All unvested options will become fully
exercisable upon a change in control (as defined in the 2000 Stock Option
Plan), if Odyssey receives at least a targeted return on its investment.
FISCAL YEAR-END OPTION VALUES
The number and value of options exercised and the number and value of all
unexercised options held by each of the executive officers named in the Summary
Compensation Table at December 31, 2002 are shown in the following table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES 12/31/02 (#) 12/31/02 ($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------ ----------- ----------- ------------------------- -------------------------
John A. Ciccarelli - - 37,051/83,021 $0/$0
Stephen R. Morrey - - 6,250/93,750 0/0
Raymond E. Bartholomae - - 11,352/38,541 20,135/0
Mark K. Kaler - - 19,575/36,617 251,660/0
Alan F. McIlroy - - 27,076/38,541 136,015/0
Michael C. Deis, Sr. - - 22,756/56,343 226,386/0
- ------------
(1) Represents the excess of $24.00, the fair market value as of December 31,
2002 based on an independent appraisal, over the aggregate option exercise
price.
82
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL SHAREHOLDERS
The following table sets forth the common shares beneficially owned by each
director and executive officer named in the Summary Compensation Table and all
directors and executive officers as a group as of March 31, 2003:
NUMBER OF COMMON
SHARES BENEFICIALLY % OF COMMON
NAME OF BENEFICIAL OWNER: OWNED (1) SHARES(1)
- ------------------------- ------------------- ------------
Raymond E. Bartholomae(2) 33,029 *
Stephen Berger(3) 3,666,650 91.4
John A. Ciccarelli(4) 76,312 1.9
Michael C. Deis, Sr.(5) 45,593 1.1
William F. Hopkins(3) 3,666,650 91.4
Alan F. McIlroy(6) 45,303 1.1
Stephen R. Morrey(7) 20,796 *
Odyssey (as defined in footnote 3) 3,666,650 91.4
Douglas Rotatori(3) 3,666,650 91.4
Mark K. Kaler(8) 48,086 1.2
All executive officers and directors as a group (15 persons)(9) 4,019,543 96.6
- --------------
* Signifies less than 1%.
(1) Beneficial ownership as reported above has been determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended and
generally includes sole or shared voting or investment power with respect
to the shares. Includes the number of common shares subject to all
outstanding options, including those that will become exercisable as a
result of the recapitalization and those that are cashed out in the
recapitalization. The percentages of our outstanding common shares are
based on 4,010,160 shares outstanding, except for certain parties who hold
options that are exercisable into common shares within 60 days. The
percentages for those parties who hold options that are exercisable within
60 days are based on the sum of 4,010,160 shares outstanding plus the
number of common shares subject to options exercisable within 60 days held
by them and no other person, as indicated in the following notes. The
number of common shares beneficially owned has been determined by assuming
the exercise of options exercisable into common shares within 60 days.
Unless otherwise indicated, voting and investment power are exercised
solely by each individual and/or a member of his household.
(2) Includes 11,952 common shares issuable upon exercise of options exercisable
within 60 days.
(3) Consists of 3,666,650 common shares owned in the aggregate by Odyssey
Investment Partners Fund, LP (the "Fund"), certain of its affiliates and
certain co-investors (together with the Fund, "Odyssey"). Odyssey Capital
Partners, LLC is the general partner of the Fund. Odyssey Investment
Partners, LLC is the manager of the Fund. The principal business address
for Odyssey is 280 Park Avenue, West Tower, 38th Floor, New York, New York.
Messrs. Berger and Hopkins are managing members of the Odyssey Capital
Partners, LLC and Odyssey Investment Partners, LLC and, therefore, may each
be deemed to share voting and investment power with
83
respect to the shares deemed to be beneficially owned by Odyssey. Mr.
Rotatori is a member of Odyssey Investment Partners, LLC. Each of Messrs.
Berger, Hopkins and Rotatori disclaim beneficial ownership of these shares.
(4) Includes 37,051 common shares issuable upon exercise of options exercisable
within 60 days.
(5) Includes 22,756 common shares issuable upon exercise of options exercisable
within 60 days.
(6) Includes 27,076 common shares issuable upon exercise of options exercisable
within 60 days.
(7) Includes 6,250 common shares issuable upon exercise of options exercisable
within 60 days.
(8) Includes 20,175 common shares issuable upon exercise of options exercisable
within 60 days.
(9) As described in note 3, Messrs. Berger and Hopkins may each be deemed to
share voting and investment power with respect to the shares beneficially
owned by Odyssey and Messrs. Berger, Hopkins and Rotatori disclaim
beneficial ownership of the shares beneficially owned by Odyssey. Excluding
the shares deemed to be owned by Odyssey, all executive officers and
directors as a group beneficially own 352,893 common shares.
EQUITY COMPENSATION PLAN INFORMATION
- ------------------------------------------------------------------------------------------------------------------------
Plan Category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and rights future issuance under
warrants and rights equity compensation plans
(excluding securities
reflected in column (a))
(a) (b) (c)
- ------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 671,684 $25.00 35,386
- ------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders - - -
- ------------------------------------------------------------------------------------------------------------------------
Total 671,684 $25.00 35,386
- ------------------------------------------------------------------------------------------------------------------------
84
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
EMPLOYMENT AND ROLLOVER AGREEMENTS
In connection with the recapitalization, we have entered into employment
and other "rollover" agreements with John A. Ciccarelli, Raymond E. Bartholomae,
Mark K. Kaler and Alan F. McIlroy, each of whom is an executive officer.
Generally, the "rollover" agreements required each executive officer to retain
common shares and, in most cases, stock options, with a specified aggregate
value following the recapitalization. In some cases, the executive officer has
agreed to exercise stock options in order to obtain some of the common shares
which he has agreed to retain following the recapitalization. These agreements
provided that if the executive officer exercised stock options in order to
obtain some of the common shares he is required to retain and he so requested,
we made a non-interest bearing, recourse loan to him in an amount equal to the
exercise price of the options plus the estimated federal and state income tax
liability he incurred in connection with the exercise. If the executive officer
purchased some of the common shares he is required to retain and he so
requested, we made a 6.39% interest deferred recourse loan to him. These loans
are secured by a pledge of the shares issued.
As of March 31, 2003, the amounts outstanding (which were also the largest
amounts outstanding for these loans during the period January 1, 2000 through
March 31, 2003) were $67,386 for Mr. Ciccarelli, $359,320 for Mr. Morrey,
$542,049 for Mr. Bartholomae, $287,044 for Mr. Kaler, and $288,409 for Mr.
McIlroy.
ODYSSEY FINANCIAL SERVICES
During 2002, the Company reimbursed Odyssey for $228 of out-of-pocket
expenses. In connection with the acquisition of Aztec Concrete Accessories, Inc.
in 2001, we paid Odyssey a fee of $350 thousand, plus out-of-pocket expenses of
$107 thousand. In connection with the recapitalization and the related financing
transactions in 2000, we paid Odyssey a fee of $4.0 million in cash, plus out of
pocket expenses of approximately $0.7 million.
ITEM 14. 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 and 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.
85
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements The following consolidated financial
statements of the Company and subsidiaries are incorporated by
reference as part of this Report under Item 8.
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31, 2002 and 2001.
Consolidated Statements of Operations for the years ended December 31,
2002, 2001, and 2000.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2002, 2001, and 2000.
Consolidated Statements of Cash Flows for the years ended December 31,
2002, 2001, and 2000.
Consolidated Statements of Comprehensive Income (Loss) for the years
ended December 31, 2002, 2001, and 2000.
Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts (at Item 8 of this
Report)
All other schedules are omitted because they are not applicable, or
not required, or because the required information is included in the
consolidated financial statements or notes thereto.
(a)(3) Exhibits. See Index to Exhibits following the signature pages
to this Report for a list of exhibits.
(b) Reports on Form 8-K. During the quarter ended December 31, 2002,
we filed the following Current Reports on Form 8-K:
Current Report on Form 8-K dated October 23, 2002, reporting
under Item 5 (Other Events) announcing that the Company had
obtained an amendment to its senior credit facility to relax
certain financial ratios that the Company is required to
maintain. The adjustments will affect the next eight fiscal
quarters, beginning with the quarter ended December 31, 2002.
86
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Dayton Superior Corporation has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DAYTON SUPERIOR CORPORATION
March 31, 2003
By /s/ Stephen R. Morrey
---------------------------------
Stephen R. Morrey
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Dayton
Superior Corporation and in the capacities and on the dates indicated.
NAME TITLE DATE
/s/John A. Ciccarelli Chairman of the Board of Directors March 31, 2003
- ---------------------
John A. Ciccarelli
/s/Stephen R. Morrey President, Chief Executive Officer and Director March 31, 2003
- --------------------
Stephen R. Morrey
/s/Alan F. McIlroy Vice President and Chief Financial Officer (Principal March 31, 2003
- ------------------ Financial Officer)
Alan F. McIlroy
/s/Thomas W. Roehrig Vice President of Corporate Accounting March 31, 2003
- -------------------- (Principal Accounting Officer)
Thomas W. Roehrig
/s/Stephen Berger Director March 31, 2003
- -----------------
Stephen Berger
/s/William F. Hopkins Director March 31, 2003
- ---------------------
William F. Hopkins
/s/Douglas Rotatori Director March 31, 2003
- -------------------
Douglas Rotatori
87
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 annual report on Form 10-K of Dayton Superior
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Dayton Superior Corporation as of, and for the periods presented in this
annual 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
annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
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
88
6. Dayton Superior Corporation's other certifying officers and I have
indicated in this annual report whether 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.
March 31, 2003 /s/ Stephen R. Morrey
Stephen R. Morrey
President and Chief Executive Officer
89
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:
1. I have reviewed this annual report on Form 10-K of Dayton Superior
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Dayton Superior Corporation as of, and for the periods presented in this
annual 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
annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
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
90
6. Dayton Superior Corporation's other certifying officers and I have
indicated in this annual report whether 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.
March 31, 2003 /s/ Alan F. McIlroy
Alan F. McIlroy
Vice President and Chief Financial Officer
91
INDEX OF EXHIBITS
Exhibit No. Description
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Amended Articles of Incorporation of the Company [Incorporated
herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-41392)] +
3.2 Code of Regulations of the Company (as amended) [Incorporated
herein by reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-41392)] +
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4.1 Senior Unsubordinated Redeemable Note of the Company in the
principal amount of $5,000,000 [Incorporated herein by
reference to Exhibit A to the Agreement set forth as Exhibit
2.1 to the Company's Current Report on Form 8-K dated June 2,
1997] +
4.2 Form of Junior Convertible Subordinated Indenture between
Dayton Superior Corporation and Firstar Bank, N.A., as
Indenture Trustee [Incorporated herein by reference to Exhibit
4.2.3 to the Company's Registration Statement on Form S-3
(Reg. 333-84613)] +
4.2.1 First Supplemental Indenture dated January 17, 2000, between
Dayton Superior Corporation and Firstar Bank, N.A., as Trustee
[Incorporated herein by reference to Exhibit 4.6.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999] +
4.3 Form of Junior Convertible Subordinated Debenture
[Incorporated herein by reference to Exhibit 4.2.3 to the
Company's Registration Statement on Form S-3 (Reg. 333-84613)] +
92
4.4 Credit Agreement, dated June 16, 2000, among the Company,
various lending institutions and Bankers Trust Company, as
administrative agent, Deutsche Bank Securities, Inc., as lead
arranger and book manager, and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as syndicating agent and co-arranger.
[Incorporated by reference to Exhibit 10.24 to the Company's
Registration Statement on Form S-4 (Reg. 333-41392)] +
4.4.1 Consent dated as of May 24, 2001, among Dayton Superior
Corporation, the lenders party to the Credit Agreement dated
as of June 16, 2000 and Bankers Trust Company, as
administrative agent [Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
Quarter ended June 29, 2001] +
4.4.2 First Amendment to the Credit Agreement dated as of October 2,
2002, among the Company, various lending institutions and
Bankers Trust Company, as administrative agent, Deutsche Bank
Securities, Inc., as lead arranger and book manager, and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
syndicating agent and co-arranger. [Incorporated by reference
to Exhibit 99.1 to the Company's Form 8-K dated October 23,
2002] +
4.5 Indenture dated June 16, 2000 among the Company, the
Guarantors named therein, as guarantors, and United States
Trust Company of New York, as trustee, relating to
$170,000,000 in aggregate principal amount of 13% Senior
Subordinated Notes due 2009 and registered 13% Senior
Subordinated Notes due 2009 [Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
S-4 (Reg. 333-41392)] +
4.5.1 First Supplemental Indenture dated as of August 3, 2000.
[Incorporated herein by reference to Exhibit 4.5.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2001] +
4.5.2 Second Supplemental Indenture dated as of January 4, 2001.
[Incorporated herein by reference to Exhibit 4.5.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2001] +
4.5.3 Third Supplemental Indenture dated as of June 19, 2001.
[Incorporated herein by reference to Exhibit 4.5.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2001] +
93
4.6 Specimen Certificate of 13% Senior Subordinated Notes due 2009
[Incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-4 (Reg. 333-41392)] +
4.7 Specimen Certificate of the registered 13% Senior Subordinated
Notes due 2009 [Incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-4 (Reg.
333-41392)] +
(10) MATERIAL CONTRACTS
10.1 Management Incentive Plan [Incorporated herein by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998] +*
10.2 Amended and Restated Employment Agreement dated as of July 15,
2002 by and between Dayton Superior Corporation and John A.
Ciccarelli [Incorporated herein by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 27, 2002] +*
10.3 Employment Agreement dated January 19, 2000 by and between
Dayton Superior Corporation and Alan F. McIlroy [Incorporated
herein by reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999] +*
10.3.1 Amended Employment Agreement dated May 13, 2002 by and
between Dayton Superior Corporation and Alan F. McIlroy **
10.4 Employment Agreement dated January 19, 2000 by and between
Dayton Superior Corporation and Raymond E. Bartholomae
[Incorporated herein by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999] +*
10.4.1 Amended Employment Agreement dated May 13, 2002 by and
between Dayton Superior Corporation and Raymond E. Bartholomae **
10.5 Employment Agreement dated January 19, 2000 by and between
Dayton Superior Corporation and Michael C. Deis, Sr.
[Incorporated herein by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999] +*
10.5.1 Amended Employment Agreement dated May 13, 2002 by and
between Dayton Superior Corporation and Michael C. Deis **
94
10.6 Employment Agreement dated January 19, 2000 by and between
Dayton Superior Corporation and James C. Stewart [Incorporated
herein by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999] +*
10.6.1 Amended Employment Agreement dated May 13, 2002 by and
between Dayton Superior Corporation and James C. Stewart **
10.7 Employment Agreement dated as of January 19, 2000 between the
Company and Mark K. Kaler, as amended effective June 16, 2000
[Incorporated by reference to Exhibit 10.20 to the Company's
Registration Statement on Form S-4 (Reg. 333-41392)] +*
10.7.1 Amended Employment Agreement dated May 13, 2002 by and
between Dayton Superior Corporation and Mark K. Kaler **
10.8 Employment Agreement dated as of January 19, 2000 between the
Company and James W. Fennessy, as amended effective June 16,
2000 [Incorporated by reference to Exhibit 10.21 to the
Company's Registration Statement on Form S-4 (Reg. 333-41392)] +*
10.8.1 Amended Employment Agreement dated May 13, 2002 by and
between Dayton Superior Corporation and James W. Fennessy **
10.9 Employment Agreement dated effective June 12, 2002 by and
between Dayton Superior Corporation and Stephen R. Morrey
[Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28,
2002] +*
10.10 Letter Agreement dated August 27, 2002 between Dayton Superior
Corporation and Dennis Haggerty [Incorporated by reference to
Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 27, 2002] +*
10.11 Form of Option Exercise, Cancellation and Equity Rollover
Agreement dated January 19, 2000 by and among Stone
Acquisition, Dayton Superior Corporation and each of John A.
Ciccarelli, Alan F. McIlroy, Raymond E. Bartholomae, Michael
C. Deis, Sr., James C. Stewart, Mark K. Kaler and James W.
Fennessy [Incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999] +*
95
10.12 Management Stockholder's Agreement dated June 16, 2000 by and
among the Company, Odyssey Investment Partners Fund, LP and
the Management Stockholders named therein [Incorporated by
reference to Exhibit 10.25 to the Company's Registration
Statement on Form S-4 (Reg. 333-41392)] +*
10.13 Dayton Superior Corporation 2000 Stock Option Plan
[Incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2001] +*
10.13.1 First Amendment to 2000 Stock Option Plan of Dayton Superior
Corporation [Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 30, 2001] +*
10.13.2 Second Amendment to 2000 Stock Option Plan of Dayton
Superior Corporation dated July 15, 2002 **
10.13.3 Third Amendment to 2000 Stock Option Plan of Dayton Superior
Corporation dated October 23, 2002 **
10.13.4 Form of Amended and Restated Stock Option Agreement entered
into between Dayton Superior Corporation and certain of its
executive officers +*
10.14 Subscription Agreement dated as of July 22, 2002 between
Dayton Superior Corporation and Stephen R. Morrey.
[Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
27, 2002] +*
10.15 Secured Promissory Note dated July 22, 2002 between Dayton
Superior Corporation and Stephen R. Morrey. [Incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 27, 2002] +*
10.16 Secured Promissory Note dated July 22, 2002 between Dayton
Superior Corporation and Stephen R. Morrey. [Incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 27, 2002] +*
10.17 Repayment and Stock Pledge Agreement dated as of July 22, 2002
between Dayton Superior Corporation and Stephen R. Morrey.
[Incorporated by reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
27, 2002] +*
96
(21) SUBSIDIARIES OF THE REGISTRANT
21.1 Subsidiaries of the Company **
(99) ADDITIONAL EXHIBITS
99.1 Sarbanes Oxley Section 906 Certification of President,
Chief Executive Officer and Director **
99.2 Sarbanes Oxley Section 906 Certification of Vice President
and Chief Financial Officer **
- ---------------
* Compensatory plan, contract or arrangement in which one or more directors
or named executive officers participates.
** Filed herewith
+ Previously filed
97