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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
MARCH 28, 2003 1-11781
DAYTON SUPERIOR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0676346
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
7777 Washington Village Dr., Suite 130
Dayton, Ohio 45459
- --------------------------------------- ------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 937-428-6360
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES NO X
--- ---
4,010,160 Common Shares were outstanding as of May 9, 2003
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Dayton Superior Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
As of March 28, 2003 and December 31, 2002
(Amounts in thousands)
(Unaudited)
March 28, December 31,
2003 2002
--------- ---------
ASSETS
Current assets:
Cash $ 4,480 $ 2,404
Accounts receivable, net of allowances for doubtful accounts and sales
returns and allowances of $3,315 and $4,861 54,841 61,165
Inventories (Note 2) 55,709 47,911
Prepaid expenses and other current assets 8,663 7,054
Prepaid income taxes 5,507 4,009
Future income tax benefits 6,194 6,194
--------- ---------
Total current assets 135,394 128,737
--------- ---------
Rental equipment, net (Note 2) 70,089 63,160
--------- ---------
Property, plant and equipment 107,363 103,846
Less accumulated depreciation (44,934) (42,600)
--------- ---------
Net property, plant and equipment 62,429 61,246
--------- ---------
Goodwill 107,328 107,328
Intangible assets, net of accumulated amortization (Note 2) 8,139 8,405
Other assets 6,223 5,095
--------- ---------
Total assets $ 389,602 $ 373,971
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt (Note 3) $ 8,677 $ 6,991
Accounts payable 29,398 25,667
Accrued compensation 16,122 20,948
Other accrued liabilities 13,682 9,380
--------- ---------
Total current liabilities 67,879 62,986
Long-term debt, net (Note 3) 309,174 292,545
Deferred income taxes 11,540 11,919
Other long-term liabilities 10,390 10,762
--------- ---------
Total liabilities 398,983 378,212
--------- ---------
Shareholders' deficit:
Common shares 102,525 102,525
Loans to shareholders (2,825) (2,878)
Treasury shares, at cost, 36,747 shares in 2003 and 2002, respectively (1,184) (1,184)
Cumulative other comprehensive loss (1,519) (1,716)
Accumulated deficit (106,378) (100,988)
--------- ---------
Total shareholders' deficit (9,381) (4,241)
--------- ---------
Total liabilities and shareholders' deficit $ 389,602 $ 373,971
========= =========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
2
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Operations
For The Three Fiscal Months Ended March 28, 2003 and March 29, 2002
(Amounts in thousands)
(Unaudited)
March 28, March 29,
2003 2002
-------- --------
Net sales $ 68,223 $ 78,502
Cost of sales 47,223 51,985
-------- --------
Gross profit 21,000 26,517
Selling, general and administrative expenses 19,561 23,228
Facility closing and severance expenses (Note 6) 395 121
Amortization of intangibles 129 73
-------- --------
Income from operations 915 3,095
Other expenses
Interest expense 8,061 8,006
Other expense 41 105
-------- --------
Loss before benefit for income taxes (7,187) (5,016)
Benefit for income taxes (1,797) (2,006)
-------- --------
Net loss before cumulative effect of change in accounting principle (5,390) (3,010)
Cumulative effect of change in accounting principle, net of income tax benefit of
$2,754 (Note 2) - (17,140)
-------- --------
Net loss $ (5,390) $(20,150)
======== ========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
3
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For The Three Fiscal Months Ended March 28, 2003 and March 29, 2002
(Amounts in thousands)
(Unaudited)
March 28, March 29,
2003 2002
-------- --------
Cash Flows From Operating Activities:
Net loss $ (5,390) $(20,150)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 5,733 5,020
Amortization of intangibles 129 73
Cumulative effect of change in accounting principle (Note 2) - 17,140
Deferred income taxes (378) (1,925)
Amortization of deferred financing costs and debt discount 605 567
Gain on sales of rental equipment and property, plant and equipment (7,181) (2,645)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable 6,324 (2,381)
Inventories (7,798) (5,835)
Accounts payable 3,732 (1,805)
Accrued liabilities and other long-term liabilities (896) (4,899)
Prepaid income taxes (1,498) (185)
Other, net (2,735) 1,664
-------- --------
Net cash used in operating activities (9,353) (15,361)
-------- --------
Cash Flows From Investing Activities:
Property, plant and equipment additions (2,521) (3,847)
Proceeds from sales of property, plant and equipment 10 -
Rental equipment additions (12,408) (4,258)
Proceeds from sales of rental equipment 10,048 5,829
-------- --------
Net cash used in investing activities (4,871) (2,276)
-------- --------
Cash Flows From Financing Activities:
Issuance of long-term debt, net 16,049 14,459
Purchase of treasury shares - (188)
Repayment of loans to shareholders 53 83
Issuance of common shares - 39
-------- --------
Net cash provided by financing activities 16,102 14,393
-------- --------
Effect of Exchange Rate Changes on Cash 198 47
-------- --------
Net increase (decrease) in cash 2,076 (3,197)
Cash, beginning of period 2,404 4,989
-------- --------
Cash, end of period $ 4,480 $ 1,792
======== ========
Supplemental Disclosures:
Cash paid for income taxes, net $ 66 $ 94
Cash paid for interest 2,360 2,287
Purchase of equipment on capital lease 2,000 -
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
4
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Comprehensive Loss
For The Three Fiscal Months Ended March 28, 2003 and March 29, 2002
(Amounts in thousands)
(Unaudited)
March 28, March 29,
2003 2002
-------- --------
Net loss $ (5,390) $(20,150)
Other comprehensive income:
Foreign currency translation adjustment 198 47
-------- --------
Comprehensive loss $ (5,192) $(20,103)
======== ========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
5
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The interim consolidated financial statements included herein have been
prepared by the Company, without audit, and include, in the opinion of
management, all adjustments necessary to state fairly the information set
forth therein. Any such adjustments were of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States have been omitted, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these unaudited consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's annual financial
statements for the year ended December 31, 2002. The interim results may
not be indicative of future periods.
(2) ACCOUNTING POLICIES
The interim consolidated financial statements have been prepared in
accordance with the accounting policies described in the notes to the
Company's consolidated financial statements for the year ended December 31,
2002. While management believes that the procedures followed in the
preparation of interim financial information are reasonable, the accuracy
of some estimated amounts is dependent upon facts that will exist or
calculations that will be made at year end. Examples of such estimates
include changes in the deferred tax accounts and management bonuses. Any
adjustments pursuant to such estimates during the fiscal quarter were of a
normal recurring nature.
(a) Fiscal Quarter -- The Company's fiscal year end is December 31. The
Company's fiscal quarters are defined as the 13-week periods ending on
a Friday near the end of March, June and September.
(b) Inventories -- The Company values all inventories at the lower of
first-in, first-out ("FIFO") cost or market. The Company provides net
realizable value reserves which reflect the Company's best estimate of
the excess of the cost of potential obsolete and slow moving inventory
over the expected net realizable value. Following is a summary of the
components of inventories as of March 28, 2003 and December 31, 2002:
March 28, December 31,
2003 2002
-------- --------
Raw materials $ 13,809 $ 15,984
Work in progress 3,416 3,069
Finished goods 39,727 29,932
-------- --------
56,952 48,985
Net realizable value reserve (1,243) (1,074)
-------- --------
$ 55,709 $ 47,911
======== ========
6
(c) Rental Equipment -- Rental equipment is manufactured or purchased by
the Company for resale and for rent to others on a short-term basis.
Rental equipment is recorded at the lower of FIFO cost or market and is
depreciated over the estimated useful life of the equipment, three to
fifteen years, on a straight-line basis. The balances as of March 28,
2003 and December 31, 2002 are net of accumulated depreciation of
$26,915 and $24,181, respectively. Rental revenues and cost of sales
associated with rental revenue are as follows:
Three fiscal months ended
-----------------------------
March 28, March 29,
2003 2002
------- ------
Rental revenue $ 6,645 $10,831
Rental depreciation 3,421 2,987
Other cost of sales 283 351
------- ------
Gross profit $ 2,941 $7,493
======= ======
(d) New Accounting Pronouncements -- In June 2001, the FASB issued SFAS
No. 141, "Business Combinations" and No. 142 "Goodwill and Other
Intangible Assets." SFAS No. 141 revises the accounting for future
business combinations to only allow the purchase method of accounting.
In addition, the two statements preclude amortization of goodwill for
periods beginning after December 15, 2001. Instead, an annual review
of the recoverability of the goodwill and intangible assets is
required. Certain other intangible assets continue to be amortized
over their estimated useful lives.
The Company adopted SFAS No. 142 effective January 1, 2002. As a result
of adopting SFAS No. 142, the Company recorded a non-cash charge in the
first quarter of 2002 of $17,140 ($19,894 of goodwill, less an income
tax benefit of $2,754), which is reflected as a cumulative effect of
change in accounting principle in the accompanying March 29, 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.
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 adoption of this pronouncement did not have a
material impact on the Company's consolidated financial position,
results of operations or cash flows.
7
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 adoption of this pronouncement did not have a
material impact on the Company's consolidated financial position,
results of operations or cash flows.
In July 2002, the FASB issued 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. SFAS No. 146 is to be applied prospectively to
exit or disposal activities initiated after December 31, 2002. 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 December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." SFAS 148 amends
SFAS 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 APB 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 adoption of this pronouncement did not have a material
impact on the Company's consolidated financial position, results of
operations or cash flows.
8
In January 2003, the FASB issued 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 its financial position,
results of operations and cash flows.
(e) 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 would have been
reduced to the unaudited pro forma amounts as follows:
Three fiscal months ended
----------------------------------
March 28, March 29,
2003 2002
--------------- ---------------
Net loss As Reported $(5,390) $(20,150)
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all awards,
net of related tax effect (66) (51)
--------------- ---------------
Pro Forma (5,456) (20,201)
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected
in future years.
(f) RECLASSIFICATIONS -- Certain reclassifications have been made to the
2002 amounts to conform to their 2003 classifications.
9
(3) CREDIT ARRANGEMENTS
Following is a summary of the Company's long-term debt as of March 28, 2003 and
December 31, 2002:
March 28, December 31,
2003 2002
--------- ------------
Revolving credit facility, weighted average interest rate of 4.7% $ 27,400 $ 10,050
Acquisition credit facility, weighted average interest rate of 4.4% 9,250 9,250
Term Loan Tranche A, weighted average interest rate of 4.4% 18,559 19,391
Term Loan Tranche B, weighted average interest rate of 4.9% 97,269 97,516
Senior Subordinated Notes, interest rate of 13.0% 170,000 170,000
Debt discount on Senior Subordinated Notes (10,109) (10,374)
Debentures previously held by Dayton Superior Capital Trust, interest rate of
9.1%, due on demand 1,110 1,110
Capital lease obligations 4,293 2,507
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0%
79 86
--------- ---------
Total long-term debt 317,851 299,536
Less current maturities (8,677) (6,991)
--------- ---------
Long-term portion $ 309,174 $ 292,545
========= =========
As of March 28, 2003, the Company's credit facility consisted of (i) a $50,000
revolving credit facility maturing June 2006, (ii) a $30,000 acquisition
facility, converting from revolving loans into term loans 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 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 March 28, 2003, the Company had outstanding letters of credit of $9,269, and
the Company had available borrowings of $13,331 under its revolving credit
facility.
The average borrowings, maximum borrowings and weighted average interest rates
on the revolving credit facility for the periods indicated were as follows:
Three fiscal months ended
---------------------------------
March 28, March 29,
2003 2002
--------------- ---------------
Revolving Credit Facility:
Average borrowing $ 23,530 $9,005
Maximum borrowing 32,050 18,550
Weighted average interest rate 5.5% 8.1%
10
The credit facility contains certain restrictive covenants which require that,
among other things, the Company maintain a minimum interest coverage ratio, not
exceed a certain leverage ratio, maintain a minimum EBITDA, as defined, and
limit its capital expenditures. The Company was in compliance with its loan
covenants as of March 28, 2003.
The Senior Subordinated Notes (the "Notes") have a principal amount of $170,000
and mature in June 2009. The Notes were issued at a discount, which is being
accreted to the face value using the effective interest method and is reflected
as interest expense. The Notes were issued with warrants that allow the holder
to purchase 117,276 of the Company's Common Shares for $0.01 per share. The
Company's wholly-owned domestic subsidiaries (Aztec Concrete Accessories, Inc.;
Trevecca Holdings, Inc.; Dayton Superior Specialty Chemical Corp.; Symons
Corporation; and Dur-O-Wal, Inc.) have guaranteed the Notes. The wholly-owned
foreign subsidiaries of the Company are not guarantors of the Notes and do not
have any credit arrangements senior to the Notes. The following supplemental
consolidating condensed balance sheets as of March 28, 2003 and December 31,
2002 and the supplemental consolidating condensed statements of operations and
cash flows for the three fiscal months ended March 28, 2003 and March 29, 2002
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.
11
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Balance Sheet
As of March 28, 2003
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Cash $ 3,021 $ 27 $ 1,432 $ - $ 4,480
Accounts receivable, net 31,121 22,845 875 - 54,841
Inventories 31,646 22,982 1,081 - 55,709
Intercompany 50,578 (50,152) (426) - -
Other current assets 13,680 6,587 97 - 20,364
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS 130,046 2,289 3,059 - 135,394
Rental equipment, net 4,267 65,781 41 - 70,089
Property, plant and equipment, net 30,103 32,147 179 - 62,429
Investment in subsidiaries 123,041 - - (123,041) -
Other assets 56,475 65,215 - - 121,690
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 343,932 $ 165,432 $ 3,279 $(123,041) $ 389,602
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current maturities of long-term debt $ 8,677 $ - $ - $ - $ 8,677
Accounts payable 23,240 5,791 367 - 29,398
Accrued liabilities 22,536 7,120 148 - 29,804
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 54,453 12,911 515 - 67,879
Long-term debt, net
308,200 974 - - 309,174
Other long-term liabilities 6,218 15,692 20 - 21,930
Total shareholders' equity (deficit) (24,939) 135,855 2,744 (123,041) (9,381)
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 343,932 $ 165,432 $ 3,279 $(123,041) $ 389,602
========= ========= ========= ========= =========
12
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Balance Sheet
As of December 31, 2002
Dayton
Superior Guarantor Non 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, net 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
========= ========= ========= ========= =========
13
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Three Fiscal Months Ended March 28, 2003
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 39,387 $ 26,604 $ 2,232 $ 68,223
Cost of sales 27,122 18,644 1,457 47,223
-------- -------- -------- --------
Gross profit 12,265 7,960 775 21,000
Selling, general and administrative
expenses 9,814 9,322 425 19,561
Facility closing and severance expenses 324 71 - 395
Amortization of intangibles 73 56 - 129
Management fees (75) - 75 -
-------- -------- -------- --------
Income (loss) from operations 2,129 (1,489) 275 915
Other expenses
Interest expense 8,053 8 - 8,061
Other expense 5 33 3 41
-------- -------- -------- --------
Income (loss) before provision (benefit)
for income taxes (5,929) (1,530) 272 (7,187)
Provision (benefit) for income taxes (1,482) (383) 68 (1,797)
-------- -------- -------- --------
Net income (loss) available to common
shareholders $ (4,447) $ (1,147) $ 204 $ (5,390)
======== ======== ======== ========
14
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Three Fiscal Months Ended March 29, 2002
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $30,894 $ 46,590 $1,018 $ 78,502
Cost of sales 18,521 32,923 541 51,985
------- -------- ----- --------
Gross profit 12,373 13,667 477 26,517
Selling, general and administrative
expenses 10,300 12,523 405 23,228
Facility closing and severance expenses 121 - - 121
Amortization of intangibles 68 5 - 73
Management fees (75) - 75 -
------- -------- ----- --------
Income (loss) from operations 1,959 1,139 (3) 3,095
Other expenses
Interest expense 7,880 126 - 8,006
Other expense (income) (78) 90 93 105
------- -------- ----- --------
Income (loss) before provision (benefit)
for income taxes (5,843) 923 (96) (5,016)
Provision (benefit) for income taxes (2,337) 369 (38) (2,006)
------- -------- ----- --------
Net income (loss) before cumulative effect of
change in accounting principle (3,506) 554 (58) (3,010)
Cumulative effect of change in
accounting principle, net of income
tax benefit of $2,754 - (17,140) - (17,140)
------- -------- ----- --------
Net loss $(3,506) $(16,586) $ (58) $(20,150)
======= ======== ===== ========
15
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Three Fiscal Months Ended March 28, 2003
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (4,447) $ (1,147) $ 204 $ (5,390)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,998 4,457 12 6,467
Deferred income taxes (378) - - (378)
Gain on sales of rental equipment and
property, plant and equipment (203) (6,970) (8) (7,181)
Change in assets and liabilities, net of
the effects of acquisitions (17,164) 15,111 (818) (2,871)
-------- -------- -------- --------
Net cash provided by (used in)
operating activities (20,194) 11,451 (610) (9,353)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (570) (1,951) - (2,521)
Proceeds from sales of property, plant and
equipment - 10 - 10
Rental equipment additions (132) (12,276) - (12,408)
Proceeds from sales of rental equipment 290 9,742 16 10,048
-------- -------- -------- --------
Net cash provided by (used in)
investing activities (412) (4,475) 16 (4,871)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net 16,049 - - 16,049
Issuance of common shares 53 - - 53
Intercompany 5,920 (6,262) 342 -
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 22,022 (6,262) 342 16,102
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 198 198
-------- -------- -------- --------
Net increase (decrease) in cash 1,416 714 (54) 2,076
CASH, beginning of period 1,605 (687) 1,486 2,404
-------- -------- -------- --------
CASH, end of period $ 3,021 $ 27 $ 1,432 $ 4,480
======== ======== ======== ========
16
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Three Fiscal Months Ended March 29, 2002
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,506) $(16,586) $ (58) $(20,150)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,782 3,866 12 5,660
Cumulative effect of change in
accounting principle - 17,140 - 17,140
Deferred income taxes (1,925) - - (1,925)
Gain on sales of rental equipment and
property, plant and equipment (11) (2,634) - (2,645)
Change in assets and liabilities (6,872) (6,521) (48) (13,441)
-------- -------- -------- --------
Net cash used in operating activities (10,532) (4,735) (94) (15,361)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (2,657) (1,182) (8) (3,847)
Rental equipment additions (223) (4,035) - (4,258)
Proceeds from sales of rental equipment 99 5,730 - 5,829
-------- -------- -------- --------
Net cash provided by (used in)
investing activities (2,781) 513 (8) (2,276)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net 14,459 - - 14,459
Purchase of treasury shares (188) - - (188)
Repayment of loans to shareholders 83 - - 83
Issuance of common shares 39 - - 39
Intercompany (2,670) 2,690 (20) -
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 11,723 2,690 (20) 14,393
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 47 47
-------- -------- -------- --------
Net decrease in cash (1,590) (1,532) (75) (3,197)
CASH, beginning of period 2,714 832 1,443 4,989
-------- -------- -------- --------
CASH, end of period $ 1,124 $ (700) $ 1,368 $ 1,792
======== ======== ======== ========
17
(4) STOCK OPTION PLANS
The Company has a stock option plan which provides for an option exercise price
equal to the stock's market price on the date of grant. The options are
accounted for under APB Opinion No. 25, under which no compensation costs have
been recognized. Had compensation cost for these plans been determined
consistent with SFAS No. 123, the Company's net loss for the three fiscal months
ended March 28, 2003 and March 29, 2002 would have been increased to the
following pro forma amounts:
Three fiscal months ended
---------------------------------
March 28, March 29,
2003 2002
-------------- ----------------
Net loss As Reported $(5,390) $(20,150)
Deduct: Total stock-based employee
compensation expense determined under fair
value-based method for all awards, net of
related tax effect (66) (51)
------- --------
Pro Forma $(5,456) $(20,201)
======= ========
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
A summary of the activity of the Company's stock option plans for the three
fiscal months ended March 28, 2003 is presented in the table below:
Weighted Average
Number of Exercise Price Per
Shares Share
------- ------
Outstanding at December 31, 2002 671,684 $25.00
Granted 37,859 27.50
Cancelled (47,851) 26.64
------- ------
Outstanding at March 28, 2003 661,692 $25.02
======= ======
(5) SEGMENT REPORTING
In an effort to reduce cost and enhance customer responsiveness, the Company
consolidated its overhead structure from five marketing arms down to two
effective January 1, 2003. Accordingly, the Company changed its reporting as a
result of this consolidation such that it now reports under two segments:
Construction Products Group and Symons. Construction Products Group and Symons
sell primarily to external customers and are differentiated by their products
and services, both of which serve the construction industry. Construction
Products Group sells 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; masonry
accessories, which are placed between layers of brick and concrete blocks and
covered with mortar to provide additional strength to walls; paving products
which are used in the construction and rehabilitation of concrete roads,
highways, and airport runways to extend the life of the pavement; and
construction chemicals which are used in conjunction with its other products.
18
Symons sells and rents 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 and construction chemicals which are used in
conjunction with its other products.
Sales between Construction Products Group and Symons are recorded at normal
selling price by the selling segment and at cost for the buying segment, 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 three fiscal months ended March 28, 2003 and
March 29, 2002 follows. The 2002 amounts have been reclassified to conform to
the 2003 classification.
Three fiscal months ended
-------------------------
March 28, March 29,
2003 2002
-------- --------
Construction Products Group $ 45,245 $ 53,564
Symons 22,978 24,938
-------- --------
Net sales to external customers $ 68,223 $ 78,502
======== ========
Construction Products Group $ 2,136 $ 2,562
Symons 1,784 1,710
-------- --------
Net sales to other segments $ 3,920 $ 4,272
======== ========
Construction Products Group $ 1,242 $ 4,069
Symons 4,900 4,026
Corporate (3,034) (3,015)
Intersegment Eliminations (2,193) (1,985)
-------- --------
Income from operations $ 915 $ 3,095
======== ========
Construction Products Group $ 1,272 $ 3,916
Symons 4,872 3,995
Corporate (11,138) (10,942)
Intersegment Eliminations (2,193) (1,985)
-------- --------
Loss before income taxes $ (7,187) $ (5,016)
======== ========
Construction Products Group $ 1,694 $ 1,582
Symons 3,553 2,967
Corporate 486 471
-------- --------
Depreciation $ 5,733 $ 5,020
======== ========
Construction Products Group $ 36 $ 29
Symons 56 5
Corporate 37 39
-------- --------
Amortization of goodwill and intangibles $ 129 $ 73
======== ========
19
Information regarding capital expenditures by segment and the reconciliation to
the consolidated amounts for the three fiscal months ended March 28, 2003 and
March 29, 2002 is as follows:
Three fiscal months ended
-------------------------
March 28, March 29,
2003 2002
------- -------
Construction Products Group $ 2,371 $ 2,846
Symons 34 747
Corporate 116 254
------- -------
Property, Plant and Equipment Additions $ 2,521 $ 3,847
======= =======
Construction Products Group $ 132 $ 260
Symons 12,276 3,998
------- -------
Rental Equipment Additions $12,408 $ 4,258
======= =======
Information regarding each segment's assets and the reconciliation to the
consolidated amounts as of March 28, 2003 and December 31, 2002 is as follows:
As of
--------------------------------
March 28, December 31,
2003 2002
-------- --------
Construction Products Group $165,166 $159,955
Symons 122,115 115,071
Corporate and Unallocated 102,321 98,945
-------- --------
Total Assets $389,602 $373,971
======== ========
20
(6) FACILITY CLOSING AND SEVERANCE EXPENSES
During the first quarter of 2003, 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 plan encompassed approximately 50 employee
terminations, and the amount of severance expense during the first quarter of
2003 was $395.
The Company had also approved and implemented several facility closing and
severance plans prior to December 31, 2002. The Company had established reserves
for the expected future costs of severance, lease payments and other
post-closing facility maintenance costs. Below is a summary of the amounts
charged against the facility closing and severance reserves in 2003 and 2002:
March 28, March 29,
2003 2002
--------- ---------
Beginning Balance $ 3,379 $ 2,900
Facility Closing and Severance Expenses 395 121
Items Charged Against Reserve:
Involuntary Termination Costs (1,394) (454)
Lease Termination Costs (138) (201)
Other Post-Closing Costs (319) (532)
------- -------
Ending Balance $ 1,923 $ 1,834
======= =======
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We believe we are the largest North American manufacturer and distributor of
metal accessories and forms used in concrete construction and of metal
accessories used in masonry construction. Although almost all of our products
are used in concrete or masonry construction, the function and nature of the
products differ widely. As of March 28, 2003, we have two principal operating
divisions, which are organized around the following functional areas of
expertise:
- Construction Products Group and
- Symons.
RESULTS OF OPERATIONS
The following table summarizes our results of operations as a percentage of net
sales.
THREE FISCAL MONTHS ENDED
-------------------------
March 28, March 29,
2003 2002
---- -----
Net sales 100.0% 100.0%
Cost of sales 69.2 66.2
---- -----
Gross profit 30.8 33.8
Selling, general and administrative expenses 28.7 29.6
Facility closing and severance expenses 0.6 0.2
Amortization of intangibles 0.2 0.1
---- -----
Income from operations 1.3 3.9
Interest expense 11.8 10.2
Other expense - 0.1
---- -----
Loss before benefit for income taxes (10.5) (6.4)
Benefit for income taxes (2.6) (2.6)
---- -----
Net loss before cumulative effect of change in accounting principle (7.9) (3.8)
Cumulative effect of change in accounting principle - (21.8)
---- -----
Net loss (7.9)% (25.6)%
==== =====
22
COMPARISON OF THREE FISCAL MONTHS ENDED MARCH 28, 2003 AND MARCH 29, 2002
NET SALES
Net sales decreased $10.3 million, or 13.1%, to $68.2 million in the first
quarter of 2003 from $78.5 million in the first quarter of 2002. The following
table summarizes our net sales by segment:
Three fiscal months ended
----------------------------------------------------------
March 28, 2003 March 29, 2002
----------------------------------------------------------
(In thousands)
Net Sales % Net Sales % % Change
--------- ----- --------- ----- --------
Construction Products Group $ 47,381 69.4% $ 56,126 71.5% (15.6)%
Symons 24,762 36.3 26,648 33.9 (7.1)
Intersegment eliminations (3,920) (5.7) (4,272) (5.4) (8.2)
-------- ----- -------- ----- -----
Net sales $ 68,223 100.0% $ 78,502 100.0% (13.1)%
======== ===== ======== ===== =====
Net sales for the Construction Products Group decreased $8.7 million, or 15.6%,
to $47.4 million in the first quarter of 2003 from $56.1 million in the first
quarter of 2002, primarily due to the weaker markets in the first quarter of
2003 compared to 2002. In addition, the harsh winter weather in the first
quarter of 2003 caused delays in the start of construction projects.
Net sales of Symons products decreased 7.1% to $24.8 million for the first
quarter of 2003 compared to $26.6 million in the first quarter of 2002,
primarily due to lower rental revenues and decreased sales of new products due
to the weaker markets and the harsh winter weather in the first quarter of 2003
compared to 2002. This was partially offset by increased sales of used rental
fleet as we continue to optimize rental fleet utilization.
GROSS PROFIT
Gross profit for the first quarter of 2003 was $21.0 million, a decrease of $5.5
million from $26.5 million in the first quarter of 2002. This was due primarily
to the decreased revenues discussed previously, offset partially by the cost
savings realized from the facility closing and severance plans implemented by
management.
Gross margin was 30.8% in the first quarter of 2003, decreasing from 33.8% in
the same quarter of 2002. This was due primarily to the combination of the fixed
cost impact on the unfavorable sales volume and unfavorable pricing, both of
which are attributable to our weaker markets in 2003 compared to 2002.
OPERATING EXPENSES
Selling, general, and administrative expenses ("SG&A expenses") decreased $3.7
million to $19.6 million in the first quarter of 2003, from $23.2 million in the
first quarter of 2002, primarily due to the cost savings realized from the
implementation of the facility closing and severance plans.
23
During the first quarter of 2003, we approved and began implementing plans to
further reduce overall headcount in order to keep our cost structure in
alignment with our net sales. The plan encompassed approximately 50 employee
terminations, and the amount of severance expensed during the first quarter of
2003 was $0.4 million.
During 2001, we approved and began implementing two plans to exit certain
manufacturing and distribution facilities and to reduce overall headcount in
order to keep our cost structure in alignment with our net sales. As a result of
the continued implementation of the plans, we incurred $0.1 million of facility
closing and severance expense in the first quarter of 2002, which is related
primarily to facility relocation activities.
Below is a summary of the amounts charged against the facility closing and
severance reserve during the first quarter of 2003 and 2002:
March 28, March 29,
2003 2002
--------- ---------
Beginning Balance $ 3.3 $ 2.9
Facility Closing and Severance Expenses 0.4 0.1
Items Charged Against Reserve:
Involuntary Termination Costs (1.4) (0.5)
Lease Termination Costs (0.1) (0.2)
Other Post-Closing Costs (0.3) (0.5)
------ ------
Ending Balance $ 1.9 $ 1.8
====== ======
Amortization of intangibles was $0.1 million in the first quarters of both 2003
and 2002.
OTHER EXPENSES
Interest expense increased slightly to $8.1 million in the first quarter of 2003
from $8.0 million in the first quarter of 2002. This was due to higher average
borrowings in the first quarter of 2003 when compared to the first quarter of
2002, offset partially by the lower interest rates in 2003.
24
LOSS BEFORE INCOME TAXES
Loss before income taxes in the first quarter of 2003 was $(7.2) million as
compared to $(5.0) million in the first quarter of 2002 and was comprised of the
following:
Three fiscal months ended
-------------------------
March 28, March 29,
2003 2002
----------- ------------
(In thousands)
Construction Products Group $ 1,272 $ 3,916
Symons 4,872 3,995
Corporate (11,138) (10,942)
Intersegment eliminations (2,193) (1,985)
------- -------
Loss before income taxes $(7,187) $(5,016)
======= =======
Construction Products Group's income before income taxes of $1.3 million in the
first quarter of 2003 decreased from $3.9 million in the first quarter of 2002.
This was primarily due to the lower net sales volumes in 2003, offset partially
by the cost savings realized from the facility closing and severance plans
implemented by management.
Symons' income before income taxes was $4.9 million in the first quarter of 2003
compared to $4.0 million in the first quarter of 2002. This was due primarily to
the cost savings realized from the facility closing and severance plans
implemented by management.
Corporate expenses increased slightly to $11.1 million in the first quarter of
2003 from $10.9 million in the first quarter of 2002.
Elimination of profit on intersegment sales was $2.2 million in the first
quarter of 2003 compared to $2.0 million in the first quarter of 2002, due
primarily to a change in the mix of intersegment product sales.
NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
The effective tax rate in the first quarter of 2003 was 25.0%, 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 the first quarter of 2003 was $(5.4) million
compared to a loss of $(3.0) million in the first quarter of 2002 due to the
factors described above.
25
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
SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 revises the
accounting for future business combinations to allow only 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 these statements effective January 1, 2002. As a result of adopting
SFAS No. 142, we recorded a non-cash charge in the first quarter of 2002 of
$17.1 million ($19.9 million of goodwill, less an income tax benefit of $2.8
million), which is reflected as a cumulative effect of change in accounting
principle. This amount does not affect our ongoing operations. The goodwill
arose from the acquisitions of Dur-O-Wal in 1995, Southern Construction Products
in 1999, and Polytite in 2000, all of which manufacture and sell metal
accessories used in masonry construction. The masonry products market has
experienced weaker markets and significant price competition, which has had a
negative impact on the product line's earnings and fair value.
NET LOSS
The net loss for the first quarter of 2003 was $5.4 million compared to a loss
of $20.2 million in the first quarter of 2002 due to the factors described
above.
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 the 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 from operations, borrowings under our revolving credit facility
and the issuance of long-term debt and equity.
Net cash used in operating activities in the first quarter of 2003 was $9.4
million compared to a use of $15.4 million in the first quarter of 2002.
Net cash used in investing activities was $4.9 million in the first quarter of
2003 compared to a use of $2.3 million in the first quarter of 2002. Property,
plant and equipment additions decreased to $2.5 million in the first quarter of
2003 from $3.8 million in the first quarter of 2002, as we continue to closely
monitor our spending with our markets being weaker. Rental equipment additions,
net of proceeds from sales of rental equipment, were a $2.4 million use of cash
in the first quarter of 2003 compared to a $1.6 million source of cash in the
first quarter of 2002. This is due to the implementation of our plan to continue
to replace older traditional forming rental fleet with newer European clamping
systems.
26
As of March 28, 2003, our long-term debt consisted of the following:
March 28,
2003
-------
Revolving credit facility, weighted average interest rate of 4.7% $ 27.4
Acquisition credit facility, weighted average interest rate of 4.4% 9.2
Term Loan Tranche A, weighted average interest rate of 4.4% 18.6
Term Loan Tranche B, weighted average interest rate of 4.9% 97.3
Senior Subordinated Notes, interest rate of 13.0% 170.0
Debt discount on Senior Subordinated Notes (10.1)
Debentures previously held by Dayton Superior Capital Trust, interest
rate of 9.1%, due on demand 1.1
Capital lease obligations 4.3
City of Parsons, Kansas Economic Development Loan, interest rate
of 7.0% 0.1
-------
Total long-term debt 317.9
Less current maturities (8.7)
-------
Long-term portion $ 309.2
=======
At March 28, 2003, of the $50.0 million revolving credit facility that was
available to us, $27.4 million of borrowings were outstanding, along with $9.3
million of letters of credit, with the remaining $13.3 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 $18.6 million was outstanding at March 28,
2003. All of the $98.5 million tranche B facility had been drawn and
approximately $97.3 million was outstanding at March 28, 2003.
Our long-term debt borrowings, net of repayments for the first quarter of 2003
were $16.0 million compared to $14.5 million in the first quarter of 2002.
We may from time to time may seek to retire our outstanding debt through cash
purchases and/or exchanges for equity securities, in open market purchases, or
in privately negotiated transactions or otherwise. Such repurchases or
exchanges, if any, will depend on prevailing market conditions, our liquidity
requirements, contractual restrictions and other factors. The amounts involved
may be material.
At March 28, 2003, working capital was $67.5 million, compared to $65.8 million
at December 31, 2002. The increase in working capital is attributable to normal
seasonal working capital growth.
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 from our business operations, from
borrowings under our credit facility or, if feasible and attractive, by issuing
long-term debt or additional common shares.
27
SEASONALITY
Our operations are seasonal in nature with approximately 55% of sales
historically occurring in the second and third quarters. Working capital and
borrowings fluctuate with the volume of our sales.
INFLATION
We do not believe inflation had a significant impact on our operations over the
past two years. In the past, we have been able to pass along to our customers a
portion of the 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
In preparing our consolidated financial statements, we follow accounting
principles generally accepted in the United States of America. These principles
require us to make certain estimates and apply judgments that affect our
financial position and results of operations. We continually review our
accounting policies and financial information disclosures. There have been no
material changes in our policies or estimates since December 31, 2002.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes, and future filings by us on Form 10-K, Form 10-Q, and
Form 8-K, and future oral and written statements by us and our management may
include certain forward-looking statements, including (without limitation)
statements with respect to anticipated future operating and financial
performance, growth opportunities and growth rates, acquisition and divestitive
opportunities and other similar forecasts and statements of expectation. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and "should," and variations of these words and similar expressions,
are intended to identify these forward-looking statements. Forward-looking
statements by us and our management are based on estimates, projections, beliefs
and assumptions of management and are not guarantees of future performance. We
disclaim any obligation to update or revise any forward-looking statement based
on the occurrence of future events, the receipt of new information, or
otherwise.
Actual future performance, outcomes and results may differ materially from those
expressed in forward-looking statements made by us and our management as the
result of a number of important factors. Representative examples of these
factors include (without limitation) the cyclical nature of nonresidential
building and infrastructure construction activity, which can be affected by
factors outside our control such as weakness in the general economy, a decrease
in governmental spending, interest rate increases, and changes in banking and
tax laws; our ability to successfully identify, finance, complete and integrate
acquisitions; increases in the price of steel (our principal raw material) and
our ability to pass along such price increases to our customers; the effects of
weather and seasonality on the construction industry; increasing consolidation
of our customers; the mix of products we sell; the competitive nature of our
industry; and the amount of debt we must service. This list is not intended to
be exhaustive, and additional information can be found in our annual report on
28
Form 10-K for the year ended December 31, 2002. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At March 28, 2003, we had financial instruments that were sensitive to changes
in interest rates. These financial instruments consisted of:
- $170.0 million of Senior Subordinated Notes, with a book value of
$159.9 million;
- $202.0 million credit facility, consisting of:
- $50.0 million revolving credit facility, $27.4 million of
which was outstanding at March 28, 2003;
- $30.0 million acquisition facility, $9.2 million of which
was drawn and outstanding at March 28, 2003;
- $23.5 million term loan tranche A, $22.3 million of which
has been drawn and $18.6 million was outstanding at March
28, 2003; and
- $98.5 million term loan tranche B, all of which has been
drawn and $97.3 million was outstanding at March 28, 2003;
- $4.3 million in capital lease obligations; and
- $1.2 million in other fixed-rate, long-term debt.
The Senior Subordinated Notes bear interest at 13.0% on the $170.0 million of
principal and mature in 2009. The estimated fair value of the notes, based on a
trading price of $83 per unit at March 28, 2003, is $141.1 million.
Our credit facility has several interest rate options, which re-price on a
short-term basis. Accordingly, the fair value of the credit facility
approximates its $152.5 million face value. The weighted average interest rate
at March 28, 2003 was 4.8%.
Other long-term debt consists of a.) $1.1 million of debentures previously held
by the Dayton Superior Capital Trust, with a fair value of $1.8 million and b.)
a $0.1 million, 7.0% loan due in installments of $32 thousand per year with an
estimated fair value of $0.1 million.
In the ordinary course of our business, we also are exposed to price changes in
raw materials (particularly steel bar and rod and steel flat plate) and products
purchased for resale. The prices of these items can change significantly due to
changes in the markets in which our suppliers operate. We generally do not use
financial instruments to manage our exposure to changes in commodity prices.
29
ITEM 4. CONTROLS AND PROCEDURES.
Within the ninety days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of the Company's
management, including our Chief Executive Officer along with our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, our Chief Executive Officer along with our Chief Financial Officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in our periodic SEC filings.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
we carried out this evaluation.
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. See Index to Exhibit following the signature page to this report
for a list of Exhibits.
(b) Reports on Form 8-K. During the quarter ended March 28, 2003, we filed the
following Current Reports on Form 8-K:
Current Report on Form 8-K dated February 26, 2003, reporting under Item 5
(Other Events) the Company's fourth quarter and full year 2002 results.
30
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAYTON SUPERIOR CORPORATION
DATE: May 12, 2003 BY: /s/ Alan F. McIlroy
------------------- -----------------------------------
Alan F. McIlroy
Vice President and
Chief Financial Officer
31
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Item 307 of
Regulation S-K
I, Stephen R. Morrey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dayton Superior
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in 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 quarterly report;
4. Dayton Superior Corporation's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
Dayton Superior Corporation and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to Dayton Superior Corporation,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of Dayton Superior Corporation's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. Dayton Superior Corporation's other certifying officers and I have
disclosed, based on our most recent evaluation, to Dayton Superior
Corporation's auditors and the audit committee of Dayton Superior
Corporation's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Dayton Superior
Corporation's ability to record, process, summarize and report
financial data and have identified for Dayton Superior
Corporation's auditors any material weaknesses in internal
controls; and
32
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in Dayton Superior
Corporation's internal controls; and
6. Dayton Superior Corporation's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
May 12, 2003 /s/ Stephen R. Morrey
Stephen R. Morrey
President and Chief Executive Officer
33
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 quarterly report on Form 10-Q of Dayton Superior
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in 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 quarterly report;
4. Dayton Superior Corporation's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
Dayton Superior Corporation and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to Dayton Superior Corporation,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of Dayton Superior Corporation's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. Dayton Superior Corporation's other certifying officers and I have
disclosed, based on our most recent evaluation, to Dayton Superior
Corporation's auditors and the audit committee of Dayton Superior
Corporation's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Dayton Superior
Corporation's ability to record, process, summarize and report
financial data and have identified for Dayton Superior
Corporation's auditors any material weaknesses in internal
controls; and
34
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in Dayton Superior
Corporation's internal controls; and
6. Dayton Superior Corporation's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
May 12, 2003 /s/ Alan F. McIlroy
Alan F. McIlroy
Vice President and Chief Financial Officer
35
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
(99) Additional Exhibits
99.1 Sarbanes-Oxley Section 906 Certification of President and
Chief Executive Officer
99.2 Sarbanes-Oxley Section 906 Certification of Vice President and
Chief Financial Officer
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