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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
JUNE 27, 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 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 August 13, 2003
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Dayton Superior Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
As of June 27, 2003 and December 31, 2002
(Amounts in thousands)
(Unaudited)
June 27, December 31,
2003 2002
----------- -----------
ASSETS
Current assets:
Cash ............................................................. $ - $ 2,404
Accounts receivable, net of allowances for doubtful accounts and
sales returns and allowances of $4,266 and $4,861 ............. 70,575 61,165
Inventories (Note 2) ............................................. 52,311 47,911
Prepaid expenses and other current assets ........................ 6,890 7,054
Prepaid income taxes ............................................. 2,592 4,009
Future income tax benefits ....................................... 6,194 6,194
--------- ---------
Total current assets ........................................ 138,562 128,737
--------- ---------
Rental equipment, net (Note 2) ..................................... 68,167 63,160
--------- ---------
Property, plant and equipment ...................................... 108,662 103,846
Less accumulated depreciation ................................... (46,963) (42,600)
--------- ---------
Net property, plant and equipment ........................... 61,699 61,246
--------- ---------
Goodwill ........................................................... 107,328 107,328
Intangible assets, net of accumulated amortization (Note 2) ........ 5,850 8,405
Other assets ....................................................... 5,894 5,095
--------- ---------
Total assets ..................................... $ 387,500 $ 373,971
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt (Note 3) ................... $ 2,277 $ 6,991
Accounts payable ................................................ 30,820 25,667
Accrued compensation ............................................ 13,248 20,948
Other accrued liabilities ....................................... 7,042 9,380
--------- ---------
Total current liabilities ................................... 53,387 62,986
Long-term debt, net of current portion (Note 3) .................... 321,559 292,545
Deferred income taxes .............................................. 11,330 11,919
Other long-term liabilities ........................................ 10,788 10,762
--------- ---------
Total liabilities ........................................... 397,064 378,212
--------- ---------
Shareholders' deficit:
Common shares .................................................... 102,525 102,525
Loans to shareholders ............................................ (2,842) (2,878)
Treasury shares, at cost, 36,747 shares in 2003 and 2002 (1,184) (1,184)
Cumulative other comprehensive loss .............................. (1,225) (1,716)
Accumulated deficit .............................................. (106,838) (100,988)
--------- ---------
Total shareholders' deficit ................................. (9,564) (4,241)
--------- ---------
Total liabilities and shareholders' deficit ................. $ 387,500 $ 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 and Six Fiscal Months Ended June 27, 2003 and June 28, 2002
(Amounts in thousands)
(Unaudited)
Three Fiscal Months Ended Six Fiscal Months Ended
------------------------- -----------------------
(as restated) (as restated)
June 27, June 28, June 27, June 28,
2003 2002 2003 2002
---------- --------- --------- ---------
Net sales ........................................................ $ 105,514 $ 112,004 $ 177,508 $ 194,617
Cost of sales .................................................... 74,502 75,417 125,496 131,513
--------- --------- --------- ---------
Gross profit .................................................. 31,012 36,587 52,012 63,104
Selling, general and administrative expenses ..................... 20,054 22,788 39,615 46,016
Facility closing and severance expenses (Note 6) ................. 349 453 744 574
Amortization of intangibles ...................................... 130 78 259 151
--------- --------- --------- ---------
Income from operations ........................................ 10,479 13,268 11,394 16,363
Other expenses
Interest expense .............................................. 9,012 8,407 17,073 16,413
Loss on early extinguishment of long-term debt ................ 2,480 - 2,480 -
Other expense ................................................. 96 45 137 150
--------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes and
cumulative effect of change in accounting principle (1,109) 4,816 (8,296) (200)
Provision (benefit) for income taxes.............................. (649) 1,926 (2,446) (80)
--------- --------- --------- ---------
Income (loss) before cumulative effect of change in accounting
principle......................................................... (460) 2,890 (5,850) (120)
Cumulative effect of change in accounting principle, net of
income tax benefit of $2,754 (Note 2) ......................... - - - (17,140)
--------- --------- --------- ---------
Net income (loss)
$ (460) $ 2,890 $ (5,850) $ (17,260)
========= ========= ========= =========
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 Six Fiscal Months Ended June 27, 2003 and June 28, 2002
(Amounts in thousands)
(Unaudited)
June 27, June 28,
2003 2002
--------- ---------
Cash Flows From Operating Activities:
Net loss ........................................................................... $ (5,850) $ (17,260)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation ..................................................................... 11,336 10,004
Amortization of intangibles ...................................................... 259 151
Loss on early extinguishment of long-term debt ................................... 2,480 -
Cumulative effect of change in accounting principle (Note 2) ..................... - 17,140
Deferred income taxes ............................................................ (588) 202
Amortization of deferred financing costs and debt discount ....................... 1,208 1,150
Gain on sales of rental equipment and property, plant and equipment ............. (15,203) (7,959)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable .............................................................. (9,410) (18,711)
Inventories ...................................................................... (4,400) (7,460)
Accounts payable ................................................................. 5,153 4,971
Accrued liabilities and other long-term liabilities .............................. (10,013) (10,237)
Prepaid income taxes ............................................................. 426 (734)
Other, net ....................................................................... 175 3,208
--------- ---------
Net cash used in operating activities ...................................... (24,427) (25,535)
--------- ---------
Cash Flows From Investing Activities:
Property, plant and equipment additions ............................................ (3,809) (6,518)
Proceeds from sales of property, plant and equipment ............................... 82 1,888
Rental equipment additions ......................................................... (16,790) (6,022)
Proceeds from sales of rental equipment ............................................ 20,988 11,426
--------- ---------
Net cash provided by investing activities .................................. 471 774
--------- ---------
Cash Flows From Financing Activities:
Repayments of long-term debt ....................................................... (160,364) (1,686)
Issuance of long-term debt ......................................................... 182,070 25,944
Financing costs incurred ........................................................... (680) -
Purchase of treasury shares ........................................................ - (188)
Repayment of loans to shareholders ................................................. 37 85
Issuance of common shares .......................................................... - 39
--------- ---------
Net cash provided by financing activities .................................. 21,063 24,194
--------- ---------
Effect of Exchange Rate Changes on Cash ............................................... 489 175
--------- ---------
Net decrease in cash ....................................................... (2,404) (392)
Cash, beginning of period ............................................................. 2,404 4,989
--------- ---------
Cash, end of period ................................................................... $ - $ 4,597
========= =========
Supplemental Disclosures:
Cash paid (refunded) for income taxes, net ......................................... $ (3,351) $ 355
Cash paid for interest ............................................................. 17,324 15,557
Purchases of equipment on capital leases ........................................... 2,088 -
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 Income (Loss)
For The Three and Six Fiscal Months Ended June 27, 2003 and June 28, 2002
(Amounts in thousands)
(Unaudited)
Three Fiscal Months Six Fiscal Months
Ended Ended
---------------------- ----------------------
June 27, June 28, June 27, June 28,
2003 2002 2003 2002
-------- -------- -------- --------
Net income (loss) ............................. $ (460) $ 2,890 $ (5,850) $(17,260)
Other comprehensive income:
Foreign currency translation adjustment 291 128 489 175
-------- -------- -------- --------
Comprehensive income (loss) ................... $ (169) $ 3,018 $ (5,361) $(17,085)
======== ======== ======== ========
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 June 27, 2003 and December 31, 2002:
June 27, December 31,
2003 2002
-------- ------------
Raw materials ................. $ 11,428 $ 15,984
Work in progress .............. 3,083 3,069
Finished goods ................ 38,693 29,932
-------- --------
53,204 48,985
Net realizable value reserve... (893) (1,074)
-------- --------
$ 52,311 $ 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 June 27,
2003 and December 31, 2002 are net of accumulated depreciation of
$28,652 and $24,181, respectively. Rental revenues and cost of sales
associated with rental revenue are as follows:
Three fiscal months ended Six fiscal months ended
------------------------- -----------------------
June 27, June 28, June 27, June 28,
2003 2002 2003 2002
------- ------- ------- --------
Rental revenue $ 6,408 $10,685 $13,053 $21,516
Rental depreciation 3,420 2,913 6,841 5,900
Other cost of sales 322 447 605 798
------- ------- ------- -------
Gross profit $ 2,666 $ 7,325 $ 5,607 $14,818
======= ======= ======= =======
(d) Goodwill and Intangible Assets - Amortization is provided over the term
of the loan (5 to 7 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 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: $1,175 in 2003, $986 in 2004, $986 in
2005, $840 in 2006, and $584 in 2007. Intangible assets consisted of
the following:
June 27, December 31,
2003 2002
-------- ------------
Deferred financing costs ........ $ 7,605 $ 10,550
Intellectual property ........... 690 690
Covenants not to compete ........ 1,595 1,595
-------- --------
9,890 12,835
Less: accumulated amortization... (4,040) (4,430)
-------- --------
$ 5,850 $ 8,405
======== ========
In June 2001, the Financial Accounting Standards Board ("FASB") 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.
7
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 June 28, 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.
(e) New Accounting Pronouncements -- In June 2001, the FASB issued 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.
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 in 2003
resulted in the reclassification in 2000 of the loss on the early
extinguishment of long-term debt.
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
8
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.
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 its financial position, results of operations and
cash flows.
(f) 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. No
compensation cost has been recognized in any period presented. 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," as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," the Company's
net income would have been reduced to the unaudited pro forma amounts
as follows:
9
Three fiscal months ended Six fiscal months ended
------------------------- -----------------------
June 27, June 28, June 27, June 28,
2003 2002 2003 2002
---------- -------- -------- --------
Net income
(loss) As Reported ............... $ (460) $ 2,890 $ (5,850) $(17,260)
Deduct: Total
stock-based employee
compensation expense
determined under fair
value-based method for
all awards, net of
related tax effect ........ (65) (46) (131) (97)
-------- -------- -------- --------
Pro Forma ................. $ (525) $ 2,844 $ (5,981) $(17,357)
======== ======== ======== ========
Because the fair value 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.
(g) Reclassifications -- Certain reclassifications have been made to the
2002 amounts to conform to their 2003 classifications.
(3) CREDIT ARRANGEMENTS
Following is a summary of the Company's long-term debt as of June 27, 2003 and
December 31, 2002:
June 27, December 31,
2003 2002
--------- ------------
Revolving credit facility, weighted average interest rate of 6.25%. $ 15,868 $ 10,050
Acquisition credit facility..................................................... - 9,250
Term Loan Tranche A............................................................. - 19,391
Term Loan Tranche B............................................................. - 97,516
Senior Subordinated Notes, interest rate of 13.0%............................... 154,729 170,000
Debt discount on Senior Subordinated Notes...................................... (8,954) (10,374)
Senior Second Secured Notes, interest rate of 10.75%............................ 165,000 -
Debt discount on Senior Second Secured Notes.................................... (8,105) -
Debentures previously held by Dayton Superior Capital Trust, interest rate of
9.1%, due on demand........................................................ 1,110 1,110
Capital lease obligations....................................................... 4,117 2,507
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0%........
71 86
---------- ----------
Total long-term debt............................................................ 323,836 299,536
Less current maturities......................................................... (2,277) (6,991)
---------- ----------
Long-term portion............................................................... $ 321,559 $ 292,545
========== ==========
On June 9, 2003, the Company completed an offering of $165,000 of senior second
secured notes (the "Senior Notes") in a private placement. The notes mature in
June 2008 and 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 proceeds of the offering of the
10
Senior Notes were used to repay the Company's acquisition credit facility, term
loan tranche A, term loan tranche B, and a portion of the revolving credit
facility. As a result of the transactions, the Company incurred a loss on the
early extinguishment of long-term debt of $2,550.
As of June 27, 2003, the Senior Subordinated Notes (the "Notes") have a
principal amount of $154,729 and mature in June 2009. During the second quarter
of 2003, the Company repurchased a portion of the Notes. A principal amount of
$15,271, with a net book value of $14,381, was repurchased for $14,311, for a
gain on the early extinguishment of long-term debt of $70. 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 holders to purchase 117,276 of the Company's Common
Shares for $0.01 per share.
The Company has a $50,000 revolving credit facility that matures in June 2006.
The credit facility has several interest rate options which reprice on a
short-term basis. At June 27, 2003, the Company had outstanding letters of
credit of $5,485, and the Company had available borrowings of $28,647 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 Six fiscal months ended
----------------------------- -----------------------------
June 27, 2003 June 28, 2002 June 27, 2003 June 28, 2002
------------- ------------- ------------- -------------
Revolving Credit Facility:
Average borrowing $26,432 $19,713 $25,019 $14,448
Maximum borrowing 35,225 29,275 35,225 29,275
Weighted average interest rate 5.3% 5.8% 5.4% 6.5%
The credit facility was amended during the second quarter to remove certain of
the restrictive financial covenants. As of June 27, 2003, the only remaining
covenant requires that the Company not exceed a certain leverage ratio as
defined. The Company was in compliance with this covenant as of June 27, 2003.
The amendment also limits the Company's borrowings to 75% of eligible accounts
receivable and 50% of eligible inventories.
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 and the Senior
Notes. The wholly-owned foreign subsidiaries of the Company are not guarantors
of the Notes nor the Senior Notes and do not have any credit arrangements senior
to the Notes or Senior Notes. The following supplemental consolidating condensed
balance sheets as of June 27, 2003 and December 31, 2002, the supplemental
consolidating condensed statements of operations for the three and six fiscal
months ended June 27, 2003 and June 28, 2002 and cash flows for the six fiscal
months ended June 27, 2003 and June 28, 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 June 27, 2003
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
ASSETS
Cash........................................ $ (1,058) $ (215) $ 1,273 $ - $ -
Accounts receivable, net.................... 43,709 25,900 966 - 70,575
Inventories................................. 28,588 22,449 1,274 - 52,311
Intercompany................................ 44,776 (44,543) (233) - -
Other current assets........................ 9,929 5,663 84 - 15,676
---------- ----------- ------------ ----------- ------------
TOTAL CURRENT ASSETS.................... 125,944 9,254 3,364 - 138,562
Rental equipment, net....................... 4,365 63,733 69 - 68,167
Property, plant and equipment, net.......... 29,254 32,259 186 - 61,699
Investment in subsidiaries.................. 123,041 - - (123,041) -
Other assets................................ 54,317 64,755 - - 119,072
---------- ----------- ------------ ----------- ------------
TOTAL ASSETS............................ $ 336,921 $ 170,001 $ 3,619 $ (123,041) $ 387,500
========== =========== ============ =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current maturities of long-term debt........ $ 2,277 $ - $ - $ - $ 2,277
Accounts payable............................ 24,135 6,056 629 - 30,820
Accrued liabilities......................... 14,446 5,665 179 - 20,290
---------- ----------- ------------ ----------- ------------
TOTAL CURRENT LIABILITIES............... 40,858 11,721 808 - 53,387
Long-term debt, net......................... 320,663 896 - - 321,559
Other long-term liabilities................. 6,620 15,476 22 - 22,118
Total shareholders' equity (deficit)........ (31,220) 141,908 2,789 (123,041) (9,564)
---------- ----------- ------------ ----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)............................... $ 336,921 $ 170,001 $ 3,619 $ (123,041) $ 387,500
========== =========== ============ =========== ============
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 June 27, 2003
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------- ------------
Net sales .................................. $ 63,936 $ 38,716 $ 2,862 $ 105,514
Cost of sales .............................. 46,295 26,357 1,850 74,502
----------- ------------ ------------- -----------
Gross profit ............................ 17,641 12,359 1,012 31,012
Selling, general and administrative
expenses ................................ 10,572 9,011 471 20,054
Facility closing and severance expenses .... 378 (29) - 349
Amortization of intangibles ................ 73 57 - 130
Management fees ............................ (75) - 75 -
----------- ------------ ------------- -----------
Income from operations .................. 6,693 3,320 466 10,479
Other expenses
Interest expense ........................ 8,960 52 - 9,012
Loss on early extinguishment of long-term
debt .................................. 2,480 - - 2,480
Other expense ........................... 49 22 25 96
----------- ------------ ------------- -----------
Income (loss) before provision (benefit)
for income taxes ...................... (4,796) 3,246 441 (1,109)
Provision (benefit) for income taxes ....... (1,680) 889 142 (649)
----------- ------------ ------------- -----------
Net income (loss) available to common
shareholders ............................ $ (3,116) $ 2,357 $ 299 $ (460)
=========== ============ ============= ===========
14
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Three Fiscal Months Ended June 28, 2002
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------- ------------
Net sales ................................. $ 50,499 $ 59,843 $ 1,662 $ 112,004
Cost of sales ............................. 32,111 42,452 854 75,417
----------- ------------ ------------- -----------
Gross profit ........................... 18,388 17,391 808 36,587
Selling, general and administrative
expenses ............................... 10,049 12,378 361 22,788
Facility closing and severance expenses ... 364 89 - 453
Amortization of intangibles ............... 73 5 - 78
Management fees ........................... (75) - 75 -
----------- ------------ ------------- -----------
Income from operations ................. 7,977 4,919 372 13,268
Other expenses
Interest expense ....................... 8,207 200 - 8,407
Other expense (income), net ............ 187 (78) (64) 45
----------- ------------ ------------- -----------
Income (loss) before provision (benefit)
for income taxes ..................... (417) 4,797 436 4,816
Provision (benefit) for income taxes ...... (167) 1,919 174 1,926
----------- ------------ ------------- -----------
Net income (loss) available to common
shareholders ........................... $ (250) $ 2,878 $ 262 $ 2,890
=========== ============ ============= ===========
15
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Six Fiscal Months Ended June 27, 2003
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------- ------------
Net sales ................................. $ 105,529 $ 66,884 $ 5,095 $ 177,508
Cost of sales ............................. 75,623 46,565 3,308 125,496
----------- ------------ ------------- -----------
Gross profit ........................... 29,906 20,319 1,787 52,012
Selling, general and administrative
expenses ............................... 20,386 18,333 896 39,615
Facility closing and severance expenses ... 702 42 - 744
Amortization of intangibles ............... 146 113 - 259
Management fees ........................... (150) - 150 -
----------- ------------ ------------- -----------
Income from operations ................. 8,822 1,831 741 11,394
Other expenses ............................
Interest expense ....................... 17,013 60 - 17,073
Loss on early extinguishment of
long-term debt ....................... 2,480 - - 2,480
Other expense .......................... 54 55 28 137
----------- ------------ ------------- -----------
Income (loss) before provision (benefit)
for income taxes ..................... (10,725) 1,716 713 (8,296)
Provision (benefit) for income taxes ...... (3,162) 506 210 (2,446)
----------- ------------ ------------- -----------
Net income (loss) available to common
shareholders ........................... $ (7,563) $ 1,210 $ 503 $ (5,850)
=========== ============ ============= ===========
16
`
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Six Fiscal Months Ended June 28, 2002
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------- ------------
Net sales .................................... $ 83,339 $ 108,594 $ 2,684 $ 194,617
Cost of sales ................................ 52,578 77,536 1,339 131,513
----------- ------------ ------------- -----------
Gross profit .............................. 30,761 31,058 1,285 63,104
Selling, general and administrative
expenses .................................. 20,349 24,901 766 46,016
Facility closing and severance expenses ...... 485 89 - 574
Amortization of goodwill and intangibles ..... 141 10 - 151
Management fees .............................. (150) - 150 -
----------- ------------ ------------- -----------
Income from operations .................... 9,936 6,058 369 16,363
Other expenses
Interest expense .......................... 16,087 326 - 16,413
Other expense, net ........................ 109 12 29 150
----------- ------------ ------------- -----------
Income (loss) before provision (benefit)
for income taxes ........................ (6,260) 5,720 340 (200)
Provision (benefit) for income taxes ......... (2,504) 2,288 136 (80)
----------- ------------ ------------- -----------
Net income (loss) before cumulative effect
of change in accounting principle ......... (3,756) 3,432 204 (120)
Cumulative effect of change in accounting
principle, net of income tax benefit of
$2,754 .................................... - (17,140) - (17,140)
----------- ------------ ------------- -----------
Net income (loss) available to common
shareholders .............................. $ (3,756) $ (13,708) $ 204 $ (17,260)
=========== ============ ============= ===========
17
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Six Fiscal Months Ended June 27, 2003
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................ $ (7,563) $ 1,210 $ 503 $ (5,850)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization ........ 3,907 8,872 24 12,803
Loss on early extinguishment of
long-term debt ..................... 2,480 - - 2,480
Deferred income taxes ................ (588) - - (588)
Gain on sales of rental equipment and
property, plant and equipment ...... (787) (14,399) (17) (15,203)
Change in assets and liabilities, net of
the effects of acquisitions ............ (32,541) 15,830 (1,358) (18,069)
----------- ------------ ------------- -----------
Net cash provided by (used in)
operating activities ............... (35,092) 11,513 (848) (24,427)
----------- ------------ ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions ... (850) (2,956) (3) (3,809)
Proceeds from sales of property, plant and
equipment .............................. - 82 - 82
Rental equipment additions ................ (347) (16,415) (28) (16,790)
Proceeds from sales of rental equipment ... 841 20,119 28 20,988
----------- ------------ ------------- -----------
Net cash provided by (used in)
investing activities ............... (356) 830 (3) 471
----------- ------------ ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt .............. (160,364) - - (160,364)
Issuance of long-term debt, net ........... 182,070 - - 182,070
Financing costs incurred .................. (680) - - (680)
Issuance of common shares ................. 37 - - 37
Intercompany .............................. 11,722 (11,871) 149 -
----------- ------------ ------------- -----------
Net cash provided by (used in)
financing activities ............... 32,785 (11,871) 149 21,063
----------- ------------ ------------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ..... - - 489 489
----------- ------------ ------------- -----------
Net increase (decrease) in cash ...... (2,663) 472 (213) (2,404)
CASH, beginning of period ................... 1,605 (687) 1,486 2,404
----------- ------------ ------------- -----------
CASH, end of period ......................... $ (1,058) $ (215) $ 1,273 $ -
=========== ============ ============= ===========
18
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Six Fiscal Months Ended June 28, 2002
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................... $ (3,756) $ (13,708) $ 204 $ (17,260)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization ......... 3,614 7,667 24 11,305
Cumulative effect of change in
accounting principle ................ - 17,140 - 17,140
Deferred income taxes ................. 202 - - 202
Gain on sales of rental equipment and
fixed assets ........................ (675) (7,274) (10) (7,959)
Change in assets and liabilities .......... (12,315) (15,735) (913) (28,963)
---------- ----------- ------------ -----------
Net cash used in operating activities.. (12,930) (11,910) (695) (25,535)
---------- ----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions .... (4,408) (2,081) (29) (6,518)
Proceeds from sales of fixed assets ........ 1,036 852 - 1,888
Rental equipment additions ................. (346) (5,670) (6) (6,022)
Proceeds from sales of rental equipment .... 350 11,059 17 11,426
---------- ----------- ------------ -----------
Net cash provided by (used in)
investing activities ................ (3,368) 4,160 (18) 774
---------- ----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net ............ 24,258 - - 24,258
Redemption of Class A common shares and
purchase of treasury shares ............. (188) - - (188)
Repayment of loans to shareholders ......... 85 - - 85
Issuance of common shares .................. 39 - - 39
Intercompany ............................... (5,819) 5,734 85 --
---------- ----------- ------------ -----------
Net cash provided by financing
activities .......................... 18,375 5,734 85 24,194
---------- ----------- ------------ -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ...... - - 175 175
---------- ----------- ------------ -----------
Net increase (decrease) in cash ....... 2,077 (2,016) (453) (392)
CASH, beginning of period .................... 2,714 832 1,443 4,989
---------- ----------- ------------ -----------
CASH, end of period .......................... $ 4,791 $ (1,184) $ 990 $ 4,597
========== =========== ============ ===========
19
(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.
A summary of the activity of the Company's stock option plans for the six fiscal
months ended June 27, 2003 is presented in the table below:
Weighted
Average
Number of Exercise Price
Shares Per Share
--------- --------------
Outstanding at December 31, 2002.................. 671,684 $25.00
Granted 37,859 27.50
Cancelled......................................... (50,605) 26.66
------- ------
Outstanding at June 27, 2003...................... 658,938 $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
20
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. 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 and six fiscal months ended June 27, 2003
and June 28, 2002 follows. The 2002 amounts have been reclassified to conform to
the 2003 classification.
Three fiscal months ended Six fiscal months ended
-------------------------- -------------------------
June 27, June 28, June 27, June 28,
2003 2002 2003 2002
--------- ------------- --------- ---------
Construction Products Group ..................... $ 73,304 $ 80,307 $ 121,043 $ 136,479
Symons .......................................... 32,210 31,697 56,465 58,138
--------- --------- --------- ---------
Net sales to external customers ................. $ 105,514 $ 112,004 $ 177,508 $ 194,617
========= ========= ========= =========
Construction Products Group ..................... $ 3,759 $ 4,415 $ 5,895 $ 6,977
Symons .......................................... 2,550 2,312 4,334 4,022
--------- --------- --------- ---------
Net sales to other segments ..................... $ 6,309 $ 6,727 $ 10,229 $ 10,999
========= ========= ========= =========
Construction Products Group ..................... $ 8,306 $ 11,629 $ 9,548 $ 15,698
Symons .......................................... 8,972 7,402 13,872 11,428
Corporate ....................................... (3,511) (2,790) (6,545) (5,805)
Intersegment Eliminations ....................... (3,288) (2,973) (5,481) (4,958)
--------- --------- --------- ---------
Income from operations .......................... $ 10,479 $ 13,268 $ 11,394 $ 16,363
========= ========= ========= =========
Construction Products Group ..................... $ 5,867 $ 12,006 $ 7,139 $ 15,922
Symons .......................................... 8,897 7,363 13,769 11,358
Corporate ....................................... (12,585) (11,301) (23,723) (22,243)
Intersegment Eliminations ....................... (3,288) (3,252) (5,481) (5,237)
--------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle .... $ (1,109) $ 4,816 $ (8,296) $ (200)
========= ========= ========= =========
Construction Products Group ..................... $ 1,662 $ 1,593 $ 3,356 $ 3,175
Symons .......................................... 3,456 2,964 7,009 5,931
Corporate ....................................... 485 427 971 898
--------- --------- --------- ---------
Depreciation .................................... $ 5,603 $ 4,984 $ 11,336 $ 10,004
========= ========= ========= =========
Construction Products Group ..................... $ 37 $ 49 $ 73 $ 78
Symons .......................................... 57 5 113 10
Corporate ....................................... 36 24 73 63
--------- --------- --------- ---------
Amortization of goodwill and intangibles ........ $ 130 $ 78 $ 259 $ 151
--------- --------- --------- ---------
21
Information regarding capital expenditures by segment and the reconciliation
to the consolidated amounts for the six fiscal months ended June 27, 2003 and
June 28, 2002 is as follows:
Six fiscal months ended
------------------------
June 27, June 28,
2003 2002
-------- ---------
Construction Products Group .................................... $ 3,354 $ 4,949
Symons ......................................................... 339 1,170
Corporate ...................................................... 116 399
-------- --------
Property, Plant and Equipment Additions ........................ $ 3,809 $ 6,518
======== ========
Construction Products Group .................................... $ 375 $ 426
Symons ......................................................... 16,415 5,596
-------- --------
Rental Equipment Additions ..................................... $ 16,790 $ 6,022
======== ========
Information regarding each segment's assets and the reconciliation to the
consolidated amounts as of June 27, 2003 and December 31, 2002 is as
follows:
As of
----------------------------
June 27, December 31,
2003 2002
-------- ------------
Construction Products Group.. $173,347 $159,955
Symons....................... 120,882 115,071
Corporate and Unallocated.... 93,271 98,945
-------- --------
Total Assets................. $387,500 $373,971
======== ========
22
(6) FACILITY CLOSING AND SEVERANCE EXPENSES
During the first and second quarters 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 in the first and
second quarters of 2003 was $744.
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:
Six fiscal months ended
-----------------------------
June 27, June 28,
2003 2002
--------- ---------
Beginning Balance............................................ $ 3,379 $ 2,900
Facility Closing and Severance Expenses...................... 744 574
Items Charged Against Reserve:
Involuntary Termination Costs............................ (2,347) (901)
Lease Termination Costs.................................. (181) (295)
Other Post-Closing Costs................................. (438) (842)
--------- ---------
Ending Balance............................................... $ 1,157 $ 1,436
========= =========
(7) SUBSEQUENT EVENT
On July 29, 2003, the Company completed the acquisition of substantially all of
the fixed assets and rental fleet assets of Safway Formwork Systems, L.L.C. for
$19,965. The purchase price was comprised of $13,000 in cash and $6,965 as the
present value of a non-interest bearing (other than in the case of default),
senior unsecured note payable to the seller. The note was issued at a discount,
which will be accreted to the face value using the effective interest method and
will be reflected as interest expense. The first installment payment on the
note, in an amount of $250 is due on September 30, 2003, and an additional
installment payment, in an amount of $750 is due on December 31, 2003.
Thereafter, annual payments of $1,000 are due on September 30 of each year from
2004 through 2008, with a final balloon payment of $6,000 due on December 31,
2008. For purposes of calculating the net present value of the senior unsecured
note, the Company has assumed an interest rate of 14.5%. The $13,000 of cash was
funded through the issuance of common shares valued at $13,000 to the Company's
majority shareholder.
The acquisition has been accounted for as a purchase, and the results of Safway
will be included in the Company's consolidated financial statements from the
date of acquisition. The purchase price will be allocated based on the fair
value of the assets acquired and liabilities assumed.
(8) RESTATEMENT
Subsequent to the issuance of the Company's financial statements for the quarter
ended June 28, 2002, the Company's management determined that the Company did
not fully adopt Emerging Issues Task Force (EITF) 00-10, "Accounting for
Shipping and Handling Fees and Costs" in its financial statements. EITF 00-10
was required to be adopted in the year ended December 31, 2000. As a result,
certain reclassifications were made to the condensed consolidated statements of
operations for both the three and six month periods ended June 28, 2002 to
conform to this guidance.
In order to correct the application of EITF 00-10 in all periods affected,
reclassifications to the financial statements for the years ended December 31,
2002, 2001 and 2000 are expected to be made as soon as practicable. The Company
is evaluating the impact of these reclassifications on sales and cost of sales
for the years ended December 31, 2002, 2001 and 2000. These reclassifications
will not have any effect on previously reported gross profit, income from
operations, net income (loss), cash flows or financial position.
The effects of the restatement on the three and six month periods ended June 28,
2002 are as follows (in thousands):
Three Months Ended Six Months Ended
June 28, 2002 June 28, 2002
----------------------------- ----------------------------
As Reported As Restated As Reported As Restated
----------------------------------------------------------------
Sales $106,506 $112,004 $185,008 $194,617
Cost of Sales 69,919 75,417 121,904 131,513
23
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 a leading
manufacturer 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.
In an effort to reduce costs and enhance customer responsiveness, effective
January 1, 2003 we reorganized our company from six autonomous manufacturing and
sales divisions into two sales units (Construction Products Group and Symons)
and a new product fulfillment unit (Supply Chain). Construction Products Group
and Symons are primarily responsible for sales, customer service and new product
development. As part of this effort, we reorganized most of our manufacturing
and distribution operations into our Supply Chain unit, which manufactures and
distributes our products in support of Construction Products Group and Symons.
- Construction Products Group. Construction Products Group derives
its revenues from the sale of products primarily to independent
distributors and contractors. We also provide some equipment on a
rental basis. Construction Products Group obtains the majority of
the products it sells from the Supply Chain product fulfillment
group and manufactures its chemicals product line. Cost of sales
for Construction Products Group consists primarily of purchased
steel and other raw materials, as well as the costs associated
with manufacturing, assembly, testing, and associated overhead.
Orders from customers for our paving products are affected by
state and local government infrastructure expenditures and their
related bid processes. Due to the project-oriented nature of
paving jobs, these products generally are made to order. As a
result of all of the foregoing, product inventories are
maintained at relatively low levels.
- Symons. Symons derives its revenues from the sale and rental of
engineered, reusable modular forming systems and related
accessories to independent distributors and contractors. Sales of
both new and used concrete forming systems and specific
consumables generally represent approximately two-thirds of the
revenues of this business unit, and rentals represent the
remaining one-third. This 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. Symons obtains Steel-Ply(R)forms from the Supply Chain
product fulfillment group and manufactures and assembles or
outsources some of the manufacturing involved in some of the
other all-steel forms. This outsourcing strategy allows us to
fulfill larger orders without increased overhead. Cost of sales
for Symons consists primarily of purchased steel and specialty
plywood, and other raw materials, depreciation and maintenance of
rental equipment, and the costs associated with manufacturing,
assembly and overhead.
24
- Supply Chain. As part of our reorganization, effective January 1,
2003, we reorganized most of our manufacturing and distribution
operations into Supply Chain, our new product fulfillment unit,
which manufactures and distributes our products in support of
Construction Products Group and Symons. In addition to
manufacturing Steel-Ply(R) forms for Symons, 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, enables Construction
Products Group to deliver many of its concrete accessories within
24 hours of a customer order.
For segment reporting purposes, we include Supply Chain in Construction Products
Group.
FACILITY CLOSING AND SEVERANCE EXPENSES
From 2001 through the second quarter of 2003, we have approved and implemented
several plans to exit additional manufacturing and distribution facilities and
reduce overall headcount to keep our cost structure aligned with our net sales.
Below is a summary of the expenses we have incurred:
Three fiscal months ended Six fiscal months ended
-------------------------- -----------------------
June 27, June 28, June 27, June 28,
2003 2002 2003 2002
---------- ---------- ---------- ---------
Involuntary termination costs .................. $ 0.3 $ 0.2 $ 0.7 $ 0.2
Lease termination costs ........................ - 0.2 - 0.2
Relocation of operations ....................... - - - 0.1
Other post-closing costs ....................... - 0.1 - 0.1
---------- ---------- ---------- ---------
Total facility closing and severance reserve
expenses ...................................... $ 0.3 $ 0.5 $ 0.7 $ 0.6
========== ========== ========== =========
25
RESULTS OF OPERATIONS
As discussed in Note 8 to the unaudited financial statements, the three and six
month periods ended June 28, 2002 have been restated to reflect the adoption of
EITF 00-10. This discussion gives effect to the restatements.
The following table summarizes our results of operations as a percentage of net
sales for the periods indicated.
THREE FISCAL MONTHS ENDED SIX FISCAL MONTHS ENDED
------------------------- ------------------------
June 27, June 28, June 27, June 28,
2003 2002 2003 2002
-------- -------- -------- --------
Net sales ............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ......................................... 70.6 67.3 70.7 67.6
-------- -------- -------- --------
Gross profit .......................................... 29.4 32.7 29.3 32.4
Selling, general and administrative expenses .......... 19.0 20.3 22.3 23.6
Facility closing and severance expenses ............... 0.3 0.4 0.4 0.3
Amortization of intangibles ........................... 0.1 0.1 0.2 0.1
-------- -------- -------- --------
Income from operations ................................ 10.0 11.9 6.4 8.4
Interest expense ...................................... 8.5 7.5 9.6 8.4
Loss on early extinguishment of long-term debt ........ 2.4 - 1.4 -
Other expense ......................................... 0.1 0.1 0.1 0.1
-------- -------- -------- --------
Income (loss) before provision (benefit) for income
taxes and cumulative effect of change in
accounting principle ............................. (1.0) 4.3 (4.7) (0.1)
Provision (benefit) for income taxes .................. (0.6) 1.7 (1.4) -
-------- -------- -------- --------
Income (loss) before cumulative effect of change in
accounting principle ............................. (0.4) 2.6 (3.3) (0.1)
Cumulative effect of change in accounting principle ... - - - (8.8)
-------- -------- -------- --------
Net income (loss) ..................................... (0.4)% 2.6% (3.3)% (8.9)%
======== ======== ======== ========
COMPARISON OF THREE FISCAL MONTHS ENDED JUNE 27, 2003 AND JUNE 28, 2002
NET SALES
Net sales decreased $6.5 million, or 5.8%, to $105.5 million in the second
quarter of 2003 from $112.0 million in the second quarter of 2002. The following
table summarizes our net sales by segment:
Three fiscal months ended
--------------------------------------------
June 27, 2003 June 28, 2002
-------------------- -------------------
(In thousands)
Net Sales % Net Sales % % Change
--------- ----- --------- ----- --------
Construction Products Group............ $ 77,063 73.0% $ 84,722 75.6% (9.0)%
Symons................................. 34,760 32.9 34,009 30.4 2.2
Intersegment eliminations.............. (6,309) (5.9) (6,727) (6.0) (6.2)
--------- ----- --------- -----
Net sales.............................. $ 105,514 100.0% $ 112,004 100.0% (5.8)%
========= ===== ========= =====
Net sales for the Construction Products Group decreased $7.6 million, or 9.0%,
to $77.1 million in the second quarter of 2003 from $84.7 million in the second
quarter of 2002, primarily due to the weaker markets in the second quarter of
2003, compared to 2002, as a result of the domestic economy adversely impacting
non-residential construction.
26
Net sales of Symons products increased 2.2% to $34.8 million for the second
quarter of 2003, compared to $34.0 million in the second quarter of 2002,
primarily due to sales of used rental fleet which increased $5.1 million. This
was partially offset by rental revenues, which were lower by $3.8 million, and
sales of new products, which declined by $0.5 million due to the weaker markets
in the second quarter of 2003, compared to 2002.
GROSS PROFIT
Gross profit for the second quarter of 2003 was $31.0 million, a decrease of
$5.6 million from $36.6 million in the second quarter of 2002. This was
primarily due to the decreased revenues discussed previously. Slightly higher
operating costs, such as steel, insurance, and depreciation were offset by the
cost savings realized from the implementation of the facility closing and
severance plans.
Gross margin was 29.4% in the second quarter of 2003, decreasing from 32.7% in
the same quarter of 2002. This was due primarily to the combination of lower mix
of rental revenues and the impact of fixed costs on lower sales.
OPERATING EXPENSES
Selling, general and administrative expenses decreased $2.7 million to $20.1
million in the second quarter of 2003, from $22.8 million in the second quarter
of 2002, primarily due to the cost savings realized from the implementation of
the facility closing and severance plans.
Facility closing and severance expense during the second quarter of 2003 was
$0.3 million as compared to $0.5 million in the second quarter of 2002.
Amortization of intangibles was $0.1 million in the second quarters of both 2003
and 2002.
OTHER EXPENSES
Interest expense increased to $9.0 million in the second quarter of 2003 from
$8.4 million in the second quarter of 2002. This was primarily due to the higher
interest rate from the new senior second secured notes.
On June 9, 2003, we completed an offering of $165.0 million of senior second
secured notes in a private placement. The proceeds of the offering were used to
repay the Company's acquisition credit facility, term loan tranche A, term loan
tranche B and a portion of the revolving credit facility. As a result of these
transactions, the Company incurred a loss on the early extinguishment of
long-term debt of $2.5 million.
27
INCOME (LOSS) BEFORE INCOME TAXES
Loss before income taxes in the second quarter of 2003 was $(1.1) million as
compared to income of $4.8 million in the second quarter of 2002 and was
comprised of the following:
Three fiscal months ended
------------------------------
June 27, 2003 June 28, 2002
------------- -------------
(In thousands)
Construction Products Group............ $ 5,867 $ 12,006
Symons................................. 8,897 7,363
Corporate.............................. (12,585) (11,301)
Intersegment eliminations.............. (3,288) (3,252)
--------- ---------
Income (loss) before income taxes...... $ (1,109) $ 4,816
========= =========
Construction Products Group's income before income taxes of $5.9 million in the
second quarter of 2003 decreased from $12.0 million in the second 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 $8.9 million in the second quarter of
2003, compared to $7.4 million in the second quarter of 2002. This was due
primarily to the increase in sales of used rental equipment and the cost savings
realized from the facility closing and severance plans implemented by
management, offset by lower rental revenues.
Corporate expenses increased to $12.6 million in the second quarter of 2003 from
$11.3 million in the second quarter of 2002. This increase was due primarily to
the $2.5 million loss on early extinguishment of long-term debt discussed
previously, offset partially by the cost savings realized from the facility
closing and severance plans implemented by management.
Elimination of profit on intersegment sales was $3.3 million in the second
quarter of both 2003 and 2002.
NET INCOME (LOSS)
The effective tax rate in the second quarter of 2003 was 58.5%, which is
different from the statutory rate, primarily due to the impact of permanent
book/tax differences. The net loss for the second quarter of 2003 was $(0.5)
million, compared to income of $2.9 million in the second quarter of 2002 due to
the factors described above.
28
COMPARISON OF SIX FISCAL MONTHS ENDED JUNE 27, 2003 AND JUNE 28, 2002
NET SALES
Net sales decreased $17.1 million, or 8.8%, to $177.5 million in the first half
of 2003 from $194.6 million in the first half of 2002. The following table
summarizes our net sales by segment:
Six fiscal months ended
----------------------------------------------------
June 27, 2003 June 28, 2002
----------------------- -----------------------
(In Thousands)
Net Sales % Net Sales % % Change
--------- ----- --------- ----- --------
Construction Products Group .. $ 126,938 71.5% $ 143,456 73.7% (11.5)%
Symons ....................... 60,799 34.3 62,160 31.9 (2.2)
Intersegment Eliminations .... (10,229) (5.8) (10,999) (5.6) (7.0)
--------- ----- --------- -----
Net Sales .................... $ 177,508 100.0% $ 194,617 100.0% (8.8)%
========= ===== ========= =====
Net sales for the Construction Products Group decreased $16.5 million, or 11.5%,
to $126.9 million in the first half of 2003 from $143.4 million in the first
half of 2002. This is primarily due to the weaker markets in the first half of
2003, compared to 2002. In addition, the harsh winter weather in the first
quarter of 2003 negatively impacted sales volumes.
Net sales of Symons products decreased 2.2% to $60.8 million in the first half
of 2003, compared to $62.2 million in the first half of 2002, primarily due to
rental revenues, which declined by $7.6 million and sales of new products, which
declined by $3.8 million, due to the weaker markets in 2003 and harsh winter
weather in the early part of 2003. This was partially offset by sales of used
rental fleet, which increased $10.0 million.
GROSS PROFIT
Gross profit for the first half of 2003 was $52.0 million, a decrease of $11.1
million from $63.1 million in the first half of 2002. This was primarily due to
the decreased revenues discussed previously. Slightly higher operating costs,
such as steel, insurance, and depreciation were offset by the cost savings
realized from the implementation of the facility closing and severance plans.
Gross margin was 29.3% in the first half of 2003, decreasing from 32.4% in the
first half of 2002. This was due primarily to the combination of lower mix of
rental revenues and the impact of fixed costs on lower sales.
OPERATING EXPENSES
Selling, general and administrative expenses decreased $6.4 million to $39.6
million in the first half of 2003, from $46.0 million in the first half of 2002,
primarily due to the cost savings realized from the implementation of the
facility closing and severance plans.
29
Facility closing and severance expense during the first half of 2003 was $0.7
million as compared to $0.6 million in the first half of 2002.
Amortization of intangibles was $0.3 million in the first half of 2003, compared
to $0.2 million in the first half of 2002.
OTHER EXPENSES
Interest expense increased $0.7 million to $17.1 million in the first six months
of 2003 from $16.4 million in the first six months of 2002. This was primarily
due to the higher interest rate on the new senior second secured notes.
On June 9, 2003, we completed an offering of $165.0 million of senior second
secured notes in a private placement. The proceeds of the offering of the senior
second secured notes were used to repay the Company's acquisition credit
facility, term loan tranche A, term loan tranche B and a portion of the
revolving credit facility. As a result of these transactions, the Company
incurred a loss on the early extinguishment of long-term debt of $2.5 million.
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Loss before income taxes and cumulative effect of change in accounting principle
in the first half of 2003 was $(8.3) million, as compared to $(0.2) million in
the first half of 2002 and was comprised of the following:
Six fiscal months ended
-----------------------
June 27, June 28,
2003 2002
-------- ---------
Construction Products Group .. $ 7,139 $ 15,922
Symons ....................... 13,769 11,358
Corporate .................... (23,723) (22,243)
Intersegment Eliminations .... (5,481) (5,237)
-------- ---------
Loss Before Income Taxes and
Cumulative Effect of Change
in Accounting Principle..... $ (8,296) $ (200)
======== =========
Construction Products Group's income before income taxes of $7.1 million in the
first half of 2003 decreased from $15.9 million in the first half of 2002. This
decrease 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 $13.8 million in the first half of 2003,
compared to $11.4 million in the first half of 2002. This was due primarily to
the increase in sales of used rental equipment and the cost savings realized
from the facility closing and severance plans implemented by management,
partially offset by lower rental revenues.
Corporate expenses increased to $23.7 million in the first half of 2003 from
$22.2 million in the first half of 2002. This increase was due primarily to the
$2.5 million loss on early extinguishment of long-term debt discussed
previously, offset partially by the cost savings realized from the facility
closing and severance plans implemented by management.
30
Elimination of profit on intersegment sales was $5.5 million in the first half
of 2003, compared to $5.2 million in the first half 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 half of 2003 was 29.5%, 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 half of 2003 was $(5.9) million, compared to
$(0.1) million in the first half of 2002 due to the factors described above.
31
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 half of 2003 was $(5.9) million, compared to a loss
of $(17.3) million in the first half 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 half of 2003 was $24.4
million, compared to $25.5 million in the first half of 2002.
Net cash provided by investing activities was $0.5 million in the first half of
2003, compared to $0.8 million in the first half of 2002. Property, plant and
equipment additions decreased to $3.8 million in the first half of 2003 from
$6.5 million in the first half of 2002, as we continue to closely monitor our
spending in a soft market. Rental equipment additions, net of proceeds from
sales of rental equipment, were a $4.2 million source of cash in the first half
of 2003, compared to a $5.4 million source of cash in the first half of 2002.
This decrease is due to the implementation of our plan to continue to augment
traditional forming rental fleet with European clamping systems.
32
As of June 27, 2003, our long-term debt consisted of the following:
June 27, 2003
-------------
Revolving credit facility, weighted average interest rate of 6.25%.................. $ 15.9
Senior Subordinated Notes, interest rate of 13.0%................................... 154.7
Debt discount on Senior Subordinated Notes.......................................... (9.0)
Senior Second Secured Notes, interest rate of 10.75%................................ 165.0
Debt discount on Senior Second Secured Notes........................................ (8.1)
Debentures previously held by Dayton Superior Capital Trust, interest
rate of 9.1%, due on demand.................................................... 1.1
Capital lease obligations........................................................... 4.1
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0%............ 0.1
---------
Total long-term debt................................................................ 323.8
Less current maturities............................................................. (2.3)
---------
Long-term portion................................................................... $ 321.5
=========
At June 27, 2003, of the $50.0 million revolving credit facility that was
available to us, $15.9 million of borrowings were outstanding, increased from
$10.1 million outstanding as of December 31, 2002, along with $5.5 million of
letters of credit, with the remaining $28.6 million available for borrowing.
On June 9, 2003, we completed an offering of $165.0 million of senior second
secured notes in a private placement. The proceeds of the offering, $156.9
million, net of discounts, were used to repay our acquisition credit facility,
term loan tranche A, term loan tranche B and a portion of the revolving credit
facility.
In June 2003, we repurchased $15.3 million in principal amount of Senior
Subordinated Notes for $14.3 million with borrowings under the revolving credit
facility.
At June 27, 2003, working capital was $85.2 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 pursue additional acquisitions that present opportunities to
realize significant synergies, operating expense economies or overhead cost
savings or to increase our market position. We regularly engage in discussions
with respect to potential acquisitions and investments. There are no definitive
agreements with respect to any material acquisitions at this time, and we cannot
assure you that we will be able to reach an agreement with respect to any future
acquisition. Our acquisition strategy may require substantial capital, and no
assurance can be given that we will be able to raise any necessary funds on
terms acceptable to us or at all. We intend to fund 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 revolving credit facility or, if
feasible and attractive, by issuing long-term debt or additional common shares.
If we incur additional debt to finance acquisitions, our total interest expense
will increase.
33
On July 29, 2003 the Company completed the acquisition of substantially all of
the fixed assets and rental fleet assets of Safway Formwork Systems, L.L.C. for
$20.0 million. The purchase price was comprised of $13.0 million in cash and
$7.0 million as the present value of a non-interest bearing (other than in the
case of default) senior unsecured note payable to the seller. The note was
issued at a discount, which will be accreted to the face value using the
effective interest method and will be reflected as interest expense. The first
installment payment on the note, in an amount of $250,000 is due on September
30, 2003, and an additional installment payment, in an amount of $750,000 is due
on December 31, 2003. Thereafter, annual payments of $1.0 million are due on
September 30 of each year from 2004 through 2008, with a final balloon payment
of $6.0 million due on December 31, 2008. For purposes of calculating the net
present value of the senior unsecured note, the Company has assumed an interest
rate of 14.5%. The $13.0 million of cash was funded through the issuance of
common shares valued at $13.0 million to the Company's majority shareholder.
Our ability to make scheduled payments of principal of, or to pay the interest
on, or to refinance, our indebtedness, or to fund planned capital expenditures
and research and development will depend on our future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based on
our current level of operations and anticipated operating improvements,
management believes that cash flow from operations and available borrowings
under our revolving credit facility, will be adequate to meet our future
liquidity for the foreseeable future. We cannot assure you, however, that our
business will generate sufficient cash flow from operations, that operating
improvements will be realized on schedule or that future borrowings will be
available to us under our revolving credit facility in an amount sufficient to
enable us to pay our indebtedness or to fund our other liquidity needs. We may
from time to time seek to retire our outstanding debt through cash purchases
and/or exchanges for equity securities, in open market purchases, in privately
negotiated transactions or otherwise. Any such repurchases or exchanges will
depend on prevailing market conditions, our liquidity requirements, contractual
restrictions and other factors. The amounts involved may be material. We may
need to refinance all or a portion of our indebtedness on or before maturity. We
cannot assure you that we will be able to refinance any of our indebtedness,
including our revolving credit facility, the senior subordinated notes and the
senior second secured notes, on commercially reasonable terms or at all.
COMMITMENTS
There were no significant changes to scheduled payments of long-term debt,
future minimum lease payments under capital leases and future payments under
non-cancelable operating leases from December 31, 2002. After giving effect to
the offering of the senior second secured notes, scheduled repayments of
long-term debt as of December 31, 2002, would have been:
34
YEAR AMOUNT
- ---------- ----------
2003 $ 1,141
2004 31
2005 24
2006 -
2007 -
Thereafter 335,000
----------
$ 336,196
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.
35
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; the amount of debt we must service; the effects of weather and the
seasonality of the construction industry; our ability to implement cost savings
programs successfully and on a timely basis; and Dayton Superior's ability to
successfully integrate acquisitions on a timely basis. This list is not intended
to be exhaustive, and additional information can be found in our annual report
on Form 10-K for the year ended December 31, 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 June 27, 2003, we had financial instruments that were sensitive to changes in
interest rates. These financial instruments consisted of:
- $154.7 million of senior subordinated notes; with a net book
value of $145.8 million;
- $165.0 million of senior second secured notes; with a net book
value of $156.9 million;
- $50.0 million revolving credit facility, $15.9 million of
which was outstanding at June 27, 2003;
- $4.1 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 $154.7 million of
principal and mature in 2009. The estimated fair value of the notes, based on a
trading price of 86.5% of the principal amount at June 27, 2003, is $133.8
million.
The senior second secured notes bear interest at 10.75% on the $165.0 million of
principal and mature in 2008. The estimated fair value of the notes, based on a
trading price of 99% of the principal amount at June 27, 2003, is $163.4
million.
Our revolving 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 $15.9 million face value. The weighted average interest rate at
June 27, 2003 was 6.25%.
36
Other long-term debt consists of $1.1 million of debentures previously held by
the Dayton Superior Capital Trust, with a fair value of $2.0 million and a $0.1
million, 7.0% loan due in installments of $32,000 per year with an estimated
fair value of $0.1 million.
In the ordinary course of our business, we also are exposed to price changes in
raw materials (particularly steel bar and rod and steel flat plate) and products
purchased for resale. The prices of these items can change significantly due to
changes in the markets in which our suppliers operate. We generally do not use
financial instruments to manage our exposure to changes in commodity prices.
ITEM 4. CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the quarter covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level.
There has been no change in our internal controls over financial reporting
during the most recent quarter that has materially affected, or is reasonably
likely to materially affect our internal control over financial reporting.
PART II. - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
As a result of the adoption of EITF 00-10, the Company intends to amend its 10-Q
for the first quarter of 2003 and its Form 10-K for 2002 reflecting the adoption
of EITF 00-10 for all prior periods. As a result of adopting EITF 00-10, the
Company's net sales and cost of sales both increased by an equal amount to
reflect the proper classification of freight expense, but there is no effect on
the Company's gross profit, income from operations, net income (loss) or cash
flows for any period.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See Index to Exhibits following the signature page to this report
for a list of Exhibits.
(b) Reports on Form 8-K. During the quarter ended June 27, 2003, we filed the
following Current Reports on Form 8-K:
37
Current Report on Form 8-K dated May 14, 2003, reporting under Item 9
(Regulation FD Disclosure) the Company's first quarter and 2003 results.
Current Report on Form 8-K dated May 21, 2003, reporting under Item 9
(Regulation FD Disclosure)/Item 12 (Results of Operations and Financial
Condition) the Company's first quarter 2003 conference call.
Current Report on Form 8-K dated May 27, 2003, reporting under Item 5
(Other Events) the Company's restatement of its segment reporting in
conjunction with the Company's 2003 reorganization.
Current Report on Form 8-K dated May 28, 2003 reporting under Item 5 (Other
Events) the Company's intended offering of $150.0 million of senior second
secured notes.
Current Report on Form 8-K dated May 29, 2003 reporting under Item 5 (Other
Events) the Company's Second Amendment to its existing credit agreement,
and under Item 9 (Regulation FD Disclosure) the Company's preliminary
internal estimates of second quarter financial performance.
Current Report on Form 8-K dated June 10, 2003 reporting under Item 5
(Other Events) the Company's completion of its offering of $165.0 million
of senior second secured notes.
38
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: August 13, 2003 BY: /s/ Thomas W. Roehrig
--------------------------------
Thomas W. Roehrig
Vice President of
Corporate Accounting
39
INDEX TO EXHIBITS
Exhibit No. Description
(4) Instruments Defining the Rights of Security Holders,
Including Debentures
4.1 Senior Second Secured Notes Indenture with
respect to the 10 3/4% Senior Second Secured
Notes due 2008, among Dayton Superior
Corporation, the Guarantors named therein
and The Bank of New York, as Trustee, dated
June 9, 2003 (incorporated by reference to
Exhibit 3.1 to Dayton Superior Corporation's
Registration Statement on Form S-4 filed on
July 16, 2003).
4.2 Form of 10 3/4% Senior Second Secured Notes
due 2008 (included in Exhibit 4.1).
4.3 Registration Rights Agreement, among Dayton
Superior Corporation, the Guarantors named
therein, and Morgan Stanley & Co.
Incorporated, Deutsche Bank Securities, Inc.
and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (collectively, the "Placement
Agents), dated June 9, 2003 (incorporated by
reference to Exhibit 3.1 to Dayton Superior
Corporation's Registration Statement on Form
S-4 filed on July 16, 2003).
(10) Material Contracts
10.1 Letter Agreement Between Alan F. McIlroy and
Dayton Superior Corporation.
10.2 Second Amendment to Credit Agreement dated
June 16, 2000, among Dayton Superior
Corporation, the Lenders party to the Credit
Agreement, and Deutsche Bank Trust Company
Americas, as Administrative Agent and
acknowledged and agreed to by the Guarantors
named therein, dated May 20, 2003
(incorporated by reference to Exhibit 3.1 to
Dayton Superior Corporation's Registration
Statement on Form S-4 filed on July 16,
2003).
10.3 Amended and Restated Security Agreement,
among Dayton Superior Corporation, certain
subsidiaries of Dayton Superior Corporation,
and Deutsche Bank Trust Company Americas, as
Collateral Agent, dated June 9, 2003
(incorporated by reference to Exhibit 3.1 to
Dayton Superior Corporation's Registration
Statement on Form S-4 filed on July 16,
2003).
40
10.4 Amended and Restated Pledge Agreement, among
Dayton Superior Corporation, certain
subsidiaries of Dayton Superior Corporation,
and Deutsche Bank Trust Company Americas, as
Collateral Agent, dated June 9, 2003
(incorporated by reference to Exhibit 3.1 to
Dayton Superior Corporation's Registration
Statement on Form S-4 filed on July 16,
2003).
(31) Rule 13a-14(a)/15d-14(a) Certifications
31.1 Rule 13a-14(a)/15d-14(a) Certification of
President and Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of
Vice President and Chief Financial Officer
(32) Section 1350 Certifications
32.1 Section 1350 Certification of President and
Chief Executive Officer
32.2 Section 1350 Certification of Vice President
and Chief Financial Officer
41