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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
SEPTEMBER 26, 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 executive offices) (Zip Code)
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
----- -----
4,554,269 Common Shares were outstanding as of November 7, 2003
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Dayton Superior Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
As of September 26, 2003 and December 31, 2002
(Amounts in thousands)
(Unaudited)
September 26, December 31,
2003 2002
------------- ------------
ASSETS
Current assets:
Cash ........................................................... $ 1,668 $ 2,404
Accounts receivable, net of allowances for doubtful accounts and
sales returns and allowances of $4,470 and $4,861 ........... 71,981 61,165
Inventories (Note 3b) .......................................... 50,713 47,911
Prepaid expenses and other current assets ...................... 6,271 7,054
Prepaid income taxes ........................................... 6,075 4,009
Future income tax benefits ..................................... 6,194 6,194
--------- ---------
Total current assets ...................................... 142,902 128,737
--------- ---------
Rental equipment, net ............................................ 87,142 63,160
--------- ---------
Property, plant and equipment .................................... 111,584 103,846
Less accumulated depreciation .................................. (49,113) (42,600)
--------- ---------
Net property, plant and equipment ......................... 62,471 61,246
--------- ---------
Goodwill ......................................................... 107,328 107,328
Intangible assets, net of accumulated amortization (Note 3d) ..... 6,516 8,405
Other assets ..................................................... 4,336 5,095
--------- ---------
Total assets ................................... $ 410,695 $ 373,971
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt (Note 4) .................. $ 2,577 $ 6,991
Accounts payable ............................................... 24,173 25,667
Accrued compensation ........................................... 14,459 20,948
Other accrued liabilities ...................................... 12,721 9,380
--------- ---------
Total current liabilities ................................. 53,930 62,986
Long-term debt, net of current portion (Note 4) .................. 337,731 292,545
Deferred income taxes ............................................ 11,118 11,919
Other long-term liabilities ...................................... 10,730 10,762
--------- ---------
Total liabilities ......................................... 413,509 378,212
--------- ---------
Shareholders' deficit:
Common shares .................................................. 115,573 102,525
Loans to shareholders .......................................... (2,723) (2,878)
Treasury shares, at cost, 36,747 shares in 2003 and 2002 ....... (1,184) (1,184)
Cumulative other comprehensive loss ............................ (1,250) (1,716)
Accumulated deficit ............................................ (113,230) (100,988)
--------- ---------
Total shareholders' deficit ............................... (2,814) (4,241)
--------- ---------
Total liabilities and shareholders' deficit ............... $ 410,695 $ 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 Nine Fiscal Months Ended September 26, 2003
and September 27, 2002
(Amounts in thousands)
(Unaudited)
Three Fiscal Months Ended Nine Fiscal Months Ended
------------------------------ ------------------------------
(as restated) (as restated)
September 26, September 27, September 26, September 27,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Product sales .......................................... $ 85,242 $ 90,418 $ 227,885 $ 250,954
Rental revenue ......................................... 10,545 11,064 24,421 33,719
Used rental equipment sales ............................ 5,201 9,413 26,190 20,839
--------- --------- --------- ---------
Net sales ............................................ 100,988 110,895 278,496 305,512
--------- --------- --------- ---------
Product sales .......................................... 67,795 67,355 178,026 185,429
Rental revenue ......................................... 6,386 4,629 15,932 13,968
Used rental equipment sales ............................ 2,078 2,288 7,797 6,388
--------- --------- --------- ---------
Cost of sales ........................................ 76,259 74,272 201,755 205,785
--------- --------- --------- ---------
Product sales .......................................... 17,447 23,063 49,859 65,525
Rental revenue ......................................... 4,159 6,435 8,489 19,751
Used rental equipment sales ............................ 3,123 7,125 18,393 14,451
--------- --------- --------- ---------
Gross profit ......................................... 24,729 36,623 76,741 99,727
Selling, general and administrative expenses ........... 23,074 21,349 62,689 67,365
Facility closing and severance expenses (Note 7) ....... 499 2,285 1,243 2,859
Amortization of intangibles ............................ 184 150 443 301
--------- --------- --------- ---------
Income from operations ............................... 972 12,839 12,366 29,202
Other expenses
Interest expense ..................................... 11,199 8,468 28,272 24,881
Loss on early extinguishment of long-term debt ....... -- -- 2,480 --
Other expense ........................................ 27 59 164 209
--------- --------- --------- ---------
Income (loss) before provision (benefit) for income
taxes and cumulative effect of change in accounting
principle .......................................... (10,254) 4,312 (18,550) 4,112
Provision (benefit) for income taxes ................... (3,861) 1,725 (6,307) 1,645
--------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle ..................... (6,393) 2,587 (12,243) 2,467
Cumulative effect of change in accounting principle, net
of income tax benefit of $2,754 (Note 3) ........... -- -- -- (17,140)
--------- --------- --------- ---------
Net income (loss) .................................... $ (6,393) $ 2,587 $ (12,243) $ (14,673)
========= ========= ========= =========
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 Nine Fiscal Months Ended September 26, 2003 and September 27, 2002
(Amounts in thousands)
(Unaudited)
September 26, September 27,
2003 2002
------------- -------------
Cash Flows From Operating Activities:
Net loss .................................................................. $ (12,243) $ (14,673)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation ............................................................ 18,110 15,089
Amortization of intangibles ............................................. 443 301
Loss on early extinguishment of long-term debt .......................... 2,480 --
Cumulative effect of change in accounting principle (Note 3) ............ -- 17,140
Deferred income taxes ................................................... (801) (30)
Amortization of deferred financing costs and debt discount .............. 2,229 1,721
Gain on sales of rental equipment and property, plant and equipment ... (18,255) (14,284)
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable ..................................................... (10,817) (22,130)
Inventories ............................................................. (2,802) (5,933)
Accounts payable ........................................................ (1,494) 509
Accrued liabilities and other long-term liabilities ..................... (3,645) (5,656)
Prepaid expenses and other assets ....................................... (1,268) 6,997
--------- ---------
Net cash used in operating activities ............................. (28,063) (20,949)
--------- ---------
Cash Flows From Investing Activities:
Property, plant and equipment additions ................................... (5,932) (8,390)
Proceeds from sales of property, plant and equipment ...................... 82 1,999
Rental equipment additions ................................................ (21,501) (8,605)
Proceeds from sales of rental equipment ................................... 26,190 20,838
Acquisition (Note 2) ...................................................... (13,535) --
--------- ---------
Net cash (used in) provided by investing activities ............... (14,696) 5,842
--------- ---------
Cash Flows From Financing Activities:
Repayments of long-term debt .............................................. (176,563) (2,959)
Issuance of long-term debt ................................................ 206,195 14,737
Proceeds from sale/leaseback transaction .................................. -- 2,258
Financing costs incurred .................................................. (1,278) --
Purchase of treasury shares ............................................... -- (205)
Repayment of loans to shareholders ........................................ 154 249
Issuance of common shares ................................................. 13,049 86
--------- ---------
Net cash provided by financing activities ......................... 41,557 14,166
--------- ---------
Effect of Exchange Rate Changes on Cash ...................................... 466 86
--------- ---------
Net decrease in cash .............................................. (736) (855)
Cash, beginning of period .................................................... 2,404 4,989
--------- ---------
Cash, end of period .......................................................... $ 1,668 $ 4,134
========= =========
Supplemental Disclosures:
Cash paid (refunded) for income taxes, net ................................ $ (3,531) $ 432
Cash paid for interest .................................................... 21,596 17,914
Purchases of equipment on capital leases .................................. 2,958 1,740
Issuance of note in conjunction with acquisition .......................... 6,965 --
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 Nine Fiscal Months Ended September 26, 2003
and September 27, 2002
(Amounts in thousands)
(Unaudited)
Three Fiscal Months Ended Nine Fiscal Months Ended
----------------------------- -----------------------------
September 26, September 27, September 26, September 27,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net income (loss) ............ $ (6,393) $ 2,587 $(12,243) $(14,673)
Other comprehensive income:
Foreign currency translation
adjustment ............... (25) (91) 466 84
-------- -------- -------- --------
Comprehensive income (loss) .. $ (6,418) $ 2,496 $(11,777) $(14,589)
======== ======== ======== ========
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) ACQUISITION
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 plus $535 in acquisition costs. The purchase price was
comprised of $13,000 in cash and a non-interest bearing (other than in the
case of default) senior unsecured note payable to the seller with a present
value of $6,965 and a face amount of $12,000. The note was issued at a
discount, which is being accreted to the face value using the effective
interest method and is reflected as interest expense. The first $250
installment payment on the note was paid on September 30, 2003, and an
additional $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 used an interest rate of 14.5%. The $13,000 of cash was funded through
the issuance by the Company of 541,667 common shares valued at $13,000 in
the aggregate to the Company's majority shareholder. The $535 in
acquisition costs was funded through borrowings on the revolving credit
facility.
The acquisition has been accounted for as a purchase, and the results of
Safway have been included in the Company's consolidated financial
statements from the date of acquisition. The purchase price has been
allocated based on the estimated fair value of the assets acquired, as
follows:
Rental equipment $ 20,035
Property, plant and equipment 500
Covenants not to compete 465
Payable for covenants not to compete (465)
---------
Purchase price $ 20,535
=========
6
This allocation may change, as the Company's independent appraisal of the
assets acquired and evaluations of costs to exit Safway's facilities has
not been completed.
The following pro forma information sets forth the consolidated results of
operations for the three and nine months ended September 26, 2003, and
September 27, 2002 as though the acquisition had been completed as of
the beginning of each period presented:
Pro Forma Pro Forma
Three fiscal months ended Nine fiscal months ended
------------------------------ ------------------------------
September 26, September 27, September 26, September 27,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net Sales ..................... $ 102,350 $ 117,338 $ 291,092 $ 325,437
Income (loss) before
provision (benefit)
for income taxes and
cumulative effect
of change in accounting
principle ................... (11,095) 3,181 (21,559) 842
Income (loss) before cumulative
effect of change in
accounting principle ........ $ (6,904) $ 1,910 $ (14,082) $ 513
In accordance with SEC rules and regulations, pro forma information includes
costs that are expected to be eliminated under the company's ownership.
(3) ACCOUNTING POLICIES
The interim consolidated financial statements have been prepared in
accordance with the accounting policies described in the notes to the
Company's consolidated financial statements for the year ended December 31,
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, among
others. 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.
7
Following is a summary of the components of inventories as of
September 26, 2003 and December 31, 2002:
September 26, December 31,
2003 2002
------------- ------------
Raw materials .............. $ 9,763 $ 15,984
Work in progress ........... 3,068 3,069
Finished goods ............. 39,181 29,932
-------- --------
52,012 48,985
Net realizable value reserve (1,299) (1,074)
-------- --------
$ 50,713 $ 47,911
======== ========
(c) Rental Equipment -- Rental equipment is manufactured or purchased by
the Company for resale and for rent to others on a short-term basis.
Rental equipment is recorded at the lower of FIFO cost or market and
is depreciated over the estimated useful life of the equipment, three
to fifteen years, on a straight-line basis. The balances as of
September 26, 2003 and December 31, 2002 are net of accumulated
depreciation of $27,595 and $24,181, respectively.
(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 (1 to 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 five years is as follows:
$211 for the balance of 2003, $699 in 2004, $40 in 2005, $40 in 2006,
and $26 in 2007. 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: $260 for the balance of 2003, $995 in 2004, $995
in 2005, $903 in 2006, and $811 in 2007. Intangible assets consisted
of the following:
September 26, December 31,
2003 2002
------------- ------------
Deferred financing costs........ $ 8,203 $ 10,550
Intellectual property........... 690 690
Covenants not to compete........ 2,060 1,595
------- --------
10,953 12,835
Less: accumulated amortization.. (4,437) (4,430)
------- --------
$ 6,516 $ 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. The Company
8
performs their annual review annually as of September. Certain other
intangible assets continue to be amortized over their estimated useful
lives.
The Company adopted SFAS No. 142 effective January 1, 2002. As a
result of adopting SFAS No. 142, the Company recorded a non-cash
charge in the first quarter of 2002 of $17,140 ($19,894 of goodwill,
less an income tax benefit of $2,754), which is reflected as a
cumulative effect of change in accounting principle in the
accompanying September 27, 2002 consolidated statement of 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) Customer Rebates -- The Company offers rebates to certain customers,
which are redeemable only if the customer meets certain specified
thresholds relating to a cumulative level of sales transactions.
Pursuant to EITF 01-9, Accounting for Consideration Given by a Vendor
to a Customer (Including a Reseller of the Vendor's Products), the
Company records such rebates as a reduction of revenue in the period
the related revenues are recognized.
(f) 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.
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,
9
2002. The adoption of this pronouncement did not have a material
impact on the Company's consolidated financial position, results of
operations or cash flows.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." SFAS 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation." Although it
does not require use of fair value method of accounting for
stock-based employee compensation, it does provide alternative methods
of transition. It also amends the disclosure provisions of Statement
123 and APB Opinion No. 28, "Interim Financial Reporting," to require
disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based
employee compensation on reported net income and earnings per share in
annual and interim financial statements. SFAS No. 148's amendment of
the transition and annual disclosure requirements is effective for
fiscal years ending after December 15, 2002. The amendment of
disclosure requirements of APB Opinion No. 28 is effective for interim
periods beginning after December 15, 2002. Although the Company has
not changed to the fair value method, the disclosure requirements of
this statement have been adopted.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 requires certain financial instruments that
embody obligations of the issuer and have characteristics of both
liabilities and equity to be classified as liabilities. The provisions
of SFAS 150 are effective for financial instruments entered into or
modified after May 31, 2003 and to all other instruments that exist as
of the beginning of the first interim financial reporting period
beginning after June 15, 2003, except for mandatory redeemable
financial instruments of a nonpublic entity, this statement shall be
effective for periods beginning after December 15, 2003. Management is
currently assessing the impact of this pronouncement and has not
determined the impact on the company's financial statements.
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
10
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
December 15, 2003. The Company does not believe this pronouncement
will have a material impact on its financial position, results of
operations and cash flows.
(g) 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 pro forma amounts as
follows:
Three fiscal months ended Nine fiscal months ended
----------------------------- -----------------------------
September 26, September 27, September 26, September 27,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net income(loss)
As Reported ........................... $ (6,393) $ 2,587 $(12,243) $(14,673)
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all
awards, net of related tax effect ..... (62) (37) (193) (134)
-------- --------- -------- --------
Pro Forma.............................. $ (6,455) $ 2,550 $(12,436) $(14,807)
======== ========= ======== ========
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.
(h) Reclassifications -- Certain reclassifications have been made to the
2002 amounts to conform to their 2003 classifications.
11
(4) CREDIT ARRANGEMENTS
Following is a summary of the Company's long-term debt as of September 26, 2003
and December 31, 2002:
September 26, December 31,
2003 2002
------------- ------------
Revolving credit facility, weighted average interest rate of 4.8% .............. $ 24,125 $ 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 ..................................... (8,717) (10,374)
Senior Second Secured Notes, interest rate of 10.75% ........................... 165,000 --
Debt discount on Senior Second Secured Notes ................................... (7,799) --
Senior Unsecured Note payable to seller of Safway, non-interest
bearing, accreted at 14.5% .................................................. 7,131 --
Debentures previously held by Dayton Superior Capital Trust, interest rate
of 9.1%, due on demand ...................................................... 1,110 1,110
Capital lease obligations ...................................................... 4,666 2,507
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% ....... 63 86
--------- ---------
Total long-term debt ........................................................... 340,308 299,536
Less current maturities ........................................................ (2,577) (6,991)
--------- ---------
Long-term portion .............................................................. $ 337,731 $ 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 Senior Notes were $156,895 and 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 which was subsequently
increased by $24,125. As a result of the transactions, the Company incurred a
loss on the early extinguishment of long-term debt of $2,550.
As of September 26, 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 using the revolving
credit facility for $14,311, resulting in 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 that reprice on a
short-term basis. At September 26, 2003, the Company had outstanding letters of
credit of $5,485 and available borrowings of $20,390 under its revolving credit
facility.
12
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 Nine fiscal months ended
----------------------------- -----------------------------
September 26, September 27, September 26, September 27,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Revolving Credit Facility:
Average borrowing ................ $18,508 $22,258 $22,787 $17,081
Maximum borrowing ................ 25,875 27,925 35,225 29,275
Weighted average interest rate ... 5.9% 5.8% 5.5% 6.2%
The credit facility was amended during the second quarter to remove certain of
the restrictive financial covenants. As of September 26, 2003, the only
remaining financial covenant requires that the Company not exceed a certain
leverage ratio, as defined. The Company was in compliance with this covenant as
of September 26, 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; Dur-O-Wal, Inc.; and Southern Construction Products, Inc.) have
guaranteed the Notes and the Senior Notes on a full, unconditional and joint and
several basis. 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 September 26, 2003 and December 31,
2002, the supplemental consolidating condensed statements of operations for the
three and nine fiscal months ended September 26, 2003 and September 27, 2002 and
cash flows for the nine fiscal months ended September 26, 2003 and September 27,
2002 depict in separate columns, the parent company, those subsidiaries which
are guarantors, those subsidiaries that 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.
13
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Balance Sheet
As of September 26, 2003
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
ASSETS
Cash .................................. $ 1,131 $ (1,021) $ 1,558 $ -- $ 1,668
Accounts receivable, net .............. 41,740 29,497 744 71,981
Inventories ........................... 27,872 21,263 1,578 50,713
Intercompany .......................... 68,067 (68,038) (29) --
Other current assets .................. 13,375 5,100 65 18,540
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS .............. 152,185 (13,199) 3,916 142,902
Rental equipment, net ................. 4,229 82,817 96 87,142
Property, plant and equipment, net .... 29,205 33,086 180 62,471
Investment in subsidiaries ............ 123,041 -- -- (123,041) --
Other assets .......................... 52,560 65,620 -- 118,180
--------- --------- --------- --------- ---------
TOTAL ASSETS ...................... $ 361,220 $ 168,324 $ 4,192 $(123,041) $ 410,695
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY(DEFICIT)
Current maturities of long-term debt $ 2,577 $ -- $ -- $ -- $ 2,577
Accounts payable ...................... 18,904 4,693 576 24,173
Accrued liabilities ................... 19,972 6,994 214 27,180
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES ......... 41,453 11,687 790 53,930
Long-term debt, net ................... 336,913 818 -- 337,731
Other long-term liabilities ........... 6,766 15,061 21 21,848
Total shareholders' equity (deficit) (23,912) 140,758 3,381 (123,041) (2,814)
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) .................. $ 361,220 $ 168,324 $ 4,192 $(123,041) $ 410,695
========= ========= ========= ========= =========
14
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
========= ========= ========= ========= =========
15
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Three Fiscal Months Ended September 26, 2003
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------- ------------
Net sales.................................. $ 62,887 $ 34,937 $3,164 $100,988
Cost of sales.............................. 47,591 26,745 1,923 76,259
--------- -------- ------ --------
Gross profit............................ 15,296 8,192 1,241 24,729
Selling, general and administrative
expenses................................ 12,544 10,070 460 23,074
Facility closing and severance expenses.... 271 228 - 499
Amortization of intangibles................ 74 110 - 184
Management fees............................ (75) - 75 -
--------- -------- ------ --------
Income from operations.................. 2,482 (2,216) 706 972
Other expenses
Interest expense........................ 11,153 46 - 11,199
Other expense........................... 66 - (39) 27
--------- -------- ------ --------
Income (loss) before provision (benefit)
for income taxes...................... (8,737) (2,262) 745 (10,254)
Provision (benefit) for income taxes....... (3,455) (692) 286 (3,861)
--------- -------- ------ --------
Net income (loss) available to common
shareholders............................ $ (5,282) $ (1,570) $ 459 $ (6,393)
========= ======== ====== ========
16
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Three Fiscal Months Ended September 27, 2002
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales.................................. $59,711 $49,572 $1,612 $110,895
Cost of sales.............................. 37,632 35,811 829 74,272
------- ------- ------ --------
Gross profit............................ 22,079 13,761 783 36,623
Selling, general and administrative
expenses................................ 8,781 12,159 409 21,349
Facility closing and severance expenses.... 1,644 641 - 2,285
Amortization of intangibles................ 56 94 - 150
Management fees............................ (75) - 75 -
------- ------- ------ --------
Income from operations.................. 11,673 867 299 12,839
Other expenses
Interest expense........................ 8,240 228 - 8,468
Other expense (income), net............. (72) 107 24 59
------- ------- ------ --------
Income before provision for income taxes... 3,505 532 275 4,312
Provision for income taxes................. 1,402 213 110 1,725
------- ------- ------ --------
Net income available to common shareholders $ 2,103 $ 319 $ 165 $ 2,587
======= ======= ====== ========
17
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Nine Fiscal Months Ended September 26, 2003
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------- ------------
Net sales.................................. $ 168,416 $ 101,821 $ 8,259 $ 278,496
Cost of sales.............................. 123,214 73,310 5,231 201,755
--------- --------- ------- ---------
Gross profit............................ 45,202 28,511 3,028 76,741
Selling, general and administrative
expenses................................ 32,930 28,403 1,356 62,689
Facility closing and severance expenses.... 973 270 - 1,243
Amortization of intangibles................ 220 223 - 443
Management fees............................ (225) 225 -
--------- --------- ------- ---------
Income from operations.................. 11,304 (385) 1,447 12,366
Other expenses:
Interest expense........................ 28,166 106 28,272
Loss on early extinguishment of long-term
debt.................................. 2,480 - - 2,480
Other expense........................... 120 55 (11) 164
--------- --------- ------- ---------
Income (loss) before provision (benefit)
for income taxes...................... (19,462) (546) 1,458 (18,550)
Provision (benefit) for income taxes....... (6,617) (186) 496 (6,307)
--------- --------- ------- ---------
Net income (loss) available to common
shareholders............................ $ (12,845) $ (360) $ 962 $ (12,243)
========= ========= ======= =========
18
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Nine Fiscal Months Ended September 27, 2002
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------- ------------
Net sales.................................. $143,050 $158,166 $4,296 $305,512
Cost of sales.............................. 90,210 113,347 2,228 205,785
-------- -------- ------ --------
Gross profit............................ 52,840 44,819 2,068 99,727
Selling, general and administrative
expenses................................ 29,130 37,060 1,175 67,365
Facility closing and severance expenses.... 2,129 730 - 2,859
Amortization of goodwill and intangibles... 197 104 - 301
Management fees............................ (225) - 225 -
-------- -------- ------ --------
Income from operations.................. 21,609 6,925 668 29,202
Other expenses
Interest expense........................ 24,327 554 - 24,881
Other expense, net...................... 37 119 53 209
-------- -------- ------ --------
Income (loss) before provision (benefit)
for income taxes...................... (2,755) 6,252 615 4,112
Provision (benefit) for income taxes....... (1,102) 2,501 246 1,645
-------- -------- ------ --------
Net income (loss) before cumulative effect of
change in accounting principle.......... (1,653) 3,751 369 2,467
Cumulative effect of change in accounting
principle, net of income tax benefit of
$2,754.................................. - 17,140) - (17,140)
-------- -------- ------ --------
Net income (loss) available to common
shareholders............................ $ (1,653) $(13,389) $ 369 $(14,673)
======== ======== ====== ========
19
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Nine Fiscal Months Ended September 26, 2003
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ (12,845) $ (360) $ 962 $ (12,243)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization....... 4,003 14,511 40 18,553
Loss on early extinguishment of
long-term debt.................... 2,480 - - 2,480
Deferred income taxes............... (801) - - (801)
Amortization of deferred financing
costs and debt discount........... 2,229 - - 2,229
Gain on sales of rental equipment and
property, plant and equipment..... (1,128) (17,108) (19) (18,255)
Change in assets and liabilities, net of
the effects of acquisitions........... (23,189) 4,552 (1,389) (20,026)
--------- -------- ----- ---------
Net cash provided by (used in)
operating activities.............. (29,251) 1,595 (407) (28,063)
--------- -------- ----- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions.. (2,002) (3,922) (8) (5,932)
Proceeds from sales of property, plant and
equipment............................. - 82 - 82
Rental equipment additions............... (588) (20,849) (64) (21,501)
Proceeds from sales of rental equipment.. 1,444 24,714 32 26,190
Acquisition.............................. - (13,535) - (13,535)
--------- -------- ----- ---------
Net cash provided by (used in)
investing activities.............. (1,146) (13,510) (40) (14,696)
--------- -------- ----- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt............. (176,563) - - (176,563)
Issuance of long-term debt, net.......... 206,195 - - 206,195
Financing costs incurred................. (1,278) - - (1,278)
Issuance of common shares................ 13,049 - - 13,049
Repayment of loans to shareholders....... 154 - - 154
Intercompany........................... (11,635) 11,582 54 -
--------- -------- ----- ---------
Net cash provided by (used in)
financing activities.............. 29,922 11,582 54 41,557
--------- -------- ----- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.... - - 466 466
--------- -------- ----- ---------
Net increase (decrease) in cash..... (475) (334) 73 (736)
CASH, beginning of period.................. 1,605 (687) 1,486 2,404
--------- -------- ----- ---------
CASH, end of period........................ $ 1,130 $ (1,021) $ 1,559 1,668
========= ======== ===== =========
20
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Nine Fiscal Months Ended September 27, 2002
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ (1,653) $(13,389) $ 369 $(14,673)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization....... 5,432 11,641 38 17,111
Cumulative effect of change in
accounting principle.............. - 17,140 - 17,140
Deferred income taxes............... (30) - - (30)
Gain on sales of rental equipment and
fixed assets...................... (764) (13,499) (21) (14,284)
Change in assets and liabilities........ (8,903) (16,067) (1,243) (26,213)
-------- -------- -------- --------
Net cash used in operating activities (5,918) (14,174) (857) (20,949)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions.. (5,364) (2,976) (50) (8,390)
Proceeds from sales of fixed assets...... 1,094 877 28 1,999
Rental equipment additions............... (482) (8,103) (20) (8,605)
Proceeds from sales of rental equipment.. 544 20,242 52 20,838
-------- -------- -------- --------
Net cash provided by (used in)
investing activities.............. (4,208) 10,040 10 5,842
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net.......... 11,778 - - 11,778
Proceeds from sale/leaseback transaction 633 1,597 28 2,258
Redemption of Class A common shares and
purchase of treasury shares........... (205) - - (205)
Repayment of loans to shareholders ...... 249 - - 249
Issuance of common shares................ 86 - - 86
Intercompany............................. (1,087) 1,035 52 -
-------- -------- -------- --------
Net cash provided by financing
activities........................ 11,454 2,632 80 14,166
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.... - - 86 86
-------- -------- -------- --------
Net increase (decrease) in cash..... 1,328 (1,502) (681) (855)
CASH, beginning of period.................. 2,714 832 1,443 4,989
-------- -------- -------- --------
CASH, end of period........................ $ 4,042 $ (670) $ 762 $ 4,134
======== ======== ======== ========
21
(5) STOCK OPTION PLANS
The Company has a stock option plan that 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 nine
fiscal months ended September 26, 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......................................................... (117,502) 25.19
-------- ------
Outstanding at September 26, 2003................................. 592,041 $25.12
======== ======
(6) SEGMENT REPORTING
In an effort to reduce cost and enhance customer responsiveness, the Company
consolidated its overhead structure from five marketing arms down to two
effective January 1, 2003. Accordingly, the Company changed its reporting as a
result of this consolidation such that it now reports under two segments:
Construction Products Group and Symons. Construction Products Group and Symons
sell primarily to external customers and are differentiated by their products
and services, both of which serve the construction industry. Construction
Products Group sells concrete accessories, which are used in connecting forms
for poured-in-place concrete walls, anchoring or bracing for walls and floors,
supporting bridge framework and positioning steel reinforcing bars; masonry
accessories, which are placed between layers of brick and concrete blocks and
covered with mortar to provide additional strength to walls; paving products
which are used in the construction and rehabilitation of concrete roads,
highways, and airport runways to extend the life of the pavement; and
construction chemicals which are used in conjunction with its other products.
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, property, plant and equipment, prepaid income taxes, future tax
benefits, and financing costs. Export sales and sales by non-U.S. affiliates are
not significant.
22
Information about the income (loss) of each segment and the reconciliations to
the consolidated amounts for the three and nine fiscal months ended September
26, 2003 and September 27, 2002 follows. The 2002 amounts have been reclassified
to conform to the 2003 classification.
Three fiscal months ended Nine fiscal months ended
--------------------------------- -------------------------------
(as restated) (as restated)
September 26, September 27, September 26, September 27,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Construction Products Group................. $ 72,650 $ 77,896 $ 193,693 $ 214,375
Symons...................................... 28,338 32,999 84,803 91,137
--------- --------- --------- ---------
Net sales to external customers............. $ 100,988 $ 110,895 $ 278,496 $ 305,512
========= ========= ========= =========
Construction Products Group................. $ 3,217 $ 3,579 $ 9,112 $ 10,556
Symons...................................... 2,533 2,521 6,867 6,543
--------- --------- --------- ---------
Net sales to other segments................. $ 5,750 $ 6,100 $ 15,979 $ 17,099
========= ========= ========= =========
Construction Products Group................. $ 4,473 $ 10,298 $ 14,021 $ 25,996
Symons...................................... 3,574 8,681 17,446 20,109
Corporate................................... (4,274) (2,474) (10,819) (8,279)
Intersegment Eliminations................... (2,801) (3,666) (8,282) (8,624)
--------- --------- --------- ---------
Income from operations...................... $ 972 $ 12,839 $ 12,366 $ 29,202
========= ========= ========= =========
Construction Products Group................. $ 3,674 $ 9,485 $ 13,293 $ 25,128
Symons...................................... 3,528 8,656 17,297 20,014
Corporate................................... (14,655) (10,163) (40,858) (32,406)
Intersegment Eliminations................... (2,801) (3,666) (8,282) (8,624)
--------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of change in accounting principle $ (10,254) $ 4,312 $ (18,550) $ 4,112
========= ========= ========= =========
Construction Products Group................. $ 1,690 $ 1,607 $ 5,047 $ 4,782
Symons...................................... 4,685 2,997 11,694 8,928
Corporate................................... 398 481 1,369 1,379
--------- --------- --------- ---------
Depreciation................................ $ 6,773 $ 5,085 $ 18,110 $ 15,089
========= ========= ========= =========
Construction Products Group................. $ 36 $ 29 $ 109 $ 107
Symons...................................... 111 94 224 104
Corporate................................... 37 27 110 90
--------- --------- --------- ---------
Amortization of intangibles................ $ 184 $ 150 $ 443 $ 301
========= ========= ========= =========
23
Information regarding capital expenditures by segment and the reconciliation to
the consolidated amounts for the nine fiscal months ended September 26, 2003 and
September 27, 2002 is as follows:
Nine fiscal months ended
---------------------------------------
September 26, 2003 September 27, 2002
------------------ ------------------
Construction Products Group................................ $ 4,995 $ 5,776
Symons..................................................... 487 2,044
Corporate.................................................. 450 570
-------- --------
Property, Plant and Equipment Additions.................... $ 5,932 $ 8,390
======== ========
Construction Products Group................................ $ 652 $ 565
Symons..................................................... 20,849 8,040
-------- --------
Rental Equipment Additions................................. $ 21,501 $ 8,605
======== ========
Information regarding each segment's assets and the reconciliation to the
consolidated amounts as of September 26, 2003 and December 31, 2002 is as
follows:
As of
---------------------------------------
September 26, 2003 December 31, 2002
------------------ -----------------
Construction Products Group................................ $ 166,927 $159,955
Symons..................................................... 143,840 115,071
Corporate and Unallocated.................................. 99,928 98,945
--------- --------
Total Assets............................................... $ 410,695 $373,971
========= ========
24
(7) FACILITY CLOSING AND SEVERANCE EXPENSES
During 2000, as a result of the acquisition of Conspec, the Company approved and
began implementing a plan to consolidate certain of it's existing operations.
Activity for this plan for the year ended December 31, 2002 and for the nine
months ended September 26, 2003 was as follows:
-------------------------------------------------------------------------
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
----------- ----------- ------------- ------------ -------
Balance, January 1, 2002................. $ - $ 490 $ - $ 177 $ 667
Facility closing and severance expenses..
- - - - -
Items charged against reserve............ - (221) - (84) (305)
----- ----- ---- ----- -----
Balance, December 31, 2002............... - 269 - 93 362
Facility closing and severance expenses.. - - -
Items charged against reserve............ - (43) - (75) (118)
----- ----- ---- ----- -----
Balance, September 26, 2003.............. $ - $ 226 $ - $ 18 $ 244
===== ===== ==== ===== =====
The remaining lease termination costs are expected to be paid through 2007, and
the remaining other post-closing costs are expected to be paid in the balance of
2003.
During 2001, the Company approved and began implementing a plan to exit certain
of its manufacturing and distribution facilities and to reduce overall Company
headcount in order to keep its cost structure in alignment with its net sales.
Activity for this plan for the year ended December 31, 2002 and for the nine
months ended September 26, 2003 was as follows:
-------------------------------------------------------------------------
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
----------- ----------- ----------- ----------- ---------
Balance, January 1, 2002................. $ 931 $ 524 $ - $ 786 $ 2,241
Facility closing and severance expenses.. - - 108 - 108
Items charged against reserve............ (931) (314) (108) (475) (1,828)
----- ----- ------ ------ -------
Balance, December 31, 2002............... - 210 - 311 521
Facility closing and severance expenses.. 36 - - 36
Items charged against reserve............ - (122) - (311) (433)
----- ----- ------ ------ -------
Balance, September 26, 2003.............. $ - $ 124 $ - $ - $ 124
===== ===== ====== ====== =======
The remaining balance is expected to be paid through 2004.
25
During 2002, the Company approved and began implementing a plan to exit certain
of its distribution facilities and to reduce overall Company headcount in order
to keep its cost structure in alignment with its net sales. Activity for this
plan for the year ended December 31, 2002 and for the nine months ended
September 26, 2003 was as follows:
-----------------------------------------------------------------------------
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
------------- ------------ ---------- ----------- ----------
Facility closing and severance expenses...... $ 4,441 $ 650 $ - $ 200 $ 5,291
Items charged against reserve................ (2,029) (566) - (200) (2,795)
------- ----- ---- ------ -------
Balance, December 31, 2002................... 2,412 84 - - 2,496
Facility closing and severance expenses...... (35) - - - (35)
Items charged against reserve................ (2,145) (84) - - (2,229)
------- ----- ---- ------ -------
Balance, September 26, 2003.................. $ 232 $ - $ - $ - $ 232
======= ===== ==== ====== =======
The remaining balance is expected to be paid through 2004.
During 2003, the Company approved and began implementing a plan to exit certain
of its manufacturing and distribution facilities and to reduce overall Company
headcount in order to keep its cost structure in alignment with its net sales.
These costs are being expensed in accordance with SFAS No. 146. Activity for
this plan for the nine months ended September 26, 2003, was as follows:
----------------------------------------------------------------------------
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
------------- ------------ ---------- ----------- ---------
Facility closing and severance expenses...... $ 827 $ - $ - $ 415 $ 1,242
Items charged against reserve................ (827) - - (415) (1,242)
------ ---- --- ------ -------
Balance, September 26, 2003.................. $ - $ - $ - $ - $ -
====== ==== === ====== =======
The total expected cost for this plan is approximately $2,000.
(8) RESTATEMENT
Subsequent to the issuance of the Company's financial statements for the quarter
ended September 27, 2002, the Company's management determined that the Company
did not 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 nine month periods ended September 27, 2002 to
conform to this guidance.
26
The effects of the restatement on the three and nine month periods ended
September 27, 2002 are as follows:
Three Months Ended Nine Months Ended
September 27, 2002 September 27, 2002
---------------------------------------- ---------------------------------------
As Reported As Restated As Reported As Restated
------------------- -------------------- ------------------- -------------------
Sales $105,285 $110,895 $290,293 $305,512
Cost of Sales 68,662 74,272 190,566 205,785
-------- -------- -------- --------
Gross Profit $ 36,623 $ 36,623 $ 99,727 $ 99,727
======== ======== ======== ========
As a result of adopting EITF 00-10, the Company's December 31, 2002, 2001 and
2000 net sales and cost of sales both increased by $20,453, $21,791, and
$19,223, respectively, to reflect the inclusion of shipping revenues and costs,
but there was no effect on previously reported gross profit, income from
operations, net income (loss), cash flows or financial position. The Company
will file a Form 10-K/A for the year ended December 31, 2002 as soon as
practicable. This Form 10-K/A will reflect the following restatement on the
years ended December 31, 2002, 2001 and 2000.
December 31, 2002 December 31, 2001 December 31, 2000
------------------------- ----------------------- ----------------------
As As As As As As
Reported Restated Reported Restated Reported Restated
-------- -------- -------- -------- -------- ---------
Sales $378,284 $398,737 $393,700 $415,491 $367,845 $387,068
Cost of Sales 249,408 269,861 254,430 276,221 229,523 248,746
-------- -------- -------- -------- -------- --------
Gross Profit $128,876 $128,876 $139,270 $139,270 $138,322 $138,322
======== ======== ======== ======== ======== ========
27
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 five 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.
o 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 the
products sold by the 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.
o 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,
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 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.
28
o Supply Chain. As part of our reorganization, effective January 1,
2003, we reorganized most of our manufacturing and distribution
operations into Supply Chain, our newly formed product fulfillment
unit, which manufactures and distributes our products in support of
Construction Products Group and manufactures 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.
ACQUISITION
On July 29, 2003, we 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 plus $0.5 million in acquisition costs. The purchase price was comprised
of $13 million in cash and a non-interest bearing (other than in the case of
default) senior unsecured note, payable to the seller, with a present value of
$7.0 million and a face amount of $12 million. The note was issued at a
discount, which is being accreted to the face value using the effective interest
method and is reflected as interest expense. The face amount of the note is
$12.0 million. The first $250,000 installment payment on the note was paid on
September 30, 2003, and an additional $750,000 installment payment 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, we have used an interest rate of
14.5%. The $13.0 million of cash was funded through the issuance by us of
541,667 common shares valued at $13.0 million in the aggregate to our majority
shareholder. The $535 in acquisition costs was funded through borrowings on the
revolving credit facility.
29
FACILITY CLOSING AND SEVERANCE EXPENSES
During 2000, as a result of the acquisition of Conspec, we approved and began
implementing a plan to consolidate certain of our existing operations. Activity
for this plan for the year ended December 31, 2002 and for the nine months ended
September 26, 2003 was as follows:
(Amounts in thousands)
--------------------------------------------------------------------------
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
------------ ----------- ----------- ------------ ---------
Balance, January 1, 2002.................. $ - $ 490 $ - $ 177 $ 667
Facility closing and severance expenses... - - - - -
Items charged against reserve............. - (221) - (84) (305)
---- ----- ---- ----- -----
Balance, December 31, 2002................ - 269 - 93 362
Facility closing and severance expenses... - - - - -
Items charged against reserve............. - (43) - (75) (118)
---- ----- ---- ----- -----
Balance, September 26, 2003............... $ - $ 226 $ - $ 18 $ 244
==== ===== ==== ===== =====
The remaining lease termination costs are expected to be paid through 2007, and
the remaining other post-closing costs are expected to be paid in the balance of
2003.
During 2001, we approved and began implementing a plan to exit certain of our
manufacturing and distribution facilities and to reduce overall Company
headcount in order to keep its cost structure in alignment with its net sales.
Activity for this plan for the year ended December 31, 2002 and for the nine
months ended September 26, 2003 was as follows:
(Amounts in thousands)
--------------------------------------------------------------------------
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
------------ ----------- ----------- ------------ ---------
Balance, January 1, 2002.................. $ 931 $ 524 $ - $ 786 $ 2,241
Facility closing and severance expenses... - - 108 - 108
Items charged against reserve............. (931) (314) (108) (475) (1,828)
----- ----- ------ ----- -------
Balance, December 31, 2002................ - 210 - 311 521
Facility closing and severance expenses... - 36 - - 36
Items charged against reserve............. - (122) - (311) (433)
----- ----- ------ ----- -------
Balance, September 26, 2003............... $ - $ 124 $ - $ - $ 124
===== ===== ====== ===== =======
The remaining balance is expected to be paid through 2004.
30
During 2002, we approved and began implementing a plan to exit certain of our
distribution facilities and to reduce overall Company headcount in order to keep
its cost structure in alignment with its net sales. Activity for this plan for
the year ended December 31, 2002 and for the nine months ended September 26,
2003 was as follows:
(Amounts in thousands)
--------------------------------------------------------------------------
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
------------ ----------- ----------- ------------ ---------
Facility closing and severance expenses...
$ 4,441 $ 650 $ -- $ 200 $ 5,291
Items charged against reserve............. (2,029) (566) -- (200) (2,795)
-------- ----- ----- ------ -------
Balance, December 31, 2002................ 2,412 84 -- -- 2,496
Facility closing and severance expenses... (35) -- -- -- (35)
Items charged against reserve............. (2,145) (84) -- -- (2,229)
-------- ----- ----- ------ -------
Balance, September 26, 2003............... $ 232 $ -- $ -- $ -- $ 232
======== ===== ===== ====== =======
The remaining balance is expected to be paid through 2004.
During 2003, we approved and began implementing a plan to exit certain of our
manufacturing and distribution facilities and to reduce overall Company
headcount in order to keep its cost structure in alignment with its net sales.
These costs are being expensed in accordance with SFAS No. 146. Activity for
this plan for the nine months ended September 26, 2003, was as follows:
(Amounts in thousands)
--------------------------------------------------------------------------
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
------------ ----------- ----------- ------------ ---------
Facility closing and severance expenses... $ 827 $ -- $ -- $ 415 $ 1,242
Items charged against reserve............. (827) -- -- (415) (1,242)
------ ----- ----- ----- --------
Balance, September 26, 2003............... $ -- $ -- $ -- $ -- $ --
====== ===== ===== ===== ========
The total expected cost for this plan is approximately $2 million.
31
RESULTS OF OPERATIONS
As discussed in Note 8 to the unaudited financial statements, the three and nine
month periods ended September 27, 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 NINE FISCAL MONTHS ENDED
--------------------------------- --------------------------------
September 26, September 27, September 26, September 27,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net sales........................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................... 75.5 67.0 72.4 67.4
----- ----- ----- -----
Gross profit........................................ 24.5 33.0 27.6 32.6
Selling, general and administrative expenses........ 22.8 19.2 22.5 22.0
Facility closing and severance expenses............. 0.5 2.1 0.4 0.9
Amortization of intangibles......................... 0.2 0.1 0.3 0.1
----- ----- ----- -----
Income from operations.............................. 1.0 11.6 4.4 9.6
Interest expense.................................... 11.2 7.6 10.2 8.1
Loss on early extinguishment of long-term debt...... - - 0.8 -
Other expense....................................... - 0.1 0.1 0.2
----- ----- ----- -----
Income (loss) before provision (benefit) for income
taxes and cumulative effect of change in
accounting principle........................... (10.2) 3.9 (6.7) 1.3
Provision (benefit) for income taxes................ (3.9) 1.6 (2.3) 0.5
----- ----- ----- -----
Income (loss) before cumulative effect of change in
accounting principle............................. (6.3) 2.3 (4.4) 0.8
Cumulative effect of change in accounting principle. - - - (5.6)
----- ----- ----- -----
Net income (loss)................................... (6.3)% 2.3% (4.4)% (4.8)%
===== ===== ===== =====
32
COMPARISON OF THREE FISCAL MONTHS ENDED SEPTEMBER 26, 2003 AND SEPTEMBER 27,
2002
NET SALES
Net sales decreased $9.9 million, or 8.9%, to $101.0 million in the third
quarter of 2003 from $110.9 million in the third quarter of 2002. The following
table summarizes our net sales by segment:
Three fiscal months ended
---------------------------------------------------------
September 26, 2003 September 27, 2002
-------------------------- -----------------------
(In thousands)
(as restated)
Net Sales % Net Sales % % Change
--------- ------- ---------- ------- --------
Construction Products Group............ $ 75,867 75.1% $ 81,475 73.5% (6.9)%
Symons................................. 30,871 30.6 35,520 32.0 (13.1)
Intersegment eliminations.............. (5,750) (5.7) (6,100) (5.5) (5.7)
--------- ----- --------- -----
Net sales.............................. $ 100,988 100.0% $ 110,895 100.0% (8.9)%
========= ===== ========= =====
Net sales for the Construction Products Group decreased $5.6 million, or 6.9%,
to $75.9 million in the third quarter of 2003 from $81.5 million in the third
quarter of 2002, primarily due to the weaker markets in the third quarter of
2003, compared to the same period in 2002, as a result of the domestic economy
adversely impacting non-residential construction.
Net sales of Symons decreased $4.6 million, or 13.1%, to $30.9 million for the
third quarter of 2003, compared to $35.5 million in the third quarter of 2002,
primarily due to lower sales of used rental fleet, which decreased to $4.6
million, from $9.2 million. The contribution of Safway added approximately $2.8
million in net sales, but was offset by lower sales of consumable products and
rental revenues from the existing business due to the weaker markets in the
third quarter of 2003, compared to the third quarter of 2002.
GROSS PROFIT
Gross profit for the third quarter of 2003 was $24.7 million, a decrease of
$11.9 million from $36.6 million in the third quarter of 2002. This was
primarily due to the decreased revenues discussed previously, as well as higher
operating expenses, such as steel, insurance, and depreciation.
Gross profit was 24.5% of sales in the third quarter of 2003, decreasing from
33.0% in the same quarter of 2002. This was due primarily to the combination of
a lower mix of sales of used rental fleet and the impact of fixed costs on lower
sales.
OPERATING EXPENSES
Selling, general and administrative expenses increased $1.7 million to $23.1
million in the third quarter of 2003 from $21.4 million in the third quarter of
2002. Approximately $0.9 million was due to the acquisition of Safway. The
remaining increase was primarily due to
33
higher operating expenses such as professional fees related to a re-evaluation
of our distribution model, and hiring and severance costs related to management
changes.
Facility closing and severance expense during the third quarter of 2003 was $0.5
million compared to $2.3 million in the third quarter of 2002.
Amortization of intangibles was $0.2 million in the third quarters of both 2003
and 2002.
OTHER EXPENSES
Interest expense increased to $11.2 million in the third quarter of 2003 from
$8.5 million in the third quarter of 2002. This was primarily due to the higher
interest rate from the new senior second secured notes and higher borrowings.
INCOME (LOSS) BEFORE INCOME TAXES
Loss before income taxes in the third quarter of 2003 was $(10.3) million
compared to income of $4.3 million in the third quarter of 2002, and was
comprised of the following:
Three fiscal months ended
------------------------------------------
September 26, 2003 September 27, 2002
------------------ ------------------
(In thousands)
Construction Products Group............ $ 3,674 $ 9,485
Symons................................. 3,528 8,656
Corporate.............................. (14,655) (10,163)
Intersegment eliminations.............. (2,801) (3,666)
---------- ----------
Income (loss) before income taxes...... $ (10,254) $ 4,312
========== ==========
34
Construction Products Group's income before income taxes of $3.7 million in the
third quarter of 2003 decreased from $9.5 million in the third quarter of 2002.
This was primarily due to the lower net sales volumes and higher operating
expenses such as steel, insurance, and professional fees.
Symons' income before income taxes was $3.5 million in the third quarter of
2003, compared to $8.7 million in the third quarter of 2002. This was due
primarily to the decrease in sales of used rental equipment, lower rental
revenues, and higher depreciation expense.
Corporate expenses increased to $14.7 million in the third quarter of 2003 from
$10.2 million in the third quarter of 2002. This increase was due primarily to
higher interest expense as a result of the higher interest rate on the senior
second secured notes, higher borrowings, and hiring and severance costs due to
management changes.
Elimination of gross profit on intersegment sales was $2.8 million in the third
quarter of 2003 and as compared to $3.7 million in the third quarter of 2002 due
to lower intersegment sales.
NET INCOME (LOSS)
The effective income tax rate in the third quarter of 2003 was 37.7%. The net
loss for the third quarter of 2003 was $(6.4) million, compared to income of
$2.6 million in the third quarter of 2002, due to the factors described above.
COMPARISON OF NINE FISCAL MONTHS ENDED SEPTEMBER 26, 2003 AND SEPTEMBER 27, 2002
NET SALES
Net sales decreased $27.0 million, or 8.8%, to $278.5 million in the first three
quarters of 2003 from $305.5 million in the first three quarters of 2002. The
following table summarizes our net sales by segment:
Nine fiscal months ended
----------------------------------------------------------
September 26, 2003 September 27, 2002
------------------------ ---------------------------
(In Thousands)
(as restated)
Net Sales % Net Sales % % Change
--------- ------- --------- ------- --------
Construction Products Group............ $202,805 72.8% $224,931 73.6% (9.8)%
Symons................................. 91,670 32.9 97,680 32.0 (6.2)
Intersegment eliminations.............. (15,979) (5.7) (17,099) (5.6) (6.6)
-------- ----- -------- -----
Net sales.............................. $278,496 100.0% $305,512 100.0% (8.8)%
======== ===== ======== =====
Net sales for the Construction Products Group decreased $22.1 million, or 9.8%,
to $202.8 million in the first nine months of 2003 from $224.9 million in the
first nine months of 2002.
35
This is primarily due to the weaker markets in the first nine months of 2003,
compared to the same period in 2002.
Net sales of Symons products decreased by 6.2% to $91.7 million, including $2.8
million from the acquisition of Safway, in the first nine months of 2003,
compared to $97.7 million in the first nine months of 2002. This decrease was
due to rental revenues, which declined by $7.9 million, and to lower sales of
consumable products, which declined by $3.6 million, both due to the weaker
markets in 2003. This was partially offset by sales of used rental fleet, which
increased $5.5 million.
GROSS PROFIT
Gross profit for the first nine months of 2003 was $76.7 million, a decrease of
$23.0 million from $99.7 million in the first nine months of 2002. This was
primarily due to the decreased revenues discussed previously. Higher operating
expenses, such as steel, insurance, and depreciation, were offset by the cost
savings realized from the implementation of the facility closing and severance
plans.
Gross profit was 27.6% of sales in the first nine months of 2003, decreasing
from 32.6% in the first nine months 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 $4.7 million to $62.7
million in the first nine months of 2003 from $67.4 million in the first nine
months of 2002, primarily due to the cost savings realized from the
implementation of the facility closing and severance plans. These were partially
offset by the acquisition of Safway and higher operating expenses such as
professional fees related to a re-evaluation of our distribution model, and
hiring and severance costs related to management changes.
Facility closing and severance expense during the first nine months of 2003 was
$1.2 million, compared to $2.9 million in the first nine months of 2002.
Amortization of intangibles was $0.4 million in the first three quarters of
2003, compared to $0.3 million in the first three quarters of 2002.
OTHER EXPENSES
Interest expense increased $3.4 million to $28.3 million in the first nine
months of 2003 from $24.9 million in the first nine months of 2002. This was
primarily due to the higher interest rate on the new senior second secured
notes and higher borrowings.
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 our 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, we incurred a loss on the early
extinguishment of long-term debt of $2.5 million.
36
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE
Income (loss) before income taxes and cumulative effect of change in accounting
principle in the first nine months of 2003 was $(18.6) million, as compared to
$4.1 million of income in the first nine months of 2002, and was comprised of
the following:
Nine fiscal months ended
--------------------------------------
September 26, 2003 September 27, 2002
------------------ ------------------
Construction Products Group............................... $ 13,293 $ 25,128
Symons.................................................... 17,297 20,014
Corporate................................................. (40,858) (32,406)
Intersegment eliminations................................. (8,282) (8,624)
---------- ----------
Income (loss) before income taxes and cumulative effect of
change in accounting principle............................ $ (18,550) $ 4,112
========== ==========
Construction Products Group's income before income taxes of $13.3 million in the
first nine months of 2003 decreased from $25.1 million in the first nine months
of 2002. This decrease was primarily due to the lower net sales volumes in 2003.
Higher operating costs, such as steel, insurance, and professional services,
were offset by the cost savings realized from the facility closing and severance
plans implemented by management.
Symons' income before income taxes was $17.3 million in the first nine months of
2003, compared to $20.0 million in the first nine months of 2002. This decrease
was due primarily to the decrease in net sales. Higher depreciation and
operating costs were offset by the cost savings realized from the facility
closing and severance plans implemented by management.
Corporate expenses increased to $40.9 million in the first nine months of 2003
from $32.4 million in the first nine months of 2002. This increase was due
primarily to higher interest expense as a result of the higher interest rate on
the new senior second secured notes, and the $2.5 million loss on early
extinguishment of long-term debt discussed previously.
Elimination of gross profit on intersegment sales was $8.3 million in the first
nine months of 2003, compared to $8.6 million in the first nine months of 2002.
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
The effective income tax rate in the first three quarters of 2003 was 34.0%. The
loss before cumulative effect of change in accounting principle for the first
three quarters of 2003 was $(12.2) million, compared to $2.5 million in the
first three quarters of 2002, due to the factors described above.
37
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 nine months of 2003 was $(12.2) million, compared to
a loss of $(14.7) million in the first nine months 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 nine months of 2003 was $28.1
million, compared to $21.0 million in the first nine months of 2002. Net loss
after non-cash adjustments was $8.1 million for the first nine months of 2003,
compared to income of $5.2 million in the first nine months of 2002. Changes in
assets and liabilities resulted in a $20 million use of cash in the first nine
months of 2003, as compared to $26.2 million in the first nine months of 2002.
Net cash used in investing activities was $14.7 million in the first nine months
of 2003, compared to net cash provided by investing activities of $5.8 million
in the first nine months of 2002. Property, plant and equipment additions
decreased to $5.9 million in the first nine months of 2003 from $8.4 million in
the first three quarters of 2002, as management
38
continues to closely monitor our spending in a weak market. Rental equipment
sales, net of rental equipment additions, were $4.7 million in the first nine
months of 2003, compared to $12.2 million in the first nine months of 2002. This
is due to the implementation of our plan to continue to augment traditional
forming rental fleet with European clamping systems. During the third quarter of
2003, the cash portion of the acquisition of Safway was $13.5 million, including
$0.5 million of acquisition costs. Our majority shareholders contributed $13.0
million for this acquisition. The $13.0 million of cash was funded through the
issuance by us of 541,667 common shares valued at $13.0 million in the aggregate
to our majority shareholder. The $0.5 million of acquisition costs was funded
through borrowings on the revolving credit facility.
As of September 26, 2003, our long-term debt consisted of the following:
September 26,
2003
-------------
Revolving credit facility, weighted average interest rate of 4.8%................... $ 24,125
Senior Subordinated Notes, interest rate of 13.0%................................... 154,729
Debt discount on Senior Subordinated Notes.......................................... (8,717)
Senior Second Secured Notes, interest rate of 10.75%................................ 165,000
Debt discount on Senior Second Secured Notes........................................ (7,799)
Senior Unsecured Note payable to seller of Safway, non-interest bearing, accreted at
14.5%.......................................................................... 7,131
Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1%, due
on demand...................................................................... 1,110
Capital lease obligations........................................................... 4,666
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0%............ 63
---------
Total long-term debt................................................................ 340,308
Less current maturities............................................................. (2,577)
---------
Long-term portion................................................................... $ 337,731
=========
At September 26, 2003, of the $50.0 million revolving credit facility that was
available to us, $24.1 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 $20.4 million available for borrowing.
We have received a commitment for an $80 million senior secured revolving credit
facility. This credit facility would be used to refinance the existing $50
million revolving credit facility and to provide financing for future
acquisitions and ongoing working capital needs. Closing of this transaction is
contingent upon normal due diligence.
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 September 26, 2003, working capital was $89.0 million, compared to $65.8
million at December 31, 2002. The increase in working capital is attributable to
normal seasonal working capital growth and the acquisition of Safway.
39
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.
On July 29, 2003 we completed the acquisition of substantially all of the fixed
assets and rental fleet assets Safway Formwork Systems, L.L.C. for $20.0
million. The purchase price was comprised of $13.0 million in cash and a
non-interest bearing (other than in the case of default) senior unsecured note
with a present value of $7.0 million payable to the seller. The note was issued
at a discount, which is being accreted to the face value using the effective
interest method and is reflected as interest expense. The face amount of the
note is $12.0 million. The first $250,000 installment payment on the note was
paid on September 30, 2003, and an additional $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, we have used an interest rate of 14.5%. The $13.0
million of cash was funded through the issuance by us of 541,667 common shares
valued at $13.0 million in the aggregate to our 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
40
subordinated notes and the senior second secured notes, on commercially
reasonable terms or at all.
COMMITMENTS
There were no significant changes to future payments under non-cancelable
operating leases from December 31, 2002. Scheduled repayments of long-term debt
and minimum lease payments under capital leases as of September 26, 2003 were:
LONG-TERM
YEAR DEBT CAPITAL LEASES TOTAL
--------------- ---------- -------------- -----------
Balance of 2003 $ 2,118 $ 371 $ 2,489
2004 1,032 1,176 2,208
2005 1,023 1,129 2,152
2006 25,125 808 25,933
2007 1,000 654 1,654
Thereafter 326,860 692 327,552
--------- -------- ---------
$ 357,158 $ 4,830 $ 361,988
========= ======== =========
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,"
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"estimates" and "should," and variations of these words and similar expressions,
are intended to identify these forward-looking statements. Forward-looking
statements by our management and us are based on estimates, projections, beliefs
and assumptions of management and are not guarantees of future performance. We
disclaim any obligation to update or revise any forward-looking statement based
on the occurrence of future events, the receipt of new information, or
otherwise.
Actual future performance, outcomes and results may differ materially from those
expressed in forward-looking statements made by us, and our management, as the
result of a number of important factors. Representative examples of these
factors include (without limitation) the cyclical nature of nonresidential
building and infrastructure construction activity, which can be affected by
factors outside our control such as weakness in the general economy, a decrease
in governmental spending, interest rate increases, and changes in banking and
tax laws; 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 September 26, 2003, we had financial instruments that were sensitive to
changes in interest rates. These financial instruments consisted of:
o $154.7 million of senior subordinated notes; with a net book value of
$146.0 million;
o $165.0 million of senior second secured notes; with a net book value
of $157.2 million;
o $50.0 million revolving credit facility, $24.1 million of which was
outstanding at September 26, 2003;
o $4.7 million in capital lease obligations; and
o $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 89.0% of the principal amount at September 26, 2003, is $137.7
million.
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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 101.8% of the principal amount at September 26, 2003, is $168.0
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 $24.1 million face value. The weighted average interest rate at
September 26, 2003 was 4.8%.
Other long-term debt consists of $1.1 million of debentures previously held by
the Dayton Superior Capital Trust, with a fair value of $1.8 million and a $0.1
million, 7.0% loan due in installments of $32,000 per year with an estimated
fair value of $34,000.
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.
43
PART II. - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On July 29, 2003, the Company sold 541,667 Common Shares to Odyssey Investment
Partners Fund, LP for an aggregate purchase price of $13 million ($24 per share)
to fund the cash portion of the purchase price paid by the Company to purchase
substantially all of the fixed assets and rental fleet assets of Safway Formwork
Systems, L.L.C. The shares were issued in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act of 1933, as
amended, for transactions not involving a public offering.
On September 4, 2003, the Company sold 1,042 Common shares to Edward J. Puisis
for an aggregate purchase price of $25,008 ($24 per share) in conjunction with
his employment with the Company. The shares were issued in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act of
1933, as amended, for transactions not involving a public offering.
On September 4, 2003, the Company sold 1,000 Common shares to Steven C. Huston
for an aggregate purchase price of $24,000 ($24 per share) in conjunction with
his employment with the Company. The shares were issued in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act of
1933, as amended, for transactions not involving a public offering.
ITEM 5. OTHER INFORMATION
Subsequent to the issuance of the Company's financial statements for the quarter
ended September 27, 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 nine month periods ended September 27, 2002 to
conform to this guidance.
In order to reflect 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.
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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 September 26, 2003, we filed
the following Current Reports on Form 8-K:
Current Report on Form 8-K dated July 1, 2003, reporting under item 5 the
execution of an agreement to acquire substantially all of the fixed assets
and rental fleet assets of Safway Formwork Systems, L.L.C.
Current Report on Form 8-K dated July 29, 2003, reporting under item 9 the
completion of the Company's acquisition of substantially all of the fixed
assets and rental fleet assets of Safway Formwork Systems, L.L.C.
Current Report on Form 8-K dated August 5, 2003, reporting under item 12
summary financial results for the second quarter and first half of 2003.
Current Report on Form 8-K dated August 5, 2003, reporting under item 5 the
election of Edward J. Puisis as Vice President and Chief Financial Officer.
Current Report on Form 8-K dated August 13, 2003, reporting under item 2
the completion of the Company's acquisition of substantially all of the
fixed assets and rental fleet assets of Safway Formwork Systems, L.L.C.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAYTON SUPERIOR CORPORATION
DATE: November 10, 2003 BY: /s/ Edward J. Puisis
-------------------------- -----------------------------------
Edward J. Puisis
Vice President and Chief Financial Officer
46
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ---------- -----------
(10) Material Contracts
10.1 Employment Agreement between Edward J. Puisis and Dayton
Superior Corporation.
10.2 Incentive stock option agreement between Edward J. Puisis and
Dayton Superior Corporation.
10.3 Letter Agreement between Raymond Bartholomae and Dayton
Superior Corporation.
10.4 Employment Agreement between Peter Astrauskas and Dayton
Superior Corporation.
10.5 Amendment to Employment Agreement between Peter
Astrauskas and Dayton Superior Corporation.
(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