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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11781
DAYTON SUPERIOR CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-0676346
(State of incorporation) (I.R.S. Employer Identification No.)
7777 Washington Village Dr.
Suite 130
Dayton, Ohio 45459
(Address of principal executive office)
Registrant's telephone number, including area code: (937) 428-6360
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Junior Subordinated
Debentures
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of March 29, 2003, there were 4,554,827 common shares outstanding, all of
which were privately held and not traded on a public market. As of June 30,
2003, none of the outstanding shares were held by non-affiliates.
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In this Annual Report on Form 10-K, unless otherwise noted, the terms "Dayton
Superior," "we," "us" and "our" refer to Dayton Superior Corporation and its
subsidiaries.
PART I
ITEM 1. BUSINESS.
AVAILABLE INFORMATION
The Company files annual, quarterly, and current reports, and other
documents with the Securities and Exchange Commission (SEC) under the Securities
Exchange Act of 1934. The public may read and copy any materials that the
Company files with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, NW, Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Also, the SEC maintains an Internet website that contains reports and
information statements, and other information regarding issuers, including the
Company, that file electronically with the SEC. The public can obtain any
documents that the Company files with the SEC at http://www.sec.gov.
GENERAL
We believe we are the largest North American manufacturer and
distributor of metal accessories and forms used in concrete construction and a
leading manufacturer of metal accessories used in masonry construction in terms
of revenues. In many of our product lines, we believe we are the market leader
in terms of revenues competing primarily in two segments of the construction
industry: infrastructure construction, such as highways, bridges, utilities,
water and waste treatment facilities and airport runways, and non-residential
building, such as schools, stadiums, prisons, retail sites, commercial offices,
hotels and manufacturing facilities.
We derive our revenue from a mix of sales of consumable products
(accessories, chemicals, etc.) and the sale and rental of engineered concrete
forming equipment. Through our network of 26 service/distribution centers, we
serve over 5,000 customers, comprised of independent distributors and a broad
array of pre-cast concrete manufacturers, general contractors, subcontractors
and metal fabricators. We sell most of our 21,000 products under well
established, industry-recognized brand names, and manufacture the vast majority
of these products "in-house." We believe that the breadth of our product
offerings and national distribution network allow us to service the largest
customer base in the industry by providing a "one-stop" alternative to our
customers. We believe that none of our competitors can match our combination of
product breadth and national reach. In addition, our nationwide customer base
enables us to efficiently cross-sell our products and provides us with a
platform from which we can broadly distribute newly developed and acquired
product lines. Finally, our national customer base provides us with
geographically dispersed sales, which can mitigate the effects of regional
economic downturns.
In an effort to reduce costs and enhance customer responsiveness,
effective January 1, 2003, we reorganized our company from six autonomous
manufacturing and sales divisions into two sales units ("CPG" and Symons) and a
new product fulfillment unit (Supply Chain). CPG 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 CPG and Symons.
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CONSTRUCTION PRODUCTS GROUP
In terms of revenues, we believe that CPG is the leading North American
supplier of:
- CONCRETE ACCESSORIES, which are used for connecting forms for
poured-in-place concrete walls, anchoring or bracing for walls and
floors, supporting bridge framework and positioning steel reinforcing
bars; and
- WELDED DOWEL ASSEMBLIES, which are paving products used in the
construction and rehabilitation of concrete roads, highways and airport
runways to extend the life of the pavement.
In addition, CPG supplies:
- MASONRY PRODUCTS, which are placed between layers of brick and concrete
blocks and covered with mortar to provide additional strength to walls;
and
- CHEMICALS, which can be used in conjunction with our construction
products for various purposes including form release, bond breakers,
curing compounds, liquid hardeners, sealers, water repellents, bonding
agents, grouts and other uses related to the pouring and placement of
concrete.
SYMONS
We believe we are the leading North American manufacturer, in terms of
revenues, of concrete forming systems, which are reusable, engineered forms and
related accessories used in the construction of concrete walls, columns and
bridge supports to hold concrete in place while it hardens. Symons both rents
and sells its forms through a network of 16 company-operated distribution
centers and through numerous third party distributors, some of whom also
purchase accessories and chemicals from CPG.
PRODUCTS
Although almost all of our products are used in concrete or masonry
construction, the function and nature of the products differ widely. Most of our
products are consumable, providing us with a source of recurring revenue. In
addition, while our products represent a relatively small portion of a
construction project's total cost, our products assist in ensuring the on-time,
quality completion of those projects. We continually attempt to increase the
number of products we offer by using engineers and product development teams to
introduce new products and refine existing products.
CPG. CPG manufactures and sells concrete accessories primarily under
the Dayton/Richmond(R), Aztec(R) and BarLock(R) brand names, masonry products
primarily under the Dur-O-Wal(R) brand name and paving products primarily under
the American Highway Technology(R) name, but we also offer some paving products
under the Dayton/Richmond(R) name.
CPG PRODUCTS INCLUDE:
- WALL-FORMING PRODUCTS. Wall-forming products include shaped metal ties
and accessories that are used with modular forms to hold concrete in
place when walls are poured at a construction site or are prefabricated
off site. These products, which generally are not reusable, are made of
wire or plastic or a combination of both materials.
- BRIDGE DECK PRODUCTS. Bridge deck products are metal assemblies of
varying designs used to support the formwork used by contractors in the
construction and rehabilitation of bridges.
- BAR SUPPORTS. Bar supports are non-structural steel, plastic, or
cementitious supports used to position rebar within a horizontal slab
or form to be filled with concrete. Metal bar
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supports are often plastic or epoxy coated, galvanized or equipped with
plastic tips to prevent creating a conduit for corrosion of the
embedded rebar.
- SPLICING PRODUCTS. Splicing products are used to join two pieces of
rebar together while at a construction site without the need for
extensive preparation of the rebar ends.
- PRECAST AND PRESTRESSED CONCRETE CONSTRUCTION PRODUCTS. Precast and
prestressed concrete construction products are metal assemblies of
varying designs used in the manufacture of precast concrete panels and
prestressed concrete beams and structural members. Precast concrete
panels and prestressed concrete beams are fabricated away from the
construction site and transported to the site. Precast concrete panels
are used in the construction of prisons, freeway sound barrier walls,
external building facades and other similar applications. Prestressed
concrete beams use multiple strands of steel cable under tension
embedded in concrete beams to provide rigidity and bearing strength,
and often are used in the construction of bridges, parking garages and
other applications where long, unsupported spans are required.
- TILT-UP CONSTRUCTION PRODUCTS. Tilt-up construction products include a
complete line of inserts, lifting hardware and adjustable beams used in
the tilt-up method of construction, in which the concrete floor slab is
used as part of a form for casting the walls of a building. After the
cast walls have hardened on the floor slab, a crane is used to
"tilt-up" the walls, which then are braced in place until they are
secured to the rest of the structure. Tilt-up construction generally is
considered to be a faster method of constructing low-rise buildings
than conventional poured-in-place concrete construction. Some of our
tilt-up construction products can be rented as well as sold.
- FORMLINER PRODUCTS. Formliner products include plastic and elastomeric
products that adhere to the inside face of forms to provide shape to
the surface of the concrete.
- CHEMICAL PRODUCTS. Chemical products sold by CPG include a broad
spectrum of chemicals for use in concrete construction, including form
release agents, bond breakers, curing compounds, liquid hardeners,
sealers, water repellents, bonding agents, grouts and epoxies, and
other chemicals used in the pouring and placement of concrete and
curing compounds used in concrete road construction.
- MASONRY PRODUCTS. Masonry products are wire products sold under the
Dur-O-Wal(R) name that improve the performance and longevity of masonry
walls by providing crack control, greater elasticity and higher
strength to withstand seismic shocks and better resistance to rain
penetration.
- WELDED DOWEL ASSEMBLIES. Welded dowel assemblies are used to transfer
dynamic loads between two adjacent slabs of concrete roadway. Metal
dowels are part of a dowel basket design that is imbedded in two
adjacent slabs to transfer the weight of vehicles as they move over a
road.
- CORROSIVE-PREVENTING EPOXY COATINGS. Corrosive-preventing epoxy
coatings are used for infrastructure construction products and a wide
range of industrial and construction uses.
SYMONS. Symons manufactures, sells and rents reusable modular concrete
forming systems primarily under the Symons(R) name.
SYMONS PRODUCTS INCLUDE:
- CONCRETE FORMING SYSTEMS. Concrete forming systems are reusable,
engineered modular forms which hold liquid concrete in place on
concrete construction jobs while it hardens. Standard forming systems
are made of steel and plywood and are used in the creation of concrete
walls and columns. Specialty forming systems consist primarily of steel
forms that are designed to meet architects' specific needs for concrete
placements. Both standard and specialty forming systems and related
accessories are sold and rented for use.
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- SHORING SYSTEMS. Shoring systems, including aluminum beams and joists,
post shores and shoring frames are used to support deck and other
raised forms while concrete is being poured.
- ARCHITECTURAL PAVING PRODUCTS. Architectural paving products are used
to apply decorative texture and coloration to concrete surfaces while
concrete is being poured.
- CONSTRUCTION CHEMICALS. Construction chemicals sold by the Symons
business unit include form release agents, sealers, water repellents,
grouts and epoxies and other chemicals used in the pouring, stamping
and placement of concrete.
MANUFACTURING
We manufacture a substantial majority of the products we sell. As part
of our reorganization effective January 1, 2003, we reorganized most of our
manufacturing and distribution operations into Supply Chain, our new product
fulfillment unit, which manufactures and distributes our products in support of
CPG and Symons. CPG obtains the majority of the products it sells from the
Supply Chain group and manufactures its chemicals product line. Symons obtains
Steel-Ply(R) forms from the Supply Chain unit and manufactures and assembles or
outsources some of the manufacturing involved in some of the other all-steel
forms.
Most of our CPG products are manufactured in 17 facilities throughout
the United States. Our production volumes enable us to design and build or
custom modify much of the equipment we use to manufacture these products, using
a team of experienced manufacturing engineers and tool and die makers.
By developing our own automatic high-speed manufacturing equipment, we
believe we generally have achieved significantly greater productivity, lower
capital equipment costs, lower scrap rates, higher product quality, faster
changeover times, and lower inventory levels than most of our competitors. In
addition, our ability to "hot-dip" galvanize masonry products provides us with
an advantage over many competitors' manufacturing masonry wall reinforcement
products, which lack this internal capability. We also have a flexible
manufacturing setup and can make the same products at several locations using
short and discrete manufacturing lines.
We manufacture our Symons concrete forming systems at two facilities in
the United States. These facilities incorporate semi-automated and automated
production lines, heavy metal presses, forging equipment, stamping equipment,
robotic welding machines, drills, punches, and other heavy machinery typical for
this type of manufacturing operation.
We are currently moving a significant percentage of our annual
production requirements to Reynosa, Mexico. We believe that by relocating a
portion of our manufacturing to Mexico, we will realize approximately $5 million
in savings annually. We also intend to outsource some of our production
requirements to lower cost foreign producers, which we believe will generate
significant additional savings.
DISTRIBUTION
We distribute our products through over 1,100 independent distributors,
and our own network of 26 service/distribution centers located in the United
States and Canada. We have 10 distribution centers dedicated to our CPG business
unit and 16 distribution centers dedicated to our Symons business unit.
Some locations carry more than one of our product lines. We ship most
of our products to our service/distribution centers from our manufacturing
plants; however, a majority of our centers also are able to produce smaller
batches of some products on an as-needed basis to fill rush orders. We have an
on-line inventory tracking system for CPG, which enables our customer service
representatives to identify, reserve and ship inventory quickly from any of our
locations in response to telephone orders.
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SALES AND MARKETING
We employed approximately 280 sales and marketing personnel at December
31, 2003, of whom approximately two-thirds were field sales people and one-third
were customer service representatives. Sales and marketing personnel are located
in all of our service/distribution centers. We produce product catalogs and
promotional materials that illustrate certain construction techniques in which
our products can be used to solve typical construction problems. We promote our
products through seminars and other customer education efforts and work directly
with architects and engineers to secure the use of our products whenever
possible.
We consider our engineers to be an integral part of the sales and
marketing effort. Our engineers have developed proprietary software applications
to conduct extensive pre-testing on both new products and construction projects.
CUSTOMERS
We have over 5,000 customers, of which approximately 50% purchase our
products for resale. Our customer base is geographically diverse, with no
customer accounting for more than 3% of net sales in 2003.
CPG. CPG has approximately 2,600 customers, consisting of distributors,
rebar fabricators, precast and prestressed concrete manufacturers, brick and
concrete block manufacturers, general contractors and sub-contractors. We
estimate that approximately 85% of the customers of this business unit purchase
our products for resale. The largest customer of the business unit accounted for
approximately 5% of the business unit's 2003 net sales.
CPG has instituted a certified dealer program for those dealers who
handle our tilt-up construction products. This program was established to
educate dealers in the proper use of our tilt-up products and to assist them in
providing engineering assistance to their customers. Certified dealers are not
permitted to carry other manufacturers' tilt-up products, which we believe are
incompatible with ours and, for that reason, could be unsafe if used with our
products. The business unit currently has 98 certified tilt-up construction
product dealers.
SYMONS. Symons has approximately 2,500 customers, consisting of
distributors, precast and prestressed concrete manufacturers, general
contractors and subcontractors. We estimate that approximately 90% of the
customers of this business unit are the end-users of its products, while
approximately 10% of those customers purchase its products for resale or
re-rent. This business unit's largest customer accounted for 7% of the business
unit's 2003 net sales.
RAW MATERIALS
Our principal raw materials are steel wire rod, steel hot rolled bar,
metal stampings and flat steel, aluminum sheets and extrusions, plywood, cement
and cementitious ingredients, liquid chemicals, zinc, plastic resins and
injection-molded plastic parts. We currently purchase materials from over 600
vendors and are not dependent on any single vendor or small group of vendors for
any significant portion of our raw material purchases. Steel, in its various
forms, constitutes approximately 20% of our cost of sales. We are currently
facing rising steel prices and a potential impending steel shortage. We have
responded by increasing our sales prices in October 2003, January 2004, and
March 2004 and will continue to announce pricing increases in response to rising
steel costs.
COMPETITION
Our industry is highly competitive in most product categories and
geographic regions. We compete with a limited number of full-line national
manufacturers of concrete accessories, concrete forming systems and paving
products, and a much larger number of regional manufacturers and manufacturers
with limited product lines. We believe competition in our industry is largely
based on, among other things, price, quality, breadth of product lines,
distribution capabilities (including quick delivery times), and customer
service. Due primarily to factors such as freight rates, quick delivery times
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and customer preference for local suppliers, some local or regional
manufacturers and suppliers may have a competitive advantage over us in a given
region. We believe the size, breadth, and quality of our product lines provide
us with advantages of scale in both distribution and production relative to our
competitors.
TRADEMARKS AND PATENTS
We sell most products under the registered trade names Dayton
Superior(R), Dayton/Richmond(R), Symons(R), Aztec(R), BarLock(R), Conspec(R),
Edoco(R), Dur-O-Wal(R) and American Highway Technology(R), which we believe are
widely recognized in the construction industry and, therefore, are important to
our business. Although some of our products (and components of some products)
are protected by patents, we do not believe these patents are material to our
business. At December 31, 2003, we had approximately 200 trademarks and 140
patents.
EMPLOYEES
As of December 31, 2003, we employed approximately 700 salaried and
1,200 hourly personnel, of whom approximately 800 of the hourly personnel and 7
of the salaried personnel are represented by labor unions. Employees at our
Miamisburg, Ohio; Parsons, Kansas; Des Plaines, Illinois; New Braunfels, Texas;
Tremont, Pennsylvania; Long Beach, California; Santa Fe Springs, California;
City of Industry, California, and Aurora, Illinois manufacturing/distribution
plants and our service/distribution center in Atlanta, Georgia are covered by
collective bargaining agreements. We believe we have good employee and labor
relations.
SEASONALITY
Our operations are seasonal in nature, with approximately 55% of our
sales historically occurring in the second and third quarters. Working capital
and borrowings fluctuate with sales volume.
BACKLOG
We typically ship most of our products, other than paving products and
most specialty forming systems, within one week and often within 24 hours after
we receive the order. Other product lines, including paving products and
specialty forming systems, may be shipped up to six months after we receive the
order, depending on our customer's needs. Accordingly, we do not maintain
significant backlog, and backlog as of any particular date has not been
representative of our actual sales for any succeeding period.
RISKS RELATED TO OUR BUSINESS
CYCLICALITY OF CONSTRUCTION INDUSTRY--The construction industry is cyclical, and
a continued significant downturn in the construction industry could further
decrease our revenues and profits and adversely affect our financial condition.
Because our products primarily are used in infrastructure construction and
non-residential building, our sales and earnings are strongly influenced by
construction activity, which historically has been cyclical. Construction
activity can decline because of many factors we cannot control, such as:
- - weakness in the general economy;
- - a decrease in government spending at the federal and state levels;
- - interest rate increases; and
- - changes in banking and tax laws.
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SUBSTANTIAL LEVERAGE--Our substantial indebtedness could adversely affect our
financial health and prevent us from fulfilling our obligations under the
exchange notes. We have a significant amount of indebtedness and debt service
requirements. The following chart shows certain important credit statistics as
of December 31, 2003:
Total long-term indebtedness, including current maturities .... $341.8 million
Shareholders' deficit ......................................... $ 7.3 million
Our substantial indebtedness could have important consequences. For example, it
could:
- - make it more difficult for us to satisfy our obligations under outstanding
indebtedness;
- - increase our vulnerability to general adverse economic and industry
conditions;
- - require us to dedicate a substantial portion of our cash flow from operations
to payments on our indebtedness, thereby reducing the availability of our cash
flow to fund working capital, capital expenditures, research and development
efforts and other general corporate purposes;
- - limit our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate;
- - place us at a disadvantage to our competitors that have less debt; and
- - limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
In addition, failing to comply with those covenants could result in an event of
default, which, if not cured or waived, could have a material adverse effect on
our business, financial condition and results of operations. In addition, we and
our subsidiaries may be able to incur substantial additional indebtedness in the
future under the terms of the indenture that will govern the notes, the senior
subordinated notes, the senior credit facility and other indebtedness. If new
debt is added to our and our subsidiaries' current debt levels, the related
risks that we, and they, now face could increase.
NET LOSSES--Our business has experienced net losses over the past several
periods. We reported net losses of approximately $20.3 million in 2002 and $17.1
million in 2003. Our results of operations will continue to be affected by
events and conditions both within and beyond our control, including competition,
economic, financial, business and other conditions. Therefore, we cannot assure
you that we will not continue to incur net losses in the future.
PRICE INCREASES AND AVAILABILITY--We may not be able to pass on the cost of
commodity price increases to our customers. Steel, in its various forms, is our
principal raw material, constituting approximately 20% of our cost of sales in
2003. Historically, steel prices have fluctuated and we are currently facing
rising steel prices and a potential impending steel shortage. Any decrease in
our volume of steel purchases could affect our ability to secure volume purchase
discounts that we have obtained in the past. Additionally, the overall increase
in energy costs, including natural gas and petroleum products, has adversely
impacted our overall operating costs in the form of higher raw material,
utilities, and freight costs. We cannot assure you we will be able to pass these
cost increases on to our customers.
WEATHER-RELATED RISKS--Weather causes our operating results to fluctuate and
could adversely affect the demand for our products and decrease our revenues.
Our operating results tend to fluctuate from quarter to quarter because, due to
weather, the construction industry is seasonal in most of North America, which
is where almost all of our sales are made. Demand for our products generally is
higher in the spring and summer than in the winter and late fall. As a result,
our first quarter net sales typically are the lowest of the year and we
experience a net loss. Our net sales and operating income in the fourth quarter
also generally are less than in the second and third quarters. In addition,
severe weather could adversely affect our business, financial condition and
results of operation. Adverse weather, such as unusually prolonged periods of
cold or rain, blizzards, hurricanes and other severe weather patterns,
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could delay or halt construction activity over wide regions of the country. For
example, an unusually severe winter, such as the 2002-2003 winter, leads to
reduced construction activity and magnifies the seasonal decline in our revenues
and earnings during the winter months. Although weather conditions have not
historically had a material long-term effect on our results of operations,
sustained extreme adverse weather conditions could have a material adverse
effect on our business, financial condition and results of operations.
CHEMICAL PRODUCTS COMPETITION--We are significantly smaller than some of our
construction chemical competitors. In the sale of some construction chemicals,
we must compete with a number of national and international companies that are
many times larger than we are in terms of total assets and annual revenues.
Because our resources are more limited, we may not be able to compete
effectively and profitably on a sustained basis in the markets in which those
competitors are actively present.
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES--We may be liable for costs
under certain environmental laws, even if we did not cause any environmental
problems. Changes in environmental laws or unexpected investigations could
adversely affect our business. Our business and our facilities are subject to a
number of federal, state and local environmental laws and regulations, which
govern, among other things, the discharge of hazardous materials into the air
and water as well as the handling, storage and disposal of these materials.
Pursuant to certain environmental laws, a current or previous owner or operator
of land may be liable for the costs of investigation and remediation of
hazardous materials at the property. These laws typically impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of any hazardous materials. Persons who arrange (as defined under these
statutes) for the disposal or treatment of hazardous materials also may be
liable for the costs of investigation and remediation of these substances at the
disposal or treatment site, regardless of whether the affected site is owned or
operated by them. We believe we are in material compliance with applicable
environmental laws. However, because we own and operate a number of facilities
where industrial activities have been historically conducted and because we
arrange for the disposal of hazardous materials at many disposal sites, we may
incur costs for investigation and remediation, as well as capital costs
associated with compliance with these laws. These environmental costs have not
been material in the past and are not expected to be material in the future.
Nevertheless, more stringent environmental laws as well as more vigorous
enforcement policies or discovery of previously unknown conditions requiring
remediation could impose material costs and liabilities on us, which could have
a material adverse effect on our business, financial condition and results of
operations.
CONSOLIDATION OF OUR DISTRIBUTORS--Increasing consolidation of our distributors
may negatively affect our earnings. We believe that there is an increasing trend
among our distributors to consolidate into larger entities. As our distributors
increase in size and market power, they may be able to exert pressure on us to
reduce prices or create price competition by dealing more readily with our
competitors. If the consolidation of our distributors does result in increased
price competition, our sales and profit margins may be adversely affected.
UNREALIZED COST SAVINGS--We may not realize or continue to realize the cost
savings that we have achieved or anticipate achieving from our manufacturing
cost improvement programs and company reorganization. Beginning in 2001, we
implemented strategic initiatives designed to reduce our manufacturing costs,
and beginning in the second half of 2002, we began to consolidate our operating
divisions and eliminate redundant overhead expense. Our future cost savings
expectations with respect to these initiatives are necessarily based upon a
number underlying estimates and assumptions, which may or may not prove to be
accurate. In addition, these underlying estimates and assumptions are subject to
significant economic, competitive and other uncertainties that are beyond our
control.
INCREASED DEPENDENCE ON FOREIGN OPERATIONS--Political and economic conditions in
Mexico could adversely affect us. Our manufacturing cost improvement programs
have resulted in our moving a significant percentage of our annual production
requirements to Reynosa, Mexico. The success of our operations in Mexico will
depend on numerous factors, many of which will be beyond our control, including
our inexperience with operating in Mexico or abroad, generally, general economic
conditions, currency fluctuations, restrictions on the repatriation of assets,
compliance with Mexican laws and standards and political risks.
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PRODUCT MIX PROFIT MARGINS--A change in the mix of products we sell could
negatively affect our earnings. Some of our products historically have had
narrow profit margins. If the mix of products we sell shifts to include a larger
percentage of products with narrow profit margins, our earnings may be
negatively affected.
RISKS ASSOCIATED WITH ACQUISITIONS--We may complete acquisitions that disrupt
our business. If we make acquisitions, we could do any of the following, which
could adversely affect our business, financial condition and results of
operations:
- - incur substantial additional debt, which may reduce funds available for
operations and future opportunities and increase our vulnerability to adverse
general economic and industry conditions and competition;
- - assume contingent liabilities; or
- - take substantial charges to write off goodwill and other intangible assets.
In addition, acquisitions can involve other risks, such as:
- - difficulty in integrating the acquired operations, products and personnel into
our existing business;
- - costs, which are greater than anticipated or cost savings, which are less than
anticipated;
- - diversion of management time and attention; and
- - adverse effects on existing business relationships with our suppliers and
customers and the suppliers and customers of the acquired business.
COMPETITION--The markets in which we sell our products are highly competitive.
We compete against some national and many regional rivals. The uniformity of
products among competitors results in substantial pressure on pricing and profit
margins. As a result of these pricing pressures, we may in the future experience
reductions in the profit margins on our sales, or we may be unable to pass any
cost increases on to our customers. We believe that our purchasing power,
nationwide distribution network, marketing capabilities and manufacturing
efficiency allow us to competitively price our products. We cannot assure you
that we will be able to maintain or increase our current market share of our
products or compete successfully in the future.
CONTROL BY ODYSSEY--We are controlled by Odyssey Investment Partners, LLC.
Odyssey and its co-investors indirectly own 92% of our outstanding common shares
and, therefore, have the power, subject to certain exceptions, to control our
affairs and policies. They also control the election of directors, the
appointment of management, the entering into of mergers, sales of substantially
all of our assets and other extraordinary transactions. The directors have
authority, subject to the terms of our debt, to issue additional stock,
implement stock repurchase programs, declare dividends and make other decisions
about our capital stock. The interests of Odyssey and its affiliates could
conflict with the interest of our note holders. For example, if we encounter
financial difficulties or are unable to pay our debts as they mature, the
interests of the Odyssey investors, as holders of our equity, might conflict
with the interests of our note holder. Affiliates of Odyssey may also have an
interest in pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance their equity investments,
even though these transactions might involve risks to holders of our notes.
RISKS ASSOCIATED WITH OUR WORKFORCE--We depend on our highly trained employees,
and any work stoppage or difficulty hiring similar employees would adversely
affect our business. We could be adversely affected by a shortage of skilled
employees. As of December 31, 2003, approximately 40% of our employees were
unionized. We are subject to several collective bargaining agreements with these
employees. There are six collective bargaining agreement expiring in 2004,
covering hourly employees at the Parsons, Kansas; Miamisburg, Ohio; Aurora,
Illinois; Atlanta, Georgia; City of Industry, California, and Santa Fe Springs,
California facilities. Although we believe that our relations with our employees
are good, we cannot assure you that we will be able to negotiate a satisfactory
renewal of
10
these collective bargaining agreements or that our employee relations will
remain stable. Because we maintain a relatively small inventory of finished
goods and operate on relatively short lead times for our products, any shortage
of labor could have a material adverse effect on our business, financial
condition and results of operations.
DEPENDENCE ON KEY PERSONNEL--If we lose our senior management, our business may
be adversely affected. The success of our business is largely dependent on our
senior managers, as well as on our ability to attract and retain other qualified
personnel. We cannot assure you that we will be able to attract and retain the
personnel necessary for the development of our business. The loss of the
services of key personnel or the failure to attract additional personnel as
required could have a material adverse effect on our business, financial
condition and results of operations. We do not currently maintain "key person"
life insurance on any of our key employees.
RESTRICTIVE COVENANTS--Our senior credit facility and our note indentures
contain various covenants which limit the discretion of our management in the
operation of our business including, among other things, our ability to:
- - incur additional debt;
- - pay dividends or distributions on our capital stock or repurchase our capital
stock;
- - enter into guarantees;
- - issue preferred stock of subsidiaries;
- - restrict the rights of our subsidiaries to make distributions to us;
- - make certain investments;
- - create liens to secure debt;
- - enter into transactions with affiliates;
- - merge or consolidate with another company;
- - transfer and sell assets;
- - change the terms of certain of our debt; and
- - create new subsidiaries.
In addition, if we fail to comply with our senior credit facility, our note
indentures, or any other subsequent financing agreements, a default could occur.
Such a default could allow the lenders, if the agreements so provide, to
accelerate the related debt as well as any other debt to which a
cross-acceleration or cross-default provision applies. In addition, the lenders
could terminate any commitments they had made to supply us with further funds.
11
ITEM 2. PROPERTIES.
Our corporate headquarters are located in leased facilities in Dayton,
Ohio. We believe our facilities provide adequate manufacturing and distribution
capacity for our needs. We also believe all of the leases were entered into on
market terms. Our other principal facilities are located throughout North
America, as follows:
Leased/ Size Lease
Location Use Principal Business Unit Owned (Sq. Ft.) Expiration Date
- --------------------- -------------------------- -------------------------- ------ ------- ---------------
Birmingham, Alabama Manufacturing/Distribution Construction Products Group Leased 287,000 12/12/ 2021
Des Plaines, Illinois Manufacturing/Distribution Symons Owned 171,650
Miamisburg, Ohio Manufacturing/Distribution Construction Products Group Owned 126,000
Parsons, Kansas Manufacturing/Distribution Construction Products Group Owned 98,250
Aurora, Illinois Manufacturing/Distribution Construction Products Group Owned 109,000
Kankakee, Illinois Manufacturing/Distribution Construction Products Group Leased 107,900 12/31/2007
Tremont, Pennsylvania Manufacturing/Distribution Construction Products Group Owned 86,000
New Braunfels, Texas Manufacturing/Distribution Symons Owned 89,600
Fontana, California Manufacturing/Distribution Construction Products Group Leased 114,275 12/31/2007
Parker, Arizona Manufacturing/Distribution Construction Products Group Leased 60,000 Month to Month
Modesto, California Manufacturing/Distribution Construction Products Group Leased 54,100 12/31/2007
Reynosa, Mexico Manufacturing/Distribution Construction Products Group Leased 110,000 07/16/2006
Atlanta, Georgia Service/Distribution Construction Products Group Leased 49,392 08/31/2006
Grand Prairie, Texas Service/Distribution Construction Products Group Leased 45,000 12/31/2004
Seattle, Washington Service/Distribution Construction Products Group Leased 40,640 06/30/2006
Toronto, Ontario Manufacturing/Distribution Construction Products Group Leased 45,661 01/31/2005
Oregon, Illinois Service/Distribution Construction Products Group Owned 39,000
Kansas City, Kansas Manufacturing/Distribution Construction Products Group Owned 33,000
Folcroft, Pennsylvania Service/Distribution Construction Products Group Owned 32,000
ITEM 3. LEGAL PROCEEDINGS.
During the ordinary course of our business, we are from time to time
threatened with, or may become a party to, legal actions and other proceedings.
While we are currently involved in various legal proceedings, we believe the
results of these proceedings will not have a material effect on our business,
financial condition or results of operations. We believe that our potential
exposure to these legal actions is adequately covered by product and general
liability insurance, and, in some instances, by indemnification arrangements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
There is no established public trading market for our common shares. As
of December 31, 2003, there were 35 holders of our common shares. On October 22,
2003, we sold 400 Common Shares to Peter J. Astrauskas at an aggregate price of
$9,600 ($24.00 per share) in connection with the employment of Mr. Astrauskas as
our Vice President, Engineering. 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.
12
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical consolidated financial
information as of and for each of the years in the five-year period ended
December 31, 2003. The selected historical financial information as of and for
the years ended December 31, 1999 and 2000 has been derived from our
consolidated financial statements, which were audited by Arthur Andersen LLP,
our former independent public accountants. The selected historical financial
information as of and for the years ended December 31, 2001, 2002, and 2003 have
been derived from our consolidated financial statements, which have been audited
by Deloitte & Touche LLP. Our audited consolidated financial statements for the
three years ended December 31, 2003 are included elsewhere herein. You should
read the following table together with the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section below and our restated
consolidated financial statements and their related notes included elsewhere
herein.
Year Ended December 31,
-------------------------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
(dollars in thousands)
STATEMENT OF OPERATIONS DATA:
Net sales $ 377,854 $ 398,737 $ 415,491 $ 387,068 $ 322,170
Cost of sales 273,598 269,861 276,221 248,746 201,445
--------- --------- --------- --------- ---------
Gross profit 104,256 128,876 139,270 138,322 120,725
Selling, general and administrative expenses 87,020 91,221 97,532 92,941 79,819
Facility closing and severance expenses (1) 2,294 5,399 7,360 2,517 -
Amortization of goodwill and intangibles 944 603 3,912 2,508 2,369
--------- --------- --------- --------- ---------
Income from operations 13,998 31,653 30,466 40,356 38,537
Interest expense 39,955 33,967 35,024 22,574 11,661
Lawsuit judgment - - - 15,341(2) -
Loss on early extinguishment of long-term debt 2,480(4) - - 7,761(3) -
Loss (gain) on disposals of property, plant
and equipment (636) 1,115 (7) - -
Other expense 20 80 102 293 230
--------- --------- --------- --------- ---------
Income (loss) before provision (benefit)
for income taxes and cumulative effect of
change in accounting principle (27,821) (3,509) (4,653) (5,613) 26,646
Provision (benefit) for income taxes (10,713) (386) (1,179) (1,478) 11,991
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle (17,108) (3,123) (3,474) (4,135) 14,655
Cumulative effect of change in accounting
principle, net of income tax benefit - (17,140)(5) - - -
--------- --------- --------- --------- ---------
Net income (loss) (17,108) (20,263) (3,474) (4,135) 14,655
Dividends on Company-obligated mandatorily
redeemable convertible trust preferred
securities, net of income tax benefit - - - 583 320
--------- --------- --------- --------- ---------
Net income (loss) available to common shareholders $ (17,108) $ (20,263) $ (3,474) $ (4,718) $ 14,335
========= ========= ========= ========= =========
13
Year Ended December 31,
-----------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
(dollars in thousands)
Other Financial Data:
Depreciation and amortization $ 26,878 $ 21,453 $ 22,202 $ 15,121 $ 14,086
Property, plant and equipment additions, net 6,935 9,267 9,755 11,483 7,469
Rental equipment additions, net (12,152) (17,230) 3,191 801 4,052
Balance Sheet Data (at period end):
Working Capital $ 71,594 $ 65,751 $ 56,943 $ 60,868 $ 50,469
Goodwill and Intangibles 119,932 115,733 136,626 97,044 75,522
Total Assets 393,384 373,971 396,843 335,418 278,679
Long-term debt (including current portion) 341,890 299,536 291,946 245,925 105,173
Convertible trust preferred securities - - - - 19,556
Shareholders' equity (deficit) (7,267) (4,241) 16,721 13,196 88,772
(1) From 2000 through 2003, we approved and implemented several plans to exit
additional manufacturing and distribution facilities and reduce overall
headcount to keep our cost structure aligned with our net sales. We describe
the facility closing and severance expenses relating to these consolidation
efforts in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Facility Closing and Severance Expenses."
(2) Symons was a defendant in a civil suit brought by EFCO Corp., a competitor
of Symons in one portion of their business. In October 2000, Symons
satisfied a judgment of $14.1 million, post-judgment interest of $1.1
million, and defense costs of $0.1 million, by payment to EFCO from our cash
on hand and from our revolving credit facility.
(3) During June 2000, in connection with the recapitalization, we refinanced our
then-existing bank indebtedness. Additionally, the Dayton Superior Capital
Trust, which held solely debentures, was dissolved. The company-obligated
mandatorily redeemable convertible trust preferred securities converted to
debentures having the right to receive cash in the amount of $22.00, plus
accrued dividends, per preferred security. As a result we recorded a loss in
2000 of $7.8 million, comprised of the following:
Expense deferred financing costs on previous long-term debt $ 2.7
Prepayment premium on extinguishments of long-term debt and interest rate swap agreements 0.5
Expense issuance costs on company-obligated mandatorily redeemable convertible trust Preferred securities 1.7
Prepayment premium on conversion of company-obligated mandatorily redeemable
convertible trust preferred securities into debentures 2.1
Financing cost for unused long-term debt commitment 0.8
-----
$ 7.8
=====
This loss was recorded as an extraordinary loss in 2000 and subsequently was
reclassified as an ordinary loss as a result of our adoption in 2003 of SFAS No.
145, "Rescission of FASB Statement Nos. 4,44, and 64, Amendment of FASB
Statement No. 13 and Technical Corrections."
14
(4) On June 9, 2003, we completed an offering of $165 million 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 $157 million
and were used to repay our acquisition credit facility, term loan tranche A,
term loan tranche B, and a portion of the revolving credit facility, which
was subsequently increased by $24.4 million. As a result of the
transactions, we incurred a loss on the early extinguishment of long-term
debt of $2.5 million, due to the expensing of deferred financing costs. The
Senior Notes are secured by substantially all assets of the Company.
(5) We adopted SFAS No. 142 effective January 1, 2002. As a result of adopting
SFAS No. 142, we recorded a non-cash charge in 2002 of $17.1 million ($19.9
million of goodwill, less an income tax benefit of $2.8 million), which is
reflected as a cumulative effect of change in accounting principle. This
amount does not affect our ongoing operations. The goodwill arose from the
acquisitions of Dur-O-Wal in 1995, Southern Construction Products in 1999,
and Polytite in 2000, all of which manufacture and sell metal accessories
used in masonry construction. The masonry products market has experienced
weaker markets and significant price competition, which has had a negative
impact on the product line's earnings and fair value.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Founded in 1924, 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 in terms of revenues. Although almost all of our products are used
in concrete or masonry construction, the function and nature of the products
differ widely. In 2001, we acquired Aztec Concrete Accessories, Inc., a
manufacturer of plastic products for the construction industry, primarily in the
Western United States. We also have expanded our business units through
additional smaller acquisitions. 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. ("Safway Formwork") for $20.0 million. Safway Formwork
is a subsidiary of Safway Services, Inc., whose ultimate parent is ThyssenKrupp
AG, or TK, a publicly traded company in Germany.
In an effort to reduce costs and enhance customer responsiveness,
effective January 1, 2003, we reorganized our company from six autonomous
manufacturing and sales divisions into two sales units (CPG and Symons) and a
new product fulfillment unit (Supply Chain). CPG 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 CPG and Symons.
CPG. CPG derives its revenues from the sale of products primarily to independent
distributors and contractors. CPG also provides some equipment on a rental
basis. CPG 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 CPG 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 governmental infrastructure expenditures and their related
bid processes. Due to the project-oriented nature of paving jobs, these products
generally are made to order.
SYMONS. Symons derives its revenues from the sale and rental of engineered,
reusable modular forming systems and related accessories to independent
distributors and contractors. Sales of both new and used concrete forming
systems and specific consumables generally represent approximately two-thirds of
the revenues of this business unit, and rentals represent the remaining
one-third. This business unit's products include systems with steel frames and a
plywood face, also known as Steel-Ply(R), and systems that use steel in both the
frame and face. Symons obtains Steel-Ply(R) forms from the Supply Chain product
fulfillment group and manufactures and assembles or outsources some of the
manufacturing involved in some of the other all-steel forms. This outsourcing
strategy allows us to fulfill larger orders without increased overhead. Cost of
sales for Symons consists primarily of purchased steel and specialty plywood,
and other raw materials, depreciation and maintenance of rental equipment, and
the costs associated with manufacturing, assembly and overhead.
SUPPLY CHAIN. As part of our reorganization, effective January 1, 2003, we
reorganized most of our manufacturing and distribution operations into Supply
Chain, our new product fulfillment unit, which manufactures and distributes our
products in support of CPG and Symons. In addition to manufacturing Steel-Ply(R)
forms for Symons, we design and manufacture or customize most of the machines we
use to produce concrete accessories, and these proprietary designs allow for
quick changeover of machine set-ups. This flexibility, together with our
extensive distribution system, enables CPG to deliver many of its concrete
accessories within 24 hours of a customer order. We are currently moving a
significant percentage of our annual production requirements to Reynosa, Mexico.
We believe that by relocating a portion of our manufacturing to Mexico, we will
realize approximately $5 million in savings annually. We also intend to
outsource some of our production requirements to lower cost foreign producers,
which we believe will generate significant additional savings. For segment
reporting purposes, we include Supply Chain within CPG.
16
SAFWAY FORMWORK 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. Safway Formwork is a subsidiary of Safway Services, Inc., whose
ultimate parent is ThyssenKrupp AG, or TK, a publicly traded company in Germany.
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 book value of the note at December 31,
2003 was $6.4 million. The face value 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 was due on December 31, 2003. The
settlement of normal purchase price adjustments resulted in a $417,000 reduction
in the December payment to $333,000. A subsequent purchase price adjustment of
$240,000 was paid in March 2004. 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.
The Company exercised its option to acquire additional rental equipment from
Safway. The Company issued a non-interest bearing note with a present value of
$1.6 million. The note is being accreted to the face value of $2.0 million using
the effective interest method and is reflected as interest expense. Minimum
payments on the note are $199,000 in 2004 and 2005, $397,000 in 2006 and 2007,
and $795,000 in 2008. Payments may be accelerated if certain revenue targets are
met.
Safway Formwork sold and rented concrete forming and shoring systems,
principally European style products designed and manufactured by TK's affiliated
European concrete forming and shoring business, to a national customer base. For
the period from October 1, 2002 through July 25, 2003, Safway Formwork had
revenues of $17.0 million. By acquiring the Safway Formwork rental fleet assets,
which had a gross book value at July 25, 2003 of approximately $41.8 million, we
expect to increase our presence in the concrete forming and shoring systems
business and expand our product offerings by advancing our plan to continue
augmenting Symons' existing rental fleet with European clamping systems. As part
of the asset acquisition we entered into an exclusive manufacturing and
distribution agreement with certain of TK's affiliates under which we were
granted the exclusive right to manufacture, design, market, offer, sell and
distribute certain European formwork products within the United States, Mexico
and Canada. The acquisition has been accounted for as a purchase, and the
results of Safway Formwork have been included in our consolidated financial
statements from the date of acquisition. The purchase price has been allocated
based on the fair value of the assets acquired and liabilities assumed.
17
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 years ended December 31, 2001, 2002, and 2003 was
as follows:
OTHER
INVOLUNTARY LEASE RELOCATION POST-
TERMINATION TERMINATION OF CLOSING
BENEFITS COSTS OPERATIONS COSTS TOTAL
----------- ----------- ---------- --------- --------
(AMOUNTS IN THOUSANDS)
Balance, January 1, 2001 .................... $ 738 $ 540 $ - $ 575 $ 1,853
Facility closing and severance expenses ..... - - - - -
Items charged against reserve ............... (738) (50) - (398) (1,186)
-------- -------- -------- -------- --------
Balance, December 31, 2001 .................. - 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 ..... - (212) - - (212)
Items charged against reserve ............... - (57) - (93) (150)
-------- -------- -------- -------- --------
Balance, December 31, 2003 .................. $ - $ - $ - $ - $ -
======== ======== ======== ======== ========
During 2001, we approved and began implementing a plan to exit certain
of our manufacturing and distribution facilities and to reduce overall headcount
in order to keep our cost structure in alignment with net sales. Activity for
this plan for the years ended December 31, 2001, 2002, and 2003 was as follows:
OTHER
INVOLUNTARY LEASE RELOCATION POST-
TERMINATION TERMINATION OF CLOSING
BENEFITS COSTS OPERATIONS COSTS TOTAL
----------- ----------- ---------- --------- --------
(AMOUNTS IN THOUSANDS)
Facility closing and severance expenses ..... $ 3,287 $ 685 $ - $ 786 $ 4,758
Items charged against reserve ............... (2,356) (161) - - (2,517)
------- ------- -------- ------- -------
Balance, December 31, 2001 .................. 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 ..... - 379 - - 379
Items charged against reserve ............... - (175) - (311) (486)
------- ------- -------- ------- -------
Balance, December 31, 2003 .................. $ - $ 414 $ - $ - $ 414
======= ======= ======== ======= =======
The remaining lease termination costs are expected to be paid in 2004.
18
During 2002, we approved and began implementing a plan to exit certain
of our distribution facilities and to reduce overall headcount in order to keep
our cost structure in alignment with net sales. Activity for this plan for the
year ended December 31, 2002, and 2003 was as follows:
OTHER
INVOLUNTARY LEASE RELOCATION POST-
TERMINATION TERMINATION OF CLOSING
BENEFITS COSTS OPERATIONS COSTS TOTAL
----------- ----------- ---------- --------- --------
(AMOUNTS IN THOUSANDS)
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 ..... 202 (11) - - 191
Items charged against reserve ............... (2,414) (73) - - (2,487)
-------- -------- -------- -------- --------
Balance, December 31, 2003 .................. $ 200 $ - $ - $ - $ 200
======== ======== ======== ======== ========
The remaining involuntary termination benefits are expected to be paid
in 2004.
During 2003, we approved and began implementing a plan to exit certain
of our distribution facilities and to reduce overall headcount in order to keep
our cost structure in alignment with net sales. Activity for this plan for the
year ended December 31, 2003 was as follows:
OTHER
INVOLUNTARY LEASE RELOCATION POST-
TERMINATION TERMINATION OF CLOSING
BENEFITS COSTS OPERATIONS COSTS TOTAL
----------- ----------- ---------- --------- --------
(AMOUNTS IN THOUSANDS)
Facility closing and severance expenses .... $ 988 $ 27 $ - $ 921 $ 1,936
Items charged against reserve .............. (988) (27) - (921) (1,936)
------- ------- ------ ------- -------
Balance, December 31, 2003 ................. $ - $ - $ - $ - $ -
======= ======= ====== ======= =======
19
RESULTS OF OPERATIONS
The following table summarizes our results of operations as a
percentage of net sales for the periods indicated:
YEARS ENDED DECEMBER 31,
2003 2002 2001
---- ---- ----
Product sales 79.9% 79.8% 80.8%
Rental revenue 9.6 11.3 13.8
Used rental equipment sales 10.5 8.9 5.5
----- ----- -----
Net sales 100.0 100.0 100.0
----- ----- -----
Product cost of sales 78.5 74.5 74.3
Rental cost of sales 65.5 43.0 31.9
Used rental equipment cost of sales 32.2 38.4 37.7
----- ----- -----
Cost of sales 72.4 67.7 66.5
----- ----- -----
Product gross profit 21.5 25.5 25.7
Rental gross profit 34.5 57.0 68.1
Used rental equipment gross profit 67.8 61.6 62.3
----- ----- -----
Gross profit 27.6 32.3 33.5
Selling, general and administrative expenses 23.0 22.9 23.5
Facility closing and severance expenses 0.6 1.4 1.8
Amortization of goodwill and intangibles 0.2 0.1 0.9
----- ----- -----
Income from operations 3.7 7.9 7.3
Interest expense 10.6 8.5 8.4
Loss on early extinguishment of long-term debt 0.7 - -
Loss (gain) on disposals of property, plant, and equipment (0.2) 0.3 -
Other expense - - -
----- ----- -----
Income (loss) before provision (benefit) for income taxes (7.4) (0.9) (1.1)
Provision (benefit) for income taxes (2.8) (0.1) (0.3)
----- ----- -----
Income (loss) before cumulative effect of change in accounting principle (4.5) (0.8) (0.8)
Cumulative effect of change in accounting principle, net of income tax benefit - (4.3) -
----- ----- -----
Net income (loss) (4.5)% (5.1)% (0.8)%
===== ===== =====
20
COMPARISON OF YEARS ENDED DECEMBER 31, 2002 AND 2003
NET SALES. Our 2003 net sales were $377.9 million, a 5.2% decrease from $398.7
million in 2002. The following table summarizes our net sales by segment for the
periods indicated:
YEARS ENDED DECEMBER 31,
-------------------------------------------------
2003 2002
---------------------- ----------------------
(IN THOUSANDS)
%
SALES % SALES % CHANGE
--------- ----- --------- ----- ------
Construction Products Group:
Product sales $ 262,753 69.5% $ 278,473 69.8% (5.6)%
Rental revenue 3,194 0.8 4,694 1.2 (32.0)
Used rental equipment sales 4,403 1.2 4,085 1.0 7.8
--------- ---- --------- ----
Total Construction Products Group 270,350 71.5 287,252 72.0 (5.9)
Symons:
Product sales 60,936 16.1 60,773 15.2 0.3
Rental revenue 33,100 8.8 40,386 10.1 (18.0)
Used rental equipment cost of sales 35,320 9.3 31,556 7.9 11.9
--------- ---- --------- ----
Total Symons 129,356 34.2 132,715 33.2 (2.5)
Intersegment eliminations (21,852) (5.8) (21,230) (5.3) 2.9
--------- ---- --------- ----
Net sales $ 377,854 100.0% $ 398,737 100.0% (5.2)%
========= ===== ========= =====
CPG's sales decreased by 5.9% to $270.4 million in 2003 from $287.3 million in
2002. This decrease was due to unfavorable volume, as the construction products
markets were weaker in 2003 compared to 2002.
Symons' sales decreased by 2.5% to $129.4 million in 2003 from $132.7 million in
2002. Product sales increased 0.3% to $60.9 million from $60.8 million. Rental
revenues decreased 18.0% to $33.1 million in 2003 from $40.4 million in 2002.
The acquisition of Safway contributed $5.2 million of rental revenues in the
five months after acquisition. This was offset by lower revenues in existing
product lines, due to lower rental rates and, to a lesser extent, volume, both
due to weaker markets. We estimate that approximately 80% of the decrease in
rental revenues in existing product lines is due to rates. Symons' sales of used
rental equipment increased 11.9% to $35.3 million from $31.6 million. Safway
contributed $4.4 million with the remaining increase due to customers desiring
to increase their own fleet of rental equipment.
GROSS PROFIT. Gross profit for 2003 was $104.3 million, a $24.6 million decrease
from the $128.9 million reported for 2002. Gross profit was 27.6% of sales in
2003, decreasing from 32.3% in 2002. Product gross profit was $64.8 million, or
21.5% of product sales, in 2003, compared to $81.2 million, or 25.5% of product
sales in 2002. The decrease in percent of product sales was due to higher costs
of steel of approximately $1.8 million, insurance and health care benefits of
approximately $2.5 million, consistent with general market trends, and the
impact of fixed costs on lower product sales.
Rental gross profit decreased by $13.2 million to $12.5 million, or 34.5% of
rental revenue, in 2003 from $25.7 million, or 57.0 % of rental revenue in 2002.
Lower rental revenues of $8.8 million and higher depreciation expense of $4.5
million were the causes for the decline. Approximately $2.9 million of the
higher depreciation expense was due to the acquisition of Safway.
Gross profit on used rental equipment sales was $26.9 million, or 67.8% of used
rental equipment sales, compared to $22.0 million, or 61.6% of used rental
equipment sales, in 2002. The increase in percent of used rental equipment sales
was due to older equipment with less net book value being sold.
21
OPERATING EXPENSES. Our selling, general, and administrative expenses decreased
$4.2 million to $87.0 million in 2003 from $91.2 million in 2002, as a result of
the cost reduction initiatives we implemented in 2003 and 2002, which more than
offset the $3.3 million added by the acquisition of Safway.
Facility closing and severance expenses in 2003 were approximately $2.3 million
and approximately $5.4 million in 2002.
Amortization of intangibles increased $0.3 million to $0.9 million in 2003 from
$0.6 million in 2002, due to the amortization of intangibles acquired with
Safway.
OTHER EXPENSES. Interest expense increased to $40.0 million in 2003 from $34.0
million in 2002, due to higher interest rates on the new Senior Secured Notes
and higher outstanding long-term debt balances in 2003. The gain on disposals of
property, plant and equipment was $0.6 million in 2003, as compared to a loss of
$1.1 million in 2002. The 2003 amount related to real estate disposed due to
being redundant with an acquired Safway leased facility. The 2002 amount related
to the write-off of certain assets that were disposed of in conjunction with our
facility closing plans.
LOSS BEFORE BENEFIT FOR INCOME TAXES, AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE. The loss before income taxes and cumulative effect of
change in accounting principle in 2003 was $27.8 million, as compared to $3.5
million in 2002, and was comprised of the following:
YEARS ENDED
DECEMBER 31,
------------------------------
2003 2002
---------- ----------
(IN THOUSANDS)
Construction Products Group $ 18,057 $ 28,265
Symons 20,733 27,076
Intersegment eliminations (11,695) (11,032)
Corporate, including interest expense (54,916) (47,818)
---------- ----------
Loss before benefit for income taxes, and
cumulative effect of change in accounting principle $ (27,821) $ (3,509)
========== ==========
CPG's income before provision for income taxes of $18.1 million in 2003
decreased from $28.3 million in 2002. Gross profit decreased by $13.0 million
due to the unfavorable sales volume, and higher steel, insurance, and benefit
costs discussed above. These were partially offset by the benefit of $2.4
million of selling, general, and administrative expenses from the cost
reductions we implemented. All other items netted to a decrease in income of
$0.3 million.
Symons' income before income taxes was $20.7 million in 2003, compared to $27.1
million in 2002. This was due to lower gross profit of $9.2 million, primarily
due to lower rental revenues from weaker markets in 2003 compared to 2002. These
were partially offset by the benefit of lower selling, general, and
administrative expenses of $3.0 million from the cost reduction initiatives we
implemented. All other items netted to a decrease in income of $0.2 million.
Corporate expenses increased to $54.9 million in 2003 from $47.8 million in 2002
primarily due to higher interest expense, which increased by $6.0 million.
Elimination of gross profit on intersegment sales increased to $11.7 million in
2003 from $11.0 million in 2002 due to higher intersegment sales from more cross
selling of products.
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. The effective
tax rate in 2003 was 38.5%, which is different from the statutory rate,
primarily due to the state income taxes. The net loss before cumulative effect
of change in accounting principle for 2003 was $17.1 million, compared to a loss
of $3.1 million in 2002 due to the factors described above.
22
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. We adopted SFAS No. 142
effective January 1, 2002. As a result of adopting SFAS No. 142, we recorded a
non-cash charge in 2002 of $17.1 million ($19.9 million of goodwill, less an
income tax benefit of $2.8 million), which is reflected as a cumulative effect
of change in accounting principle. This amount does not affect our ongoing
operations or our cash flow. The goodwill arose from the acquisitions of
Dur-O-Wal in 1995, Southern Construction Products in 1999, and Polytite in 2000,
all of which manufacture and sell metal accessories used in masonry
construction. The masonry products market has experienced weaker markets and
significant price competition, which has had a negative impact on the product
line's earnings and fair value. The following is a reconciliation from reported
net loss to net loss adjusted for the amortization of goodwill:
NET LOSS. The net loss for 2003 was $17.1 million, compared to a loss of $20.3
million in 2002 due to the factors described above.
COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2002
NET SALES. Our 2002 net sales were $398.7 million, a 4.0% decrease from $415.5
million in 2001. The following table summarizes our net sales by segment for the
periods indicated:
YEARS ENDED DECEMBER 31,
-------------------------------------------------
2002 2001
---------------------- ----------------------
(AS RESTATED)
(IN THOUSANDS)
%
NET SALES % NET SALES % CHANGE
--------- ----- --------- ----- ------
Construction Products Group $ 287,252 72.0% $ 296,365 71.3% (3.1)%
Symons 132,715 33.3 140,168 33.7 (5.3)
Intersegment eliminations (21,230) (5.3) (21,042) (5.0) 0.9
--------- ---- --------- ----
Net sales $ 398,737 100.0% $ 415,491 100.0% (4.0)%
========= ===== ========= =====
CPG's sales decreased by 3.1% to $287.3 million in 2002 from $296.4 million in
2001. This decrease was primarily due to unfavorable volume and pricing, as the
construction products markets were weaker in 2002 compared to 2001. Symons'
sales decreased by 5.3% to $132.7 million in 2002 from $140.2 million in 2001
due to unfavorable rental revenues and pricing, as the concrete forming systems
markets were weaker in 2002 compared to 2001.
GROSS PROFIT. Gross profit for 2002 was $128.9 million, a $10.4 million decrease
from the $139.3 million reported for 2001. This was primarily due to the
unfavorable volume and pricing discussed previously. In addition, a change in
accounting estimate relating to the depreciable lives of a portion of the rental
fleet reduced 2002 gross profit by $2.0 million. These were partially offset by
the cost savings realized from the implementation of the 2001 and 2002 facility
closing and headcount reduction plans. Gross profit was 32.3% of sales in 2002,
decreasing from 33.5% in 2001. The decrease from 2001 was due to the unfavorable
sales volume and pricing, a higher mix of lower gross profit paving products, a
lower mix of higher gross profit Symons and concrete accessories products, a
lower mix of higher gross profit rental revenues and higher medical and
insurance costs. These were partially offset by a higher mix of sales of higher
gross profit used rental fleet in the Symons segment, and the cost savings
realized from the implementation of the 2001 and 2002 facility closing and
headcount reduction plans.
OPERATING EXPENSES. Our selling, general, and administrative expenses decreased
$6.3 million to $91.2 million in 2002 from $97.5 million in 2001, as a result of
the cost reduction initiatives we implemented in 2001 and 2002.
Facility closing and severance expenses in 2002 were approximately $5.4 million
and approximately $7.4 million in 2001.
Amortization of goodwill and intangibles decreased $3.3 million to $0.6 million
in 2002 from $3.9 million in 2001, due to the adoption of SFAS No. 142 "Goodwill
and Other Intangible Assets." This statement
23
precludes amortization of goodwill for periods beginning after December 15,
2001. Instead, an annual review of the recoverability of the goodwill and
intangible assets is required. Certain other intangible assets continue to be
amortized over their estimated useful lives.
OTHER EXPENSES. Interest expense decreased to $34.0 million in 2002 from $35.0
million in 2001 primarily due to lower interest rates in 2002. The loss on
disposals of property, plant and equipment was $1.1 million in 2002, which
related to the write-off of certain assets that were disposed of in conjunction
with our facility closing plans.
LOSS BEFORE BENEFIT FOR INCOME TAXES, AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE. The loss before income taxes and cumulative effect of
change in accounting principle in 2002 was $3.5 million, as compared to $4.7
million in 2001, and was comprised of the following:
YEARS ENDED
DECEMBER 31,
--------------------------------
2002 2001
---------- ---------
(IN THOUSANDS)
Construction Products Group $ 28,265 $ 29,315
Symons 27,076 31,324
Intersegment eliminations (11,032) (11,187)
Corporate, including interest expense (47,818) (54,105)
---------- ---------
Loss before benefit for income taxes, and cumulative
effect of change in accounting principle $ (3,509) $ (4,653)
========== =========
CPG's income before provision for income taxes of $28.3 million in 2002
decreased from $29.3 million in 2001, due to the unfavorable sales volume and
pricing. These were partially offset by the benefit of the cost reductions we
implemented, lower amortization expense with the adoption of SFAS No. 142, and
lower facility closing and severance expenses in 2002 compared to 2001.
Symons' income before income taxes was $27.1 million in 2002, compared to $31.3
million in 2001. This was due to the decreased sales volume, unfavorable pricing
and unfavorable mix of lower rental revenues due to weaker markets in 2002
compared to 2001. These were partially offset by the benefit of the cost
reduction initiatives we implemented, and the increased sales of higher gross
profit used rental fleet.
Corporate expenses decreased to $47.8 million, including interest expense of
$34.0 million, in 2002 from $54.1 million, including interest expense of $35.0
million, in 2001 due to lower facility closing and severance expenses, lower
interest expense as a result of lower interest rates, and the benefit of the
cost reduction initiatives we implemented.
Elimination of gross profit on intersegment sales decreased to $11.0 million in
2002 from $11.1 million in 2001 due to the mix of intersegment sales.
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. The effective
tax rate in 2002 was 11.0%, which is different from the statutory rate,
primarily due to the unfavorable impact of permanent book/tax differences. The
net loss before cumulative effect of change in accounting principle for 2002 was
$3.1 million, compared to a loss of $3.5 million in 2001 due to the factors
described above.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. We adopted SFAS No. 142
effective January 1, 2002. As a result of adopting SFAS No. 142, we recorded a
non-cash charge in 2002 of $17.1 million ($19.9 million of goodwill, less an
income tax benefit of $2.8 million), which is reflected as a cumulative effect
of change in accounting principle. This amount does not affect our ongoing
operations or our cash flow. The goodwill arose from the acquisitions of
Dur-O-Wal in 1995, Southern Construction Products in 1999, and Polytite in 2000,
all of which manufacture and sell metal accessories used in masonry
construction. The masonry products market has experienced weaker markets and
significant price competition, which has had a negative impact on the product
line's earnings and fair value.
24
The following is a reconciliation from reported net loss to net loss adjusted
for the amortization of goodwill:
Years Ended December 31,
2002 2001
-------- --------
(In thousands)
Net loss before cumulative effect of change in accounting principle, as reported $ (3,123) $ (3,474)
Amortization of goodwill, net of tax benefit - 3,375
-------- --------
Net loss before cumulative effect of change in accounting principle, as adjusted $ (3,123) $ (99)
======== ========
NET LOSS. The net loss for 2002 was $20.3 million, compared to a loss of $3.5
million in 2001 due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Our key statistics for measuring liquidity and capital resources are
net cash provided by operating activities, capital expenditures, and amounts
available under our revolving credit facility.
Our capital requirements relate primarily to capital expenditures, debt
service and the cost of acquisitions. Historically, our primary sources of
financing have been cash generated from operations, borrowings under our
revolving credit facility and the issuance of long-term debt and equity.
Net cash used in operating activities for 2003 and 2002 was $32.5
million and $17.3 million, respectively. Net loss after non-cash adjustments for
2003 was $22.4 million compared to net income of $3.0 million in 2002. This was
due to the higher loss before cumulative effect of change in accounting
principle in 2003 and the benefit for income taxes in 2003 being primarily
non-cash deferred. Changes in assets and liabilities resulted in a use of cash
of $10.1 million in 2003 compared to $20.3 million in 2002. This was attributed
to smaller growth in accounts receivable in 2003 and the timing of income tax
refunds received.
Net cash used in investing activities for 2003 was $8.1 million. Our
investing activities consisted of net proceeds from the sale of fixed assets and
rental equipment of $5.2 million in 2003, compared $8.0 million in 2002. In
addition, our investing activities in 2003 consisted of the acquisition of
Safway Formwork Systems LLC, which resulted in a use of cash in the amount of
$13.7 million.
Our capital expenditures in 2003 included additions to the rental fleet
of $27.6 million and net property, plant, and equipment additions of $6.9
million, offset by $39.7 million of proceeds from sales of rental equipment.
As of December 31, 2003, our long-term debt consisted of the following:
Revolving credit facility, weighted average interest rate of 5.2% $ 24,375
Senior Subordinated Notes, interest rate of 13.0% 154,729
Debt discount on Senior Subordinated Notes (8,514)
Senior Second Secured Notes, interest rate of 10.75% 165,000
Debt discount on Senior Second Secured Notes (7,454)
Senior Unsecured Note payable to seller of Safway, non-interest
bearing, accreted at 14.5% 7,999
Debentures previously held by Dayton Superior Capital Trust,
interest rate of 9.1%, due on demand 1,110
Capital lease obligations 4,590
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 55
---------
Total long-term debt 341,890
Less current maturities (3,067)
---------
Long-term portion $ 338,823
=========
25
At December 31, 2003, of the $50.0 million revolving credit facility
that was available to us, $24.4 million of borrowings were outstanding, along
with $7.0 million of letters of credit, with the remaining $18.6 million
available for borrowing.
Our long-term debt borrowings, net of repayments for the year ended
December 31, 2003 were $28.6 million. We incurred $1.9 million of financing
costs primarily related to the issuance of the Senior Secured Notes.
The Company may, from time to time, seek to retire its outstanding debt
through cash purchases and/or exchanges for equity securities, in open market
purchases, privately negotiated transactions or otherwise. Such repurchases or
exchanges, if any, will depend on prevailing market conditions, the Company's
liquidity requirements, contractual restrictions and other factors. The amounts
involved may be material.
At December 31, 2003, working capital was $71.6 million, compared to
$65.8 million at December 31, 2002. Accounts receivable increased by $3.7
million due to higher fourth quarter net sales. Inventories increased $1.5
million from 2002 to 2003. Raw materials declined $6.4 million due to the timing
of receipts and work in process and finished goods increased $7.9 million due to
support of the implementation of our manufacturing rationalization plan. Prepaid
expenses and other current assets decreased $2.4 million from 2002 to 2003 due
to the timing of insurance payments. Prepaid income taxes and future income tax
benefits combined decreased $3.9 million due to the cash refunds from the
carryback of our 2002 tax losses. Accounts payable decreased from 2002 due to
lower raw material purchases in the fourth quarter of 2003, and by decreasing
the payment time on steel purchases in exchange for discounts. Accrued
liabilities in total increased $1.7 million from 2002 to 2003. Accrued interest
increased $4.1 million due to the timing of required interest payments on the
$165.0 million Senior Second Secured Notes. This was partially offset by the
lower accrual for retirement contributions as the Company suspended
contributions for service rendered in 2003. In addition, required accruals have
decreased in conjunction with the lower net sales volumes and the reductions in
number of facilities and headcount as a result of our facility closing and
severance plans.
On June 9, 2003 we completed an offering of $165.0 million of 10.75%
Senior Second Secured Notes due 2008. The proceeds of the offering, $159.0
million, net of discounts, were used to repay acquisition credit facility, term
loan tranche A, term loan tranche B and a portion of the revolving credit
facility. Also in June 2003, we repurchased $15.3 million in principal amount of
our senior subordinated notes for $14.3 million with borrowings under our
revolving credit facility. The Senior Second Secured Notes are secured by
substantially all assets of the Company.
On January 30, 2004, we established an $80 million senior secured
revolving credit facility, which was used to refinance our previous $50 million
revolving credit facility. The new credit facility has no financial covenants
and is subject to availability under a borrowing base calculation. Availability
of borrowings is limited to 85% of eligible accounts receivable and 60% of
eligible inventories and rental equipment, less $10 million. As of January 30,
2004, all $80 million was available under the facility. The credit facility is
secured by substantially all assets of the Company.
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.
26
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. Safway Formwork is a subsidiary of Safway Services, Inc., whose
ultimate parent is ThyssenKrupp AG, or TK, a publicly traded company in Germany.
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 book value of the note at December 31,
2003 was $6.4 million. The face value 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 was due on December 31, 2003. The
settlement of normal purchase price adjustments resulted in a $417,000 reduction
in the December payment to $333,000. A subsequent purchase price adjustment of
$240,000 was paid in March 2004. 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.
The Company exercised its option to acquire additional rental equipment
from Safway. The Company issued a non-interest bearing note with a present value
of $1.6 million. The note is being accreted to the face value of $2.0 million
using the effective interest method and is reflected as interest expense.
Minimum payments on the note are $199,000 in 2004 and 2005, $397,000 in 2006 and
2007, and $795,000 in 2008. Payments may be accelerated if certain revenue
targets are met.
We believe our liquidity, capital resources and cash flows from
operations are sufficient, in the absence of additional acquisitions, to fund
the capital expenditures we have planned and our working capital and debt
service requirements.
Our ability to make scheduled payments of principal of, or to pay the
interest on, or to refinance, our indebtedness, or to fund planned capital
expenditures and research and development will depend on our future performance,
which, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control. Based on our current level of operations and anticipated operating
improvements, management believes that cash flow from operations and available
borrowings under our revolving credit facility will be adequate to meet our
future liquidity for the foreseeable future. We cannot assure you, however, that
our business will generate sufficient cash flow from operations, that operating
improvements will be realized on schedule or that future borrowings will be
available to us under our revolving credit facility in an amount sufficient to
enable us to pay our indebtedness or to fund our other liquidity needs. We may
from time to time seek to retire our outstanding debt through cash purchases
and/or exchanges for equity securities, in open market purchases, in privately
negotiated transactions or otherwise. Any such repurchases or exchanges will
depend on prevailing market conditions, our liquidity requirements, contractual
restrictions and other factors. The amounts involved may be material. We may
need to refinance all or a portion of our indebtedness on or before maturity. We
cannot assure you that we will be able to refinance any of our indebtedness,
including our revolving credit facility, the senior subordinated notes and the
senior second secured notes, on commercially reasonable terms or at all.
27
COMMITMENTS
Certain purchase commitments contain guaranteed purchase levels with
vendors. The maximum potential future payout is reflected in the purchase
obligations column and there are no guaranteed purchase levels in excess of what
the Company intends to purchase in the normal course of business.
Our Management Stockholders' Agreement states that, upon termination of
the employment of a management stockholder, the management stockholder has
certain put rights, and the Company has certain call rights, with respect to the
stockholder's common stock. See discussion of Management Stockholders' Agreement
in Item 11.
Scheduled payments of long-term debt, future minimum lease payments
under capital leases, future lease payments under non-cancelable operating
leases, purchase obligations, and other long-term liabilities at December 31,
2003 were as follows:
Other Long-
Long-term Capital Operating Purchase Term
Year Debt Leases Leases Obligations Liabilities Total
- ---------- -------- -------- --------- ----------- ----------- --------
2004 $ 1,523 $ 1,514 $ 5,749 $ 798 $ 5,407 $ 14,991
2005 196 1,392 5,016 792 50 7,446
2006 24,763 965 3,588 792 50 30,158
2007 418 772 2,460 792 - 4,442
2008 171,639 664 1,353 - 173,656
Thereafter 154,729 127 7,300 - 162,156
-------- -------- -------- -------- -------- --------
$353,268 $ 5,434 $ 25,466 $ 3,174 $ 5,507 $392,849
======== ======== ======== ======== ======== ========
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 may not be able to pass on the cost of commodity price increases to our
customers. Steel, in its various forms, is our principal raw material,
constituting approximately 20% of our cost of sales in 2003. Historically, steel
prices have fluctuated and we are currently facing rising steel prices and a
potential impending steel shortage. Any decrease in our volume of steel
purchases could affect our ability to secure volume purchase discounts that we
have obtained in the past. Additionally, the overall increase in energy costs,
including natural gas and petroleum products, has adversely impacted our overall
operating costs in the form of higher raw material, utilities, and freight
costs. We cannot assure you we will be able to pass these cost increases on to
our customers.
STOCK COLLATERAL VALUATION - SENIOR SECOND SECURED NOTES
Rule 3-16 of the SEC's Regulation S-X requires the presentation of a
subsidiary's stand-alone, audited financial statements if the subsidiary's
capital stock secures an issuer's notes and the par value, book value or market
value ("Applicable Value") of the stock equals or exceeds 20% of the aggregate
principal amount of the secured class of securities the ("Collateral
Threshold.") The indenture governing our Senior Second Secured Notes and the
security documents for the notes provide that the collateral will never include
the capital stock of any subsidiary to the extent the Applicable Value of the
stock is equal to or greater than the Collateral Threshold. As a result, we will
not be required to present separate financial statements of any of our
subsidiaries under Rule 3-16. In addition, in the event that Rule 3-16 or Rule
3-10 of Regulation S-X is amended, modified or interpreted by the SEC to require
(or is replaced with another rule or regulation, or any other law, rule or
regulation is adopted, which would require) the filing with the SEC (or any
other governmental agency) of separate financial statements of
28
any of our subsidiaries due to the fact that such subsidiary's capital stock or
other securities secure our Senior Second Secured Notes, then the capital stock
or other securities of such subsidiary automatically will be deemed not to be
part of the collateral for the notes but only to the extent necessary to not be
subject to such requirement. In such event, the security documents for the
Senior Second Secured Notes may be amended or modified, without the consent of
any holder of notes, to the extent necessary to release the liens of the Senior
Second Secured Notes on the shares of capital stock or other securities that are
so deemed to no longer constitute part of the collateral; however, the excluded
collateral will continue to secure our first priority lien obligations such as
our senior secured revolving credit facility. As a result of the provisions in
the indenture and security documents relating to subsidiary capital stock,
holders of our Senior Second Secured Notes may at any time in the future lose
all or a portion of their security interest in the capital stock of any of our
other subsidiaries if the Applicable Value of that stock were to become equal to
or greater than the Collateral Threshold. As of December 31, 2003, all of the
capital stock of our subsidiaries Dur-O-Wal, Inc., Trevecca Holdings, Inc.,
Dayton Superior Specialty Chemical Corp., Aztec Concrete Accessories, Inc. and
Southern Construction Products, Inc. and 65% of the voting capital stock and
100% of the non-voting capital stock of our subsidiary Dayton Superior Canada
Ltd. constitute collateral for the notes. The capital stock of our subsidiary,
Symons Corporation, does not currently constitute collateral for the notes,
since the Applicable Value of the capital stock of Symons Corporation equals or
exceeds the Collateral Threshold. The Applicable Value of the capital stock of
each of Dayton Superior Specialty Chemical Corp., Aztec Concrete Accessories,
Inc. and Trevecca Holdings, Inc. (the direct, holding company parent of Aztec
Concrete Accessories, Inc.) is currently near the Collateral Threshold. We have
based our determination of which subsidiary's capital stock currently
constitutes collateral upon the book value, par value and estimated market value
of the capital stock of each of our subsidiaries as of December 31, 2003. The
Applicable Value for the capital stock of each of our subsidiaries is the
greater of the book value and estimated market value, as the value of each
subsidiary's capital stock is nominal and therefore has not impacted our
calculation of Applicable Value.
Set forth in the table below is the Applicable Value of each subsidiary's
capital stock as of December 31, 2003:
Subsidiary Applicable Value as of 12/31/2003
- --------------------------------------- ---------------------------------
Symons Corporation $ 112,682
Aztec Concrete Accessories, Inc. 30,756
Dur-O-Wal, Inc. 6,908
Trevecca Holdings, Inc. (1) 30,756
Dayton Superior Specialty Chemical Corp. 29,150
Southern Construction Products, Inc. (2) -
Dayton Superior Canada Ltd. 5,223
(1) Trevecca Holdings, Inc. is a holding company, the sole asset of which has
remained the capital stock of Aztec Concrete Accessories, Inc. since we acquired
Trevecca Holdings and Aztec Concrete Accessories in January 2001.
(2) Southern Construction Products, Inc. is currently an inactive corporation
with no assets.
Based upon the foregoing, as of December 31, 2003, the Applicable Value of the
capital stock of Symons Corporation exceeded the Collateral Threshold. As a
result, the capital stock of Symons Corporation is not currently included in the
Collateral. The Applicable Value of the capital stock of our other subsidiaries
did not exceed the Collateral Threshold as of December 31, 2003. In respect of
Aztec Concrete Accessories, Inc., Trevecca Holdings, Inc., and Dayton Superior
Specialty Chemical Corp., the Applicable Value of their common stock was based
upon book value. Book value of a subsidiary's capital stock is calculated as of
each preceding period end and represents the original purchase price of the
subsidiary's capital stock plus any income earned and less any losses and any
transfers of assets.
In respect of Symons Corporation, Dur-O-Wal, Inc., and Dayton Superior Canada
Ltd, the Applicable Value of their common stock was based upon estimated market
value. We have calculated the
29
estimated market value of our subsidiaries' capital stock by determining the
earnings before interest, taxes, depreciation, and amortization, or EBITDA, of
each subsidiary for the twelve months ended December 31, 2003, adjusted in each
case to add back facility closing and severance expenses, loss on sale of fixed
assets and other expense, and multiplied this adjusted EBITDA by 5.5 times. We
retain an independent appraisal firm for purposes of calculating the market
value of our common stock on a going concern basis, as required under our
Management Stockholders' Agreement and in connection with determining
equity-based compensation. The appraisal firm has informed us that a range of 5
to 6 times adjusted EBITDA is reasonable for determining the fair value of the
capital stock of smaller, basic manufacturing companies. We determined that
using a multiple of 5.5 times, which is the mid-point of the range described
above, is a reasonable and appropriate means for determining fair value of our
subsidiaries' capital stock.
Set forth below is the adjusted EBITDA of each of our subsidiaries other than
Southern Construction Products, Inc. (which has no adjusted EBITDA) for the
twelve months ended December 31, 2003, together with a reconciliation to the net
income (loss) of each of these subsidiaries:
DAYTON SUPERIOR DAYTON
SYMONS AZTEC CONCRETE DUR-O-WAL, TREVECCA SPECIALTY SUPERIOR
CORPORATION ACCESSORIES, INC. INC. HOLDINGS, INC. CHEMICAL CORP. CANADA LTD.
----------- ----------------- --------- -------------- --------------- -----------
Net Income $ 150 $ 2,970 $ 396 $ 2,970 $ 1,623 $ 357
Provision for Income Taxes 94 1,859 248 1,859 1,016 224
Other (Income) Expense (84) - - - 110 316
Interest Expense 323 - - - - -
Income from Operations 483 4,830 644 4,830 2,748 896
Facility Closing and Severance Expenses 569 - - - 96 -
Depreciation Expense 18,785 591 612 591 799 53
Amortization of Intangibles 651 - - - - -
--------- --------- --------- --------- --------- ---------
Adjusted valuation EBITDA 20,488 5,421 1,256 5,421 3,644 950
Multiple 5.5 5.5 5.5 5.5 5.5 5.5
--------- --------- --------- --------- --------- ---------
Estimated Fair Value $ 112,682 $ 29,814 $ 6,908 $ 29,814 $ 20,042 $ 5,223
========= ========= ========= ========= ========= =========
As described above, we have used EBITDA and adjusted EBITDA of each of our
subsidiaries solely for purposes of determining the estimated market value of
their capital stock to determine whether that capital stock is included in the
collateral. EBITDA and adjusted EBITDA are not recognized financial measures
under generally accepted accounting principles and do not purport to be
alternatives to operating income as indicators of operating performance or to
cash flows from operating activities as measures of liquidity. Additionally,
EBITDA has limitations as an analytical tool, and you should not consider it in
isolation or as a substitute for analysis of our consolidated results as
reported under generally accepted accounting principles. Because not all
companies use identical calculations, the presentation of adjusted EBITDA also
may not be comparable to other similarly titled measures of other companies. You
are encouraged to evaluate the adjustments taken and the reasons we consider
them appropriate for analysis for determining estimated market value of our
subsidiaries' capital stock.
A change in the Applicable Value of the capital stock of any of our subsidiaries
could result in a subsidiary's capital stock that was previously excluded from
collateral becoming part of the collateral or a subsidiary's capital stock that
was previously included in collateral to become excluded. The following table
reflects the amounts by which the Applicable Value of each subsidiary's capital
stock as of December 31, 2003 and the adjusted EBITDA of each subsidiary for the
twelve months ended December 31, 2003 would have to increase in order for that
subsidiary's capital stock to no longer constitute collateral or, in the case of
Symons Corporation, would have to decrease in order for the capital stock of
Symons Corporation to become collateral:
30
Change in Applicable Change in Adjusted
Subsidiary Value EBITDA
- --------------------------------------- -------------------- ------------------
Symons Corporation $(79,681) $(14,488)
Aztec Concrete Accessories, Inc. 2,245 580
Dur-O-Wal, Inc. 26,093 4,744
Trevecca Holdings, Inc. 2,245 580
Dayton Superior Specialty Chemical Corp. 3,851 2,356
Southern Construction Products, Inc. - -
Dayton Superior Canada Ltd. 27,778 5,050
CRITICAL ACCOUNTING POLICIES
In preparing our consolidated financial statements, we follow accounting
principles generally accepted in the United States. 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. On an on-going basis, we evaluate our
estimates, including those related to allowance for doubtful accounts,
inventories, investments, long-lived assets, income taxes, insurance reserves,
restructuring liabilities, environmental contingencies and litigation. We base
our estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances. Actual results may differ from
these estimates under different assumptions or conditions. We believe the
following critical accounting policies affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements.
INVENTORIES
We value all inventories at the lower of first-in, first-out, or FIFO, cost or
market and includes all costs directly associated with manufacturing products:
materials, labor and manufacturing overhead. We provide net realizable value
reserves, which reflect our best estimate of the excess of the cost of potential
obsolete and slow moving inventory over the expected net realizable value.
RENTAL EQUIPMENT
We manufacture rental equipment for resale and for rent to others on a
short-term basis. We record rental equipment at the lower of FIFO cost or market
and it is depreciated over the estimated useful life of the equipment, three to
fifteen years, on a straight-line method. Rental equipment that is sold is also
treated on a FIFO basis.
INCOME TAXES
We have generated deferred tax assets or liabilities due to temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A valuation
allowance against deferred tax assets at the balance sheet date is not
considered necessary because it is more likely than not the deferred tax assets
will be fully realized. We record liabilities relating to income taxes utilizing
known obligations and estimates of potential obligations.
REVENUE RECOGNITION
Revenue is recognized from product sales when the product is shipped from our
facilities and risk of loss and title have passed to the customer. Additionally,
revenue is recognized at the customer's written request and when the customer
has made a fixed commitment to purchase goods on a fixed schedule consistent
with the customer's business, where risk of ownership has passed to the buyer,
the goods are set-aside in storage and the Company does not retain any specific
performance obligations such that the earning process is not complete. For
transactions where such conditions are not satisfied, revenue is deferred until
the terms of acceptance are satisfied. On rental equipment sales, revenue is
recognized and recorded on the date of shipment. Rental revenues are recognized
ratably over the terms of the rental agreements.
31
INSURANCE RESERVES
We are self-insured for certain of our group medical, workers' compensation and
product and general liability claims. We have stop loss insurance coverage at
various per occurrence and per annum levels depending on type of claim. We
consult with third party administrators to estimate the reserves required for
these claims. Actual claims experience can impact these calculations and, to the
extent that subsequent claim costs vary from estimates, future earnings could be
impacted and the impact could be material. We made no material revisions to the
estimates for the years ended December 31, 2003, 2002 and 2001.
PENSION LIABILITIES
Pension and other retirement benefits, including all relevant assumptions
required by accounting principles generally accepted in the United States of
America, are evaluated each year. Due to the technical nature of retirement
accounting, outside actuaries are used to provide assistance in calculating the
estimated future obligations. Since there are many assumptions used to estimate
future retirement benefits, differences between actual future events and prior
estimates and assumptions could result in adjustments to pension expense and
obligations. Certain actuarial assumptions, such as the discount rate and
expected long-term rate of return, have a significant effect on the amounts
reported for net periodic pension cost and the related benefit obligations.
ACCOUNTS RECEIVABLE ALLOWANCE
We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. If the financial
condition of our customers deteriorates, resulting in an impairment of their
ability to make payments, additional allowances may be required.
OTHER LOSS RESERVES
We have other loss exposures, such as facility closing and severance liabilities
and litigation. Establishing loss reserves for these matters requires us to
estimate and make judgments in regards to risk exposure and ultimate liability.
We establish accruals for these exposures; however, if our exposure exceeds our
estimates we could be required to record additional charges.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 eliminates the requirement to classify gains and losses from the
extinguishment of indebtedness as extraordinary, requires certain lease
modifications to be treated the same as a sale-leaseback transaction, and makes
other non-substantive technical corrections to existing pronouncements. SFAS No.
145 is effective for fiscal years beginning after May 15, 2002, with earlier
adoption encouraged. The adoption of this pronouncement in 2003 resulted in the
classification in 2003 of the loss on the early extinguishment of long-term debt
as other expense.
In July 2002, the FASB issued Statement of SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring or
other exit or disposal activity. Statement 146 is to be applied prospectively to
exit or disposal activities initiated after December 31, 2002. The adoption of
this pronouncement did not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
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
32
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.
The Company does not believe this pronouncement will have a material impact on
its consolidated financial position, results of operations, or cash flows.
In November 2002, the FASB issued Interpretation (FIN) No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees Including Indirect
Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the disclosures
to be made by a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements in this interpretation are required for
financial statements of periods ending after December 15, 2002. The initial
measurement provisions of the interpretation are applicable on a prospective
basis for guarantees issued or modified after December 31, 2002. The adoption of
this pronouncement did not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation (FIN) No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of APB No. 50." FIN No. 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN No. 46 is effective for
all new variable interest entities created or acquired after January 31, 2003.
For variable interest entities created or acquired prior to February 1, 2003,
the provisions of FIN No. 46 must be applied for the first interim or annual
period beginning after December 15, 2003. 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 2003, FASB issued a revised interpretation of FIN No. 46, "FIN No.
46-R." This supercedes Fin No. 46 and clarifies and expands current accounting
guidance for variable interest entities. Fin No. 46 and Fin No. 46-R are
effective immediately for all variable interest entities created after January
31, 2003, and for variable interest entities created prior to February 1, 2003,
no later than the end of the first reporting period after March 15, 2004. We
have not utilized such entities and therefore the adoption of Fin No. 46 and FIN
No. 46-R had no effect on our consolidated financial statements.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This statement
revises the disclosures required for pension plans and other postretirement
benefit plans. The company adopted this revised statement effective December 31,
2003. See Note 6 to the consolidated financial statements for the revised
disclosures.
In December 2003, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 104, "Revenue Recognition, corrected copy". This bulletin
revises or rescinds portions of the previous interpretive guidance included in
Topic 13 in order to make this interpretive guidance consistent with current
authoritative accounting and auditing guidance related to revenue recognition.
The adoption of SAB No. 104 did not have a material impact on the Company's
consolidated financial statements.
33
FORWARD-LOOKING STATEMENTS
This Form 10-K includes, and future filings by us on Form 10-K, Form 10-Q, and
Form 8-K, and future oral and written statements by us and our management may
include certain forward-looking statements, including (without limitation)
statements with respect to anticipated future operating and financial
performance, growth opportunities and growth rates, acquisition and divestitive
opportunities and other similar forecasts and statements of expectation. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and "should," and variations of these words and similar expressions,
are intended to identify these forward-looking statements. Forward-looking
statements by 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, our ability to
successfully identify, finance, complete and integrate acquisitions; increases
in the price of steel (our principal raw material) and our ability to pass along
such price increases to our customers; the effects of weather and seasonality on
the construction industry; increasing consolidation of our customers; the mix of
products we sell; the competitive nature of our industry; and the amount of debt
we must service. This list is not intended to be exhaustive, and additional
information can be found under "Risks Related to Our Business" in Part I of this
annual report on Form 10-K. 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.
34
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of December 31, 2003, we had financial instruments, which were
sensitive to changes in interest rates. These financial instruments consist of:
- $50 million revolving credit facility, $24.4 million of which was
outstanding at December 31, 2003;
- $154.7 million of Senior Subordinated Notes;
- $165.0 million of Senior Second Secured Notes;
- $8.0 million Senior Unsecured Note payable to seller of Safway
- $4.6 million in capital lease obligations
- $1.2 million in other fixed-rate, long-term debt.
Our $50,000 revolving credit facility was due to mature in June 2006.
The credit facility has several interest rate options that reprice on a
short-term basis. At December 31, 2003, the Company had outstanding letters of
credit of $7,000 and available borrowings of $18,625 under its $50,000 revolving
credit facility. The weighted average interest rate as of December 31, 2003 was
5.2%. The credit facility was secured by substantially all assets of the
Company.
Our $154.7 million of senior subordinated notes mature in June 2009.
The notes were issued at a discount, which is being accreted to the face value
using the effective interest method and is reflected as interest expense. The
net book value of the notes at December 31, 2003 was $146.2 million. The notes
were issued with warrants that allow the holder to purchase 117,276 of the
Company's Class A Common Shares for $0.01 per share. The senior subordinated
notes have an interest rate of 13.0%. The estimated fair value of the notes is
$134.6 million as of December 31, 2003.
Our $165.0 million of senior second secured notes mature in June 2008.
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
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 $24,375. As a result of the transactions, the Company incurred a
loss on the early extinguishment of long-term debt of $2,550, due to the
expensing of deferred financing costs. The net book value of the notes at
December 31, 2003 was $157.6 million. The senior second secured notes have an
interest rate of 10.75%. The estimated fair value of the notes is $169.1 million
as of December 31, 2003.
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 Safway Formwork is a subsidiary of Safway Services, Inc., whose
ultimate parent is ThyssenKrupp AG, or TK, a publicly traded company in Germany.
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 value 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 was due on
December 31, 2003. The settlement of normal purchase price adjustments resulted
in a $417,000 reduction in the December payment to $333,000. A subsequent
purchase price adjustment of $240,000 was paid in March 2004. 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. The book value
of the note at December 31, 2003 was $6.4 million.
35
The Company exercised its option to acquire additional rental equipment
from Safway. The Company issued a non-interest bearing note with a present value
of $1.6 million. The note is being accreted to the face value of $2.0 million
using the effective interest method and is reflected as interest expense.
Minimum payments on the note are $199,000 in 2004 and 2005, $397,000 in 2006 and
2007, and $795,000 in 2008. Payments may be accelerated if certain revenue
targets are met.
Our other long-term debt at December 31, 2003 consisted of $1.1 million
of 9.1% junior subordinated debentures previously held by the Dayton Superior
Capital Trust with an estimated fair value of $1.7 million, and a $0.1 million,
7% loan due in annual installments of $31,500 per year with an estimated fair
value as of December 31, 2003 of $0.1 million.
In the ordinary course of our business, we also are exposed to price
changes in raw materials (particularly steel rod and steel bar) and products
purchased for resale. The prices of these items can change significantly due to
changes in the markets in which our suppliers operate. We generally do not,
however, use financial instruments to manage our exposure to changes in
commodity prices.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Dayton Superior Corporation
We have audited the accompanying consolidated balance sheets of Dayton Superior
Corporation (an Ohio corporation) and Subsidiaries (the "Company") as of
December 31, 2003 and 2002, and the related statements of operations,
shareholders' deficit, cash flows, and comprehensive loss for each of the three
years in the period ended December 31, 2003. Our audits also included the
financial statement schedules listed at item 15(a)(2). These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2003
and 2002, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in the consolidated financial statements, in 2002 the Company
changed its method of accounting for goodwill and other intangible assets to
adopt Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets."
DELOITTE & TOUCHE LLP
Dayton, Ohio
March 26, 2004
37
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2003 2002
---------- ----------
ASSETS
Current assets:
Cash $ 1,995 $ 2,404
Accounts receivable, net of allowances for doubtful accounts and sales
returns and allowances of $4,939 and $4,861 64,849 61,165
Inventories (Note 3) 49,437 47,911
Prepaid expenses and other current assets 4,610 7,054
Prepaid income taxes 956 4,009
Deferred income taxes (Note 7) 5,368 6,194
---------- ----------
Total current assets 127,215 128,737
---------- ----------
Rental equipment, net of accumulated depreciation of $27,794 and $24,181 78,042 63,160
---------- ----------
Property, plant and equipment (Note 3)
Land and improvements 5,457 5,536
Building and improvements 30,621 26,268
Machinery and equipment 77,288 72,042
---------- ----------
113,366 103,846
Less accumulated depreciation (51,128) (42,600)
---------- ----------
Net property, plant and equipment 62,238 61,246
---------- ----------
Goodwill 110,308 107,328
Intangible assets, net of accumulated amortization (Note 3) 10,532 8,405
Other assets 5,049 5,095
---------- ----------
Total assets $ 393,384 $ 373,971
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt (Note 4) $ 3,067 $ 6,991
Accounts payable 20,526 25,667
Accrued compensation and benefits 19,704 20,948
Other accrued liabilities 12,324 9,380
---------- ----------
Total current liabilities 55,621 62,986
Long-term debt (Note 4) 338,823 292,545
Deferred income taxes (Note 7) - 11,919
Other long-term liabilities 6,207 10,762
---------- ----------
Total liabilities 400,651 378,212
---------- ----------
Commitments and contingencies (Note 9)
Shareholders' equity (deficit)
Class A common shares; no par value; 5,000,000 shares authorized; 4,591,016
and 4,046,907 shares issued and 4,554,269 and 4,010,160
shares outstanding 115,951 102,525
Loans to shareholders (2,729) (2,878)
Class A treasury shares, at cost, 36,747 shares (1,184) (1,184)
Other comprehensive loss (1,209) (1,716)
Accumulated deficit (118,096) (100,988)
---------- ----------
Total shareholders' equity (deficit) (7,267) (4,241)
---------- ----------
Total liabilities and shareholders' deficit $ 393,384 $ 373,971
========== ==========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
38
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(AMOUNTS IN THOUSANDS)
2003 2002 2001
---------- ---------- ----------
Product sales $ 301,837 $ 318,016 $ 335,550
Rental revenue 36,294 45,080 57,199
Used rental equipment sales 39,723 35,641 22,742
---------- ---------- ----------
Net sales 377,854 398,737 415,491
---------- ---------- ----------
Product cost of sales 237,032 236,782 249,391
Rental cost of sales 23,775 19,404 18,265
Used rental equipment cost of sales 12,791 13,675 8,565
---------- ---------- ----------
Cost of sales 273,598 269,861 276,221
---------- ---------- ----------
Product gross profit 64,805 81,234 86,158
Rental gross profit 12,519 25,676 38,935
Used rental equipment gross profit 26,932 21,966 14,177
---------- ---------- ----------
Gross profit 104,256 128,876 139,270
Selling, general and administrative expenses 87,020 91,221 97,532
Facility closing and severance expenses (Note 10) 2,294 5,399 7,360
Amortization of goodwill and intangibles 944 603 3,912
---------- ---------- ----------
Income from operations 13,998 31,653 30,466
Other expenses
Interest expense 39,955 33,967 35,024
Loss on early extinguishment of long-term debt (Note 4) 2,480 - -
Loss (gain) on disposals of property, plant and equipment (636) 1,115 (7)
Other expense 20 80 102
---------- ---------- ----------
Loss before benefit for income taxes, and cumulative effect of
change in accounting principle (27,821) (3,509) (4,653)
Benefit for income taxes (Note 7) (10,713) (386) (1,179)
---------- ---------- ----------
Loss before cumulative effect of change in accounting principle (17,108) (3,123) (3,474)
Cumulative effect of change in accounting principle, net of income
tax benefit of $2,754 (Note 3d) - (17,140) -
---------- ---------- ----------
Net loss $ (17,108) $ (20,263) $ (3,474)
========== ========== ==========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
39
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Class A Class A Retained
Common Shares Treasury Shares Other Earnings
--------------------- Loans to ----------------- Comprehensive (Accumulated
Shares Amount Shareholders Shares Amount Loss Deficit) Total
--------- --------- ------------ ------ -------- ------------- ------------ --------
Balances at January 1, 2001 3,693,990 $ 92,826 $ (2,039) - $ - $ (340) $ (77,251) $ 13,196
Net loss (3,474) (3,474)
Foreign currency translation adjustment (249) (249)
Issuance of Class A common shares 323,278 8,986 (909) 8,077
Purchase of Class A treasury shares 51 29,288 (979) (928)
Exercise of stock options, net 9,134 232 (133) 99
--------- --------- --------- ------ -------- --------- --------- --------
Balances at December 31, 2001 4,026,402 102,044 (3,030) 29,288 (979) (589) (80,725) 16,721
Net loss (20,263) (20,263)
Foreign currency translation adjustment 92 92
Change in minimum pension liability (net
of income tax benefit of $151) (1,219) (1,219)
Issuance of Class A common shares 20,505 481 (350) 131
Purchase of Class A common shares 7,459 (205) (205)
Repayments of loans to shareholders 502 502
--------- --------- --------- ------ -------- --------- --------- --------
Balance at December 31, 2002 4,046,907 102,525 (2,878) 36,747 (1,184) (1,716) (100,988) (4,241)
Net loss (17,108) (17,108)
Foreign currency translation adjustment 613 613
Change in minimum pension liability (net
of income tax benefit of $657) (106) (106)
Issuance of Class A common shares 544,109 13,059 13,059
Repayments of loans to shareholders 149 149
Additional tax benefit from 2000
recapitalization 367 367
--------- --------- --------- ------ -------- --------- --------- --------
Balances at December 31, 2003 4,591,016 $ 115,951 $ (2,729) 36,747 $ (1,184) $ (1,209) $(118,096) $ (7,267)
========= ========= ========= ====== ======== ========= ========= ========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
40
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(AMOUNTS IN THOUSANDS)
2003 2002 2001
---------- ---------- ----------
Cash Flows From Operating Activities:
Net loss $ (17,108) $ (20,263) $ (3,474)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Cumulative effect of change in accounting principle (Note 3d) - 17,140 -
Loss on the early extinguishment of long-term debt 2,480
Depreciation 25,934 20,850 18,290
Amortization of goodwill and intangibles 944 603 3,912
Deferred income taxes (10,436) 3,228 (2,972)
Amortization of deferred financing costs, debt discount, and
issuance costs on Company-obligated mandatorily
redeemable convertible trust preferred securities 3,371 2,335 2,251
Net gain on sale of rental equipment (26,932) (21,966) (14,177)
Net (gain) loss on sale of property, plant, and equipment (636) 1,115 (7)
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable (3,684) (9,537) 7,348
Inventories (1,526) (11) (1,410)
Prepaid expenses and other assets 2,013 2,119 (8,533)
Prepaid income taxes 3,420 (2,784) 2,710
Accounts payable (5,140) (1,673) 671
Accrued liabilities and other long-term liabilities (5,188) (8,406) 3,614
---------- ---------- ----------
Net cash provided by (used in) operating activities (32,488) (17,250) 8,223
---------- ---------- ----------
Cash Flows From Investing Activities:
Property, plant and equipment additions (7,829) (11,277) (9,924)
Proceeds from sale of property, plant, and equipment 894 2,010 169
Rental equipment additions (27,571) (18,411) (25,933)
Proceeds from sales of rental equipment 39,723 35,641 22,742
Acquisitions (Note 2) (13,668) - (40,850)
Refund of purchase price on acquisitions - - 143
---------- ---------- ----------
Net cash provided by (used in) investing activities (8,451) 7,963 (53,653)
---------- ---------- ----------
Cash Flows From Financing Activities:
Repayments of long-term debt (177,873) (4,141) (48,532)
Issuance of long-term debt 206,442 8,050 93,751
Proceeds from sale/leaseback transaction - 2,258 -
Issuance of common shares, net of issuance costs 13,059 131 5,334
Purchase of treasury shares - (205) (928)
Repayments of loans to shareholders, net 149 502 -
Financing costs incurred (1,860) - (791)
---------- ---------- ----------
Net cash provided by financing activities 39,917 6,595 48,834
---------- ---------- ----------
Effect of Exchange Rate Changes on Cash 613 107 (197)
---------- ---------- ----------
Net increase (decrease) in cash (409) (2,585) 3,207
Cash, beginning of year 2,404 4,989 1,782
---------- ---------- ----------
Cash, end of year $ 1,995 $ 2,404 $ 4,989
========== ========== ==========
Supplemental Disclosures:
Cash refunded for income taxes $ (3,909) $ (1,149) $ (1,532)
Cash paid for interest 32,690 31,862 32,348
Purchase of equipment on capital lease 3,183 2,758 -
Issuance of Class A common shares and loans to shareholders - 350 909
Issuance of Class A common shares in conjunction with acquisition - - 2,842
Issuance of long-term debt in conjunction with acquisition 8,572 - -
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
41
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31
(AMOUNTS IN THOUSANDS)
2003 2002 2001
-------- -------- --------
Net loss $(17,108) $(20,263) $ (3,474)
Other comprehensive income
Foreign currency translation adjustment 613 92 (249)
Change in minimum pension liability (net of
income tax benefit of $657 and $151) (106) (1,219) -
-------- -------- --------
Comprehensive loss $(16,601) $(21,390) $ (3,723)
======== ======== ========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) THE COMPANY
The accompanying consolidated financial statements include the accounts of
Dayton Superior Corporation and its wholly-owned subsidiaries (collectively
referred to as the "Company"). All intercompany transactions have been
eliminated.
The Company believes it is the largest North American manufacturer and
distributor of metal accessories and forms used in concrete construction and of
metal accessories used in masonry construction. The Company has a distribution
network consisting of 18 manufacturing/distribution plants and 26
service/distribution centers in the United States and Canada. The Company
employs approximately 700 salaried and 1,200 hourly personnel, of whom
approximately 800 of the hourly personnel and 7 of the salaried personnel are
represented by labor unions. There are five collective bargaining agreement
expiring in 2004, covering hourly employees at the Parsons, Kansas; Miamisburg,
Ohio; Aurora, Illinois; Atlanta, Georgia; and Santa Fe Springs, California
facilities.
(2) ACQUISITIONS
(a) SAFWAY FORMWORK SYSTEMS, L.L.C. --
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 $20,000.
Safway Formwork is a subsidiary of Safway Services, Inc., whose ultimate parent
is ThyssenKrupp AG, or TK, a publicly traded company in Germany. 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 with a present value of $6,965
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 book value of the note at December 31, 2003 was $6,392.
The face value of the note is $12,000. The first $250 installment payment on the
note was paid on September 30, 2003, and an additional $750 installment payment
was due on December 31, 2003. The settlement of normal purchase price
adjustments resulted in a $417 reduction in the December payment to $333. A
subsequent purchase price adjustment of $240 was paid in March 2004. Annual
payments of $1,000 are due on September 30 of each year from 2004 through 2008,
with a final balloon payment of $6,000 due on December 31, 2008.
For purposes of calculating the net present value of the senior unsecured note,
the Company has assumed an interest rate of 14.5%. The $13,000 of cash was
funded through the issuance of 541,667 common shares valued at $13,000 to the
Company's majority shareholder. The common shares were valued at $24.00 per
share in an independent third party appraisal completed in December 2002.
The Company exercised its option to acquire additional rental equipment from
Safway. The Company issued a non-interest bearing note with a present value of
$1,607. The note is being accreted to the face value of $2.0 using the effective
interest method and is reflected as interest expense. Minimum payments on the
note are $199 in 2004 and 2005, $397 in 2006 and 2007, and $795 in 2008.
Payments may be accelerated if certain revenue targets are met.
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
preliminary estimated fair value of the assets acquired, as follows:
Rental equipment $ 13,994
Property, plant and equipment 798
Goodwill 2,537
Intangible assets 5,115
Accrued liabilities (1,571)
--------
Purchase price, including acquisition costs of $1,085 $ 20,873
========
43
The allocation of the purchase price may change on receipt of the final
appraisals.
Components of the purchase price are as follows:
Cash paid at closing $ 13,000
Acquisition costs 1,085
Initial purchase price adjustment (417)
2003 Cash portion of acquisition 13,668
Present value of seller note 6,965
2004 purchase price adjustment 240
--------
Total purchase price $ 20,873
========
The following pro forma information sets forth the consolidated results of
operations for the twelve months ended December 31, 2003 and December 31, 2002
as though the acquisition had been completed as of the beginning of each period
presented:
Pro Forma
Twelve fiscal months ended
--------------------------------------
December 31, 2003 December 31, 2002
----------------- -----------------
Net Sales $ 390,449 $ 425,955
Income (loss) before provision (benefit) for
income taxes and cumulative effect of change
in accounting principle (6,961) (30,830)
Income (loss) before cumulative effect of change
in accounting principle
$ (19,094) $ (5,263)
In accordance with SEC rules and regulations, pro forma information does not
exclude costs that are expected to be eliminated under the company's ownership.
(b) ANCONCCL INC.--
On June 19, 2001, the Company acquired the stock of AnconCCL Inc., dba BarLock
("BarLock") for approximately $9,900 in cash, including acquisition costs. The
payment was funded through the Company's credit facility. The business is being
operated as part of the Company's concrete accessories business.
The acquisition has been accounted for as a purchase, and the results of BarLock
have been included in the accompanying financial statements since the date of
acquisition. The purchase price has been allocated based on the fair values of
the assets acquired (approximately $10,800, including goodwill of $7,100) and
liabilities assumed (approximately $900). Pro forma financial information is not
required as this was not a significant acquisition.
(c) AZTEC CONCRETE ACCESSORIES, INC.--
On January 4, 2001, the Company acquired the stock of Aztec Concrete
Accessories, Inc. ("Aztec") for approximately $32,800, including acquisition
costs. The payment of the purchase price consisted of cash of approximately
$29,900 and 105,263 common shares valued at approximately $2,900. The cash
portion was funded through the issuance of 189,629 common shares valued at
approximately $5,100 to Odyssey Investment Partners Fund, LP and an increase of
approximately $24,800 to the credit facility. The business is being operated as
part of the Company's concrete accessories business.
The acquisition has been accounted for as a purchase, and the results of Aztec
have been included in the accompanying consolidated financial statements since
the date of acquisition. The purchase price has been allocated based on the fair
values of the assets acquired (approximately $44,000, including goodwill of
$35,400) and liabilities assumed (approximately $11,200, including a deferred
compensation liability of approximately $7,700). Pro forma financial information
is not required as this was not a significant acquisition.
44
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) INVENTORIES--
The Company values all inventories at the lower of first-in, first-out ("FIFO")
cost or market. The Company provides net realizable value reserves which reflect
the Company's best estimate of the excess of the cost of potential obsolete and
slow moving inventory over the expected net realizable value. Following is a
summary of the components of inventories as of December 31, 2003 and 2002:
December 31, December 31,
2003 2002
----------- -----------
Raw materials $ 9,588 $ 15,984
Work in progress 2,742 3,069
Finished goods 37,107 28,858
--------- --------
Total Inventory $ 49,437 $ 47,911
========= ========
(b) RENTAL EQUIPMENT--
Rental equipment is manufactured by the Company for resale and for rent to
others on a short-term basis. Rental equipment is recorded at the lower of FIFO
cost or market and is depreciated over the estimated useful life of the
equipment, three to fifteen years, on a straight-line method.
Effective January 1, 2002, the Company changed its accounting estimates relating
to the depreciable life of a portion of its rental fleet. The change was based
upon a study performed by the Company that showed that the useful life of
certain items within the rental fleet was shorter than the fifteen-year life
previously assigned. The study showed that a three-year life was more
appropriate based upon the nature of these products. These products include
smaller hardware and accessories that accompany steel forms and the recently
introduced European forming systems. As a result of the change, the Company
recorded incremental depreciation of approximately $4,000 in 2002, which is
reflected in cost of goods sold in the accompanying December 31, 2002
consolidated statement of operations.
Effective January 1, 2001, the Company changed its accounting estimates relating
to the depreciable life of a portion of its rental fleet. As a result of the
change, the Company recorded incremental depreciation of approximately $2,300 in
2001, which is reflected in cost of goods sold in the accompanying December 31,
2001 consolidated statement of operations.
(c) PROPERTY, PLANT AND EQUIPMENT--
Property, plant and equipment are valued at cost and depreciated using
straight-line methods over their estimated useful lives of 10-30 years for
buildings and improvements and 3-10 years for machinery and equipment.
Leasehold improvements are amortized over the lesser of the term of the lease or
the estimated useful life of the improvement. Improvements and replacements are
capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred.
Included in the cost of property, plant and equipment are assets obtained
through capital leases, all included in machinery and equipment. As of December
31, 2003 the cost of assets under capital lease is $5,941, net of accumulated
amortization of $904. Amortization expense related to machinery and equipment
under capital lease was $648 for the period ended December 31, 2003. As of
December 31, 2002 the cost of assets under capital lease is $2,758, net of
accumulated depreciation of $256. Depreciation expense related to machinery and
equipment under capital lease was $256 for the period ended December 31, 2002.
45
(d) GOODWILL AND INTANGIBLE ASSETS--
Amortization is provided over the term of the loan (3 to 9 years) for deferred
financing costs, the term of the agreement (17 months-5 years) for non-compete
agreements, over the estimated useful life (1-15 years) for intellectual
property, customer lists, and dealer network. Amortization of non-compete
agreements, intellectual property, customer lists, and dealer network is
reflected as "Amortization of goodwill and intangibles" in the accompanying
consolidated statements of operations. The estimated aggregate amortization
expense for each of the next five years is as follows: $1,383 in 2004, $713 in
2005, $626 in 2006, $255 in 2007, and $255 in 2008. Amortization of deferred
financing costs is reflected as "Interest expense" in the accompanying
consolidated statements of operations. The estimated aggregate interest expense
for each of the next five years related to the amortization of deferred
financing costs is as follows: $1,114 in 2004, $1,113 in 2005, $1,013 in 2006,
$911 in 2007, and $810 in 2008. Intangible assets consist of the following at
December 31:
2003 2002
-------------------------------- --------------------------------
Accumulated Accumulated
Gross Amortization Net Gross Amortization Net
-------- ------------ -------- -------- ------------ --------
Deferred financing costs $ 8,429 $ (3,175) $ 5,254 $ 10,550 $ (3,479) $ 7,071
Non-compete agreements 2,325 (367) 1,958 1,595 (722) 873
Customer list 2,255 (63) 2,192 - - -
Intellectual property 1,590 (481) 1,109 690 (229) 461
Dealer Network 33 (14) 19 - - -
-------- -------- -------- -------- -------- --------
$ 14,632 $ (4,100) $ 10,532 $ 12,835 $ (4,430) $ 8,405
======== ======== ======== ======== ======== ========
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and No. 142
"Goodwill and Other Intangible Assets." SFAS No. 141 revises the accounting for
future business combinations to only allow the purchase method of accounting. In
addition, the two statements preclude amortization of goodwill for periods
beginning after December 15, 2001. Instead, an annual review of the
recoverability of the goodwill and intangible assets is required. Certain other
intangible assets continue to be amortized over their estimated useful lives.
The Company adopted SFAS No. 142 effective January 1, 2002. As a result of
adopting SFAS No. 142, the Company recorded a non-cash charge in 2002 of $17,140
($19,894 of goodwill, less an income tax benefit of $2,754), which is reflected
as a cumulative effect of change in accounting principle in the accompanying
December 31, 2002 consolidated statement of operations. This amount does not
affect the Company's ongoing operations. The goodwill arose from the
acquisitions of Dur-O-Wal in 1995, Southern Construction Products in 1999, and
Polytite in 2000, all of which manufacture and sell metal accessories used in
masonry construction. The masonry products market has experienced weaker markets
and significant price competition, which has had a negative impact on the
product line's earnings and fair value.
The following is a reconciliation from reported net loss to net loss adjusted
for the amortization of goodwill:
Years Ended December 31,
--------------------------------
2003 2002 2001
-------- -------- --------
Net loss before cumulative effect of change
in accounting principle, as reported $(17,108) $ (3,123) $ (3,474)
Amortization of goodwill, net of tax benefit - - 3,375
-------- -------- --------
Net loss before cumulative effect of change
in accounting principle, as adjusted $(17,108) $ (3,123) $ (99)
======== ======== ========
46
The following is a reconciliation of goodwill:
Symons CPG Corporate Total
---------- ---------- ---------- ----------
Balance at January 1, 2002 $ 587 $ 33,605 $ 92,618 $ 126,810
Impairment - - (19,894) (19,894)
Other - - 412 412
---------- ---------- ---------- ----------
Balance at December 31, 2002 587 33,605 73,136 107,328
Safway Acquisition 1,629 - 908 2,537
Other - - 443 443
---------- ---------- ---------- ----------
Balance at December 31, 2003 $ 2,216 $ 33,605 $ 74,487 $ 110,308
========== ========== ========== ==========
(e) INCOME TAXES--
Deferred income taxes are recorded for temporary differences between financial
statement carrying amounts and the tax basis of assets and liabilities. Deferred
tax assets and liabilities reflect the enacted tax rates in effect for the years
the differences are expected to reverse. The Company evaluates the need for a
deferred tax asset valuation allowance by assessing whether it is more likely
than not that it will realize its deferred tax assets in the future and records
liabilities for uncertain tax matters based on its assessment of the likelihood
of sustaining certain tax positions.
(f) ENVIRONMENTAL REMEDIATION LIABILITIES--
The Company accounts for environmental remediation liabilities in accordance
with the American Institute of Certified Public Accountants issued Statement of
Position 96-1, "Environmental Remediation Liabilities," ("SOP 96-1"). The
Company accrues for losses associated with environmental remediation obligations
when such losses are probable and reasonably estimable. Accruals for estimated
losses from environmental remediation obligations generally are recognized no
later than completion of the remedial feasibility study. Such accruals are
adjusted as further information develops or circumstances change. Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value. Recoveries of environmental remediation costs from other
parties are recorded as assets when their receipt is deemed probable.
(g) FOREIGN CURRENCY TRANSLATION ADJUSTMENT--
The financial statements of foreign subsidiaries and branches are maintained in
their functional currency (Canadian dollars) and are then translated into U.S.
dollars. The balance sheets are translated at end of year rates while revenues,
expenses and cash flows are translated at weighted average rates throughout the
year. Translation adjustments, which result from changes in exchange rates from
period to period, are accumulated in a separate component of shareholders'
deficit. Transactions in foreign currencies are translated into U.S. dollars at
the rate in effect on the date of the transaction. Changes in foreign exchange
rates from the date of the transaction to the date of the settlement of the
asset or liability are recorded as income or expense.
(h) REVENUE RECOGNITION--
Revenue is recognized from product sales when the product is shipped from our
facilities and risk of loss and title have passed to the customer. Additionally,
revenue is recognized at the customer's written request and when the customer
has made a fixed commitment to purchase goods on a fixed schedule consistent
with the customer's business, where risk of ownership has passed to the buyer,
the goods are set-aside in storage and the Company does not retain any specific
performance obligations such that the earning process is not complete. For
transactions where such conditions are not satisfied, revenue is deferred until
the terms of acceptance are satisfied. On rental equipment sales, revenue is
recognized and recorded on the date of shipment. Rental revenues are recognized
ratably over the terms of the rental agreements.
47
(i) 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. The Company records such rebates as a reduction of
revenue in the period the related revenues are recognized.
(j) ACCOUNTS RECEIVABLE ALLOWANCE--
We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. If the financial
condition of our customers deteriorates, resulting in an impairment of their
ability to make payments, additional allowances may be required.
(k) USE OF ESTIMATES--
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the balance sheet date and the reported amounts of revenues and
expenses during the year. Actual results could differ from those estimates.
Examples of accounts in which estimates are used include the reserve for excess
and obsolete inventory, the allowance for doubtful accounts and sales returns
and allowances, the accrual for self-insured employee medical claims, the
self-insured product and general liability accrual, the self-insured workers'
compensation accrual, accruals for litigation losses, the valuation allowance
for deferred tax assets, actuarial assumptions used in determining pension
benefits, and actuarial assumptions used in determining other post-retirement
benefits.
(l) NEW ACCOUNTING PRONOUNCEMENTS--
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 eliminates the requirement to classify gains and losses from the
extinguishment of indebtedness as extraordinary, requires certain lease
modifications to be treated the same as a sale-leaseback transaction, and makes
other non-substantive technical corrections to existing pronouncements. SFAS No.
145 is effective for fiscal years beginning after May 15, 2002, with earlier
adoption encouraged. The adoption of this pronouncement in 2003 resulted in the
classification in 2003 of the loss on the early extinguishment of long-term debt
as other expense.
In July 2002, the FASB issued Statement of SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring or
other exit or disposal activity. Statement 146 is to be applied prospectively to
exit or disposal activities initiated after December 31, 2002. The adoption of
this pronouncement did not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
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. The Company does not believe this
pronouncement will have a material impact on its consolidated financial
position, results of operations, or cash flows.
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,
48
2002. The initial measurement provisions of the interpretation are applicable on
a prospective basis for guarantees issued or modified after December 31, 2002.
The adoption of this pronouncement did not have a material impact on the
Company's consolidated financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation (FIN) No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of APB No. 50." FIN No. 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN No. 46 is effective for
all new variable interest entities created or acquired after January 31, 2003.
For variable interest entities created or acquired prior to February 1, 2003,
the provisions of FIN No. 46 must be applied for the first interim or annual
period beginning after December 15, 2003. 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 2003, FASB issued a revised interpretation of FIN No. 46, "FIN No.
46-R." This supercedes Fin No. 46 and clarifies and expands current accounting
guidance for variable interest entities. Fin No. 46 and Fin No. 46-R are
effective immediately for all variable interest entities created after January
31, 2003, and for variable interest entities created prior to February 1, 2003,
no later than the end of the first reporting period after March 15, 2004. We
have not utilized such entities and therefore the adoption of Fin No. 46 and FIN
No. 46-R had no effect on our consolidated financial statements.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This statement
revises the disclosures required for pension plans and other postretirement
benefit plans. The company adopted this revised statement effective December 31,
2003. See Note 6 to the consolidated financial statements for the revised
disclosures.
In December 2003, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 104, "Revenue Recognition, corrected copy". This bulletin
revises or rescinds portions of the previous interpretive guidance included in
Topic 13 in order to make this interpretive guidance consistent with current
authoritative accounting and auditing guidance related to revenue recognition.
The adoption of SAB No. 104 did not have a material impact on the Company's
consolidated financial statements.
(m) STOCK OPTIONS--
The Company measures compensation cost for stock options issued using the
intrinsic value-based method of accounting in accordance with Accounting
Principles Board Opinion (APB) No. 25. If compensation cost for the Company's
stock options had been determined based on the fair value method of SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's net loss and net
loss per share would have been increased to the pro forma amounts as follows:
2003 2002 2001
-------- -------- --------
Net loss:
As Reported $(17,108) $(20,263) $ (3,474)
Deduct: Total stock-based employee
compensation expense determined
under fair value-based method for all
awards, net of related tax effect (261) (284) (633)
-------- -------- --------
Pro Forma $(17,369) $(20,547) (4,107)
======== ======== ========
49
(4) CREDIT ARRANGEMENTS
Following is a summary of the Company's long-term debt as of December 31, 2003
and December 31, 2002:
December 31, December 31,
2003 2002
------------ ------------
Revolving credit facility, weighted average interest rate of 5.2% $ 24,375 $ 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 (8,514) (10,374)
Senior Second Secured Notes, interest rate of 10.75% 165,000 -
Debt discount on Senior Second Secured Notes (7,454) -
Senior Unsecured Notes payable to seller of Safway, non-interest
bearing, accreted at 14.5% 7,999 -
Debentures previously held by Dayton Superior Capital Trust, interest
rate of 9.1%, due on demand 1,110 1,110
Capital lease obligations 4,590 2,507
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 55 86
---------- ----------
Total long-term debt 341,890 299,536
Less current maturities (3,067) (6,991)
---------- ----------
Long-term portion $ 338,823 $ 292,545
========== ==========
Scheduled maturities of long-term debt and future minimum lease payments under
capital leases are:
Long-term Capital
Year Debt Leases Total
- ----------------------------------- --------- --------- ---------
2004 $ 1,523 $ 1,514 $ 3,037
2005 196 1,392 1,588
2006 24,763 965 25,728
2007 418 772 1,190
2008 171,639 664 172,303
Thereafter 154,729 127 154,856
--------- --------- ---------
Long-Term Debt and Lease Payments 353,268 5,434 358,702
Less: Debt Discount (15,968) - (15,968)
Less: Amounts Representing Interest - (844) (844)
--------- --------- ---------
$ 337,300 $ 4,590 $ 341,890
========= ========= =========
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 $24,375. As a result of the transactions, the Company incurred a
loss on the early extinguishment of long-term debt of $2,550, due to the
expensing of deferred financing costs. The senior second secured notes are
secured by substantially all assets of the Company.
As of December 31, 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
50
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.
As of December 31, 2003 the Company had a $50,000 revolving credit facility that
was due to mature in June 2006. The credit facility is secured by substantially
all assets of the company and has several interest rate options that reprice on
a short-term basis. At December 31, 2003, the Company had outstanding letters of
credit of $7,000 and available borrowings of $18,625 under its $50,000 revolving
credit facility.
The $50,000 credit facility was amended during the second quarter to remove
certain of the restrictive financial covenants. As of December 31, 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 December 31, 2003. The amendment also limits the Company's borrowings to 75%
of eligible accounts receivable and 50% of eligible inventories. The credit
facility was secured by substantially all assets of the Company.
The average borrowings, maximum borrowings and weighted average interest rates
on the revolving credit facility for the periods indicated were as follows:
For the Year Ended
-----------------------------------------------------------------
December 31, December 31, December 31,
2003 2002 2001
---- ---- ----
Revolving Credit Facility:
Average borrowing $ 22,578 $ 15,156 $ 8,980
Maximum borrowing 35,225 29,275 26,425
Weighted average interest rate 5.5% 6.4% 10.4%
On January 30, 2004, we established an $80 million senior secured revolving
credit facility, which was used to refinance our previous $50 million revolving
credit facility. The new credit facility is secured by the same assets that
secured the previous credit facility. The new credit facility has no financial
covenants and is subject to availability under a borrowing base calculation.
Availability of borrowings is limited to 85% of eligible accounts receivable and
60% of eligible inventories and rental equipment, less $10,000. As of January
30, 2004, all $80 million was available under the calculation. The credit
facility is secured by substantially all assets of the Company.
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. Pursuant to Regulation S-X, Rule 3-10(f), separate financial
statements have not been presented for the guarantor subsidiaries. The
wholly-owned foreign subsidiaries of the Company are not guarantors of the Notes
or the Senior Notes and do not have any credit arrangements senior to the Notes
or the Senior Notes. The following supplemental consolidating condensed balance
sheets as of December 31, 2003 and 2002 and the supplemental consolidating
condensed statements of operations and cash flows for the years ended December
31, 2003, 2002, and 2001 depict in separate columns, the parent company, those
subsidiaries which are guarantors, those subsidiaries which are non-guarantors,
elimination adjustments and the consolidated total. This financial information
may not necessarily be indicative of the result of operations or financial
position of the subsidiaries had they been operated as independent entities.
51
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 2003
Dayton Non
Superior Guarantor Guarantor
Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Cash $ 860 $ (1,240) $ 2,375 $ - $ 1,995
Accounts receivable, net 37,123 26,500 1,226 64,849
Inventories 27,016 21,776 645 49,437
Intercompany 61,638 (61,549) (89) -
Other current assets 12,901 (1,432) (535) 10,934
--------- ------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 139,538 (15,945) 3,622 127,215
Rental equipment, net 3,609 74,342 91 78,042
Property, plant and equipment, net 24,919 37,135 184 62,238
Investment in subsidiaries 123,041 - - (123,041) -
Other assets 50,628 75,261 - 125,889
--------- ------------ ------------ ------------ ------------
TOTAL ASSETS $ 341,735 $ 170,793 $ 3,897 $ (123,041) $ 393,384
========= ============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current maturities of long-term debt $ 2,132 $ 935 $ - $ - $ 3,067
Accounts payable 10,722 9,537 267 20,526
Accrued liabilities 20,793 11,019 216 32,028
--------- ------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 33,647 21,491 483 55,621
Long-term debt 337,413 1,410 - - 338,823
Other long-term liabilities (4,341) 10,525 23 6,207
Total shareholders' equity (deficit) (24,984) 137,367 3,391 (123,041) (7,267)
--------- ------------ ------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 341,735 $ 170,793 $ 3,897 $ (123,041) $ 393,384
========= ============ ============ ============ ============
52
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 2002
Dayton Non
Superior Guarantor Guarantor
Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Cash $ 1,605 $ (687) $ 1,486 $ - $ 2,404
Accounts receivable, net 30,223 30,487 455 - 61,165
Inventories 23,408 23,180 1,323 - 47,911
Intercompany 56,498 (56,414) (84) - -
Other current assets 8,555 8,539 163 - 17,257
---------- ---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS 120,289 5,105 3,343 - 128,737
Rental equipment, net 4,268 58,846 46 - 63,160
Property, plant and equipment, net 25,690 35,378 178 - 61,246
Investment in subsidiaries 123,041 - - (123,041) -
Other assets 53,497 67,331 - - 120,828
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS $ 326,785 $ 166,660 $ 3,567 $ (123,041) $ 373,971
========== ========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current maturities of long-term debt $ 6,991 $ - $ - $ - $ 6,991
Accounts payable 13,983 11,407 277 - 25,667
Accrued liabilities 18,022 12,152 154 - 30,328
---------- ---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES 38,996 23,559 431 - 62,986
Long-term debt 292,545 - - - 292,545
Other long-term liabilities 5,730 16,763 188 - 22,681
Total shareholders' equity (deficit) (10,486) 126,338 2,948 (123,041) (4,241)
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT) $ 326,785 $ 166,660 $ 3,567 $ (123,041) $ 373,971
========== ========== ========== ========== ==========
53
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
Dayton Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 175,338 $ 193,064 $ 9,452 $ 377,854
Cost of sales 126,355 140,203 7,040 273,598
---------- ---------- ---------- ----------
Gross profit 48,983 52,861 2,412 104,256
Selling, general and administrative expenses 35,092 50,413 1,515 87,020
Facility closing and severance expenses 1,629 665 - 2,294
Management Fees (400) - 400
Amortization of goodwill and intangibles 293 651 - 944
---------- ---------- ---------- ----------
Income from operations 12,369 1,132 497 13,998
Other expenses
Interest expense 39,633 322 - 39,955
Loss on early extinguishment of long-term
debt 2,480 - - 2,480
Loss (Gain) on disposals of property, plant
and equipment 3 (639) - (636)
Other expense (income), net 104 - (84) 20
---------- ---------- ---------- ----------
Income (loss) before provision (benefit)
for income taxes (29,851) 1,449 581 (27,821)
Provision (benefit) for income taxes (11,495) 558 224 (10,713)
---------- ---------- ---------- ----------
Net income (loss) $ (18,356) $ 891 $ 357 $ (17,108)
========== ========== ========== ==========
54
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
Dayton Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 192,271 $ 197,368 $ 9,098 $ 398,737
Cost of sales 132,946 130,894 6,021 269,861
--------- --------- --------- ---------
Gross profit 59,325 66,474 3,077 128,876
Selling, general and administrative expenses 40,422 49,188 1,611 91,221
Facility closing and severance expenses 3,827 1,572 - 5,399
Amortization of goodwill and intangibles 373 230 - 603
Management fees (300) - 300 -
--------- --------- --------- ---------
Income from operations 15,003 15,484 1,166 31,653
Other expenses
Interest expense 33,101 866 - 33,967
Loss on disposals of property, plant and equipment 728 387 - 1,115
Other expense (income), net (35) 44 71 80
--------- --------- --------- ---------
Income (loss) before provision (benefit) for
income taxes and cumulative effect of change in
accounting principle (18,791) 14,187 1,095 (3,509)
Provision (benefit) for income taxes (2,067) 1,561 120 (386)
--------- --------- --------- ---------
Income (loss) before cumulative effect of change in
accounting principle (16,724) 12,626 975 (3,123)
Cumulative effect of change in accounting principle,
net of income tax benefit of $2,754 - (17,140) - (17,140)
--------- --------- --------- ---------
Net income (loss) $ (16,724) $ (4,514) $ 975 $ (20,263)
========= ========= ========= =========
55
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 194,163 $ 211,918 $ 9,410 $ 415,491
Cost of sales 132,837 137,459 5,925 276,221
----------- ----------- ----------- -----------
Gross profit 61,326 74,459 3,485 139,270
Selling, general and administrative expenses 38,006 57,983 1,543 97,532
Facility closing and severance expenses 442 6,918 - 7,360
Amortization of goodwill and intangibles 1,980 1,932 - 3,912
Management fees (300) - 300 -
----------- ----------- ----------- -----------
Income from operations 21,198 7,626 1,642 30,466
Other expenses
Interest expense 34,463 561 - 35,024
Other expense (income), net - 95 - 95
----------- ----------- ----------- -----------
Income (loss) before provision for income
taxes (13,265) 6,970 1,642 (4,653)
Provision (benefit) for income taxes (3,361) 1,766 416 (1,179)
----------- ----------- ----------- -----------
Net income (loss) $ (9,904) $ 5,204 $ 1,226 $ (3,474)
=========== =========== =========== ===========
56
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2003
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (18,356) $ 891 $ 357 $ (17,108)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,697 19,499 53 30,249
Deferred income taxes (10,436) - - (10,436)
Gain on sales of rental equipment and
fixed assets (3,408) (24,160) - (27,568)
Loss on the early extinguishment of long-term debt 2,480 - - 2,480
Change in assets and liabilities, net of the
effects of acquisitions (15,141) 5,214 (178) (10,105)
---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities (34,164) 1,444 232 (32,488)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (3,631) (4,191) (7) (7,829)
Proceeds from sales of fixed assets 131 763 - 894
Rental equipment additions (2,472) (25,094) (5) (27,571)
Proceeds from sale of rental equipment 4,352 35,320 51 39,723
Acquisitions - (13,668) - (13,668)
---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities (1,620) (6,870) 39 (8,451)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (177,611) (262) - (177,873)
Issuance of long-term debt 206,442 - - 206,442
Proceeds from sale/leaseback transaction - - - -
Issuance of common shares, net of issuance costs 13,059 - - 13,059
Repayment of loans to shareholders, net 149 - - 149
Financing Costs incurred (1,860) - - (1,860)
Intercompany (5,140) 5,135 5 -
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 35,039 4,873 5 39,917
---------- ---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 613 613
---------- ---------- ---------- ----------
Net increase (decrease) in cash (745) (553) 889 (409)
CASH, beginning of year 1,605 (687) 1,486 2,404
---------- ---------- ---------- ----------
CASH, end of year $ 860 $ (1,240) $ 2,375 $ 1,995
========== ========== ========== ==========
57
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,514) $ (11,724) $ 975 $ (20,263)
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
principle - 17,140 - 17,140
Depreciation and amortization 7,712 16,026 50 23,788
Deferred income taxes 3,228 - - 3,228
Gain on sales of rental equipment and
fixed assets (572) (20,247) (32) (20,851)
Change in assets and liabilities, net of
the effects of acquisitions (5,834) (13,460) (998) (20,292)
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities (4,980) (12,265) (5) (17,250)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (6,658) (4,489) (130) (11,277)
Proceeds from sales of fixed assets 1,105 877 28 2,010
Rental equipment additions (758) (17,619) (34) (18,411)
Proceeds from sale of rental equipment 3,018 32,550 73 35,641
---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities (3,293) 11,319 (63) 7,963
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (4,141) - - (4,141)
Issuance of long-term debt 8,050 - - 8,050
Proceeds from sale/leaseback transaction 633 1,597 28 2,258
Issuance of common shares, net of issuance
costs 131 - - 131
Redemption of common shares and purchase of
treasury shares (205) - - (205)
Repayment of loans to shareholders, net 502 - - 502
Intercompany 2,194 (2,170) (24) -
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 7,164 (573) 4 6,595
---------- ---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 107 107
---------- ---------- ---------- ----------
Net increase (decrease) in cash (1,109) (1,519) 43 (2,585)
CASH, beginning of year 2,714 832 1,443 4,989
---------- ---------- ---------- ----------
CASH, end of year $ 1,605 $ (687) $ 1,486 $ 2,404
========== ========== ========== ==========
58
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,904) $ 5,204 $ 1,226 $ (3,474)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 8,483 15,928 42 24,453
Deferred income taxes (2,972) - - (2,972)
Gain on sales of rental equipment and
fixed assets (1,062) (13,039) (83) (14,184)
Change in assets and liabilities, net of
the effects of acquisitions (9,109) 15,049 (1,540) 4,400
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities (14,564) 23,142 (355) 8,223
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (4,065) (5,679) (180) (9,924)
Proceeds from sales of fixed assets 34 132 3 169
Rental equipment additions (1,565) (24,317) (51) (25,933)
Proceeds from sale of rental equipment 2,193 20,390 159 22,742
Acquisitions (40,707) - - (40,707)
---------- ---------- ---------- ----------
Net cash used in investing activities (44,110) (9,474) (69) (53,653)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (48,532) - - (48,532)
Issuance of long-term debt 93,751 - - 93,751
Issuance of Class A common shares 5,334 - - 5,334
Financing costs incurred (791) - - (791)
Purchase of treasury shares (928) - - (928)
Intercompany 10,951 (12,011) 1,060 -
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 59,785 (12,011) 1,060 48,834
---------- ---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (197) (197)
---------- ---------- ---------- ----------
Net increase in cash 1,111 1,657 439 3,207
CASH, beginning of year 1,603 (825) 1,004 1,782
---------- ---------- ---------- ----------
CASH, end of year $ 2,714 $ 832 $ 1,443 $ 4,989
========== ========== ========== ==========
59
(5) COMMON SHARES
(a) STOCK OPTION PLAN--
Upon consummation of the recapitalization in 2000, the Company adopted the 2000
Stock Option Plan of Dayton Superior Corporation ("Stock Option Plan"). The
Stock Option Plan permits the grant of stock options to purchase 719,254 common
shares. Options to purchase 92,859, 147,225, and 5,506 common shares were
granted during 2003, 2002, and 2001, respectively. Options that are cancelled
may be reissued.
The Stock Option Plan constitutes the amendment and merger into one plan of four
previous option plans and governs options that remain outstanding following the
recapitalization, as well as new option grants. The terms of the option grants
are ten years from the date of grant.
Generally, between 10% and 25% of the options have a fixed vesting period of
less than three years. The remaining options are eligible to become exercisable
in installments over one to five years from the date of grant based on the
Company's performance, but, in any case, become exercisable no later than nine
years after the grant date.
These options may be subject to accelerated vesting upon certain change in
control events based on Odyssey's return on investment. Under the Stock Option
Plan, the option exercise price equals the stock's market price on date of
grant.
A summary of the status of the Company's stock option plans at December 31,
2003, 2002, and 2001, and changes during the years then ended is presented in
the table and narrative below:
Weighted Average
Number of Exercise Price Per
Shares Share
------ -----
Outstanding at January 1, 2001 570,946 $ 24.22
Granted at a weighted average fair value of $7.65 5,506 27.50
Exercised (9,134) 21.20
Cancelled (26,060) 27.00
-------
Outstanding at December 31, 2001 541,258 24.17
Granted at a weighted average fair value of $5.43 147,225 27.50
Exercised (3,050) 2.29
Cancelled (13,749) 25.21
-------
Outstanding at December 31, 2002 671,684 25.00
Granted at a weighted average fair value of $4.78 92,859 25.42
Cancelled (120,704) 25.26
-------
Outstanding at December 31, 2003 643,839 $ 25.03
=======
Price ranges and other information for stock options outstanding at December 31,
2003 are as follows:
Outstanding Exercisable
----------- -----------
Weighted Weighted Weighted
Average Average Average
Exercise Remaining Exercise
Range of Exercise Prices Shares Price Life Shares Price
- ------------------------ ------ ----- ---- ------ -----
$ 1.96 - $ 4.00 40,887 $ 2.45 0.7 years 40,887 $ 2.45
$ 16.81 - $ 19.91 22,164 17.95 4.6 22,164 17.95
$ 24.00 - $ 27.50 580,788 26.87 7.5 97,999 27.02
------- ------- --------- ------- -------
643,839 $ 25.03 6.9 years 161,050 $ 19.54
======= ======= ========= ======= =======
Shares exercisable were 188,092 and 163,573 as of December 31, 2002 and 2001,
respectively.
60
The fair value of each option grant is estimated on the date of grant using the
Black Scholes options pricing model with the following weighted average
assumptions used for grants in 2003, 2002, and 2001, respectively:
2003 2002 2001
---- ---- ----
Risk-free interest rates 2.98%-3.26% 3.70% 5.55%
Expected dividend yield 0% 0% 0%
Expected lives 6 years 6 years 6 years
Expected volatility 8.44% 0.00% 0.00%
(b) TREASURY SHARES--
During 2002 and 2001, the Company repurchased common shares from former
employees in conjunction with the facility closing and severance plans discussed
in Note 10. There were 7,459 shares repurchased in 2002 for $205, and 29,288
shares repurchased in 2001 for $979.
61
(6) RETIREMENT PLANS
(a) COMPANY-SPONSORED PENSION PLANS--
The Company's pension plans cover virtually all hourly employees not covered by
multi-employer pension plans and provide benefits of stated amounts for each
year of credited service. The Company funds such plans at a rate that meets or
exceeds the minimum amounts required by applicable regulations. The plans'
assets are primarily invested in mutual funds comprised primarily of common
stocks and corporate and U.S. government obligations.
The Company provides postretirement health care benefits on a contributory basis
and life insurance benefits for Symons salaried and hourly employees who retired
prior to May 1, 1995.
PENSION PENSION SYMONS SYMONS
BENEFITS BENEFITS POSTRETIREMENT POSTRETIREMENT
2003 2002 BENEFITS 2003 BENEFITS 2002
---- ---- ------------- -------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 8,227 $ 7,059 $ 720 $ 820
Service cost 483 428 - -
Interest cost 563 502 46 57
Amendments - 120 - -
Actuarial loss 1,424 479 44 27
Benefits paid (499) (361) (164) (183)
---------- ---------- ---------- ----------
Benefit obligation at end of year $ 10,198 $ 8,227 $ 648 $ 721
========== ========== ========== ==========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 6,812 $ 6,716 $ - $ -
Actual return (loss) on plan assets 1,136 (457) - -
Employee contribution 109 57
Employer contribution 199 914 55 126
Benefits paid (499) (361) (164) (183)
---------- ---------- ---------- ----------
Fair value of plan assets at end of year $ 7,648 $ 6,812 $ - $ -
========== ========== ========== ==========
Funded status $ (2,550) $ (1,415) $ (648) $ (720)
Unrecognized prior service cost (37) (32) 168 192
Unrecognized net loss (gain) 2,170 1,402 7 (39)
---------- ---------- ---------- ----------
Net amount recognized $ (417) $ (45) $ (473) $ (567)
========== ========== ========== ==========
AMOUNTS RECOGNIZED IN THE STATEMENT OF
FINANCIAL POSITION CONSIST OF:
Accrued benefit liability $ (2,550) $ (1,415) $ (473) $ (567)
Accumulated other comprehensive income 2,133 1,370 - -
---------- ---------- ---------- ----------
Net amount recognized $ (417) $ (45) $ (473) $ (567)
========== ========== ========== ==========
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 483 $ 428 $ - $ -
Interest cost 563 502 46 57
Expected return on plan assets (536) (560) - -
Amortization of actuarial loss 55 - - -
Amortization of prior service cost 5 (5) 24 24
---------- ---------- ---------- ----------
Net periodic pension cost $ 570 $ 365 $ 70 $ 81
========== ========== ========== ==========
ADDITIONAL INFORMATION
Increase in minimum liability included in other
comprehensive income (106) (1,219) - -
62
The weighted average assumptions used in the actuarial computation that derived
the above funded status amounts were as follows:
Pension Pension Symons Symons
Benefits Benefits Postretirement Postretirement
2003 2002 Benefits 2003 Benefits 2002
---- ---- ------------- -------------
Discount rate 6.00% 6.75% 6.00% 6.75%
Expected return on plan assets 8.00% 8.00% N/A N/A
Rate of compensation increase N/A N/A N/A N/A
The weighted average assumptions used in the actuarial computation that derived
net periodic benefit income (expense) were as follows:
Pension Pension Pension Symons Symons Symons
Benefits Benefits Benefits Postretirement Postretirement Postretirement
2003 2002 2001 Benefits 2003 Benefits 2002 Benefits 2001
---- ---- ---- ------------- ------------- -------------
Discount rate 6.75% 7.25% 6.75% 6.75% 7.5% 7.0%
Expected return on plan assets 8.00% 8.00% 8.00% N/A N/A N/A
Rate of compensation increase N/A N/A N/A N/A N/A N/A
One of the principal components of the net periodic pension cost calculation is
the expected long-term rate of return on assets. The required use of an expected
long-term rate of return on plan assets may result in recognized pension income
that is greater or less than the actual returns of those plan assets in any
given year. Over time, however, the expected long-term returns are designed to
approximate the actual long-term returns and therefore result in a pattern of
income and expense recognition that more closely matches the pattern of the
services provided by the employees. Our defined benefit pension plan's assets
are invested primarily in equity and fixed income mutual funds. We use long-term
historical actual return experience and estimates of future long-term investment
return with consideration to the expected investment mix of the plan's assets to
develop our expected rate of return assumption used in the net periodic pension
cost calculation.
Our postretirement healthcare benefit plan is unfunded and has no plan assets.
Therefore, the expected long-term rate of return on plan assets is not a factor
in accounting for this benefit plan.
As of December 31, 2003 and 2002, the plan had accumulated benefit obligations
equal to the projected benefit obligation of $10,198 and $8,227, respectively.
Assumed health care cost trend rates:
DECEMBER 31,
----------------------
2004 2003
---- ----
Health care cost trend rate assumed for next year 8.0% 8.5%
Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate) 5.0% 5.0%
Year that the rate reaches the ultimate trend rate 2010 2010
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one percentage point change in assumed
health care cost trend rates would have the following effects:
1 Percentage Point 1 Percentage
Increase Point Decrease
-------- --------------
Effect on total of service and interest cost
components $ 6 $ (6)
Effect on the postretirement benefit
obligation 105 (93)
63
Plan Assets
The pension plan asset allocations at December 31, 2003 and 2002, by asset
category were as follows:
PLAN ASSETS AT DECEMBER 31,
---------------------------
ASSET CATEGORY 2003 2002
-------------- ---- ----
Equity Securities 55 % 66 %
Fixed Income Securities 36 18
Insurance Contract 9 16
Total 100 % 100 %
--- ---
The Company's pension plan asset investment strategy is to invest in a
combination of equities and fixed-income investments while maintaining a
moderate risk posture. The targeted asset allocation within the investment
portfolio is 55% equities and 45% fixed income. The Company evaluates the
performance of the pension investment program in the context of a three to
five-year horizon.
CASH FLOW
Contributions:
We expect to contribute $100 to the pension plan in 2004.
Estimated Future Benefit Payments:
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
2004 $ 324 $ 81
2005 354 84
2006 368 86
2007 404 87
2008 445 88
Years 2009-2013 2,984 393
(b) MULTI-EMPLOYER PENSION PLAN--
Approximately 12% of the Company's employees are currently covered by
collectively bargained, multi-employer pension plans. Contributions are
determined in accordance with the provisions of negotiated union contracts and
generally are based on the number of hours worked. The Company does not have the
information available to determine its share of the accumulated plan benefits or
net assets available for benefits under the multi-employer pension plans. The
aggregate amount charged to expense under these plans was $321, $347, and $380,
for the years ended December 31, 2003, 2002, and 2001, respectively.
(c) 401(k) SAVINGS PLAN--
Most employees are eligible to participate in Company sponsored 401(k) savings
plans. Company matching contributions vary from 0% to 50% according to terms of
the individual plans and collective bargaining agreements. The aggregate amount
charged to expense under these plans was $767, $993, and $1,000, for the years
ended December 31, 2003, 2002, and 2001, respectively.
(d) RETIREMENT CONTRIBUTION ACCOUNT--
The Company has a defined contribution plan for substantially all salaried
employees. Employees are not permitted to contribute to the plan. The Company
suspended contributions to this account for service rendered in 2003.
Previously, participants earned 1.5% to 6.0% of eligible compensation, depending
on the age of the employee. The amount charged to expense for the years ended
December 31, 2002 and 2001 was $1,791 and $1,905, respectively.
64
(7) INCOME TAXES
The following is a summary of the components of the Company's income tax
provision for the years ended December 31, 2003, 2002, and 2001:
2003 2002 2001
-------- -------- --------
Currently receivable:
Federal $ (98) $ (4,000) $ (671)
State and local 154 (354) 555
Foreign 459 603 413
Deferred (future tax benefit) (11,228) 3,365 (1,476)
-------- -------- --------
Total benefit $(10,713) $ (386) $ (1,179)
======== ======== ========
The effective income tax rate differs from the statutory federal income tax rate
for the years ended December 31, 2003, 2002, and 2001 for the following reasons:
2003 2002 2001
-------- -------- --------
Statutory income tax rate 34.0% 34.0% 34.0%
State income taxes (net of federal
tax benefit) 4.9 (4.1) 4.0
Nondeductible goodwill
amortization and other
permanent differences (0.4) (8.6) (12.7)
Foreign income taxes - (10.3) -
-------- -------- --------
Effective income tax rate 38.5% 11.0% 25.3%
======== ======== ========
The components of the Company's deferred taxes as of December 31, 2003 and 2002
are as follows:
2003 2002
-------- --------
Current deferred taxes:
Inventory reserves $ 1,100 $ 668
Accounts receivable reserves 1,123 876
Accrued liabilities 2,975 4,628
Other 170 22
-------- --------
Total 5,368 6,194
-------- --------
Long-term deferred taxes:
Accelerated depreciation (19,340) (19,302)
Net operating loss carryforwards 15,179 2,678
Deferred compensation 2,001 3,046
Other long-term liabilities 1,522 947
Amortization of intangibles 878 798
Other (240) (86)
-------- --------
Total - (11,919)
-------- --------
Net deferred taxes $ 5,368 $ (5,725)
======== ========
For federal income tax purposes, the Company has federal net operating tax loss
carryforwards of approximately $39,300, which expire over a five year period
beginning in 2019. The Company also has state net operating tax loss
carryforwards of $49,400, which expire over a period of five to twenty years
beginning in 2006.
65
(8) 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 it's 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. Corporate loss before income tax includes
interest expense.
Sales between Construction Products Group and Symons are recorded at normal
selling price by the selling segment and at cost for the buying segment, with
the profit recorded as an intersegment elimination. Segment assets include
accounts receivable; inventories; property, plant, and equipment; rental
equipment; and an allocation of goodwill. Corporate and unallocated assets
include cash, prepaid income taxes, future tax benefits, and financing costs.
Export sales and sales by non-U.S. affiliates are not significant.
Information about the income (loss) of each segment and the reconciliations to
the consolidated amounts for the years ended December 31, 2003, 2002, and 2001
is as follows:
2003 2002 2001
--------- --------- ---------
Sales:
Construction Products Group $ 258,051 $ 274,129 $ 282,375
Symons 119,803 124,608 133,116
--------- --------- ---------
Net sales to external customers $ 377,854 $ 398,737 $ 415,491
========= ========= =========
Construction Products Group $ 12,299 $ 13,123 $ 13,990
Symons 9,553 8,107 7,052
--------- --------- ---------
Net sales to other segments $ 21,852 $ 21,230 $ 21,042
========= ========= =========
Income (loss) before income tax:
Construction Products Group $ 18,057 $ 28,265 $ 29,315
Symons 20,733 27,076 31,324
Intersegment Eliminations (11,695) (11,032) (11,187)
Corporate (54,916) (47,818) (54,105)
--------- --------- ---------
Loss before income taxes $ (27,821) $ (3,509) $ (4,653)
========= ========= =========
Depreciation:
Construction Products Group $ 6,708 $ 6,665 $ 6,455
Symons 17,457 12,417 9,936
Corporate 1,769 1,768 1,899
--------- --------- ---------
Depreciation $ 25,934 $ 20,850 $ 18,290
========= ========= =========
Amortization of goodwill and intangibles:
Construction Products Group $ 185 $ 258 $ 375
Symons 651 229 16
Corporate 108 116 3,521
--------- --------- ---------
Amortization of goodwill and intangibles $ 944 $ 603 $ 3,912
========= ========= =========
66
Information regarding each segment's assets and the reconciliation to the
consolidated amounts as of December 31, 2003 and 2002 are as follows:
2003 2002
--------- ---------
Construction Products Group $ 154,514 $ 159,955
Symons 138,973 115,071
Corporate and Unallocated 99,897 98,945
--------- ---------
Total Assets $ 393,384 $ 373,971
========= =========
Information regarding capital expenditures by segment and the reconciliation to
the consolidated amounts for the years ended December 31, 2003, 2002 and 2001 is
as follows:
2003 2002 2001
--------- --------- ---------
Construction Products Group $ 6,313 $ 7,968 $ 6,629
Symons 521 2,520 2,320
Corporate 995 789 975
--------- --------- ---------
Property, Plant, and Equipment Additions $ 7,829 $ 11,277 $ 9,924
========= ========= =========
Construction Products Group $ 870 $ 864 $ 1,664
Symons 26,701 17,547 24,269
--------- --------- ---------
Rental Equipment Additions $ 27,571 $ 18,411 $ 25,933
========= ========= =========
(9) COMMITMENTS AND CONTINGENCIES
(a) OPERATING LEASES--
Rental expense for property, plant and equipment (principally manufacturing,
service/distribution, and office facilities, forklifts, and office equipment)
was $6,301, $6,318, and $6,599, for the years ended December 31, 2003, 2002 and
2001, respectively. Lease terms range from one to 20 years and some contain
renewal options.
Aggregate minimum annual rental commitments under non-cancelable operating
leases are as follows:
Operating Leases
----------------
2004 $ 5,749
2005 5,016
2006 3,588
2007 2,460
2008 1,353
Thereafter 7,300
-----------
Total $ 25,466
===========
(b) LITIGATION--
From time to time, the Company is involved in various legal proceedings arising
out of the ordinary course of business. None of the matters in which the Company
is currently involved, either individually, or in the aggregate, is expected to
have a material adverse effect on the Company's consolidated financial position,
results of operations, or cash flows.
(c) SELF-INSURANCE--
The Company is self-insured for certain of its group medical, workers'
compensation and product and general liability claims. The Company has stop loss
insurance coverage at various per occurrence and per annum levels depending on
the type of claim. The Company consults with third party administrators to
estimate the reserves required for these claims. No material revisions were made
to the estimates for the years ended December 31, 2003, 2002 and 2001. The
Company has reserved $5,116 and $6,890 as of December 31, 2003 and 2002,
respectively.
67
(d) SEVERANCE OBLIGATIONS--
The Company has employment agreements with its executive management and
severance agreements with certain of its key management-level personnel, with
annual base compensation ranging in value from $170 to $390. The agreements
generally provide for salary continuation in the event of termination without
cause for periods of one to three years. The agreements also contain certain
non-competition clauses. As of December 31, 2003, the remaining aggregate
commitment under these severance agreements if all individuals were terminated
without cause was approximately $2,800.
(10) 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 years ended December 31, 2001, 2002, and 2003 was
as follows:
OTHER
INVOLUNTARY LEASE RELOCATION POST-
TERMINATION TERMINATION OF CLOSING
BENEFITS COSTS OPERATIONS COSTS TOTAL
----------- ----------- ---------- ------------ -------
(AMOUNTS IN THOUSANDS)
Balance, January 1, 2001 .................... $ 738 $ 540 $ - $ 575 $ 1,853
Facility closing and severance expenses ..... - - - - -
Items charged against reserve ............... (738) (50) - (398) (1,186)
----------- ----------- ---------- ------------ -------
Balance, December 31, 2001 .................. - 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 ..... - (212) - - (212)
Items charged against reserve ............... - (57) - (93) (150)
----------- ----------- ---------- ------------ -------
Balance, December 31, 2003 .................. $ - $ - $ - $ - $ -
=========== =========== ========== ============ =======
During 2001, we approved and began implementing a plan to exit certain
of our manufacturing and distribution facilities and to reduce overall headcount
in order to keep our cost structure in alignment with net sales. Activity for
this plan for the years ended December 31, 2001, 2002, and 2003 was as follows:
OTHER
INVOLUNTARY LEASE RELOCATION POST-
TERMINATION TERMINATION OF CLOSING
BENEFITS COSTS OPERATIONS COSTS TOTAL
----------- ----------- ---------- ------------ -------
(AMOUNTS IN THOUSANDS)
Facility closing and severance expenses ..... $ 3,287 $ 685 $ - $ 786 $ 4,758
Items charged against reserve ............... (2,356) (161) - - (2,517)
----------- ----------- ---------- ------------ -------
Balance, December 31, 2001 .................. 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 ..... - 379 - - 379
Items charged against reserve ............... - (175) - (311) (486)
----------- ----------- ---------- ------------ -------
Balance, December 31, 2003 .................. $ - $ 414 $ - $ - $ 414
=========== =========== ========== ============ =======
The remaining lease termination costs are expected to be paid in 2004.
68
During 2002, we approved and began implementing a plan to exit certain
of our distribution facilities and to reduce overall headcount in order to keep
our cost structure in alignment with net sales. Activity for this plan for the
year ended December 31, 2002, and 2003 was as follows:
OTHER
INVOLUNTARY LEASE RELOCATION POST-
TERMINATION TERMINATION OF CLOSING
BENEFITS COSTS OPERATIONS COSTS TOTAL
----------- ----------- ---------- ------------ -------
(AMOUNTS IN THOUSANDS)
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 ..... 202 (11) - - 191
Items charged against reserve ............... (2,414) (73) - - (2,487)
----------- ----------- ---------- ------------ -------
Balance, December 31, 2003 .................. $ 200 $ - $ - $ - $ 200
=========== =========== ========== ============ =======
The remaining involuntary termination benefits are expected to be paid
in 2004.
During 2003, we approved and began implementing a plan to exit certain
of our distribution facilities and to reduce overall headcount in order to keep
our cost structure in alignment with net sales. Activity for this plan for the
year ended December 31, 2003 was as follows:
OTHER
INVOLUNTARY LEASE RELOCATION POST-
TERMINATION TERMINATION OF CLOSING
BENEFITS COSTS OPERATIONS COSTS TOTAL
----------- ----------- ---------- ------------ -------
(AMOUNTS IN THOUSANDS)
Facility closing and severance expenses ..... $ 988 $ 27 $ - $ 921 $ 1,936
Items charged against reserve ............... (988) (27) - (921) (1,936)
----------- ----------- ---------- ------------ -------
Balance, December 31, 2003 .................. $ - $ - $ - $ - $ -
=========== =========== ========== ============ =======
(11) RELATED PARTY TRANSACTIONS
For the years ended December 31, 2003, 2002, and 2001, the Company reimbursed
Odyssey Investment Partners, LLC, the majority shareholder, for travel, lodging,
and meals of $315, $228, and $107 respectively. In conjunction with the
acquisition of Aztec Concrete Accessories, Inc. ("Aztec"), the Company paid
Odyssey a $350 fee.
69
(12) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2003
---------------------------------------------------------------------
First Second Third Fourth Full
Quarterly Operating Data Quarter Quarter Quarter Quarter Year
- ----------------------------------------- --------- --------- --------- --------- ---------
Net sales $ 71,994 $ 105,514 $ 100,988 $ 99,358 $ 377,854
Gross profit 21,000 31,012 24,729 27,515 104,256
Income (loss) before cumulative effect of
change in accounting principle (5,390) (460) (6,393) (4,865) (17,108)
2002
---------------------------------------------------------------------
First Second Third Fourth Full
Quarterly Operating Data Quarter Quarter Quarter Quarter Year
- ----------------------------------------- --------- --------- --------- --------- ---------
Net sales $ 82,772 $ 112,214 $ 110,526 $ 93,225 $ 398,737
Gross profit 26,517 36,587 36,623 29,149 128,876
Income (loss) before cumulative effect of
change in accounting principle (3,010) 2,890 2,587 (5,590) (3,123)
70
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(AMOUNTS IN THOUSANDS)
Additions Deductions
---------------------------------- -----------------------
Charges
Charged for Which
Balance at to Costs Reserves Balance at
Beginning of and Were End of
Year Expenses Other Created Year
------------ --------- ----- --------- ----------
Allowances for Doubtful Accounts and Sales
Returns and Allowances
For the year ended December 31, 2003 $ 4,861 $ 6,521 $ - $ (6,443) $ 4,939
For the year ended December 31, 2002 7,423 1,848 - (4,410) 4,861
For the year ended December 31, 2001 $ 5,331 $ 2,156 $ 102 (1) $ (166) $ 7,423
(1) Acquisition of BarLock and Aztec Concrete Accessories, Inc.
71
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. 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 period 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.
72
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of our executive
officers and directors as of December 31, 2003.
Name Age Position
- ----------------------- --- -----------------------------------------------
John A. Ciccarelli 64 Chairman of the Board of Directors
Stephen R. Morrey 49 President, Chief Executive Officer and Director
Peter J. Astrauskas 53 Vice President, Engineering
Raymond E. Bartholomae 57 Vice President, Sales and Marketing
Dennis P. Haggerty 52 Vice President, Supply Chain Management
Steven C. Huston 49 Vice President, General Counsel and Secretary
Mark K. Kaler 46 Vice President, Strategic Planning
Edward J. Puisis 43 Vice President and Chief Financial Officer
Thomas W. Roehrig 38 Vice President of Corporate Accounting
Stephen Berger 64 Director
William F. Hopkins 40 Director
Douglas W. Rotatori 43 Director
John A. Ciccarelli has been a Director since 1994 and Chairman of our Board of
Directors since 2000. Mr. Ciccarelli was President and Chief Executive Officer
from 1989 until 2002.
Stephen R. Morrey has been President, Chief Executive Officer and a Director
since July 2002. From June 2001 to July 2002, Mr. Morrey was President of Alcoa
Automotive Castings. From 1999 to June 2001, he was Vice President of Operations
for the Occupant Safety Systems Division of TRW. From 1995 to 1999, Mr. Morrey
served as Vice President of Operations for the Airbags Worldwide, Steering
Wheels North America Division of TRW.
Peter J. Astrauskas has been Vice President, Engineering since September 2003.
From 2001 to 2003, he was Vice President, Engineering for Alcoa Automotive. From
1994 to 2001, he was the Director, Global Manufacturing Engineering for TRW
Safety Systems.
Raymond E. Bartholomae has been Vice President, Sales and Marketing since August
2003. He has been employed by Symons since January 1970 and had been Vice
President and General Manager, Symons, from February 1998 to August 2003.
Dennis P. Haggerty has been Vice President, Supply Chain Management since
October 2002. From October 2001 to October 2002, he was Director of Business
Development/Quality for Alcoa Automotive Castings. From February 2000 to October
2001, he was Executive Vice President for Ventra Plastics. From May 1999 to
February 2000, Mr. Haggerty was Vice President for Ventra Plastics Europe. From
1997 to May 1999, he served as Director of Operations for TRW.
Steven C. Huston has been Vice President, General Counsel and Secretary since
January 2003. From January 2002 to January 2003, he was Deputy General Counsel
and Assistant Secretary. Mr. Huston was in private practice from February 2001
through December 2001, and prior to that, served as Counsel--North America for
Wm. Wrigley Jr. Company from March 1997 to February 2001.
Mark K. Kaler has been Vice President, Strategic Planning since August 2003. He
served as Vice President and General Manager, Construction Products Group from
October 2002 to August 2003. From April 1996 to October 2002, Mr. Kaler was Vice
President and General Manager, American Highway Technology.
73
Edward J. Puisis has been Vice President and Chief Financial Officer since
August 2003. From March 1998 to August 2003 Mr. Puisis was General Manager of
Finance and Administration and Chief Financial Officer of Gallatin Steel
Company, a partnership owned by Dafasco and Gerdau Ameristeel.
Thomas W. Roehrig has been Vice President of Corporate Accounting since February
2003 and was Treasurer from August 2003 to December 2003. From April 1998 to
February 2003, Mr. Roehrig served as Corporate Controller.
Stephen Berger has been chairman of Odyssey Investment Partners, LLC since 1997.
Mr. Berger also served as a director of Transdigm, Inc., a supplier of highly
engineered commercial and military aircraft parts from 1998 to July 2003.
William F. Hopkins has been a member and Managing Principal of Odyssey
Investment Partners, LLC since 1997. Mr. Hopkins also served as a director of
Transdigm, Inc. from 1998 to July 2003, a supplier of highly engineered
commercial and military aircraft parts.
Douglas W. Rotatori has been a principal of Odyssey Investment Partners, LLC
since 1998.
We have five directors. Each director is elected to serve until the next annual
meeting of shareholders or until a successor is elected. Our executive officers
are elected by the directors to serve at the pleasure of the directors. There
are no family relationships between any of our directors or executive officers.
Except for Mr. Ciccarelli, our directors, all of whom are employed by us, or
Odyssey, do not receive any compensation for their service as directors.
The AUDIT COMMITTEE of our Board of Directors consists of Messrs. Berger,
Hopkins, and Rotatori, none of who is considered independent under the rules of
the national securities exchanges. The Board of Directors has determined that
Mr. Rotatori is an Audit Committee financial expert, as defined in the rules of
the Securities and Exchange Commission.
We have adopted a CODE OF ETHICS that specifically applies to our senior
financial officers, including our President and Chief Executive Officer, Chief
Financial Officer, Vice President of Corporate Accounting, and Treasurer. Our
Code of Ethics is filed with this annual report on Form 10-K as Exhibit 14.
74
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the 2003, 2002, and 2001 compensation for our
chief executive officer and each of the other four most highly compensated
executive officers who were serving as executive officers at December 31, 2003
or who had served as an executive officer during 2003.
LONG-TERM
COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- -------------- -----------
OTHER ANNUAL SHARES LONG TERM
NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING INCENTIVE ALL OTHER
POSITION YEAR ($) ($) ($) OPTIONS (#)(1) PAYOUTS ($) COMPENSATION($)(2)
- ---------------------- ---- --------- --------- ------------ -------------- ----------- ------------------
Stephen R. Morrey 2003 $ 375,000 $ 135,000 $ 195,709(3) - $ - $ 4,000
President and Chief 2002 173,077 235,000 77,102(3) 100,000 - -
Executive Officer
Dennis Haggerty 2003 $ 225,000 $ 100,000 $ 43,122(4) - $ - $ 3,500
Vice President, 2002 55,385 32,653 - 35,000 - -
Supply Chain
Management
Raymond E. Bartholomae 2003 $ 243,942 $ 140,000 $ - 12,000 $ - $ 4,000
Vice President, 2002 210,000 120,000 - - - 16,000
Sales and Marketing 2001 206,750 90,000 - - - 13,600
Mark K. Kaler 2003 $ 227,000 $ 70,000 $ - 12,000 $ - $ 4,000
Vice President, 2002 184,077 110,000 - - - 13,000
Strategic Planning 2001 149,231 160,214 - - - 7,650
Alan F. Mcliroy(5) 2003 $ 147,692 $ 27,123 $ 24,110(6) - $ - $ 314,846
Vice President and 2002 240,000 45,000 - - - 13,000
Chief Financial 2001 236,539 96,406 - - - 11,050
Officer
Edward J. Puisis 2003 $ 96,154 $ 325,000(7) $ - 55,000 $ - $ -
Vice President and
Chief Financial
Officer
(1) Options to purchase common shares were granted under our stock option plans
at an exercise price of $27.50 per share, except for Mr. Puisis' options, which
have an exercise price of $24.00 per share. The options become exercisable based
on a combination of service and performance factors.
(2) Consists of:
Matching 401(k) Contributions Contributions to 401(k) Savings Plan Severance
2003 2002 2001 2003 2002 2001 2003
-----------------------------------------------------------------------------
Mr. Morrey $4,000 $ - $ - $ - $ - $ - $ -
Mr. Haggerty 3,500 - - - - - -
Mr. Bartholomae 4,000 4,000 3,400 - 12,000 10,200 -
Mr. Kaler 4,000 4,000 3,400 - 9,000 4,250 -
Mr. Mcliroy 4,000 4,000 3,400 - 9,000 7,650 310,846
Mr. Puisis - - - - - - -
75
(3)The amounts included in this column which represent more than 25% of the
total perquisites and personal benefits received by Mr. Morrey were relocation
expense paid by us of $70,402 in 2002 and $176,119 in 2003.
(4)The amounts included in this column which represent more than 25% of the
total perquisites and personal benefits received by Mr. Haggerty were temporary
living and mileage expenses paid by us of $29,322 and a car allowance of
$13,800.
(5) Mr. McIlroy, the former chief financial officer, resigned effective August
8, 2003. In connection with Mr. McIlroy's severance, Mr. McIlroy received a
severance payment of $207,000, 24 months of salary continuation (of which
$103,846 was paid in 2003), and a prorated bonus of $27,123 for 2003. All of his
unexercised options were cancelled.
(6) The amounts included in this column which represent more than 25% of the
total perquisites and personal benefits received by Mr. Mcliroy were imputed
interest of $10,310 on an interest free loan and a car allowance of $13,800.
(7) The bonus amount for Mr. Puisis reflects a signing bonus of $175,000 he
received upon his employment with Dayton Superior and a $150,000 bonus under the
Company's annual bonus plan.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of Messrs. Morrey,
Bartholomae, Puisis, and Kaler. We do not currently have an employment agreement
with Mr. Haggerty. Generally, each employment agreement provides:
- Each executive officer is an "employee at will."
- Each executive officer is entitled to participate in our executive
annual bonus plan and in our various other employee benefit plans
and arrangements which are applicable to senior officers.
- If an executive officer is terminated without cause during the
term of his employment agreement, he will be entitled to receive a
pro rata share of his bonus for the year of termination, to
continue to receive his annual base salary for a period of 12 to
36 months and to continue coverage under our medical and dental
programs for from one to three years on the same basis as he was
entitled to participate prior to his termination.
- Each executive officer is prohibited from competing with us during
the term of his employment under the employment agreement and,
under certain conditions, from one to three years following
termination of his employment or expiration of the term of his
employment agreement.
Mr. Morrey's employment agreement differs from the other agreements described
above in the following respects:
- His annual base salary is $375,000, which may be increased by our
Board of Directors at its discretion.
- He serves as a director as well as President and Chief Executive
Officer.
- The term of his employment is four years, beginning July 15, 2002.
His agreement will automatically be extended for additional
one-year periods unless either of us notifies the other of
termination not later than 120 days before the end of a term.
- He received in 2002 a one-time signing bonus of $100,000 and
reimbursement for certain expenses he incurred in connection with
his move to the Dayton, Ohio area. He also received in 2002 a loan
in the amount of $350,000 (which is fully recourse to him only
with respect to $175,000), which he applied toward the purchase of
14,545 of our common shares at a price of $27.50 per share.
76
- He receives an annual car allowance, payment of the annual
membership fee in a country, alumni or social club of his choice
and hanger fees for his personal aircraft (up to a specified
maximum amount), payment for reasonable expenses incurred by him
for professional assistance with taxes and financial management
consistent with our current practices and reimbursement for
reasonable travel and business expenses incurred by him in the use
of his personal aircraft for performance of his duties, in
accordance with our procedures.
Pursuant to an agreement with Dayton Superior, Mr. Puisis' employment agreement
differs from the other agreements described above in the following respects:
- His annual base salary is $250,000, which may be increased by our
Board of Directors at its discretion.
- The term of his employment is two years, beginning August 11,
2003. His employment agreement will be automatically extended for
additional one-year periods unless either of us notifies the other
not later than 120 days before the end of a term.
- He received in 2003 a one-time signing bonus of $175,000 and
reimbursement for expenses he incurred in connection with his move
to the Dayton, Ohio area.
- He receives an annual car allowance, payment of the annual
membership fee in a country, alumni or social club of his choice
(up to a specified maximum amount) as well as payment of the
initiation fee in that country, alumni or social club (up to a
specified amount).
MANAGEMENT STOCKHOLDERS' AGREEMENT
We along with Odyssey and our employee stockholders, including the
officers named in the Summary Compensation Table (the "Management
Stockholders"), are partners to a Management Stockholders' Agreement (the
"Management Stockholders' Agreement") which governs our common shares, options
to purchase our common shares and shares acquired upon exercise of options.
The Management Stockholders' Agreement provides that except for certain
transfers to family members and family trusts, no Management Stockholder may
transfer common stock except in accordance with the Management Stockholders'
Agreement.
The Management Stockholders' Agreement also provides that, upon
termination of the employment of a Management Stockholder, the Management
Stockholder has certain put rights and we have certain call rights regarding his
or her common stock.
If the provisions of any law, the terms of credit and financing
arrangements or our financial circumstances would prevent us from making a
repurchase of shares pursuant to the Management Stockholders' Agreement, we will
not make the purchase until all such prohibitions lapse, and will then also pay
the Management Stockholder a specified rate of interest on the repurchase price.
The Management Stockholders' Agreement further provides that in the
event of certain transfers of common shares by Odyssey, the Management
Stockholders may participate in such transfers and/or Odyssey may require the
Management Stockholders to transfer their shares in such transactions, in each
case on a pro rata basis.
Certain Management Stockholders are entitled to participate on a pro
rata basis with, and on the same terms as, Odyssey in any future offering of
common shares.
77
FISCAL 2003 STOCK OPTION GRANTS
The stock options granted in 2003 to Messers. Kaler, Bartholomae and
Puisis in the Summary Compensation Table are shown in the following table. The
table also shows the hypothetical gains that would exist for the options at the
end of their ten year terms, assuming compound rates of stock appreciation of 5%
and 10%, respectively. The actual future value of the options will depend on the
market or appraised value of the common shares.
Option Grants in Last Fiscal Year
------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term
------------------------------------------------------ -----------------------------
Number of % of Total
Shares Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted (#) in 2003 ($/Sh) Date 5%($) 10%($)
- ----------------------- ----------- ---------- -------- ---------- --------- ----------
Mark K. Kaler 12,000(1) 12.9% $ 27.50 1/1/13 $ 207,535 $ 525,935
Raymond E.
Bartholomae 12,000(1) 12.9% $ 27.50 1/1/13 $ 207,535 $ 525,935
Edward J. Puisis 55,000(1) 59.2% $ 24.00 8/11/13 $ 830,141 $2,103,740
(1) Options were granted under the 2000 Stock Option Plan with an exercise price
that represents the fair market value of a Common Share on the date the options
were granted. The options are divided into two different parts, both of which
have a different vesting schedule. All unvested options will become fully
exercisable upon a change in control (as defined in the 2000 Stock Option Plan),
if Odyssey receives at least a targeted return on its investment.
FISCAL YEAR-END OPTION VALUES
The number and value of options exercised and the number and value of all
unexercised options held by each of the executive officers named in the Summary
Compensation Table at December 31, 2003 are shown in the following table.
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at 12/31/03 (#) 12/31/03 ($)(1)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------- ------------ ------------ ------------------------- -------------------------
Stephen R. Morrey - - 25,000/75,000 $ 0/$0
Dennis Haggerty - - 3,500/31,500 0/0
Raymond E.
Bartholomae - - 12,552/49,341 15,039/0
Mark K. Kaler - - 20,775/47,417 233,063/0
Alan F. Mcliroy - - 0/0 0/0
Edward J. Puisis - - 4,582/50,418 0/0
(1) Represents the excess of $22.41, the fair market value as of December 31,
2003 based on an independent appraisal, over the aggregate option exercise
price.
78
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth information with respect to the beneficial
ownership of our common shares as of December 31, 2003 by:
- each person known by us to beneficially own more than 5% of our common
shares;
- directors;
- executive officers listed in the compensation table; and
- directors and executive officers as a group.
We have determined beneficial ownership as reported below in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Beneficial
ownership generally includes sole or shared voting or investment power with
respect to the shares and includes the number of common shares subject to all
outstanding options. The percentages of our outstanding common shares are based
on 4,554,269 shares outstanding, except for certain parties who hold options
that are exercisable into common shares within 60 days. The percentages for
those parties who hold options that are exercisable within 60 days are based on
the sum of 4,554,269 shares outstanding plus the number of common shares subject
to options exercisable within 60 days held by them and no other person, as
indicated in the notes following the table. The number of common shares
beneficially owned has been determined by assuming the exercise of options
exercisable into common shares within 60 days. Unless otherwise indicated,
voting and investment power are exercised solely by each individual and/or a
member of his household.
Number of Common
Shares Beneficially % of Common
Name of Beneficial Owner: Owned Shares
- ---------------------------- ------------------- -----------
Odyssey (1) 4,208,317 92.4
Raymond E. Bartholomae (2) 33,629 *
Stephen Berger (3) 4,208,317 92.4
John A. Ciccarelli (4) 76,312 1.7
Dennis P. Haggerty (5) 5,500 *
William F. Hopkins (3) 4,208,317 92.4
Mark K. Kaler (6) 48,686 1.1
Edward J. Puisis (7) 5,624 *
Alan F. McIlroy 18,227 *
Stephen R. Morrey (8) 39,546 *
Douglas Rotatori (3) 4,208,317 92.4
Executive officers and directors as a group
(9 persons) (9) 4,435,841 95.2
* Signifies less than 1%.
(1) Consists of 4,208,317 common shares owned in the aggregate by Odyssey
Investment Partners Fund, LP (the "Fund"), certain of its affiliates and certain
co-investors (together with the Fund, "Odyssey"). Odyssey Capital Partners, LLC
is the general partner of the Fund. Odyssey Investment Partners, LLC is the
manager of the Fund. The principal business address for Odyssey is 280 Park
Avenue, West Tower, 38th Floor, New York, New York.
(2) Includes 12,552 common shares issuable upon exercise of options exercisable
within 60 days.
(3) Consists of 4,208,317 common shares owned in the aggregate by Odyssey.
Messrs. Berger and Hopkins are managing members of the Odyssey Capital Partners,
LLC and Odyssey Investment Partners, LLC and, therefore, may each be deemed to
share voting and investment power with respect to the shares deemed to be
beneficially owned by Odyssey. Mr. Rotatori is a member of Odyssey Investment
Partners, LLC. Each of Messrs. Berger, Hopkins and Rotatori disclaim beneficial
ownership of these shares.
(4) Includes 37,051 common shares issuable upon exercise of options exercisable
within 60 days.
79
(5) Includes 3,500 common shares issuable upon exercise of options exercisable
within 60 days.
(6) Includes 20,775 common shares issuable upon exercise of options exercisable
within 60 days.
(7) Includes 4,582 common shares issuable upon exercise of options exercisable
within 60 days.
(8) Includes 25,000 common shares issuable upon exercise of options exercisable
within 60 days.
(9) As described in note 3, Messrs. Berger and Hopkins may each be deemed to
share voting and investment power with respect to the shares beneficially owned
by Odyssey and Messrs. Berger, Hopkins and Rotatori disclaim beneficial
ownership of the shares beneficially owned by Odyssey. Excluding the shares
deemed to be owned by Odyssey, all executive officers and directors as a group
beneficially own 215,841 common shares.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities remaining
Number of securities to be available for future issuance
issued upon exercise of Weighted-average exercise under equity compensation
outstanding options, price of outstanding plans (excluding securities
warrants and rights options, warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
- ---------------------------------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders 643,839 $ 25.03 75,415
- ---------------------------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by
security holders - - -
- ---------------------------------------------------------------------------------------------------------------------
Total 643,839 $ 25.03 75,415
- ---------------------------------------------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
EMPLOYMENT AND ROLLOVER AGREEMENTS
In connection with the 2000 recapitalization, we entered into employment and
other "rollover" agreements with John A. Ciccarelli, Raymond E. Bartholomae and
Mark K. Kaler, each of whom is or was an executive officer, and with Alan F.
Mcliroy, our former chief financial officer. Generally, the "rollover"
agreements required each executive officer to retain common shares and, in most
cases, stock options, with a specified aggregate value following the
recapitalization. In some cases, the executive officer has agreed to exercise
stock options in order to obtain some of the common shares, which he has agreed
to retain, following the recapitalization. These agreements provided that if the
executive officer exercised stock options in order to obtain some of the common
shares he is required to retain and he so requested, we made a non-interest
bearing, recourse loan to him in an amount equal to the exercise price of the
options plus the estimated federal and state income tax liability he incurred in
connection with the exercise. If the executive officer purchased some of the
common shares he is required to retain and he so requested, we made a 6.39%
interest deferred recourse loan to him. These loans are secured by a pledge of
the shares issued.
As of December 31, 2003, the amounts outstanding were $69,852 for Mr.
Ciccarelli, $374,697 for Mr. Morrey, $556,455 for Mr. Bartholomae, $288,487 for
Mr. Kaler, and $177,379 for Mr. Mcliroy. These amounts were also the largest
amounts outstanding for these loans during the period January 1, 2000 through
December 31, 2003, except for Mr. Mcliroy, for whom the largest amount was
$289,159.
80
ODYSSEY FINANCIAL SERVICES
During 2003, we reimbursed Odyssey for $315,000 of out-of-pocket expenses for
travel, lodging and meals.
MANAGEMENT STOCKHOLDERS' AGREEMENT
We, along with Odyssey and our employee stockholders, including our executive
officers, are parties to a Management Stockholders' Agreement, which is
described in more detail under Item 11 above.
81
PART IV
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The services performed by Deloitte & Touche LLP in 2003 and 2002 were
pre-approved by the Audit Committee. The Audit Committee requires any
requests for audit, audit-related, tax, or any other services to be
submitted to the Audit Committee for specific pre-approval and cannot
commence until such approval has been granted. Normally, pre-approval
is provided at regularly scheduled meetings. However, the authority to
grant specific pre-approval between meetings, as necessary, has been
delegated to the Chairman of the Audit Committee. The Chairman must
update the Audit Committee at the next regularly scheduled meeting of
any services that were granted specific pre-approval. In addition,
although not required by the rules and regulations of the SEC, the
Audit Committee requests a range of fees associated with each proposed
service. Providing a range of fees for a service permits appropriate
oversight and control of the independent auditor relationship, while
permitting us to receive immediate assistance from the independent
auditor when time is of the essence.
We retained Deloitte & Touche LLP to audit our consolidated financial
statements for the years ended 2003 and 2002. To minimize relationships
that could appear to impair the objectivity of Deloitte & Touche, our
audit committee has restricted the non-audit services that Deloitte &
Touche may provide to us primarily to audit services and tax services.
In considering the nature of the services provided by the independent
auditor, the Audit Committee determined that such services are
compatible with the provision of independent audit services. The Audit
Committee discussed these services with the independent auditor and our
management to determine that they are permitted under the rules and
regulations concerning auditor independence promulgated by the SEC to
implement the Sarbanes-Oxley Act of 2002.
The aggregate fees billed for professional services by Deloitte &
Touche LLP, the Company's independent accountants, in 2003 and 2002 for
these various services were:
TYPE OF FEES 2003 2002
- ------------------ --------- --------
Audit fees (1) $ 645.9 $ 196.7
Audit-related fees 197.8 42.4
Tax fees 855.2 213.8
--------- --------
Total fees $ 1,698.9 $ 452.9
========= ========
(1) Audit fees for 2003 include $345.7 of costs related to the 2000, 2001, and
2002 restatements as disclosed in the 2002 10-K/A.
The aggregate fees billed for professional services by Arthur Andersen
LLP, the Company's independent accountants for a portion of 2002, for
these various services were:
TYPE OF FEES 2002
- ------------------ ---------
Audit fees $ -
Audit-related fees 46.5
Tax fees 356.5
---------
Total fees $ 403.0
=========
In the above tables, in accordance with new SEC definitions and rules,
"audit fees" are fees we paid Deloitte & Touche and Arthur Anderson for
professional services for the audit of our consolidated financial
statements included in Form 10-K and review of financial statements
included in Form 10-Qs, or for comfort letters, statutory and
regulatory audits, consents and other services related to SEC matters;
"audit-related fees" are fees billed by Deloitte & Touche and Arthur
Andersen for assurance
82
and related services that are reasonably related to the performance of
the audit or review of our financial statements, due diligence
associated with mergers/acquisitions, financial accounting and
reporting consultations, and information systems reviews; "tax fees"
are fees for tax compliance, tax advice, and tax planning. Tax
compliance services are services rendered based upon facts already in
existence or transactions that have already occurred to document,
compute, and obtain government approval for amounts to be included in
tax filings. Tax planning and advice are services rendered with respect
to proposed transactions or that alter a transaction to obtain a
particular tax result.
83
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements The following consolidated financial
statements of the Company and subsidiaries are incorporated by
reference as part of this Report under Item 8.
Independent Auditors Report.
Consolidated Balance Sheets as of December 31, 2003 and 2002.
Consolidated Statements of Operations for the years ended December 31,
2003, 2002, and 2001.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2003, 2002, and 2001.
Consolidated Statements of Cash Flows for the years ended December 31,
2003, 2002, and 2001.
Consolidated Statements of Comprehensive Income (Loss) for the years
ended December 31, 2003, 2002, and 2001.
Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts (at Item 8 of this
Report)
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
(a)(3) Exhibits. See Index to Exhibits following the signature pages to
this Report for a list of exhibits.
(b) Reports on Form 8-K. During the quarter ended December 31, 2003,
we filed the following Current Reports on Form 8-K:
Amendment No. 1 to Current Report on Form 8-K dated October 14,
2003 (amending our Current Report on Form 8-K dated August 13,
2003) reporting under Item 2 (Acquisition or Disposition of
Assets) and Item 7 (Financial Statements and Exhibits) the
historical financial information with respect to Safway Formwork
Systems, L.L.C. required under Item 7(a), which was not included
in the initial filing.
Current Report on Form 8-K dated October 15, 2003 reporting under
Item 7 (Financial Statements and Exhibits) and Item 12 (Results of
Operations and Financial Condition) that we had issued a press
release announcing our release of historical audited financial
information of Safway Formwork Systems, L.L.C.
Current Report on Form 8-K dated November 11, 2003 reporting under
Item 12 (Results of Operations and Financial Condition) that we
had issued a press release announcing our summary financial
results for the third quarter and first nine months of 2003.
Amendment No. 2 to Current Report on Form 8-K dated December 10,
2003 (amending our Current Report on Form 8-K dated August 13,
2003) reporting under Item 2 (Acquisition or Disposition of
Assets) and Item 7 (Financial Statements and Exhibits) the pro
forma financial information required under Item 7(b), which was
not included in the initial filing.
84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Dayton Superior Corporation has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DAYTON SUPERIOR CORPORATION
March 30, 2004
By /s/ Stephen R. Morrey
-----------------------------------
Stephen R. Morrey
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of Dayton Superior
Corporation and in the capacities and on the dates indicated.
NAME TITLE DATE
/s/John A. Ciccarelli Chairman of the Board of Directors March 30, 2004
- ---------------------
John A. Ciccarelli
/s/Stephen R. Morrey President, Chief Executive Officer and Director March 30, 2004
- ---------------------
Stephen R. Morrey
/s/Edward J. Puisis Vice President and Chief Financial Officer March 30, 2004
- --------------------- (Principal Financial Officer)
Edward J. Puisis
/s/Thomas W. Roehrig Vice President of Corporate Accounting March 30, 2004
- --------------------- (Principal Accounting Officer)
Thomas W. Roehrig
/s/Stephen Berger Director March 30, 2004
- ---------------------
Stephen Berger
/s/William F. Hopkins Director March 30, 2004
- ---------------------
William F. Hopkins
/s/Douglas Rotatori Director March 30, 2004
- ---------------------
Douglas Rotatori
85
INDEX OF EXHIBITS
Exhibit No. Description
(2) ACQUISITION AGREEMENTS
2.1 Asset Purchase Agreement, dated as of June 30, 2003, by
and among the Company and Symons Corporation, and Safway
Formworks Systems L.L.C. and Safway Services, Inc.
[Incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K filed on August 13, 2003] +
2.1.1 Amendment One, dated as of July 15, 2003, to the Asset
Purchase Agreement among the Company and Symons
Corporation, and Safway Formworks Systems L.L.C. and
Safway Services, Inc. [Incorporated by reference to
Exhibit 2.2 to the Company's Form 8-K filed on August 13,
2003] +
2.1.2 Amendment Two, dated as of July 29, 2003, to the Asset
Purchase Agreement among the Company and Symons
Corporation, and Safway Formworks Systems L.L.C. and
Safway Services, Inc. [Incorporated by reference to
Exhibit 2.3 to the Company's Form 8-K filed on August 13,
2003] +
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Amended Articles of Incorporation of the Company
[Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-4 (Reg. No.
333-41392)] +
3.2 Code of Regulations of the Company (as amended)
[Incorporated by reference to Exhibit 3.3 to the
Company's Registration Statement on Form S-4 (Reg. No.
333-41392)] +
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4.1 Form of Junior Convertible Subordinated Indenture between
Dayton Superior Corporation and Firstar Bank, N.A., as
Indenture Trustee [Incorporated by reference to Exhibit
4.2.3 to the Company's Registration Statement on Form S-3
(Reg. 333-84613)] +
4.1.1 First Supplemental Indenture dated January 17, 2000,
between Dayton Superior Corporation and Firstar Bank,
N.A., as Trustee [Incorporated by reference to Exhibit
4.6.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999] +
4.1.2 Form of Junior Convertible Subordinated Debenture
[Incorporated by reference to Exhibit 4.2.3 to the
Company's Registration Statement on Form S-3 (Reg.
333-84613)] +
86
4.2 Indenture dated June 16, 2000 among the Company, the
Guarantors named therein, as guarantors, and United
States Trust Company of New York, as trustee, relating to
$170,000,000 in aggregate principal amount of 13% Senior
Subordinated Notes due 2009 and registered 13% Senior
Subordinated Notes due 2009 [Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (Reg. 333-41392)] +
4.2.1 First Supplemental Indenture dated as of August 3, 2000.
[Incorporated by reference to Exhibit 4.5.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2001] +
4.2.2 Second Supplemental Indenture dated as of January 4,
2001. [Incorporated by reference to Exhibit 4.5.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2001] +
4.2.3 Third Supplemental Indenture dated as of June 19, 2001.
[Incorporated by reference to Exhibit 4.5.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2001] +
4.2.4 Fourth Supplemental Indenture dated as of September 30,
2003. **
4.3 Specimen Certificate of 13% Senior Subordinated Notes due
2009 [Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-4 (Reg.
333-41392)] +
4.4 Specimen Certificate of the registered 13% Senior
Subordinated Notes due 2009 [Incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on
Form S-4 (Reg. 333-41392)] +
4.5 Warrant Agreement dated as of June 16, 2000 between the
Company and United States Trust Company of New York, as
Warrant Agent **
4.6 Warrant Shares Registration Rights Agreement dated as of
June 16, 2000 among the Company and the Initial
Purchasers **
4.7 Tag-Along Sales Agreement dated as of June 16, 2000 among
the Company, Odyssey Investment Partners Fund, LP and the
Initial Purchasers **
4.8 Senior Second Secured Notes Indenture with respect to the
10 3/4% Senior Second Secured Notes due 2008, among the
Company, the Guarantors named therein and The Bank of New
York, as Trustee, dated June 9, 2003 [Incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (Reg. 333-107071)] +
4.9 Form of 10 3/4% Senior Second Secured Note due 2008
(included in Exhibit 4.5) +
4.10 Second Amended and Restated Security Agreement, among the
Company, certain subsidiaries of the Company and The Bank
of New York, as Collateral Agent and as Trustee, dated
January 30, 2004 [Incorporated by reference to Exhibit
4.10 to the Company's Registration Statement on Form S-4
(Reg. 333-107071)] +
87
4.11 Second Amended and Restated Pledge Agreement, among the
Company, Trevecca Holdings, Inc. and The Bank of New
York, as Collateral Agent and as Trustee, dated January
30, 2004 [Incorporated by reference to Exhibit 4.11 to
the Company's Registration Statement on Form S-4 (Reg.
333-107071)] +
4.12 Credit Agreement among the Company, the other persons
designated as Credit Parties, General Electric Capital
Corporation, as Agent, L/C Issuer and a Lender, the other
Lenders and GECC Capital Markets Group, Inc., as Lead
Arranger, dated January 30, 2004 [Incorporated by
reference to Exhibit 4.7 to the Company's Registration
Statement on Form S-4 (Reg. 333-107071)] +
4.13 Security Agreement among the Company, certain
subsidiaries of the Company and General Electric Capital
Corporation, as Agent, dated January 30, 2004
[Incorporated by reference to Exhibit 4.8 to the
Company's Registration Statement on Form S-4 (Reg.
333-107071)] +
4.14 Pledge Agreement among the Company, Trevecca Holdings,
Inc. and General Electric Capital Corporation, as Agent,
dated January 30, 2004 [Incorporated by reference to
Exhibit 4.9 to the Company's Registration Statement on
Form S-4 (Reg. 333-107071)] +
(10) MATERIAL CONTRACTS
10.1 Management Incentive Plan [Incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998] +*
10.2 Amended and Restated Employment Agreement dated as of
July 15, 2002 by and between Dayton Superior Corporation
and John A. Ciccarelli [Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 27, 2002] +*
10.3 Employment Agreement dated as of January 19, 2000 between
the Company and Mark K. Kaler, as amended effective June
16, 2000 [Incorporated by reference to Exhibit 10.20 to
the Company's Registration Statement on Form S-4 (Reg.
333-41392)] +*
10.3.1 Letter Agreement dated May 13, 2002 between Dayton
Superior Corporation and Mark K. Kaler [Incorporated by
reference to Exhibit 10.7.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2002] +*
10.4 Employment Agreement dated effective June 12, 2002 by and
between Dayton Superior Corporation and Stephen R. Morrey
[Incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 28, 2002] +*
10.4.1 Secured Promissory Note dated July 22, 2002 between
Dayton Superior Corporation and Stephen R. Morrey.
[Incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 27, 2002] +*
88
10.4.2 Secured Promissory Note dated July 22, 2002 between
Dayton Superior Corporation and Stephen R. Morrey.
[Incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 27, 2002] +*
10.4.3 Repayment and Stock Pledge Agreement dated as of July 22,
2002 between Dayton Superior Corporation and Stephen R.
Morrey. [Incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 27, 2002] +*
10.5 Employment Agreement between the Company and Edward J.
Puisis [Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q dated November
10, 2003] +*
10.6 Letter Agreement dated August 13, 2003 between Raymond
Bartholomae and the Company [Incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q dated November 10, 2003] +*
10.7 Letter Agreement dated August 13, 2003 between Peter
Astrauskas and the Company [Incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q dated November 10, 2003] +*
10.8 Amendment dated October 3, 2003 to Letter Agreement dated
August 13, 2003 between Peter Astrauskas and the Company
[Incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q dated November
10, 2003] +*
10.9 Management Stockholder's Agreement dated June 16, 2000 by
and among the Company, Odyssey Investment Partners Fund,
LP and the Management Stockholders named therein
[Incorporated by reference to Exhibit 10.25 to the
Company's Registration Statement on Form S-4 (Reg.
333-41392)] +*
10.10 Dayton Superior Corporation 2000 Stock Option Plan
[Incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2001] +*
10.10.1 First Amendment to 2000 Stock Option Plan of Dayton
Superior Corporation [Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 30, 2001] +*
10.10.2 Second Amendment to 2000 Stock Option Plan of Dayton
Superior Corporation dated July 15, 2002 [Incorporated by
reference to Exhibit 10.13.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2002] +*
10.10.3 Third Amendment to 2000 Stock Option Plan of Dayton
Superior Corporation dated October 23, 2002[Incorporated
by reference to Exhibit 10.13.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2002] +*
10.10.4 Fourth Amendment to 2000 Stock Option Plan of Dayton
Superior Corporation dated February 10, 2004. * **
89
10.10.5 Form of Amended and Restated Stock Option Agreement
entered into between Dayton Superior Corporation and
certain of its executive officers [Incorporated by
reference to Exhibit 21.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2002] +*
(14) CODE OF ETHICS
14 Code of Ethics for Senior Financial Officers **
(21) SUBSIDIARIES OF THE REGISTRANT
21.1 Subsidiaries of the Company **
(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 Sarbanes-Oxley Section 1350 Certification of President
and Chief Executive Officer **
32.2 Sarbanes-Oxley Section 1350 Certification of Vice
President and Chief Financial Officer **
- ----------------------------
* Compensatory plan, contract or arrangement in which one or more directors
or named executive officers participate.
** Filed herewith
+ Previously filed
90