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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
APRIL 2, 2004 1-11781
DAYTON SUPERIOR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0676346
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
7777 Washington Village Dr., Suite 130
Dayton, Ohio 45459
- --------------------------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 937-428-6360
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by mark whether the registrant (1) has filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [ ] NO [X]
4,554,827 Common Shares were outstanding as of May 14, 2004
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Dayton Superior Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
As of April 2, 2004 and December 31, 2003
(Amounts in thousands)
(Unaudited)
April 2, December 31,
2004 2003
---------- ------------
ASSETS
Current assets:
Cash $ - $ 1,995
Accounts receivable, net of allowances for doubtful accounts and
sales returns and allowances of $3,962 and $4,939 74,075 64,849
Inventories 56,667 49,437
Prepaid expenses and other current assets 6,654 4,610
Prepaid income taxes 1,650 956
Deferred income taxes 5,176 5,368
--------- ---------
Total current assets 144,222 127,215
--------- ---------
Rental equipment, net of accumulated depreciation of $30,628 and $27,794 77,319 78,042
--------- ---------
Property, plant and equipment 114,380 113,366
Less accumulated depreciation (53,108) (51,128)
--------- ---------
Net property, plant and equipment 61,272 62,238
--------- ---------
Goodwill 110,618 110,308
Intangible assets, net of accumulated amortization 9,022 10,532
Deferred income taxes 66 -
Other assets 4,822 5,049
--------- ---------
Total assets $ 407,341 $ 393,384
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ 2,657 $ 3,067
Accounts payable 22,647 20,526
Accrued compensation and benefits 15,697 19,704
Other accrued liabilities 12,846 12,324
--------- ---------
Total current liabilities 53,847 55,621
Long-term debt, net of current portion 370,389 338,823
Other long-term liabilities 6,038 6,207
--------- ---------
Total liabilities 430,274 400,651
--------- ---------
Shareholders' deficit:
Common shares 115,963 115,951
Loans to shareholders (2,729) (2,729)
Treasury shares, at cost, 36,747 shares in 2004 and 2003 (1,184) (1,184)
Cumulative other comprehensive loss (1,019) (1,209)
Accumulated deficit (133,964) (118,096)
--------- ---------
Total shareholders' deficit (22,933) (7,267)
--------- ---------
Total liabilities and shareholders' deficit $ 407,341 $ 393,384
========= =========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
2
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Operations
For The Three Fiscal Months Ended April 2, 2004 and March 28, 2003
(Amounts in thousands)
(Unaudited)
Three Fiscal Months Ended
-----------------------------
April 2, 2004 March 28, 2003
------------- --------------
Product sales $ 75,291 $ 55,132
Rental revenue 9,429 7,126
Used rental equipment sales 4,397 10,048
-------- --------
Net sales 89,117 72,306
-------- --------
Product cost of sales 59,458 43,454
Rental cost of sales 7,525 5,184
Used rental equipment cost of sales 1,527 2,834
-------- --------
Cost of sales 68,510 51,472
-------- --------
Product gross profit 15,833 11,678
Rental gross profit 1,904 1,942
Used rental equipment gross profit 2,870 7,214
-------- --------
Gross profit 20,607 20,834
Selling, general and administrative expenses 22,666 19,395
Facility closing and severance expenses 472 395
Loss on disposals of property, plant, and equipment 59 33
Amortization of intangibles 248 129
-------- --------
Income (loss) from operations (2,838) 882
Other expenses
Interest expense 11,893 8,061
Loss on early extinguishment of long-term debt 842 -
Other expense 295 8
-------- --------
Loss before benefit for income taxes (15,868) (7,187)
Benefit for income taxes - (1,797)
-------- --------
Net loss $(15,868) $ (5,390)
======== ========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
3
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For The Three Fiscal Months Ended April 2, 2004 and March 28, 2003
(Amounts in thousands)
(Unaudited)
Three Fiscal Months Ended
----------------------------------
April 2, 2004 March 28, 2003
--------------- ---------------
Cash Flows From Operating Activities:
Net loss $ (15,868) $ (5,390)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 6,860 5,733
Amortization of intangibles 248 129
Loss on early extinguishment of long-term debt 842 -
Deferred income taxes 126 (378)
Amortization of deferred financing costs and debt discount 1,342 605
Gain on sales of rental equipment (2,870) (7,214)
Loss on sales of property, plant and equipment 59 33
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable (9,226) 6,324
Inventories (7,230) (7,798)
Accounts payable 2,121 3,732
Accrued liabilities and other long-term liabilities (3,654) (896)
Prepaid expenses and other assets (2,274) (4,233)
--------------- ---------------
Net cash used in operating activities (29,524) (9,353)
--------------- ---------------
Cash Flows From Investing Activities:
Property, plant and equipment additions (1,017) (2,521)
Proceeds from sales of property, plant and equipment - 10
Rental equipment additions (3,897) (12,408)
Proceeds from sales of rental equipment 4,397 10,048
Acquisition (245) -
--------------- ---------------
Net cash used in investing activities (762) (4,871)
--------------- ---------------
Cash Flows From Financing Activities:
Repayments of long-term debt (33,487) (1,301)
Issuance of long-term debt 63,775 17,350
Financing costs incurred (2,199) -
Repayment of loans to shareholders - 53
Issuance of common shares 12 -
--------------- ---------------
Net cash provided by financing activities 28,101 16,102
--------------- ---------------
Effect of Exchange Rate Changes on Cash 190 198
--------------- ---------------
Net increase (decrease) in cash (1,995) 2,076
Cash, beginning of period 1,995 2,404
--------------- ---------------
Cash, end of period $ - $ 4,480
=============== ===============
Supplemental Disclosures:
Cash paid for income taxes $ 586 $ 66
Cash paid for interest 9,751 2,360
Purchases of equipment on capital leases - 2,000
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
4
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Comprehensive Loss
For The Three Months Ended April 2, 2004 and March 28, 2003
(Amounts in thousands)
(Unaudited)
Three Fiscal Months Ended
-------------------------------
April 2, 2004 March 28, 2003
------------- --------------
Net loss $ (15,868) $ (5,390)
Other comprehensive income:
Foreign currency translation
adjustment 190 198
--------- --------
Comprehensive loss $ (15,678) $ (5,192)
--------- --------
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
5
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The interim consolidated financial statements included herein have been
prepared by the Company, without audit, and include, in the opinion of
management, all adjustments necessary to state fairly the information set
forth therein. Any such adjustments were of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States have been omitted, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these unaudited consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's annual financial
statements for the year ended December 31, 2003. The interim results may
not be indicative of future periods.
(2) 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
$20,878, after purchase price adjustments and including acquisition costs
of $1,090. The initial purchase price of $19,965 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 $12,000 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 April 2, 2004 was $6,624. 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 payment made in December 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 common shares to the Company's
majority shareholder.
The Company exercised its option to acquire additional rental equipment
from Safway. The Company issued a non-interest bearing note, which is being
accreted to its face value of $1,987 using the effective interest method
with an interest rate of 6%, and is reflected as interest expense. The net
present value of the note at April 2, 2004 was $1,538. Minimum payments are
$149 for the remainder of 2004, $282 in 2005, $398 in 2006, $563 in 2007,
and $464 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 Company received the final
valuation of the acquired assets in the first quarter of 2004. As a result,
the value of rental equipment and goodwill increased by $1,800 and $300
respectively, and intangible assets decreased by approximately $2,100. The
purchase price has been allocated based on the estimated fair value of the
assets acquired, as follows:
Rental equipment $ 15,837
Property, plant and equipment 798
Goodwill 2,844
Intangible assets 2,970
Accrued liabilities (1,571)
---------
Purchase price, including acquisition costs of
$1,090 $ 20,878
==========
6
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
Acquisition costs 5
---------
Total purchase price $ 20,878
=========
The following pro forma information sets forth the consolidated results of
operations for the three months ended March 28, 2003 as though the
acquisition had been completed at the beginning of the period presented:
Pro Forma
Three fiscal months
ended
March 28, 2003
-------------------
Net sales $ 78,412
Loss before benefit for income taxes $ (7,789)
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.
(3) ACCOUNTING POLICIES
The interim consolidated financial statements have been prepared in
accordance with the accounting policies described in the notes to the
Company's consolidated financial statements for the year ended December 31,
2003. While management believes that the procedures followed in the
preparation of interim financial information are reasonable, the accuracy
of some estimated amounts is dependent upon facts that will exist or
calculations that will be made at year end. Examples of such estimates
include changes in the deferred tax accounts and management bonuses, among
others. Any adjustments pursuant to such estimates during the fiscal
quarter were of a normal recurring nature.
(a) Fiscal Quarter -- The Company's fiscal year end is December 31. The
Company's fiscal quarters are defined as the 13-week periods ending on
a Friday near the end of March, June and September.
(b) Inventories -- The Company values all inventories at the lower of
first-in, first-out ("FIFO") cost or market. The Company provides net
realizable value reserves which reflect the Company's best estimate of
the excess of the cost of potential obsolete and slow moving inventory
over the expected net realizable value.
Following is a summary of the components of inventories as of April 2,
2004 and December 31, 2003:
April 2, 2004 December 31, 2003
------------- -----------------
Raw materials $ 13,484 $ 9,588
Work in progress 3,106 2,742
Finished goods 40,077 37,107
--------- ----------
Total Inventory $ 56,667 $ 49,437
========= ==========
7
(c) New Accounting Pronouncements -- 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 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.
8
(d) 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:
Three fiscal months ended
--------------------------------
April 2, 2004 March 28, 2003
------------- --------------
Net income
(loss) As Reported $ (15,868) $ (5,390)
Deduct: Total
stock-based employee
compensation expense
determined under fair
value-based method for
all awards, net of
related tax effect (62) (66)
--------- --------
Pro Forma $ (15,930) $ (5,456)
========= ========
(e) Reclassifications -- Certain reclassifications have been made to the
2003 amounts to conform to their 2004 classifications.
(4) CREDIT ARRANGEMENTS
Following is a summary of the Company's long-term debt as of April 2, 2004 and
December 31, 2003:
April 2, 2004 December 31, 2003
------------- -----------------
Revolving credit facility, weighted average interest rate of 4.9% $ 54,975 $ 24,375
Senior Second Secured Notes, interest rate of 10.75% 165,000 165,000
Debt discount on Senior Second Secured Notes (7,156) (7,454)
Senior Subordinated Notes, interest rate of 13.0% 154,729 154,729
Debt discount on Senior Subordinated Notes (8,246) (8,514)
Notes payable to seller of Safway, non-interest bearing, accreted at 6.0% to
14.5% 8,166 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 4,429 4,590
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 39 55
--------- ----------
Total long-term debt 373,046 341,890
Less current maturities (2,657) (3,067)
--------- ----------
Long-term portion $ 370,389 $ 338,823
========= ==========
As of April 2, 2004, the senior second secured notes (the "Senior Notes") have a
principal amount of $165,000 and mature in June 2008. The Notes were issued in
June 2003 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. As a result of the transactions,
the Company incurred a loss on the early extinguishment of long-term debt of
$2,550 in the second quarter of 2003, due to the expensing of deferred financing
costs. The senior second secured notes are secured by substantially all assets
of the Company and its domestic subsidiaries.
9
As of April 2, 2004, the Senior Subordinated Notes (the "Notes") have a
principal amount of $154,729 and mature in June 2009. During the second quarter
of 2003, the Company repurchased a portion of the Notes. A principal amount of
$15,271, with a net book value of $14,381, was repurchased using the revolving
credit facility for $14,311, resulting in a gain on the early extinguishment of
long-term debt of $70. The Notes were issued at a discount, which is being
accreted to the face value using the effective interest method and is reflected
as interest expense. The Notes were issued with warrants that allow the holders
to purchase 117,276 of the Company's Common Shares for $0.01 per share.
During the first quarter of 2004, the Company established an $80,000 senior
secured revolving credit facility, which was used to refinance the previous
$50,000 facility. The company recorded a loss on the early extinguishment of
long-term debt of $842 due to the expensing of deferred financing costs on the
previous facility. The new credit facility has no financial covenants.
Availability of borrowings is limited to 85% of eligible accounts receivable and
60% of eligible inventories and rental equipment, less $10,000. At April 2,
2004, the Company had outstanding letters of credit of $6,746 and available
borrowings of $18,279 under this revolving credit facility. The credit facility
is secured by substantially all assets of the Company and its domestic
subsidiaries.
The average borrowings, maximum borrowings and weighted average interest rates
on the revolving credit facility and its predecessor for the periods indicated
were as follows:
Three fiscal months ended
------------------------------------
April 2, 2004 March 28, 2003
------------- --------------
Revolving Credit Facility:
Average borrowings $ 35,740 $ 23,530
Maximum borrowing 54,975 32,050
Weighted average interest rate 3.8% 5.5%
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 subsidiary of the Company is not a guarantor of the Notes
or the Senior Notes and does not have any credit arrangements senior to the
Notes or the Senior Notes. The following supplemental consolidating condensed
balance sheets as of April 2, 2004 and December 31, 2003 and the supplemental
consolidating condensed statements of operations and cash flows for the three
fiscal months ended April 2, 2004 and March 28, 2003 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.
10
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Balance Sheet
As of April 2, 2004
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
ASSETS
Cash $ (897) $ (536) $ 1,433 $ - $ -
Accounts receivable, net 44,597 27,663 1,815 - 74,075
Inventories 30,235 25,744 688 - 56,667
Intercompany 61,994 (61,859) (135) - -
Other current assets 10,597 2,766 117 - 13,480
--------- ---------- --------- ----------- -------------
TOTAL CURRENT ASSETS 146,526 (6,222) 3,918 - 144,222
Rental equipment, net 3,833 73,400 86 - 77,319
Property, plant and equipment, net 24,746 36,353 173 - 61,272
Investment in subsidiaries 123,041 - - (123,041) -
Other assets 51,531 72,997 - - 124,528
--------- ---------- --------- ----------- -------------
TOTAL ASSETS $ 349,677 $ 176,528 $ 4,177 $ (123,041) $ 407,341
========= ========== ========= =========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current maturities of long-term debt $ 2,226 $ 431 $ - $ - $ 2,657
Accounts payable 13,142 9,227 278 - 22,647
Accrued liabilities 18,180 10,081 282 - 28,543
--------- ---------- --------- ----------- -------------
TOTAL CURRENT LIABILITIES 33,548 19,739 560 - 53,847
Long-term debt, net 368,598 1,791 - - 370,389
Other long-term liabilities (10,049) 16,087 - - 6,038
Total shareholders' equity (deficit) (42,420) 138,911 3,617 (123,041) (22,933)
--------- ---------- --------- ----------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT) $ 349,677 $ 176,528 $ 4,177 $ (123,041) $ 407,341
========= ========== ========= =========== =============
11
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, net 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
========= ========= ========= ========= =========
12
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Three Fiscal Months Ended April 2, 2004
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 32,541 $ 54,228 $ 2,348 $ 89,117
Cost of sales 22,749 44,375 1,386 68,510
-------- -------- -------- --------
Gross profit 9,792 9,853 962 20,607
Selling, general and administrative
expenses 7,963 14,225 478 22,666
Facility closing and severance expenses 371 101 - 472
Management fees (94) - 94 -
Amortization of intangibles 32 216 - 248
Loss (gain) on disposals on property, plant,
and equipment - 59 - 59
-------- -------- -------- --------
Income from operations 1,520 (4,748) 390 (2,838)
Other expenses
Interest expense 11,792 101 - 11,893
Loss on early extinguishment of long-term
debt 842 - - 842
Other expense (income) (20) 6 309 295
-------- -------- -------- --------
Income (loss) before provision (benefit)
for income taxes (11,094) (4,855) 81 (15,868)
Provision (benefit) for income taxes - - - -
-------- -------- -------- --------
Net income (loss) available to common
shareholders $(11,094) $ (4,855) $ 81 $(15,868)
======== ======== ======== ========
13
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Three Fiscal Months Ended March 28, 2003
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 41,593 $ 28,168 $ 2,233 $ 71,994
Cost of sales 29,328 20,208 1,458 50,994
-------- -------- -------- --------
Gross profit 12,265 7,960 775 21,000
Selling, general and administrative
expenses 9,814 9,322 425 19,561
Facility closing and severance expenses 324 71 - 395
Amortization of intangibles 73 56 - 129
Management fees (75) - 75 -
-------- -------- -------- --------
Income from operations 2,129 (1,489) 275 915
Other expenses
Interest expense 8,053 8 - 8,061
Other expense 5 33 3 41
-------- -------- -------- --------
Income (loss) before provision (benefit)
for income taxes (5,929) (1,530) 272 (7,187)
Provision (benefit) for income taxes (1,482) (383) 68 (1,797)
-------- -------- -------- --------
Net income (loss) available to common
shareholders $ (4,447) $ (1,147) $ 204 $ (5,390)
======== ======== ======== ========
14
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Three Fiscal Months Ended April 2, 2004
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (11,094) $ (4,855) $ 81 $ (15,868)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,494 5,598 16 7,108
Loss on early extinguishment of
long-term debt 842 - - 842
Deferred income taxes 126 - - 126
Amortization of deferred financing costs
and debt discount 1,342 - - 1,342
Gain on sales of rental equipment and
property, plant and equipment (119) (2,684) (8) (2,811)
Change in assets and liabilities, net of the
effects of acquisitions (16,638) (2,441) (1,184) (20,263)
---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities (24,047) (4,382) (1,095) (29,524)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (811) (202) (4) (1,017)
Proceeds from sales of property, plant and
equipment - - - -
Rental equipment additions (483) (3,411) (3) (3,897)
Proceeds from sales of rental equipment 292 4,083 22 4,397
Acquisition - (245) - (245)
---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities (1,002) 225 15 (762)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net 30,476 (188) - 30,288
Financing costs incurred (2,199) - - (2,199)
Issuance of common shares 12 - - 12
Intercompany (356) 310 46 -
---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities 27,933 122 46 28,101
---------- ---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 190 190
---------- ---------- ---------- ----------
Net increase (decrease) in cash 2,884 (4,035) (844) (1,995)
CASH, beginning of period 860 (1,240) 2,375 1,995
---------- ---------- ---------- ----------
CASH, end of period $ 3,744 $ (5,275) $ 1,531 $ -
========== ========== ========== ==========
15
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Three Fiscal Months Ended March 28, 2003
Dayton
Superior Guarantor Non Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (4,447) $ (1,147) $ 204 $ (5,390)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,998 4,457 12 6,467
Deferred income taxes (378) - - (378)
Gain on sales of rental equipment and
property, plant and equipment (203) (6,970) (8) (7,181)
Change in assets and liabilities, net of
the effects of acquisitions (17,164) 15,111 (818) (2,871)
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities (20,194) 11,451 (610) (9,353)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (570) (1,951) - (2,521)
Proceeds from sales of property, plant and
equipment - 10 - 10
Rental equipment additions (132) (12,276) - (12,408)
Proceeds from sales of rental equipment 290 9,742 16 10,048
---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities (412) (4,475) 16 (4,871)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net 16,049 - - 16,049
Issuance of common shares 53 - - 53
Intercompany 5,920 (6,262) 342 -
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 22,022 (6,262) 342 16,102
---------- ---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 198 198
---------- ---------- ---------- ----------
Net increase (decrease) in cash 1,416 714 (54) 2,076
CASH, beginning of period 1,605 (687) 1,486 2,404
---------- ---------- ---------- ----------
CASH, end of period $ 3,021 $ 27 $ 1,432 $ 4,480
========== ========== ========== ==========
16
(5) STOCK OPTION PLANS
The Company's 2000 Stock Option Plan permits the grant of stock options to
purchase common shares. 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 our
recapitalization in 2000, 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
fewer 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 Investment Partners, LLC 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 April 2, 2004, as
well as changes during the fiscal quarter then ended is presented in the table
below:
Weighted Average
Number of Exercise Price Per
Shares Share
--------- ------------------
Outstanding at December 31, 2003 643,839 25.03
Cancelled (5,952) 27.50
-------
Outstanding at April 2, 2004 637,887 $ 24.99
=======
(6) RETIREMENT 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.
The following are the components of Net Periodic Benefit Cost for the three
months ended April 2, 2004 and March 28, 2003:
Symons Symons
Pension Pension Postretirement Postretirement
Benefits 2004 Benefits 2003 Benefits 2004 Benefits 2003
------------- ------------- -------------- --------------
Service cost $ 149 $ 121 $ 0 $ 0
Interest cost 149 141 9 12
Expected return on plan assets (150) (134) 0 0
Amortization of prior service cost 1 1 6 6
Amortization of net loss 19 14 0 0
----- ----- ----- ------
Net periodic benefit cost $ 169 $ 143 $ 15 $ 18
===== ===== ===== ======
As of April 2, 2004, $132 of contributions have been made. The Company presently
anticipates contributing an additional $866 to fund its pension plan in 2004 for
a total of $998.
17
(7) SEGMENT REPORTING
Effective January 1, 2004, the Company changed its financial reporting to three
segments to monitor gross profit by sales type: product sales, rental revenue,
and used rental equipment sales. These types of sales are differentiated by
their source and gross margin percentage of sales.
Product sales represent sales of new products carried in inventories on the
balance sheet. Cost of goods sold for product sales include material, labor,
overhead, and freight.
Rental revenues are derived from leasing the rental equipment, and are
recognized ratably over the term of the lease. Cost of goods sold for rental
revenues include depreciation of the rental equipment, maintenance of the rental
equipment, and freight.
Sales of used rental equipment are sales of rental equipment after a period of
generating rental revenue. Cost of goods sold for sales of used rental equipment
is the net book value of the equipment.
All other expenses, as well as assets and liabilities, are not tracked by sales
type. Export sales and sales by non-U.S. affiliates is not significant.
Information about the gross profit of each sales type and the reconciliations to
the consolidated amounts for the three fiscal months ended April 2, 2004 and
March 28, 2003 follows. The 2003 amounts have been reclassified to conform to
the 2004 classification.
Three Fiscal Months Ended
----------------------------------
April 2, 2004 March 28, 2003
------------- --------------
Product sales $ 75,291 $ 55,132
Rental revenue 9,429 7,126
Used rental equipment sales 4,397 10,048
------------- ---------
Net sales 89,117 72,306
------------- ---------
Product cost of sales 59,458 43,454
Rental cost of sales 7,525 5,184
Used rental equipment cost of sales 1,527 2,834
------------- ---------
Cost of sales 68,510 51,472
------------- ---------
Product gross profit 15,833 11,678
Rental gross profit 1,904 1,942
Used rental equipment gross profit 2,870 7,214
------------- ---------
Gross profit $ 20,607 $ 20,834
============= =========
Depreciation Expense:
Product sales (Property, plant, and
equipment) $ 1,329 $ 1,606
Rental Revenue (rental equipment) 4,936 3,421
Corporate 595 706
------------- ---------
Total depreciation $ 6,860 $ 5,733
============= =========
18
(8) FACILITY CLOSING AND SEVERANCE EXPENSES
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 year ended December 31, 2003, and for the three months ended April
2, 2004 was as follows:
Involuntary Lease Relocation Other
Termination Termination of Post-Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ -----
Balance, January 1, 2003 $ - $ 210 $ - $ 311 $ 521
Facility closing and severance expenses - 379 - - 379
Items charged against reserve - (175) - (311) (486)
------- ------- -------- ------- -----
Balance, December 31, 2003 - 414 - - 414
Facility closing and severance expenses - - - -
Items charged against reserve - (414) - (414) -
------- ------- -------- ------- -----
Balance, April 2, 2004 $ - $ - $ - $ - $ -
======= ======= ======== ======= =====
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, 2003, and for the three months ended April 2, 2004 was as
follows:
Involuntary Lease Relocation Other
Termination Termination of Post-Closing
Benefits Costs Operations Costs Total
----------- ------------- ---------- ------------ ---------
Balance, January 1, 2003 $ 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
Facility closing and severance expenses - - - - -
Items charged against reserve (91) - - - (91)
------- ------- ------- ------ ---------
Balance, April 2, 2004 $ 109 $ - $ - $ - $ 109
======= ======= ======= ====== =========
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 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 year ended December 31, 2003 and the three months ended April 2,
2004 was as follows:
Involuntary Lease Relocation Other
Termination Termination of Post-Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Facility closing and severance expenses $ 988 $ 27 $ - $ 921 $ 1,936
Items charged against reserve (988) (27) - (921) (1,936)
------- ------- -------- ------- --------
Balance, December 31, 2003 - - - - -
Facility closing and severance expenses 63 - - 21 84
Items charged against reserve (63) - - (21) (84)
------- ------- -------- ------- --------
Balance, April 2, 2004 $ - $ - $ - $ - $ -
======= ======= ======== ======= ========
During 2004, we continued to execute our plan to exit additional
distribution facilities. Activity for this plan for the three months ended April
2, 2004 was as follows:
19
Involuntary Lease Relocation Other
Termination Termination of Post-Closing
Benefits Costs Operations Costs Total
----------- ----------- ----------- ----------- --------
Facility closing and severance expenses $ 184 $ 17 $ 113 $ 74 $ 388
Items charged against reserve (145) (17) (113) (74) (349)
----- ----- ----- ----- ------
Balance, April 2, 2004 $ 39 $ - $ - $ - $ 39
===== ===== ===== ===== ======
The total expected future expense for commitments under this plan is
approximately $500,000 and will be expensed in accordance with SFAS No. 146.
(9) BENEFIT FOR INCOME TAXES
In 2003, we carried back all available federal income tax loses and are now
carrying losses forward. Accordingly, tax benefits from operating losses are
offset by valuation allowances, resulting in no net tax benefit being recorded
until realization is reasonably assured.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We believe we are the largest North American manufacturer and distributor of
metal accessories and forms used in concrete construction, and a leading
manufacturer of metal accessories used in masonry construction in terms of
revenues. We operate in two sectors 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 have expanded our business units through 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 $20.9 million.
Effective January 1, 2004, the Company changed its financial reporting to
monitor gross profit by sales type: product sales, rental revenue, and used
rental equipment sales. These types of sales are differentiated by their source
and gross margin percents of sales.
- PRODUCT SALES CONSIST 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 include products which remain in place
at the convenience of the contractors.
- MASONRY PRODUCTS, 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 include products which
remain in place at the convenience of the contractors. Welded
dowel assemblies are a paving product 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.
- CHEMICALS, which 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, placement, and stamping of
concrete as well as curing compounds used in concrete road
construction.
- RENTAL EQUIPMENT CONSISTS PRIMARILY OF:
- FORMING SYSTEMS, which are reusable engineered modular forms,
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 as used rental
equipment and rented.
21
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 $20.9
million, including acquisition costs of $1.1 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 initial purchase price was
comprised of $13.0 million in cash and a $12.0 million non-interest bearing
(other than in the case of default) senior unsecured note with a present value
of $12.0 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 April 2, 2004 was
$6.6 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 payment made in December 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, which is being accreted
to its face value of $2.0 million using the effective interest method with an
interest rate of 6%, and is reflected as interest expense. The net present value
of the note at April 2, 2004 was $1.5 million. Minimum payments of the note are
$149,000 for the remainder of 2004, $282,000 in 2005, $398,000 in 2006, $563,000
in 2007, and $464,000 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.
22
FACILITY CLOSING AND SEVERANCE EXPENSES
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 year ended December 31, 2003, and for the three months ended April
2, 2004 was as follows:
Involuntary Lease Relocation Other
Termination Termination of Post-Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Balance, January 1, 2003 $ - $ 210 $ - $ 311 $ 521
Facility closing and severance expenses - 379 - - 379
Items charged against reserve - (175) - (311) (486)
----- ------- ------ ------- --------
Balance, December 31, 2003 - 414 - - 414
Facility closing and severance expenses - - - - -
Items charged against reserve - (414) - - (414)
----- ------- ------- -------- --------
Balance, April 2, 2004 $ - $ - $ - $ - $ -
===== ======= ======= ======== ========
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, 2003, and for the three months ended April 2, 2004 was as
follows:
Involuntary Lease Relocation Other
Termination Termination of Post-Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Balance, January 1, 2003 $ 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
Facility closing and severance expenses - - - - -
Items charged against reserve (91) - - - (91)
----------- -------- ------- ------- --------
Balance, April 2, 2004 $ 109 $ - $ - $ - $ 109
=========== ======== ======= ======= ========
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 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 year ended December 31, 2003 and the three months ended April 2,
2004 was as follows:
Involuntary Lease Relocation Other
Termination Termination of Post-Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Facility closing and severance expenses $ 988 $ 27 $ - $ 921 $ 1,936
Items charged against reserve (988) (27) - (921) (1,936)
------- -------- -------- ------- --------
Balance, December 31, 2003 - - - - -
Facility closing and severance expenses 63 - - 21 84
Items charged against reserve (63) - - (21) (84)
------- -------- -------- ------- --------
Balance, April 2, 2004 $ - $ - $ - $ - $ -
======= ======== ======== ======= ========
23
During 2004, we continued to execute our plan to exit additional
distribution facilities. Activity for this plan for the three months ended April
2, 2004 was as follows:
Involuntary Lease Relocation Other
Termination Termination of Post-Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ----------- --------
Facility closing and severance expenses $ 184 $ 17 $ 113 $ 74 $ 388
Items charged against reserve (145) (17) (113) (74) (349)
-------- -------- --------- ------ --------
Balance, April 2, 2004 $ 39 $ - $ - - $ 39
======== ======== ========= ====== ========
The total expected future expense for commitments under this plan is
approximately $500,000 and will be expensed in accordance with SFAS No. 146.
24
RESULTS OF OPERATIONS
The following table summarizes our results of operations as a percentage of net
sales for the periods indicated.
THREE FISCAL MONTHS ENDED
-------------------------------
April 2, 2004 March 28, 2003
------------- --------------
Product sales 84.5% 76.2%
Rental revenue 10.6 9.9
Used rental equipment sales 4.9 13.9
------ -----
Net sales 100.0 100.0
------ -----
Product cost of sales 79.0 78.8
Rental cost of sales 79.8 72.7
Used rental equipment cost of sales 34.7 28.2
------ -----
Cost of sales 76.9 71.2
------ -----
Product gross profit 21.0 21.2
Rental gross profit 20.2 27.3
Used rental equipment gross profit 65.3 71.8
------ -----
Gross profit 23.1 28.8
Selling, general and administrative expenses 25.4 26.8
Facility closing and severance expenses 0.5 0.5
Loss (gain) on disposals of property, plant, and
equipment 0.1 0.1
Amortization of intangibles 0.3 0.2
------ -----
Income (Loss) from operations (3.2) 1.2
Interest expense 13.3 11.1
Loss on early extinguishment of long-term debt 0.9 -
Other expense 0.3 -
------ -----
Loss before provision (benefit) for income taxes (17.8) (9.9)
Benefit for income taxes - (2.5)
------ -----
Net Loss (17.8%) (7.5%)
====== =====
25
COMPARISON OF THREE FISCAL MONTHS ENDED APRIL 2, 2004 AND MARCH 28, 2003
NET SALES
Net sales increased $16.8 million, or 23.2%, to $89.1 million in the first
quarter of 2004 from $72.3 million in the first quarter of 2003. The following
table summarizes our net sales by product type:
Three fiscal months ended
-----------------------------------------------
April 2, 2004 March 28, 2003
---------------------- -------------------
(In thousands)
Net Sales % Net Sales % % Change
----------- ------ --------- ----- --------
Product sales $ 75,291 84.5% $ 55,132 76.2% 36.6%
Rental revenue 9,429 10.6 7,126 9.9 32.3
Used rental equipment sales 4,397 4.9 10,048 13.9 (56.2)
----------- ----- --------- -----
Net sales $ 89,117 100.0% $ 72,306 100.0% 23.2%
=========== ===== ========= =====
Product sales increased $20.2 million, or 36.6%, to $75.3 million in the first
quarter of 2004 from $55.1 million in the first quarter of 2003. The increase in
sales is due to an increase in volume from market share growth, and to a lesser
degree, slight growth in our markets, 7% more days in the first quarter of 2004,
and price increases initiated in the fourth quarter of 2003 and the first
quarter of 2004. We also believe there may have been some pre-buying by
customers in anticipation of further price increases.
Rental revenue increased $2.3 million, or 32.3%, to $9.4 million for the first
quarter of 2004, compared to $7.1 million in the first quarter of 2003. We
estimate that Safway added approximately $3.0 million in rental revenue. This
was partially offset by lower organic rental revenues as a result of lower
rental rates.
Used rental equipment sales decreased to $4.4 million in the first quarter of
2004 from $10.0 million in the first quarter of 2003. The first quarter of 2003
benefited from one large sale, which was not repeated in the first quarter of
2004.
GROSS PROFIT
Gross profit on product sales for the first quarter of 2004 was $15.8 million,
or 21.0% of sales, an increase of $4.6 million from $11.7 million, or 21.2% of
sales, in the first quarter of 2003. The increase in gross profit dollars was
primarily due to the increased net sales as discussed above. As a percent of
sales, gross profit was virtually flat despite the $2.5 million increase in
steel costs, due to productivity gains and the impact of the sales price
increases.
Gross profit on rental revenue for the first quarter of 2004 was $1.9 million,
or 20.2% of revenue, relatively flat with the first quarter of 2003, which was
$1.9 million, or 27.3% of sales. This decline in gross profit as a percentage of
revenue was primarily due to increased depreciation on rental equipment as a
result of the acquisition of Safway.
Gross profit on sales of used rental equipment for the first quarter of 2004 was
$2.9 million, or 65.3% of sales, compared to $7.2 million, or 71.8% of sales, in
the first quarter of 2003. This was primarily due to the decreased sales
discussed previously.
OPERATING EXPENSES
Selling, general and administrative expenses increased $3.3 million to $22.7
million in the first quarter of 2004 from $19.4 million in the first quarter of
2003. We estimate that approximately $2.0 million was due to the acquisition of
Safway. The remaining increase was primarily due to a 7% increase in the number
of days within the quarter, and to a lesser degree, the increase in product
sales and rental revenue.
26
Facility closing and severance expense during the first quarter of 2004 was $0.5
million compared to $0.4 million in the first quarter of 2003.
Amortization of intangibles was $0.3 million in the first quarter of 2004,
compared to $0.1 million in the first quarter of 2003.
OTHER EXPENSES
Interest expense increased to $11.9 million in the first quarter of 2004 from
$8.1 million in the first quarter of 2003. This was primarily due to the higher
interest rate from the new senior second secured notes and higher average
borrowings.
INCOME (LOSS) BEFORE INCOME TAXES
Loss before income taxes in the first quarter of 2004 was $(15.9) million
compared to a loss of $(7.2) million in the first quarter of 2003, due to the
factors described above.
BENEFIT FOR INCOME TAXES
In 2003, we carried back all available federal income tax loses and are now
carrying losses forward. Accordingly, tax benefits from operating losses are
offset by valuation allowances, resulting in no net tax benefit being recorded
until realization is reasonably assured.
NET INCOME (LOSS)
The net loss for the first quarter of 2004 was $(15.9) million, compared to
$(5.4) million in the first quarter of 2003, 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 in the first three months of 2004 was
$(29.6) million, compared to $(9.4) million in the first three months of 2003.
This activity is comprised of the following:
2004 2003
------- -------
(in millions)
Net loss $ (15.9) $ (5.4)
Non-cash adjustments 6.6 (1.1)
------- ------
Net loss after non-cash adjustments (9.3) (6.5)
Changes in assets and liabilities (20.3) (2.9)
------- ------
Net cash used in operating activities $ (29.6) $ (9.4)
======= ======
Net loss after non-cash adjustments was $(9.3) million for the first three
months of 2004, compared to the net loss of $(6.5) million in the first three
months of 2003. This change was due primarily to the higher net loss, partially
offset by the lower, non-cash gains, on sales of used rental equipment.
Changes in assets and liabilities resulted in a $(20.3) million use of cash in
the first three months of 2004, as compared to $(2.9) million use of cash in the
first three months of 2003. This variance was primarily due to the change in
accounts receivable, which was a $(9.2) million use of cash in the first quarter
of 2004 as compared
27
to a $6.3 million source of cash in the first quarter of 2003. The 2004 growth
in accounts receivable was due to the seasonality of higher net sales in March
of 2004 as compared to December 2003. The cash generated from accounts
receivable in the first quarter of 2003 was due to improving collections and
lower net sales in the first quarter of 2003 as compared to the fourth quarter
of 2002.
Net cash used in investing activities was $0.8 million in the first three months
of 2004, compared to $4.9 million in the first three months of 2003. Property,
plant and equipment additions decreased to $1.0 million in the first three
months of 2004 from $2.5 million in the first three months of 2003, as we
continue to closely monitor our spending. Used rental equipment sales exceeded
rental equipment additions by $0.5 million in the first three months of 2004,
compared to a $2.4 million net use of cash in the first three months of 2003
where rental equipment additions exceeded the proceeds from sales of rental
equipment. This is due to the first quarter of 2003 containing a large
non-recurring addition to the fleet.
As of April 2, 2004, our long-term debt consisted of the following:
April 2, 2004
-------------
Revolving credit facility, weighted average interest rate of 4.9% $ 54,975
Senior Second Secured Notes, interest rate of 10.75% 165,000
Debt discount on Senior Second Secured Notes (7,156)
Senior Subordinated Notes, interest rate of 13.0% 154,729
Debt discount on Senior Subordinated Notes (8,246)
Notes payable to seller of Safway, non-interest bearing, accreted at 6.0% to
14.5% 8,166
Debentures previously held by Dayton Superior Capital Trust, interest rate of
9.1%, due on demand 1,110
Capital lease obligations 4,429
City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 39
----------
Total long-term debt 373,046
Less current maturities (2,657)
----------
Long-term portion $ 370,389
==========
On January 30, 2004, we established an $80.0 million senior secured revolving
credit facility, which was used to refinance our previous $50.0 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 $10.0 million. As of April 2,
2004, all $80.0 million was available under the facility. The credit facility is
secured by substantially all assets of the Company and its domestic
subsidiaries.
At April 2, 2004, of the $80.0 million revolving credit facility that was
available to us, $55.0 million of borrowings were outstanding, along with $6.7
million of letters of credit, with the remaining $18.3 million available for
borrowing.
Our long-term debt borrowings, net of repayments for the quarter ended April 2,
2004, was $30.3 million. We incurred $2.2 million of financing costs primarily
related to the refinancing of the line of credit.
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.
28
At April 2, 2004, working capital was $90.4 million, compared to $71.6 million
at December 31, 2003. The $18.8 million increase was comprised of the following:
- $9.2 million increase in accounts receivable due to the normal
seasonal increase in net sales from December to March,
- $7.2 million increase in inventories due to the anticipated seasonal
higher sales in the second quarter and to higher raw material costs,
- $2.0 million increase in prepaid expenses due to prepayments of
steel raw materials,
- $3.5 million decrease in accrued compensation and other liabilities
due to annual customer and employee incentive payments and a
contractual deferred compensation payment; partially offset by,
- $2.1 million increase in accounts payable due to higher inventories;
and
- $1.0 million of changes in other items.
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 our 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 and its domestic subsidiaries.
We intend to pursue additional acquisitions that present opportunities to
realize significant synergies, operating expense economies or overhead cost
savings or to increase our market position. We regularly engage in discussions
with respect to potential acquisitions and investments. There are no definitive
agreements with respect to any material acquisitions at this time, and we cannot
assure you that we will be able to reach an agreement with respect to any future
acquisition. Our acquisition strategy may require substantial capital, and no
assurance can be given that we will be able to raise any necessary funds on
terms acceptable to us or at all. We intend to fund acquisitions with cash,
securities or a combination of cash and securities.
To the extent we use cash for all or part of any future acquisitions, we expect
to raise the cash from our business operations, from borrowings under our
revolving credit facility or, if feasible and attractive, by issuing long-term
debt or additional common shares. If we incur additional debt to finance
acquisitions, our total interest expense will increase.
On July 29, 2003 we completed the acquisition of substantially all of the fixed
assets and rental fleet assets of Safway Formwork Systems, L.L.C. for $20.9
million, including acquisition costs of $1.1 million. The initial purchase price
was comprised of $13.0 million in cash and a $12.0 million, non-interest bearing
(other than in the case of default) senior unsecured note, with a present value
of $12.0 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 April 2, 2004 was
$6.6 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 payment made in December 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 an initial net
present value of $1.6 million, which is being accreted to its face value of $2.0
million using the effective interest method with an interest rate of 6%, and is
reflected as interest expense. The net book value of the note at April 2, 2004
was $1.5 million. Minimum payments on the note are $149,000 for the remainder of
2004, $282,000 in 2005, $398,000 in 2006, $563,000 in 2007, and $464,000 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.
29
Our ability to make scheduled payments of principal of, or to pay the interest
on, or to refinance, our indebtedness, or to fund planned capital expenditures
and research and development will depend on our future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based on
our current level of operations and anticipated operating improvements,
management believes that cash flow from operations and available borrowings
under our revolving credit facility will be adequate to meet our future
liquidity for the foreseeable future. We cannot assure you, however, that our
business will generate sufficient cash flow from operations, that operating
improvements will be realized on schedule or that future borrowings will be
available to us under our revolving credit facility in an amount sufficient to
enable us to pay our indebtedness or to fund our other liquidity needs. We may
from time to time seek to retire our outstanding debt through cash purchases
and/or exchanges for equity securities, in open market purchases, in privately
negotiated transactions or otherwise. Any such repurchases or exchanges will
depend on prevailing market conditions, our liquidity requirements, contractual
restrictions and other factors. The amounts involved may be material. We may
need to refinance all or a portion of our indebtedness on or before maturity. We
cannot assure you that we will be able to refinance any of our indebtedness,
including our revolving credit facility, the senior subordinated notes and the
senior second secured notes, on commercially reasonable terms or at all.
COMMITMENTS
There were no material changes to minimum future payments from December 31,
2003.
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 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
30
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 April 2, 2004,
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 April 2, 2004. 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 par 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 April 2, 2004:
Subsidiary Applicable Value
- ---------------------------------------- ----------------
Symons Corporation $ 85,681
Aztec Concrete Accessories, Inc. 32,174
Dur-O-Wal, Inc. 7,628
Trevecca Holdings, Inc. (1) 32,174
Dayton Superior Specialty Chemical Corp. 32,866
Southern Construction Products, Inc. (2) -
Dayton Superior Canada Ltd. 6,887
(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 April 2, 2004, 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 April 2, 2004. 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 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
April 2, 2004, 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.
31
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 April 2, 2004, together with a reconciliation to the net
income (loss) of each of these subsidiaries:
Trevecca Dayton Superior Dayton
Symons Aztec Concrete Dur-O-Wal, Holdings, Specialty Superior
Corporation Accessories, Inc. Inc. Inc.(1) Chemical Corp. Canada Ltd.
------------ ------------------ ---------- --------- ---------------- -----------
Net Income $ (6,038) $ 3,487 $ 561 $ 3,487 $ 1,780 $ 440
Provision for Income Taxes (147) 1,570 339 1,570 1,145 225
Other (Income) Expense (9) 2 - 2 183 546
Interest Expense 416 - - - - -
Income from Operations (5,778) 5,059 900 5,059 3,108 1,211
Facility Closing and
Severance Expenses 498 - - - 97 -
Depreciation Expense 20,047 466 487 466 570 42
Amortization of Intangibles 811 - - - - -
--------- -------- -------- -------- -------- --------
Adjusted valuation EBITDA 15,578 5,525 1,387 5,525 3,775 1,253
Multiple 5.5 5.5 5.5 5.5 5.5 5.5
--------- -------- -------- -------- -------- --------
Estimated Fair Value $ 85,679 $ 30,388 $ 7,629 $ 30,388 $ 20,763 $ 6,892
======== ======== ======== ======== ======== ========
(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.
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 April 2, 2004
and the adjusted EBITDA of each subsidiary for the twelve months ended
April 2, 2004 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:
Subsidiary Change in Applicable Value Change in Adjusted EBITDA
- ------------------------------------- -------------------------- -------------------------
Symons Corporation $ (52,681) $ (9,578)
Aztec Concrete Accessories, Inc. 826 475
Dur-O-Wal, Inc. 25,372 4,613
Trevecca Holdings, Inc. (1) 826 475
Dayton Superior Specialty Chemical Corp. 135 2,227
Southern Construction Products, Inc. - -
Dayton Superior Canada Ltd. 26,113 4,748
(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.
32
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. There have been no
material changes in our policies or estimates since December 31, 2003.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes, and future filings by us on Form 10-K, Form 10-Q, and
Form 8-K, and future oral and written statements by us and our management may
include certain forward-looking statements, including (without limitation)
statements with respect to anticipated future operating and financial
performance, growth opportunities and growth rates, acquisition and divestitive
opportunities and other similar forecasts and statements of expectation. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and "should," and variations of these words and similar expressions,
are intended to identify these forward-looking statements. Forward-looking
statements by 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; our ability to successfully
identify, finance, complete and integrate acquisitions; increases in the price
of steel (our principal raw material) availability of steel: 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 our most recent 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.
33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of April 2, 2004, we had financial instruments, which were sensitive to
changes in interest rates. These financial instruments consist of:
- $80.0 million revolving credit facility, $55.0 million of which was
outstanding at April 2, 2004;
- $165.0 million of Senior Second Secured Notes with a net book value
of $157.8 million;
- $154.7 million of Senior Subordinated Notes with a net book value of
$146.5 million;
- $8.0 million of Notes payable to the seller of Safway;
- $4.4 million in capital lease obligations;
- $1.1 million in other fixed-rate, long-term debt.
Our $80.0 million senior secured revolving credit facility matures on
January 30, 2007. The credit facility has no financial covenants. Availability
of borrowings is limited to 85% of eligible accounts receivable and 60% of
eligible inventories and rental equipment, less $10.0 million. At April 2, 2004,
the Company had outstanding letters of credit of $6.7 million and available
borrowings of $18.3 million under this revolving credit facility. The credit
facility is secured by substantially all assets of the Company and its domestic
subsidiaries.
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 $156.9 million 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. As a result of the
transactions, the Company 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 second secured notes have an interest rate of 10.75%. The estimated
fair value of the notes is $167.5 million as of April 2, 2004. The senior second
secured notes are secured by substantially all assets of the Company and its
domestic subsidiaries.
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 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
$127.7 million as of April 2, 2004.
Our $12.0 million non-interest bearing note to the seller of Safway is
being accreted to the face value at 14.5% using the effective interest method.
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.
Our $2.0 million non-interest bearing note payable to the seller of Safway
is being accreted to the face value at 6.0% using the effective interest method.
Minimum payments on the note are $149,000 for the remainder of 2004, $282,000 in
2005, $398,000 in 2006, $563,000 in 2007, and $464,000 in 2008. Payments may be
accelerated if certain revenue targets are met.
Our other long-term debt at April 2, 2004 consisted of $1.1 million of
9.1% junior subordinated debentures previously held by the Dayton Superior
Capital Trust with an estimated fair value of $1.8 million, and a $39,000, 7%
loan due in annual installments of $31,500 per year with an estimated fair value
as of April 2, 2004 of $39,000.
In the ordinary course of our business, we also are exposed to price
changes in raw materials, particularly steel. The prices of these items can
change significantly due to changes in the markets in which our suppliers
operate. We generally do not, however, use financial instruments to manage our
exposure to changes in commodity prices.
34
ITEM 4. CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the quarter covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level.
Commencing in January 2004, we changed certain of our internal controls over
financial reporting applicable to the process of consolidating our financial
results. These changes were made in connection with a change in our operating
structure and in contemplation of our expected future installation of a new
enterprise resource planning system, and not in response to any perceived
deficiency or weakness in our internal controls over financial reporting. We do
not anticipate that these changes will have any adverse effect on our financial
reporting.
35
PART II. - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On March 12, 2004, the Company sold 558 Common shares to Edward J. Puisis for an
aggregate purchase price of $12,505 ($22.41 per share) in conjunction with his
employment agreement with the Company. The shares were issued in reliance upon
the exemption from registration set forth is Section 4(2) of the Securities Act
of 1933, as amended, for transactions not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See Index to Exhibits following the signature page to this
report for a list of Exhibits.
(b) Reports on Form 8-K. During the quarter ended April 2, 2004, we filed the
following Current Reports on Form 8-K:
Current Report on Form 8-K dated February 2, 2004 reporting under Item 5
(Other Events) and Item 7 (Financial Statements and Exhibits) that the
Company had issued a press release announcing that it had entered into a
revolving credit facility.
Current Report on Form 8-K dated February 13, 2004 reporting under Item 9
(Regulation FD Disclosure) and Item 7 (Financial Statements and Exhibits)
that the Company had issued a press release announcing an offer to
exchange its registered 10 3/4% Series B Senior Second Secured Notes due
2008 for its outstanding unregistered 10 3/4% Series B Senior Second
Secured Notes due 2008. *
Current Report on Form 8-K dated February 25, 2004 reporting under Item 12
(Results of Operations and Financial Condition) and Item 7 (Financial
Statements and Exhibits) that the Company had issued a press release
announcing its summary financial results for the fourth quarter of 2003
and the full year ended December 31, 2003. *
--------
*Information in a Current Report on Form 8-K that is furnished pursuant to
Item 9 or Item 12 shall not be deemed "filed" for purposes of Section 18
of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise
subject to the liabilities of that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933
or the Exchange Act, except as expressly set forth in such filing by
specific reference to such Current Report on Form 8-K.
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAYTON SUPERIOR CORPORATION
DATE: May 17, 2004 BY: /s/ Edward J. Puisis
-------------------------------
Edward J. Puisis
Vice President and Chief Financial Officer
37
INDEX TO EXHIBITS
Exhibit No. Description
(31) Rule 13a-14(a)/15d-14(a) Certifications
31.1 Rule 13a-14(a)/15d-14(a) Certification of President and
Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Vice President
and Chief Financial Officer
(32) Section 1350 Certifications
32.1 Section 1350 Certification of President and Chief
Executive Officer
32.2 Section 1350 Certification of Vice President and Chief
Financial Officer
38