10-Q 1 l89564ae10-q.txt DAYTON SUPERIOR CORPORATION FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED COMMISSION FILE NUMBER JUNE 29, 2001 1-11781 DAYTON SUPERIOR CORPORATION (Exact name of registrant as specified in its charter) OHIO 31-0676346 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 7777 Washington Village Dr., Suite 130 Dayton, Ohio 45459 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: 937-428-6360 NOT APPLICABLE (Former name, former address and former fiscal year, if changed from last report) Indicate by mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] 4,001,102 Class A Common Shares were outstanding as of August 10, 2001 2 PART I. - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Dayton Superior Corporation and Subsidiaries Consolidated Balance Sheets As of June 29, 2001 and December 31, 2000 (Amounts in thousands)
June 29, 2001 December 31, (Unaudited) 2000 ----------- ----------- ASSETS Current assets Cash $ 2,889 $ 1,782 Accounts receivable, net of allowances for doubtful accounts and sales returns and allowances of $5,357 and $5,331 73,352 55,786 Inventories (Note 4) 50,997 43,316 Prepaid expenses and other current assets 6,506 5,938 Prepaid income taxes 4,202 6,742 Future income tax benefits 6,217 5,841 ---------- ----------- Total current assets 144,163 119,405 ---------- ----------- Rental equipment, net (Note 4) 65,562 64,453 ---------- ----------- Property, plant and equipment 94,409 86,060 Less accumulated depreciation (36,473) (32,885) ---------- ----------- Net property, plant and equipment 57,936 53,175 ---------- ----------- Goodwill and intangible assets, net of accumulated amortization 138,516 97,044 Other assets 1,081 1,341 ---------- ----------- Total assets $ 407,258 $ 335,418 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note 5) $ 7,862 $ 6,246 Accounts payable 33,272 25,497 Accrued compensation 13,232 14,536 Other accrued liabilities 14,479 12,258 ---------- ----------- Total current liabilities 68,845 58,537 Long-term debt, net (Note 5) 294,351 239,679 Deferred income taxes 13,446 17,635 Other long-term liabilities 13,350 6,371 ---------- ----------- Total liabilities 389,992 322,222 ---------- ----------- Shareholders' equity: Class A common shares 102,028 92,826 Loans to shareholders (2,978) (2,039) Class A treasury shares (784) - Cumulative other comprehensive income (loss) (400) (340) Accumulated deficit (80,600) (77,251) ---------- ----------- Total shareholders' equity 17,266 13,196 ---------- ----------- Total liabilities and shareholders' equity $ 407,258 $ 335,418 ========== ===========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 2 3 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Income For The Three and Six Fiscal Months Ended June 29, 2001 and June 30, 2000 (Amounts in thousands) (Unaudited)
Three Fiscal Months Ended Six Fiscal Months Ended --------------------------- --------------------------- June 29, June 30, June 29, June 30, 2001 2000 2001 2000 --------- --------- --------- --------- Net sales $ 111,064 $ 98,000 $ 194,421 $ 174,505 Cost of sales 70,217 60,767 126,964 110,142 --------- --------- --------- --------- Gross profit 40,847 37,233 67,457 64,363 Selling, general and administrative expenses 25,149 22,741 50,772 45,647 Facility closing and severance expenses (Note 8) 3,320 -- 3,320 -- Amortization of goodwill and intangibles 1,054 452 1,991 1,076 --------- --------- --------- --------- Income from operations 11,324 14,040 11,374 17,640 Other expenses Interest expense, net 8,959 3,728 17,744 6,456 Non-recurring item - Lawsuit judgment (Note 9) -- 15,000 -- 15,000 Other expense, net (6) 134 4 153 --------- --------- --------- --------- Income (loss) before provision (benefit) for income taxes and extraordinary item 2,371 (4,822) (6,374) (3,969) Provision (benefit) for income taxes 1,126 (1,850) (3,028) (1,470) --------- --------- --------- --------- Income (loss) before extraordinary item 1,245 (2,972) (3,346) (2,499) Extraordinary loss, net of income tax benefit (Note 2) -- (4,812) -- (4,812) --------- --------- --------- --------- Net income (loss) 1,245 (7,784) (3,346) (7,311) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit -- (267) -- (583) --------- --------- --------- --------- Net income (loss) available to common shareholders $ 1,245 $ (8,051) $ (3,346) $ (7,894) ========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 3 4 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Cash Flows For The Six Fiscal Months Ended June 29, 2001 and June 30, 2000 (Amounts in thousands) (Unaudited)
Six Fiscal Months Ended ------------------------------- June 29, 2001 June 30, 2000 ------------- ------------- Cash Flows From Operating Activities: Net loss $ (3,346) $ (7,311) Adjustments to reconcile net loss to net cash used in operating activities: Extraordinary loss -- 4,812 Lawsuit judgment (Note 9) -- 15,000 Depreciation 10,035 6,175 Amortization of goodwill and intangibles 1,991 1,076 Deferred income taxes (1,148) (1,484) Amortization of deferred financing costs and debt discount 1,066 492 Gain on sales of rental equipment and property, plant and equipment (4,950) (3,458) Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (14,273) (21,885) Inventories (4,045) (1,720) Prepaid income taxes (277) (1,668) Accounts payable 6,283 7,005 Accrued liabilities and other long-term liabilities (2,386) (1,665) Other, net (630) 941 --------- --------- Net cash used in operating activities (11,680) (3,690) --------- --------- Cash Flows From Investing Activities: Property, plant and equipment additions (4,383) (4,210) Proceeds from sales of fixed assets -- 30 Rental equipment additions (10,312) (10,182) Proceeds from sales of rental equipment 7,908 5,832 Acquisitions (Note 3) (40,163) (1,472) Refunds of purchase price on acquisitions -- 2,115 --------- --------- Net cash used in investing activities (46,950) (7,887) --------- --------- Cash Flows From Financing Activities: Repayments of long-term debt (30,024) (120,825) Issuance of long-term debt 85,925 212,427 Prepayment premium on extinguishments of long-term debt and interest rate swap agreements (Note 2) -- (476) Financing cost on unused long-term debt commitment (Note 2) -- (750) Financing costs incurred (741) (9,616) Redemption of Class A common shares (734) (164,315) Issuance of Class A common shares, net of issuance costs 5,371 91,593 Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit -- (583) --------- --------- Net cash provided by financing activities 59,797 7,455 --------- --------- Effect of Exchange Rate Changes on Cash (60) (40) --------- --------- Net increase (decrease) in cash 1,107 (4,162) Cash, beginning of period 1,782 4,553 --------- --------- Cash, end of period $ 2,889 $ 391 ========= ========= Supplemental Disclosures: Cash paid (refunded) for income taxes $ (3,351) $ 532 Cash paid for interest 16,486 5,099 Conversion of Company-obligated mandatorily redeemable convertible trust preferred securities into long-term debt -- 23,375 Issuance of Class A common shares in conjunction with acquisition 2,842 -- Issuance of Class A common shares and loans to shareholders 309 2,007
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 4 5 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) For The Three and Six Fiscal Months Ended June 29, 2001 and June 30, 2000 (Amounts in thousands) (Unaudited)
Three Fiscal Months Ended Six Fiscal Months Ended ------------------------- ----------------------- June 29, June 30, June 29, June 30, 2001 2000 2001 2000 ------- ------- ------- ------- Net income (loss) $ 1,245 $(2,972) $(3,346) $(2,499) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit -- (267) -- (583) Other comprehensive income: Foreign currency translation adjustment 55 (48) (60) (40) ------- ------- ------- ------- Comprehensive income (loss) $ 1,300 $(3,287) $(3,406) $(3,122) ======= ======= ======= =======
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 5 6 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 29, 2001 AND JUNE 30, 2000 (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, 2000. (2) RECAPITALIZATION On January 19, 2000, the Company signed a definitive merger agreement with an affiliate of Odyssey Investment Partners, LLC ("Odyssey"), the manager of a New York based private equity investment fund, for $27.00 per share in cash. The transaction was completed on June 16, 2000 and was recorded as a recapitalization. Accordingly, the Company has not recorded any goodwill or purchase accounting adjustments. In connection with the recapitalization, the Company refinanced its existing bank indebtedness. Additionally, the Dayton Superior Capital Trust, which held solely debentures, was dissolved. The Company-obligated mandatorily redeemable convertible trust preferred securities converted to debentures having the right to receive cash in the amount of $22.00, plus accrued interest, per preferred security. As a result, the Company recorded an extraordinary loss of $4,812 from the early extinguishments of long-term debt, comprised of the following: Expense deferred financing costs on previous long-term debt $ 2,719 Prepayment premium on extinguishments of long-term debt and interest rate swap agreements 476 Expense issuance costs on Company-obligated mandatorily redeemable convertible trust preferred securities 1,691 Prepayment premium on conversion of Company-obligated mandatorily redeemable convertible trust preferred securities into debentures 2,125 Financing cost for unused long-term debt commitment 750 ------- 7,761 Income tax benefit (2,949) ------- Extraordinary loss $ 4,812 =======
6 7 (3) ACQUISITIONS (a) AnconCCL Inc.--On June 19, 2001, the Company acquired the stock of AnconCCL Inc. ("Ancon") for approximately $9,300 in cash, including acquisition costs, subject to a working capital adjustment. The payment was funded through the Company's acquisition credit facility. The business is being operated as part of the Company's concrete accessories business. The acquisition has been accounted for as a purchase, and the results of Ancon have been included in the accompanying financial statements since the date of acquisition. The purchase price has been allocated based on the estimated fair values of the assets acquired (approximately $10,200, including goodwill of $6,500) and liabilities assumed (approximately $900). Certain appraisals and evaluations are preliminary and may change. Pro forma financial information is not required. (b) Aztec Concrete Accessories, Inc.--On January 4, 2001, the Company acquired the stock of Aztec Concrete Accessories, Inc. ("Aztec") for approximately $32,800, including acquisition costs. The payment of the purchase price consisted of cash of approximately $29,900 and 105,263 common shares valued at approximately $2,900. The cash portion was funded through the issuance of 189,629 common shares valued at approximately $5,100 to Odyssey and an increase of approximately $24,800 to the new credit facility. The business is being operated as part of the Company's concrete accessories business. The acquisition has been accounted for as a purchase, and the results of Aztec have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated based on the estimated fair values of the assets acquired (approximately $43,700, including goodwill of $35,100) and liabilities assumed (approximately $10,900). Certain appraisals and evaluations are preliminary and may change. Pro forma financial information is not required. (c) Conspec Marketing & Manufacturing Co., Inc.--On July 17, 2000, the Company acquired all of the stock of Conspec Marketing & Manufacturing Co., Inc. and related entities (now known as Dayton Superior Specialty Chemical Corp.), for $24,200 in cash, including acquisition costs, a payment of approximately $1,000 in the second quarter of 2001 for a tax election, less a working capital reduction of approximately $100 received in the first quarter of 2001. The business is being operated as part of the Company's concrete accessories business. The acquisition has been accounted for as a purchase, and the results of Conspec have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated based on the estimated fair values of the assets acquired (approximately $29,500, including goodwill of $19,000) and liabilities assumed (approximately 7 8 $5,300). Certain appraisals and evaluations are preliminary and may change. Pro forma financial information is not required. (d) Polytite Manufacturing Corp.--On February 9, 2000, the Company acquired substantially all of the assets and assumed certain of the liabilities of Polytite Manufacturing Corp. ("Polytite") for approximately $1,600 in cash, including acquisition costs. The business is being operated as part of the Company's concrete accessories business. The acquisition has been accounted for as a purchase, and the results of Polytite have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated based on the fair values of the assets acquired (approximately $2,100, including goodwill of $1,500) and liabilities assumed (approximately $500). Pro forma financial information is not required. (4) 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, 2000. 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 accomplished at year end. Examples of such estimates include changes in the LIFO reserve (based upon the Company's best estimate of inflation to date) and management bonuses. Any adjustments pursuant to such estimates during the fiscal quarter were of a normal recurring nature. (a) Fiscal Quarter--The Company's fiscal yearend is December 31. The Company's fiscal quarters are defined as the periods ending on the Friday nearest to the end of March, June and September. (b) Inventories--Substantially all inventories of the domestic Dayton Superior and Dur-O-Wal operations are stated at the lower of last in, first out (LIFO) cost or market (which approximates current cost). All other inventories are stated at the lower of first-in, first-out (FIFO) cost or market. The Company had no LIFO reserve as of June 29, 2001 and December 31, 2000. Following is a summary of the components of inventories as of June 29, 2001 and December 31, 2000:
June 29, December 31, 2001 2000 ---------------------------- Raw materials $ 11,486 $ 9,966 Finished goods and work in progress 42,197 35,503 -------- -------- 53,683 45,469 Net realizable value reserve (2,686) (2,153) -------- -------- $ 50,997 $ 43,316 ======== ========
8 9 (c) Rental Equipment--Rental equipment is manufactured by the Company for resale and for rent to others on a short-term basis. Rental equipment is recorded at the lower of FIFO cost or market and is depreciated over the estimated useful life of the equipment, three to fifteen years, on a straight-line basis. The balances as of June 29, 2001 and December 31, 2000 are net of accumulated depreciation of $16,978 and $11,527, respectively. Rental revenues and cost of sales associated with rental revenue are as follows:
Three fiscal months ended Six fiscal months ended June 29, June 30, June 29, June 30, 2001 2000 2001 2000 ------- ------- ------- ------- Rental revenue $13,068 $13,385 $25,273 $24,665 Cost of sales 2,508 2,391 6,984 4,566
Effective January 1, 2001, the Company changed its accounting estimates relating to the depreciable life of a portion of its rental fleet. The change was based upon a study performed by the Company that showed that the renovation of certain items within the rental fleet extended the useful life beyond normal repair and maintenance. Accordingly, the Company began capitalizing rather than expensing this expenditure. Simultaneously, the useful lives of these items were reduced from fifteen years to three years to match the useful life of the renovation. As a result of the change the Company's gross profit and income from operations for the six fiscal months ended June 29, 2001 were decreased by a one time cumulative charge of $2,272. (d) New Accounting Pronouncements -- In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 revises the accounting for future business combinations to only allow the purchase method of accounting. In addition, the two statements will not require amortization of goodwill for periods beginning after December 15, 2001. Instead an annual review of the recoverability of the goodwill and intangible assets will be required. This Statement will be adopted effective January 1, 2002 for the Company. The Company is still evaluating the Statements and does not know what impact the Statements will have on the results of operations of financial position. The Company does not believe that there will be any impact on cash flows from adopting these Statements. (e) Reclassifications--Certain reclassifications have been made to the 2000 amounts to conform to their 2001 classifications. 9 10 (5) CREDIT ARRANGEMENTS Following is a summary of the Company's long-term debt as of June 29, 2001 and December 31, 2000:
June 29, December 31, 2001 2000 ---------- ------------ Revolving credit facility, weighted average interest rate of 7.2% $ 7,675 $ 6,000 Acquisition credit facility, weighted average interest rate of 6.3% 9,250 - Term Loan Tranche A, weighted average interest rate of 7.0% 22,161 22,161 Term Loan Tranche B, weighted average interest rate of 7.5% 98,500 53,500 Senior Subordinated Notes, interest rate of 13.0% 170,000 170,000 Debt discount on Senior Subordinated Notes (11,713) (12,100) Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1%, due on demand 1,214 1,214 Note payable to one of the former stockholders of Symons Corporation, interest rate of 10.5% 5,000 5,000 City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 126 150 ---------- ---------- Total debt 302,213 245,925 Less current maturities (7,862) (6,246) ---------- ---------- Long-term portion $ 294,351 $ 239,679 ========== ==========
In May 2001, the Company increased its borrowings on the Term Loan Tranche B by $45,000. The total borrowings from this issuance, net of financing costs of approximately $700, were used to repay the outstanding balance on the acquisition credit facility of $24,000. The remaining $20,300 was used to pay down existing debt on the Company's revolving credit facility. As of June 29, 2001, the Company's credit facility consisted of (i) a $50,000 revolving credit facility maturing June 2006, (ii) a $30,000 acquisition facility, converting from revolving loans into term loans in June 2004 and maturing June 2006 and (iii) term loan facilities in an aggregate principal amount of $122,000, consisting of a $23,500 delayed-draw tranche A facility maturing June 2006 and a $98,500 tranche B facility maturing June 2008. The credit facility provides that the Company will repay (i) the tranche A facility in quarterly installments commencing March 2002, (ii) the tranche B facility in quarterly installments, commencing March 2002 and (iii) the acquisition facility, in equal quarterly installments commencing June 2004. The credit facility has several interest rate options, which re-price on a short-term basis. At June 29, 2001, of the $50,000 Revolving Credit Facility that was available, $7,675 of borrowings was outstanding. The average borrowing, maximum borrowing, and weighted average interest rate on the revolving line of credit and its predecessor for the periods indicated were as follows: 10 11
Three fiscal months ended Six fiscal months ended ------------------------- ----------------------- June 29, June 30, June 29, June 30, 2001 2000 2001 2000 ------- ------- ------- ------- Average borrowing $15,323 $12,137 $13,376 $ 8,841 Maximum borrowing 26,425 16,420 26,425 16,420 Weighted average interest rate 9.1% 8.2% 9.6% 8.6%
The credit facility contains certain restrictive covenants which, among other things, require that the Company maintain a minimum interest coverage ratio and a minimum EBITDA level and not exceed a certain leverage ratio. The Senior Subordinated Notes (the "Notes") have a principal amount of $170,000 and mature in June 2009. The Notes were issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The Notes were issued with warrants that allow the holder to purchase 117,276 of the Company's Class A Common Shares for $0.01 per share. The Company's wholly-owned domestic subsidiaries (AnconCCL Inc.; Aztec Concrete Accessories, Inc.; Dayton Superior Specialty Chemical Corp.; Symons Corporation; and Dur-O-Wal, Inc.) have provided a guarantee of the Notes. The wholly-owned foreign subsidiaries of the Company are not guarantors with respect to the Notes and do not have any credit arrangements senior to the Notes. Following are the supplemental consolidated condensed balance sheets as of June 29, 2001 and December 31, 2000, as well as the supplemental consolidated condensed statements of operations for the three and six fiscal months ended June 29, 2001 and June 30, 2000 and cash flows for the six fiscal months ended June 29, 2001 and June 30, 2000. 11 12 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Balance Sheet As of June 29, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ ASSETS Cash $ 109 $ 2,025 $ 755 $ -- $ 2,889 Accounts receivable, net 32,871 38,790 1,691 -- 73,352 Inventories 20,802 29,177 1,018 -- 50,997 Intercompany 71,426 (70,536) (890) -- -- Other current assets 9,622 7,141 162 -- 16,925 ----------- ----------- ----------- ------------ ------------ TOTAL CURRENT ASSETS 134,830 6,597 2,736 -- 144,163 Property, plant and equipment, net 22,173 35,582 181 -- 57,936 Rental equipment, net 6,699 58,797 66 -- 65,562 Investment in subsidiaries 120,178 -- -- (120,178) -- Other assets 56,290 83,307 -- -- 139,597 ----------- ----------- ----------- ------------ ------------ TOTAL ASSETS $ 340,170 $ 184,283 $ 2,983 $ (120,178) $ 407,258 =========== =========== =========== ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current maturities of long-term debt $ 7,862 $ -- $ -- $ -- $ 7,862 Accounts payable 12,967 19,870 435 -- 33,272 Accrued liabilities 12,230 15,407 74 -- 27,711 ----------- ----------- ----------- ------------ ------------ TOTAL CURRENT LIABILITIES 33,059 35,277 509 -- 68,845 Long-term debt, net 294,351 -- -- -- 294,351 Other long-term liabilities 4,434 22,167 195 -- 26,796 Total shareholders' equity (deficit) 8,326 126,839 2,279 (120,178) 17,266 ----------- ----------- ----------- ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 340,170 $ 184,283 $ 2,983 $ (120,178) $ 407,258 =========== =========== =========== ============ ============
12 13 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Balance Sheet As of December 31, 2000
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ ASSETS Cash $ 1,603 $ (825) $ 1,004 $ -- $ 1,782 Accounts receivable, net 20,912 33,648 1,226 55,786 Inventories 20,903 21,440 973 -- 43,316 Intercompany 69,643 (70,595) 952 -- -- Other current assets 11,364 6,856 301 -- 18,521 ------------ ------------ ------------ ------------ ------------ TOTAL CURRENT ASSETS 124,425 (9,476) 4,456 -- 119,405 Property, plant and equipment, net 24,169 28,824 182 -- 53,175 Rental equipment, net 6,768 57,596 89 -- 64,453 Investment in subsidiaries 79,598 -- -- (79,598) -- Other assets 57,653 40,732 -- -- 98,385 ------------ ------------ ------------ ------------ ------------ TOTAL ASSETS $ 292,613 $ 117,676 $ 4,727 $ (79,598) $ 335,418 ============ ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current maturities of long-term debt $ 6,246 $ -- $ -- $ -- $ 6,246 Accounts payable 13,394 11,733 370 -- 25,497 Accrued liabilities 18,224 8,252 318 -- 26,794 ------------ ------------ ------------ ------------ ------------ TOTAL CURRENT LIABILITIES 37,864 19,985 688 -- 58,537 Long-term debt, net 239,679 -- -- -- 239,679 Other long-term liabilities 6,301 17,504 201 -- 24,006 Total shareholders' equity (deficit) 8,769 80,187 3,838 (79,598) 13,196 ------------ ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 292,613 $ 117,676 $ 4,727 $ (79,598) $ 335,418 ============ ============ ============ ============ ============
13 14 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Operations Three Fiscal Months Ended June 29, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ Net sales $53,705 $54,575 $2,784 $111,064 Cost of sales 35,260 33,178 1,779 70,217 ----------- ------------ ------------ ------------ Gross profit 18,445 21,397 1,005 40,847 Selling, general and administrative expenses 10,126 14,532 491 25,149 Facility closing and severance expenses 1,935 1,385 - 3,320 Amortization of goodwill and intangibles 454 600 - 1,054 Management fees (110) - 110 - ----------- ------------ ------------ ------------ Income (loss) from operations 6,040 4,880 404 11,324 Other expenses Interest expense 8,777 182 - 8,959 Other expense (income), net (9) 2 1 (6) ----------- ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes (2,728) 4,696 403 2,371 Provision (benefit) for income taxes (1,299) 2,229 196 1,126 ----------- ------------ ------------ ------------ Net income (loss) $(1,429) $ 2,467 $ 207 $ 1,245 =========== ============ ============ ============
14 15 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Operations Three Fiscal Months Ended June 30, 2000
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ Net sales $51,213 $44,259 $2,528 $ 98,000 Cost of sales 36,342 22,995 1,430 60,767 ----------- ------------ ------------ ------------ Gross profit 14,871 21,264 1,098 37,233 Selling, general and administrative expenses 8,900 13,102 739 22,741 Amortization of goodwill and intangibles 436 16 - 452 Management fees (40) - 40 - ----------- ------------ ------------ ------------ Income (loss) from operations 5,575 8,146 319 14,040 Other expenses Interest expense (income) 3,732 (4) - 3,728 Non-recurring item - Lawsuit judgment - 15,000 - 15,000 Other expense, net (73) 206 1 134 ----------- ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes and extraordinary item 1,916 (7,056) 318 (4,822) Provision (benefit) for income taxes 594 (2,549) 105 (1,850) ----------- ------------ ------------ ------------ Income (loss) before extraordinary item 1,322 (4,507) 213 (2,972) Extraordinary loss, net of income tax benefit (4,812) - - (4,812) ----------- ------------ ------------ ------------ Net Income (loss) (3,490) (4,507) 213 (7,784) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit (267) - - (267) ----------- ------------ ------------ ------------ Net income (loss) available to common shareholders $(3,757) $(4,507) $ 213 $ (8,051) =========== ============ ============ ============
15 16 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Operations Six Fiscal Months Ended June 29, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ Net sales $93,483 $96,488 $4,450 $194,421 Cost of sales 61,839 62,303 2,822 126,964 ----------- ------------ ------------ ------------ Gross profit 31,644 34,185 1,628 67,457 Selling, general and administrative expenses 20,015 29,877 880 50,772 Facility closing and severance expenses 1,935 1,385 - 3,320 Amortization of goodwill and intangibles 913 1,078 - 1,991 Management fees (150) - 150 - ----------- ------------ ------------ ------------ Income (loss) from operations 8,931 1,845 598 11,374 Other expenses Interest expense 17,418 326 - 17,744 Other expense (income), net (3) 7 - 4 ----------- ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes (8,484) 1,512 598 (6,374) Provision (benefit) for income taxes (4,030) 718 284 (3,028) ----------- ------------ ------------ ------------ Net income (loss) $(4,454) $ 794 $ 314 $(3,346) =========== ============ ============ ============
16 17 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Operations Six Fiscal Months Ended June 30, 2000
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ Net sales $ 90,984 $ 79,571 $ 3,950 $174,505 Cost of sales 62,050 45,724 2,368 110,142 ----------- ---------- ------------ ------------ Gross profit 28,934 33,847 1,582 64,363 Selling, general and administrative expenses 18,061 26,498 1,088 45,647 Amortization of goodwill and intangibles 867 209 - 1,076 Management fees (80) - 80 - ----------- ---------- ------------ ------------ Income (loss) from operations 10,086 7,140 414 17,640 Other expenses Interest expense 6,481 (25) - 6,456 Non-recurring - Lawsuit judgment - 15,000 - 15,000 Other expense (income), net (73) 224 2 153 ----------- ---------- ------------ ------------ Income (loss) before provision (benefit) for income taxes and extraordinary item 3,678 (8,059) 412 (3,969) Provision (benefit) for income taxes 1,362 (2,985) 153 (1,470) ----------- ---------- ------------ ------------ Income (loss) before extraordinary item 2,316 (5,074) 259 (2,499) Extraordinary loss, net of income tax benefit (4,812) - - (4,812) ----------- ---------- ------------ ------------ Net Income (loss) (2,496) (5,074) 259 (7,311) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit (583) - - (583) ----------- ---------- ------------ ------------ Net income (loss) available to common shareholders $ (3,079) $ (5,074) $ 259 $(7,894) =========== ========== ============ ============
17 18 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Cash Flows Six Fiscal Months Ended June 29, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (4,454) $ 794 $ 314 $ (3,346) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 4,178 8,891 23 13,092 Deferred income taxes (1,148) - - (1,148) Gain on sales of rental equipment and fixed assets (307) (4,584) (59) (4,950) Change in assets and liabilities, net of the effects of acquisitions (16,022) (3,059) (2,365) (15,328) ---------- ----------- ----------- ----------- Net cash provided by (used in) operating activities (17,753) 8,160 (2,087) (11,680) ---------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (1,560) (2,802) (21) (4,383) Rental equipment additions (759) (9,514) (39) (10,312) Proceeds from sale of rental equipment 727 7,065 116 7,908 Acquisitions, net (40,163) - - (40,163) ---------- ----------- ----------- ----------- Net cash provided by (used in) investing activities (41,755) (5,251) 56 (46,950) ---------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt, net 55,901 - - 55,901 Financing costs incurred (741) - - (741) Redemption of Class A common shares (734) - - (734) Issuance of Class A common shares 5,371 - - 5,371 Intercompany (1,783) (59) 1,842 - ---------- ----------- ----------- ----------- Net cash provided by (used in) financing activities 58,014 (59) 1,842 59,797 ---------- ----------- ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (60) (60) ---------- ----------- ----------- ----------- Net increase (decrease) in cash (1,494) 2,850 (249) 1,107 CASH, beginning of period 1,603 (825) 1,004 1,782 ---------- ----------- ----------- ----------- CASH, end of period $ 109 $ 2,025 $ 755 $ 2,889 ========== =========== =========== ===========
18 19 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Cash Flows Six Fiscal Months Ended June 30, 2000
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ (2,496) $ (5,074) $ 259 $ (7,311) Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss 4,812 - - 4,812 Lawsuit judgment - 15,000 - 15,000 Depreciation and amortization 3,272 4,452 19 7,743 Deferred income taxes (1,484) - - (1,484) Gain on sales of rental equipment and fixed assets (632) (2,824) (2) (3,458) Change in assets and liabilities, net of the effects of acquisitions (10,431) (6,750) (1,811) (18,992) ----------- ------------ ------------ ------------ Net cash provided by (used in) operating activities (6,959) 4,804 (1,535) (3,690) ----------- ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions, net (2,073) (2,052) (55) (4,180) Rental equipment additions (1,266) (8,869) (47) (10,182) Proceeds from sale of rental equipment 1,160 4,668 4 5,832 Acquisitions (1,472) - - (1,472) Refunds of purchase price on acquisitions 2,115 - - 2,115 ----------- ------------ ------------ ------------ Net cash used in investing activities (1,536) (6,253) (98) (7,887) ----------- ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt, net 91,602 - - 91,602 Prepayment premium on extinguishment of long-term debt and interest rate swap agreements (476) - - (476) Financing costs on unused long-term debt commitment (750) - - (750) Financing costs incurred (9,616) - - (9,616) Redemption of Class A common shares (164,315) - - (164,315) Issuance of Class A common shares 91,593 - - 91,593 Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit (583) - - (583) Intercompany (2,875) 2,582 293 - ----------- ------------ ------------ ------------ Net cash provided by financing activities 4,580 2,582 293 7,455 ----------- ------------ ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (40) (40) ----------- ------------ ------------ ------------ Net increase (decrease) in cash (3,915) 1,133 (1,380) (4,162) CASH, beginning of period 3,488 (361) 1,426 4,553 ----------- ------------ ------------ ------------ CASH, end of period $ (427) $ 772 $ 46 $ 391 =========== ============ ============ ============
19 20 (6) STOCK OPTION PLANS The Company has a stock option plan, which provides for an option exercise price equal to the stock's market price on the date of grant. The options are accounted for under APB Opinion No. 25, under which no compensation costs have been recognized. Had compensation costs for these plans been determined consistent with Statement of Financial Accounting Standards No.123, "Accounting for Stock Based Compensation" ("SFAS 123"), the Company's net income (loss) available to common shareholders for the three and six fiscal months ended June 29, 2001 and June 30, 2000 would have been reduced to the following pro forma amounts:
Three fiscal months ended Six fiscal months ended -------------------------- ------------------------ June 29, June 30, June 29, June 30, 2001 2000 2001 2000 -------- -------- -------- -------- Income (loss) before extraordinary item As Reported $ 1,245 $(2,972) $(3,346) $(2,499) Pro Forma 1,061 (3,009) (3,725) (2,594)
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation costs may not be representative of that to be expected in future years. A summary of the activity of the Company's stock option plans for the six fiscal months ended June 29, 2001 is presented in the table below:
Weighted Average Exercise Price Per Number of Shares Share ---------------- ------------------ Outstanding at December 31, 2000 570,946 $24.22 Exercised (3,378) 25.88 Cancelled (17,312) 27.00 ------- ----- Outstanding at June 29, 2001 550,256 $24.13 ======= ======
20 21 (7) SEGMENT REPORTING The Company operates in three segments, each with a general manager: concrete accessories, concrete forming systems, and paving products. Effective January 1, 2001, the masonry products business was merged into the concrete accessories segment as a product line. The segments are differentiated by their products and services, all of which serve the construction industry. Sales between segments are recorded at normal selling price by the selling division and at cost for the buying division, with the profit recorded as an intersegment elimination. Segment assets include accounts receivable; inventories; property, plant, and equipment; rental equipment; and an allocation of goodwill. Corporate and unallocated assets include cash, prepaid income taxes, future tax benefits, and financing costs. Export sales and sales by non-U.S. affiliates are not significant. Information about the income (loss) of each segment and the reconciliations to the consolidated amounts for the three and six fiscal months ended June 29, 2001 and June 30, 2000 is as follows:
Three fiscal months ended Six fiscal months ended ------------------------- ----------------------- June 29, June 30, June 29, June 30, 2001 2000 2001 2000 -------- -------- -------- -------- Concrete Accessories $ 61,341 $ 52,032 $109,890 $ 94,755 Concrete Forming Systems 34,846 33,600 59,807 60,087 Paving Products 14,877 12,368 24,724 19,663 -------- -------- -------- -------- Net sales to external customers $111,064 $ 98,000 $194,421 $174,505 ======== ======== ======== ======== Concrete Accessories $ 1,467 $ 1,245 $ 2,565 $ 2,268 Concrete Forming Systems 2,132 1,771 3,430 3,545 Paving Products 878 757 1,295 1,416 -------- -------- -------- -------- Net sales to other segments $ 4,477 $ 3,773 $ 7,290 $ 7,229 ======== ======== ======== ========
21 22
Three fiscal months ended Six fiscal months ended ------------------------- ----------------------- June 29, June 30, June 29, June 30, 2001 2000 2001 2000 -------- -------- -------- -------- Concrete Accessories $ 7,471 $ 10,002 $ 11,835 $ 14,707 Concrete Forming Systems 5,780 6,146 4,135 8,217 Paving Products 2,355 1,777 2,634 1,759 Corporate (1,650) (1,678) (3,238) (3,161) Intersegment Eliminations (2,632) (2,207) (3,992) (3,882) -------- -------- -------- -------- Income from operations $ 11,324 $ 14,040 $ 11,374 $ 17,640 ======== ======== ======== ======== Concrete Accessories $ 3,277 $ 1,313 $ 6,438 $ 2,249 Concrete Forming Systems 4,967 2,196 9,980 3,858 Paving Products 715 219 1,326 349 -------- -------- -------- -------- Interest expense $ 8,959 $ 3,728 $ 17,744 $ 6,456 ======== ======== ======== ======== Concrete Accessories $ 4,200 $ 8,555 $ 5,393 $ 12,305 Concrete Forming Systems 813 (11,050) (5,845) (10,641) Paving Products 1,640 1,558 1,308 1,410 Corporate (1,650) (1,678) (3,238) (3,161) Intersegment Eliminations (2,632) (2,207) (3,992) (3,882) -------- -------- -------- -------- Income (loss) before income taxes and extraordinary item $ 2,371 $ (4,822) $ (6,374) $ (3,969) ======== ======== ======== ======== Concrete Accessories $ 1,326 $ 1,202 $ 2,608 $ 2,447 Concrete Forming Systems 2,309 1,645 6,763 3,248 Paving Products 275 231 549 445 Corporate 53 21 115 35 -------- -------- -------- -------- Depreciation $ 3,963 $ 3,099 $ 10,035 $ 6,175 ======== ======== ======== ======== Concrete Accessories $ 862 $ 490 $ 1,688 $ 988 Concrete Forming Systems 148 (80) 210 17 Paving Products 44 42 93 71 -------- -------- -------- -------- Amortization of goodwill and intangibles $ 1,054 $ 452 $ 1,991 $ 1,076 ======== ======== ======== ========
22 23 Information regarding capital expenditures by segment and the reconciliation to the consolidated amounts for the three and six fiscal months ended June 29, 2001 and June 30, 2000 is as follows:
Three fiscal months ended Six fiscal months ended ------------------------- ----------------------- June 29, June 30, June 29, June 30, 2001 2000 2001 2000 -------- -------- -------- -------- Concrete Accessories $ 1,460 $ 1,213 $ 2,481 $ 2,404 Concrete Forming Systems 685 454 1,295 957 Paving Products 283 265 485 733 Corporate 122 71 122 116 -------- -------- -------- -------- Property, Plant, and Equipment Additions $ 2,550 $ 2,003 $ 4,383 $ 4,210 -------- -------- -------- -------- Concrete Accessories $ 483 $ 428 $ 812 $ 1,328 Concrete Forming Systems 4,685 5,594 9,500 8,854 -------- -------- -------- -------- Rental Equipment Additions $ 5,168 $ 6,022 $ 10,312 $ 10,182 ======== ======== ======== ========
Information regarding each segment's assets and the reconciliation to the consolidated amounts as of June 29, 2001 and December 31, 2000, is as follows:
As of -------------------------- June 29, December 31, 2001 2000 --------- ----------- Concrete Accessories $ 225,504 $ 161,213 Concrete Forming Systems 131,293 130,555 Paving Products 26,676 19,386 Corporate and Unallocated 23,785 24,264 --------- ----------- Total Assets $ 407,258 $ 335,418 ========= ===========
(8) FACILITY CLOSING AND SEVERANCE EXPENSES During the second quarter of 2001, the Company approved and began implementing plans to exit seven manufacturing and distribution facilities and to reduce overall Company headcount in order to keep its cost structure in alignment with its net sales. The total anticipated cost of the facility closures and severance is $4,690, and will encompass approximately 200 employee terminations. Of this amount, approximately $3,320 was expensed during the second quarter of 2001 and it is anticipated the remaining $1,370 will be expensed during the third and fourth quarters of 2001. At June 29, 2001, approximately $2,455 is included in "Other accrued liabilities" in the accompanying consolidated balance sheet. The total estimated exit costs are comprised of employee involuntary termination benefits ($1,740), lease termination costs ($730), relocation activities ($1,017) and other post-closing maintenance costs ($1,203). 23 24 (9) CONTINGENCIES Symons was a defendant in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of their business. EFCO Corp. alleged that Symons engaged in false advertising, misappropriation of trade secrets, intentional interference with contractual relations, and certain other activities. After a jury trial, preliminary damages of approximately $14,000 were awarded against Symons in January 1999. In ruling on post-trial motions in April 1999, the Judge dismissed EFCO's claim of intentional interference with contractual relations, but increased the damages awarded to EFCO by $100 and enjoined both parties from engaging in certain conduct. Symons appealed the trial court's decision to the United States Court of Appeals for the Eighth Circuit. A three-judge panel issued its decision on July 18, 2000, affirming the district court's ruling in all respects. Accordingly, the Company recorded a $15,000 charge in the second quarter of 2001. On August 1, 2000, Symons filed a petition for a rehearing before the full court of appeals. The petition for a rehearing was denied by the court of appeals on September 20, 2000. In October 2000, Symons satisfied the judgment of $14,100, post-judgment interest of $1,134, and their defense costs of $107, by payment to EFCO from the Company's cash on hand and from the Company's revolving credit facility. Symons has made a claim to its primary and excess insurance carriers for "advertising injury" under its insurance policies to recover its defense costs and for indemnification of the false advertising and the misappropriation of trade secrets portions of the EFCO judgment. Royal Insurance Co., Symons' primary commercial general liability insurance carrier, filed a lawsuit against Symons in the Superior Court in San Francisco, California, on September 11, 2000, seeking a declaration from the court of its rights and obligations under its insurance policies for Symons' claim for defense and indemnification of the EFCO lawsuit. The complaint was amended by Royal in October 2000 by adding the Federal Insurance Company as an additional plaintiff. Symons filed a cross complaint against Royal and Federal in January 2001 and later amended the cross complaint by adding American International Surplus Lines Co., Westchester Fire Insurance Co., International Insurance Co., and Aon Risk Services of California, Inc. The Royal insurance policy provides $1,000 of primary insurance (subject to a self-insured retention) and the payment of defense costs. The excess insurance policies provide an additional $10,000 of coverage for each policy year. 24 25 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We believe we are the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction and of metal accessories used in masonry construction. Although almost all of our products are used in concrete or masonry construction, the function and nature of the products differ widely. As of June 29, 2001, we have three principal operating divisions, which are organized around the following product lines: - Concrete Accessories; - Concrete Forming Systems; and - Paving Products. ACQUISITIONS We have completed four acquisitions since the beginning of 2000. These acquisitions are summarized in the following table:
Purchase Price Date Business Acquired Division (In millions) ---- ----------------- -------- -------------- February 2000 Polytite Concrete Accessories $ 1.6 July 2000 Conspec Concrete Accessories 24.2 January 2001 Aztec Concrete Accessories 32.8 June 2001 AnconCCL Concrete Accessories 9.3*
*Subject to working capital adjustment 25 26 RESULTS OF OPERATIONS The following table summarizes the Company's results of operations as a percentage of net sales.
Three fiscal months ended Six fiscal months ended ------------------------- ----------------------- JUNE 29, JUNE 30, JUNE 29, JUNE 30, 2001 2000 2001 2000 -------- -------- -------- -------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 63.2 62.0 65.3 63.1 -------- -------- -------- -------- Gross profit 36.8 38.0 34.7 36.9 Selling, general and administrative expenses 22.6 23.2 26.1 26.2 Facility closing reserve 3.0 - 1.7 - Amortization of goodwill and intangibles 1.0 0.5 1.0 0.6 -------- -------- -------- -------- Income from operations 10.2 14.3 5.9 10.1 Interest expense, net 8.1 3.9 9.2 3.8 Non-recurring item-Lawsuit judgment - 15.3 - 8.6 -------- -------- -------- -------- Income (loss) before provision (benefit) for income taxes and extraordinary item 2.1 (4.9) (3.3) (2.3) Provision (benefit) for income taxes 1.0 (1.9) (1.6) (0.9) -------- -------- -------- -------- Income (loss) before extraordinary item 1.1 (3.0) (1.7) (1.4) Extraordinary item, net of income tax benefit - (4.9) - (2.8) -------- -------- -------- -------- Net income (loss) 1.1 (7.9) (1.7) (4.2) Dividends from Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit - (0.3) - (0.3) -------- -------- -------- -------- Net income (loss) available to common shareholders 1.1% (8.2%) (1.7%) (4.5%) ======== ======== ======== ========
COMPARISON OF THREE FISCAL MONTHS ENDED JUNE 29, 2001 AND JUNE 30, 2000 NET SALES Net sales increased $13.1 million, or 13.3%, to $111.1 million in the second quarter of 2001 from $98.0 million in the second quarter of 2000. The following table summarizes our net sales by segment:
Three fiscal months ended -------------------------------------------------------- June 29, 2001 June 30, 2000 --------------------- ----------------------- (In thousands) Net Sales % Net Sales % % Change --------- ------- --------- -------- -------- Concrete accessories $ 62,808 56.5% $ 53,277 54.4% 17.9% Concrete forming systems 36,978 33.3 35,371 36.1 4.5 Paving products 15,755 14.2 13,125 13.4 20.0 Intersegment eliminations (4,477) (4.0) (3,773) (3.9) 18.7 --------- ----- --------- ----- Net sales $ 111,064 100.0% $ 98,000 100.0% 13.3% ========= ===== ========= =====
26 27 Net sales of concrete accessories increased 17.9% to $62.8 million in the second quarter of 2001 from $53.3 million in the second quarter of 2000, primarily due to the acquisition of Aztec, which contributed $5.8 million, and the acquisition of Conspec, which contributed $6.4 million. This was partially offset by decreases in the existing business due to the Company's weaker markets in the second quarter of 2001 compared to 2000. Net sales of concrete forming systems increased 4.5% to $37.0 million for the second quarter of 2001 compared to $35.4 million in the second quarter of 2000, primarily due to increased volumes as a result of new marketing initiatives implemented in the second quarter of 2001. Net sales of paving products increased $2.6 million, or 20.0%, in the second quarter of 2001 compared to the second quarter of 2000 primarily due to an increase in volume as a result of the Transportation Equity Act for the 21st Century, known as TEA-21 and the increased presence in California with the construction of the new Modesto, California facility. GROSS PROFIT Gross profit for the second quarter of 2001 was $40.8 million, a 9.7% increase from $37.2 million in the second quarter of 2000, due to the increased net sales. Gross margin was 36.8% in the second quarter of 2001, decreasing from 38.0% in 2000 primarily due to a higher mix of lower gross margin paving products, a lower mix of higher gross margin concrete forming systems products and higher energy costs. OPERATING EXPENSES Selling, general, and administrative expenses increased to $25.1 million in the second quarter of 2001 from $22.7 million in the first quarter of 2000 as a result of recent acquisitions and inflation. SG&A expenses decreased as a percent of net sales to 22.6% in the second quarter of 2001 from 23.2% in the second quarter of 2000, due to certain cost reduction initiatives implemented by management in order to keep the Company's cost structure in alignment with its net sales. During the second quarter of 2001, the Company approved and began implementing plans to exit seven manufacturing and distribution facilities and to reduce overall Company headcount in order to keep its cost structure in alignment with its net sales. The total anticipated cost of the facility closures and severance is $4,690, and will encompass approximately 200 employee terminations. Of this amount, approximately $3,320 was expensed during the second quarter of 2001 and it is anticipated the remaining $1,370 will be expensed during the third and fourth quarters of 2001. At June 29, 2001, approximately $2,455 is included in "Other accrued liabilities" in the accompanying consolidated balance sheet. The total estimated exit costs are comprised of employee involuntary termination benefits ($1,740), lease termination costs ($730), relocation activities ($1,017) and other post-closing maintenance costs ($1,203). Amortization of goodwill and intangibles increased to $1.1 million in the second quarter of 2001 from $0.5 million in the second quarter of 2000 due to increased goodwill amortization resulting from the acquisitions of Conspec and Aztec. 27 28 OTHER EXPENSES Interest expense increased to $9.0 million in the second quarter of 2001 from $3.7 million in the second quarter of 2000 primarily due to increased long-term debt and higher interest rates resulting from the recapitalization. INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES AND EXTRAORDINARY ITEM Income before income taxes and extraordinary item in the second quarter of 2001 was $2.4 million as compared to a loss of $4.8 million in the second quarter of 2000 and was comprised of the following:
Three fiscal months ended ----------------------------- June 29, 2001 June 30, 2000 ------------- ------------- (In thousands) Concrete accessories $ 4,200 $ 8,555 Concrete forming systems 813 (11,050) Paving products 1,640 1,558 Corporate (1,650) (1,678) Intersegment eliminations (2,632) (2,207) ------- --------- Income (loss) before income taxes $ 2,371 $ (4,822) ======= =========
Concrete accessories' income before income taxes of $4.2 million in the second quarter of 2001 decreased from $8.6 million in the second quarter of 2000 due to higher interest expense of $2.0 million, and $2.9 million of facility closing and severance expenses recorded in the second quarter of 2001, offset by contributions from the recent acquisitions. Concrete forming systems' income (loss) before income taxes was $0.8 million in the second quarter of 2001 in comparison to ($11.1) million in the second quarter of 2000 due primarily to the lawsuit judgment. Without such judgment, concrete forming systems' income before income taxes would have decreased $3.1 million from the second quarter of 2000, primarily due to higher interest expense of $2.8 million, and $0.4 million of facility closing and severance expenses recorded in the second quarter of 2001. Income before income taxes from paving products was virtually flat between periods at $1.6 million, despite higher interest expense of $0.5 million, due to the higher net sales. Corporate expenses were virtually flat between periods at $1.7 million. Elimination of profit on intersegment sales was $2.6 million in the second quarter of 2001 compared to $2.2 million in the second quarter of 2000. 28 29 NET INCOME The effective tax rate increased to 47.5% in the second quarter of 2001 from 38.4% in the second quarter of 2000 primarily due to the permanent benefit of stock option exercises in the second quarter of 2000. Income (loss) before extraordinary item for the second quarter of 2001 was $1.2 million compared to a loss of $3.0 million in the second quarter of 2000 due to the factors described above. As described in footnote 2 to the consolidated financial statements, the Company's recapitalization resulted in an extraordinary loss of $4.8 million in the second quarter of 2000. COMPARISON OF SIX FISCAL MONTHS ENDED JUNE 29, 2001 AND JUNE 30, 2000 NET SALES Net sales increased $19.9 million, or 11.4%, to $194.4 million in the first half of 2001 from $174.5 million in the first half of 2000. The following table summarizes our net sales by segment:
Six fiscal months ended ---------------------------------------- June 29, 2001 June 30, 2000 ------------------ ------------------ (In thousands) Net Sales % Net Sales % % Change --------- ------ --------- ------ -------- Concrete accessories $112,455 57.8% $ 97,023 55.6% 15.9% Concrete forming systems 63,237 32.5 63,632 36.5 (0.6) Paving products 26,019 13.4 21,079 12.1 23.4 Intersegment eliminations (7,290) (3.7) (7,229) (4.2) 0.8 -------- ----- -------- ----- ---- Net sales $194,421 100.0% $174,505 100.0% 11.4% ======== ===== ======== ===== ====
Net sales of concrete accessories increased 15.9% to $112.5 million in the first half of 2001 from $97.0 million in the first half of 2000, due to the acquisitions of Aztec, which contributed $10.6 million, and Conspec, which contributed $10.6 million. This was partially offset by decreases in the existing business due to the harsh winter weather experienced in the first quarter of 2001 and the Company's weaker markets in the first half of 2001 compared to 2000. Net sales of concrete forming systems were $63.2 million for the first half of 2001 compared to $63.6 million in the first half of 2000 primarily due the harsh winter weather experienced in the first quarter of 2001 and the Company's weaker markets in the first half of 2001 compared to 2000, partially offset by additional sales volumes as a result of new marketing initiatives implemented in the second quarter of 2001. Net sales of paving products increased $4.9 million, or 23.4%, in the first half of 2001 compared to the first half of 2000 due to an increase in volume as a result of the Transportation Equity Act for the 21st Century, known as TEA-21 and the increased presence in California with the construction of the new Modesto, California facility. 29 30 GROSS PROFIT Gross profit for the first half of 2001 was $67.5 million, a 4.8% decrease from $64.4 million in the first half of 2000, due primarily to the change in accounting estimate relating to the depreciable lives of a portion of the rental fleet, which reduced gross profit by approximately $2.3 million for the six fiscal months ended June 29, 2001. Gross margin was 34.7% in the first half of this year, decreasing from 36.9% last year. Excluding the change in accounting estimate, gross margin was 35.9% in the first half of 2001. The remaining decrease from the first half of 2000 was due to a higher mix of lower gross margin paving products, a lower mix of higher gross margin concrete forming systems products, and higher energy costs. OPERATING EXPENSES SG&A expenses increased $5.1 million to $50.8 million in the first half of 2001 from $45.6 million in the first half of 2000, as a result of recent acquisitions and inflation. SG&A expenses decreased as a percent of net sales to 26.1% in the first half of 2001 from 26.2% in the first half of 2000, due to certain cost reduction initiatives implemented by management in order to keep the Company's cost structure in alignment with its net sales. During the second quarter of 2001, the Company approved and began implementing plans to exit seven manufacturing and distribution facilities and to reduce overall Company headcount in order to keep its cost structure in alignment with its net sales. The total anticipated cost of the facility closures and severance is $4,690, and will encompass approximately 200 employee terminations. Of this amount, approximately $3,320 was expensed during the second quarter of 2001 and it is anticipated the remaining $1,370 will be expensed during the third and fourth quarters of 2001. At June 29, 2001, approximately $2,455 is included in "Other accrued liabilities" in the accompanying consolidated balance sheet. The total estimated exit costs are comprised of employee involuntary termination benefits ($1,740), lease termination costs ($730), relocation activities ($1,017) and other post-closing maintenance costs ($1,203). Amortization of goodwill and intangibles increased to $2.0 million in the first half of 2001 from $1.1 million in the first half of 2000 due to increased goodwill amortization resulting from the acquisitions of Conspec and Aztec. OTHER EXPENSES Interest expense increased to $17.7 million in the first half of 2001 from $6.5 million in the first half of 2000 primarily due to increased long-term debt and higher interest rates resulting from the recapitalization. Symons was defendant in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of their business. EFCO Corp. alleged that Symons engaged in false advertising, misappropriation of trade secrets, intentional interference with contractual relations, and certain other activities. After a jury trial, preliminary damages of approximately $14,000 were awarded against Symons in January 1999. In ruling on post-trial motions in April 1999, the Judge dismissed EFCO's claim of intentional interference with contractual relations, but increased the damages awarded to EFCO by $100 and enjoined both parties from engaging in certain conduct. Symons appealed the trial court's decision to the United States Court of Appeals for the Eighth Circuit. A three-judge panel issued its decision on July 18, 2000, affirming the district court's ruling in all respects. Accordingly, the Company recorded a $15.0 30 31 million charge in the second quarter of 2001. On August 1, 2000, Symons filed a petition for a rehearing before the full court of appeals. The petition for a rehearing was denied by the court of appeals on September 20, 2000. In October 2000, Symons satisfied the judgment of $14,100, post-judgment interest of $1,134, and their defense costs of $107, by payment to EFCO from the Company's cash on hand and from the Company's revolving credit facility. Symons has made a claim to its primary and excess insurance carriers for "advertising injury" under its insurance policies to recover its defense costs and for indemnification of the false advertising and the misappropriation of trade secrets portions of the EFCO judgment. Royal Insurance Co., Symons' primary commercial general liability insurance carrier, filed a lawsuit against Symons in the Superior Court in San Francisco, California, on September 11, 2000, seeking a declaration from the court of its rights and obligations under its insurance policies for Symons' claim for defense and indemnification of the EFCO lawsuit. The complaint was amended by Royal in October 2000 by adding the Federal Insurance Company as an additional plaintiff. Symons filed a cross complaint against Royal and Federal in January 2001 and later amended the cross complaint by adding American International Surplus Lines Co., Westchester Fire Insurance Co., International Insurance Co., and Aon Risk Services of California, Inc. The Royal insurance policy provides $1,000 of primary insurance (subject to a self-insured retention) and the payment of defense costs. The excess insurance policies provide an additional $10,000 of coverage for each policy year. INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM The loss before income taxes and extraordinary item in the first half of 2001 was $6.4 million as compared to a loss of $4.0 million in the first half of 2000 and was comprised of the following:
Six fiscal months ended ------------------------------- June 29, 2001 June 30, 2000 ------------- ------------- (In thousands) Concrete accessories $ 5,393 $ 12,305 Concrete forming systems (5,845) (10,641) Paving products 1,308 1,410 Corporate (3,238) (3,161) Intersegment eliminations (3,992) (3,882) ---------- --------- Loss before income taxes $ (6,374) $ (3,969) ========== =========
31 32 Concrete accessories' income before income taxes of $5.4 million in the first half of 2001 decreased from $12.3 million in the first half of 2000 due to higher interest expense of $4.2 million and $2.9 million facility closing and severance expenses recorded in the first half of 2001. Concrete forming systems' loss before income taxes was ($5.8) million in the first half of 2001 compared to ($10.6) million in the first half of 2000. The first half of 2001 included a $2.3 million charge for a change in accounting estimate. The first half of 2000 included a $15.0 million non-recurring lawsuit judgment. Excluding these items, the income (loss) before income taxes from concrete forming systems was ($3.5) million in the first half of 2001 versus $4.4 million in the first half of 2000 due to higher interest expense of $6.1 million, facility closing and severance expense of $0.4 million and higher operating costs, such as energy. Income before income taxes from paving products decreased to $1.3 million in the first half of 2001 from $1.4 million in the first half of 2000 due to higher interest expense of $1.0 million, offset partially by the increased sales volumes as a result of increased TEA-21 spending. Corporate expenses were virtually flat between periods at $3.2 million. Elimination of profit on intersegment sales was $4.0 million in the first half of 2001 as compared to $3.9 million in the first half of 2000. NET INCOME The effective tax rate increased to 47.5% in the first half of 2001 from 37.0% in the first half of 2000 primarily due to the permanent benefit of stock option exercises in 2000. The loss before extraordinary item for the first half of 2001 was ($3.3) million compared to ($2.5) million in the first half of 2000 due to the factors described above. As described in footnote 2 to the consolidated financial statements, the Company's recapitalization resulted in an extraordinary loss of $4.8 million in the first half of 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's key statistics for measuring liquidity and capital resources are net cash provided by operating activities, capital expenditures, amounts available under our revolving credit facility and cash gap. Cash gap is defined as the number of days of outstanding accounts receivable, plus the number of days of inventory on hand, less the number of days of outstanding accounts payable. The Company's capital requirements relate primarily to capital expenditures, debt service and the cost of acquisitions. Historically, the Company's primary sources of financing have been cash from operations, borrowings under its credit facility and the issuance of long-term debt and equity. 32 33 Net cash used in operating activities in the first half of 2001 was $11.7 million and was comprised of the following: - ($3.3) million of net loss, - $7.0 million of net non-cash reductions to net income, and - ($15.4) million of normal seasonal working capital growth. The Company invested in the following: - $6.8 million in net capital expenditures and - $40.2 million of acquisitions. In May 2001, the Company increased its borrowings on the Term Loan Tranche B by $45.0 million. The proceeds from this issuance, net of financing costs of approximately $0.7 million, were used to repay the outstanding balance on the acquisition credit facility of $24.0. The remaining $20.3 million was used to pay down existing debt on the Company's revolving credit facility. As of June 29, 2001, the Company had long-term debt of: (a) $170.0 million in principal amount of Senior Subordinated Notes, with a net book value of $158.3 million, (b) $137.6 million outstanding of a $202.0 million new credit facility, which consists of a $50.0 million revolving credit facility, a $30.0 million acquisition facility, a $23.5 million term loan under the delayed-draw tranche A facility and a $98.5 million term loan under the tranche B facility, (c) $1.2 million of debentures previously held by the Dayton Superior Capital Trust, (d) $5.0 million to one of the former stockholders of Symons Corporation, and (e) $0.1 million to the City of Parsons, Kansas. At June 29, 2001, of the $50.0 million revolving credit facility that was available, $7.7 million of borrowings were outstanding. Approximately $9.2 million of the $30.0 million acquisition facility had been drawn, and $22.2 million of the delayed-draw tranche A facility had been drawn. All of the $98.5 million tranche B facility was outstanding. At June 29, 2001, working capital was $75.3 million, compared to $60.9 million at December 31, 2000. The increase in working capital is attributable to normal seasonal working capital growth and the acquisitions of Aztec and Ancon. For the first half of 2001 the Company's average cash gap days were 56, an improvement of 10 days from 66 days in the first half of 2000 due to the Company's continued focus on working capital management. The Company believes its liquidity, capital resources and cash flows from operations are sufficient to fund planned capital expenditures, working capital requirements and debt service in the absence of additional acquisitions. The Company intends to fund future acquisitions with cash, securities, or a combination of cash and securities. To the extent the Company uses cash for all or part of any acquisitions, the Company expects to raise such cash from operations or from borrowings under the new credit facility, or, if feasible and attractive, issuances of long-term debt or additional common shares. 33 34 SEASONALITY The Company's operations are seasonal in nature with approximately 60% of sales historically occurring in the second and third quarters. Working capital and borrowings fluctuate with sales volume. INFLATION The Company does not believe inflation had a significant impact on its operations over the past two years. In the past, the Company has been able to pass along all or a portion of the effects of increases in the price of steel, its principal raw material. There can be no assurance the Company will be able to continue to pass on the cost of such increases in the future. FORWARD-LOOKING STATEMENTS This Form 10-Q includes, and future filings by the Company on Form 10-K, Form 10-Q, and Form 8-K, and future oral and written statements by the Company and its 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 the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. The Company disclaims 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 the Company and its 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 the Company's control such as weakness in the general economy, a decrease in governmental spending, interest rate increases, and changes in banking and tax laws; an unsuccessful outcome in the Company's legal proceedings and disputes; the Company's ability to successfully identify, finance, complete and integrate acquisitions; increases in the price of steel (the principal raw material in the Company's products) and the Company's ability to pass along such price increases to its customers; and the effects of weather and seasonality on the construction industry; increasing consolidation of the Company's customers; the mix of products the Company sells; the competitive nature of the Company's industry; and the amount of debt we must service. This list is not intended to be exhaustive. 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 the Company's future business. 34 35 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. At June 29, 2001, the Company had financial instruments that were sensitive to changes in interest rates. These financial instruments consist of $170.0 million of principal amount of fixed rate Senior Subordinated Notes, with a book value of $158.3 million, a $202.0 million credit facility, of which $137.6 million was outstanding, and $6.3 million in other fixed-rate, long-term debt. The Senior Subordinated Notes bear interest at 13.0% on the $170.0 million of principal and mature in 2009. The estimated fair value of the notes is $173.4 million. The credit facility has several interest rate options which re-price on a short-term basis. Accordingly, the fair value of the credit facility approximates its $137.6 million face value. The weighted average interest rates at June 29, 2001 range from 6.3% to 7.5%. Other long-term debt consists of a.) a $5.0 million, 10.5% note payable due in 2004 with an estimated fair value of $5.5 million, b.) $1.2 million of debentures previously held by the Dayton Superior Capital Trust, bearing interest at 9.1%, with a fair value of $1.5 million and c.) a $0.1 million, 7.0% loan due in installments of $32 thousand per year with an estimated fair value of $0.1 million. Management does not believe there will be any significant changes in interest rates in the near future. However, no assurances can be given that economic conditions or interest rates will remain stable for any particular period. In the ordinary course of its business, the Company also is exposed to price changes in raw materials (particularly steel bar and rod and steel flat plate) and products purchased for resale. The prices of these items can change significantly due to changes in the markets in which the Company's suppliers operate. The Company generally does not use financial instruments to manage its exposure to changes in commodity prices. 35 36 PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Refer to "Other Expenses" in Item 2 of Part I, "Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On June 4, 2001, the Company sold a total of 21,818 of its Common Shares to two executives who were hired effective on that date for a total purchase price of $599,995 payable in cash, which was financed by a loan to each of the executives from the Company. The shares were issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. See Index to Exhibit following the signature page to this report for a list of Exhibits. (b) Reports on Form 8-K. During the quarter ended June 29, 2001, the Company did not file any Current Reports on Form 8-K. 36 37 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DAYTON SUPERIOR CORPORATION DATE: August 13, 2001 BY: /s/ Alan F. McIlroy --------------- ----------------------------------- Alan F. McIlroy Chief Financial Officer 37 38 INDEX TO EXHIBITS Exhibit No. Description (10) Material Contracts 10.1 Consent dated as of May 24, 2001, among Dayton Superior Corporation, the lenders party to the Credit Agreement dated as of June 16, 2000 and Bankers Trust Company, as administrative agent 38