-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I+3sycfZqPJr8w37Nmrn9CYISJtNDgc3NOfcOZiE6F/M0ZW9XP9kPVPRs6Vqitrd ahzySegvx2cCQQzUFBQnGw== 0000950152-03-010228.txt : 20031210 0000950152-03-010228.hdr.sgml : 20031210 20031210165329 ACCESSION NUMBER: 0000950152-03-010228 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20031210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAYTON SUPERIOR CORP CENTRAL INDEX KEY: 0000854709 STANDARD INDUSTRIAL CLASSIFICATION: STEEL PIPE & TUBES [3317] IRS NUMBER: 310676346 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11781 FILM NUMBER: 031047798 BUSINESS ADDRESS: STREET 1: 7777 WASHINGTON VILLAGE DRIVE STREET 2: SUITE 130 CITY: DAYTON STATE: OH ZIP: 45459 BUSINESS PHONE: 9374287172 MAIL ADDRESS: STREET 1: 7777 WASHINGTON VILLAGE DRIVE STREET 2: SUITE 130 CITY: DAYTON STATE: OH ZIP: 45459 10-K/A 1 l04514ae10vkza.txt DAYTON SUPERIOR CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-11781 DAYTON SUPERIOR CORPORATION (Exact name of registrant as specified in its charter) Ohio 31-0676346 (State of incorporation) (I.R.S. Employer Identification No.) 7777 Washington Village Dr. Suite 130 Dayton, Ohio 45459 (Address of principal executive office) Registrant's telephone number, including area code: (937) 428-6360 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Junior Subordinated Debentures Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] As of December 1, 2003, there were 4,554,269 common shares outstanding, all of which were privately held and not traded on a public market. As of December 1, 2003, none of the outstanding shares were held by non-affiliates. PART I. SUMMARY OF ISSUE REQUIRING FORM 10-K/A We are amending our Form 10-K for the year ended December 31, 2002 in order to properly reflect the adoption of EITF 00-10, "Accounting for Shipping and Handling Revenue and Costs," and to modify certain disclosures in our 10-K to reflect certain charges in the way we describe our business and certain subsequent events. EITF 00-10 was required to be adopted in the year ended December 31, 2000. As a result of adopting EITF 00-10, the Company's December 31, 2002, 2001 and 2000 net sales and cost of sales each increased by $20,453, $21,791, and $19,223, respectively, to reflect the inclusion of shipping revenues and costs, but there was no effect on previously reported gross profit, income from operations, net income (loss), cash flows or financial position. As a result of the restatement, the financial statements as of December 31, 2001 and for each of the two years ended December 31, 2001 were audited by Deloitte & Touche LLP.
December 31, 2002 December 31, 2001 December 31, 2000 ------------------------- ------------------------- ------------------------- As Reported As Restated As Reported As Restated As Reported As Restated ----------- ----------- ----------- ----------- ----------- ----------- Net Sales $378,284 $398,737 $393,700 $415,491 $367,845 $387,068 Cost of Sales 249,408 269,861 254,430 276,221 229,523 248,746 -------- -------- -------- -------- -------- -------- Gross Profit $128,876 $128,876 $139,270 $139,270 $138,322 $138,322 ======== ======== ======== ======== ======== ========
2 In this Annual Report on Form 10-K/A, unless otherwise noted, the terms "Dayton Superior," "we," "us" and "our" refer to Dayton Superior Corporation and its subsidiaries. ITEM 1. BUSINESS. AVAILABLE INFORMATION The Company files annual, quarterly, and current reports, and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934. The public may read and copy any materials that the Company files with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC. The public can obtain any documents that the Company files with the SEC at http://www.sec.gov. GENERAL We believe we are the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction and a leading manufacturer of metal accessories used in masonry construction in terms of revenues. In many of our product lines, we believe we are the market leader in terms of revenues and lowest cost manufacturer competing primarily in two segments of the construction industry: infrastructure construction, such as highways, bridges, utilities, water and waste treatment facilities and airport runways, and non-residential building, such as schools, stadiums, prisons, retail sites, commercial offices, hotels and manufacturing facilities. For the year ended December 31, 2002 our net sales were $398.7 million and our net losses were $20.3 million. Our net sales were $278.5 million in the nine month period ended September 26, 2003 and our net losses were $12.2 million in the nine month period ended September 26, 2003. We derive our revenue from a mix of sales of consumable products (accessories, chemicals, etc.) and the sale and rental of engineered concrete forming equipment. Through our network of 48 service/ distribution centers, we serve over 7,000 customers, comprised of independent distributors and a broad array of pre-cast concrete manufacturers, general contractors, subcontractors and metal fabricators. We sell most of our 20,000 products under well established, industry recognized brand names and manufacture the vast majority of these products "in-house." We believe that the breadth of our product offerings and national distribution network allow us to service the largest customer base in the industry by providing a "one-stop" alternative to our customers. We believe that none of our competitors can match our combination of product breadth and national reach. In addition, our nationwide customer base enables us to efficiently cross-sell our products and provides us with a platform from which we can broadly distribute newly developed and acquired product lines. Finally, our national customer base provides us with geographically dispersed sales, which can mitigate the effects of regional economic downturns. In an effort to reduce costs and enhance customer responsiveness, effective January 1, 2003 we reorganized our company from six autonomous manufacturing and sales divisions into two sales units ("CPG" and Symons) and a new product fulfillment unit (Supply Chain). CPG and Symons are primarily responsible for sales, customer service and new product development. As part of this effort, we reorganized most of our manufacturing and distribution operations into our Supply Chain unit, which manufactures and distributes our products in support of CPG and Symons. 3 CONSTRUCTION PRODUCTS GROUP In terms of revenues, we believe that CPG is the leading North American supplier of: - - CONCRETE ACCESSORIES, which are used for connecting forms for poured-in-place concrete walls, anchoring or bracing for walls and floors, supporting bridge framework and positioning steel reinforcing bars; and - - WELDED DOWEL ASSEMBLIES, which are paving products used in the construction and rehabilitation of concrete roads, highways and airport runways to extend the life of the pavement. In addition, CPG supplies: - - MASONRY PRODUCTS, which are placed between layers of brick and concrete blocks and covered with mortar to provide additional strength to walls; and - - CHEMICALS, which can be used in conjunction with our construction products for various purposes including form release, bond breakers, curing compounds, liquid hardeners, sealers, water repellents, bonding agents, grouts and other uses related to the pouring and placement of concrete. For the year ended December 31, 2002 CPG had sales of $274.1 million (net of intercompany sales), or 68.7% of our total consolidated net sales. For the nine month period ended September 26, 2003, CPG had $193.7 million (net of intercompany sales), or 70% of our total consolidated net sales. SYMONS We believe we are the leading North American manufacturer of concrete forming systems in terms of revenues, which are reusable, engineered forms and related accessories used in the construction of concrete walls, columns and bridge supports to hold concrete in place while it hardens. Symons both rents and sells its forms through a network of 17 company-operated distribution centers and through numerous third party distributors, some of whom also purchase accessories and chemicals from CPG. Sales of concrete forming systems and related accessories represented approximately 68% and rental revenue represented approximately 32% of Symons' total net sales in 2002. Symons had sales of $124.6 million (net of intercompany sales), or 31.3% of our total consolidated net sales in 2002. Symons had $84.8 million (net of intercompany sales), or 30% of our total consolidated net sales, in the nine moth period ended September 26, 2003. PRODUCTS Although almost all of our products are used in concrete or masonry construction, the function and nature of the products differ widely. Most of our products are consumable, providing us with a source of recurring revenue. In addition, while our products represent a relatively small portion of a construction project's total cost, our products assist in ensuring the on-time, quality completion of those projects. We continually attempt to increase the number of products we offer by using engineers and product development teams to introduce new products and refine existing products. CPG. CPG manufactures and sells concrete accessories primarily under the Dayton/Richmond(R), Aztec(R) and BarLock(R) brand names, masonry products primarily under the Dur-O-Wal(R) brand name and paving products primarily under the American Highway Technology(R) name, but we also offer some paving products under the Dayton/Richmond(R) name. CPG PRODUCTS INCLUDE: 4 - - WALL-FORMING PRODUCTS. Wall-forming products include shaped metal ties and accessories that are used with modular forms to hold concrete in place when walls are poured at a construction site or are prefabricated off site. These products, which generally are not reusable, are made of wire or plastic or a combination of both materials. We generally manufacture these products on customized high-speed automatic equipment. - - BRIDGE DECK PRODUCTS. Bridge deck products are metal assemblies of varying designs used to support the formwork used by contractors in the construction and rehabilitation of bridges. - - BAR SUPPORTS. Bar supports are non-structural steel, plastic, or cementitious supports used to position rebar within a horizontal slab or form to be filled with concrete. Metal bar supports are often plastic or epoxy coated, galvanized or equipped with plastic tips to prevent creating a conduit for corrosion of the embedded rebar. - - SPLICING PRODUCTS. Splicing products are used to join two pieces of rebar together while at a construction site without the need for extensive preparation of the rebar ends. - - PRECAST AND PRESTRESSED CONCRETE CONSTRUCTION PRODUCTS. Precast and prestressed concrete construction products are metal assemblies of varying designs used in the manufacture of precast concrete panels and prestressed concrete beams and structural members. Precast concrete panels and prestressed concrete beams are fabricated away from the construction site and transported to the site. Precast concrete panels are used in the construction of prisons, freeway sound barrier walls, external building facades and other similar applications. Prestressed concrete beams use multiple strands of steel cable under tension embedded in concrete beams to provide rigidity and bearing strength, and often are used in the construction of bridges, parking garages and other applications where long, unsupported spans are required. - - TILT-UP CONSTRUCTION PRODUCTS. Tilt-up construction products include a complete line of inserts, lifting hardware and adjustable beams used in the tilt-up method of construction, in which the concrete floor slab is used as part of a form for casting the walls of a building. After the cast walls have hardened on the floor slab, a crane is used to "tilt-up" the walls, which then are braced in place until they are secured to the rest of the structure. Tilt-up construction generally is considered to be a faster method of constructing low-rise buildings than conventional poured-in-place concrete construction. Some of our tilt-up construction products can be rented as well as sold. - - FORMLINER PRODUCTS. Formliner products include plastic and elastomeric products that adhere to the inside face of forms to provide shape to the surface of the concrete. - - CHEMICAL PRODUCTS. Chemical products sold by CPG include a broad spectrum of chemicals for use in concrete construction, including form release agents, bond breakers, curing compounds, liquid hardeners, sealers, water repellents, bonding agents, grouts and epoxies, and other chemicals used in the pouring and placement of concrete and curing compounds used in concrete road construction. - - MASONRY PRODUCTS. Masonry products are wire products sold under the Dur-O-Wal_ name that improve the performance and longevity of masonry walls by providing crack control, greater elasticity and higher strength to withstand seismic shocks and better resistance to rain penetration. - - WELDED DOWEL ASSEMBLIES. Welded dowel assemblies are used to transfer dynamic loads between two adjacent slabs of concrete roadway. Metal dowels are part of a dowel basket design that is imbedded in two adjacent slabs to transfer the weight of vehicles as they move over a road. - - CORROSIVE-PREVENTING EPOXY COATINGS. Corrosive-preventing epoxy coatings are used for infrastructure construction products and a wide range of industrial and construction uses. 5 SYMONS. Symons manufactures, sells and rents reusable modular concrete forming systems primarily under the Symons(R) name. SYMONS PRODUCTS INCLUDE: - - CONCRETE FORMING SYSTEMS. Concrete forming systems are reusable, engineered modular forms which hold liquid concrete in place on concrete construction jobs while it hardens. Standard forming systems are made of steel and plywood and are used in the creation of concrete walls and columns. Specialty forming systems consist primarily of steel forms that are designed to meet architects' specific needs for concrete placements. Both standard and specialty forming systems and related accessories are sold and rented for use. - - SHORING SYSTEMS. Shoring systems, including aluminum beams and joists, post shores and shoring frames are used to support deck and other raised forms while concrete is being poured. - - ARCHITECTURAL PAVING PRODUCTS. Architectural paving products are used to apply decorative texture and coloration to concrete surfaces while concrete is being poured. - - CONSTRUCTION CHEMICALS. Construction chemicals sold by the Symons business unit include form release agents, sealers, water repellents, grouts and epoxies and other chemicals used in the pouring, stamping and placement of concrete. MANUFACTURING We manufacture the substantial majority of the products we sell. As part of our reorganization effective January 1, 2003, we reorganized most of our manufacturing and distribution operations into Supply Chain, our new product fulfillment unit, which manufactures and distributes our products in support of CPG and Symons. CPG obtains the majority of the products it sells from the Supply Chain group and manufactures its chemicals product line. Symons obtains Steel-Ply(R) forms from the Supply Chain unit and manufactures and assembles or outsources some of the manufacturing involved in some of the other all-steel forms. Most of our CPG products are manufactured in 18 facilities throughout the United States. Our production volumes enable us to design and build or custom modify much of the equipment we use to manufacture these products, using a team of experienced manufacturing engineers and tool and die makers. By developing our own automatic high-speed manufacturing equipment, we believe we generally have achieved significantly greater productivity, lower capital equipment costs, lower scrap rates, higher product quality, faster changeover times, and lower inventory levels than most of our competitors. In addition, our ability to "hot-dip" galvanize masonry products provides us with an advantage over many competitors' manufacturing masonry wall reinforcement products, which lack this internal capability. We also have a flexible manufacturing setup and can make the same products at several locations using short and discrete manufacturing lines. We manufacture our Symons concrete forming systems at two facilities in the United States. These facilities incorporate semi-automated and automated production lines, heavy metal presses, forging equipment, stamping equipment, robotic welding machines, drills, punches, and other heavy machinery typical for this type of manufacturing operation. We currently have plans in place to move a significant percentage of our annual production requirements to Reynosa, Mexico. We believe that by relocating a portion of our manufacturing to Mexico, we will realize approximately $5 million in savings 6 annually. We also intend to outsource some of our production requirements to lower cost foreign producers, which we believe will generate significant additional savings. DISTRIBUTION We distribute our products through over 3,500 independent distributors, and our own network of 48 service/distribution centers located in the United States and Canada. We have 26 distribution centers dedicated to our Construction Products Group business unit and 22 distribution centers dedicated to our Symons business unit. Some locations carry more than one of our product lines. We ship most of our products to our service/distribution centers from our manufacturing plants; however, a majority of our centers also are able to produce smaller batches of some products on an as-needed basis to fill rush orders. We have an on-line inventory tracking system for our Construction Products Group, which enables our customer service representatives to identify, reserve and ship inventory quickly from any of our locations in response to telephone orders. SALES AND MARKETING We employed approximately 300 sales and marketing personnel at December 31, 2002 and 265 sales and marketing personnel at September 26, 2003, of whom approximately two thirds were field sales people and one third were customer service representatives. Sales and marketing personnel are located in all of our service/distribution centers. We produce product catalogs and promotional materials that illustrate certain construction techniques in which our products can be used to solve typical construction problems. We promote our products through seminars and other customer education efforts and work directly with architects and engineers to secure the use of our products whenever possible. We consider our engineers to be an integral part of the sales and marketing effort. Our engineers have developed proprietary software applications to conduct extensive pre-testing on both new products and construction projects. CUSTOMERS We have over 7,000 customers, of which approximately 50% purchase our products for resale. Our customer base is geographically diverse, with no customer accounting for more than 10% of net sales in 2002 or the first nine months of 2003. CPG. CPG has approximately 4,000 customers, consisting of distributors, rebar fabricators, precast and prestressed concrete manufacturers, brick and concrete block manufacturers, general contractors and sub-contractors. We estimate that approximately 85% of the customers of this business unit purchase our products for resale. The largest customer of the business unit accounted for approximately 4% of the business unit's 2002 net sales. CPG has instituted a certified dealer program for those dealers who handle our tilt-up construction products. This program was established to educate dealers in the proper use of our tilt-up products and to assist them in providing engineering assistance to their customers. Certified dealers are not permitted to carry other manufacturers' tilt-up products, which we believe are incompatible with ours and, for that reason, could be unsafe if used with our products. The business unit currently has 98 certified tilt-up construction product dealers. 7 SYMONS. Symons has approximately 3,000 customers, consisting of distributors, precast and prestressed concrete manufacturers, general contractors and subcontractors. We estimate that approximately 90% of the customers of this business unit are the end-users of its products, while approximately 10% of those customers purchase its products for resale or re-rent. This business unit's largest customer accounted for 9% of the business unit's 2002 net sales. RAW MATERIALS Our principal raw materials are steel wire rod, steel hot rolled bar, metal stampings and flat steel, aluminum sheets and extrusions, plywood, cement and cementitious ingredients, liquid chemicals, zinc, plastic resins and injection-molded plastic parts. We currently purchase materials from over 2,000 vendors and are not dependent on any single vendor or small group of vendors for any significant portion of our raw material purchases. Steel, in its various forms, constitutes approximately 25% of our cost of sales. COMPETITION Our industry is highly competitive in most product categories and geographic regions. We compete with a limited number of full-line national manufacturers of concrete accessories, concrete forming systems and paving products, and a much larger number of regional manufacturers and manufacturers with limited product lines. We believe competition in our industry is largely based on, among other things, price, quality, breadth of product lines, distribution capabilities (including quick delivery times) and customer service. Due primarily to factors such as freight rates, quick delivery times and customer preference for local suppliers, some local or regional manufacturers and suppliers may have a competitive advantage over us in a given region. We believe the size, breadth and quality of our product lines provide us with advantages of scale in both distribution and production relative to our competitors. TRADEMARKS AND PATENTS We sell most products under the registered trade names Dayton Superior(R), Dayton/Richmond(R), Symons(R), Aztec(R), BarLock(R), Conspec(R), Edoco(R), Dur-O-Wal(R) and American Highway Technology(R), which we believe are widely recognized in the construction industry and, therefore, are important to our business. Although some of our products (and components of some products) are protected by patents, we do not believe these patents are material to our business. We have 205 trademarks and 140 patents. EMPLOYEES As of December 31, 2002, we employed approximately 700 salaried and 1,200 hourly personnel, of whom approximately 600 of the hourly personnel and four of the salaried personnel are represented by labor unions. As of September 26, 2003, we employed approximately 675 salaried and 1,250 hourly personnel, of whom approximately 825 of the hourly personnel and six of the salaried personnel are represented by labor unions. Employees at our Miamisburg, Ohio; Parsons, Kansas; Des Plaines, Illinois; New Braunfels, Texas; Tremont, Pennsylvania; Long Beach, California; and Aurora, Illinois manufacturing/ distribution plants and our service/distribution center in Atlanta, Georgia are covered by collective bargaining agreements. We believe we have good employee and labor relations. SEASONALITY Our operations are seasonal in nature, with approximately 55% of our sales historically occurring in the second and third quarters. Working capital and borrowings fluctuate with sales volume. 8 BACKLOG We typically ship most of our products, other than paving products and most specialty forming systems, within one week and often within 24 hours after we receive the order. Other product lines, including paving products and specialty forming systems, may be shipped up to six months after we receive the order, depending on our customer's needs. Accordingly, we do not maintain significant backlog, and backlog as of any particular date has not been representative of our actual sales for any succeeding period. 9 Item 2. Properties. Our corporate headquarters are located in leased facilities in Dayton, Ohio. We believe our facilities provide adequate manufacturing and distribution capacity for our needs. We also believe all of the leases were entered into on market terms. Our other principal facilities are located throughout North America, as follows:
Lease Leased/ Size Expiration Location Use Principal Business Unit Owned (Sq. Ft.) Date - --------------------- -------------------------- --------------------------- ------- ------- ----------- Birmingham, Alabama Manufacturing/Distribution Construction Products Group Leased 285,000 12/12/ 2021 Des Plaines, Illinois Manufacturing/Distribution Symons Owned 171,650 Miamisburg, Ohio Manufacturing/Distribution Construction Products Group Owned 126,000 Parsons, Kansas Manufacturing/Distribution Construction Products Group Owned 98,250 Aurora, Illinois Manufacturing/Distribution Construction Products Group Owned 109,000 Kankakee, Illinois Manufacturing/Distribution Construction Products Group Leased 107,900 12/31/2007 Tremont, Pennsylvania Manufacturing/Distribution Construction Products Group Owned 86,000 New Braunfels, Texas Manufacturing/Distribution Symons Owned 89,600 Fontana, California Manufacturing/Distribution Construction Products Group Leased 114,275 12/31/2007 Parker, Arizona Manufacturing/Distribution Construction Products Group Leased 60,000 12/31/2003 Modesto, California Manufacturing/Distribution Construction Products Group Leased 55,000 12/31/2007 Reynoso, Mexico Manufacturing/Distribution Construction Products Group Owned 110,500 07/16/2006 Atlanta, Georgia Service/Distribution Construction Products Group Leased 49,392 08/31/2006 Grand Prairie, Texas Service/Distribution Construction Products Group Leased 45,000 12/31/2004 Seattle, Washington Service/Distribution Construction Products Group Leased 40,640 06/30/2006 Toronto, Ontario Manufacturing/Distribution Construction Products Group Leased 45,661 01/31/2005 Oregon, Illinois Service/Distribution Construction Products Group Owned 39,000 Kansas City, Kansas Manufacturing/Distribution Construction Products Group Owned 33,000 Folcroft, Pennsylvania Service/Distribution Construction Products Group Owned 32,000
ITEM 3. LEGAL PROCEEDINGS. During the ordinary course of our business, we are from time to time threatened with, or may become a party to, legal actions and other proceedings. While we are currently involved in various legal proceedings, we believe the results of these proceedings will not have a material effect on our business, financial condition or results of operations. We believe that our potential exposure to these legal actions is adequately covered by product and general liability insurance, and, in some instances, by indemnification arrangements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. There is no established public trading market for our common shares. As of December 31, 2002, there were 29 holders of our common shares. On October 29, 2002, we sold 2,000 Common Shares to Dennis Haggerty at an aggregate purchase price of $55,000 ($27.50 per share) in connection with the employment of Mr. Haggerty as our Vice President of Supply Chain Management. 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. 10 ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth selected historical consolidated financial information as of and for each of the years in the five-year period ended December 31, 2002. The selected historical financial information as of December 31, 1998, 1999, and 2000, and for the each of the two years ended December 31, 1999 has been derived from our consolidated financial statements, which were audited by Arthur Andersen LLP, our former independent public accountants. The selected historical financial information as of December 31, 2001 and 2002, and for each of the three years ended December 31, 2002 have been derived from our restated consolidated financial statements, which have been audited by Deloitte & Touche LLP. Our audited consolidated financial statements for the three years ended December 31, 2002 are included elsewhere herein. You should read the following table together with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section below and our restated consolidated financial statements and their related notes included elsewhere herein.
Year Ended December 31, --------------------------------------------------------------- 2002 2001 2000 1999 1998 --------- --------- --------- --------- ---------- (dollars in thousands) Other Financial Data: Depreciation and amortization $ 21,453 $ 22,202 $ 15,121 $ 14,086 $ 12,289 Property, plant and equipment additions, net 9,267 9,755 11,483 7,469 6,118 Rental equipment additions, net (17,230) 3,191 801 4,052 6,783 Balance Sheet Data (at period end): Working Capital $ 65,751 $ 56,943 $ 60,868 $ 50,469 $ 39,727 Goodwill and Intangibles 115,733 136,626 97,044 75,522 70,130 Total Assets 373,971 396,843 335,418 278,679 253,620 Long-term debt (including current portion) 299,536 291,946 245,925 105,173 118,205 Convertible trust preferred securities - - - 19,556 - Shareholders' equity (deficit) (4,241) 16,721 13,196 88,772 74,588
(1) Our financial statements for the years ended December 31, 2000, 2001 and 2002, have been restated to reflect the application of Emerging Issues Task Force (EITF) 00-10 "Accounting for Shipping and Handling Fees and Costs" for those periods. Our financial statements for the years ended December 31, 1998 and 1999 have not been restated as it is impracticable for us to obtain the data. (2) From 2000 through 2002, we approved and implemented several plans to exit additional manufacturing and distribution facilities and reduce overall headcount to keep our cost structure aligned with our net sales. We describe the facility closing and severance expenses relating to these consolidation efforts in "Management's Discussion and Analysis of Financial Condition and Results of Operations--Facility Closing and Severance Expenses." (3) Symons was a defendant in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of their business. In October 2000, Symons satisfied a judgment of $14.1 million, post- 11 judgment interest of $1.1 million, and defense costs of $0.1 million, by payment to EFCO from our cash on hand and from our revolving credit facility. (4) During June 2000, in connection with the recapitalization, we refinanced our then-existing bank indebtedness. Additionally, the Dayton Superior Capital Trust, which held solely debentures, was dissolved. The company-obligated mandatorily redeemable convertible trust preferred securities converted to debentures having the right to receive cash in the amount of $22.00, plus accrued dividends, per preferred security. As a result we recorded a loss in 2000 of $7.8 million, comprised of the following: Expense deferred financing costs on previous long-term debt $ 2.7 Prepayment premium on extinguishments of long-term debt and interest rate swap agreements 0.5 Expense issuance costs on company-obligated mandatorily redeemable convertible trust Preferred securities 1.7 Prepayment premium on conversion of company-obligated mandatorily redeemable convertible trust preferred securities into debentures 2.1 Financing cost for unused long-term debt commitment 0.8 ------ $ 7.8 ======
This loss was recorded as an extraordinary loss in 2000 and subsequently was reclassified as an ordinary loss as a result of our adoption in 2003 of SFAS No. 145, "Rescission of FASB Statement Nos. 4,44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections." (5) We adopted SFAS No. 142 effective January 1, 2002. As a result of adopting SFAS No. 142, we recorded a non-cash charge in 2002 of $17.1 million ($19.9 million of goodwill, less an income tax benefit of $2.8 million), which is reflected as a cumulative effect of change in accounting principle. This amount does not affect our ongoing operations. The goodwill arose from the acquisitions of Dur-O-Wal in 1995, Southern Construction Products in 1999, and Polytite in 2000, all of which manufacture and sell metal accessories used in masonry construction. The masonry products market has experienced weaker markets and significant price competition, which has had a negative impact on the product line's earnings and fair value. 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Founded in 1924, we believe we are the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction and a leading manufacturer of metal accessories used in masonry construction in terms of revenues. Although almost all of our products are used in concrete or masonry construction, the function and nature of the products differ widely. In 2000, we added to our construction chemicals product line with the acquisition of Conspec, which manufactures and sells chemicals under the names Conspec and Edoco. In 2001, we acquired Aztec Concrete Accessories, Inc., a manufacturer of plastic products for the construction industry, primarily in the Western United States. We also have expanded our business units through additional smaller acquisitions. In an effort to reduce costs and enhance customer responsiveness, effective January 1, 2003 we reorganized our company from six autonomous manufacturing and sales divisions into two sales units (CPG and Symons) and a new product fulfillment unit (Supply Chain). CPG and Symons are primarily responsible for sales, customer service and new product development. As part of this effort, we reorganized most of our manufacturing and distribution operations into our Supply Chain unit, which manufactures and distributes our products in support of CPG and Symons. CPG. CPG derives its revenues from the sale of products primarily to independent distributors and contractors. We also provide some equipment on a rental basis. CPG obtains the majority of the products it sells from the Supply Chain product fulfillment group and manufactures its chemicals product line. Cost of sales for CPG consists primarily of purchased steel and other raw materials, as well as the costs associated with manufacturing, assembly, testing, and associated overhead. Orders from customers for our paving products are affected by state and local governmental infrastructure expenditures and their related bid processes. Due to the project-oriented nature of paving jobs, these products generally are made to order. As a result of all of the foregoing, product inventories are maintained at relatively low levels. SYMONS. Symons derives its revenues from the sale and rental of engineered, reusable modular forming systems and related accessories to independent distributors and contractors. Sales of both new and used concrete forming systems and specific consumables generally represent approximately two-thirds of the revenues of this business unit, and rentals represent the remaining one-third. This business unit's products include systems with steel frames and a plywood face, also known as Steel-Ply(R), and systems that use steel in both the frame and face. Symons obtains Steel-Ply(R) forms from the Supply Chain product fulfillment group and manufactures and assembles or outsources some of the manufacturing involved in some of the other all-steel forms. This outsourcing strategy allows us to fulfill larger orders without increased overhead. Cost of sales for Symons consists primarily of purchased steel and specialty plywood, and other raw materials, depreciation and maintenance of rental equipment, and the costs associated with manufacturing, assembly and overhead. SUPPLY CHAIN. As part of our reorganization, effective January 1, 2003, we reorganized most of our manufacturing and distribution operations into Supply Chain, our new product fulfillment unit, which manufactures and distributes our products in support of CPG and Symons. In addition to manufacturing Steel-Ply(R) forms for Symons, we design and manufacture or customize most of the machines we use to produce concrete accessories, and these proprietary designs allow for quick changeover of machine set-ups. This flexibility, together with our extensive distribution system, enables CPG to deliver many of its concrete accessories within 24 hours of a customer order. For segment reporting purposes, we include Supply Chain within CPG. 13 RESTATEMENT As previously disclosed in our quarterly report on Form 10-Q for the three months ended June 27, 2003, filed on August 13, 2003, we have recently completed a restatement of certain of our financial statements for fiscal years 2000 through the fiscal quarter ended March 28, 2003, in order to reflect the application of Emerging Issues Task Force (EITF) 00-10 "Accounting for Shipping and Handling Fees and Costs" in our financial statements for those periods. The following discussion and analysis gives effect to the restatement. 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. ("Safway Formwork") for $20.0 million. Safway Formwork is a subsidiary of Safway Services, Inc., whose ultimate parent is ThyssenKrupp AG, or TK, a publicly traded company in Germany. The purchase price was comprised of $13.0 million in cash and a non-interest bearing (other than in the case of default) senior unsecured note with a present value of $7.0 million payable to the seller. The note was issued at a discount, which will be accreted to the face value using the effective interest method and will be reflected as interest expense. The face value of the note is $12.0 million. The first $250,000 installment payment on the note was paid on September 30, 2003, and an additional $750,000 installment payment is due on December 31, 2003. Thereafter, annual payments of $1.0 million are due on September 30 of each year from 2004 through 2008, with a final balloon payment of $6.0 million due on December 31, 2008. For purposes of calculating the net present value of the senior unsecured note, we have assumed an interest rate of 14.5%. The $13.0 million of cash was funded through our sale of 541,667 of our common shares valued at $13.0 million to our majority shareholder. The common shares were valued at $24.00 per share based on an independent third party appraisal as of December 31, 2002. Headquartered near Milwaukee, Wisconsin, Safway Formwork sells and rents 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 will be granted the exclusive right to manufacture, design, market, offer, sell and distribute certain European formwork products within the United States, Mexico and Canada. Safway Formwork has seven branch locations, six of which are in identical markets as Symons' branches. As a result, we believe there are significant potential cost savings from eliminating redundant branch costs. We only assumed certain of the branch leases as part of the transactions contemplated by the acquisition. We believe there is little customer overlap between Safway Formwork and our company given their primary focus on selling and renting European style forming and shoring fleet, which should provide us with significant opportunities to cross-sell and rent our respective equipment fleets. 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. 14 FACILITY CLOSING AND SEVERANCE EXPENSES During 2000, as a result of the acquisition of Conspec, we approved and began implementing a plan to consolidate certain of our existing operations. Activity for this plan for the years ended December 31, 2000, 2001 and 2002 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ---------- ------- ------- (Amounts in thousands) Facility closing and severance expenses ............................... $ 834 $ 553 $ - $ 697 $ 2,084 Items charged against reserve .......... (96) (13) - (122) (231) ------- ------- --- ------- ------- Balance, December 31, 2000 ............. 738 540 - 575 1,853 Facility closing and severance expenses ............................... - - - - - Items charged against reserve .......... (738) (50) - (398) (1,186) ------- ------- --- ------- ------- Balance, December 31, 2001 ............. - 490 - 177 667 Facility closing and severance expenses ............................... - - - - - Items charged against reserve .......... - (221) - (84) (305) ------- ------- --- ------- ------- Balance, December 31, 2002 ............. $ - $ 269 $ - $ 93 $ 362 ======= ======= === ======= =======
The remaining lease termination costs are expected to be paid through 2007, and the remaining other post-closing costs are expected to be paid in 2003. During 2001, we approved and began implementing a plan to exit certain of our manufacturing and distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with net sales. Activity for this plan for the years ended December 31, 2001 and 2002 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ---------- ------- ------- (AMOUNTS IN THOUSANDS) Facility closing and severance expenses ......................... $ 3,287 $ 685 $ - $ 786 $ 4,758 Items charged against reserve..... (2,356) (161) - - (2,517) ------- ------- ----- ------- ------- Balance, December 31, 2001 ....... 931 524 - 786 2,241 Facility closing and severance expenses ......................... - - 108 - 108 Items charged against reserve..... (931) (314) (108) (475) (1,828) ------- ------- ----- ------- ------- Balance, December 31, 2002 ....... $ - $ 210 $ - $ 311 $ 521 ======= ======= ===== ======= =======
The remaining lease termination costs are expected to be paid through 2004, and the other post-closing costs are expected to be paid through 2004. 15 During 2002, we approved and began implementing a plan to exit certain of our distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with net sales. Activity for this plan for the year ended December 31, 2002 was as follows:
INVOLUNTARY LEASE RELOCATION OTHER POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ---------- ---------- ------- (AMOUNTS IN THOUSANDS) Facility closing and severance expenses ............................ $ 4,441 $ 650 $ - $ 200 $ 5,291 Items charged against reserve ....... (2,029) (566) - (200) (2,795) ------- ------- ------- ------- ------- Balance, December 31, 2002 .......... $ 2,412 $ 84 $ - $ - $ 2,496 ======= ======= ======= ======= =======
The remaining involuntary termination benefits are expected to be paid through 2004,and the lease termination costs are expected to be paid in 2003. RESULTS OF OPERATIONS The following table summarizes our results of operations as a percentage of net sales for the periods indicated:
AS RESTATED 2002 2001 2000 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of sales 67.7 66.5 64.3 ----- ----- ----- Gross profit 32.3 33.5 35.7 Selling, general and administrative expenses 22.9 23.5 24.0 Facility closing and severance expenses 1.4 1.8 0.7 Amortization of goodwill and intangibles 0.1 0.9 0.6 ----- ----- ----- Income from operations 7.9 7.3 10.4 Interest expense 8.5 8.4 5.8 Loss on early extinguishment of long-term debt - - 2.0 Other expense - - 0.1 ----- ----- ----- Income (loss) before provision (benefit) for income taxes (0.9) (1.1) (1.5) Provision (benefit) for income taxes (0.1) (0.3) (0.4) ----- ----- ----- Income (loss) before cumulative effect of change in accounting principle (0.8) (0.8) (1.1) Cumulative effect of change in accounting principle, net of income tax benefit (4.3) - - ----- ----- ----- Net income (loss) (5.1)% (0.8)% (1.1)% ===== ===== =====
16 COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2002 NET SALES. Our 2002 net sales were $398.7 million, a 4.0% decrease from $415.5 million in 2001. The following table summarizes our net sales by segment for the periods indicated:
YEARS ENDED DECEMBER 31, ------------------------------------------------------------- 2002 2001 ---------------------- --------------------- (AS RESTATED) (IN THOUSANDS) NET % SALES % NET SALES % CHANGE --------- ----- --------- ----- ------ Construction Products Group $ 287,252 72.0% $ 296,365 71.3% (3.1)% Symons...................... 132,715 33.3 140,168 33.7 (5.3) Intersegment eliminations... (21,230) (5.3) (21,042) (5.0) 0.9 --------- ----- --------- ----- Net sales $ 398,737 100.0% $ 415,491 100.0% (4.0)% ========= ===== ========= =====
CPG's sales decreased by 3.1% to $287.3 million in 2002 from $296.4 million in 2001. This decrease was primarily due to unfavorable volume and pricing, as the construction products markets were weaker in 2002 compared to 2001. Symons' sales decreased by 5.3% to $132.7 million in 2002 from $140.2 million in 2001 due to unfavorable rental revenues and pricing, as the concrete forming systems markets were weaker in 2002 compared to 2001. GROSS PROFIT. Gross profit for 2002 was $128.9 million, a $10.4 million decrease from the $139.3 million reported for 2001. This was primarily due to the unfavorable volume and pricing discussed previously. In addition, a change in accounting estimate relating to the depreciable lives of a portion of the rental fleet reduced 2002 gross profit by $2.0 million. These were partially offset by the cost savings realized from the implementation of the 2001 and 2002 facility closing and headcount reduction plans. Gross profit was 32.3% of sales in 2002, decreasing from 33.5% in 2001. The decrease from 2001 was due to the unfavorable sales volume and pricing, a higher mix of lower gross profit paving products, a lower mix of higher gross profit Symons and concrete accessories products, a lower mix of higher gross profit rental revenues and higher medical and insurance costs. These were partially offset by a higher mix of sales of higher gross profit used rental fleet in the Symons segment, and the cost savings realized from the implementation of the 2001 and 2002 facility closing and headcount reduction plans. OPERATING EXPENSES. Our selling, general, and administrative expenses decreased $6.3 million to $91.2 million in 2002 from $97.5 million in 2001, as a result of the cost reduction initiatives we implemented in 2001 and 2002. Facility closing and severance expenses in 2002 were approximately $5.4 million and approximately $7.4 million in 2001. Amortization of goodwill and intangibles decreased $3.3 million to $0.6 million in 2002 from $3.9 million in 2001, due to the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets." This statement precludes amortization of goodwill for periods beginning after December 15, 2001. Instead, an annual review of the recoverability of the goodwill and intangible assets is required. Certain other intangible assets continue to be amortized over their estimated useful lives. OTHER EXPENSES. Interest expense decreased to $34.0 million in 2002 from $35.0 million in 2001 primarily due to lower interest rates in 2002. The loss on disposals of property, plant and equipment was $1.1 million in 2002, which related to the write-off of certain assets that were disposed of in conjunction with our facility closing plans. 17 LOSS BEFORE BENEFIT FOR INCOME TAXES, AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. The loss before income taxes and cumulative effect of change in accounting principle in 2002 was $3.5 million, as compared to $4.7 million in 2001, and was comprised of the following:
YEARS ENDED DECEMBER 31, ---------------------- 2002 2001 -------- -------- (In thousands) Construction Products Group ................. $ 28,265 $ 29,315 Symons ...................................... 27,076 31,324 Intersegment eliminations ................... (11,032) (11,187) Corporate, including interest expense ....... (47,818) (54,105) -------- -------- Loss before benefit for income taxes, and cumulative effect of change in accounting principle $ (3,509) $ (4,653) ======== ========
CPG's income before provision for income taxes of $28.3 million in 2002 decreased from $29.3 million in 2001, due to the unfavorable sales volume and pricing. These were partially offset by the benefit of the cost reductions we implemented, lower amortization expense with the adoption of SFAS No. 142, and lower facility closing and severance expenses in 2002 compared to 2001. Symons' income before income taxes was $27.1 million in 2002, compared to $31.3 million in 2001. This was due to the decreased sales volume, unfavorable pricing and unfavorable mix of lower rental revenues due to weaker markets in 2002 compared to 2001. These were partially offset by the benefit of the cost reduction initiatives we implemented, and the increased sales of higher gross profit used rental fleet. Corporate expenses decreased to $47.8 million, including interest expense of $34.0 million, in 2002 from $54.1 million, including interest expense of $35.0 million, in 2001 due to lower facility closing and severance expenses, lower interest expense as a result of lower interest rates, and the benefit of the cost reduction initiatives we implemented. Elimination of gross profit on intersegment sales decreased to $11.0 million in 2002 from $11.1 million in 2001 due to the mix of intersegment sales. LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. The effective tax rate in 2002 was 11.0%, which is different from the statutory rate, primarily due to the unfavorable impact of permanent book/tax differences. The net loss before cumulative effect of change in accounting principle for 2002 was $3.1 million, compared to a loss of $3.5 million in 2001 due to the factors described above. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. We adopted SFAS No. 142 effective January 1, 2002. As a result of adopting SFAS No. 142, we recorded a non-cash charge in 2002 of $17.1 million ($19.9 million of goodwill, less an income tax benefit of $2.8 million), which is reflected as a cumulative effect of change in accounting principle. This amount does not affect our ongoing operations or our cash flow. The goodwill arose from the acquisitions of Dur-O-Wal in 1995, Southern Construction Products in 1999, and Polytite in 2000, all of which manufacture and sell metal accessories used in masonry construction. The masonry products market has experienced weaker markets and significant price competition, which has had a negative impact on the product line's earnings and fair value. 18 The following is a reconciliation from reported net loss to net loss adjusted for the amortization of goodwill:
Year Ended December 31, December 31, 2002 2001 ----------- ----------- (In thousands) Net loss before cumulative effect of change in accounting principle, as reported $(3,123) $(3,474) Amortization of goodwill, net of tax benefit - 3,375 ------- ------- Net loss before cumulative effect of change in accounting principle, as adjusted $(3,123) $ (99) ======= =======
NET LOSS. The net loss for 2002 was $20.3 million, compared to a loss of $3.5 million in 2001 due to the factors described above. COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 2001 NET SALES. Our 2001 net sales reached a record $415.5 million, a 7.3% increase from $387.1 million in 2000. The following table summarizes our net sales by segment for the periods indicated:
YEARS ENDED DECEMBER 31, ------------------------------------------------------- 2001 2000 ------------------ ----------------- (AS RESTATED) (IN THOUSANDS) NET SALES % NET SALES % % CHANGE --------- ---- --------- ---- -------- Construction Products Group.... $ 296,365 71.3% $ 264,016 68.2% 12.3% Symons ........................ 140,168 33.7 142,873 36.9 (1.9) Intersegment eliminations ..... (21,042) (5.0) (19,821) (5.1) 6.2 --------- ----- --------- ----- Net sales ............. $ 415,491 100.0% $ 387,068 100.0% 7.3% ========= ===== ========= =====
CPG's sales increased by 12.3% to $296.4 million in 2001 from $264.0 million in 2000. This increase was primarily due to the acquisitions of Aztec, which contributed $19.7 million, and BarLock, which contributed $4.7 million as well as an increase in sales of paving products as a result of TEA-21, and the increased presence in California following the opening in late 2000 of a new manufacturing facility in Modesto, California. This was partially offset by decreases in the other product lines due to our weaker markets in 2001 compared to 2000. Symons' sales decreased by 1.9% to $140.2 million in 2001 from $142.9 million in 2000 due primarily to weaker markets in 2001 compared to 2000. GROSS PROFIT. Gross profit for 2001 was $139.3 million, a $1.0 million increase over the $138.3 million reported for 2000. Gross profit increased $3.0 million due to the cost reduction initiatives we implemented. A change in accounting estimate relating to the depreciable lives of a portion of the rental fleet reduced 2001 gross profit by $2.3 million. Gross margin was 33.5% in 2001, decreasing from 35.7% in 2000. The decrease from 2000 was due to a higher mix of lower gross margin paving products, a lower mix of higher gross margin Symons products, lower margins achieved on masonry products due to price competition, higher freight and energy costs, and lower absorption of fixed costs. OPERATING EXPENSES. Our selling, general, and administrative expenses increased $4.6 million to $97.5 million in 2001 from $92.9 million in 2000, as a result of recent acquisitions, which totaled approximately 19 $6.3 million, offset partially by the cost reduction initiatives we implemented and the receipt of approximately $1.1 million, net of recovery expenses, from Royal Surplus Lines Insurance Co. of certain defense costs related to the EFCO litigation. Facility closing and severance expenses were approximately $7.4 million in 2001 and $2.5 million in 2000. Amortization of goodwill and intangibles increased to $3.9 million in 2001 from $2.5 million in 2000, due to the acquisitions of Aztec and BarLock in 2001, as well as the full year impact of goodwill amortization relating to the July 2000 Conspec acquisition. OTHER EXPENSES. Interest expense increased to $35.0 million in 2001 from $22.6 million in 2000 primarily due to increased long-term debt resulting from the full year impact of the June 2000 recapitalization and the acquisitions of Aztec and BarLock. 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 $14.1 million were awarded against Symons in 1999, and both parties were enjoined from engaging in certain conduct. We recorded a $15.3 million charge in 2000 after its unsuccessful appeal. In October 2000, Symons satisfied the judgment of $14.1 million, post-judgment interest of $1.1 million, and reimbursement of EFCO's defense costs of $0.1 million, by payment to EFCO from our cash on hand and from our revolving credit facility. Symons has made a claim to its primary and excess insurance carriers for "advertising injury" and other claims 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. As described in footnote 1 to our consolidated financial statements included elsewhere herein, our recapitalization resulted in a loss on early extinguishment of long-term debt of $7.8 million in 2000. LOSS BEFORE BENEFIT FOR INCOME TAXES. The loss before income taxes in 2001 was $4.7 million, as compared to $5.6 million in 2000, and was comprised of the following:
YEARS ENDED DECEMBER 31, --------------------- 2001 2000 -------- -------- (IN THOUSANDS) Construction Products Group ............................ $ 29,315 $ 30,157 Symons ................................................. 31,324 16,709 Intersegment eliminations .............................. (11,187) (9,949) Corporate, including interest expense .................. (54,105) (42,530) -------- -------- Loss before benefit for income taxes, and cumulative effect of change in accounting principle $ (4,653) $ (5,613) ======== ========
CPG's income before provision for income taxes of $29.3 million in 2001 decreased from $30.2 million in 2000, despite the sales increase, due to higher mix of lower gross profit paving products, a lower mix of higher gross profit concrete accessories products and higher facility closing and severance expenses recorded in 2001. These were partially offset by the contributions from higher net sales and the cost reduction initiatives we implemented. Symons' income before income taxes was $31.3 million in 2001, compared to $16.7 million in 2000. The 2001 results included a $2.3 million charge for the change in accounting estimate. The 2000 results included a $15.3 million non-recurring lawsuit judgment. Excluding these items, the income before income taxes from Symons was $33.6 million for 2001 versus $32.0 million for 2000. This is due to a higher mix of higher gross margin sales of used forms and the cost reduction initiatives we implemented. These were partially offset by higher facility closing and severance expenses in 2001 and higher operating costs such as energy and freight. 20 Corporate expenses increased to $54.1 million in 2001 from $42.5 million in 2000. This was due to the higher interest expense, which long-term to $35.0 million from $22.6 million and a loss of $7.8 million on early extinguishment of long-term debt, as a result of the June 2000 recapitalization, higher amortization expense as a result of the 2001 acquisitions of Aztec and BarLock, and higher facility closing and severance expenses. Elimination of gross profit on intersegment sales increased to $11.2 million in 2001 from $9.9 million in 2000 due to higher intersegment sales. NET LOSS. The effective tax rate in 2001 was 25.3%, which differs from the statutory rate due to the unfavorable impact of non-deductible goodwill amortization for purposes of determining taxable income (losses). The net loss for 2001 was $3.5 million, compared to $4.1 million in 2000 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) provided by operating activities for 2002 and 2001 was ($17.3 million) and $8.2 million, respectively. Our investing activities consisted of net proceeds from the sale of fixed assets and rental equipment of $8.0 million in 2002, compared to net capital expenditures of $12.9 million in 2001. Our capital expenditures in 2002 included additions to the rental fleet of $18.4 million and net property, plant, and equipment additions of $9.3 million, offset by $35.6 million of proceeds from sales of rental equipment. As of December 31, 2002, our long-term debt consisted of the following: Revolving credit facility, weighted average interest rate of 6.0% $ 10.1 Acquisition credit facility, weighted average interest rate of 4.6% 9.2 Term Loan Tranche A, weighted average interest rate of 4.6% 19.4 Term Loan Tranche B, weighted average interest rate of 5.2% 97.5 Senior Subordinated Notes, interest rate of 13.0% 170.0 Debt discount on Senior Subordinated Notes (10.4) Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1% 1.1 Capital lease obligation 2.5 City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 0.1 -------- Total long-term debt 299.5 Less current portion (7.0) -------- Long-term portion $ 292.5 ========
At December 31, 2002, of the $50.0 million revolving credit facility that was available to us, $10.1 million of borrowings were outstanding, along with $8.7 million of letters of credit, with the remaining $31.2 million available for borrowing. Approximately $9.2 million of the $30.0 million acquisition facility had been drawn and was outstanding. Of the $23.5 million tranche A facility, $22.3 million had been drawn and $19.4 million was outstanding at December 31, 2002. All of the $98.5 million tranche B facility had been drawn and approximately $97.5 million was outstanding at December 31, 2002. 21 Our long-term debt borrowings, net of repayments for the year ended December 31, 2002 were $3.9 million. As part of our continuing procurement cost reduction program, we entered into a sale/leaseback transaction for our forklift fleet. In conjunction with this transaction, we received $2.3 million in proceeds from the sale with an initial capital lease obligation of $1.7 million. Subsequent purchases of forklifts under capital leases were $1.0 million, and the outstanding balance at December 31, 2002 was $2.5 million. The Company may from time to time seek to retire its outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. At December 31, 2002, working capital was $65.8 million, compared to $56.9 million at December 31, 2001. The increase in our working capital is due to higher accounts receivable as we used our ability to selectively extend terms to our stronger customers in order to minimize price erosion and maintain market share. Prepaid income taxes and future income tax benefits combined increased due to the taxable losses incurred in 2002. Accounts payable decreased from 2001 due to the timing of receipt and payment for raw materials. Accrued liabilities in total decreased from 2001 to 2002 due primarily to the timing of insurance payment and payments on liabilities assumed from acquisitions. In addition, required accruals have decreased in conjunction with the lower net sales volumes and the reductions in number of facilities and headcount as a result of our facility closing and severance plans. On June 9, 2003, the Company 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 the Company's acquisition credit facility, term loan tranche A, term loan tranche B and a portion of the Company's revolving credit facility. Also in June 2003, the Company repurchased $15.3 million in principal amount of its senior subordinated notes for $14.3 million with borrowings under its revolving credit facility. We received a commitment from GE Capital for an $80.0 million senior secured revolving credit facility in November 2003, which would be used to refinance the existing $50 million revolving credit facility. The proposed facility will have no financial covenants and will be subject to availability under a borrowing base calculation. The facility is expected to be put in place by the end of 2003. Closing of this transaction is contingent upon normal due diligence. We intend to pursue additional acquisitions that present opportunities to realize significant synergies, operating expense economies or overhead cost savings or to increase our market position. We regularly engage in discussions with respect to potential acquisitions and investments. There are no definitive agreements with respect to any material acquisitions at this time, and we cannot assure you that we will be able to reach an agreement with respect to any future acquisition. Our acquisition strategy may require substantial capital, and no assurance can be given that we will be able to raise any necessary funds on terms acceptable to us or at all. We intend to fund acquisitions with cash, securities or a combination of cash and securities. To the extent we use cash for all or part of any future acquisitions, we expect to raise the cash from our business operations, from borrowings under our revolving credit facility or, if feasible and attractive, by issuing long-term debt or additional common shares. If we incur additional debt to finance acquisitions, our total interest expense will increase. On July 29, 2003 we completed the acquisition of substantially all of the fixed assets and rental fleet assets Safway Formwork Systems, L.L.C. for $20.0 million. The purchase price was comprised of $13.0 million in cash and a non-interest bearing (other than in the case of default) senior unsecured note with a present value of $7.0 million payable to the seller. The note was issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The face amount of the note is $12.0 million. The first $250,000 installment payment on the 22 note was paid on September 30, 2003, and an additional $750,000 is due on December 31, 2003. Thereafter, annual payments of $1.0 million are due on September 30 of each year from 2004 through 2008, with a final balloon payment of $6.0 million due on December 31, 2008. For purposes of calculating the net present value of the senior unsecured note, we have used an interest rate of 14.5%. The $13.0 million of cash was funded through the issuance by us of 541,667 common shares valued at $13.0 million in the aggregate to our majority shareholder. We believe our liquidity, capital resources and cash flows from operations are sufficient, in the absence of additional acquisitions, to fund the capital expenditures we have planned and our working capital and debt service requirements. Our ability to make scheduled payments of principal of, or to pay the interest on, or to refinance, our indebtedness, or to fund planned capital expenditures and research and development will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations and anticipated operating improvements, management believes that cash flow from operations and available borrowings under our revolving credit facility will be adequate to meet our future liquidity for the foreseeable future. We cannot assure you, however, that our business will generate sufficient cash flow from operations, that operating improvements will be realized on schedule or that future borrowings will be available to us under our revolving credit facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may from time to time seek to retire our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, in privately negotiated transactions or otherwise. Any such repurchases or exchanges will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including our revolving credit facility, the senior subordinated notes and the senior second secured notes, on commercially reasonable terms or at all. SEASONALITY Our operations are seasonal in nature with approximately 55% of sales historically occurring in the second and third quarters. Working capital and borrowings fluctuate with the volume of our sales. INFLATION We do not believe inflation had a significant impact on our operations over the past two years. In the past, we have been able to pass along to our customers a portion of the increases in the price of steel, our principal raw material. We may not be able to pass on steel price increases in the future. CRITICAL ACCOUNTING POLICIES In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. On an on-going basis, we evaluate our estimates, including those related to allowance for doubtful accounts, inventories, investments, long-lived assets, income taxes, insurance reserves, restructuring liabilities, environmental contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. INVENTORIES We value all inventories at the lower of first-in, first-out, or FIFO, cost or market and includes all costs directly associated with manufacturing products: materials, labor and manufacturing overhead. We 23 provide net realizable value reserves which reflect our best estimate of the excess of the cost of potential obsolete and slow moving inventory over the expected net realizable value. RENTAL EQUIPMENT We manufacture rental equipment for resale and for rent to others on a short-term basis. We record rental equipment at the lower of FIFO cost or market and it is depreciated over the estimated useful life of the equipment, three to fifteen years, on a straight-line method. INCOME TAXES We have generated deferred tax assets or liabilities due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance against deferred tax assets at the balance sheet date is not considered necessary because it is more likely than not the deferred tax assets will be fully realized. We record liabilities relating to income taxes utilizing known obligations and estimates of potential obligations. REVENUE RECOGNITION We recognize revenue from product sales when the product is shipped from our facilities and risk of loss and title have passed to the customer or, at the customer's written request and where the customer has made a fixed commitment to purchase goods on a fixed schedule consistent with the customer's business and where risk of ownership has passed to the buyer, the goods are set-aside in storage and we do not retain any specific performance obligations such that the earning process is not complete. For transactions where we have not obtained customer acceptance, revenue is deferred until the terms of acceptance are satisfied. On rental equipment sales, revenue is recognized and recorded on the date of shipment. Rental revenues are recognized ratably over the terms of the rental agreements. INSURANCE RESERVES We are self-insured for certain of our group medical, workers' compensation and product and general liability claims. We have stop loss insurance coverage at various per occurrence and per annum levels depending on type of claim. We consult with third party administrators to estimate the reserves required for these claims. Actual claims experience can impact these calculations and, to the extent that subsequent claim costs vary from estimates, future earnings could be impacted and the impact could be material. We made no material revisions to the estimates for the years ended December 31, 2002, 2001 and 2000. PENSION LIABILITIES Pension and other retirement benefits, including all relevant assumptions required by U.S. GAAP, are evaluated each year. Due to the technical nature of retirement accounting, outside actuaries are used to provide assistance in calculating the estimated future obligations. Since there are many estimates and assumptions involved in retirement benefits, differences between actual future events and prior estimates and assumptions could result in adjustments to pension expenses and obligations. These assumptions include the discount rate, rate of increase in compensation levels, and the expected long-term rate of return on the related assets. ACCOUNTS RECEIVABLE ALLOWANCE We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be required. We have other loss exposures, such as facility closing and severance liabilities and litigation. Establishing loss reserves for these matters requires us to estimate and make judgments in regards to risk exposure and ultimate liability. We establish accruals for these exposures; however, if our exposure exceeds our estimates we could be required to record additional charges. 24 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that an obligation associated with the retirement of a tangible long-lived asset be recognized as a liability when incurred. Subsequent to initial measurement, an entity recognizes changes in the amount of the liability resulting from the passage of time and revisions to either the timing or amount of estimated cash flows. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The adoption of this pronouncement did not have a material impact on our consolidated financial position, results of operations or cash flows. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," that address the disposal of a segment of a business. The Statement also amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The Statement is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, and generally would be applied prospectively for disposal activities initiated by a commitment to a plan made after the entity's initial adoption of the Statement. The adoption of this pronouncement did not have a material impact on our consolidated financial position, results of operations or cash flows. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 eliminates the requirement to classify gains and losses from the extinguishment of indebtedness as extraordinary, requires certain lease modifications to be treated the same as a sale-leaseback transaction, and makes other non-substantive technical corrections to existing pronouncements. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with earlier adoption encouraged. The adoption of this pronouncement in 2003 resulted in the reclassification in 2000 of the loss on the early extinguishment of long-term debt. In July 2002, the FASB issued Statement of SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring or other exit or disposal activity. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of this pronouncement did not have a material impact on our consolidated financial position, results of operations or cash flows. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS 148 amends FASB statement No. 123, "Accounting for Stock-Based Compensation." Although it does not require use of fair value method of accounting for stock-based employee compensation, it does provide alternative methods of transition. It also amends the disclosure provisions of Statement 123 and APB Opinion No. 28, "Interim Financial Reporting," to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148's amendment of the transition and annual disclosure requirements is effective for fiscal years ending after December 15, 2002. The amendment of disclosure requirements of Opinion No. 28 is effective for interim periods beginning after December 15, 2002. Although we have not changed to the fair value method, the disclosure requirements of this statement have been adopted. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 requires certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity to be classified as 25 liabilities. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003, except for mandatory redeemable financial instruments of a nonpublic entity, this statement shall be effective for periods beginning after December 15, 2003. Management is currently assessing the impact of this pronouncement and has not determined the impact on the Company's financial statements. In November 2002, the FASB issued Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements in this interpretation are required for financial statements of periods ending after December 15, 2002. The initial measurement provisions of the interpretation are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The adoption of this pronouncement did not have a material impact on our 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 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. We do not believe this pronouncement will have a material impact on our consolidated financial position, results of operations or cash flows. FORWARD-LOOKING STATEMENTS This Form 10-K/A includes, and future filings by us on Form 10-K, Form 10-Q, and Form 8-K, and future oral and written statements by us and our management may include certain forward-looking statements, including (without limitation) statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition and divestitive opportunities and other similar forecasts and statements of expectation. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and "should," and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements by our management and us are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. We disclaim any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by us, and our management, as the result of a number of important factors. Representative examples of these factors include (without limitation) the cyclical nature of nonresidential building and infrastructure construction activity, which can be affected by factors outside our control such as weakness in the general economy, a decrease in governmental spending, interest rate increases, and changes in banking and tax laws; the amount of debt we must service; the effects of weather and the seasonality of the construction industry; our ability to implement cost savings programs successfully and on a timely basis; and Dayton Superior's ability to successfully integrate acquisitions on a timely basis, our ability to successfully identify, finance, complete and integrate acquisitions; increases in the price of steel (our principal raw material) and our ability to pass along such price increases to our customers; the effects of weather and seasonality on the construction industry; increasing consolidation of our customers; the mix of products we sell; the competitive nature of our industry; and the amount of debt we must service. This list is not intended to be exhaustive, and additional information can be found in our annual report on Form 10-K for the year ended December 31, 2002. In addition to these factors, actual future performance, outcomes and results may differ materially because of other, more general, factors including (without limitation) general industry and 26 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. 27 COMMITMENTS Scheduled payments of long-term debt, future minimum lease payments under capital leases, and future lease payments under non-cancelable operating leases at December 31, 2002 were as follows:
Long-term Capital Operating Sale- Year Debt Leases Leases Leaseback Total ---- ---------- ------- --------- --------- -------- 2003 $ 6,283 $ 796 $ 4,478 $ 175 $ 11,732 2004 9,639 707 3,262 - 13,608 2005 11,491 558 2,540 - 14,589 2006 31,683 414 2,048 - 34,145 2007 47,034 274 587 - 47,895 Thereafter 201,273 149 85 - 201,507 ---------- ------ --------- ----- -------- $ 307,403 $2,898 $ 13,000 $ 175 $323,476
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As of December 31, 2002, we had financial instruments which were sensitive to changes in interest rates. These financial instruments consist of: - $170.0 million of Senior Subordinated Notes; - $202.0 million credit facility, consisting of: - $50.0 million revolving credit facility, $10.1 million of which was outstanding at December 31, 2002; - $30.0 million acquisition facility, $9.2 million of which was drawn and outstanding at December 31, 2002; - $23.5 million term loan tranche A, $22.3 million of which has been drawn and $19.4 million was outstanding at December 31, 2002; and - $98.5 million term loan tranche B, all of which has been drawn and $97.5 million was outstanding at December 31, 2002; - $2.5 million in capital lease obligations - $1.2 million in other fixed-rate, long term debt. Our $170.0 million of senior subordinated notes mature in June 2009. The notes were issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The net book value of the notes at December 31, 2002 was $159.6 million. The notes were issued with warrants that allow the holder to purchase 117,276 of the Company's Class A Common Shares for $0.01 per share. The senior subordinated notes have an interest rate of 13.0%. The estimated fair value of the notes is $146.2 million as of December 31, 2002. Our $202.0 million credit facility has several interest rate options which reprice on a short-term basis. Accordingly, the fair value of the credit facility approximates its $136.2 million face value. The weighted average interest rate as of December 31, 2002 was 5.1%. Our other long-term debt at December 31, 2002 consisted of $1.1 million of 9.1% junior subordinated debentures previously held by the Dayton Superior Capital Trust with an estimated fair 28 value of $1.8 million, and a $0.1 million, 7% loan due in annual installments of $31,500 per year with an estimated fair value as of December 31, 2002 of $0.1 million. In the ordinary course of our business, we also are exposed to price changes in raw materials (particularly steel rod and steel bar) and products purchased for resale. The prices of these items can change significantly due to changes in the markets in which our suppliers operate. We generally do not, however, use financial instruments to manage our exposure to changes in commodity prices. 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Dayton Superior Corporation: We have audited the accompanying consolidated balance sheets of Dayton Superior Corporation (an Ohio corporation) and Subsidiaries (the "Company") as of December 31, 2002 and 2001, and the related statements of operations, shareholders' deficit, cash flows, and comprehensive loss for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedules listed at item 15(a)(2). These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Note 3(d) to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to adopt Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." As described in Note 3(k), the consolidated financial statements for the period ended December 31, 2000, have been reclassified to give retroactive effect to SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", which was adopted by the Company on January 1, 2003. As described in Note 14, the consolidated financial statements have been restated. Deloitte & Touche LLP Dayton, Ohio November 19, 2003 30 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2002 2001 --------- --------- ASSETS (Note 4) Current assets: Cash $ 2,404 $ 4,989 Accounts receivable, net of allowances for doubtful accounts and sales returns and allowances of $4,861 and $7,423 61,165 51,628 Inventories (Note 3) 47,911 47,900 Prepaid expenses and other current assets 7,054 9,637 Prepaid income taxes 4,009 1,225 Future income tax benefits (Notes 3 and 8) 6,194 7,962 --------- --------- Total current assets 128,737 123,341 --------- --------- Rental equipment, net (Note 3) 63,160 71,323 --------- --------- Property, plant and equipment (Note 3) Land and improvements 5,536 5,860 Building and improvements 26,268 26,461 Machinery and equipment 72,042 67,731 --------- --------- 103,846 100,052 Less accumulated depreciation (42,600) (39,931) --------- --------- Net property, plant and equipment 61,246 60,121 --------- --------- Goodwill (Notes 2 and 3) 107,328 126,810 Intangible assets, net of accumulated amortization (Notes 2 and 3) 8,405 9,816 Other assets 5,095 5,432 --------- --------- Total assets $ 373,971 $ 396,843 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt (Note 4) $ 6,991 $ 5,001 Accounts payable 25,667 27,340 Accrued compensation and benefits 20,948 19,935 Other accrued liabilities 9,380 14,122 --------- --------- Total current liabilities 62,986 66,398 Long-term debt (Note 4) 292,545 286,945 Deferred income taxes (Notes 3 and 8) 11,919 13,365 Other long-term liabilities (Note 7) 10,762 13,414 --------- --------- Total liabilities 378,212 380,122 --------- --------- Commitments and contingencies (Note 10) Shareholders' equity (deficit) (Note 6) Class A common shares; no par value; 5,000,000 shares authorized; 4,043,857 and 4,026,402 shares issued and 4,010,160 and 3,997,114 shares outstanding 102,525 102,044 Loans to shareholders (2,878) (3,030) Class A treasury shares, at cost, 36,747 and 29,288 shares in 2002 (1,184) (979) and 2001 Cumulative other comprehensive loss (1,716) (589) Accumulated deficit (100,988) (80,725) --------- --------- Total shareholders' equity (deficit) (4,241) 16,721 --------- --------- Total liabilities and shareholders' equity (deficit) $ 373,971 $ 396,843 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 31 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31 (AMOUNTS IN THOUSANDS)
As restated ------------------------------------- 2002 2001 2000 --------- --------- --------- Net sales (Note 3) $ 398,737 $ 415,491 $ 387,068 Cost of sales 269,861 276,221 248,746 --------- --------- --------- Gross profit 128,876 139,270 138,322 Selling, general and administrative expenses 91,221 97,532 92,941 Facility closing and severance expenses (Note 11) 5,399 7,360 2,517 Amortization of goodwill and intangibles 603 3,912 2,508 --------- --------- --------- Income from operations 31,653 30,466 40,356 Other expenses Interest expense 33,967 35,024 22,574 Non-recurring item - lawsuit judgment (Note 10b) - - 15,341 Loss on early extinguishment of long-term debt (Note 1) - - 7,761 Loss on disposals of property, plant and equipment 1,115 - - Other expense 80 95 293 --------- --------- --------- Loss before provision (benefit) for income taxes, and cumulative effect of change in accounting principle (3,509) (4,653) (5,613) Provision (benefit) for income taxes (Note 8) (386) (1,179) (1,478) --------- --------- --------- Loss before cumulative effect of change in accounting principle (3,123) (3,474) (4,135) Cumulative effect of change in accounting principle, net of income tax benefit of $2,754 (Note 3d) (17,140) - - --------- --------- --------- Net loss (20,263) (3,474) (4,135) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit of $389 - - 583 --------- --------- --------- Net loss available to common shareholders $ (20,263) $ (3,474) $ (4,718) ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 32 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Class A Class A Common Shares Treasury Shares ------------------- Loans to -------------------- Shares Amount Shareholders Shares Amount --------- -------- ------------ ------- ------- Balance as December 31, 1999 5,962,200 $ 47,417 - 19,017 $ (387) Net loss Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities Foreign currency translation adjustment Exercise of stock options, net 344,353 5,106 (2,039) Retirement of Class A treasury shares (19,017) (349) (19,017) 387 Issuance of Class A common shares and warrants, net of issuance costs 3,492,205 90,477 Redemption of Class A common shares (6,085,751) (49,825) --------- -------- ------- ------- ------- Balances at December 31, 2000 3,693,990 92,826 (2,039) - - Net loss Foreign currency translation adjustment Issuance of Class A common shares 323,278 8,986 (909) Purchase of Class A treasury 51 29,288 (979) shares Exercise of stock options, net 9,134 232 (133) --------- -------- ------- ------- ------- Balances at December 31, 2001 4,026,402 $102,044 $(3,030) 29,288 $ (979) Net loss Foreign currency translation adjustment Change in minimum pension liability (net of income tax benefit of $151) Issuance of Class A common shares 17,455 481 (350) Purchase of Class A common shares 7,459 (205) Repayments of loans to shareholders 502 --------- -------- ------- ------- ------- Balance at December 31, 2002 4,043,857 $102,525 $(2,878) 36,747 $(1,184) ========= ======== ======= ======= ======= Retained Other Earnings Comprehensive (Accumulated Loss Deficit) Total ------------- ------------ ------- Balance as December 31, 1999 $ (254) $ 41,996 $ 88,772 Net loss (4,135) (4,135) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities (583) (583) Foreign currency translation adjustment (86) (86) Exercise of stock options, net 3,067 Retirement of Class A treasury shares (38) - Issuance of Class A common shares and warrants, net of issuance costs 90,477 Redemption of Class A common shares (114,491) (164,316) ------- --------- --------- Balances at December 31, 2000 (340) (77,251) 13,196 Net loss (3,474) (3,474) Foreign currency translation adjustment (249) (249) Issuance of Class A common shares 8,077 Purchase of Class A treasury shares (928) Exercise of stock options, net 99 ------- --------- --------- Balances at December 31, 2001 $ (589) $ (80,725) $ 16,721 Net loss (20,263) (20,263) Foreign currency translation adjustment 92 92 Change in minimum pension liability (net of income tax benefit of $151) (1,219) (1,219) Issuance of Class A common shares 131 Purchase of Class A common shares (205) Repayments of loans to shareholders 502 ------- --------- --------- Balance at December 31, 2002 $(1,716) $(100,988) $ (4,241) ======= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 33 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31 (AMOUNTS IN THOUSANDS)
2002 2001 2000 --------- --------- --------- Cash Flows From Operating Activities: Net loss $ (20,263) $ (3,474) $ (4,135) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Extraordinary loss - - 7,761 Cumulative effect of change in accounting principle (Note 3d) 17,140 - - Depreciation 20,850 18,290 12,613 Amortization of goodwill and intangibles 603 3,912 2,508 Deferred income taxes 3,228 (2,972) (975) Amortization of deferred financing costs, debt discount, and issuance costs on Company-obligated mandatorily redeemable convertible trust preferred securities 2,335 2,251 1,349 Net gain on sales of rental equipment and property, plant and equipment (20,851) (14,184) (9,846) Change in assets and liabilities, net of effects of acquisitions: Accounts receivable (9,537) 7,348 (7,292) Inventories (11) (1,410) (1,386) Prepaid expenses and other assets 2,119 (8,533) (1,441) Prepaid income taxes (2,784) 2,710 (5,662) Accounts payable (1,673) 671 1,549 Accrued liabilities and other long-term liabilities (8,406) 3,614 2,818 --------- --------- --------- Net cash provided by (used in) operating activities (17,250) 8,223 (2,139) --------- --------- --------- Cash Flows From Investing Activities: Property, plant and equipment additions (11,277) (9,924) (11,678) Proceeds from sale of fixed assets 2,010 169 195 Rental equipment additions (18,411) (25,933) (18,110) Proceeds from sales of rental equipment 35,641 22,742 17,309 Acquisitions (Note 2) - (40,850) (25,054) Refund of purchase price on acquisitions - 143 2,148 --------- --------- --------- Net cash provided by (used in) investing activities 7,963 (53,653) (35,190) --------- --------- --------- Cash Flows From Financing Activities: Repayments of long-term debt (4,141) (48,532) (122,185) Issuance of long-term debt 8,050 93,751 239,171 Proceeds from sale/leaseback transaction 2,258 - - Prepayment premium on extinguishments of long-term debt and interest rate swap agreements(Note 1) - - (476) Financing cost on unused long-term debt commitment - - (750) Issuance of common shares, net of issuance costs 131 5,334 93,544 Redemption of common shares and purchase of treasury shares (205) (928) (164,316) Repayments of loans to shareholders, net 502 - - Financing costs incurred - (791) (9,761) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit - - (583) --------- --------- --------- Net cash provided by financing activities 6,595 48,834 34,644 --------- --------- --------- Effect of Exchange Rate Changes on Cash 107 (197) (86) --------- --------- --------- Net increase (decrease) in cash (2,585) 3,207 (2,771) Cash, beginning of year 4,989 1,782 4,553 --------- --------- --------- Cash, end of year $ 2,404 $ 4,989 $ 1,782 ========= ========= ========= Supplemental Disclosures: Cash paid (refunded) for income taxes $ (1,149) $ (1,532) $ 1,494 Cash paid for interest 31,862 32,348 20,501 Purchase of equipment on capital lease 2,758 - - Issuance of Class A common shares and loans to shareholders 350 909 2,039 Conversion of Company-obligated mandatorily redeemable convertible trust preferred securities into long-term debt - - 23,375 Issuance of warrants attached to senior subordinated notes - - 3,166 Issuance of Class A common shares in conjunction with acquisitions - 2,842 -
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 34 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS YEARS ENDED DECEMBER 31 (AMOUNTS IN THOUSANDS)
2002 2001 2000 -------- -------- -------- Net loss $(20,263) $ (3,474) $ (4,135) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities - - (583) Other comprehensive income Foreign currency translation adjustment 92 (249) (86) Change in minimum pension liability (net of income tax benefit of $151) (1,219) - - -------- -------- -------- Comprehensive loss $(21,390) $ (3,723) $ (4,804) ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002, 2001 AND 2000 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (1) THE COMPANY The accompanying consolidated financial statements include the accounts of Dayton Superior Corporation and its wholly-owned subsidiaries (collectively referred to as the "Company"). All intercompany transactions have been eliminated. The Company believes it is the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction and of metal accessories used in masonry construction. The Company has a distribution network consisting of 18 manufacturing/distribution plants and 26 service/distribution centers in the United States and Canada. The Company employs approximately 700 salaried and 1,200 hourly personnel, of whom approximately 600 of the hourly personnel and four of the salaried personnel are represented by labor unions. There is one collective bargaining agreement expiring in 2003, covering hourly employees at the Parsons, Kansas facility. 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, but will remain subject to certain ownership requirements. 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 a loss in 2000 of $7,761 from the early extinguishment 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 ======
(2) ACQUISITIONS (a) ANCONCCL INC. -- On June 19, 2001, the Company acquired the stock of AnconCCL Inc., dba BarLock ("BarLock") for approximately $9,900 in cash, including acquisition costs. The payment was funded through the Company's credit facility. The business is being operated as part of the Company's concrete accessories business. The acquisition has been accounted for as a purchase, and the results of BarLock have been included in the accompanying financial statements since the date of acquisition. The purchase price has been allocated based on the fair values of the assets acquired (approximately $10,800, including goodwill of $7,100) and liabilities assumed (approximately $900). Pro forma financial information is not required as this was not a significant acquisition. 36 (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 Investment Partners Fund, LP and an increase of approximately $24,800 to the credit facility. The business is being operated as part of the Company's concrete accessories business. The acquisition has been accounted for as a purchase, and the results of Aztec have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated based on the fair values of the assets acquired (approximately $44,000, including goodwill of $35,400) and liabilities assumed (approximately $11,200, including a deferred compensation liability of approximately $7,700). Pro forma financial information is not required as this was not a significant acquisition. (c) CONSPEC MARKETING AND MANUFACTURING CO., INC. -- On July 17, 2000, the Company acquired all of the stock of Conspec Marketing & Manufacturing Co., Inc., and related entities ("Conspec", now known as Dayton Superior Specialty Chemical Corp.), for $24,300 in cash, including acquisitions costs, a payment of approximately $1,000 in 2001 for a tax election, and net of a working capital reduction of approximately $100 received in 2001. The payments were funded through the Company's credit facility. The business is being operated as part of the Company's concrete accessories business. The acquisition has been accounted for as a purchase, and the results of Conspec 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 $29,600, including goodwill of $19,500) and liabilities assumed (approximately $5,300). Pro forma financial information is not required as this was not a significant acquisition. (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 as this was not a significant acquisition. (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) INVENTORIES -- The Company values all inventories at the lower of first-in, first-out ("FIFO") cost or market. The Company provides net realizable value reserves which reflect the Company's best estimate of the excess of the cost of potential obsolete and slow moving inventory over the expected net realizable value. Following is a summary of the components of inventories as of December 31, 2002 and December 31, 2001: 37
December 31, December 31, 2002 2001 ----------- ----------- Raw materials $15,984 $ 11,581 Work in progress 3,069 3,624 Finished goods 29,932 34,639 ------- -------- 48,985 49,844 Net realizable value reserve (1,074) (1,944) ------- -------- $47,911 $ 47,900 ======= ========
(b) RENTAL EQUIPMENT -- Rental equipment is manufactured by the Company for resale and for rent to others on a short-term basis. Rental equipment is recorded at the lower of FIFO cost or market and is depreciated over the estimated useful life of the equipment, three to fifteen years, on a straight-line method. The balances as of December 31, 2002 and 2001 are net of accumulated depreciation of $24,181 and $20,002, respectively. Rental revenues and cost of sales associated with rental revenue are as follows:
For the year ending ---------------------------------------------- December 31, December 31, December 31, 2002 2001 2000 ----------- ------------ ------------ Rental revenue $42,801 $54,577 $55,441 Cost of sales 14,096 12,101 8,889 ------- ------- ------- Gross profit $28,705 $42,476 $46,552 ======= ======= =======
Effective January 1, 2002, the Company changed its accounting estimates relating to the depreciable life of a portion of its rental fleet. The change was based upon a study performed by the Company that showed that the useful life of certain items within the rental fleet was shorter than the fifteen-year life previously assigned. The study showed that a three-year life was more appropriate based upon the nature of these products. These products include smaller hardware and accessories that accompany steel forms and the recently introduced European forming systems. As a result of the change, the Company recorded incremental depreciation of approximately $4,000 in 2002, which is reflected in cost of goods sold in the accompanying December 31, 2002 consolidated statement of operations. Effective January 1, 2001, the Company changed its accounting estimates relating to the depreciable life of a portion of its rental fleet. The change was based upon a study performed by the Company that showed that the renovation of the plywood surface of certain products within the rental fleet extended the useful life beyond normal repair and maintenance. Accordingly, the Company began capitalizing rather than expensing these renovation related expenditures. Simultaneously, the useful lives of the plywood surface was reduced from fifteen years to three years to match the useful life of the renovation. As a result of the change, the Company recorded incremental depreciation of approximately $2,300 in 2001, which is reflected in cost of goods sold in the accompanying December 31, 2001 consolidated statement of operations. (c) PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are valued at cost and depreciated using straight-line methods over their estimated useful lives of 10-30 years for buildings and improvements and 3-10 years for machinery and equipment. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful life of the improvement. Improvements and replacements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. 38 Included in the cost of property, plant and equipment are assets obtained through capital leases, all included in machinery and equipment. As of December 31, 2002 the cost of assets under capital lease is $2,758, net of accumulated depreciation of $256. Depreciation expense related to machinery and equipment under capital lease was $256 for the period ended December 31, 2002. (d) GOODWILL AND INTANGIBLE ASSETS -- Amortization is provided over the term of the loan (7 to 9 years) for deferred financing costs, the term of the agreement (5 years) for non-compete agreements, and over the estimated useful life (3 years) for intellectual property. Amortization of non-compete agreements and intellectual property is reflected as "Amortization of goodwill and intangibles" in the accompanying consolidated statements of operations. The estimated aggregate amortization expense for each of the next three years is as follows: $533 in 2003, $515 in 2004, and $286 in 2005. Amortization of deferred financing costs is reflected as "Interest expense" in the accompanying consolidated statements of operations. The estimated aggregate interest expense for each of the next five years related to the amortization of deferred financing costs is as follows: $1,391 in 2003, $1,365 in 2004, $1,336 in 2005, $1,116 in 2006, and $841 in 2007. Intangible assets consist of the following at December 31:
2002 2001 ------- ------- Deferred financing costs $10,550 $10,550 Intellectual property 690 690 Covenants not to compete 1,595 996 ------- ------- 12,835 12,236 Less: accumulated amortization (4,430) (2,420) ------- ------- $8,405 $9,816 ======= =======
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 revises the accounting for future business combinations to only allow the purchase method of accounting. In addition, the two statements preclude amortization of goodwill for periods beginning after December 15, 2001. Instead, an annual review of the recoverability of the goodwill and intangible assets is required. Certain other intangible assets continue to be amortized over their estimated useful lives. The Company adopted SFAS No. 142 effective January 1, 2002. As a result of adopting SFAS No. 142, the Company recorded a non-cash charge in 2002 of $17,140 ($19,894 of goodwill, less an income tax benefit of $2,754), which is reflected as a cumulative effect of change in accounting principle in the accompanying December 31, 2002 consolidated statement of operations. This amount does not affect the Company's ongoing operations. The goodwill arose from the acquisitions of Dur-O-Wal in 1995, Southern Construction Products in 1999, and Polytite in 2000, all of which manufacture and sell metal accessories used in masonry construction. The masonry products market has experienced weaker markets and significant price competition, which has had a negative impact on the product line's earnings and fair value. The following is a reconciliation from reported net loss to net loss adjusted for the amortization of goodwill:
Year Ended ----------------------------------------------- December 31, December 31, December 31, 2002 2001 2000 ----------- ----------- ------------ Net loss before cumulative effect of change in accounting principle, as reported $(3,123) $(3,474) $(4,135) Amortization of goodwill, net of tax benefit - 3,375 2,181 ------- ------- ------- Net loss before cumulative effect of change in accounting principle, as adjusted $(3,123) $ (99) $(1,954) ======= ======= =======
39 (e) INCOME TAXES -- Deferred income taxes are determined by applying current statutory tax rates to the cumulative temporary differences between the carrying value of assets and liabilities for financial reporting and tax purposes. (f) ENVIRONMENTAL REMEDIATION LIABILITIES -- The Company accounts for environmental remediation liabilities in accordance with the American Institute of Certified Public Accountants issued Statement of Position 96-1, "Environmental Remediation Liabilities," ("SOP 96-1"). The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. (g) FOREIGN CURRENCY TRANSLATION ADJUSTMENT -- The financial statements of foreign subsidiaries and branches are maintained in their functional currency (Canadian dollars) and are then translated into U.S. dollars. The balance sheets are translated at end of year rates while revenues, expenses and cash flows are translated at weighted average rates throughout the year. Translation adjustments, which result from changes in exchange rates from period to period, are accumulated in a separate component of shareholders' equity. Transactions in foreign currencies are translated into U.S. dollars at the rate in effect on the date of the transaction. Changes in foreign exchange rates from the date of the transaction to the date of the settlement of the asset or liability are recorded as income or expense. (h) REVENUE RECOGNITION -- We recognize revenue from product sales when the product is shipped from our facilities and risk of loss and title have passed to the customer or, at the customer's written request and where the customer has made a fixed commitment to purchase goods on a fixed schedule consistent with the customer's business and where risk of ownership has passed to the buyer, the goods are set-aside in storage and the Company does not retain any specific performance obligations such that the earning process is not complete. For transactions where we have not obtained customer acceptance, revenue is deferred until the terms of acceptance are satisfied. On rental equipment sales, revenue is recognized and recorded on the date of shipment. Rental revenues are recognized ratably over the terms of the rental agreements. (i) CUSTOMER REBATES -- The Company offers rebates to certain customers, which are redeemable only if the customer meets certain specified thresholds relating to a cumulative level of sales transactions. Pursuant to EITF 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products), the Company records such rebates as a reduction of revenue in the period the related revenues are recognized. (j) USE OF ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. Examples of accounts in which estimates are used include the reserve for excess and obsolete inventory, the allowance for doubtful accounts and sales returns and allowances, the accrual for self-insured employee medical claims, the self-insured product and general liability accrual, the self-insured workers' compensation accrual, accruals for litigation losses, the valuation allowance for deferred tax assets, actuarial assumptions used in determining pension benefits, and actuarial assumptions used in determining other post-retirement benefits. 40 (k) NEW ACCOUNTING PRONOUNCEMENTS-- In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that an obligation associated with the retirement of a tangible long-lived asset be recognized as a liability when incurred. Subsequent to initial measurement, an entity recognizes changes in the amount of the liability resulting from the passage of time and revisions to either the timing or amount of estimated cash flows. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company does not believe this pronouncement will have a material impact on its consolidated financial position, results of operations, or cash flows. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations-- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," that address the disposal of a segment of a business. The Statement also amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The Statement is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, and generally would be applied prospectively for disposal activities initiated by a commitment to a plan made after the entity's initial adoption of the Statement. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial position, results of operations, or cash flows. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 eliminates the requirement to classify gains and losses from the extinguishment of indebtedness as extraordinary, requires certain lease modifications to be treated the same as a sale-leaseback transaction, and makes other non-substantive technical corrections to existing pronouncements. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with earlier adoption encouraged. The adoption of this pronouncement in 2003 resulted in the reclassification in 2000 of the loss on the early extinguishment of long-term debt. In July 2002, the FASB issued Statement of SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certainemployee severance costs that are associated with a restructuring or other exit or disposal activity. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS 148 amends FASB statement No. 123, "Accounting for Stock-Based Compensation." Although it does not require use of fair value method of accounting for stock-based employee compensation, it does provide alternative methods of transition. It also amends the disclosure provisions of Statement 123 and APB Opinion No. 28, "Interim Financial Reporting," to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148's amendment of the transition and annual disclosure requirements is effective for fiscal years ending after December 15, 2002. The amendment of disclosure requirements of Opinion No. 28 is effective for interim periods beginning after December 15, 2002. Although the Company has not changed to the fair value method, the disclosure requirements of this statement have been adopted. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 requires certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity to be classified as liabilities. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all other instruments 41 that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003, except for mandatory redeemable financial instruments of a nonpublic entity, this statement shall be effective for periods beginning after December 15, 2003. Management is currently assessing the impact of this pronouncement and has not determined the impact on the Company's financial statements. In November 2002, the FASB issued Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements in this interpretation are required for financial statements of periods ending after December 15, 2002. The initial measurement provisions of the interpretation are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The Company does not believe this pronouncement will have a material impact on its 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 Company does not believe this pronouncement will have a material impact on our financial position, results of operations and cash flows. (l) 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 income and net income per share would have been reduced to the unaudited pro forma amounts as follows:
2002 2001 2000 ---- ---- ---- Net income (loss) available to common shareholders: As Reported $(20,263) $(3,474) $(4,718) Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effect (284) (633) (1,068) -------- ------ ------- Pro Forma $(20,547) (4,107) (5,786) -------- ------ -------
(4) CREDIT ARRANGEMENTS The Company has a credit facility that consists of (i) a $50,000 revolving credit facility maturing June 2006, (ii) a $30,000 acquisition facility, converting from revolving loans into term loans four years from the closing and maturing June 2006 and (iii) term loan facilities in an aggregate principal amount of $122,000, consisting of a $23,500 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 in June 2004. The credit facility has several interest rate options, which reprice on a short-term basis. At December 31, 2002, the Company had outstanding letters of credit of approximately $8,700, and the Company had available borrowings of approximately $31,200 under its revolving credit facility. 42 The average borrowings, maximum borrowings, and weighted average interest rate on the revolving credit facility and its predecessors for the periods indicated are as follows:
For the year ended ------------------------------------ December 31, December 31, December 2002 2001 31, 2000 --------- ----------- -------- Average borrowings ...................... $15,156 $ 8,980 $ 5,965 Maximum borrowing ....................... 29,275 26,425 16,420 Weighted average interest rate, including commitment fee for unused portion of revolving credit facility ............. 6.4% 10.4% 11.1%
The credit facility contains certain restrictive covenants, which require that, among other things, the Company maintain a minimum interest coverage ratio, not exceed a certain leverage ratio, maintain a minimum EBITDA, as defined, and limit its capital expenditures. The Company was in compliance with its loan covenants as of December 31, 2002. On October 23, 2002, the Company obtained an amendment to the senior credit facility to relax certain financial ratios that the Company was required to maintain. The adjustments affect the eight fiscal quarters, beginning with the quarter ended December 31, 2002. The credit facility is secured by substantially all assets of the Company. The Company has an Economic Development Loan from the city of Parsons, Kansas. The loan is payable in quarterly installment of $8 through July 2005. The loan is secured by real estate in Parsons. In July 2002, the Company completed a transaction for the sale and leaseback of its forklift fleet. The transaction resulted in proceeds of $2,258 and a gain of $397, which was deferred and is being amortized over the term of the leases. Amortization expense during the year ended December 31, 2002 was approximately $100. The unamortized deferred gain at December 31, 2002 was approximately $300. A portion of the fleet was recorded as a capital lease and an initial capital lease obligation of $1,740 was recorded. The remaining fleet is recorded as an operating lease. Following is a summary of the Company's long-term debt as of December 31, 2002 and 2001:
2002 2001 ---- ---- Revolving credit facility, weighted average interest rate of 6.0% $ 10,050 $ 2,000 Acquisition credit facility, weighted average interest rate of 4.6% 9,250 9,250 Term Loan Tranche A, weighted average interest rate of 4.6% 19,391 22,161 Term Loan Tranche B, weighted average interest rate of 5.2% 97,516 98,500 Senior Subordinated Notes, interest rate of 13.0% 170,000 170,000 Debt discount on Senior Subordinated Notes (10,374) (11,297) Debentures previously held by Dayton Superior Capital Trust, payable on demand, interest rate of 9.1% 1,110 1,214 Capital lease obligation 2,507 - City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 86 118 --------- --------- Total long-term debt 299,536 291,946 Less current portion (6,991) (5,001) --------- --------- Long-term portion $ 292,545 $ 286,945 ========= =========
43 Scheduled maturities of long-term debt and future minimum lease payments under capital leases are:
Long-term Capital Year Debt Leases Total ---- --------- ------- ----- 2003 $ 6,283 $ 796 $ 7,079 2004 9,639 707 10,346 2005 11,491 558 12,049 2006 31,683 414 32,097 2007 47,034 274 47,308 Thereafter 201,273 149 201,422 -------- ------ -------- Long-Term Debt and Lease Payments 307,403 2,898 310,301 Less: Debt Discount (10,374) - (10,374) Less: Amounts Representing Interest - (391) (391) -------- ------ -------- $297,029 $2,507 $299,536 ======== ====== ========
The fair value of the Senior Subordinated Notes, based on the last trade price of $86 per unit, was $146,200 at December 31, 2002. The fair market value of the Company's other fixed rate long-term debt is estimated using discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements. At December 31, 2002, the estimated fair value of the debentures previously held by Dayton Superior Capital Trust is $1,763. The estimated fair value of the City of Parsons, Kansas Economic Development Loan is $60. The estimated fair value of the credit facility approximates its face value, as this facility has variable interest rates tied to market rates. 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 (Aztec Concrete Accessories, Inc.; Trevecca Holdings, Inc.; Dayton Superior Specialty Chemical Corp.; Symons Corporation; and Dur-O-Wal, Inc.) have guaranteed 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. The following supplemental consolidated condensed balance sheets as of December 31, 2002 and 2001, the supplemental consolidated condensed statements of operations and cash flows for the years ended December 31, 2002, 2001 and 2000 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. 44 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET AS OF DECEMBER 31, 2002
Dayton Non Superior Guarantor Guarantor Corporation Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ ASSETS Cash $ 1,605 $ (687) $ 1,486 $ - $ 2,404 Accounts receivable, net 30,223 30,487 455 - 61,165 Inventories 23,408 23,180 1,323 - 47,911 Intercompany 56,498 (56,414) (84) - - Other current assets 8,555 8,539 163 - 17,257 --------- --------- --------- --------- --------- TOTAL CURRENT ASSETS 120,289 5,105 3,343 - 128,737 Rental equipment, net 4,268 58,846 46 - 63,160 Property, plant and equipment, net 25,690 35,378 178 - 61,246 Investment in subsidiaries 123,041 - - (123,041) - Other assets 53,497 67,331 - - 120,828 --------- --------- --------- --------- --------- TOTAL ASSETS $ 326,785 $ 166,660 $ 3,567 $(123,041) $ 373,971 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current maturities of long-term debt $ 6,991 $ - $ - $ - $ 6,991 Accounts payable 13,983 11,407 277 - 25,667 Accrued liabilities 18,022 12,152 154 - 30,328 --------- --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 38,996 23,559 431 - 62,986 Long-term debt 292,545 - - - 292,545 Other long-term liabilities 5,730 16,763 188 - 22,681 Total shareholders' equity (deficit) (10,486) 126,338 2,948 (123,041) (4,241) --------- --------- --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 326,785 $ 166,660 $ 3,567 $(123,041) $ 373,971 ========= ========= ========= ========= =========
45 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET AS OF DECEMBER 31, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ ASSETS Cash $ 2,714 $ 832 $ 1,443 $ - $ 4,989 Accounts receivable, net 20,014 30,516 1,098 - 51,628 Inventories 23,030 23,925 945 - 47,900 Intercompany 58,692 (58,584) (108) - - Other current assets 9,046 9,594 184 - 18,824 --------- --------- --------- --------- --------- TOTAL CURRENT ASSETS 113,496 6,283 3,562 - 123,341 Rental equipment, net 6,256 65,009 58 - 71,323 Property, plant and equipment, net 23,708 36,222 191 - 60,121 Investment in subsidiaries 122,864 - - (122,864) - Other assets 55,899 86,159 - - 142,058 --------- --------- --------- --------- --------- TOTAL ASSETS $ 322,223 $ 193,673 $ 3,811 $(122,864) $ 396,843 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current maturities of long-term debt $ 5,001 $ - $ - $ - $ 5,001 Accounts payable 12,579 14,548 213 - 27,340 Accrued liabilities 20,004 13,742 311 - 34,057 --------- --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 37,584 28,290 524 - 66,398 Long-term debt 286,945 - - - 286,945 Other long-term liabilities 4,461 22,132 186 - 26,779 Total shareholders' equity (deficit) (6,767) 143,251 3,101 (122,864) 16,721 --------- --------- --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 322,223 $ 193,673 $ 3,811 $(122,864) $ 396,843 ========= ========= ========= ========= =========
46 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ Net sales $ 192,271 $ 197,368 $ 9,098 $ 398,737 Cost of sales 132,946 130,894 6,021 269,861 --------- --------- --------- --------- Gross profit 59,325 66,474 3,077 128,876 Selling, general and administrative expenses 40,422 49,188 1,611 91,221 Facility closing and severance expenses 3,827 1,572 - 5,399 Amortization of goodwill and intangibles 373 230 - 603 Management fees (300) - 300 - --------- --------- --------- --------- Income from operations 15,003 15,484 1,166 31,653 Other expenses Interest expense 33,101 866 - 33,967 Loss on disposals of property, plant and equipment 728 387 - 1,115 Other expense (income), net (35) 44 71 80 --------- --------- --------- --------- Income (loss) before provision (benefit) for income taxes and cumulative effect of change in accounting principle (18,791) 14,187 1,095 (3,509) Provision (benefit) for income taxes (2,067) 1,561 120 (386) --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principle (16,724) 12,626 975 (3,123) Cumulative effect of change in accounting principle, net of income tax benefit of $2,754 - (17,140) - (17,140) --------- --------- --------- --------- Net income (loss) $ (16,724) $ (4,514) $ 975 $ (20,263) ========= ========= ========= =========
47 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ Net sales $ 194,163 $ 211,918 $ 9,410 $ 415,491 Cost of sales 132,837 137,459 5,925 276,221 --------- --------- --------- --------- Gross profit 61,326 74,459 3,485 139,270 Selling, general and administrative expenses 38,006 57,983 1,543 97,532 Facility closing and severance expenses 442 6,918 - 7,360 Amortization of goodwill and intangibles 1,980 1,932 - 3,912 Management fees (300) - 300 - --------- --------- --------- --------- Income from operations 21,198 7,626 1,642 30,466 Other expenses Interest expense 34,463 561 - 35,024 Other expense (income), net - 95 - 95 --------- --------- --------- --------- Income (loss) before provision for income taxes (13,265) 6,970 1,642 (4,653) Provision (benefit) for income taxes (3,361) 1,766 416 (1,179) --------- --------- --------- --------- Net income (loss) $ (9,904) $ 5,204 $ 1,226 $ (3,474) ========= ========= ========= =========
48 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------- Net sales $ 197,330 $ 180,069 $ 9,669 $ 387,068 Cost of sales 128,355 114,471 5,920 248,746 --------- --------- --------- --------- Gross profit 68,975 65,598 3,749 138,322 Selling, general and administrative expenses 41,653 49,124 2,164 92,941 Facility closing and severance expenses 1,860 657 - 2,517 Amortization of goodwill and intangibles 1,784 724 - 2,508 Management fees (850) 689 161 - --------- --------- --------- --------- Income from operations 24,528 14,404 1,424 40,356 Other expenses Interest expense 22,669 (95) - 22,574 Non-recurring item - Lawsuit judgment - 15,341 - 15,341 Loss on early extinguishment of 7,761 - - 7,761 long-term debt Other expense, net 216 77 - 293 --------- --------- --------- --------- Income (loss) before provision (benefit) for income taxes (6,118) (919) 1,424 (5,613) Provision (benefit) for income taxes (2,123) (10) 655 (1,478) --------- --------- --------- --------- Net income (loss) (3,995) (909) 769 (4,135) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit 583 - - 583 --------- --------- --------- --------- Net income (loss) $ (4,578) $ (909) $ 769 $ (4,718) ========= ========= ========= =========
49 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2002
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (9,514) $(11,724) $ 975 $(20,263) Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle - 17,140 - 17,140 Depreciation and amortization 7,712 16,026 50 23,788 Deferred income taxes 3,228 - - 3,228 Gain on sales of rental equipment and fixed assets (572) (20,247) (32) (20,851) Change in assets and liabilities, net of the effects of acquisitions (5,834) (13,460) (998) (20,292) -------- -------- -------- -------- Net cash provided by (used in) operating activities (4,980) (12,265) (5) (17,250) -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (6,658) (4,489) (130) (11,277) Proceeds from sales of fixed assets 1,105 877 28 2,010 Rental equipment additions (758) (17,619) (34) (18,411) Proceeds from sale of rental equipment 3,018 32,550 73 35,641 -------- -------- -------- -------- Net cash provided by (used in) investing activities (3,293) 11,319 (63) 7,963 -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (4,141) - - (4,141) Issuance of long-term debt 8,050 - - 8,050 Proceeds from sale/leaseback transaction 633 1,597 28 2,258 Issuance of common shares, net of issuance costs 131 - - 131 Redemption of common shares and purchase of treasury shares (205) - - (205) Repayment of loans to shareholders, net 502 - - 502 Intercompany 2,194 (2,170) (24) - -------- -------- -------- -------- Net cash provided by (used in) financing activities 7,164 (573) 4 6,595 -------- -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 107 107 -------- -------- -------- -------- Net increase (decrease) in cash (1,109) (1,519) 43 (2,585) CASH, beginning of year 2,714 832 1,443 4,989 -------- -------- -------- -------- CASH, end of year $ 1,605 $ (687) $ 1,486 $ 2,404 ======== ======== ======== ========
50 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ------------- ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (9,904) $ 5,204 $ 1,226 $ (3,474) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 8,483 15,928 42 24,453 Deferred income taxes (2,972) - - (2,972) Gain on sales of rental equipment and fixed assets (1,062) (13,039) (83) (14,184) Change in assets and liabilities, net of the effects of acquisitions (9,109) 15,049 (1,540) 4,400 ------------- ------------- ------------- ------------- Net cash provided by (used in) operating activities (14,564) 23,142 (355) 8,223 ------------- ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (4,065) (5,679) (180) (9,924) Proceeds from sales of fixed assets 34 132 3 169 Rental equipment additions (1,565) (24,317) (51) (25,933) Proceeds from sale of rental equipment 2,193 20,390 159 22,742 Acquisitions (40,707) - - (40,707) ------------- ------------- ------------- ------------- Net cash used in investing activities (44,110) (9,474) (69) (53,653) ------------- ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (48,532) - - (48,532) Issuance of long-term debt 93,751 - - 93,751 Issuance of Class A common shares 5,334 - - 5,334 Financing costs incurred (791) - - (791) Purchase of treasury shares (928) - - (928) Intercompany 10,951 (12,011) 1,060 - ------------- ------------- ------------- ------------- Net cash provided by (used in) financing activities 59,785 (12,011) 1,060 48,834 ------------- ------------- ------------- ------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (197) (197) ------------- ------------- ------------- ------------- Net increase in cash 1,111 1,657 439 3,207 CASH, beginning of year 1,603 (825) 1,004 1,782 ------------- ------------- ------------- ------------- CASH, end of year $ 2,714 $ 832 $ 1,443 $ 4,989 ============= ============= ============= =============
51 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2000
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ------------- ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (3,995) $ (909) $ 769 $ (4,135) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary loss 7,761 - - 7,761 Depreciation and amortization 7,192 9,242 36 16,470 Deferred income taxes (1,150) (104) 279 (975) Gain on sales of rental equipment and fixed assets (1,041) (8,757) (48) (9,846) Change in assets and liabilities, net of the effects of acquisitions (3,101) (7,500) (813) (11,414) ------------- ------------- ------------- ------------- Net cash provided by (used in) operating activities 5,666 (8,028) 223 (2,139) ------------- ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (7,063) (4,537) (78) (11,678) Proceeds from sales of fixed assets 32 163 - 195 Rental equipment additions (1,939) (16,106) (65) (18,110) Proceeds from sale of rental equipment 2,500 14,723 86 17,309 Acquisitions (25,054) - - (25,054) Refunds of purchase price on acquisitions 2,148 - - 2,148 ------------- ------------- ------------- ------------- Net cash used in investing activities (29,376) (5,757) (57) (35,190) ------------- ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (122,185) - - (122,185) Issuance of long-term debt 239,171 - - 239,171 Prepayment premium on extinguishments of long-term debt and interest rate swap agreements (476) - - (476) Financing cost on unused long-term debt commitment (750) - - (750) Issuance of Class A common shares 93,544 - - 93,544 Redemption of Class A common shares (164,316) - - (164,316) Financing costs incurred (9,761) - - (9,761) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit (583) - - (583) Intercompany (12,819) 13,321 (502) - ------------- ------------- ------------- ------------- Net cash provided by (used in) financing activities 21,825 13,321 (502) 34,644 ------------- ------------- ------------- ------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (86) (86) ------------- ------------- ------------- ------------- Net decrease in cash (1,885) (464) (422) (2,771) CASH, beginning of year 3,488 (361) 1,426 4,553 ------------- ------------- ------------- ------------- CASH, end of year $ 1,603 $ (825) $ 1,004 $ 1,782 ============= ============= ============= =============
52 (5) COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE TRUST PREFERRED SECURITIES In October 1999, the Company completed an underwritten public offering of 1,062,500 Company obligated mandatorily redeemable convertible trust preferred securities at a price of $20 per security. Net proceeds to the Company after issuance costs were $19,554. The securities were issued by a limited purpose Delaware trust which used the proceeds to purchase from the Company the same principal amount of convertible junior subordinated debentures. The securities were guaranteed by the Company on a subordinated basis. As a result of the recapitalization, the trust was dissolved. The securities converted to debentures having the right to receive cash in the amount of $23,375 ($22.00 per preferred security), plus accrued interest. As of December 31, 2002, $22,265 of the debentures had been redeemed. Interest is payable on the preferred securities at the rate of 9.1%. (6) COMMON SHARES (a) STOCK OPTION PLAN-- Upon consummation of the recapitalization, the Company adopted the 2000 Stock Option Plan of Dayton Superior Corporation ("Stock Option Plan"). The Stock Option Plan permits the grant of stock options to purchase 683,159 common shares. Options to purchase 147,225, 5,506 and 473,016 common shares were granted during 2002, 2001, and 2000, respectively. Options that are cancelled may be reissued. The Stock Option Plan constitutes the amendment and merger into one plan of four previous option plans and governs options that remain outstanding following the recapitalization, as well as new option grants. The terms of the new option grants are as follows: - Options to purchase 22,997 common shares were exercisable when granted. - Options to purchase 30,850 common shares became exercisable in 2002. - Options to purchase 6,426 common shares will become exercisable in 2003. - Options to purchase 8,392 common shares will become exercisable in 2004. - Options to purchase 6,250 common shares will become exercisable in 2005. - The remaining options to purchase 513,053 common shares are eligible to become exercisable in installments over one to five years based on the Company's performance, but, in any case, become exercisable no later than nine years after the grant date. - These options may be subject to accelerated vesting upon certain change in control events based on Odyssey's return on investment. Under the Stock Option Plan, the option exercise price equals the stock's market price on date of grant. The Company accounts for these plans under APB Opinion No. 25, under which no compensation costs have been recognized. Had compensation cost 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 would have been reduced to the following pro forma amounts: 53
2002 2001 2000 -------- ------- ------- Net income (loss) available to common shareholders: As Reported $(20,263) $(3,474) $(4,718) Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effect (284) (633) (1,068) -------- ------- ------- Pro Forma $(20,547) (4,107) (5,786) ======== ======= =======
A summary of the status of the Company's stock option plans at December 31, 2002, 2001, and 2000, and changes during the years then ended is presented in the table and narrative below:
Weighted Average Number of Exercise Price Per Shares Share --------- ------------------ Outstanding at December 31, 1999 442,283 9.28 Granted at a weighted average fair value of $7.65 473,016 27.00 Exercised (344,353) 8.85 --------- ------- Outstanding at December 31, 2000 570,946 24.22 Granted at a weighted average fair value of $7.65 5,506 27.50 Exercised (9,134) 21.20 Cancelled (26,060) 27.00 --------- ------- Outstanding at December 31, 2001 541,258 24.17 Granted at a weighted average fair value of $5.43 147,225 27.50 Exercised (3,050) 2.29 Cancelled (13,749) 25.21 --------- ------- Outstanding at December 31, 2002 671,684 $ 25.00 ========= =======
Price ranges and other information for stock options outstanding at December 31, 2002 are as follows:
Outstanding Exercisable ------------------------------ ------------------ Weighted Weighted Weighted Average Average Average Range of Exercise Exercise Remaining Exercise Prices Shares Price Life Shares Price - ----------------- ------- -------- --------- ------- -------- $ 1.96 - $ 4.00 40,887 $ 2.45 1.7 years 40,887 $ 2.45 $ 12.50 - $ 12.63 4,929 12.56 4.5 4,929 12.56 $ 16.81 - $ 19.91 38,264 18.11 5.6 38,264 18.11 $ 27.00 - $ 27.50 587,604 27.12 8.0 104,012 27.04 ------- -------- --------- ------- -------- 671,684 $ 25.00 7.5 years 188,092 $ 19.50 ======= ======== ========= ======= ========
The fair value of each option grant is estimated on the date of grant using the Black Scholes options pricing model with the following weighted average assumptions used for grants in 2002, 2001, and 2000, respectively:
2002 2001 2000 ------- ------- ------- Risk-free interest rates 3.70% 5.55% 5.55% Expected dividend yield 0% 0% 0% Expected lives 6 years 6 years 6 years Expected volatility 0.00% 0.00% 0.00%
54 (b) TREASURY SHARES-- During 2002 and 2001, the Company repurchased common shares from former employees in conjunction with the facility closing and severance plans discussed in Note 11. There were 7,459 shares repurchased in 2002 for $205, and 29,288 shares repurchased in 2001 for $979. (7) RETIREMENT PLANS (a) COMPANY-SPONSORED PENSION PLANS-- The Company's pension plans cover virtually all hourly employees not covered by multi-employer pension plans and provide benefits of stated amounts for each year of credited service. The Company funds such plans at a rate that meets or exceeds the minimum amounts required by applicable regulations. The plans' assets are primarily invested in mutual funds comprised primarily of common stocks and corporate and U.S. government obligations. The Company provides postretirement health care benefits on a contributory basis and life insurance benefits for Symons salaried and hourly employees who retired prior to May 1, 1995.
PENSION PENSION SYMONS SYMONS BENEFITS BENEFITS POSTRETIREMENT POSTRETIREMENT 2002 2001 BENEFITS 2002 BENEFITS 2001 -------- -------- -------------- -------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 7,059 $ 6,166 $ 820 $ 774 Service cost 428 439 - - Interest cost 502 454 57 61 Amendments 120 - - - Actuarial loss (gain) 479 301 27 93 Benefits paid (361) (301) (183) (108) -------- -------- ------ ----- Benefit obligation at end of year $ 8,227 $ 7,059 $ 721 $ 820 ======== ======== ====== ===== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 6,716 $ 6,247 $ - $ - Actual return (loss) on plan assets (457) 206 - - Employer contribution 914 564 183 108 Benefits paid (361) (301) (183) (108) -------- -------- ------ ----- Fair value of plan assets at end of year $ 6,812 $ 6,716 $ - $ - ======== ======== ====== ===== FUNDED STATUS $ (1,415) $ (343) $ (720) $(820) Unrecognized prior service cost (32) (147) 192 216 Unrecognized net loss (gain) 1,402 (94) (39) (66) -------- -------- ------ ----- Net amount recognized $ (45) $ (584) $ (567) $(670) ======== ======== ====== ===== AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF: Accrued benefit liability $ (1,415) $ (584) $ (567) $(670) Accumulated other comprehensive income 1,370 - - - -------- -------- ------ ----- Net amount recognized $ (45) $ (584) $ (567) $(670) ======== ======== ====== ===== ASSUMPTIONS AS OF DECEMBER 31 Discount rate 6.75% 7.25% 6.75% 7.50% Expected return on plan assets 8% 8% N/A N/A Rate of compensation increase N/A N/A N/A N/A COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 428 $ 439 $ - $ - Interest cost 502 454 57 61 Expected return on plan assets (560) (494) - - Amortization of prior service cost (5) (6) 24 24 -------- -------- ------ ----- Net periodic pension cost $ 365 $ 393 $ 81 $ 85 ======== ======== ====== =====
55 As of December 31, 2002 and 2001, the plan had accumulated benefit obligations in excess of plan assets and the accumulated benefit obligation was equal to the projected benefit obligation. For purposes of determining the liability for other postretirement health care benefits, the weighted average assumed rate of increase in the per capita cost of covered benefits is 8.5% for 2003 gradually decreasing from 2004 to 2009 until an ultimate rate of 5.00% is assumed for the years 2010 and beyond. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one percentage point change in assumed health care cost trend rates would have the following effects:
1 Percentage 1 Percentage Point Increase Point Decrease -------------- -------------- Effect on total of service and interest cost components $ 6 $ (5) Effect on the postretirement benefit obligation 91 (81)
(b) MULTI-EMPLOYER PENSION PLAN-- Approximately 11% of the Company's employees are currently covered by collectively bargained, multi-employer pension plans. Contributions are determined in accordance with the provisions of negotiated union contracts and generally are based on the number of hours worked. The Company does not have the information available to determine its share of the accumulated plan benefits or net assets available for benefits under the multi-employer pension plans. The aggregate amount charged to expense under these plans was $347, $380, and $274, for the years ended December 31, 2002, 2001, and 2000, respectively. (c) 401(k) SAVINGS PLAN-- Most employees are eligible to participate in Company sponsored 401(k) savings plans. Company matching contributions vary from 0% to 50% according to terms of the individual plans and collective bargaining agreements. The aggregate amount charged to expense under these plans was $993, $1,000, and $918, for the years ended December 31, 2002, 2001, and 2000, respectively. (d) RETIREMENT CONTRIBUTION ACCOUNT-- The Company has a defined contribution plan for substantially all salaried employees. No contributions are permitted by employees, and the Company contributes 1.5% to 6.0% of eligible compensation, depending on the age of the employee. The amount charged to expense for the years ended December 31, 2002, 2001 and 2000 was $1,791, $1,905 and $1,559, respectively. (8) INCOME TAXES The following is a summary of the components of the Company's income tax provision for the years ended December 31, 2002, 2001, and 2000:
2002 2001 2000 ------- ------- ------- Currently payable (receivable): Federal $(3,397) $ (258) $ (857) State and local (354) 555 165 Deferred (future tax benefit) 3,365 (1,476) (786) ------- ------- ------- Total provision (benefit) $ (386) $(1,179) $(1,478) ======= ======= =======
56 The effective income tax rate differs from the statutory federal income tax rate for the years ended December 31, 2002, 2001, and 2000 for the following reasons: Statutory income tax rate 34.0% 34.0% 34.0% State income taxes (net of federal tax benefit) (4.1) 4.0 4.3 Nondeductible goodwill amortization and other permanent differences (8.6) (12.7) (12.0) Foreign income taxes (10.3) - - ----- ----- ----- Effective income tax rate 11.0% 25.3% 26.3% ===== ===== =====
The components of the Company's future income tax benefits and deferred tax liabilities as of December 31, 2002 and 2001 are as follows:
2002 2001 -------- -------- Current deferred taxes: Inventory reserves $ 668 $ 490 Accounts receivable reserves 876 2,778 Accrued liabilities 4,628 4,678 Other 22 16 -------- -------- Total 6,194 7,962 -------- -------- Long-term deferred taxes: Accelerated depreciation (18,504) (18,594) Other long-term liabilities 3,993 4,271 Other 2,592 958 -------- -------- Total (11,919) (13,365) -------- -------- Net deferred taxes $ (5,725) $ (5,403) ======== ========
For federal income tax purposes, the Company has federal net operating tax loss carryforwards of $1,769, which expire over a three year period beginning in 2019. The Company also has state net operating tax loss carryforwards of $758, which expire over a period of five to twenty years beginning in 2006. (9) SEGMENT REPORTING In an effort to reduce cost and enhance customer responsiveness, the Company consolidated its overhead structure from five marketing arms down to two effective January 1, 2003. Accordingly, the Company changed its reporting as a result of this consolidation such that it now reports under two segments: Construction Products Group and Symons. Construction Products Group and Symons sell primarily to external customers and are differentiated by their products and services, both of which serve the construction industry. Construction Products Group sells concrete accessories, which are used in connecting forms for poured-in-place concrete walls, anchoring or bracing for walls and floors, supporting bridge framework and positioning steel reinforcing bars; masonry accessories, which are placed between layers of brick and concrete blocks and covered with mortar to provide additional strength to walls; paving products which are used in the construction and rehabilitation of concrete roads, highways, and airport runways to extend the life of the pavement; and construction chemicals which are used in conjunction with its other products. Symons sells and rents reusable engineered forms and related accessories used in the construction of concrete walls, columns and bridge supports to hold concrete in place while it hardens and construction chemicals which are used in conjunction with its other products. 57 Sales between Construction Products Group and Symons are recorded at normal selling price by the selling segment and at cost for the buying segment, with the profit recorded as an intersegment elimination. Segment assets include accounts receivable; inventories; property, plant, and equipment; rental equipment; and an allocation of goodwill. Corporate and unallocated assets include cash, prepaid income taxes, future tax benefits, and financing costs. Export sales and sales by non-U.S. affiliates are not significant. Information about the income (loss) of each segment and the reconciliations to the consolidated amounts for the years ended December 31, 2002, 2001, and 2000 is as follows:
2002 2001 2000 --------- --------- --------- Construction Products Group $ 274,129 $ 282,375 $ 250,438 Symons 124,608 133,116 136,630 --------- --------- --------- Net sales to external customers $ 398,737 $ 415,491 $ 387,068 ========= ========= ========= Construction Products Group $ 13,123 $ 13,990 $ 13,578 Symons 8,107 7,052 6,243 --------- --------- --------- Net sales to other segments $ 21,230 $ 21,042 $ 19,821 ========= ========= ========= Construction Products Group $ 28,265 $ 29,315 $ 30,157 Symons 27,076 31,324 16,709 Intersegment Eliminations (11,032) (11,187) (9,949) Corporate (47,818) (54,105) (42,530) --------- --------- --------- Income (loss) before income taxes $ (3,509) $ (4,653) $ (5,613) ========= ========= ========= Construction Products Group $ 6,665 $ 6,455 $ 4,454 Symons 12,417 9,936 5,668 Corporate 1,768 1,899 2,491 --------- --------- --------- Depreciation $ 20,850 $ 18,290 $ 12,613 ========= ========= ========= Construction Products Group $ 258 $ 375 $ 335 Symons 229 16 16 Corporate 116 3,521 2,157 --------- --------- --------- Amortization of goodwill and intangibles $ 603 $ 3,912 $ 2,508 ========= ========= =========
Information regarding each segment's assets and the reconciliation to the consolidated amounts as of December 31, 2002 and 2001 is as follows:
2002 2001 -------- -------- Construction Products Group $159,955 $150,001 Symons 115,071 119,854 Corporate and Unallocated 98,945 126,988 -------- -------- Total Assets $373,971 $396,843 ======== ========
58 Information regarding capital expenditures by segment and the reconciliation to the consolidated amounts for the years ended December 31, 2002, 2001 and 2000 is as follows:
2002 2001 2000 -------- -------- -------- Construction Products Group $ 7,968 $ 6,629 $ 8,759 Symons 2,520 2,320 1,949 Corporate 789 975 970 -------- -------- -------- Property, Plant, and Equipment Additions $ 11,277 $ 9,924 $ 11,678 ======== ======== ======== Construction Products Group $ 864 $ 1,664 $ 2,041 Symons 17,547 24,269 16,069 -------- -------- -------- Rental Equipment Additions $ 18,411 $ 25,933 $ 18,110 ======== ======== ========
(10) COMMITMENTS AND CONTINGENCIES (a) OPERATING LEASES-- Rental expense for property, plant and equipment (principally office and warehouse facilities and office equipment) was $6,318, $6,599, and $4,731, for the years ended December 31, 2002, 2001 and 2000, respectively. Lease terms generally range from one to ten years and some contain renewal options. Aggregate minimum annual rental commitments under non-cancelable operating leases are as follows:
Operating Leases Sale-Leaseback Total 2003 $ 4,478 $175 $ 4,653 2004 3,262 - 3,262 2005 2,540 - 2,540 2006 2,048 - 2,048 2007 587 - 587 Thereafter 85 - 85 ------- ---- -------- Total $13,000 $175 $ 13,175 ======= ==== ========
(b) LITIGATION-- 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 $14,100 were awarded against Symons in 1999, and both parties were enjoined from engaging in certain conduct. The Company recorded a $15,000 charge in the second quarter of 2000 after its unsuccessful appeal. In October 2000, Symons satisfied the judgment of $14,100, post-judgment interest of $1,134, and reimbursement of EFCO's 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" and other claims 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. From time to time, the Company is involved in various legal proceedings arising out of the ordinary course of business. None of the matters in which the Company is currently involved, either individually, or in the aggregate, is expected to have a material adverse effect on the Company's business or financial condition. 59 (c) SELF-INSURANCE-- The Company is self-insured for certain of its group medical, workers' compensation and product and general liability claims. The Company has stop loss insurance coverage at various per occurrence and per annum levels depending on the type of claim. The Company consults with third party administrators to estimate the reserves required for these claims. No material revisions were made to the estimates for the years ended December 31, 2002, 2001 and 2000. The Company has reserved $6,890, and $6,911 as of December 31, 2002 and 2001, respectively. (d) SEVERANCE OBLIGATIONS-- The Company has employment agreements with its executive management and severance agreements with certain of its key management-level personnel, with annual base compensation ranging in value from $80 to $390. The agreements generally provide for salary continuation in the event of termination without cause for periods of one to two years. The agreements also contain certain non-competition clauses. As of December 31, 2002, the remaining aggregate commitment under these severance agreements if all individuals were terminated without cause was approximately $3,932. (11) FACILITY CLOSING AND SEVERANCE EXPENSES During 2000, as a result of the acquisition of Conspec, we approved and began implementing a plan to consolidate certain of our existing operations. Activity for this plan for the years ended December 31, 2000, 2001 and 2002 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Facility closing and severance expenses ................................ $ 834 $ 553 $ - $ 697 $ 2,084 Items charged against reserve ........... (96) (13) - (122) (231) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2000 .............. 738 540 - 575 1,853 Facility closing and severance expenses ................................ - - - - - Items charged against reserve ........... (738) (50) - (398) (1,186) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2001 .............. - 490 - 177 667 Facility closing and severance expenses ................................ - - - - - Items charged against reserve ........... - (221) - (84) (305) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2002 .............. $ - $ 269 $ - $ 93 $ 362 =========== =========== =========== =========== ===========
The remaining lease termination costs are expected to be paid through 2007, and the remaining other post-closing costs are expected to be paid in 2003. 60 During 2001, we approved and began implementing a plan to exit certain of our manufacturing and distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with net sales. Activity for this plan for the years ended December 31, 2001 and 2002 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Facility closing and severance expenses ................................ $ 3,287 $ 685 $ - $ 786 $ 4,758 Items charged against reserve ........... (2,356) (161) - - (2,517) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2001 .............. 931 524 - 786 2,241 Facility closing and severance expenses ................................ - - 108 - 108 Items charged against reserve ........... (931) (314) (108) (475) (1,828) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2002 .............. $ - $ 210 $ - $ 311 $ 521 =========== =========== =========== =========== ===========
The remaining balance is expected to be paid through 2004, and the other post-closing costs are expected to be paid in 2003. 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 years ended December 31, 2002 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Facility closing and severance expenses ................................ $ 4,441 $ 650 $ - $ 200 $ 5,291 Items charged against reserve ........... (2,029) (566) - (200) (2,795) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2002 .............. $ 2,412 $ 84 $ - $ - $ 2,496 =========== =========== =========== =========== ===========
The remaining balance is expected to be paid through 2004, and the other post-closing costs are expected to be paid in 2003. (12) RELATED PARTY TRANSACTIONS During 2002, the Company reimbursed Odyssey for $228 of out-of-pocket expenses. In conjunction with the acquisition of Aztec Concrete Accessories, Inc. ("Aztec"), the Company paid Odyssey a $350 fee, plus out-of-pocket expenses of $107 during 2001. In conjunction with the recapitalization and the related financing transactions, the Company paid Odyssey a fee of $4,000, plus out-of-pocket expenses of $699 during 2000. 61 (13) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2002 ----------------------------------------------------------- First Second Third Fourth Full Quarterly Operating Data Quarter Quarter Quarter Quarter Year - -------------------------------------- --------- --------- --------- --------- --------- Net sales (as restated) $ 82,772 $ 112,214 $ 110,526 $ 93,225 $ 398,737 Gross profit 26,517 36,587 36,623 29,149 128,876 Income (loss) before cumulative effect of change in accounting principle (3,010) 2,890 2,587 (5,590) (3,123)
2001 ----------------------------------------------------------- First Second Third Fourth Full Quarterly Operating Data Quarter Quarter Quarter Quarter Year - ------------------------ --------- --------- --------- --------- --------- Net sales (as restated) $ 88,312 $ 116,806 $ 115,650 $ 94,723 $ 415,491 Gross profit 26,610 40,847 39,357 32,456 139,270 Net income (loss) (4,591) 1,245 2,000 (2,128) (3,474)
2000 ----------------------------------------------------------- First Second Third Fourth Full Quarterly Operating Data Quarter Quarter Quarter Quarter Year - --------------------------------------- --------- --------- --------- --------- --------- Net sales (as restated) $ 81,305 $102,086 $ 113,263 $ 90,413 $ 387,068 Gross profit 27,131 37,233 41,970 31,988 138,322 Income (loss) before extraordinary item 473 (7,784) 3,870 (694) (4,135)
(14) RESTATEMENT Subsequent to the issuance of the Company's December 31, 2002 consolidated financial statements, management restated the Company's December 31, 2002, 2001 and 2000 consolidated statements of operations to reflect the application of Emerging Issues Task Force (EITF) 00-10, "Accounting for Shipping and Handling Fees and Costs" which was required to be adopted by the Company in the year ended December 31, 2000. EITF 00-10 requires that all shipping and handling costs billed to customers be recorded as sales and the actual costs incurred be recorded as a component of cost of sales. Before adopting EITF 00-10, the Company netted freight costs against freight revenue. As a result of adopting EITF 00-10, the Company's December 31, 2002, 2001 and 2000 net sales and cost of sales both increased by approximately $20,453, $21,791 and $19,223, respectively, to reflect the inclusion of shipping revenues and costs, but there was no effect on previously reported gross profit, income from operations, net income (loss), cash flows or financial position. The effects of the restatement on the years ended December 31, 2002, 2001 and 2000 are as follows (in thousands):
December 31, 2002 December 31, 2001 December 31, 2000 ------------------------- -------------------------- --------------------------- As Reported As Restated As Reported As Restated As Reported As Restated ----------- ----------- ----------- ----------- ----------- ----------- Sales $ 378,284 $ 398,737 $ 393,700 $ 415,491 $ 367,845 $ 387,068 Cost of Sales 249,408 269,861 254,430 276,221 229,523 248,746 ----------- ----------- ----------- ----------- ----------- ----------- Gross Profit $ 128,876 $ 128,876 $ 139,270 $ 139,270 $ 138,322 $ 138,322 =========== =========== =========== =========== =========== ===========
(15) SUBSEQUENT EVENT (a) ACQUISITION-- On July 29, 2003, the Company completed the acquisition of substantially all of the fixed assets and rental fleet assets of Safway Formwork Systems, L.L.C. for $19,965 plus $535 in acquisition costs. The purchase price was comprised of $13,000 in cash and a non-interest bearing (other than in the case of default) senior unsecured 62 note payable to the seller with a present value of $6,965 and a face amount of $12,000. The note was issued at a discount, is being accreted to the face value using the effective interest method and is reflected as interest expense. The first $250 installment payment on the note was paid on September 30, 2003, and an additional $750 is due on December 31, 2003. Thereafter, annual payments of $1,000 are due on September 30 of each year from 2004 through 2008, with a final balloon payment of $6,000 due on December 31, 2008. For purposes of calculating the net present value of the senior unsecured note, the Company has used an interest rate of 14.5%. The $13,000 of cash was funded through the issuance by the Company of 541,667 common shares valued at $13,000 in the aggregate to the Company's majority shareholder. The $535 in acquisition costs was funded through borrowings on the revolving credit facility. The acquisition will be accounted for as a purchase, and the results of Safway have been included in the Company's consolidated financial statements from the date of acquisition. The purchase price has been allocated based on the estimated fair value of the assets acquired, as follows: Rental equipment ............................. $ 20,035 Property, plant and equipment ................ 500 Covenants not to compete ..................... 465 Payable for covenants not to compete ......... (465) -------- Purchase price ............................... $ 20,535 ========
This allocation may change, as the Company's independent appraisal of the assets acquired and evaluations of costs to exit Safway's facilities has not been completed. (b) SENIOR SECURED NOTES OFFERING On June 9, 2003, the Company completed an offering of $165,000 of senior secured notes in a private placement. The notes mature in June 2008 and were issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The proceeds of the offering 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 transaction, the Company incurred a loss on the early extinguishment of long-term debt of $2,550. 63 64 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (AMOUNTS IN THOUSANDS)
Additions Deductions --------------------------------- ----------------------- Charges for Which Balance at Charged to Reserves Balance Beginning Costs and Were at End of year Expenses Other Created of Year ---------- ---------- ----- ----------- ------- Allowances for Doubtful Accounts and Sales Returns and Allowances For the year ended December 31, 2002 $ 7,423 $ 1,848 $ - $ (4,410) $ 4,861 For the year ended December 31, 2001 5,331 2,156 102 (1) (166) 7,423 For the year ended December 31, 2000 5,589 2,740 - (2,998) 5,331
- ---------- (1) Acquisition of BarLock and Aztec Concrete Accessories, Inc. 65 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. As discussed in the Current Report on Form 8-K that we filed with the Commission on June 10, 2002, we appointed Deloitte & Touche LLP as our new independent public accountant effective as of June 10, 2002 and we dismissed Arthur Andersen LLP as our independent public accountant effective as of June 10, 2002. 66 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the name, age and position of our executive officers and directors as of September 26, 2003.
Name Age Position - ---------------------- --- --------------------------------------------------------------- John A. Ciccarelli 64 Chairman of the Board of Directors Stephen R. Morrey 48 President, Chief Executive Officer and Director Raymond E. Bartholomae 57 Vice President and General Manager, Symons Dennis P. Haggerty 52 Vice President, Supply Chain Management Steven C. Huston 49 Vice President, General Counsel and Secretary Mark K. Kaler 46 Vice President and General Manager, Construction Products Group Edward J. Puisis 42 Vice President and Chief Financial Officer Thomas W. Roehrig 38 Vice President of Corporate Accounting Stephen Berger 64 Director William F. Hopkins 40 Director Douglas W. Rotatori 43 Director
John A. Ciccarelli has been a Director since 1994 and Chairman of our Board of Directors since 2000. Mr. Ciccarelli was President and Chief Executive Officer from 1989 until 2002. Stephen R. Morrey has been President, Chief Executive Officer and a Director since July 2002. From June 2001 to July 2002, Mr. Morrey was President of Alcoa Automotive Castings. From 1999 to June 2001, he was Vice President of Operations for the Occupant Safety Systems Division of TRW. From 1995 to 1999, Mr. Morrey served as Vice President of Operations for the Airbags Worldwide, Steering Wheels North America Division of TRW. Raymond E. Bartholomae has been employed by Symons since January 1970 and has been Vice President and General Manager, Symons, since February 1998. Dennis P. Haggerty has been Vice President, Supply Chain Management since October 2002. From October 2001 to October 2002, he was Director of Business Development/Quality for Alcoa Automotive Castings. From February 2000 to October 2001, he was Executive Vice President for Ventra Plastics. From May 1999 to February 2000, Mr. Haggerty was Vice President for Ventra Plastics Europe. From 1997 to May 1999, he served as Director of Operations for TRW. Steven C. Huston has been Vice President, General Counsel and Secretary since January 2003. From January 2002 to January 2003, he was Deputy General Counsel and Assistant Secretary. Mr. Huston was in private practice from February 2001 through December 2001, and prior to that, served as Counsel--North America for Wm. Wrigley Jr. Company from March 1997 to February 2001. Mark K. Kaler has been Vice President and General Manager, Construction Products Group since October 2002. From April 1996 to October 2002, Mr. Kaler was Vice President and General Manager, American Highway Technology. Edward J. Puisis has been Vice President and Chief Financial Officer since August 2003. From March 1998 to August 2003 Mr. Puisis was General Manager of Finance and Administration and Chief Financial Officer of Gallatin Steel Company, a partnership owned by Dafasco and Gerdau Ameristeel. Thomas W. Roehrig has been Treasurer since August 2003 and Vice President of Corporate Accounting since February 2003. From April 1998 to February 2003, Mr. Roehrig served as Corporate Controller. 67 Stephen Berger is currently chairman of Odyssey Investment Partners, LLC. Prior to joining Odyssey Investment Partners, LLC, Mr. Berger was a general partner of Odyssey Partners, LP from 1993 through 1997. Mr. Berger also served as a director of Transdigm, Inc., a supplier of highly engineered commercial and military aircraft parts from 1998 to July 2003. William F. Hopkins has been a member and Managing Principal of Odyssey Investment Partners, LLC since 1997. From 1994 to 1996, Mr. Hopkins was a principal in the private equity investing group of Odyssey Partners, LP. Mr. Hopkins also served as a director of Transdigm, Inc. from 1998 to July 2003, a supplier of highly engineered commercial and military aircraft parts. Douglas W. Rotatori has been a principal of Odyssey Investment Partners, LLC since 1998. From 1995 to 1998, Mr. Rotatori was a principal with Wellspring Capital Management, LLC. We have five directors. Each director is elected to serve until the next annual meeting of shareholders or until a successor is elected. Our executive officers are elected by the directors to serve at the pleasure of the directors. There are no family relationships between any of our directors or executive officers. Our directors, all of whom are employed by us or Odyssey, do not receive any compensation for their service as directors. ITEM 11. EXECUTIVE COMPENSATION The following table summarizes the 2002, 2001, and 2000 compensation for our chairman, the chief executive officer and each of the other four most highly compensated executive officers who were serving as executive officers at December 31, 2002.
LONG-TERM COMPENSATION ANNUAL COMPENSATION ----------------------------- ---------------------------------- AWARDS PAYOUTS OTHER ANNUAL -------------- ----------- SALARY BONUS COMPENSATION SHARES LONG TERM NAME AND PRINCIPAL -------- ------------ UNDERLYING INCENTIVE ALL OTHER POSITION YEAR ($) ($) ($) OPTIONS (#)(2) PAYOUTS ($) COMPENSATION($)(1) - -------------------------- ---- -------- -------- ------------ -------------- ----------- ----------------- John A. Ciccarelli 2002 $390,000 $100,000 $ 0 0 $ 0 $ 16,000 Chairman of the Board 2001 380,769 91,475 0 0 0 13,600 of Directors 2000 347,981 300,000 0 120,072 0 13,000 Stephen R. Morrey 2002 $173,077 $235,000 $ 77,102(3) 100,000 $ 0 $ 0 President and Chief Executive Officer Raymond E. Bartholomae 2002 $210,000 $120,000 $ 0 0 $ 0 $ 16,000 Vice President and 2001 206,750 90,000 0 0 0 13,600 General Manager, 2000 197,000 121,404 0 46,688 0 10,600 Symons Mark K. Kaler 2002 $184,077 $110,000 $ 0 0 $ 0 $ 13,000 Vice President and 2001 149,231 160,214 0 0 0 7,650 General Manager, 2000 129,250 110,000 0 44,496 0 7,400 Construction Products Group Alan F. McIlroy(4) 2002 $240,000 $ 45,000 $ 0 0 $ 0 $ 13,000 Vice President and 2001 236,539 96,406 0 0 0 11,050 Chief Financial Officer 2000 223,577 130,000 0 46,688 0 10,600 Michael C. Deis, Sr. 2002 $230,000 $ 35,000 $ 0 0 $ 0 $ 13,000 Vice President of 2001 220,769 44,926 0 0 0 11,050 Operations, Supply 2000 184,904 120,000 0 68,543 0 10,600 Chain Group
68 (1) Consists of:
Matching 401(k) Contributions Contributions to 401(k) Savings Plan ----------------------------- ------------------------------------ 2002 2001 2000 2002 2001 2000 ------- ------- ------- ------- ------- ------- Mr. Ciccarelli $ 4,000 $ 3,400 $ 3,400 $12,000 $10,200 $ 9,600 Mr. Morrey 0 0 0 0 0 0 Mr. Bartholomae 4,000 3,400 3,400 12,000 10,200 7,200 Mr. Kaler 4,000 3,400 3,400 9,000 4,250 4,000 Mr. McIlroy 4,000 3,400 3,400 9,000 7,650 7,200 Mr. Deis 4,000 3,400 3,400 9,000 7,650 7,200
(2) Options to purchase common shares were granted under our stock option plans at an exercise price of $27.50 per share (in the case of options granted in 2002), $27.00 per share (in the case of options granted in 2000). The 2002 and 2000 options become exercisable based on a combination of service and performance factors. (3) Relocation expense paid by us of $70,402, car allowance of $6,325 and excess group term life insurance benefits of $375. (4) Mr. McIlroy, our former chief financial officer, resigned effective August 8, 2003. In connection with Mr. McIlroy's severance, Mr. McIlroy received a lump-sum payment of approximately $207,000, 24 months of salary continuation and a prorated bonus for 2003. All of his unexercised options were cancelled. EMPLOYMENT AGREEMENTS We have entered into employment agreements with each of Messrs. Ciccarelli, Morrey, Bartholomae, Kaler and Deis and four other executive officers. Generally, each employment agreement provides: - The term of employment is from one to four years from the date the agreement was signed. - The annual base salary, which may be increased by our Board of Directors in its discretion is as follows: John A. Ciccarelli ................ $390,000 Stephen R. Morrey ................. 375,000 Raymond E. Bartholomae ............ 235,000 Mark K. Kaler ..................... 227,000 Michael C. Deis, Sr. .............. 230,000
- Each executive officer is entitled to participate in our executive annual bonus plan and in our various other employee benefit plans and arrangements which are applicable to senior officers. - If an executive officer is terminated without cause during the term of his employment agreement, he will be entitled to receive a pro rata share of his bonus for the year of termination, to continue to receive his annual base salary for a period of 12 or 24 months and to continue coverage under our medical and dental programs for from one to three years on the same basis as he was entitled to participate prior to his termination. - Each executive officer is prohibited from competing with us during the term of his employment under the employment agreement and for from one to two years following termination of his employment or expiration of the term of his employment agreement. If an executive officer continues to provide services to us following the expiration of the term of his employment agreement, however, and we then terminate his employment without cause, he will be prohibited from competing with us during the following two-year period only if we elect to pay him a pro rata share of his bonus for the year of termination, continue his annual base salary for a period of 24 months, and continue his coverage under our medical and dental programs for one year. Mr. Morrey's employment agreement differs from the other agreements described above in the following respects: 69 - He serves as a director as well as President and Chief Executive Officer. - His agreement automatically will be extended for additional one-year periods unless either of us notifies the other of termination not later than 90 days before the end of a term. - He received in 2002 a one-time signing bonus of $100,000 and reimbursement for certain expenses he incurred in connection with his move to the Dayton, Ohio area. He also received in 2002 a loan in the amount of $350,000 (which is fully recourse to him only with respect to $175,000), which he applied toward the purchase of 14,545 of our common shares at a price of $27.50 per share. - He receives an annual car allowance, payment of the annual membership fee in a country, alumni or social club of his choice and hanger fees for his personal aircraft (up to a specified maximum amount), payment for reasonable expenses incurred by him for professional assistance with taxes and financial management consistent with our current practices and reimbursement for reasonable travel and business expenses incurred by him in the use of his personal aircraft for performance of his duties, in accordance with our procedures. Mr. Ciccarelli's employment agreement differs from the other agreements described above in the following respects: - He serves as non-executive Chairman of the Board. - He is employed through December 31, 2004, which is his retirement date. - His salary is fixed, and he is not entitled to receive a cash bonus for any year after 2002. - He receives an annual car allowance, payment of annual membership fees for membership in two country, alumni, or social clubs of his choice and payment for reasonable expenses incurred by him for professional assistance with taxes and financial management, consistent with our current practices. - If he elects in the future to purchase common shares pursuant to the exercise of pre-emptive rights, we or one of our affiliates will lend him up to $500,000 to pay for the shares. The loan will be secured by the shares purchased and will be on a recourse basis with interest at the applicable federal rate, although payment of the interest will be deferred until the shares are sold. - He may, through July 15, 2007 (unless his employment is terminated by us for cause or by him without good reason) require us to purchase some of his common shares at their fair market value if our EBITDA reaches specified levels. If he intends to exercise stock options, we or an affiliate will lend him the amount of the exercise price plus the amount of his income tax liability. This loan generally would be on the same terms as the loan to purchase shares described above. - He grants to Odyssey Investment Partners Fund, LP an irrevocable proxy to vote his common shares. 70 MANAGEMENT STOCKHOLDERS' AGREEMENT In connection with the consummation of the recapitalization, we along with Odyssey and our employee stockholders, including the officers named in the Summary Compensation Table (the "Management Stockholders"), entered into a Management Stockholders' Agreement (the "Management Stockholders' Agreement") which governs our common shares, options to purchase our common shares and shares acquired upon exercise of options. The Management Stockholders' Agreement provides that except for certain transfers to family members and family trusts, no Management Stockholder may transfer common stock except in accordance with the Management Stockholders' Agreement. The Management Stockholders' Agreement also provides that, upon termination of the employment of a Management Stockholder, the Management Stockholder has certain put rights and we have certain call rights regarding his or her common stock. If the provisions of any law, the terms of credit and financing arrangements or our financial circumstances would prevent us from making a repurchase of shares pursuant to the Management Stockholders' Agreement, we will not make the purchase until all such prohibitions lapse, and will then also pay the Management Stockholder a specified rate of interest on the repurchase price. The Management Stockholders' Agreement further provides that in the event of certain transfers of common shares by Odyssey, the Management Stockholders may participate in such transfers and/or Odyssey may require the Management Stockholders to transfer their shares in such transactions, in each case on a pro rata basis. Certain Management Stockholders are entitled to participate on a pro rata basis with, and on the same terms as, Odyssey in any future offering of common shares. 71 FISCAL 2002 STOCK OPTION GRANTS The stock options granted in 2002 to Stephen R. Morrey in the Summary Compensation Table are shown in the following table. The table also shows the hypothetical gains that would exist for the options at the end of their ten year terms, assuming compound rates of stock appreciation of 5% and 10%, respectively. The actual future value of the options will depend on the market or appraised value of the common shares.
Option Grants in Last Fiscal Year ---------------------------------------------------- Individual Grants ---------------------------------------------------- Number of % of Total Potential Realizable Value at Shares Options Assumed Annual Rates of Underlying Granted to Exercise Stock Price Appreciation for Options Employees Price Expiration Option Term Name Granted (#) in 2002 ($/Sh) Date ----------------------------- - ----------------- ----------- ---------- -------- ---------- 5%($) 10%($) Stephen R. Morrey 100,000(1) 67.9% $ 27.50 7/15/12 $ 1,072,896 $ 3,208,905
(1) All options were granted under the 2000 Stock Option Plan effective June 16, 2000 with an exercise price of $27.50 per share, which represents the fair market value of a Common Share on the date the options were granted. The options are divided into two different parts, both of which have a different vesting schedule. All unvested options will become fully exercisable upon a change in control (as defined in the 2000 Stock Option Plan), if Odyssey receives at least a targeted return on its investment. FISCAL YEAR-END OPTION VALUES The number and value of options exercised and the number and value of all unexercised options held by each of the executive officers named in the Summary Compensation Table at December 31, 2002 are shown in the following table. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Shares Underlying Value of Unexercised In-the- Unexercised Options at Money Options at Shares 12/31/02 (#) 12/31/02 ($)(1) Acquired on Value --------------------------- ---------------------------- Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable - ---------------------- ------------ ------------ --------------------------- ---------------------------- John A. Ciccarelli - - 37,051/83,021 $0/$0 Stephen R. Morrey - - 6,250/93,750 0/0 Raymond E. Bartholomae - - 11,352/38,541 20,135/0 Mark K. Kaler - - 19,575/36,617 251,660/0 Alan F. McIlroy - - 27,076/38,541 136,015/0 Michael C. Deis, Sr. - - 22,756/56,343 226,386/0
(1) Represents the excess of $24.00, the fair market value as of December 31, 2002 based on an independent appraisal, over the aggregate option exercise price. 72 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL SHAREHOLDERS. The following table sets forth information with respect to the beneficial ownership of our common shares as of December 1, 2003 by: - each person known by us to beneficially own more than 5% of our common shares; - each of our directors and executive officers; and - all of our directors and executive officers as a group. We have determined beneficial ownership as reported below in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Beneficial ownership generally includes sole or shared voting or investment power with respect to the shares and includes the number of common shares subject to all outstanding options. The percentages of our outstanding common shares are based on 4,554,269 shares outstanding, except for certain parties who hold options that are exercisable into common shares within 60 days. The percentages for those parties who hold options that are exercisable within 60 days are based on the sum of 4,554,269 shares outstanding plus the number of common shares subject to options exercisable within 60 days held by them and no other person, as indicated in the notes following the table. The number of common shares beneficially owned has been determined by assuming the exercise of options exercisable into common shares within 60 days. Unless otherwise indicated, voting and investment power are exercised solely by each individual and/or a member of his household.
Number of Common Shares Beneficially % of Common Name of Beneficial Owner: Owned Shares - --------------------------------------------------- ------------------- ----------- Odyssey (1) 4,208,317 92.4 Peter J. Astrauskas 400 * Raymond E. Bartholomae (2) 33,629 * Stephen Berger (3) 4,208,317 92.4 John A. Ciccarelli (4) 76,312 1.7 Dennis P. Haggerty (5) 5,500 * Steven C. Huston (6) 1,760 * William F. Hopkins(3) 4,208,317 92.4 Mark K. Kaler (7) 48,686 1.1 Edward J. Puisis (8) 5,624 * Stephen R. Morrey(9) 39,546 * Thomas W. Roehrig (10) 4,385 * Douglas Rotatori(3) 4,208,317 92.4 All executive officers and directors as a group (12 persons)(11) 4,424,159 95.0
* Signifies less than 1%. (1) Consists of 4,208,317 common shares owned in the aggregate by Odyssey Investment Partners Fund, LP (the "Fund"), certain of its affiliates and certain co-investors (together with the Fund, "Odyssey"). Odyssey Capital Partners, LLC is the general partner of the Fund. Odyssey Investment Partners, LLC is the manager of the Fund. The principal business address for Odyssey is 280 Park Avenue, West Tower, 38th Floor, New York, New York. (2) Includes 12,552 common shares issuable upon exercise of options exercisable within 60 days. (3) Consists of 4,208,317 common shares owned in the aggregate by Odyssey. Messrs. Berger and Hopkins are managing members of the Odyssey Capital Partners, LLC and Odyssey Investment Partners, LLC and, therefore, may each be deemed to share voting and investment power with respect to the shares deemed to be beneficially owned by Odyssey. Mr. Rotatori is a member of Odyssey Investment Partners, LLC. Each of Messrs. Berger, Hopkins and Rotatori disclaim beneficial ownership of these shares. (4) Includes 37,051 common shares issuable upon exercise of options exercisable within 60 days. 73 (5) Includes 3,500 common shares issuable upon exercise of options exercisable within 60 days. (6) Includes 760 common shares issuable upon exercise of options exercisable within 60 days. (7) Includes 20,775 common shares issuable upon exercise of options exercisable within 60 days. (8) Includes 4,582 common shares issuable upon exercise of options exercisable within 60 days. (9) Includes 25,000 common shares issuable upon exercise of options exercisable within 60 days. (10) Includes 585 common shares issuable upon exercise of options exercisable within 60 days. (11)As described in note 3, Messrs. Berger and Hopkins may each be deemed to share voting and investment power with respect to the shares beneficially owned by Odyssey and Messrs. Berger, Hopkins and Rotatori disclaim beneficial ownership of the shares beneficially owned by Odyssey. Excluding the shares deemed to be owned by Odyssey, all executive officers and directors as a group beneficially own 215,841 common shares. EQUITY COMPENSATION PLAN INFORMATION
Number of securities remaining available for Number of securities future issuance under to be issued upon Weighted-average equity compensation exercise of exercise price of plans (excluding outstanding options, outstanding options, securities reflected in warrants and rights warrants and rights column (a)) Plan Category (a) (b) (c) - --------------------- -------------------- -------------------- ----------------------- Equity compensation plans approved by security holders 671,684 $25.00 35,386 - --------------------- --------------------------------------------------------------------------- Equity compensation plans not approved by security holders - - - - --------------------- --------------------------------------------------------------------------- Total 671,684 $25.00 35,386 - --------------------- ---------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. EMPLOYMENT AND ROLLOVER AGREEMENTS In connection with the 2000 recapitalization, we entered into employment and other "rollover" agreements with John A. Ciccarelli, Raymond E. Bartholomae and Mark K. Kaler, each of whom is an executive officer, and with Alan F. McIlroy, our former chief financial officer. Generally, the "rollover" agreements required each executive officer to retain common shares and, in most cases, stock options, with a specified aggregate value following the recapitalization. In some cases, the executive officer has agreed to exercise stock options in order to obtain some of the common shares which he has agreed to retain following the recapitalization. These agreements provided that if the executive officer exercised stock options in order to obtain some of the common shares he is required to retain and he so requested, we made a non-interest bearing, recourse loan to him in an amount equal to the exercise price of the options plus the estimated federal and state income tax liability he incurred in connection with the exercise. If the executive officer purchased some of the common shares he is required to retain and he so 74 requested, we made a 6.39% interest deferred recourse loan to him. These loans are secured by a pledge of the shares issued. As of September 26, 2003, the amounts outstanding were $68,987 for Mr. Ciccarelli, $369,989 for Mr. Morrey, $551,397 for Mr. Bartholomae, $287,981 for Mr. Kaler, and $177,379 for Mr. McIlroy. These amounts were also the largest amounts outstanding for these loans during the period January 1, 2000 through September 26, 2003, except for Mr. McIlroy, for whom the largest amount was $289,159. ODYSSEY FINANCIAL SERVICES During 2002, we reimbursed Odyssey for $228,000 of out-of-pocket expenses for travel, lodging and meals. In connection with the acquisition of Aztec Concrete Accessories, Inc. in 2001, we paid Odyssey a fee of $350,000. also, in 2001, we reimbursed Odyssey for $107,000 of out-of-pocket expenses for travel, lodging and meals. MANAGEMENT STOCKHOLDERS' AGREEMENT In connection with the consummation of the recapitalization, we along with Odyssey and our employee stockholders, including our executive officers, entered into a Management Stockholders' Agreement, which governs our common shares, options to purchase our common shares and shares acquired upon exercise of options. The Management Stockholders' Agreement provides that except for certain transfers to family members and family trusts, no management stockholder may transfer common stock except in accordance with the management stockholders' agreement. The Management Stockholders' Agreement also provides that, upon termination of the employment of a management stockholder, the management stockholder has certain put rights and we have certain call rights regarding his or her common stock. If the provisions of any law, the terms of credit and financing arrangements or our financial circumstances would prevent us from making a repurchase of shares pursuant to the management stockholders' agreement, we will not make the purchase until all of these prohibitions lapse, and will then also pay the management stockholder a specified rate of interest on the repurchase price. The Management Stockholders' Agreement further provides that in the event of certain transfers of common shares by Odyssey, the management stockholders may participate in these transfers and/or Odyssey may require the management stockholders to transfer their shares in the transactions, in each case on a pro rata basis. Certain management stockholders are entitled to participate on a pro rata basis with, and on the same terms as, Odyssey in any future offering of common shares. ITEM 14. CONTROLS AND PROCEDURES. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level. There has been no change in our internal controls over financial reporting during the most recent quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. 75 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements The following consolidated financial statements of the Company and subsidiaries are incorporated by reference as part of this Report under Item 8. Independent Auditors Report. Consolidated Balance Sheets as of December 31, 2002 and 2001. Consolidated Statements of Operations (as restated) for the years ended December 31, 2002, 2001, and 2000. Consolidated Statements of Shareholders' Equity for the years ended December 31, 2002, 2001, and 2000. Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000. Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2002, 2001, and 2000. Notes to Consolidated Financial Statements. (a)(2) Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts (at Item 8 of this Report) All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (a)(3) Exhibits. See Index to Exhibits following the signature pages to this Report for a list of exhibits. (b) Reports on Form 8-K. During the quarter ended December 31, 2002, we filed the following Current Reports on Form 8-K: Current Report on Form 8-K dated October 23, 2002, reporting under Item 5 (Other Events) announcing that the Company had obtained an amendment to its senior credit facility to relax certain financial ratios that the Company is required to maintain. The adjustments will affect the next eight fiscal quarters, beginning with the quarter ended December 31, 2002. 76 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Dayton Superior Corporation has duly caused this amendment to report to be signed on its behalf by the undersigned, thereunto duly authorized. DAYTON SUPERIOR CORPORATION December 10, 2003 By /s/ Stephen R. Morrey ----------------------- Stephen R. Morrey President, Chief Executive Officer and Director 77 INDEX OF EXHIBITS
Exhibit No. Description (3) ARTICLES OF INCORPORATION AND BY-LAWS 3.1 Amended Articles of Incorporation of the Company [Incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (Reg. No. 333-41392)] + 3.2 Code of Regulations of the Company (as amended) [Incorporated herein by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-4 (Reg. No. 333-41392)] + (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES 4.1 Senior Unsubordinated Redeemable Note of the Company in the principal amount of $5,000,000 [Incorporated herein by reference to Exhibit A to the Agreement set forth as Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 2, 1997] + 4.2 Form of Junior Convertible Subordinated Indenture between Dayton Superior Corporation and Firstar Bank, N.A., as Indenture Trustee [Incorporated herein by reference to Exhibit 4.2.3 to the Company's Registration Statement on Form S-3 (Reg. 333-84613)] + 4.2.1 First Supplemental Indenture dated January 17, 2000, between Dayton Superior Corporation and Firstar Bank, N.A., as Trustee [Incorporated herein by reference to Exhibit 4.6.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] + 4.3 Form of Junior Convertible Subordinated Debenture [Incorporated herein by reference to Exhibit 4.2.3 to the Company's Registration Statement on Form S-3 (Reg. 333-84613)] +
78 4.4 Credit Agreement, dated June 16, 2000, among the Company, various lending institutions and Bankers Trust Company, as administrative agent, Deutsche Bank Securities, Inc., as lead arranger and book manager, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as syndicating agent and co-arranger. [Incorporated by reference to Exhibit 10.24 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] + 4.4.1 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 [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 29, 2001] + 4.4.2 First Amendment to the Credit Agreement dated as of October 2, 2002, among the Company, various lending institutions and Bankers Trust Company, as administrative agent, Deutsche Bank Securities, Inc., as lead arranger and book manager, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as syndicating agent and co-arranger. [Incorporated by reference to Exhibit 99.1 to the Company's Form 8-K dated October 23, 2002] + 4.5 Indenture dated June 16, 2000 among the Company, the Guarantors named therein, as guarantors, and United States Trust Company of New York, as trustee, relating to $170,000,000 in aggregate principal amount of 13% Senior Subordinated Notes due 2009 and registered 13% Senior Subordinated Notes due 2009 [Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] + 4.5.1 First Supplemental Indenture dated as of August 3, 2000. [Incorporated herein by reference to Exhibit 4.5.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001] + 4.5.2 Second Supplemental Indenture dated as of January 4, 2001. [Incorporated herein by reference to Exhibit 4.5.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001] + 4.5.3 Third Supplemental Indenture dated as of June 19, 2001. [Incorporated herein by reference to Exhibit 4.5.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001] +
79 4.6 Specimen Certificate of 13% Senior Subordinated Notes due 2009 [Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] + 4.7 Specimen Certificate of the registered 13% Senior Subordinated Notes due 2009 [Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] + (10) MATERIAL CONTRACTS 10.1 Management Incentive Plan [Incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998] +* 10.2 Amended and Restated Employment Agreement dated as of July 15, 2002 by and between Dayton Superior Corporation and John A. Ciccarelli [Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 2002] +* 10.3 Employment Agreement dated January 19, 2000 by and between Dayton Superior Corporation and Alan F. McIlroy [Incorporated herein by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] +* 10.3.1 Amended Employment Agreement dated May 13, 2002 by and between Dayton Superior Corporation and Alan F. McIlroy + 10.4 Employment Agreement dated January 19, 2000 by and between Dayton Superior Corporation and Raymond E. Bartholomae [Incorporated herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] +* 10.4.1 Amended Employment Agreement dated May 13, 2002 by and between Dayton Superior Corporation and Raymond E. Bartholomae + 10.5 Employment Agreement dated January 19, 2000 by and between Dayton Superior Corporation and Michael C. Deis, Sr. [Incorporated herein by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] +* 10.5.1 Amended Employment Agreement dated May 13, 2002 by and between Dayton Superior Corporation and Michael C. Deis +*
80 10.6 Employment Agreement dated January 19, 2000 by and between Dayton Superior Corporation and James C. Stewart [Incorporated herein by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] +* 10.6.1 Amended Employment Agreement dated May 13, 2002 by and between Dayton Superior Corporation and James C. Stewart + 10.7 Employment Agreement dated as of January 19, 2000 between the Company and Mark K. Kaler, as amended effective June 16, 2000 [Incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] +* 10.7.1 Amended Employment Agreement dated May 13, 2002 by and between Dayton Superior Corporation and Mark K. Kaler + 10.8 Employment Agreement dated as of January 19, 2000 between the Company and James W. Fennessy, as amended effective June 16, 2000 [Incorporated by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] +* 10.8.1 Amended Employment Agreement dated May 13, 2002 by and between Dayton Superior Corporation and James W. Fennessy + 10.9 Employment Agreement dated effective June 12, 2002 by and between Dayton Superior Corporation and Stephen R. Morrey [Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 2002] +* 10.10 Letter Agreement dated August 27, 2002 between Dayton Superior Corporation and Dennis Haggerty [Incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 2002] +* 10.11 Form of Option Exercise, Cancellation and Equity Rollover Agreement dated January 19, 2000 by and among Stone Acquisition, Dayton Superior Corporation and each of John A. Ciccarelli, Alan F. McIlroy, Raymond E. Bartholomae, Michael C. Deis, Sr., James C. Stewart, Mark K. Kaler and James W. Fennessy [Incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] +*
81 10.12 Management Stockholder's Agreement dated June 16, 2000 by and among the Company, Odyssey Investment Partners Fund, LP and the Management Stockholders named therein [Incorporated by reference to Exhibit 10.25 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] +* 10.13 Dayton Superior Corporation 2000 Stock Option Plan [Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001] +* 10.13.1 First Amendment to 2000 Stock Option Plan of Dayton Superior Corporation [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2001] +* 10.13.2 Second Amendment to 2000 Stock Option Plan of Dayton Superior Corporation dated July 15, 2002 + 10.13.3 Third Amendment to 2000 Stock Option Plan of Dayton Superior Corporation dated October 23, 2002 + 10.13.4 Form of Amended and Restated Stock Option Agreement entered into between Dayton Superior Corporation and certain of its executive officers +* 10.14 Subscription Agreement dated as of July 22, 2002 between Dayton Superior Corporation and Stephen R. Morrey. [Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 2002] +* 10.15 Secured Promissory Note dated July 22, 2002 between Dayton Superior Corporation and Stephen R. Morrey. [Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 2002] +* 10.16 Secured Promissory Note dated July 22, 2002 between Dayton Superior Corporation and Stephen R. Morrey. [Incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 2002] +* 10.17 Repayment and Stock Pledge Agreement dated as of July 22, 2002 between Dayton Superior Corporation and Stephen R. Morrey. [Incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 2002] +*
82 (21) SUBSIDIARIES OF THE REGISTRANT 21.1 Subsidiaries of the Company ** (31) RULE 13a-14(a)/15d-14(a) CERTIFICATIONS 31.1 Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer ** 31.2 Rule 13a-14(a)/15d-14(a) Certification of Vice President and Chief Financial Officer ** (32) SECTION 1350 CERTIFICATIONS 32.1 Sarbanes-Oxley Section 1350 Certification of President and Chief Executive Officer ** 32.2 Sarbanes-Oxley Section 1350 Certification of Vice President and Chief Financial Officer **
- ---------- * Compensatory plan, contract or arrangement in which one or more directors or named executive officers participates. ** Filed herewith + Previously filed 83 EX-21.1 3 l04514aexv21w1.txt EX-21.1 . . . EXHIBIT 21.1 Subsidiaries of Dayton Superior Corporation
Jurisdiction of Incorporation Name or Organization - -------------------------------- ----------------------------- Aztec Concrete Accessories, Inc. California Dayton Superior Canada Ltd. Ontario Dayton Superior Specialty Chemical Corp. Kansas Dur-O-Wal, Inc. Delaware Symons Corporation Delaware Trevecca Holdings, Inc. Delaware
84 EX-31.1 4 l04514aexv31w1.txt EX-31.1 302 CERT EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Stephen R. Morrey, certify that: 1. I have reviewed this annual report on Form 10-K/A of Dayton Superior Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of Dayton Superior Corporation as of, and for, the periods presented in this annual report; 4. Dayton Superior Corporation's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Dayton Superior Corporation and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Dayton Superior Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of Dayton Superior Corporation's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and c) disclosed in this annual report any change in Dayton Superior Corporation's internal control over financial reporting that occurred during Dayton Superior Corporation's most recent fiscal year that has materially affected, or is reasonably likely to materially affect, Dayton Superior Corporation's internal control over financial reporting; and 5. Dayton Superior Corporation's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Dayton Superior Corporation's auditors and the audit committee of Dayton Superior Corporation's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Dayton Superior Corporation's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in Dayton Superior Corporation's internal control over financial reporting. December 10, 2003 /s/ Stephen R. Morrey ---------------------- Stephen R. Morrey President and Chief Executive Officer 85 EX-31.2 5 l04514aexv31w2.txt EX-31.2 302 CERT EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Edward J. Puisis, certify that: 1. I have reviewed this annual report on Form 10-K/A of Dayton Superior Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of Dayton Superior Corporation as of, and for, the periods presented in this annual report; 4. Dayton Superior Corporation's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Dayton Superior Corporation and we have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Dayton Superior Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of Dayton Superior Corporation's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and c. disclosed in this annual report any change in Dayton Superior Corporation's internal control over financial reporting that occurred during Dayton Superior Corporation's most recent fiscal year that has materially affected, or is reasonably likely to materially affect, Dayton Superior Corporation's internal control over financial reporting; and 5. Dayton Superior Corporation's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Dayton Superior Corporation's auditors and the audit committee of Dayton Superior Corporation's board of directors: a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Dayton Superior Corporation's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in Dayton Superior Corporation's internal control over financial reporting. December 10, 2003 /s/ Edward J. Puisis -------------------- Edward J. Puisis Vice President and Chief Financial Officer 86 EX-32.1 6 l04514aexv32w1.txt EX-32.1 906 CERT EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Stephen R. Morrey, President and Chief Executive Officer of Dayton Superior Corporation (the "Company"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: The Annual Report on Form 10-K/A of the Company for the period ending December 31, 2002 (the "Periodic Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 10, 2003 /s/ Stephen R. Morrey ------------------------- Stephen R. Morrey President and Chief Executive Officer 87 EX-32.2 7 l04514aexv32w2.txt EX-32.2 906 CERT EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Edward J. Puisis, Vice President and Chief Financial Officer of Dayton Superior Corporation (the "Company"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: The Annual Report on Form 10-K/A of the Company for the period ending December 31, 2002 (the "Periodic Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 10, 2003 /s/ Edward J. Puisis ----------------------- Edward J. Puisis Vice President and Chief Financial Officer 88 -----END PRIVACY-ENHANCED MESSAGE-----