DAYTON SUPERIOR CORPORATION 10-Q

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE QUARTER ENDED September 29, 2006		COMMISSION FILE NUMBER 1-11781

DAYTON SUPERIOR CORPORATION

(Exact name of registrant as specified in its charter)


OHIO		31-0676346

(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)


7777 Washington Village Dr., Suite 130
Dayton, Ohio		45459

(Address of principal		(Zip Code)
executive offices)

Registrant’s telephone number, including area code: 937-428-6360

NOT APPLICABLE

(Former name, former address, and former fiscal year,

if changed from last report)

Indicate by mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ

5,040,042 Common Shares were outstanding as of November 10, 2006

TABLE OF CONTENTS


Part I. – Financial Information
	Item 1 – Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II. – Other Information
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 6. Exhibits
SIGNATURES
INDEX TO EXHIBITS
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part I. – Financial Information

Item 1 – Financial Statements

Dayton Superior Corporation and Subsidiary
Condensed Consolidated Balance Sheets
As of September 29, 2006 and December 31, 2005
(Amounts in thousands)
(Unaudited)


	September 29,			December 31,
	2006			2005
ASSETS
Current assets:
Cash	$	313		$	—
Accounts receivable, net of allowances for doubtful accounts and sales returns and allowances of $6,013 and $5,435		81,498			62,326
Inventories		65,823			57,372
Prepaid expenses and other current assets		5,593			5,134
Prepaid income taxes		430			546

Total current assets		153,657			125,378

Rental equipment, net of accumulated depreciation of $65,198 and $56,591		65,820			68,400

Property, plant and equipment		102,597			96,491
Less accumulated depreciation		(61,753	)		(58,327	)

Net property, plant and equipment		40,844			38,164

Goodwill		43,643			43,643
Intangible assets, net of accumulated amortization		3,586			5,025
Other assets		880			910

Total assets	$	308,430		$	281,520

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Current maturities of long-term debt	$	3,775		$	2,864
Current portion of deferred gain on sale-leaseback		1,635			3,530
Accounts payable		27,617			27,267
Accrued compensation and benefits		14,115			12,266
Accrued interest		7,315			6,589
Accrued freight		5,347			4,031
Other accrued liabilities		5,885			5,247

Total current liabilities		65,689			61,794
Revolving credit facility		79,250			48,700
Other long-term debt, net of current portion		319,255			317,690
Deferred income taxes		11,406			11,406
Deferred gain on sale-leaseback, net of current portion		4,476			5,199
Other long-term liabilities		6,517			8,068

Total liabilities		486,593			452,857

Class A common shares subject to put 693,724 (464,157 unvested) and 233,617 shares, net of related loans to shareholders of $1,917 and $805		1,754			—

Shareholders’ deficit:
Class A common shares; no par value; 6,000,000 shares authorized, 5,091,335 and 4,627,178 shares issued, 4,397,611 and 4,393,561 not subject to put		113,030			115,248
Loans to shareholders		(345	)		(1,643	)
Class A treasury shares, at cost, 51,293 shares		(1,509	)		(1,509	)
Accumulated other comprehensive loss		(1,094	)		(1,357	)
Accumulated deficit		(289,999	)		(282,076	)

Total shareholders’ deficit		(179,917	)		(171,337	)


Total liabilities and shareholders’ deficit	$	308,430		$	281,520

The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.

Dayton Superior Corporation and Subsidiary
Consolidated Statements of Operations
For The Three and Nine Fiscal Months Ended September 29, 2006 and September 30, 2005
(Amounts in thousands, except per share data)
(Unaudited)


	Three Fiscal Months Ended						Nine Fiscal Months Ended
	September			September			September			September
	29, 2006			30, 2005			29, 2006			30,2005
Product sales	$	107,852		$	96,557		$	300,535		$	269,643
Rental revenue		16,275			13,816			44,428			35,961
Used rental equipment sales		7,514			3,698			18,224			11,953

Net sales		131,641			114,071			363,187			317,557


Product cost of sales		80,589			75,018			226,992			208,030
Rental cost of sales		9,600			9,594			26,330			27,389
Used rental equipment cost of sales		2,243			1,270			5,435			4,188

Cost of sales		92,432			85,882			258,757			239,607


Product gross profit		27,263			21,539			73,543			61,613
Rental gross profit		6,675			4,222			18,098			8,572
Used rental equipment gross profit		5,271			2,428			12,789			7,765

Gross profit		39,209			28,189			104,430			77,950
Selling, general and administrative expenses		26,592			22,736			75,163			68,993
Facility closing and severance expenses		96			211			373			542
Gain on disposals of property, plant, and equipment		(439	)		(543	)		(1,775	)		(1,629	)
Amortization of intangibles		158			180			485			486

Income from operations		12,802			5,605			30,184			9,558

Other expense (income):
Interest expense		12,743			12,207			37,364			36,563
Interest income		203			(24	)		176			(146	)
Other expense (income)		(46	)		79			108			84

Loss before provision for income taxes		(98	)		(6,657	)		(7,464	)		(26,943	)
Provision for income taxes		244			—			459			—

Net loss	$	(342	)	$	(6,657	)	$	(7,923	)	$	(26,943	)


Basic net loss per common share	$	(0.07	)	$	(1.46	)	$	(1.73	)	$	(5.89	)
Average number of common shares outstanding		4,576			4,572			4,576			4,576
Diluted net loss per common share	$	(0.07	)	$	(1.46	)	$	(1.73	)	$	(5.89	)
Average number of common shares and equivalents outstanding		4,576			4,572			4,576			4,576

The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.

Dayton Superior Corporation and Subsidiary
Consolidated Statements of Cash Flows
For The Nine Fiscal Months Ended September 29, 2006 and September 30, 2005
(Amounts in thousands)
(Unaudited)


	Nine Fiscal Months Ended
	September 29,			September 30,
	2006			2005
Cash Flows From Operating Activities:
Net loss	$	(7,923	)	$	(26,943	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		18,974			22,750
Amortization of intangibles		485			486
Stock option expense		653			—
Deferred income taxes		—			(448	)
Amortization of deferred financing costs and debt discount		4,280			3,942
Amortization of deferred gain on sale-leaseback transactions		(2,618	)		(1,483	)
Gain on sales of rental equipment		(12,789	)		(7,765	)
(Gain) loss on sales of property, plant and equipment		32			(456	)
Changes in assets and liabilities:
Accounts receivable		(19,172	)		(5,157	)
Inventories		(8,451	)		(5,046	)
Prepaid expenses and other assets		(867	)		6,437
Prepaid income taxes		116			(62	)
Accounts payable		257			(83	)
Accrued liabilities and other long-term liabilities		2,978			1,456

Net cash used in operating activities		(24,045	)		(12,372	)


Cash Flows From Investing Activities:
Property, plant and equipment additions		(7,282	)		(4,187	)
Proceeds from sales of property, plant and equipment		21			1,287
Rental equipment additions		(15,988	)		(20,814	)
Proceeds from sales of rental equipment		18,224			11,953

Net cash used in investing activities		(5,025	)		(11,761	)


Cash Flows From Financing Activities:
Borrowings under revolving credit facility		113,175			108,125
Repayments of revolving credit facility		(82,625	)		(97,200	)
Repayments of other long-term debt		(1,616	)		(1,979	)
Proceeds from sale-leaseback transaction		—			11,636
Financing costs incurred		—			(3	)
Change in loans to shareholders		186			10
Issuance of common shares subject to put option		—			13

Net cash provided by financing activities		29,120			20,602


Effect of Exchange Rate Changes on Cash		263			379

Net increase (decrease) in cash		313			(3,152	)
Cash, beginning of period		—			4,504

Cash, end of period	$	313		$	1,352

Supplemental Disclosures:
Cash paid for income taxes	$	208		$	435
Cash paid for interest		32,358			31,051
Rental equipment acquired under capital lease		1,200			—
Property, plant and equipment and rental equipment additions in accounts payable		1,630			1,471
Repayment of loans to shareholders through surrender of common shares		—			325
Reclassification of common shares due to repayment of shareholder loans through redemption of common shares		—			75
Reclassification of common shares due to change in redemption value of common shares subject to put, net of shareholder loans		1,754			—

The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.

Dayton Superior Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
(Unaudited)

(1)		Consolidated Financial Statements

		The interim consolidated financial statements included herein have been prepared by Dayton Superior Corporation (“the Company”) and include, in the opinion of management, all adjustments necessary to state fairly the information set forth therein. Any such adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these unaudited consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s annual financial statements for the year ended December 31, 2005. The interim results may not be indicative of future periods.

(2)		Accounting Policies

		The interim consolidated financial statements have been prepared in accordance with the accounting policies described in the notes to the Company’s consolidated financial statements for the year ended December 31, 2005. While management believes that the procedures followed in the preparation of interim financial information are reasonable, the accuracy of some estimated amounts is dependent upon facts that will exist or calculations that will be made at year end. Examples of such estimates include changes in the deferred tax accounts and management bonuses, among others. Any adjustments pursuant to such estimates during the fiscal quarter were of a normal recurring nature.

	(a)		Fiscal Quarter — The Company’s fiscal year end is December 31. The Company’s fiscal quarters are defined as the 13-week periods ending on a Friday near the end of March, June and September.

	(b)		Inventories — The Company values all inventories at the lower of first-in, first-out (“FIFO”) cost or market. The Company provides net realizable value reserves which reflect the Company’s best estimate of the excess of the cost of potential obsolete and slow moving inventory over the expected net realizable value.

			Following is a summary of the components of inventories as of September 29, 2006 and December 31, 2005:


	September 29, 2006		December 31, 2005
Raw materials	$	17,188	$	13,248
Work in progress		2,566		2,813
Finished goods		46,069		41,311

Total Inventory	$	65,823	$	57,372

(c)

Rental Equipment — Rental equipment is purchased and 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 lives of the equipment, three to fifteen years, on a straight-line method. Effective January 1, 2006, the Company changed its estimate of depreciable lives on certain families of rental equipment from three years to fifteen years on a prospective basis. The families changed were acquired as part of an acquisition in 2003 and the Company used an estimated useful life of three years based primarily on the risk of realizable value and uncertain resale value of this equipment when sold as used rental equipment. Subsequent data shows demand for the equipment is strong and that resale values of the equipment are consistent with other rental families. The physical utilization of the rental equipment lasts approximately 15 years. The impact of this

change in estimate reduced rental cost of sales by approximately $750 and $2,250 for the three and nine fiscal months ended September 29, 2006.

(d)		Goodwill – In the second quarter of 2006, the Company completed its quantification of the fair value of goodwill as of December 31, 2005. No adjustment to the estimated impairment loss recorded during the year ended December 31, 2005 was required to be recognized. No events have occurred that would indicate that the carrying value may exceed fair value. The Company will perform its annual assessment in the fourth quarter of 2006.

(e)		New Accounting Pronouncements – In June, 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company will be required to comply with Interpretation No. 48 as of the first annual period that begins after December 15, 2006. The Company has not determined the impact that Interpretation No. 48 will have on its consolidated financial statements.

		In September, 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. This Statement does not require any new fair value measurements. The Company will be required to comply with Statement No. 157 as of the first annual period that begins after November 15, 2007. The Company has not determined the impact that Statement No. 157 will have on its consolidated financial statements.

		In September, 2006, the FASB issued SFAS No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R). This Statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This Statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The Company will be required to recognize the funded status of its defined benefit postretirement plan and to provide the required disclosures as of the first annual period that ends after June 15, 2007. The Company will be required to measure plan assets and benefit obligations as of the date of the Company’s fiscal year-end statement of financial position as of the first annual period that ends after December 15, 2008. The Company has not determined the impact that Statement No. 158 will have on its consolidated financial statements.

		In September, 2006, the SEC issued Staff Accounting Bulletin 108 (SAB 108). The interpretations in this Staff Accounting Bulletin express the staff’s views regarding the process of quantifying financial statement misstatements. The staff is aware of diversity in practice. For example, certain registrants do not consider the effects of prior year errors on current year financial statements, thereby allowing improper assets or liabilities to remain unadjusted. While these errors may not be material if considered only in relation to the balance sheet, correcting the errors could be material to the current year income statement. Certain registrants have proposed to the staff that allowing these errors to remain on the balance sheet as assets or liabilities in perpetuity is an appropriate application of generally accepted accounting principles. The staff believes that approach is not in the best interest of the users of financial statements. The interpretations in this Staff Accounting Bulletin are being issued to address diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. The Company has not determined the impact that SAB 108 will have on its consolidated financial statements.

(3) Credit Arrangements

The Company has a $95,000 senior secured revolving credit facility, which has no financial covenants and originally matured in January 2007. During the third quarter of 2006, the facility’s maturity was extended to May 31, 2008. Availability of borrowings is limited to 85% of eligible accounts receivable and 60% of eligible inventories and rental equipment, less $10,000. At September 29, 2006, the entire $95,000 was available, of which $79,250 was outstanding at a weighted average interest rate of 8.3%. Outstanding letters of credit were $8,887 resulting in available borrowings of $6,863. The credit facility is secured by substantially all assets of the Company.

The average borrowings, maximum borrowings and weighted average interest rates on the revolving credit facility and its predecessor for the periods indicated were as follows:


	Three fiscal months ended						Nine fiscal months ended
	September 29,			September 30,			September 29,			September 30,
	2006			2005			2006			2005
Revolving Credit Facility:
Average borrowings	$	76,140		$	66,774		$	70,033		$	65,841
Peak borrowing		81,700			71,900			81,700			77,500
Weighted average interest rate		8.2	%		6.4	%		7.9	%		6.0	%

Following is a summary of the Company’s other long-term debt as of September 29, 2006 and December 31, 2005:


	September 29,			December 31,
	2006			2005
Senior Subordinated Notes, interest rate of 13.0%	$	154,729		$	154,729
Debt discount on Senior Subordinated Notes		(5,101	)		(6,114	)
Senior Second Secured Notes, interest rate of 10.75%		165,000			165,000
Debt discount on Senior Second Secured Notes		(3,604	)		(4,776	)
Senior unsecured notes payable to seller of Safway, non-interest bearing, accreted at 6.0% to 14.5%		8,068			7,534
Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1%, due on demand		1,063			1,068
Capital lease obligations		2,875			2,930
Payable to vendor on extended terms, non-interest bearing, accreted at 6.0%		—			183

Total long-term debt		323,030			320,554
Less current maturities		(3,775	)		(2,864	)

Long-term portion	$	319,255		$	317,690

As of September 29, 2006, the Senior Second Secured Notes (the “Senior Notes”) have a principal amount of $165,000 and mature in June 2008. The Senior 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 estimated fair value of the notes was $169,950 as of September 29, 2006. The Senior Notes are secured by substantially all assets of the Company.

As of September 29, 2006, the Senior Subordinated Notes (the “Subordinated Notes”) have a principal amount of $154,729 and mature in June 2009. The Subordinated 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 Subordinated Notes were issued with warrants that allow the holders to purchase 117,276 of the Company’s Common Shares for $0.01 per share. The estimated fair value of the notes was $145,445 as of September 29, 2006.

(4) Stock-Based Compensation Plans

The Company’s 2000 Stock Option Plan of Dayton Superior Corporation (the “Stock Option Plan”) permits the grant of stock options to purchase 769,254 common shares. Options that are cancelled may be reissued. As of September 29, 2006, options to purchase 325,203 common shares were available to be granted. The options granted in the nine fiscal months ended September 29, 2006, have a term of five years. The terms of the previous option grants are ten years from the date of grant.

The options granted in the nine fiscal months ended September 29, 2006, vested on the grant date. Between 10% and 25% of previously granted options have a fixed vesting period of fewer than three years, with the balance eligible to become exercisable in installments over one to five years from the date of grant based on the Company’s performance, but, in any case, become exercisable no later than nine years after the grant date.

These options may be subject to accelerated vesting upon certain change in control events based on Odyssey Investment Partners, LLC’s return on investment. The option exercise price equals or exceeds the stock’s market price on date of grant.

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (“SFAS”) No. 123R that amends SFAS No. 123, Accounting for Stock-Based Compensation, to require entities to report stock-based employee compensation in their financial statements. The Company has adopted SFAS No. 123R effective January 1, 2006 using a modified prospective application and recorded compensation expense of $591 and $653 for the three and nine months ended September 29, 2006. During the three fiscal months ended September 29, 2006, the Company changed its estimate of forfeitures from 35% to 4%. The remaining expected future compensation expense for unvested stock options was approximately $700 as of September 29, 2006, and is expected to be expensed over a weighted average period of 2.1 years. Previously, the Company measured compensation cost for stock options issued using the intrinsic value-based method of accounting in accordance with Accounting Principles Board Opinion (APB) No. 25. If compensation cost for the Company’s stock options had been determined based on the fair value method of SFAS No. 123, ‘‘Accounting for Stock-Based Compensation,’’ the Company’s net loss would have been increased to the pro forma amounts as follows:


		For the three fiscal			For the nine fiscal
		months ended			months ended
		September 30,			September 30,
		2005			2005
Net loss	As Reported	$	(6,657	)	$	(26,943	)
	Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effect		(72	)		(216	)

	Pro Forma	$	(6,729	)	$	(27,159	)

A summary of the status of the Company’s stock option plans at September 29, 2006, as well as changes during the nine months then ended is presented in the table below:


				Weighted					Weighted
	Total Number			Average		Unvested			Average		Aggregate
	of			Exercise Price		Number of			Grant-Date		Intrinsic
	Shares			Per Share		Shares			Fair Value		Value
Outstanding at December 31, 2005		402,063		$	25.92		310,018		$	6.34	$	—
Granted at a fair value of $13.77		37,054			27.00		—			—		—
Expired		(5,792	)		26.61		—			—		—
Forfeited		(36,502	)		27.46		(36,502	)		4.82		—

Outstanding at September 29, 2006		396,823		$	25.87		273,516		$	6.55	$	188

As of September 29, 2006, the Company had vested options for 123,307 shares at a weighted average exercise price of $25.00 per share, $151 intrinsic value, and a weighted average remaining term of 4.7 years.

The fair value of each option grant is estimated on the date of grant using the Black Scholes options pricing model with the following assumptions used for grants in the nine fiscal months ended September 29, 2006:


Risk-free interest rates		4.80	%
Expected dividend yield		0.00	%
Expected life	1 year
Expected volatility		158.75	%

The expected life is based on the estimated future exercise patterns. The expected volatility is based on the continuously compounded rate of return of the Company’s annual independent appraisal of its stock price.

On June 30, 2006, the Compensation Committee of the Board of Directors of the Company approved the issuance of 464,157 restricted Class A common shares of the Company to certain executives. The shares are subject to forfeiture by the executive under certain circumstances and also are subject to the Company’s Management Stockholders’ Agreement dated June 16, 2000, as amended. The restrictions lapse and the shares will vest in four equal installments of 25% on December 31 of the year in which an initial public offering occurs and on December 31 of each of the next three years. The shares will also vest upon a change of control if the Company’s majority shareholder achieves a certain return on investment.

In accordance with SFAS 123R, the Company recorded no compensation expense for the three and nine months ended September 29, 2006 for these restricted shares. The remaining expected future compensation expense for unvested restricted stock was approximately $700 as of September 29, 2006, and will be expensed when the restrictions lapse and the shares vest. There was no impact to the Company’s statement of cash flows for the nine months ended September 29, 2006 for these restricted shares.

A summary of the status of the Company’s outstanding restricted shares at September 29, 2006, as well as changes during the nine months then ended is presented in the table below:


			Weighted				Weighted
	Total Number		Average		Unvested		Average
	of		Exercise Price		Number of		Grant-Date
	Shares		Per Share		Shares		Fair Value
Outstanding at December 31, 2005		—	$	—		—	$	—
Granted		464,157		—		464,157		1.50

Outstanding at September 29, 2006		464,157	$	—		464,157	$	1.50

As of September 29, 2006, the restricted stock was unvested, had an intrinsic value of $11,372, and had an indefinite remaining term. The per share grant-date fair value was the fair value of a Class A common share on June 30, 2006. The Securities and Exchange Commission (SEC) staff recently reviewed the Company's Registration Statement on Form S-1 filed on October 4, 2006 and issued a letter requesting information supporting the Company's valuation of the fair value of its common stock. The Company is in the process of responding to the SEC staff and, as a result, resolution of the issue is pending.

The redemption value per share is calculated for each shareholder, based on the actual redemption value if currently redeemable and an estimated redemption amount using the formula in the Management Shareholders’ Agreement for shares not currently redeemable. The following table reconciles the redemption value of common shares subject to put to the amounts reflected on the consolidated balance sheet as of September 29, 2006:


	Currently Redeemable						Not Redeemable		Total
Numbers of vested shares subject to put		21,818		39,261		2,000		166,488		229,567
Redemption value per share	$	6.71	$	10.19	$	1.50	$	18.75
Gross value of shares subject to put		146		400		3		3,122	$	3,671
Loans to shareholders										(1,917	)

Net value of shares subject to put									$	1,754

The following table reconciles the redemption value of common shares subject to put to the amounts reflected on the consolidated balance sheet as of December 31, 2005


	Currently Redeemable				Not Redeemable		Total
Numbers of vested shares subject to put		21,818		39,261		172,538		233,617
Redemption value per share	$	6.71	$	10.19	$	1.50
Gross value of shares subject to put		146		400		259	$	805
Loans to shareholders								(2,107	)

Net value of shares subject to put							$	(1,302	)

Since the net value of shares subject to put was negative, the Company reported the line item “common shares subject to put” as zero, and classified the remaining negative value as Loans to Shareholders, a reduction of Shareholders’ Deficit.

(5) Retirement Plans

The Company’s pension plans cover virtually all hourly employees not covered by multi-employer pension plans and provide benefits of stated amounts for each year of credited service. The Company funds such plans at a rate that meets or exceeds the minimum amounts required by applicable regulations. The plans’ assets are primarily invested in mutual funds comprised primarily of common stocks and corporate and U.S. government obligations.

The Company provides postretirement health care benefits on a contributory basis and life insurance benefits for Symons salaried and hourly employees who retired prior to May 1, 1995.

The following are the components of Net Periodic Benefit Cost for the three and nine months ended September 29, 2006 and September 30, 2005:


	Pension Benefits
	For the three			For the three			For the nine			For the nine
	fiscal months			fiscal months			fiscal months			fiscal months
	ended			ended			ended			ended
	September			September			September 29,			September 30
	29, 2006			30, 2005			2006			2005
Service cost	$	175		$	173		$	526		$	519
Interest cost		188			164			563			491
Expected return on plan assets		(207	)		(186	)		(621	)		(555	)
Amortization of prior service cost		3			4			10			11
Amortization of net loss		33			23			99			68

Net periodic benefit cost	$	192		$	178		$	577		$	534


	Symons Postretirement Benefits
	For the three			For the three			For the nine			For the nine
	fiscal months			fiscal months			fiscal months			fiscal months
	ended			ended			ended			ended
	September			September			September 29,			September 30,
	29, 2006			30, 2005			2006			2005
Service cost	$	—		$	—		$	—		$	—
Interest cost		7			7			21			20
Expected return on plan assets		—			—			—			—
Amortization of prior service cost		6			6			18			18
Amortization of net gain		(3	)		(3	)		(8	)		(8	)

Net periodic benefit cost	$	10		$	10		$	31		$	30

As of September 29, 2006, $798 of pension contributions have been made. The Company presently anticipates contributing an additional $247 to fund its pension plan obligations in 2006 for a total of $1,045.

(6) Segment Reporting

The Company has three reporting segments to monitor gross profit by sales type: product sales, rental revenue, and used rental equipment sales. These types of sales are differentiated by their source and gross margin percentage of sales.

Product sales represent sales of new products carried in inventories on the balance sheet. Cost of goods sold for product sales include material, labor, overhead, and freight.

Rental revenues are derived from leasing the rental equipment, and are recognized ratably over the term of the lease. Cost of goods sold for rental revenues include depreciation of the rental equipment, maintenance of the rental equipment, and freight.

Sales of used rental equipment are sales of rental equipment after a period of generating rental revenue. Cost of goods sold for sales of used rental equipment is the net book value of the equipment.

All other expenses, as well as assets and liabilities, are not tracked by sales type. Export sales and sales by non-U.S. affiliates are not significant.

Information about the gross profit of each sales type and the reconciliations to the consolidated amounts for the three fiscal months ended September 29, 2006 and September 30, 2005 are as follows:


	Three Fiscal Months Ended				Nine Fiscal Months Ended
	September 29,		September 30,		September 29,		September 30,
	2006		2005		2006		2005
Product sales	$	107,852	$	96,557	$	300,535	$	269,643
Rental revenue		16,275		13,816		44,428		35,961
Used rental equipment sales		7,514		3,698		18,224		11,953

Net sales		131,641		114,071		363,187		317,557


Product cost of sales		80,589		75,018		226,992		208,030
Rental cost of sales		9,600		9,594		26,330		27,389
Used rental equipment cost of sales		2,243		1,270		5,435		4,188

Cost of sales		92,432		85,882		258,757		239,607


Product gross profit		27,263		21,539		73,543		61,613
Rental gross profit		6,675		4,222		18,098		8,572
Used rental equipment gross profit		5,271		2,428		12,789		7,765

Gross profit	$	39,209	$	28,189	$	104,430	$	77,950


	Three Fiscal Months Ended				Nine Fiscal Months Ended
	September 29,		September 30,		September 29,		September 30,
	2006		2005		2006		2005
Depreciation Expense:
Product sales (property, plant, and equipment)	$	1,239	$	1,466	$	3,784	$	4,383
Rental revenue (rental equipment)		5,534		5,668		14,227		16,329
Corporate		314		626		963		2,038

Total depreciation	$	7,087	$	7,760	$	18,974	$	22,750

(7) Facility Closing and Severance Expenses

The Company continued to execute its 2004 plan to exit additional distribution facilities and to reduce overall headcount by approximately 75 in order to keep its cost structure in alignment with net sales. Activity for this plan for the year ended December 31, 2005 and the nine months ended September 29, 2006 was as follows:


	Involuntary			Lease			Relocation			Other Post-
	Termination			Termination			of			Closing
	Benefits			Costs			Operations			Costs			Total
Balance, January 1, 2005	$	—		$	120		$	—		$	—		$	120
Facility closing and severance expenses		105			264			5			157			531
Items charged against reserve		(105	)		(339	)		(5	)		(157	)		(606	)

Balance, December 31, 2005		—			45			—			—			45
Facility closing and severance expenses		—			78			—			40			118
Items charged against reserve		—			(123	)		—			(40	)		(163	)

Balance, September 29, 2006	$	—		$	—		$	—		$	—		$	—

The Company continued to execute its 2005 plan to exit additional distribution facilities and to reduce overall headcount by approximately 50 in order to keep its cost structure in alignment with net sales. Activity for this plan for the year ended December 31, 2005 and the nine months ended September 29, 2006 was as follows:


	Involuntary			Lease			Relocation			Other Post-
	Termination			Termination			of			Closing
	Benefits			Costs			Operations			Costs			Total
Facility closing and severance expenses	$	642		$	—		$	539		$	—		$	1,181
Items charged against reserve		(225	)		—			(101	)		—			(326	)

Balance, December 31, 2005		417			—			438			—			855
Facility closing and severance expenses		—			171			(203	)		38			6
Items charged against reserve		(362	)		(171	)		(235	)		(38	)		(806	)

Balance, September 29, 2006	$	55		$	—		$	—		$	—		$	55

During 2006, the Company initiated a new plan to reduce overall headcount in order to realign its management structure. Activity for this plan for the nine months ended September 29, 2006 was as follows:


	Involuntary			Lease		Relocation		Other Post-
	Termination			Termination		of		Closing
	Benefits			Costs		Operations		Costs		Total
Facility closing and severance expenses	$	249		$	—	$	—	$	—	$	249
Items charged against reserve		(246	)		—		—		—		(246	)

Balance, September 29, 2006	$	3		$	—	$	—	$	—	$	3

The total expected future expense for commitments under these plans is approximately $100 and will be expensed in accordance with SFAS No. 146. The Company expects to pay the amount accrued as of September 29, 2006 by the end of 2006.

In November 2006, the Company initiated a plan to move a manufacturing operation. The move is expected to begin in 2007 and be completed in the first quarter of 2008, following the renovation of the new facility. The

Company estimates that during 2007 and 2008, it will incur expenses and expend cash in the range of approximately $2,000 to $4,000 in connection with the relocation.

(8) Provision for Income Taxes

The Company has recorded a non-cash valuation allowance to reduce its deferred tax asset related to its domestic net operating loss carryforwards to zero, as estimated levels of future taxable income are less than the amount needed to realize this asset. If such estimates change in the future, the valuation allowance will be decreased or increased appropriately, resulting in a non-cash increase or decrease to net income. The provision for income taxes is a result of foreign earnings.

(9) Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares and potential common shares outstanding, if dilutive, related to warrants and stock options. The 464,157 unvested shares are not included as common shares until they have vested. For the three fiscal months ended September 29, 2006 and September 30, 2005, warrants for 117,276 common shares and options for 396,823 and 582,976 common shares, respectively, were not included in the calculation of diluted loss per share as their effects would have been anti-dilutive. For the nine fiscal months ended September 29, 2006 and September 30, 2005, warrants for 117,276 common shares and options for 396,823 and 582,978 common shares, respectively, were not included in the calculation of diluted loss per share as their effects would have been anti-dilutive.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We believe we are the leading North American provided of specialized products consumed in non-residential, concrete construction, and we believe we are the largest concrete forming and shoring rental company serving the domestic, non-residential construction market. Demand for our products and rental fleet is driven primarily by the level of non-residential construction market. Demand for our products and rental fleet is driving primarily by the level of non-residential construction activity in the United States, which consists primarily of:

	•		infrastructure projects, such as highways, bridges, airports, power plants and water management projects;

	•		institutional projects, such as schools, stadiums, hospitals and government buildings; and

	•		commercial projects, such as retail stores, offices, and recreational, distribution and manufacturing facilities.

Although certain of our products can be used in residential construction projects, we believe that less than 5% of our revenues are attributable to residential construction activity.

Facility Closing and Severance Expenses

We continued to execute its 2004 plan to exit additional distribution facilities and to reduce overall headcount by approximately 75 in order to keep its cost structure in alignment with net sales. Activity for this plan for the year ended December 31, 2005 and the nine months ended September 29, 2006 was as follows:


	Involuntary			Lease			Relocation			Other Post-
	Termination			Termination			of			Closing
	Benefits			Costs			Operations			Costs			Total
	(Amounts in thousands)
Balance, January 1, 2005	$	—		$	120		$	—		$	—		$	120
Facility closing and severance expenses		105			264			5			157			531
Items charged against reserve		(105	)		(339	)		(5	)		(157	)		(606	)

Balance, December 31, 2005		—			45			—			—			45
Facility closing and severance expenses		—			78			—			40			118
Items charged against reserve		—			(123	)		—			(40	)		(163	)

Balance, September 29, 2006	$	—		$	—		$	—		$	—		$	—

We continued to execute its 2005 plan to exit additional distribution facilities and to reduce overall headcount by approximately 50 in order to keep its cost structure in alignment with net sales. Activity for this plan for the year ended December 31, 2005 and the nine months ended September 29, 2006 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	$	642		$	—		$	539		$	—		$	1,181
Items charged against reserve		(225	)		—			(101	)		—			(326	)

Balance, December 31, 2005		417			—			438			—			855
Facility closing and severance expenses		—			171			(203	)		38			6
Items charged against reserve		(362	)		(171	)		(235	)		(38	)		(806	)

Balance, September 29, 2006	$	55		$	—		$	—		$	—		$	55

During 2006, we initiated a new plan to reduce overall headcount in order to realign its management structure. Activity for this plan for the nine months ended September 29, 2006 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	$	249		$	—	$	—	$	—	$	249
Items charged against reserve		(246	)		—		—		—		(246	)

Balance, September 29, 2006	$	3		$	—	$	—	$	—	$	3

The total expected future expense for commitments under these plans is approximately $100,000 and will be expensed in accordance with SFAS No. 146. We expect to pay the amount accrued as of September 29, 2006 by the end of 2006.

In November 2006, we initiated a plan to move a manufacturing operation. The move is expected to begin in 2007 and be completed in the first quarter of 2008, following the renovation of the new facility. We estimate that during 2007 and 2008, it will incur expenses and expend cash in the range of approximately $2 million to $4 million in connection with the relocation.

Results of Operations

Our net sales are derived from product sales, equipment rentals and sales of used rental equipment. Product sales consist primarily of consumable items used in concrete construction applications and, to a lesser extent, reusable items such as forming and shoring systems. Rental revenues are derived from rentals of forming and shoring systems. Sales of used equipment consist of sales of forming and shoring systems previously used in our rental fleet.

Our expenses consist primarily of selling, general and administrative expenses and cost of sales. Cost of sales is comprised mostly of raw material costs, purchased finished goods, freight, manufacturing labor and overhead, and depreciation expense associated with our rental fleet and property, plant and equipment.


	Three fiscal months Ended						Nine fiscal months ended
	September 29,			September 30,			September 29,			September 30,
	2006			2005			2006			2005
Product sales		81.9	%		84.7	%		82.8	%		84.9	%
Rental revenue		12.4			12.1			12.2			11.3
Used rental equipment sales		5.7			3.2			5.0			3.8

Net sales		100.0			100.0			100.0			100.0


Product cost of sales		74.7			77.7			75.5			77.2
Rental cost of sales		59.0			69.4			59.3			76.2
Used rental equipment cost of sales		29.9			34.3			29.8			35.0

Cost of sales		70.2			75.3			71.2			75.5


Product gross profit		25.3			22.3			24.5			22.8
Rental gross profit		41.0			30.6			40.7			23.8
Used rental equipment gross profit		70.1			65.7			70.2			66.0

Gross profit		29.8			24.7			28.8			24.5

Selling, general and administrative expenses		20.2			19.9			20.7			21.7
Facility closing and severance expenses		0.1			0.2			0.1			0.2
Gain on disposals of property, plant, and equipment		(0.4	)		(0.5	)		(0.5	)		(0.5	)
Amortization of intangibles		0.1			0.2			0.2			0.1

Income from operations		9.8			4.9			8.3			3.0
Interest expense		9.7			10.7			10.3			11.5
Interest income		0.2			—			0.1			—
Other expense		—			—			—			—

Income (loss) before provision for income taxes		(0.1	)		(5.8	)		(2.1	)		(8.5	)
Provision for income taxes		0.2			—			0.1			—

Net income (loss)		(0.3	)%		(5.8	)%		(2.2	)%		(8.5	)%

Comparison of Three Fiscal Months Ended September 29, 2006 and September 30, 2005

Net Sales

Net sales increased $17.6 million, or 15.4%, to $131.6 million in the third quarter of 2006 from $114.0 million in the third quarter of 2005. The following table summarizes our net sales by segment:


	Three fiscal months ended
	September 29, 2006					September 30, 2005
	(In thousands)
	Net Sales		%			Net Sales		%			% Change
Product sales	$	107,852		81.9	%	$	96,557		84.7	%		11.7	%
Rental revenue		16,275		12.4			13,816		12.1			17.8
Used rental equipment sales		7,514		5.7			3,698		3.2			103.2


Net sales	$	131,641		100.0	%	$	114,071		100.0	%		15.4	%

Product sales increased $11.3 million, or 11.7%, to $107.9 million in the third quarter of 2006 from $96.6 million in the third quarter of 2005. The increase in sales was due to higher unit volume of $7.2 million as a

result of the continued improvement in the non-residential building construction markets. The balance of the increase was due to increased sales prices.

Rental revenue increased $2.5 million, or 17.8%, to $16.3 million for the third quarter of 2006, compared to $13.8 million in the third quarter of 2005. The increase in rental revenue was due to increased customer demand as a result of the continued improvement in the non-residential construction markets.

Used rental equipment sales increased to $7.5 million in the third quarter of 2006 from $3.7 million in the third quarter of 2005 due to higher customer demand. In addition, $1.0 million of the increase related to the acquisition of one customer by another customer that occurred in the third quarter of 2006. Used rental equipment sales may vary significantly from quarter to quarter.

Gross Profit

Gross profit for the third quarter of 2006 increased 39.1% to $39.2 million, from $28.2 million in the third quarter of 2005.

Product gross profit increased $5.8 million to $27.3 million in the third quarter from $21.5 million in the third quarter of 2005. Similarly, product gross profit margins increased 300 basis points to 25.3% of product sales for the third quarter of 2006 compared to 22.3% in the prior year period. The $5.8 million increase in product gross profit was due to the higher product sales discussed above, which contributed $5.7 million of gross profit, manufacturing efficiencies of $1.2 million, better costs from more outsourcing of products of $0.6 million, shipping efficiencies of $0.3 million, partially offset by higher material costs of $2.0 million.

Rental gross profit for the third quarter of 2006 increased $2.5 million to $6.7 million, compared to $4.2 million in the third quarter of 2005. Depreciation on rental equipment for the third quarter of 2006 was $5.5 million, as compared to $5.7 million in the same period of 2005. A change in the estimated useful lives of certain rental equipment effective January 1, 2006, reduced depreciation expense on rental equipment by $0.8 million and was partially offset by higher depreciation expense from additions to rental equipment. Rental gross profit before depreciation was $12.2 million in the quarter, representing a 23.2% increase from the $9.9 million in the third quarter of 2005. Gross profit margins before depreciation on rental revenue improved to 75.0% in the third quarter of 2006 compared to 71.6% in the third quarter of 2005. The increase in rental gross profit before depreciation resulted from increased rental revenue while gross profit margins before depreciation reflect the benefit of our significant operating leverage higher rental revenue.

Used rental equipment gross profit for the third quarter of 2006 increased to $5.3 million from $2.4 million in the third quarter of 2005. This was due primarily to the increased revenues discussed previously. Gross profit margins were 70.1% of used rental equipment sales in the third quarter of 2006 compared to 65.7% in the third quarter of 2005. Gross margin percentages fluctuate based on the mix and age of rental equipment sold and remained within historical ranges.

Operating Expenses

Selling, general, and administrative expenses increased to $26.6 million in the third quarter of 2006 from $22.7 million in the third quarter of 2005. The increase was due to increased selling costs of $1.3 million, consulting fees for profit improvement initiatives of $1.0 million, distribution costs of $0.7 million, non-cash stock option expense of $0.6 million and healthcare and discretionary retirement costs of $0.3 million, most of which were due to the higher revenues and gross profit discussed above.

The gain on disposals of property, plant, and equipment of $0.4 million in the third quarter of 2006 relates to the amortization of the deferred gain on the sale-leaseback of the Des Plaines, Illinois facility that occurred in 2005.

Other Expenses

The increase in other expenses is due to the increase in interest expense, to $12.7 million in the third quarter of 2006 from $12.2 million in the third quarter of 2005, due to higher interest rates and higher average borrowings on the revolving line of credit facility.

Loss Before Income Taxes

Loss before income taxes in the third quarter of 2006 was $(0.1) million compared to $(6.7) million in the third quarter of 2005, due to the factors described above.

Provision for Income Taxes

The Company has recorded a non-cash valuation allowance to reduce its deferred tax assets, primarily related to net operating loss carryforwards, to zero, as estimated levels of future taxable income are less than the amount needed to realize these assets. If such estimates change in the future, the valuation allowance will be decreased or increased appropriately, resulting in a non-cash increase or decrease to net income. The provision for income taxes is a result of foreign earnings.

Net Loss

Net loss for the third quarter of 2006 was $(0.3) million, compared to $(6.7) million in the third quarter of 2005. The net loss for the third quarter of 2006 declined to 5.1% of the net loss in the third quarter of 2005. The improvement relates to the continued benefit of our operating strategy, combined with improved operating efficiencies and higher non-residential construction activity.

Comparison of Nine Fiscal Months Ended September 29, 2006 and September 30, 2005

Net Sales

Net sales increased $45.6 million, or 14.4%, to $363.2 million in the first nine months of 2006 from $317.6 million in the first nine months of 2005. The following table summarizes our net sales by product type:


	Nine fiscal months ended
	September 29, 2006					September 30, 2005
	(In thousands)
	Net Sales		%			Net Sales		%			% Change
Product sales	$	300,535		82.8	%	$	269,643		84.9	%		11.5	%
Rental revenue		44,428		12.2			35,961		11.3			23.5
Used rental equipment sales		18,224		5.0			11,953		3.8			52.5


Net sales	$	363,187		100.0	%	$	317,557		100.0	%		14.4	%

Product sales increased $30.9 million, or 11.5%, to $300.5 million in the first nine months of 2006 from $269.6 million in the first nine months of 2005. The increase in sales was due to higher unit volume of $27.8 million as a result of the continued improvement in the non-residential construction markets and, to a lesser extent, milder weather in the first quarter of 2006 versus the first quarter of 2005. The balance of the increase was due to price increases.

Rental revenue increased $8.4 million, or 23.5%, to $44.4 million for the first nine months of 2006, compared to $36.0 million in the first nine months of 2005. The increase in rental revenue was due to increased customer demand as a result of the continued improvement in the non-residential construction markets.

Used rental equipment sales increased to $18.2 million in the first nine months of 2006 from $12.0 million in the first nine months of 2005 due to higher customer demand. In addition, $1.0 million of the increase related to the acquisition of one customer by another customer that occurred in the first nine months of 2006. Used rental equipment sales may vary significantly from quarter to quarter.

Gross Profit

Gross profit for the first nine months of 2006 increased 34.0% to $104.4 million from $78.0 million in the first nine months of 2005.

Product gross profit increased $11.9 million to $73.5 million during the first nine months of 2006, compared to $61.6 million in the first nine months of 2005. Similarly, product gross profit margins increased 170 basis points to 24.5% of product sales for the first nine months of 2006 compared to 22.8% in the prior year period. The $11.9 million increase in product gross profit was due to the higher product sales, which contributed $9.4 million of product gross profit, $4.3 million of better costs due to outsourcing, manufacturing efficiencies of $2.3 million, and $0.6 million of shipping efficiencies, partially offset by material cost increases of $4.7 million.

Rental gross profit for the first nine months of 2006 increased $9.5 million to $18.1 million, compared to $8.6 million in the first nine months of 2005. Depreciation on rental equipment for the first nine months of 2006 was $14.2 million, as compared to $16.3 million in the same period of 2005. The difference was primarily due to a change in the estimated useful lives of certain rental equipment effective January 1, 2006, which reduced depreciation expense on rental equipment by $2.3 million. Rental gross profit before depreciation was $32.3 million in the first nine months of 2006, representing a 29.8% increase from the $24.9 million reported in the first nine months of 2005. Gross profit margins before depreciation on rental revenue improved to 72.8% in the first nine months of 2006 compared to 69.2% in the first nine months of 2005. The increase in rental gross profit before depreciation resulted from increased rental revenue while gross profit margins before depreciation reflect the benefit of our significant operating leverage on higher rental revenue.

Used rental equipment gross profit for the first nine months of 2006 was $12.8 million, an increase from $7.8 million in the first nine months of 2005. The increase was due to the increase in used rental equipment sales discussed above. Gross profit margins were 70.2%of used rental equipment sales for the first nine months of 2006 compared to 66.0% in the prior year period. Gross margin percentages fluctuate based on the mix and age of rental equipment sold and remained within historical ranges.

Operating Expenses

Selling, general, and administrative expenses increased to $75.2 million in the first nine months of 2006 from $69.0 million for the first nine months of 2005. The increase was due to increased distribution costs of $2.1 million, consulting fees of $1.8 million for profit improvement initiatives, selling costs of $1.3 million, discretionary retirement account costs of $1.0 million, non-cash stock option expense of $0.7 million, and healthcare costs of $0.3 million, most of which were due to the higher revenues and gross profit discussed above. These increases exceeded the non-recurring severance cost related to the termination of a former executive recorded in the first nine months of 2005 of $1.0 million.

The gain on disposals of property, plant, and equipment of $1.8 million relates to the amortization of the deferred gain on the sale-leaseback of the Des Plaines, Illinois facility that occurred in 2005.

Other Expenses

The increase in other expenses is due to the slight increase in interest expense, to $37.4 million for the first nine months of 2006 from $36.6 million in the first nine months of 2005, due to higher interest rates on the revolving credit facility.

Loss Before Income Taxes

Loss before income taxes in the first nine months of 2006 declined to $(7.5) million compared to $(26.9) million in the first nine months of 2005, due to the factors described above.

Provision for Income Taxes

decreased or increased appropriately, resulting in a non-cash increase or decrease to net income. The provision for income taxes is a result of foreign earnings.

Net Loss

The net loss for the first nine months of 2006 declined to $(7.9) million, compared to $(26.9) million in the first nine months of 2005, due to the factors described above. The net loss for the first nine months of 2006 declined to 29.4% of the net loss in the first nine months of 2005. This improvement relates to the continued benefit of our operating strategy, combined with improved operating efficiencies and higher non-residential construction activity.

Liquidity and Capital Resources

Historically, working capital borrowings under our revolving credit facility fluctuate with sales volume, such that our peak borrowings are generally in the second or third quarter. Our key statistic for measuring liquidity and capital resources is the amount available under our revolving credit facility, which was $6.9 million as of September 29, 2006.

Our capital uses relate primarily to capital expenditures and debt service. Our capital expenditures consist primarily of additions to our rental equipment fleet and additions to our property, plant, and equipment (PP&E). PP&E consists of manufacturing and distribution equipment and management information systems. We finance these capital expenditures with borrowings under our revolving credit facility and with proceeds of sales of our used rental equipment. The following table sets forth a summary of these events for the periods indicated.


	Nine fiscal months ended
	September 29,			September 30,
	2006			2005
	(in thousands)
Rental equipment additions	$	15,988		$	20,814
PP&E additions		7,282			4,187
Proceeds from sales of used rental equipment		(18,224	)		(11,953	)
Proceeds from sales of PP&E		(21	)		(1,287	)

Net rental equipment and PP&E additions	$	5,025		$	11,761

We believe we can manage the capital requirements of our rental fleet, and thus our cash flow, through the careful monitoring of our rental fleet additions. PP&E additions increased due to investments in manufacturing and distribution equipment and facilities. Rental equipment additions decreased due to timing.

Net cash used in operating activities in the first nine months of 2006 was $(24.0) million, compared to $(12.4) million in the first nine months of 2005. This activity is comprised of the following:


	Nine fiscal months ended
	September 29,			September 30,
	2006			2005
	(in millions)
Net loss	$	(7.9	)	$	(26.9	)
Adjustments to reconcile net loss to net cash used in operating activities		9.0			17.0

Subtotal		1.1			(9.9	)
Changes in assets and liabilities		(25.1	)		(2.5	)

Net cash used in operating activities	$	(24.0	)	$	(12.4	)

The subtotal of net loss and adjustments to reconcile net loss to net cash used in operating activities was $1.1 million for the first nine months of 2006, an $11.0 million improvement from $(9.9) million in the first nine

months of 2005. The improvement was due to the reduced net loss discussed above, partially offset by lower depreciation expense and higher gain on sales of rental equipment.

Changes in assets and liabilities resulted in a $(25.1) million use of cash in the first nine months of 2006, as compared to $(2.5) million use of cash in the first nine months of 2005. The increase in accounts receivable was a $(19.2) million use of cash in the first nine months of 2006 compared to $(5.2) million in the first nine months of 2005 due to the substantial increase in net sales in the third quarter of 2006 as compared to the third quarter of 2005. The increase in inventories was an $(8.5) million use of cash in the first nine months of 2006 compared to $(5.2) million in the first nine months of 2005 due to a larger than normal purchase of raw material in advance of an October 2006 cost increase. Changes in prepaid expenses and other assets represented a $(0.9) million use of cash in the first nine months of 2006 as compared to a $6.4 million source of cash in the first nine months of 2005 due primarily to accelerated collections of notes receivable in 2005 that did not recur in 2006.

We have a $95.0 million senior secured revolving credit facility, which has no financial covenants. Availability of borrowings is limited to 85% of eligible accounts receivable and 60% of eligible inventories and rental equipment, less $10.0 million. All $95.0 million was available at September 29, 2006, of which $79.2 million at a weighted average interest rate of 8.3% was outstanding. Letters of credit of $8.9 million were outstanding at September 29, 2006, resulting in available borrowings of $6.9 million under the revolving credit facility. The credit facility is secured by substantially all assets of the Company.

As of September 29, 2006, our other long-term debt consisted of the following:


	September 29,
	2006
Senior Subordinated Notes, interest rate of 13.0%	$	154,729
Debt discount on Senior Subordinated Notes		(5,101	)
Senior Second Secured Notes, interest rate of 10.75%		165,000
Debt discount on Senior Second Secured Notes		(3,604	)
Senior unsecured notes payable to former owner of business acquired, non-interest bearing, accreted at 6.0% to 14.5%		8,068
Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1%, due on demand		1,063
Capital lease obligations		2,875

Total long-term debt		323,030
Less current maturities		(3,775	)

Long-term portion	$	319,255

Our long-term debt repayments for the nine months ended September 29, 2006, were $1.6 million.

At September 29, 2006, working capital was $88.0 million, compared to $63.6 million at December 31, 2005. The $24.4 million increase was comprised of the following:

	•		$19.2 million increase in accounts receivable due to the seasonally higher net sales in September relative to December,

	•		$8.4 million increase in inventories due to a larger than normal raw material purchase in advance of an October cost increase and the anticipated seasonal higher sales in the fourth quarter relative to the first quarter,

	•		$1.3 million of changes in other items, offset by

	•		$4.5 million increase in accrued liabilities due to higher expenses needed to support the higher sales volumes.

We believe our liquidity, capital resources, and cash flows from operations are sufficient to fund the capital expenditures we have planned and our debt service requirements.

Our ability to make scheduled payments of principal, or to pay the interest on, or to refinance, our indebtedness, or to fund planned capital expenditures will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations and anticipated operating improvements, management believes that cash flow from operations and available borrowings under our revolving credit facility will be adequate to meet our future liquidity for the foreseeable future. We cannot assure you, however, that our business will generate sufficient cash flow from operations, that operating improvements will be realized on schedule or that future borrowings will be available to us under our revolving credit facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may from time to time seek to retire our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, in privately negotiated transactions or otherwise. Any such repurchases or exchanges will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including our revolving credit facility, the Senior Subordinated Notes, and the Senior Second Secured Notes, on commercially reasonable terms or at all.

Commitments

During the nine fiscal months ended September 29, 2006, we extended the maturity of our revolving credit facility to May 31, 2008 from January 30, 2007. There were no other material changes to minimum future payments from December 31, 2005.

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, such that our peak borrowing under our revolving credit facility is generally in the second of third quarter.

Inflation

We may not be able to pass on the cost of commodity price increases to our customers. Steel, in its various forms, is our principal raw material, constituting approximately 20% of our product cost of sales in 2005. In 2005 and the first nine months of 2006, steel costs were less volatile than in 2004. While the cost of certain types of steel are expected to increase, we expect overall steel costs to decrease slightly in the fourth quarter of 2006. Additionally, the overall increase in energy costs, including natural gas and petroleum products, has adversely impacted our overall operating costs in the form of higher raw material, utilities, and freight costs. We cannot assure you we will be able to pass these cost increases on to our customers.

Stock Collateral Valuation – Senior Second Secured Notes

Rule 3-16 of the SEC’s Regulation S-X requires the presentation of a subsidiary’s stand-alone, audited financial statements if the subsidiary’s capital stock secures an issuer’s notes and the par value, book value or market value (“Applicable Value”) of the stock equals or exceeds 20% of the aggregate principal amount of the secured class of securities the (“Collateral Threshold.”) The indenture governing our Senior Second Secured Notes and the security documents for the notes provide that the collateral will never include the capital stock of any subsidiary to the extent the Applicable Value of the stock is equal to or greater than the Collateral Threshold. As a result, we will not be required to present separate financial statements of our subsidiary under Rule 3-16. In addition, in the event that Rule 3-16 or Rule 3-10 of Regulation S-X is amended, modified or interpreted by the SEC to require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the SEC (or any other governmental agency) of separate financial statements of subsidiary due to the fact that such subsidiary’s capital stock or other securities secure our Senior Second Secured Notes, then the capital stock or other securities of such subsidiary automatically will be deemed not to be part of the collateral for the notes but only to the extent necessary to not be subject to such requirement. In such event, the security documents for the Senior Second Secured Notes may be amended or modified, without the consent of any holder of notes, to the extent necessary to release the liens of the Senior Second Secured Notes on the shares of capital stock or other

securities that are so deemed to no longer constitute part of the collateral; however, the excluded collateral will continue to secure our first priority lien obligations such as our senior secured revolving credit facility. As a result of the provisions in the indenture and security documents relating to subsidiary capital stock, holders of our Senior Second Secured Notes may at any time in the future lose all or a portion of their security interest in the capital stock of any of our subsidiaries if the Applicable Value of that stock were to become equal to or greater than the Collateral Threshold. As of September 29, 2006, 65% of the voting capital stock and 100% of the non-voting capital stock of our subsidiary Dayton Superior Canada Ltd. constitutes collateral for the notes. We have based our determination of whether 65% of the voting capital stock and 100% of the non-voting capital stock of our subsidiary Dayton Superior Canada Ltd. constitutes collateral upon the book value, par value and estimated market value of the capital as of September 29, 2006. The Applicable Value for the capital stock is the greater of the book value and estimated market value, as the par value of each subsidiary’s capital stock is nominal and therefore has not impacted our calculation of Applicable Value.

The Applicable Value of Dayton Superior Canada Ltd. was $10.0 million as of September 29, 2006. Based upon the foregoing, as of September 29, 2006, the Applicable Value of the capital stock of Dayton Superior Canada Ltd. did not exceed the Collateral Threshold. The Applicable Value of the common stock of Dayton Superior Canada Ltd was based upon the estimated market value. We have calculated the estimated market value of our Dayton Superior Canada Ltd. capital stock by determining the earnings before interest, taxes, depreciation, and amortization, or EBITDA, for the twelve months ended September 29, 2006, adjusted to add back facility closing and severance expenses, loss on sale of fixed assets and other expense, and multiplied this adjusted EBITDA by 5.5 times. We retain an independent appraisal firm for purposes of calculating the market value of our common stock on a going concern basis, as required under our Management Stockholders’ Agreement and in connection with determining equity-based compensation. The appraisal firm has informed us that a range of 5 to 6 times adjusted EBITDA is reasonable for determining the fair value of the capital stock of smaller, basic manufacturing companies. We determined that using a multiple of 5.5 times, which is the mid-point of the range described above, is a reasonable and appropriate means for determining fair value of our subsidiary’s capital stock.

Set forth below is the adjusted EBITDA of Dayton Superior Canada Ltd. for the twelve fiscal months ended September 29, 2006, together with a reconciliation to net income:


	Dayton
	Superior
	Canada Ltd.
Net Income	$	1,114
Provision for Income Taxes		649

Income from Operations		1,763
Depreciation Expense		64

Adjusted valuation EBITDA		1,827
Multiple		5.5

Estimated Fair Value	$	10,049

As described above, we have used EBITDA and adjusted valuation EBITDA of Dayton Superior Canada Ltd. solely for purposes of determining the estimated market value of the capital stock to determine whether that capital stock is included in the collateral. EBITDA and adjusted valuation EBITDA are not recognized financial measures under generally accepted accounting principles and do not purport to be alternatives to operating income as indicators of operating performance or to cash flows from operating activities as measures of liquidity. Additionally, EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our consolidated results as reported under generally accepted accounting principles. Because not all companies use identical calculations, the presentation of adjusted EBITDA also may not be comparable to other similarly titled measures of other companies. You are encouraged to evaluate the adjustments taken and the reasons we consider them appropriate for analysis for determining estimated market value of our subsidiaries’ capital stock.

A change in the Applicable Value of the capital stock of Dayton Superior Canada Ltd. could result in the capital stock being excluded from collateral (or becoming part of the collateral if it was previously excluded). The following table reflects the amounts by which the Applicable Value of Dayton Superior Canada Ltd. as of

September 29, 2006 and the adjusted EBITDA for the twelve months ended September 29, 2006 would have to increase in order for Dayton Superior Canada Ltd. capital stock to no longer constitute collateral:


	Change in Applicable		Change in Adjusted
Subsidiary	Value		Valuation EBITDA
Dayton Superior Canada Ltd.	$	22,951	$	4,173

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. Effective January 1, 2006, the Company changed its estimate of depreciable lives on certain families of rental equipment from three years to fifteen years on a prospective basis. Effective January 1, 2006, the Company adopted SFAS No. 123R and began recording compensation expense for its stock option plan. There have been no other material changes in our policies or estimates since December 31, 2005.

In June, 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company will be required to comply with Interpretation No. 48 as of the first annual period that begins after December 15, 2006. The Company has not determined the impact that Interpretation No. 48 will have on its consolidated financial statements.

In September, 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. This Statement does not require any new fair value measurements. The Company will be required to comply with Statement No. 157 as of the first annual period that begins after November 15, 2007. The Company has not determined the impact that Statement No. 157 will have on its consolidated financial statements.

In September, 2006, the FASB issued SFAS No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R). This Statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This Statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The Company will be required to recognize the funded status of its defined benefit postretirement plan and to provide the required disclosures as of the first annual period that ends after June 15, 2007. The Company will be required to measure plan assets and benefit obligations as of the date of the Company’s fiscal year-end statement of financial position as of the first annual period that ends after December 15, 2008. The Company has not determined the impact that Statement No. 158 will have on its consolidated financial statements.

In September, 2006, the SEC issued Staff Accounting Bulletin 108 (SAB 108). The interpretations in this Staff Accounting Bulletin express the staff’s views regarding the process of quantifying financial statement misstatements. The staff is aware of diversity in practice. For example, certain registrants do not consider the effects of prior year errors on current year financial statements, thereby allowing improper assets or liabilities to remain unadjusted. While these errors may not be material if considered only in relation to the balance sheet, correcting the errors could be material to the current year income statement. Certain registrants have

proposed to the staff that allowing these errors to remain on the balance sheet as assets or liabilities in perpetuity is an appropriate application of generally accepted accounting principles. The staff believes that approach is not in the best interest of the users of financial statements. The interpretations in this Staff Accounting Bulletin are being issued to address diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. The Company has not determined the impact that SAB 108 will have on its consolidated financial statements.

Forward-Looking Statements

Certain statements made herein and future filings by us on Form S-1, Form 10-K, Form 10-Q, and Form 8-K, and future oral and written statements by us and our management concerning anticipated future performance are forward-looking statements. This release includes forward-looking statements that are not statements of historical fact and may include a number of risks and uncertainties with respect to our financial condition, results of operations and business. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Prospectus Summary”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements can be identified by the use of terminology such as “subject to”, “believes”, “anticipates,” “plans,” “expects,” “intends,” “estimates,” “projects,” “may,” “should,” “can,” the negatives thereof, variations thereon and similar expressions, or by discussions of strategy.

All forward-looking statements are based upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain, we may not realize our expectations and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. Factors that may materially affect such forward-looking statements include:

	-		depressed or fluctuating market conditions for our products and services;

	-		operating restrictions imposed by our existing debt;

	-		increased raw material costs and operating expenses;

	-		our ability to comply with environmental regulations and to absorb environmental investigation, remediation and compliance costs;

	-		the loss of certain key customers;

	-		the loss of key personnel;

	-		exposure to the local business risks of our Mexican operations and foreign sourcing partners;

	-		conflicts of interest with our major shareholder;

	-		our ability to increase manufacturing efficiency, leverage our purchasing power and broaden our distribution network;

	-		our ability to successfully identify, complete and integrate acquisitions;

	-		our ability to develop new products;

	-		the competitive nature of our industry in general, as well as our specific market areas;

	-		changes in prevailing interest rates and the availability of and terms of financing to fund the anticipated growth of our business;

	-		labor disturbances; and

	-		the other factors described in this prospectus under “Risk Factors”.

Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You are cautioned not to place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. We do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of September 29, 2006, we had financial instruments that were sensitive to changes in interest rates. These financial instruments consist of:

	•		$95.0 million revolving credit facility, $79.2 million of which was outstanding at September 29, 2006;

	•		$165.0 million of Senior Second Secured Notes with a net book value of $160.4 million;

	•		$154.7 million of Senior Subordinated Notes with a net book value of $149.6 million;

	•		$8.1 million of Notes payable to the seller of Safway;

	•		$2.9 million in capital lease obligations;

	•		$1.1 million in other fixed-rate, long-term debt.

During the third quarter of 2006, our $95.0 million senior secured revolving credit facility was amended to extend the maturity from January 30, 2007 to May 31, 2008. The facility has no financial covenants. Availability of borrowings is limited to 85% of eligible accounts receivable and 60% of eligible inventories and rental equipment, less $10.0 million. At September 29, 2006, all $95.0 million was available. We had outstanding letters of credit of $8.9 million, leaving available borrowings of $6.9 million under the revolving credit facility. The credit facility is secured by substantially all assets of the Company.

Our $165.0 million of senior second secured notes mature in June 2008. The notes were issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The senior second secured notes have an interest rate of 10.75%. The estimated fair value of the notes is $170.0 million as of September 29, 2006. The senior second secured notes are secured by substantially all assets of the Company.

Our $154.7 million of senior subordinated notes mature in June 2009. The notes were issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The 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 $145.4 million as of September 29, 2006.

As of September 29, 2006, the non-interest bearing note to the former owner of a business acquired had a remaining balance of $9.0 million and is being accreted to the face value at 14.5% using the effective interest method. Annual payments of $1.0 million are due on September 30 of each year from 2006 through 2008, with a final balloon payment of $6.0 million due on December 31, 2008. The payment due on September 30, 2006 was made on October 2, 2006, the next business day. The book value and estimated fair value of the note at September 29, 2006 was $7.0 million and $7.3 million, respectively. As of September 29, 2006, a second non-interest bearing note payable has a remaining balance of $1.2 million and is being accreted to the face value at 6.0% using the effective interest method. Minimum payments on the note are $0.2 million for the balance of 2006, $0.6 million in 2007, and $0.4 million in 2008. Payments may be accelerated if certain revenue targets are met. The book value and the fair value of the note at September 29, 2006 were both $1.1 million.

Our other long-term debt at September 29, 2006 consisted of $1.1 million of 9.1% junior subordinated debentures previously held by the Dayton Superior Capital Trust with an estimated fair value of $1.2 million.

In the ordinary course of our business, we also are exposed to price changes in raw materials, particularly steel and energy. 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.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is

accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

The Company is currently undergoing a comprehensive effort to comply with Section 404 of the Sarbanes-Oxley Act of 2002, which is required as of December 31, 2007. This effort includes documenting and evaluating the design of and testing the effectiveness of our internal controls. During this process, we expect to make improvements in the design of and operation of our internal controls including further formalization of policies and procedures and improving segregation of duties. Although we believe that our efforts will enable us to provide the required management report on internal controls and our independent auditors to provide the required attestation as of fiscal year end 2007, we can give no assurance that these efforts will be successfully completed in a timely manner.

Part II. – Other Information

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On June 30, 2006, the Company awarded a total of 464,157 Common Shares for an aggregate award amount of $696,236 ($1.50 per share) to three of the Company’s executive officers pursuant to Restricted Stock Agreements in consideration for services rendered. Each award provides that the Common Shares are subject to forfeiture until certain vesting conditions are met. The shares were issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act for transactions not involving a public offering.

Item 6. Exhibits

See Index to Exhibits following the signature page to this report for a list of Exhibits.

DAYTON SUPERIOR CORPORATION

DATE: November 10, 2006

BY: /s/ Edward J. Puisis

Edward J. Puisis

Executive Vice President and Chief Financial Officer

	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 Executive Vice President and Chief Financial Officer

	32.1		Section 1350 Certification of President and Chief Executive Officer

	32.2		Section 1350 Certification of Executive Vice President and Chief Financial Officer