Dayton Superior 10-Q/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q/A

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


FOR THE QUARTER ENDED June 30, 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 executive offices)		(Zip Code)

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 August 14, 2006

DAYTON SUPERIOR CORPORATION FORM 10-Q/A
Amendment No. 1
INTRODUCTORY NOTE

On December 15, 2006, the Audit Committee of the Board of Directors approved management’s recommendation that certain disclosures in the footnotes to the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2006 be restated in response to comments from the Staff of the Securities and Exchange Commission relating to the fair value of the common stock at June 30, 2006. This Amendment No. 1 on Form 10-Q/A (the “Amendment”) amends the Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, which was originally filed with Securities and Exchange Commission on August 14, 2006 (“Original Report”), and amends and restates Part 1, Items 1 and 4. This Amendment is made to restate certain disclosures in the footnotes to the Company’s condensed consolidated financial statements. This filing corrects the valuation of the common stock at June 30, 2006, reflected in Note 4 to the condensed consolidated financial statements. This filing also amends related disclosures included in critical accounting policies in Note 2. In addition, pursuant to the rules of the SEC, exhibits 31.1, 31.2, 32.1 and 32.2 of the original filing have been amended to contain currently dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

The correction noted above increased the expected future compensation expense related to the granting of restricted shares at June 30, 2006 to $5.9 million, from a previous value of $700,000. This increase in expected future compensation expense was due to the revised valuation of the common stock at June 30, 2006 to $12.67 per share from a previous value of $1.50 per share.

Except as described above, no other information in the Amendment has been amended and the Company has not updated disclosures in this Amendment to reflect any event subsequent to the Company’s filing of the Original Report. In particular, no change has been made to the reported results of operations for the three or six months ended June 30, 2006 or to any of the other financial statements contained in the Original Report.

TABLE OF CONTENTS


	Part I. — Financial Information
	Item 1 — Financial Statements
Dayton Superior Corporation and Subsidiaries Condensed Consolidated Balance Sheets As of June 30, 2006 and December 31, 2005 (Amounts in thousands) (Unaudited)
Dayton Superior Corporation and Subsidiaries Consolidated Statements of Operations For The Three and Six Fiscal Months Ended June 30, 2006 and July 1, 2005 (Amounts in thousands) (Unaudited)
Dayton Superior Corporation and Subsidiaries Consolidated Statements of Cash Flows For The Six Fiscal Months Ended June 30, 2006 and July 1, 2005 (Amounts in thousands) (Unaudited)
Dayton Superior Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) For The Six months Ended June 30, 2006 and July 1, 2005 (Amounts in thousands) (Unaudited)
		Dayton Superior Corporation and Subsidiaries Notes to Consolidated Financial Statements (Amounts in thousands, except share and per share amounts) (Unaudited)
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 6. Exhibits
SIGNATURES
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 June 30, 2006 and December 31, 2005
(Amounts in thousands)
(Unaudited)


	June 30,			December 31,
	2006			2005
ASSETS
Current assets:
Cash	$	—		$	—
Accounts receivable, net of allowances for doubtful accounts and sales returns and allowances of $5,412 and $5,435		75,388			62,326
Inventories		61,373			57,372
Prepaid expenses and other current assets		6,076			5,134
Prepaid income taxes		765			546

Total current assets		143,602			125,378

Rental equipment, net of accumulated depreciation of $62,910 and $56,591		68,139			68,400

Property, plant and equipment		101,315			96,491
Less accumulated depreciation		(62,051	)		(58,327	)

Net property, plant and equipment		39,264			38,164

Goodwill		43,643			43,643
Intangible assets, net of accumulated amortization		4,152			5,025
Other assets		1,182			910


Total assets	$	299,982		$	281,520


LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Current maturities of long-term debt	$	2,760		$	2,864
Revolving credit facility		69,950			—
Current portion of deferred gain on sale-leaseback		2,997			3,530
Accounts payable		31,047			27,267
Accrued compensation and benefits		13,195			12,266
Accrued interest		6,712			6,589
Accrued freight		5,289			4,031
Other accrued liabilities		5,167			5,247

Total current liabilities		137,117			61,794
Revolving credit facility		—			48,700
Other long-term debt, net of current portion		319,709			317,690
Deferred income taxes		11,406			11,406
Deferred gain on sale-leaseback, net of current portion		3,870			5,199
Other long-term liabilities		6,483			8,068

Total liabilities		478,585			452,857

Class A common shares subject to put option, 693,724 and 233,617 shares, net of related loans to shareholders		—			—
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 option		115,771			115,703
Loans to shareholders		(2,121	)		(2,098	)
Class A treasury shares, at cost, 51,293 shares		(1,509	)		(1,509	)
Accumulated other comprehensive loss		(1,087	)		(1,357	)
Accumulated deficit		(289,657	)		(282,076	)

Total shareholders’ deficit		(178,603	)		(171,337	)


Total liabilities and shareholders’ deficit	$	299,982		$	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 Six Fiscal Months Ended June 30, 2006 and July 1, 2005
(Amounts in thousands)
(Unaudited)


	Three Fiscal Months Ended						Six Fiscal Months Ended
	June 30,			July 1,			June 30,			July 1,
	2006			2005			2006			2005
Product sales	$	109,459		$	101,997		$	192,683		$	173,086
Rental revenue		14,890			12,015			28,153			22,145
Used rental equipment sales		5,866			3,692			10,710			8,255

Net sales		130,215			117,704			231,546			203,486


Product cost of sales		80,921			77,863			146,403			133,012
Rental cost of sales		8,791			9,294			16,730			17,795
Used rental equipment cost of sales		1,775			1,695			3,192			2,918

Cost of sales		91,487			88,852			166,325			153,725


Product gross profit		28,538			24,134			46,280			40,074
Rental gross profit		6,099			2,721			11,423			4,350
Used rental equipment gross profit		4,091			1,997			7,518			5,337

Gross profit		38,728			28,852			65,221			49,761

Selling, general and administrative expenses		24,945			23,243			48,571			46,257
Facility closing and severance expenses		26			81			277			331
Gain on disposals of property, plant, and equipment		(667	)		(1,147	)		(1,336	)		(1,086	)
Amortization of intangibles		176			164			327			306


Income from operations		14,248			6,511			17,382			3,953

Other expense (income):
Interest expense		12,465			12,136			24,621			24,356
Interest income		(8	)		(43	)		(27	)		(122	)
Other expense		206			16			154			5


Income (loss) before provision for income taxes		1,585			(5,598	)		(7,366	)		(20,286	)

Provision for income taxes		91			—			215			—


Net income (loss)	$	1,494		$	(5,598	)	$	(7,581	)	$	(20,286	)

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 Six Fiscal Months Ended June 30, 2006 and July 1, 2005
(Amounts in thousands)
(Unaudited)


	Six Fiscal Months Ended
	June 30, 2006			July 1, 2005
Cash Flows From Operating Activities:
Net loss	$	(7,581	)	$	(20,286	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		11,887			14,990
Amortization of intangibles		327			306
Stock option expense		62			—
Deferred income taxes		—			(118	)
Amortization of deferred financing costs and debt discount		2,799			2,678
Amortization of deferred gain on sale-leaseback transactions		(1,862	)		(647	)
Gain on sales of rental equipment		(7,517	)		(5,337	)
Gain on sales of property, plant and equipment		(13	)		(573	)
Changes in assets and liabilities:
Accounts receivable		(13,062	)		(10,345	)
Inventories		(4,001	)		(4,963	)
Prepaid expenses and other assets		(1,520	)		3,760
Prepaid income taxes		(219	)		(66	)
Accounts payable		3,687			3,978
Accrued liabilities and other long-term liabilities		572			(609	)

Net cash used in operating activities		(16,441	)		(17,232	)


Cash Flows From Investing Activities:
Property, plant and equipment additions		(4,103	)		(3,060	)
Proceeds from sales of property, plant and equipment		21			987
Rental equipment additions		(10,531	)		(12,845	)
Proceeds from sales of rental equipment		10,710			8,255

Net cash used in investing activities		(3,903	)		(6,663	)


Cash Flows From Financing Activities:
Borrowings under revolving credit facility		77,950			74,175
Repayments of revolving credit facility		(56,700	)		(65,500	)
Repayments of other long-term debt		(1,159	)		(757	)
Proceeds from sale-leaseback transaction		—			11,636
Financing costs incurred		—			(3	)
Change in loans to shareholders		(17	)		25
Issuance of common shares subject to put option		—			13

Net cash provided by financing activities		20,074			19,589


Effect of Exchange Rate Changes on Cash		270			(198	)

Net decrease in cash		—			(4,504	)
Cash, beginning of period		—			4,504

Cash, end of period	$	—		$	—


Supplemental Disclosures:
Cash paid for income taxes	$	284		$	150
Cash paid for interest		21,699			20,918
Rental equipment acquired under capital lease		1,200			—
Property, plant and equipment and rental equipment additions in accounts payable		1,563			1,471
Reclassification of common shares due to repayment of shareholder loans through redemption of common shares		—			75
Reclassification of common shares due to expiration of put option		6			—

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 (Restated)

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 June 30, 2006 and December 31, 2005:


	June 30, 2006		December 31, 2005
Raw materials	$	14,415	$	13,248
Work in progress		2,848		2,813
Finished goods		44,110		41,311

Total Inventory	$	61,373	$	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 impact of this change in estimate was to reduce rental cost of sales by $750 and $1,500 for the three and six months ended June 30, 2006.

	(d)		Goodwill — The Company completed its assessment 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.

	(e)		Common Stock Valuation – The Company is required to value its common stock for purposes of (i) calculating compensation expense in connection with the award of unvested shares and stock option grants and (ii) calculating the redemption value of the shares of its common stock that are subject to put under the Company’s Management Stockholders’ Agreement. The value of the Company’s common stock is determined by the Company after careful consideration of all available facts and circumstances.

			On June 30, 2006, the Company awarded 464,157 unvested shares of stock to three of its executive officers. The Company valued these shares on June 30, 2006 at $12.67 per share using an implied adjusted EBITDA multiple of 9.82x, based on the best available information at that time.

			Because the compensation expense reflected in the Company’s results of operations is based in part on management’s judgment as to the value of the Company’s common stock — which is necessarily subjective — subjective discretion impacts the Company’s reported results of operations. Similarly, the redemption value of shares subject to put reflected on its balance sheet is based on the judgment of an independent appraiser and, in the case of shares held by employees whose term of employment ends during the second half of any fiscal year, the Company’s own judgment as to fair market value. As a result, these accounting policies require management to make estimates and assumptions that impact the Company’s financial statements.

	(f)		New Accounting Pronouncements — 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.

(3) Credit Arrangements

The Company has a $95,000 senior secured revolving credit facility, which has no financial covenants and matures in January 2007. Availability of borrowings is limited to 85% of eligible accounts receivable and 60% of eligible inventories and rental equipment, less $10,000. At June 30, 2006, the entire $95,000 was available, of which $69,950 was outstanding at a weighted average interest rate of 8.0%. Outstanding letters of credit were $7,870 resulting in available borrowings of $17,180. 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						Six fiscal months ended
	June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005
Revolving Credit Facility:
Average borrowings	$	74,560		$	68,010		$	66,963		$	65,381
Peak borrowing		77,950			77,500			77,950			77,500
Weighted average interest rate		7.9	%		6.0	%		7.8	%		5.8	%

Following is a summary of the Company’s other long-term debt as of June 30, 2006 and December 31, 2005:


	June 30,			December 31,
	2006			2005

Senior Subordinated Notes, interest rate of 13.0%	$	154,729		$	154,729
Debt discount on Senior Subordinated Notes		(5,476	)		(6,114	)
Senior Second Secured Notes, interest rate of 10.75%		165,000			165,000
Debt discount on Senior Second Secured Notes		(4,003	)		(4,776	)
Senior unsecured notes payable to seller of Safway, non-interest bearing, accreted at 6.0% to 14.5%		7,994			7,534
Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1%, due on demand		1,068			1,068
Capital lease obligations		3,157			2,930
Payable to vendor on extended terms, non-interest bearing, accreted at 6.0%		—			183

Total long-term debt		322,469			320,554
Less current maturities		(2,760	)		(2,864	)

Long-term portion	$	319,709		$	317,690

As of June 30, 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 $167,475 as of June 30, 2006. The Senior Notes are secured by substantially all assets of the Company.

As of June 30, 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 $135,001 as of June 30, 2006.

(4) Stock-Based Compensation Plans (Restated)

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 June 30, 2006, options to purchase 359,449 common shares were available to be granted. The terms of the option grants are ten years from the date of grant.

Generally, between 10% and 25% of the options have a fixed vesting period of fewer than three years. The remaining options are eligible to become exercisable in installments over one to five years from the date of grant based on the Company’s performance, but, in any case, become exercisable no later than nine years after the grant date.

These options may be subject to accelerated vesting upon certain change in control events based on Odyssey Investment Partners, LLC’s return on investment. Under the Stock Option Plan, the option exercise price equals 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 $36 and $62 for the three and six months ended June 30, 2006. The remaining expected future compensation expense for unvested stock options, based on estimated forfeitures of approximately 35%, was approximately $500 as of June 30, 2006, and is expected to be expensed over a weighted average period of 2.4 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			For the six fiscal
		fiscal months ended			months ended
		July 1, 2005			July 1, 2005
Net loss	As Reported	$	(5,598	)	$	(20,286	)
	Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effect		(72	)		(144	)

	Pro Forma	$	(5,670	)	$	(20,430	)

A summary of the status of the Company’s stock option plans at June 30, 2006, as well as changes during the six months then ended is presented in the table below:


				Weighted Average					Weighted Average
	Total Number of			Exercise Price Per		Unvested Number of			Grant-Date		Aggregate Intrinsic
	Shares			Share		Shares			Fair Value		Value
Outstanding at December 31, 2005		402,063		$	25.92		310,018		$	6.34	$	—
Expired		(5,792	)		26.61		—			—		—
Forfeited		(33,694	)		27.47		(33,694	)		4.71		—

Outstanding at June 30, 2006		362,577		$	25.76		276,324		$	6.54	$	—

As of June 30, 2006, the Company had vested options for 86,253 shares at a weighted average exercise price of $24.14 per share, $0 intrinsic value, and a weighted average remaining term of 4.9 years.

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 six months ended June 30, 2006 for these restricted shares. The remaining expected future compensation expense for unvested restricted stock was approximately $5,900 (restated from $700 or $1.50 per share) as of June 30, 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 six months ended June 30, 2006 for these restricted shares.

A summary of the status of the Company’s outstanding restricted shares at June 30, 2006, as well as changes during the six months then ended is presented in the table below:


			Weighted Average				Weighted Average
	Total Number of		Exercise Price Per		Unvested Number of		Grant-Date
	Shares		Share		Shares		Fair Value
Outstanding at December 31, 2005		—	$	—		—	$	—
Granted		464,157		—		464,157		12.67

Outstanding at June 30, 2006		464,157	$	—		464,157	$	12.67

As of June 30, 2006, the restricted stock was unvested, had an intrinsic value of approximately $5,900, and had an indefinite remaining term. The per share grant-date fair value was the fair value of Class A common share on June 30, 2006.

(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 six months ended June 30, 2006 and July 1, 2005:


	Pension Benefits
	For the three			For the three			For the six			For the six
	fiscal months ended			fiscal months ended			fiscal months ended			fiscal months ended
	June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005

Service cost	$	176		$	173		$	351		$	346
Interest cost		187			164			375			327
Expected return on plan assets		(207	)		(184	)		(414	)		(369	)
Amortization of prior service cost		3			3			7			7
Amortization of net loss		33			22			66			45

Net periodic benefit cost	$	192		$	178		$	385		$	356


	Symons Postretirement Benefits
	For the three			For the three			For the six			For the six
	fiscal months ended			fiscal months ended			fiscal months ended			fiscal months ended
	June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005

Service cost	$	—		$	—		$	—		$	—
Interest cost		7			6			14			13
Expected return on plan assets		—			—			—			—
Amortization of prior service cost		6			6			12			12
Amortization of net loss		(2	)		(2	)		(5	)		(5	)

Net periodic benefit cost	$	11		$	10		$	21		$	20

As of June 30, 2006, $468 of pension contributions have been made. The Company presently anticipates contributing an additional $577 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 June 30, 2006 and July 1, 2005 are as follows:


	Three Fiscal Months Ended				Six Fiscal Months Ended
	June 30, 2006		July 1, 2005		June 30, 2006		July 1, 2005
Product sales	$	109,459	$	101,997	$	192,683	$	173,086
Rental revenue		14,890		12,015		28,153		22,145
Used rental equipment sales		5,866		3,692		10,710		8,255

Net sales		130,215		117,704		231,546		203,486


Product cost of sales		80,921		77,863		146,403		133,012
Rental cost of sales		8,791		9,294		16,730		17,795
Used rental equipment cost of sales		1,775		1,695		3,192		2,918

Cost of sales		91,487		88,852		166,325		153,725


Product gross profit		28,538		24,134		46,280		40,074
Rental gross profit		6,099		2,721		11,423		4,350
Used rental equipment gross profit		4,091		1,997		7,518		5,337

Gross profit	$	38,728	$	28,852	$	65,221	$	49,761


Depreciation Expense:
Product sales (property, plant, and equipment)	$	1,393	$	1,472	$	2,545	$	2,917
Rental Revenue (rental equipment)		4,604		5,515		8,693		10,661
Corporate		346		694		649		1,412

Total depreciation	$	6,343	$	7,681	$	11,887	$	14,990

(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 six months ended June 30, 2006 was as follows:


	Involuntary			Lease						Other
	Termination			Termination			Relocation			Post-Closing
	Benefits			Costs			of 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		—			67			—			28			95
Items charged against reserve		—			(100	)		—			(28	)		(128	)

Balance, June 30, 2006	$	—		$	12		$	—		$	—		$	12

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 six months ended June 30, 2006 was as follows:


	Involuntary			Lease						Other
	Termination			Termination			Relocation			Post-Closing
	Benefits			Costs			of 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		—			102			(203	)		36			(65	)
Items charged against reserve		(335	)		(102	)		(235	)		(36	)		(708	)

Balance, June 30, 2006	$	82		$	—		$	—		$	—		$	82

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 six months ended June 30, 2006 was as follows:


	Involuntary			Lease				Other
	Termination			Termination		Relocation		Post-Closing
	Benefits			Costs		of Operations		Costs		Total

Facility closing and severance expenses	$	247		$	—	$	—	$	—	$	247
Items charged against reserve		(206	)		—		—		—		(206	)

Balance, June 30, 2006	$	41		$	—	$	—	$	—	$	41

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 June 30, 2006 by the end of 2006.

(8) Benefit 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.

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

Overview

We believe we are the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction, and a leading manufacturer of metal accessories used in masonry construction in terms of revenues. We operate in two sectors of the construction industry: infrastructure construction, such as highways, bridges, utilities, water and waste treatment facilities and airport runways, and non-residential building, such as schools, stadiums, prisons, retail sites, commercial offices, hotels and manufacturing facilities. We have expanded our business units through acquisitions.

The Company reports its financial results 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 consist of:

	•		Concrete accessories, which are used for connecting forms for poured-in-place concrete walls, anchoring or bracing for walls and floors, supporting bridge framework and positioning steel reinforcing bars, and include products which remain in place at the convenience of the contractors.

	•		Masonry products, which are placed between layers of brick and concrete blocks and covered with mortar to provide additional strength to walls.

	•		Paving products, which are used in the construction and rehabilitation of concrete roads, highways and airport runways to extend the life of the pavement, and include products that remain in place at the convenience of the contractors. Welded dowel assemblies are a paving product used to transfer dynamic loads between two adjacent slabs of concrete roadway. Metal dowels are part of a dowel basket design that is imbedded in two adjacent slabs to transfer the weight of vehicles as they move over a road.

	•		Chemicals, which include a broad spectrum of chemicals for use in concrete construction, including form release agents, bond breakers, curing compounds, liquid hardeners, sealers, water repellents, bonding agents, grouts and epoxies, and other chemicals used in the pouring, placement, and stamping of concrete as well as curing compounds used in concrete road construction.

•

Rental equipment consists primarily of:

	•		Forming Systems, which are reusable engineered modular forms, hold liquid concrete in place on concrete construction jobs while it hardens. Standard forming systems are made of steel and plywood and are used in the creation of concrete walls and columns. Specialty forming systems consist primarily of steel forms that are designed to meet architects’ specific needs for concrete placements. Both standard and specialty forming systems and related accessories are sold as used rental equipment and rented.

	•		Shoring Systems, including aluminum beams and joists, are reusable post shores and shoring frames which are used to support deck and other raised forms while concrete is being poured.

Facility Closing and Severance Expenses

We continued to execute our 2004 plan to exit additional distribution facilities and to reduce overall headcount by approximately 75 in order to keep our cost structure in alignment with net sales. Activity for this plan for the year ended December 31, 2005 and the six months ended June 30, 2006 was as follows:


	Involuntary
	Termination			Lease Termination			Relocation of			Other Post-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		—			67			—			28			95
Items charged against reserve		—			(100	)		—			(28	)		(128	)

Balance, June 30, 2006	$	—		$	12		$	—		$	—		$	12

We continued to execute our 2005 plan to exit additional distribution facilities and to reduce overall headcount by approximately 50 in order to keep our cost structure in alignment with net sales. Activity for this plan for the year ended December 31, 2005 and the six months ended June 30, 2006 was as follows:


	Involuntary
	Termination			Lease Termination			Relocation of			Other Post-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		—			102			(203	)		36			(65	)
Items charged against reserve		(335	)		(102	)		(235	)		(36	)		(708	)

Balance, June 30, 2006	$	82		$	—		$	—		$	—		$	82

During 2006, we initiated a new plan to reduce overall headcount in order to realign our management structure. Activity for this plan for the six months ended June 30, 2006 was as follows:


	Involuntary
	Termination			Lease Termination		Relocation of		Other Post-Closing
	Benefits			Costs		Operations		Costs		Total
				(Amounts in thousands)
Facility closing and severance expenses	$	247		$	—	$	—	$	—	$	247
Items charged against reserve		(206	)		—		—		—		(206	)

Balance, June 30, 2006	$	41		$	—	$	—	$	—	$	41

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 amounts accrued as of June 30, 2006 by the end of 2006.

Results of Operations

The following table summarizes our results of operations as a percentage of net sales for the periods indicated.


	Three fiscal months Ended						Six fiscal months ended
	June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005
Product sales		84.1	%		86.7	%		83.2	%		85.1	%
Rental revenue		11.4			10.2			12.2			10.9
Used rental equipment sales		4.5			3.1			4.6			4.0

Net sales		100.0			100.0			100.0			100.0


Product cost of sales		73.9			76.3			76.0			76.8
Rental cost of sales		59.0			77.4			59.4			80.4
Used rental equipment cost of sales		30.3			45.9			29.8			35.3

Cost of sales		70.3			75.5			71.8			75.5


Product gross profit		26.1			23.7			24.0			23.2
Rental gross profit		41.0			22.6			40.6			19.6
Used rental equipment gross profit		69.7			54.1			70.2			64.7

Gross profit		29.7			24.5			28.2			24.5

Selling, general and administrative expenses		19.2			19.8			21.0			22.7
Facility closing and severance expenses		—			0.1			0.1			0.2
Gain on disposals of property, plant, and equipment		(0.5	)		(1.0	)		(0.6	)		(0.5	)
Amortization of intangibles		0.1			0.1			0.2			0.2

Income from operations		10.9			5.5			7.5			1.9
Interest expense		9.6			10.3			10.6			12.0
Interest income		—			—			—			(0.1	)
Other expense		0.1			—			0.1			—

Income (loss) before provision for income taxes		1.2			(4.8	)		(3.2	)		(10.0	)
Provision for income taxes		0.1			—			0.1			—

Net income (loss)		1.1	%		(4.8	)%		(3.3	)%		(10.0	)%

Comparison of Three Fiscal Months Ended June 30, 2006 and July 1, 2005

Net Sales

Net sales increased $12.5 million, or 10.6%, to $130.2 million in the second quarter of 2006 from $117.7 million in the second quarter of 2005. The following table summarizes our net sales by product type:


	Three fiscal months ended
	June 30, 2006					July 1, 2005
			(In thousands)
	Net Sales		%			Net Sales		%			% Change
Product sales	$	109,459		84.1	%	$	101,997		86.7	%		7.3	%
Rental revenue		14,890		11.4			12,015		10.2			23.9
Used rental equipment sales		5,866		4.5			3,692		3.1			58.9

Net sales	$	130,215		100.0	%	$	117,704		100.0	%		10.6	%

Product sales increased $7.5 million, or 7.3%, to $109.5 million in the second quarter of 2006 from $102.0 million in the second quarter of 2005. The increase in sales was due to higher unit volume from improving non-residential building construction markets.

Rental revenue increased $2.9 million, or 23.9%, to $14.9 million for the second quarter of 2006, compared to $12.0 million in the second quarter of 2005. The increase in rental revenue is due to an improving rental market.

Used rental equipment sales increased to $5.9 million in the second quarter of 2006 from $3.7 million in the second quarter of 2005 due to higher customer demand. Used rental equipment sales may vary significantly from quarter to quarter.

Gross Profit

Gross profit of $38.7 million in the second quarter of 2006 increased 34.2%, from $28.9 million in the second quarter of 2005.

Product sales contributed $28.5 million, or 26.1% of product sales, an increase from the $24.1 million, or 23.7% of product sales, in the second quarter of 2005. The $4.4 million increase was due to the higher product sales discussed above. The improvement in percent of sales was due to manufacturing efficiencies, which were assisted by more outsourcing of products.

Rental gross profit for the second quarter of 2006 was $6.1 million, as compared to $2.7 million in the second quarter of 2005. Depreciation on rental equipment for the second quarter of 2006 was $4.6 million, as compared to $5.5 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 by $0.8 million. Rental gross profit before depreciation was $10.7 million in the quarter, or 71.9% of revenue, a 30.0% increase from the $8.2 million, or 68.5% of revenue reported in the second quarter of 2005. The increase in rental gross profit before depreciation resulted from increased rental revenue and as a percent of revenue, due to the leverage of certain fixed costs on higher revenue.

Gross profit on sales of used rental equipment for the second quarter of 2006 increased to $4.1 million, or 69.7% of sales from $2.0 million, or 54.1% of sales, in the second 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 $24.9 million in the second quarter of 2006 from $23.2 million for the second quarter of 2005. The increase was due to increased distribution costs, consulting fees for profit improvement initiatives, retirement account costs, sales incentive costs, and healthcare costs, most of which were due to the higher revenues and gross profit discussed above.

The gain on disposals of property, plant, and equipment of $0.7 million in the second quarter of 2006 relates to the amortization of the deferred gain on the sale-leaseback of the Des Plaines facility that occurred in 2005.

Other Expenses

The increase in other expenses is due to the increase in interest expense, to $12.5 million in the second quarters of 2006 from $12.1 million in the second quarter of 2005, due to higher interest rates on the revolving line of credit facility.

Income (Loss) Before Income Taxes

Income before income taxes in the second quarter of 2006 was $1.6 million compared to a loss before income taxes of $(5.6) million in the second 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 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.

Net Income (Loss)

Net income for the second quarter of 2006 was $1.5 million, compared to a net loss of $(5.6) million in the second quarter of 2005, due to the factors described above.

Comparison of Six Fiscal Months Ended June 30, 2006 and July 1, 2005

Net Sales

Net sales increased $28.1 million, or 13.8%, to $231.5 million in the first six months of 2006 from $203.4 million in the first six months of 2005. The following table summarizes our net sales by product type:


	Six fiscal months ended
	June 30, 2006					July 1, 2005
			(In thousands)
	Net Sales		%			Net Sales		%			% Change
Product sales	$	192,683		83.2	%	$	173,086		85.1	%		11.3	%
Rental revenue		28,153		12.2			22,145		10.9			27.1
Used rental equipment sales		10,710		4.6			8,255		4.0			29.7


Net sales	$	231,546		100.0	%	$	203,486		100.0	%		13.8	%

Product sales increased $19.6 million, or 11.3%, to $192.7 million in the first six months of 2006 from $173.1 million in the first six months of 2005. The increase in sales was due to higher unit volume from milder weather and improving non-residential construction markets.

Rental revenue increased $6.0 million, or 27.1%, to $28.2 million for the first six months of 2006, compared to $22.1 million in the first six months of 2005. The increase in rental revenue is due to an improving rental market.

Used rental equipment sales increased to $10.7 million in the first six months of 2006 from $8.3 million in the first six months of 2005 due to higher customer demand. Used rental equipment sales may vary significantly from quarter to quarter.

Gross Profit

Gross profit of $65.2 million in the first six months of 2006 increased 31.1%, from $49.8 million in the first six months of 2005.

Product sales contributed $46.3 million or 24.0% of product sales, an increase from the $40.1 million, or 23.2% of product sales, in the first six months of 2005. The $6.2 million increase was due to the higher product sales discussed above. The improvement in percent of sales was due to manufacturing efficiencies, which were assisted by more outsourcing of products.

Rental gross profit for the first six months of 2006 was $11.4 million, as compared to $4.4 million in the first six months of 2005. Depreciation on rental equipment for the first six months of 2006 was $8.7 million, as compared to $10.7 million in the same period of 2005. The difference was primarily due to a change in the

estimated useful lives of certain rental equipment January 1, 2006, which reduced depreciation expense by $1.5 million. Rental gross profit before depreciation was $20.1 million in the first six months of 2006, or 71.5% of rental revenue, a 34.0% increase from the $15.0 million, or 67.8% of rental revenue reported in the first six months of 2005. The increase in rental gross profit before depreciation resulted from increased rental revenue and as a percent of revenue, due to the leverage of certain fixed costs on higher rental revenue.

Gross profit on sales of used rental equipment for the first six months of 2006 was $7.5 million, or 70.2% of sales, an increase from $5.3 million, or 64.7% of sales, in the first six months 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 $48.6 million in the first six months of 2006 from $46.3 million for the first six months of 2005. The increase was due to increased distribution costs, consulting fees for profit improvement initiatives, retirement account costs, sales incentive costs, and healthcare costs, 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 six months of 2005 of approximately $1 million.

The gain on disposals of property, plant, and equipment of $1.3 million relates to the amortization of the deferred gain on the sale-leaseback of the Des Plaines facility that occurred in 2005.

Other Expenses

The increase in other expenses is due to the slight increase in interest expense, to $24.6 million for the first six months of 2006 from $24.4 million in the first six months of 2005, due to higher interest rates on the revolving credit facility.

Loss Before Income Taxes

Loss before income taxes in the first six months of 2006 was $(7.4) million compared to $(20.3) million in the first six months of 2005, due to the factors described above.

Provision for Income Taxes

Net Loss

The net loss for the first six months of 2006 was $(7.6) million, compared to $(20.3) million in the first six months of 2005, due to the factors described above.

Liquidity and Capital Resources

Our key statistic for measuring liquidity and capital resources is the amount available under our revolving credit facility, which was $17.2 million as of June 30, 2006.

Our capital requirements relate primarily to capital expenditures and debt service. Historically, our primary annual sources of financing have been borrowings under our revolving credit facility, cash flows from operating activities, and the issuance of other long-term debt and equity.

Net cash used in operating activities in the first six months of 2006 was $(16.4) million, compared to $(17.2) million in the first six months of 2005. This activity is comprised of the following:


	2006			2005
	(in millions)
Net loss	$	(7.6	)	$	(20.3	)
Adjustments to reconcile net loss to net cash used in operating activities		5.7			11.3

Net loss after non-cash adjustments		(1.9	)		(9.0	)
Changes in assets and liabilities		(14.6	)		(8.2	)

Net cash used in operating activities	$	(16.5	)	$	(17.2	)

Net loss after non-cash adjustments was $(1.9) million for the first six months of 2006, a $7.1 million improvement from the net loss after non-cash adjustments of $(9.0) million in the first six 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 $(14.6) million use of cash in the first six months of 2006, as compared to $(8.2) million use of cash in the first six months of 2005. The increase in accounts receivable was a $(13.1) million use of cash in the first six months of 2006 compared to a $(10.3) million use of cash in the first six months of 2005 due to the substantial increase in net sales in the second quarter of 2006 as compared to the second quarter of 2005. Prepaid expenses and other assets represented a $(1.5) million use of cash in the first six months of 2006 as compared to a $3.8 million source of cash in the first six months of 2005 due to accelerated collections of notes receivable in 2005 that did not recur in 2006.

Net cash used in investing activities was $3.9 million in the first six months of 2006 compared to $6.7 million in the first six months of 2005. Property, plant and equipment additions increased to $4.1 million in the first six months of 2006 from $3.1 million in the first six months of 2005 due to increased investments in manufacturing and distribution facilities. Net additions to rental equipment were a $0.2 million source of cash in the first six months of 2006 as compared to a use of cash of $4.6 million in the first six months of 2005 due to the higher sales of used rental equipment and lower additions due to timing.

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 June 30, 2006, of which $69.9 million at a weighted average interest rate of 8.0% was outstanding. Letters of credit of $7.9 million were outstanding at June 30, 2006, resulting in available borrowings of $17.2 million under the revolving credit facility. The credit facility is secured by substantially all assets of the Company.

As of June 30, 2006, our other long-term debt consisted of the following:


	June 30, 2006

Senior Subordinated Notes, interest rate of 13.0%	$	154,729
Debt discount on Senior Subordinated Notes		(5,476	)
Senior Second Secured Notes, interest rate of 10.75%		165,000
Debt discount on Senior Second Secured Notes		(4,003	)
Senior unsecured notes payable to seller of Safway, non-interest bearing, accreted at 6.0% to 14.5%		7,994
Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1%, due on demand		1,068
Capital lease obligations		3,157

Total long-term debt		322,469
Less current maturities		(2,760	)

Long-term portion	$	319,709

Our long-term debt repayments for the six months ended June 30, 2006, were $1.2 million.

At June 30, 2006, working capital was $6.5 million, compared to $63.6 million at December 31, 2005. The $57.1 million decrease was comprised of the following:

	•		$69.9 million of reclassification of the revolving credit facility to current liabilities, as the facility expires within a year, on January 30, 2007,

	•		$3.8 million increase in accounts payable due to seasonally higher purchasing activity in June relative to December,

	•		$2.2 million increase in accrued liabilities due to higher expenses needed to support the higher sales volumes, offset by

	•		$13.1 million increase in accounts receivable due to the seasonally higher net sales in June relative to December,

	•		$4.0 million increase in inventories due to the anticipated seasonal higher sales in the third quarter relative to the first quarter, and

	•		$1.7 million of changes in other items.

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

There were no 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.

Inflation

We may not be able to pass on the cost of commodity price increases to our customers. Steel, in its various forms, is our principal raw material, constituting approximately 20% of our cost of sales in 2005. In 2005 and the first six months of 2006, steel costs were less volatile than in 2004. We expect steel costs to increase moderately through the third quarter of 2006 and to soften 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 June 30, 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 June 30, 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 $9.0 million as of June 30, 2006. Based upon the foregoing, as of June 30, 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 June 30, 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 June 30, 2006, together with a reconciliation to net income:


	Dayton
	Superior
	Canada Ltd.
Net Income	$	958
Provision for Income Taxes		621

Income from Operations		1,579
Depreciation Expense		61

Adjusted valuation EBITDA		1,640
Multiple		5.5

Estimated Fair Value	$	9,020

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 June 30, 2006 and the adjusted EBITDA for the twelve months ended June 30, 2006 would have to increase in order for Dayton Superior Canada Ltd. capital stock to no longer constitute collateral:


	Change in		Change in Adjusted
Subsidiary	Applicable Value		Valuation EBITDA
Dayton Superior Canada Ltd.	$	23,980	$	4,360

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.

Forward-Looking Statements

This Form 10-Q includes, and future filings by us on Form 10-K, Form 10-Q, and Form 8-K, and future oral and written statements by us and our management may include certain forward-looking statements, including (without limitation) statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition and divestitive opportunities and other similar forecasts and statements of expectation. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and “should,” and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements by our management and us are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. We disclaim any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise.

Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by us, and our management, as the result of a number of important factors. Representative examples of these factors include (without limitation) the cyclicality of the construction industry; the Company’s substantial leverage; net losses; price increases and availability of raw materials; market response to sales price increases; weather-related risks; competition, particularly in chemical products; potential exposure to environmental liabilities; consolidation of our customers; increased dependence on foreign operations; the mix of product sales, rental revenues, and sales of used rental equipment; control by Odyssey Investment Partners LLC; risks associated with our workforce; dependence on key personnel; and restrictive covenants. This list is not intended to be exhaustive, and additional information can be found under “Risks Related to Our Business” in Part I of our most recent Annual Report on Form 10-K. In addition to these factors, actual future performance, outcomes and results may differ materially because of other, more general, factors including (without limitation) general industry and market conditions and growth rates, domestic economic conditions, governmental and public policy changes and the continued availability of financing in the amounts, at the terms and on the conditions necessary to support our future business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of June 30, 2006, we had financial instruments, which were sensitive to changes in interest rates. These financial instruments consist of:

	•		$95.0 million revolving credit facility, $69.9 million of which was outstanding at June 30, 2006;

	•		$165.0 million of Senior Second Secured Notes with a net book value of $161.0 million;

	•		$154.7 million of Senior Subordinated Notes with a net book value of $149.3 million;

	•		$8.0 million of Notes payable to the seller of Safway;

	•		$3.2 million in capital lease obligations;

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

Our $95.0 million senior secured revolving credit facility matures on January 30, 2007 and 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 June 30, 2006, all $95.0 million was available. We had outstanding letters of credit of $7.9 million, leaving available borrowings of $17.2 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 $167.5 million as of June 30, 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 $135.0 million as of June 30, 2006.

As of June 30, 2006, the initial $12.0 million non-interest bearing note to the seller of Safway 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 book value and fair value of the note at June 30, 2006 was $6.7 million and $6.8 million, respectively. As of June 30, 2006, the initial $2.0 million non-interest bearing note payable to the seller of Safway has a remaining balance of $1.4 million and is being accreted to the face value at 6.0% using the effective interest method. Minimum payments on the note are $0.4 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 June 30, 2006 were $1.2 million and $1.3 million, respectively.

Our other long-term debt at June 30, 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.

On December 15, 2006, company management and the Audit Committee of the Board of Directors determined to restate certain disclosures in the footnotes to the Company’s condensed consolidated financial statements for the quarter ended June 30, 2006 and to amend the corresponding Quarterly Report on Form 10-Q. The restatement is further discussed in the “Introductory Note” in the forepart and Note 4 of this Form 10-Q/A.

In connection with the restatement referred to above, our management, including our Chief Executive Officer and Chief Financial Officer, re-evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(b) under the Exchange Act) as of the end of the quarter covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Form 10-Q/A, our disclosure controls and procedures were effective at a reasonable assurance level.

In concluding that our disclosure controls and procedures were effective as of June 30, 2006, our management considered, among other things, the circumstances that resulted in the restatement of our previously issued financial statements. Specifically, while management concluded that the decision to restate its financial statements was due to the correction of an error in the valuation of common stock, the Company’s internal control system originally operated such that management’s original estimate of the valuation had a reasonable basis. Therefore, management believes that their original conclusion that disclosure controls and procedures and internal control over financial reporting were effective as of June 30, 2006 remains appropriate.

Changes in Internal Control Over Financial Reporting

There have been no other changes in the Company’s internal controls over financial reporting during the quarter ended June 30, 2006, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.


	DAYTON SUPERIOR CORPORATION
DATE: December 15, 2006	BY:	/s/ Edward J. Puisis
		Edward J. Puisis
		Executive Vice President and Chief Financial Officer


Exhibit No.		Description

(10) Material Contracts

	10.1	2006 Executive Incentive Plan [Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K filed on July 7, 2006]

	10.2	Restricted Stock Agreement [Incorporated by reference from Exhibit 10.2 to the Company’s Form 8-K filed on July 7, 2006]

(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 Executive Vice President and Chief Financial Officer

(32) Section 1350 Certifications

	32.1	Section 1350 Certification of President and Chief Executive Officer

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

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	1.		I have reviewed this Quarterly Report on Form 10-Q/A of Dayton Superior Corporation;

	2.		Based on my knowledge, this 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 report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’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 the registrant 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 the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		evaluated the effectiveness of the registrant’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 report based on such evaluation; and

	c)		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	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 the registrant’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 the registrant’s internal control over financial reporting.


December 15, 2006		/s/Eric R. Zimmerman

		Eric R. Zimmerman President, Chief Executive Officer


December 15, 2006		/s/Edward J. Puisis

		Edward J. Puisis Executive Vice President and Chief Financial Officer

		The Quarterly Report on Form 10-Q/A of the Company for the period ending June 30, 2006 (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.


		/s/ Eric R. Zimmerman

		Eric R. Zimmerman
		President, Chief Executive Officer