-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D+Wy4DjY93t3SAywrUYK2ixFvXm/2om4+e2ALyNUsl47laCh8skS22LZKms7HyQ3 B/WN0rBquVsJ9nVbIdmFvg== 0000950152-99-002934.txt : 19990403 0000950152-99-002934.hdr.sgml : 19990403 ACCESSION NUMBER: 0000950152-99-002934 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAYTON SUPERIOR CORP CENTRAL INDEX KEY: 0000854709 STANDARD INDUSTRIAL CLASSIFICATION: STEEL PIPE & TUBES [3317] IRS NUMBER: 310676346 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11781 FILM NUMBER: 99583566 BUSINESS ADDRESS: STREET 1: 7777 WASHINGTON VILLAGE DRIVE STREET 2: SUITE 130 CITY: DAYTON STATE: OH ZIP: 45459 BUSINESS PHONE: 9374287172 MAIL ADDRESS: STREET 1: 7777 WASHINGTON VILLAGE DRIVE STREET 2: SUITE 130 CITY: DAYTON STATE: OH ZIP: 45459 10-K 1 DAYTON SUPERIOR CORPORATION ANNUAL REPORT 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-11781 DAYTON SUPERIOR CORPORATION (Exact name of registrant as specified in its charter) Ohio 31-0676346 (State of incorporation) (I.R.S. Employer Identification No.) 7777 Washington Village Dr. Suite 130 Dayton, Ohio 45459 (Address of principal executive office) Registrant's telephone number, including area code: (937) 428-6360 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Class A Common Shares, without par value New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of the close of business on March 18, 1999, the aggregate market value of voting shares held by non-affiliates of the registrant (determined by multiplying the highest selling price of a Class A Common Share on the New York Stock Exchange on such date by the total number of Class A Common Shares outstanding not beneficially owned by directors or officers of the registrant) was $106,712,229. Number of Class A Common Shares, outstanding on March 18, 1999 5,945,130 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 12, 1999 (definitive copies of which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1998) are incorporated by reference in Part III of this Report. 2 PART I ITEM 1. BUSINESS. GENERAL Dayton Superior Corporation (the "Company") believes it is the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction and of metal accessories used in masonry construction. The Company's products are used primarily in two segments of the construction industry: non-residential building projects such as institutional buildings, retail sites, commercial offices and manufacturing facilities; and infrastructure projects such as highways, bridges, utilities, water and waste treatment facilities and airport runways. The Company's distribution system consists of a network of ten manufacturing/distribution plants and 47 service/distribution centers in the United States and Canada and over 4,000 dealers across North America. The Company also rents forming systems and tilt-up bracing to contractors through rental centers and distributors nationwide. The Company's customers include stocking dealers, brokers, rebar fabricators, precast concrete manufacturers, brick and concrete block manufacturers, general contractors, subcontractors, distributors of construction supplies and metal fabricators. The Company manufactures most of its products at ten manufacturing facilities in the United States, using, in many cases, high-volume, automated equipment designed and built or custom modified by in-house personnel. The Company sells products in four principal product lines: concrete accessories, concrete forming systems, paving products, and masonry products. Since 1990, the Company has completed thirteen acquisitions, the largest of which was its 1997 acquisition of Symons Corporation ("Symons"). The Company was incorporated in 1959. The Company's principal executive offices are located at 7777 Washington Village Dr., Suite 130, Dayton, OH 45459, and its telephone number is (937) 428-6360. PRODUCTS Although almost all of the Company's products are used in concrete or masonry construction, the function and nature of the products differ widely. The Company currently offers more than 18,000 different items and believes its brand names, such as Dayton Superior(R), Dayton/Richmond(R), Symons(R), Richmond Screw Anchor(R), Dur-O-Wal(R), and American Highway Technology(R), are widely recognized in the construction industry. The Company continually attempts to increase the number of products it offers by using engineers and product development teams to introduce new products and refine existing products. Concrete Accessories. The Company manufacturers and sells concrete accessories primarily under the Dayton/Richmond(R) brand name. The Company's concrete accessories products comprise wall-forming products, bridge deck products, bar supports, precast and prestressed concrete construction products, tilt-up construction products, plastic and 2 3 elastomeric formliner products, and chemicals used in concrete construction. Net sales of concrete accessories before intercompany eliminations accounted for approximately $128.1 million, or 45%, of the net sales of the Company in 1998. Wall-forming products, such as snap ties, coil ties, she bolts and he bolts, are used in the fabrication of job-built and prefabricated modular forms for poured-in-place concrete walls. The products, which generally are not reusable, are made of wire or plastic (or a combination of both materials) and generally are manufactured by the Company on customized high-speed automatic equipment. Bridge deck products (used to support the formwork of bridges) include hangers and sidewalk overhang brackets (used to support the formwork used by contractors in the construction and rehabilitation of bridges), coil nuts and bolts, haunch carriers, screed supports and cast wing nuts. Bar supports are non-structural metal or plastic accessories used to position rebar within a horizontal slab or form to be filled with concrete. Bar supports are often plastic or epoxy coated, galvanized or equipped with plastic tips to prevent creating a conduit for corrosion of the embedded rebar. The Company sells more than 100 basic types of bar supports in a wide variety of standard and custom sizes and finishes. Precast and prestressed concrete construction products, such as anchors, inserts, holddowns and pushdowns, are used in the manufacture of precast concrete panels and prestressed concrete beams and structural members. Precast concrete panels and prestressed concrete beams are fabricated away from the construction site and transported to the site for erection. Precast concrete panels are used in the construction of prisons, freeway sound barrier walls, external building facades and other similar applications. Prestressed concrete beams use multiple strands of steel under tension embedded in concrete beams to provide rigidity and bearing strength, and often are used in the construction of bridges, parking garages and other applications where long, unsupported spans are required. Tilt-up construction products include a complete line of inserts, lifting hardware and adjustable beams used in the tilt-up method of construction, in which the concrete floor slab is used as part of a form for casting the walls of a building. After the cast walls have hardened on the floor slab, a crane is used to "tilt-up" the walls, which then are braced in place until they are secured to the rest of the structure. Tilt-up construction generally is considered to be a faster method of constructing low-rise buildings than conventional poured-in-place concrete construction. Certain tilt-up construction products can be rented as well as sold. Formliner products include plastic and elastomeric products sold for use in the forming of textured surfaces and in architectural work. Dayton/Richmond(R) also provides a broad spectrum of liquid chemicals and cementitious products used in concrete construction. Concrete Forming Systems. The Company's Symons(R) subsidiary manufactures, sells, and rents concrete forming systems. The Company's concrete forming systems products 3 4 include standard and specialty concrete forming systems, shoring systems and accessory products. In addition to the sale of prefabricated forming equipment, the Company also rents forming products to benefit from their durability and relatively high unit cost. Net revenues before intercompany eliminations relating to concrete forming systems accounted for $99.5 million, or 35%, of the Company's 1998 net sales. Concrete forming systems are reusable modular molds which hold liquid concrete in place on concrete construction jobs. Standard forming systems are sold or rented for use 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. Shoring systems include aluminum beams and joists, post shores and shoring frames used to support deck forms and other false work while concrete is being poured. Construction chemicals sold by Symons(R) include form release agents, curing compounds, grouts and epoxies and other chemicals used in the pouring, stamping and placement of concrete. Paving Products. The Company's paving products consist primarily of welded dowel assemblies and dowel baskets used to transfer dynamic loads between two adjacent slabs of concrete roadway. Paving products are used in the construction and rehabilitation of roads, highways and airport runways to extend the life of the pavement. The Company sells paving products primarily under the American Highway Technology(R) name but also offers some products under the Dayton/Richmond(R) name. The Company manufactures welded dowel assemblies primarily using automated and semi-automatic equipment. Sales of paving products were approximately $31.0 million, or 11%, of the Company's net sales in 1998. American Highway Technology(R) also sells epoxy services and ancillary products such as joint sealant projects and transverse bar assemblies that tie the roadbed and berm together. In addition, the division distributes chemicals specific to concrete road construction. Masonry Products. The Company's Dur-O-Wal(R) subsidiary manufactures and sells masonry products. The Company's masonry product line consists primarily of masonry wall reinforcement ("MWR") products, masonry anchors and other accessories used in masonry construction and restoration. Sales of masonry products accounted for approximately $24.3 million, or 9%, of the net sales of the Company in 1998. Dur-O-Wal(R) believes that it is the largest manufacturer of MWR products in North America. MWR products are wire products that are placed between courses of masonry and covered with mortar to add tensile and structural strength to masonry walls in order to control shrinkage and cracking, to provide the principal horizontal reinforcement in engineered masonry walls, to bond masonry wythes (single thicknesses of brick) in composite and cavity walls, to reinforce stack bond masonry and to bond intersecting walls. The products improve the performance and longevity of masonry walls by providing crack control, greater elasticity and higher ductility to withstand seismic shocks and better resistance to rain penetration. 4 5 Dur-O-Wal(R) has the in-house ability to produce hot-dipped zinc galvanized finishes on MWR products. "Hot-dip" galvanizing occurs after products are fabricated and requires skilled personnel and special systems to prevent the products from adhering to one another. Hot-dipped galvanized finishes are considered to provide superior protection against corrosion compared to mill-galvanized finishes. In recent years, model building codes in a number of regions of the country in which masonry construction is used have been amended to require use of hot-dipped galvanized MWR products. The Company also manufactures MWR products with mill-galvanized finishes by applying zinc finishes to wire prior to fabrication. Dur-O-Wal(R) sells other masonry products such as wall ties, which connect masonry to masonry; masonry anchors, which connect masonry to the building structure; stone anchors, which attach building stone (generally ornamental) to the structural frame of a building; restoration products, which are anchors and ties used in the restoration of existing masonry construction and for seismic retrofitting of existing brick veneer surfaces; and moisture control products, such as flashing and vents, which control the flow of moisture in cavity walls. Construction Chemicals. In addition to the other chemical products mentioned above, the Company's construction chemical products include form coatings, bond breakers, curing agents, liquid hardeners, sealers, water repellents, bonding agents, epoxy grouts, and formliners. The Company manufactures approximately 80% of the construction chemicals it sells, with the rest being purchased for resale. Chemical sales made through the concrete accessories, concrete forming systems, and paving products divisions are included in the total sales for those divisions. DISTRIBUTION The Company distributes its products through a network of 10 manufacturing/distribution plants and 47 service/distribution centers located in the continental United States and four Canadian provinces. Of these 57 locations, 19 are dedicated principally to the distribution of concrete accessories, 31 are dedicated principally to the distribution of forming systems, three are dedicated primarily to the distribution of paving products, four are dedicated principally to the distribution of masonry products and some locations carry several of the Company's product lines. Most of the Company's products are shipped to the service/distribution centers from the Company's ten principal manufacturing plants; however, a majority of the centers also are able to produce smaller batches of some products on an as-needed basis to fill rush orders. The Company has an on-line inventory tracking system for concrete accessories, paving products, and construction chemicals, which enables the Company's customer service representatives to identify, reserve and ship inventory quickly from any Company location in response to telephone orders. The system provides the Company with a competitive advantage since its service representatives are able to answer customer questions about availability and shipping dates while still on the telephone. The Company primarily uses third-party common carriers to ship its products. 5 6 In addition, the Company uses its distribution system to sell products which are manufactured by third parties. These products usually are sold under the Company's brand names, and often are produced for it on an exclusive basis. Sales of third-party products allow the Company to utilize its distribution network to increase sales without making significant capital investments. CUSTOMERS The Company has over 4,000 customers, over 75% of which purchase its products for resale. The Company's customer base is geographically diverse, with no customer accounting for more than 5% of net sales in 1998 and with its ten largest customers accounting for less than 17% of net sales. Customers who purchase the Company's products for resale generally do not sell the Company's products exclusively. Concrete Accessories. Dayton/Richmond(R) has approximately 2,350 customers, consisting of stocking dealers, rebar fabricators, precast and prestressed concrete manufacturers, and distributors of construction supplies. The Company estimates that approximately 90% of Dayton/Richmond's(R) customers purchase its products for resale. Dayton/Richmond's(R) largest customer accounts for approximately 3% of its 1998 net sales and its top ten customers account for less than 20% of its 1998 net sales. Dayton/Richmond(R) has instituted a certified dealer program for dealers who handle its tilt-up construction products. This program was established to educate dealers in the proper use of the Company's tilt-up products and to assist them in providing engineering assistance to customers. Certified dealers are not permitted to carry other manufacturers' tilt-up products, which the Company believes are incompatible with those sold by the Company and, for that reason, could be unsafe if used with the Company's products. Dayton/Richmond(R) currently has 77 certified dealers of tilt-up construction products. Concrete Forming Systems. Symons(R) has approximately 2,500 customers, consisting of stocking dealers, precast and prestressed concrete manufacturers, general contractors, subcontractors, and distributors of construction supplies. The Company estimates that approximately 90% of Symons'(R) customers are the end-users of its products while approximately 10% of Symons'(R) customers purchase its products for resale or rerent. Symons'(R) largest customer accounts for approximately 6% of its 1998 net sales and its ten largest customers account for approximately 25% of its 1998 net sales. Paving Products. American Highway Technology(R) has approximately 150 customers, consisting primarily of distributors of construction supplies, and, to a lesser extent, stocking dealers, general contractors and subcontractors. American Highway Technology's(R) largest customer accounts for approximately 15% of its 1998 net sales and its ten largest customers account for approximately 80% of its 1998 net sales. Masonry Products. Dur-O-Wal(R) has approximately 1,600 customers consisting of stocking dealers, brick and concrete block manufacturers, general contractors, sub-contractors, distributors of construction supplies, and metal fabricators. The Company estimates that approximately 90% of Dur-O-Wal's(R) customers purchase its products for 6 7 resale. Dur-O-Wal's(R) largest customer accounts for approximately 5% of its 1998 net sales and its ten largest customers account for approximately 23% of its 1998 net sales. SALES AND MARKETING The Company employs approximately 400 sales and marketing personnel, of whom approximately one-half are salesmen and one-half are customer service representatives. Sales and marketing personnel are located in all of the Company's locations. The Company produces product catalogs and promotional materials that illustrate certain construction techniques in which the Company's products can be used to solve typical construction problems. The Company also promotes its products through seminars and other customer education efforts and works directly with architects and engineers to secure the use of the Company's products whenever possible. The Company considers its engineers to be an integral part of the sales and marketing effort. The Company's engineers have developed proprietary software applications to conduct extensive pre-testing on both new products and construction projects. During 1998, Dayton/Richmond(R)'s engineers designed and consulted on the construction of the largest and heaviest tilt-up wall constructed to date in the United States, which was 100-feet high and weighing 150 tons. MANUFACTURING The Company manufactures the majority of the products it sells. In the case of the Company's concrete accessories, paving products, and masonry products, most products are manufactured at eight principal facilities in the United States, although a majority of the Company's service/distribution facilities can produce smaller lots of some products. The Company's production volumes enable it to design and build or custom modify much of the equipment it uses to manufacture these products, using a team of experienced manufacturing engineers and tool and die makers. By developing its own automatic high-speed manufacturing equipment, the Company believes that it generally has achieved significantly greater productivity, lower capital equipment costs, lower scrap rates, higher product quality, faster changeover times and lower inventory levels than most of its competitors. In addition, Dur-O-Wal's ability to "hot-dip" galvanize products at its Aurora, Illinois manufacturing facility provides it with an advantage over many competitors manufacturing MWR products, who lack this internal capability. Also, the Company has a flexible manufacturing setup and can make the same products at several locations using short and discrete manufacturing lines. The Company's concrete forming systems are manufactured at two facilities in the United States. These facilities incorporate semi-automated and automated production lines, heavy metal presses, forging equipment, stamping equipment, robotic welding machines, drills, punches, and other heavy machinery typical for this type of manufacturing operation. 7 8 The Company generally operates its manufacturing facilities two shifts per day, five days per week (six days per week during peak months and, in some instances, three shifts), with the number of employees increasing or decreasing as necessary to satisfy demand. RAW MATERIALS The Company's principal raw materials are steel wire rod, steel hot rolled bar, metal stampings and flat steel, aluminum sheets and extrusions, plywood, cement and cementitious ingredients, liquid chemicals, zinc and injection-molded plastic parts. The Company currently purchases products from over 300 vendors and is not dependent on any single vendor or small group of vendors for any material portion of its purchases. COMPETITION Although the Company believes it is the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction and of metal accessories used in masonry construction, the industry in which the Company competes is highly competitive in most product categories and geographic regions. The Company competes with a relatively small number of full-line national manufacturers of concrete accessories, concrete forming systems, masonry products and paving products, and a much larger number of regional manufacturers and/or manufacturers with limited product lines. The Company believes that competition is largely based on, among other things, price, quality, breadth of product lines, distribution capabilities (including quick delivery times) and customer service. In certain circumstances, due primarily to factors such as freight rates, quick delivery times and customer preference for local suppliers, certain manufacturers and suppliers may have a competitive advantage over the Company in a given region. The Company believes that its size and breadth of product lines provide it with certain advantages of scale in both distribution and production relative to its competitors. PATENTS AND TRADEMARKS The Company sells most products under the registered trade names Dayton Superior(R), Dayton/Richmond(R), Symons(R), Richmond Screw Anchor(R), Dur-O-Wal(R) and American Highway Technology(R), which the Company believes are widely recognized in the construction industry and, therefore, are important to its business. Although certain of the Company's products (and components thereof) are protected by patents, the Company does not believe these patents are material to its business. The Company has 120 trademarks and 90 patents. EMPLOYEES As of December 31, 1998, the Company employed approximately 750 salaried and 1,330 hourly personnel, of whom approximately 1,000 of the hourly personnel and six of the salaried personnel are represented by labor unions. Employees at the Company's Miamisburg, Ohio; Parsons, Kansas; Des Plaines, Illinois; New Braunfels, Texas; Tremont, Pennsylvania; St. Joseph, Missouri and Aurora, Illinois manufacturing/distribution plant and its service/distribution centers in Baltimore, Maryland; Atlanta, Georgia and Santa Fe Springs, California are covered by collective bargaining agreements. In 1998, hourly 8 9 employees at the Company's Kankakee, Illinois manufacturing/distribution plant voted to be represented by a labor union, although a collective bargaining agreement has not yet been executed. The collective bargaining agreement covering the Des Plaines, Illinois facility expires in 1999. The Company believes that it has good employee and labor relations. SEASONALITY The Company's operations are seasonal in nature with approximately 60% of sales historically occurring in the second and third quarters. Working capital and borrowings fluctuate with sales volume. Historically, more than 50% of cash flow from operations is generated in the fourth quarter. BACKLOG The Company typically ships most of its products, except paving products and certain specialty forming systems, within one week after receipt of an order and often within 24 hours. Certain product lines, including paving products and specialty forming systems, may be shipped up to six months after receipt of an order, depending on the needs of the customer. Accordingly, the Company does not maintain significant backlog, and backlog as of any particular date is not representative of actual sales for any succeeding period. ITEM 2. PROPERTIES. The Company's corporate headquarters are located in leased facilities in Dayton, Ohio. The Company's principal facilities are located throughout North America, as follows:
LEASED/ ------- SIZE LOCATION USE PRODUCT LINE OWNED (SQ. FT.) -------- --- ------------ ----- --------- Des Plaines, Illinois Manufacturing/Distribution Concrete Forming Systems Owned 171,650 and Symons(R) Headquarters Miamisburg, Ohio Manufacturing/Distribution and Concrete Accessories Owned 126,000 Dayton/Richmond(R)Headquarters Aurora, Illinois Manufacturing/Distribution and Masonry Products Owned Dur-O-Wal(R)Headquarters 109,000 Kankakee, Illinois Manufacturing/Distribution and Paving Products Leased 107,900 American Highway Technology(R) Headquarters Tremont, Pennsylvania Manufacturing/Distribution Concrete Accessories Owned 102,650 Parsons, Kansas Manufacturing/Distribution Paving Products Owned 98,250 New Braunfels, Texas Manufacturing/Distribution Concrete Forming Systems Owned 89,600 Atlanta, Georgia Service/Distribution Concrete Accessories Leased 74,090 Parker, Arizona Manufacturing/Distribution Concrete Accessories Leased 60,000 Birmingham, Alabama Service/Distribution Concrete Accessories Leased 55,000 Centralia, Illinois Service/Distribution Concrete Forming Systems Owned 53,500 St. Joseph, Missouri Manufacturing/Distribution Concrete Accessories Owned 53,342 Grand Prairie, Texas Service/Distribution Concrete Accessories Leased 45,000 Seattle, Washington Service/Distribution Concrete Accessories Leased 42,825 Santa Fe Springs, California Service/Distribution Concrete Accessories Leased 40,000
9 10 Toronto, Ontario Service/Distribution Concrete Accessories Leased 40,000 Oregon, Illinois Service/Distribution Concrete Accessories Owned 39,000 Helena, Alabama Manufacturing/Distribution Paving Products Leased 32,000 Folcroft, Pennsylvania Service/Distribution Concrete Accessories Owned 32,000 Baltimore, Maryland Service/Distribution Masonry Products Owned 30,000
The Company believes that its facilities provide adequate manufacturing and distribution capacity for its needs. The Company also believes that all of the leases were entered into on market terms. ITEM 3. LEGAL PROCEEDINGS. Symons is currently a defendant involved in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of their business in 1996 in the United States District Court for the Southern District of Iowa (Case No. 4-96-CV-80552). EFCO Corp. alleged that Symons engaged in false advertising, misappropriation of trade secrets, intentional interference with contractual relations, and certain other activities. After a jury trial, preliminary damages of approximately $14 million were awarded against Symons in January 1999. The Company believes that there is no merit to these allegations, remains committed to vigorously pursuing post-trial motions and appeals, and is seeking to vacate the judgments in their entirety. The Company believes that, in the event the judgments against it are not completely set aside, it has numerous substantial grounds for a successful appeal and intends to vigorously pursue its appellate rights. A successful appeal could result in judgment for Symons or a new trial. Symons' liability, if any, cannot finally be determined until such time as all rights of the parties have been exhausted or have expired by lapse of time. The Company considers the outcome of this litigation to be not estimable. Accordingly, the Company has not recorded any liability for the resolution of this suit. In the event the Company is unsuccessful in its post-trial motions and appeals, it may have a material adverse effect on its consolidated financial position, results of operations, or cash flows. The Company is subject to regulation under various and changing federal, state and local laws and regulations relating to the environment and to employee safety and health. These environmental laws and regulations govern the generation, storage, transportation, disposal and emission of various substances. Permits are required for operation of the Company's business (particularly air emission permits), and these permits are subject to renewal, modification and, in certain circumstances, revocation. The Company believes that it is in substantial compliance with such laws and permitting requirements. The Company is also subject to regulation under various and changing federal, state and local laws and regulations which allow regulatory authorities to compel (or seek reimbursement for) cleanup of environmental contamination at its own sites and at facilities where its waste is or has been disposed. The Company expects to incur on-going capital and operating costs to maintain compliance with currently applicable environmental laws and regulations. The Company does not expect such costs, in the aggregate, to be material to its financial condition, results of operations or liquidity. 10 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company as of March 20, 1999 and their ages, positions with the Company and their principal occupation during the past five years (unless otherwise stated, positions with the Company) are as follows: Name Age Position - ---- --- -------- John A. Ciccarelli 59 President, Chief Executive Officer and Director Raymond E. Bartholomae 52 Vice President and General Manager, Symons Mario J. Catani 66 Vice President, Engineering Michael C. Deis, Sr. 48 Vice President and General Manager, Dayton/Richmond James W. Fennessy 55 Vice President and General Manager, Superior Canada Ltd. Mark K. Kaler 41 Vice President and General Manager, American Highway Technology Alan F. McIlroy 48 Vice President and Chief Financial Officer John R. Paine, Jr. 56 Vice President, Sales and Marketing, Dayton/Richmond Thomas W. Roehrig 33 Corporate Controller John M. Rutherford 38 Treasure and Assistant Secretary James C. Stewart 51 Vice President, Corporate Development Mr. Ciccarelli has been President of the Company since 1989 and has been Chief Executive Officer and a Director of the Company since 1994. Mr. Bartholomae has been Vice President and General Manager, Symons, since February 1998, and was Executive Vice President and General Manager of Symons from 1986 to February 1998. Symons was acquired by the Company in September 1997. Mr. Catani has been Vice President, Engineering since May 1997, and was President of Dur-O-Wal from 1984 to May 1997. Mr. Deis has been Vice President and General Manager, Dayton/Richmond since February 1998. From 1987 to February 1998, Mr. Deis was the Company's Vice President, Eastern Division of Dayton/Richmond (formerly, Concrete Accessories). Mr. Fennessy has been Vice President and General Manager, Dayton Superior Canada, Ltd. since 1988. 11 12 Mr. Kaler has been Vice President and General Manager, American Highway Technology since April 1996. From 1990 to April 1996, Mr. Kaler was Vice President, Engineering and Product Manager, Paving Division. Mr. McIlroy has been Vice President and Chief Financial Officer since July 1997. From January 1994 until July 1997, Mr. McIlroy was President of The Greenock Group, a private operational investment company. Mr. Paine has been Vice President, Sales and Marketing of Dayton/Richmond (formerly, Concrete Accessories) since 1984. Mr. Roehrig has been Corporate Controller of the Company since April 1998. From 1987 until March 1998, Mr. Roehrig was employed by Arthur Andersen LLP, an international public accounting firm, most recently as an Experienced Manager in the Assurance and Business Advisory division. Mr. Rutherford has been Treasurer and Assistant Secretary of the Company since February 1998. From January 1993 until January 1998, Mr. Rutherford was Director of Treasury and Risk Management for Gibson Greetings, Inc., a greeting card manufacturer. Mr. Stewart has been Vice President, Corporate Development of the Company since February 1998. From 1984 to February 1998, Mr. Stewart was the Company's Vice President, Western Division of Dayton/Richmond (formerly Concrete Accessories). 12 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Class A Common Shares (which is the only class of shares outstanding as of February 17, 1999) are traded on the New York Stock Exchange under the symbol "DSD". The prices presented in the following table are the high and low sales prices for the Class A Common Shares for the periods presented as reported by the New York Stock Exchange.
High Low ---- --- 1998 1st Quarter $20.375 $15.875 2nd Quarter 22.125 16.500 3rd Quarter 21.375 16.625 4th Quarter 20.875 14.375 High Low ---- --- 1997 1st Quarter $13.500 $11.250 2nd Quarter 13.250 9.750 3rd Quarter 19.438 12.500 4th Quarter 19.000 14.813
As of March 18, 1999, the Company had 58 shareholders of record. Based on requests from brokers and other nominees, the Company estimates there are 950 additional beneficial owners of its shares. The Company has paid no dividends on its Common Shares. The Company currently intends to retain its future earnings, if any, to fund the development and growth of its business and, therefore, does not anticipate declaring or paying cash dividends on the common shares in the near term. The decision whether to apply legally available funds to the payment of dividends on common shares will be made by the Board of Directors of the Company from time to time in the exercise of its business judgment, taking into account, among other things, the Company's results of operations and financial condition, any then existing or proposed commitments for the use by the Company of available funds and the Company's obligations with respect to any then outstanding class or series of its preferred shares. The Company is restricted by the terms of its credit agreements from paying cash dividends on the Common Shares and may in the future enter into loan or other agreements or issue debt securities or preferred shares that restrict the payment of cash dividends on the Common Shares. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." On November 24, 1998, the Company issued an additional 4,238 of its Class A Common Shares to the former shareholders of Concrete Accessories, Inc. ("CAI"), a privately-held corporation acquired by the Company in May 1998, as a result of an adjustment to the 13 14 aggregate number of Class A Common Shares to be issued in the acquisition, based upon a closing audit of CAI. The additional Class A Common Shares were issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering. The former shareholders of CAI have certain registration rights with respect to such shares. ITEM 6. SELECTED FINANCIAL DATA. (All dollar amounts in thousands, except share data) The earnings statement data and the balance sheet data presented below have been derived from the company's consolidated financial statements and should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto, included elsewhere herein.
Year Ended December 31, ----------------------------------------------------------------------------- 1994 1995 1996 1997 1998 ------------- ----------- ------------- ------------ ------------ EARNINGS STATEMENT DATA: Net sales $82,341 $92,802 $124,486 $167,412 $282,849 Cost of sales 58,011 63,990 86,021 110,528 174,423 ------------- ----------- ------------- ------------ ------------ Gross profit 24,330 28,812 38,465 56,884 108,426 Selling, general, and administrative expenses 16,722 18,698 23,637 37,277 76,392 Amortization of goodwill and intangibles 1,305 1,491 1,749 1,885 2,213 ------------- ----------- ------------- ------------ ------------ Income from operations 6,303 8,623 13,079 17,722 29,821 Interest expense, net 6,017 4,231 4,829 5,556 11,703 Other expense (income), net 873 (3) 96 (64) (202) Provision for income taxes(2) 95 690 3,538 5,277 8,244 ------------- ----------- ------------- ------------ ------------ Income (loss) before extraordinary item (682) 3,705 4,616 6,953 10,076 Extraordinary item, net of tax 31,354(1) - (2,314)(3) - - ------------- ----------- ------------- ------------ ------------ Net income $30,672 $3,705 $2,302 $6,953 $10,076 ============= =========== ============= ============ ============ Net income available to common shareholders $30,175 $71 $2,302 $6,953 $10,076 ============= =========== ============= ============ ============ Basic income (loss) per share before extraordinary item $ (0.67) $ 0.02 $1.02 $1.22 $1.72 Basic net income per share $ 17.08 $ 0.02 $0.51 $1.22 $1.72 Basic weighted average common shares outstanding(4) 1,766,700 2,990,847 4,547,527 5,703,601 5,867,338 Diluted income (loss) per share before extraordinary item $ (0.58) $ 0.02 $0.94 $1.17 $1.65 Diluted net income per share $ 14.93 $ 0.02 $0.47 $1.17 $1.65 Diluted weighted average common and common share equivalents outstanding(4) 2,020,717 3,558,908 4,925,464 5,933,244 6,098,205
As of December 31, ----------------------------------------------------------------------------- BALANCE SHEET: Total assets $72,371 $103,860 $107,835 $226,930 $253,620 Long-term debt (including current 24,448 53,012 34,769 120,236 118,205 portion) Shareholders' equity 27,674 27,485 52,872 60,529 74,588
14 15 (1) In December 1992, the Company defaulted on certain financial covenants in its senior debt and was unable to make payments of principal and interest as they came due. From December 1992 to May 1994, the Company accrued additional penalty interest on its senior debt. In May 1994, the Company reached an agreement with its lenders to restructure its debt, resulting in an extraordinary gain of $31,354, net of an income tax effect of $92. (2) In 1994, the provision for income taxes related to alternative minimum taxes. In 1995, the provision for income taxes was reduced to reflect the utilization of net operating losses. (3) During June 1996, the Company prepaid its $40,000 unsecured senior promissory notes. In conjunction therewith, the Company paid a prepayment premium of $2,400 and expensed unamortized financing costs and debt discount of $795 and $538, respectively. The Company recorded an extraordinary loss of $2,314, net of an income tax effect of $1,419. The Company funded this repayment with $22,358 in proceeds from its public stock offering and $20,042 from its credit facility. (4) Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted net income per share is computed by dividing net income available to common shareholders by the weighted average number of common and common share equivalents outstanding during the year. Common share equivalents include the number of shares issuable upon the exercise of outstanding options and warrants, less the shares that could be purchased with the proceeds from the exercise of the options and warrants, based on the Company's average trading price for 1998, 1997, and 1996 and the initial public offering price of $13.00 per share for 1995 and 1994. For the purposes of calculating net income (loss) per common and equivalent share, equivalent shares issued less than 12 months prior to the initial public offering are included for all periods presented. Common equivalent shares issued more than 12 months prior to the Offering are excluded in periods with a net loss available to common shareholders. See Note 3(h) to the consolidated financial statements of the Company. 15 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Dayton Superior's record net sales of $282.8 million in 1998 were 68.9% higher than 1997 and 127.1% higher than 1996. The Company's net sales for its four major product categories during the last three years were:
DOLLARS IN MILLIONS 1998 1997 1996 - ------------------- ---- ---- ---- Concrete Accessories $131.4 $ 92.2 $ 76.7 Concrete Forming Systems 104.7 21.1 - Paving Products 31.0 29.2 21.9 Masonry Products 24.3 24.9 25.9 Intersegment Eliminations (8.6) - - ------ ------ ------ Net sales $282.8 $167.4 $124.5 ====== ====== ======
The acquisition of Symons, a leading manufacturer of prefabricated concrete forming systems, on September 29, 1997 contributed approximately 80% of the net sales growth in 1998 from 1997 and approximately 60% of the net sales growth in 1997 from 1996. Income before income taxes and extraordinary item was a record $18.3 million in 1998 versus $12.2 million in 1997 and $8.2 million in 1996. In June 1996, after the completion of its initial public offering, the Company prepaid its $40.0 million of unsecured senior promissory notes and recorded an extraordinary loss on the extinguishment of debt of $2.3 million, net of income tax effect. Net income in 1998 was $10.1 million ($1.65 per diluted share and $1.72 per basic share) compared to $7.0 million ($1.17 per diluted share and $1.22 per basic share) in 1997 and $2.3 million ($0.47 per diluted share and $0.51 basic share) in 1996. Excluding the extraordinary item, 1996 net income was $4.6 million ($0.94 per diluted share and $1.02 per basic share). In June 1998, the Transportation Equity Act for the 21st Century ("TEA-21") was enacted. TEA-21 provides, on average, a 40% increase in federal highway spending over the next six years. The Company's paving products segment is expected to benefit from TEA-21 beginning in the second half of 1999. The Company believes that TEA-21 had no significant impact on its 1998 operations. IMPLEMENTATION OF BUSINESS STRATEGY On September 29, 1997, the Company purchased the stock of Symons Corporation ("Symons"). Symons was a private company, which owned two businesses. The first business, the Symons division, is a leading manufacturer of prefabricated concrete forming systems. The second business, Richmond Screw Anchor, manufactured and sold concrete accessories. The addition of these two businesses provides the Company with both 16 17 a complementary fourth business platform, concrete forming systems, and expansion in the concrete accessories market. The Symons division is being operated on a stand alone basis while the Richmond Screw Anchor business has been blended with the Company's existing concrete accessories division. The Company paid $34.0 million (plus acquisition costs of $3.3 million) for the Common Stock of Symons, of which $32.3 million was paid in cash and $5.0 million was paid by delivery of a seven year unsecured note. The Company also assumed $47.7 million of long-term debt. The purchase agreement between the Company and the former stockholders of Symons (the "Former Stockholders") relating to the Acquisition (the "Purchase Agreement") provides for an adjustment to the purchase price under certain circumstances. The Company has advised the Former Stockholders that it believes it is entitled to a purchase price adjustment in its favor, and the Former Stockholders similarly advised the Company that they believe they are entitled to a purchase price adjustment in their favor. The Purchase Agreement provides that, if the Company and the Former Stockholders are unable to resolve these differences, the dispute will be referred to a mutually satisfactory accounting firm, which is expected to resolve such differences, in accordance with the terms of the Purchase Agreement. On June 12, 1998, the Former Stockholders filed a lawsuit in Delaware Chancery Court ("the Court") seeking a determination with respect to a limited number of issues involved in the dispute, which the Company believes can be resolved only through arbitration. On October 28, 1998, the Court granted the Company's motion to dismiss with respect to certain of these issues. On December 28, 1998, the Court stayed the proceeding with respect to the issues as to which it had retained jurisdiction, pending the outcome of arbitration commenced by the parties with respect to the purchase price adjustment. Either party may seek to reopen the proceedings following the arbitration. The Company intends to vigorously pursue its rights under the Purchase Agreement. In January 1999, the Company purchased substantially all of the assets and assumed certain of the liabilities of Cempro, Inc., ("Cempro") for $5.4 million in cash. Cempro was a manufacturer of construction chemicals and is being operated as a part of the Company's construction chemicals business, which was established in early 1999. In June 1998, the Company purchased substantially all of the assets of Secure, Inc., ("Secure") a subsidiary of The Lofland Company, for $0.6 million in cash. Secure was a manufacturer of construction chemicals whose products are sold primarily through the Company's paving products business. In May 1998, the Company purchased the stock of CAI for $6.7 million, payable in cash of $0.4 million, delivery of 222,496 Class A Common Shares totaling $4.1 million, and assumed long-term debt of $2.2 million. CAI was a distributor of concrete forming systems. In May 1998, the Company purchased the assets of the two Northwoods branches of Concrete Forming, Inc. for $0.8 million in cash. The Northwoods branches were distributors of concrete forming systems. In February 1997, the Company acquired the principal assets of Ironco Manufacturing Co., Inc. and Birmingham Bar Coating, Inc. ("Ironco") for $1.5 million, of 17 18 which $1.1 million was cash and the remainder was paid by delivery of 26,254 shares of Class A Common Shares. Ironco was a manufacturer of paving products. In June 1996, the Company completed an initial public offering of 2,030,950 shares of Class A Common Shares and received proceeds of $23.0 million, net of expenses. The proceeds from the offering were used, in combination with new borrowings, to prepay its $40.0 million of unsecured senior promissory notes. In April 1996, the Company purchased certain assets of Steel Structures, Inc. ("SSI") for cash of $5.6 million. SSI was a manufacturer of paving products. RESULTS OF OPERATIONS The following table summarizes the Company's results of operations as a percentage of net sales for the years 1996 through 1998 ending December 31.
1998 1997 1996 ------------- --------- ------------- Net sales 100.0 100.0 100.0 Cost of goods sold 61.7 66.0 69.1 ------------- --------- ------------- Gross profit 38.3 34.0 30.9 Selling, general and administrative expenses 27.0 22.3 19.0 Amortization of goodwill and intangibles 0.8 1.1 1.4 ------------- --------- ------------- Income from operations 10.5 10.6 10.5 Interest expense, net 4.1 3.3 3.9 Other expense (income), net (0.1) - - ------------- --------- ------------- Income before income taxes and extraordinary item 6.5 7.3 6.6 Provision for income taxes 2.9 3.1 2.9 ------------- --------- ------------- Income before extraordinary item 3.6 4.2 3.7 Extraordinary item, net of tax - - (1.9)(1) ------------- --------- ------------- Net income 3.6 4.2 1.8 ============= ========= =============
- ------------------------------ (1) In June 1996, the Company extinguished debt creating an extraordinary loss of $2.3 million, net of tax effects. COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997 Net Sales - The 1998 net sales reached a record $282.8 million, a 68.9% increase from $167.4 million in 1997 and a 12.1% increase from pro forma 1997 sales of $252.3 million as if Symons had been acquired on January 1, 1997. Concrete accessories net sales increased by 42.5% from $92.2 million in 1997 to $131.4 million in 1998, due to a full year's net sales resulting from the Richmond Screw Anchor division of Symons. Concrete accessories net sales increased 13.0% from pro forma 1997 net sales of $116.3 million due to strong heavy construction activity in the U.S. and new product sales. Concrete forming systems net sales increased from $21.1 million in 1997 to $104.7 million in 1998 due to a full year's net sales resulting from the acquisition of Symons. Concrete forming systems net sales increased 20.0% from 1997 pro forma net sales of $87.3 million due to the net sales of CAI and 18 19 Northwoods after their acquisitions, as well as strong heavy construction activity in the U.S. Net sales of paving products increased by 6.2% to $31.0 million in 1998 from $29.2 million in 1997 due to increased market gains. Net sales of masonry accessories were $24.3 million for 1998 versus $24.9 million in 1997, due to a high level of competition in the hot dipped and mill galvanized masonry wall reinforcement product markets, which was somewhat offset by a shift to higher margin, lower volume engineered products. Gross Profit - Gross profit for 1998 was $108.4 million, a 90.5% increase over $56.9 million for 1997. As a percent of net sales, gross margin was 38.3% in 1998 compared to 34.0% in 1997. The gross margin increased primarily due to the inclusion of the Symons division for a full year as concrete forming systems have higher gross margins, primarily due to rental revenues, than the Company's other product lines. The 1998 gross margin of 38.3% also increased from the 1997 pro forma gross margin of 36.1% due to better product mix with higher net sales of concrete forming systems and less net sales of paving products and masonry products as a percent of consolidated net sales, as well as cost savings in the concrete accessories business. Operating Expenses - Selling, general, and administrative expenses, including the amortization of goodwill and intangibles ("SG&A expenses"), increased from $39.2 million in 1997 to $78.6 million in 1998. The increase is due to a full year of expenses resulting from the acquisition of Symons. SG&A expenses were up as a percent of sales from 23.4% in 1997 to 27.8% in 1998, due to concrete forming systems having a higher percentage of SG&A expenses to net sales than the Company's other operating segments. This reflects the additional distribution and maintenance costs associated with the management of the rental equipment fleet. SG&A expenses as a percent of sales also increased from pro forma 1997 of 26.7%, primarily due to product mix of higher concrete forming systems, including CAI, and less paving products and masonry products as a percent of total net sales. Interest and Other Expenses - Interest expense increased to $11.7 million in 1998 from $5.6 million in 1997 due primarily to the full year effect of higher debt resulting from the Symons acquisition, and to a lesser extent, higher capital expenditures. Income Before Income Taxes - Income before income taxes in 1998 increased 50.0% to a record $18.3 million from $12.2 million in 1997. Concrete accessories income before income taxes of $19.4 million in 1998 increased 41.6% from $13.7 million due primarily to the increase in concrete accessories net sales. Concrete forming systems income before income taxes of $6.1 million in 1998 increased from $0.4 million in 1997 due primarily to the full year effect of the acquisition of Symons. Income before income taxes from paving products increased to $1.7 million, or 5.5% of net sales, in 1998 from $1.4 million, or 4.8% of net sales in 1997. Income before income taxes from masonry products was $0.5 million in 1998 compared to virtually breakeven in 1997, despite the decrease in net sales, due to a shift to higher margin, lower volume engineered products. Corporate expenses increased to $5.2 million from $3.2 million due to strengthening the finance, treasury, tax, purchasing, logistics, and corporate development functions. Elimination of profit on intersegment sales was $4.2 million in 1998. Net Income - The effective tax rate in 1998 was 45.0%, or $8.2 million, compared to a rate of 43.1%, or $5.3 million, in 1997. Nondeductible goodwill amortization 19 20 and state and local taxes caused the Company's effective tax rate to exceed federal statutory levels. Net income increased $3.2 million to $10.1 million in 1998 from $6.9 million in 1997 due to the factors described above. COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996 Net Sales - The 1997 net sales reached a record $167.4 million, a 34.5% increase from $124.5 million in 1996. Concrete accessories net sales increased by 20.2% from $76.7 million in 1996 to $92.2 million in 1997, due to the addition of the Richmond Screw Anchor division of Symons for three months, which contributed 38.0% of the increase. Additionally, strong heavy construction activity in the U.S. and new product sales of concrete accessories also contributed to the increased net sales. Net sales of paving products increased by 33.3% to $29.2 million in 1997 from $21.9 million in 1996 due to the acquisition of Ironco, a full year's net sales resulting from the acquisition of SSI, and an increased presence in the market place. Net sales of masonry accessories were $24.9 million for 1997 versus $25.9 million in 1996. Competition continued at a high level in the hot dipped and mill galvanized masonry wall reinforcement product markets. Concrete forming systems net sales were $21.1 million for the fourth quarter as a result of the acquisition of Symons. Gross Profit - Gross profit for 1997 was $56.9 million, a 47.9% increase over $38.5 million for 1996. As a percent of net sales, gross margin was 34.0% in 1997 compared to 30.9% in 1996. The gross margin increased primarily as a result of the inclusion of the sales of Symons in the fourth quarter, as concrete forming systems have higher gross margins, primarily due to rental revenues, than the Company's other product lines. The increase in gross profit dollars is attributable to the fourth quarter contribution of Symons, and, to a lesser extent, improved selling prices and a shift in sales mix in favor of higher margin products in the Company's concrete accessories business. Continued investments in fixed assets also added to margin in 1997 by allowing the Company to reduce its manufacturing costs. The Company also continued its focus on cost improvement programs. Operating Expenses - SG&A expenses increased $13.7 million, or 57.7%, from $23.6 million in 1996 to $37.3 million in 1997. Approximately 70% of the increase resulted from the acquisition of Symons. SG&A expenses also were up due to the addition of Ironco, management personnel relocations, and integration costs from the Symons acquisition. SG&A expenses were up as a percent of sales from 19.0% in 1996 to 22.3% in 1997, due to concrete forming systems having a higher percentage of SG&A expenses to net sales than the Company's existing businesses. Interest and Other Expenses - Interest expense increased 15.1% to $5.6 million in 1997 from $4.8 million in 1996 due to higher debt resulting from the Symons acquisition. Additionally, deferred financing costs of $0.3 million related to the previous credit facility were expensed. The lower average debt outstanding in the first three quarters of 1997 and the lower interest rates obtained in the June 1996 debt restructuring were offset by the increased financing for the Symons acquisition. 20 21 Income Before Income Taxes - Income before income taxes in 1997 increased 48.8% to $12.2 million from $8.2 million in 1996. Concrete accessories income before income taxes of $13.7 million in 1997 increased 44.2% from $9.5 million due primarily to the increase in concrete accessories net sales. Concrete forming systems income before income taxes was $0.4 million for the three months following the acquisition of Symons. Income before income taxes in 1997 from paving products increased to $1.4 million, or 4.8% of net sales, from $0.9 million, or 4.1% of net sales, in 1996. Income before income taxes from masonry products was virtually breakeven in 1997 compared to income before income taxes of $0.6 million in 1996 due to the decrease in net sales. Corporate expenses increased to $3.2 million from $2.8 million due to the hiring of an additional financial officer in December 1996 and the full year effect of directors and officers insurance and other expenses related to being a public company. Net Income - The effective tax rate in 1997 was 43.1%, or $5.3 million, compared to a rate of 43.4%, or $3.5 million, in 1996. Nondeductible goodwill amortization and state and local taxes caused the Company's effective tax rate to exceed federal statutory levels. As described in Note 4 to the consolidated financial statements, the Company prepaid certain indebtedness in June 1996 that resulted in an extraordinary charge of $2.3 million. LIQUIDITY AND CAPITAL RESOURCES The Company's key statistics for measuring liquidity and capital resources are net cash provided by operating activities, capital expenditures, debt to total capitalization ratio, amounts available under its Revolving Credit Facility, and cash gap. The Company defines cash gap as accounts receivable days outstanding plus inventory future days cost of sales less accounts payable days to pay. The Company's capital requirements relate primarily to capital expenditures, debt service and the cost of acquisitions. Historically, the Company's primary sources of financing have been cash generated from operations, borrowings under its revolving line of credit and the issuance of long-term debt and equity. Net cash provided by operating activities for 1998 was $19.6 million. Sources of operating cash flow for 1998 included $10.1 million in net income and $13.1 million from non-cash charges for depreciation and amortization and was reduced by $8.2 million in gains on sales of rental equipment and property, plant, and equipment. Working capital changes, net of acquisitions, generated $2.9 million. Net cash generated by operations was used for capital expenditures, to fund strategic acquisitions of $1.8 million as described in Note 2 of the consolidated financial statements, and to repay long-term debt of $4.3 million, including long-term debt assumed in acquisitions of $2.2 million. Capital expenditures included net additions to the rental equipment fleet of $6.8 million to support the growth in concrete forming systems and, to a lesser extent, concrete accessories, as well as property, plant, and equipment additions of $7.2 million as the Company continues to focus on cost improvement 21 22 programs. Proceeds from sales of property, plant, and equipment of $1.1 million related to the sale of duplicate facilities as a result of the acquisition of Symons. At December 31, 1998, working capital was $44.7 million, compared to $45.4 million at December 31, 1997. Despite the 12.1% pro forma growth in sales volume, working capital decreased as the Company continues to manage its working capital through its cash gap program. At December 31, 1998, $40.0 million of the $40.0 million Revolving Credit Facility was available, of which $13.0 million of borrowings were outstanding. The Term Loan had an outstanding balance at December 31, 1998 of $100.0 million. Other long-term debt consisted of $5.0 million to one of the Former Stockholders and $0.2 million to the City of Parsons, Kansas. At December 31, 1998, the Company had $118.2 million of long-term debt outstanding, of which $32 thousand was current. The Company's debt to total capitalization ratio decreased from 66.5% in 1997 to 61.3% in 1998 primarily due to increased equity from net income. To manage its interest rate risk, the Company entered into two interest rate swap agreements on a total of $50.0 million of long-term debt that fixed the LIBOR-based component of the interest rate formula. The swaps have a fixed ninety-day LIBOR component of 6.30% and 6.33%, and expire on November 1, 2000. The ninety-day LIBOR as of December 31, 1998 was 5.07%. All fluctuations in rates resulting from the swaps are accounted for as interest expense. These swaps are required by the Company's Credit Agreement and are contracts to exchange floating rate for fixed rate interest payments over three years without the exchange of underlying amounts. The estimated fair value of the interest rate swap agreements is a liability of $1.2 million. Symons is currently a defendant involved in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of their business. EFCO Corp. alleged that Symons engaged in false advertising, misappropriation of trade secrets, intentional interference with contractual relations, and certain other activities. After a jury trial, preliminary damages of approximately $14 million were awarded against Symons in January 1999. The Company believes that there is no merit to these allegations, remains committed to vigorously pursuing post-trial motions and appeals, and is seeking to vacate the judgments in their entirety. The Company believes that, in the event the judgments against it are not completely set aside, it has numerous substantial grounds for a successful appeal and intends to vigorously pursue its appellate rights. A successful appeal could result in judgment for Symons or a new trial. Symons' liability, if any, cannot finally be determined until such time as all rights of the parties have been exhausted or have expired by lapse of time. The Company considers the outcome of this litigation to be not estimable. Accordingly, the Company has not recorded any liability for the resolution of this suit. In the event the Company is unsuccessful in its post-trial motions and appeals, it may have a material adverse effect on its consolidated financial position, results of operations, or cash flows. The Company believes its liquidity, capital resources and cash flows from operations are sufficient to fund planned capital expenditures, working capital requirements and debt service in the absence of additional acquisitions. 22 23 The Company intends to fund future acquisitions with cash, securities or a combination of cash and securities. To the extent the Company uses cash for all or part of any such acquisitions, it expects to raise such cash primarily from cash generated from operations, borrowings under the Credit Facility or, if feasible and attractive, issuances of long-term debt or additional Class A Common Shares. SEASONALITY The Company's operations are seasonal in nature, with approximately 60% of sales historically occurring in the second and third quarters. Working capital and borrowings fluctuate with sales volume. Historically, more than 50% of cash flow from operations is generated in the fourth quarter. INFLATION The Company does not believe inflation had a significant impact on its operations over the past three years. In the past, the Company has been able to pass along all or a portion of the effects of steel price increases. There can be no assurance the Company will be able to continue to pass on the cost of such increases in the future. YEAR 2000 Certain software and hardware systems are date sensitive. Older date sensitive systems often use a two digit dating convention ("00" rather than "2000") that could result in system failure and disruption of operations as the year 2000 approaches. This is referred to as the "Year 2000" issue. The Year 2000 issue will impact the Company, its suppliers, customers and other third parties that transact business with the Company. The Company has a Year 2000 compliance team. This team is reviewing substantially all hardware and software systems within the Company, products sold by the Company, and significant suppliers and other third parties that transact business with the Company. Projects have been established to address all significant Year 2000 issues identified in this review. The Year 2000 team reports regularly to senior management on the progress of significant Year 2000 projects. Senior management reports to the Board of Directors on the Company's progress with Year 2000 projects. The compliance review has involved testing of hardware and software systems, including non-information technology systems such as telephones and Computer Numeric Controlled machines. The Company has determined that it needs to replace or modify some of its software and hardware systems. The Company is replacing or upgrading most of the systems which have been identified as having Year 2000 issues. The Company believes it has no material exposure to contingencies related to the Year 2000 issue for products sold as almost none of the Company's products contain time sensitive hardware or software systems. The Company has initiated communications with significant suppliers, customers and other relevant third parties to identify and minimize disruptions to the Company's operations and to assist in resolving Year 2000 issues. Particular attention has 23 24 been given to those suppliers who may be the Company's only source for certain products or components. However, there can be no certainty that the impacted systems and products of other parties on which the Company relies will be Year 2000 compliant. The Company's estimates of Year 2000 costs are based on numerous assumptions; actual costs could be greater than estimates. Specific factors that might cause such differences include, but are not limited to, the continuing availability of personnel trained in this area and the Company's ability to timely identify and correct all relevant software and hardware systems and the success of third party vendors in addressing their own Year 2000 issues. To date, the Company has incurred approximately $680 thousand, of which $650 thousand was capitalized and $30 thousand was expensed. These costs were to replace existing hardware and third party software and professional fees for external assistance. The estimated future cost for resolving Year 2000 issues is approximately $240 thousand, of which $180 thousand is expected to be capitalized and $60 thousand is expected to be expensed. These costs are to replace or upgrade existing hardware and third party software, including professional fees for external assistance. The Company believes it is diligently addressing the Year 2000 issues and that it will satisfactorily resolve all significant Year 2000 problems. The Company successfully completed a test of its integrated systems in the fourth quarter of 1998 and anticipates completing substantially all of its Year 2000 projects by the end of the second quarter of 1999. In the event the Company falls short of these milestones, additional internal resources will be focused on completing these projects or implementing contingency plans. The Company believes that its most reasonably likely worst case scenario would be related to the lack of success of third party vendors of addressing their Year 2000 issues, particularly suppliers who are the Company's only source, such as local electricity providers. If a facility were to be unable to manufacture products due to a lack of electricity, contingency plans include the transfer of production orders to other facilities. The Company believes the impact would not be significant due to the seasonal capacity that exists in January. RECENTLY ISSUED ACCOUNTING STANDARDS In July 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of financial statements. The objective of the Statement is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners ("comprehensive income"). Comprehensive income is the total of net income and all other nonowner changes in equity. The Company has adopted SFAS 130. In July 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS 131 introduces a new model for segment reporting, called the "management approach." The management approach is based on the way that the chief operating decision maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on 24 25 products and services, geography, legal structure, management structure - any manner in which management disaggregates a company. The management approach replaces the notion of industry and geographic segments in current FASB standards. The Company has adopted SFAS 131 for its 1998 annual report. See Note 9 to the consolidated financial statements. In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 amends the disclosures required for pensions and other postretirement benefits. The Company has adopted SFAS No. 132; see Note 7 to the consolidated financial statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. FORWARD-LOOKING STATEMENTS This annual report includes; and future filings by the Company on Form 10-K, Form 10-Q, and Form 8-K and future oral and written statements by the Company and its management may include, certain forward-looking statements, including (without limitation) statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition and divestiture opportunities and other similar forecasts and statements of expectation. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates" and "should", and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements by the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as the result of a number of important factors. Representative examples of these factors include (without limitation) the cyclical nature of nonresidential building and infrastructure construction activity, which can be affected by factors outside the Company's control, such as the general economy, governmental expenditures and changes in banking and tax laws; the Company's ability to successfully identify, finance, complete and integrate acquisitions; the mix of products sold by the Company; the Company's ability to successfully develop and introduce new products; increases in the price of steel (the principal raw material in the Company's products) and the Company's ability to pass along such price increases to its customers; and the seasonality of the construction industry. In addition to these factors, actual future performance, outcomes and results may differ materially because of other, more general, factors including (without limitation) general industry and market conditions and growth rates, domestic economic conditions, governmental and public policy changes and the continued availability of financing in the amounts, at the terms and on the conditions necessary to support the Company's future business. 25 26 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As of December 31, 1998, the Company had financial instruments which were sensitive to changes in interest rates. These financial instruments consist of a $40.0 million Revolving Credit Facility, of which $13.0 million was outstanding; a $100.0 million Term Loan; $5.2 million in other fixed-rate, long-term debt; and variable-to-fixed interest rate $50.0 million of the Term Loan. The Revolving Credit Facility terminates in 2002 and has several interest rate options which re-price on a short-term basis. Accordingly, the fair value of the Revolving Credit Facility approximates its $13.0 million face value. The weighted average interest rate at December 31, 1998 was 7.3%. The $100.0 million Term Loan is due in 2005. The Term Loan permits the Company to choose from various interest rate options which re-price on a short-term basis. Accordingly, the fair value of the Revolving Credit Facility approximates its face value. The Term Loan has a weighted average interest rate of 8.15% at December 31, 1998. Other long-term debt consists of a.) a $5.0 million, 10.5% note payable due in 2004 with an estimated fair value of $5.8 million and b.) a $0.2 million, 7.0% loan due in installments of $32 thousand per year with an estimated fair value of $0.2 million. The Company has two interest rate swap agreements on a total of $50.0 million that fixed the LIBOR-based component of the interest rate formula as required by the Company's Credit Agreement. The swaps have a fixed ninety-day LIBOR component of 6.30% and 6.33%, and expire on November 1, 2000. The ninety-day LIBOR as of December 31, 1998 was 5.07%. These swaps are contracts to exchange floating rate for fixed rate interest payments without the exchange of underlying amounts. The estimated fair value of the interest rate swaps is a liability of $1.2 million. Management does not believe there will be any significant changes in interest rates in the near future. However, no assurances can be given that economic conditions or interest rates will remain stable for any particular period. in the ordinary course of its business, the Company also is exposed to price changes in raw materials (particularly steel rod) and products purchased for resale. The prices of these items can change significantly due to changes in the markets in which the Company's suppliers operate. The Company generally does not use finanical instruments to manage its exposure to changes in commodity prices. 26 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report Of Independent Public Accountants To Dayton Superior Corporation: We have audited the accompanying consolidated balance sheets of Dayton Superior Corporation (an Ohio corporation) and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, cash flows, and comprehensive income for each of the three years in the period ended December 31, 1998. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dayton Superior Corporation and Subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Part IV, Item 14(a)(2) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Dayton, Ohio January 26, 1999 (except with respect to the matter discussed in Note 12, as to which the date is February 17, 1999) 27 28 Dayton Superior Corporation And Subsidiaries Consolidated Balance Sheets As of December 31 (Amounts in thousands, except share and per share amounts)
ASSETS (Note 5) 1998 1997 --------- --------- Current assets Cash $ 560 $ -- Accounts receivable, net of allowances for doubtful accounts and sales returns and allowances of $4,432 and $5,015 42,996 35,054 Inventories (Note 3) 36,058 32,873 Prepaid expenses and other current assets 4,396 3,047 Prepaid income taxes 828 2,087 Future income tax benefits (Notes 3 and 8) 3,521 3,657 --------- --------- Total current assets 88,359 76,718 --------- --------- Rental equipment, net (Note 3) 52,586 38,327 --------- --------- Property, plant and equipment (Note 3) Land and improvements 5,481 5,577 Building and improvements 20,030 19,330 Machinery and equipment 38,339 33,156 --------- --------- 63,850 58,063 --------- --------- Less accumulated depreciation (22,069) (16,711) --------- --------- Net property, plant and equipment 41,781 41,352 --------- --------- Goodwill and intangible assets, net of accumulated amortization (Note 3) 70,130 68,590 Other assets 764 1,943 --------- --------- Total assets $ 253,620 $ 226,930 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt (Note 5) $ 32 $ 32 Accounts payable 20,749 15,753 Accrued compensation and benefits 12,443 7,480 Other accrued liabilities 10,408 8,088 --------- --------- Total current liabilities 43,632 31,353 Long-term debt (Note 5) 118,173 120,204 Deferred income taxes (Notes 3 and 8) 11,544 8,079 Other long-term liabilities (Note 7) 5,683 6,765 --------- --------- Total liabilities 179,032 166,401 --------- --------- Shareholders' equity (Note 6) Class A common shares; no par value; 20,539,500 shares authorized; 5,200,472 and 4,261,806 shares issued and 5,193,174 and 4,261,806 shares outstanding; 1 vote per share 42,316 33,386 Class B common shares; no par value; 757,569 and 1,466,350 shares authorized, issued, and outstanding; 10 votes per share 5,037 9,749 Class A treasury shares, at cost, 7,298 and 0 shares (145) - Cumulative foreign currency translation adjustment (266) (191) Excess pension liability (15) - Retained earnings 27,661 17,585 --------- --------- Total shareholders' equity 74,588 60,529 --------- --------- Total liabilities and shareholders' equity $ 253,620 $ 226,930 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 28 29 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Income Years Ended December 31 (Amounts in thousands, except share and per share amounts)
1998 1997 1996 --------- --------- --------- Net sales (Note 3) $282,849 $167,412 $124,486 Cost of sales 174,423 110,528 86,021 --------- --------- --------- Gross profit 108,426 56,884 38,465 Selling, general and administrative expenses 76,392 37,277 23,637 Amortization of goodwill and intangibles 2,213 1,885 1,749 --------- --------- --------- Income from operations 29,821 17,722 13,079 Other expenses Interest expense, net 11,703 5,556 4,829 Other expense (income), net (202) (64) 96 --------- --------- --------- Income before income taxes and extraordinary item 18,320 12,230 8,154 Provision for income taxes (Note 8) 8,244 5,277 3,538 --------- --------- --------- Income before extraordinary item 10,076 6,953 4,616 Extraordinary item (Note 4) Loss on extinguishment of debt, net of income tax effect of 1,419 - - (2,314) --------- --------- --------- Net income $10,076 $6,953 $2,302 ========= ========= ========= Basic income per share before extraordinary item $1.72 $1.22 $1.02 Basic extraordinary item per share - - (0.51) --------- --------- --------- Basic net income per share $1.72 $1.22 $0.51 ========= ========= ========= Weighted average common shares outstanding 5,867,338 5,703,601 4,547,527 ========= ========= ========= Diluted income per share before extraordinary item $1.65 $1.17 $0.94 Diluted extraordinary item per share - - (0.47) --------- --------- --------- Diluted net income per share $1.65 $1.17 $0.47 ========= ========= ========= Weighted average common and common share equivalents outstanding 6,098,205 5,933,244 4,925,464 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 29 30 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity Years Ended December 31, 1998, 1997 and 1996 (Amounts in thousands, except share amounts)
Class A Class B Class A Common Shares Common Shares Treasury Shares ----------------- -------------- --------------- Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ Balances at December 31, 1995 2,804,500 $ 17,483 485,500 $ 1,942 2,000 $ (81) Net income Foreign currency translation adjustment Excess pension liability adjustment Exercise of warrants 346,600 - Conversion of Class B common shares into Class A common shares 541,700 2,316 (541,700) (2,316) Conversion of Class A common shares into Class B common shares (1,522,550) (10,123) 1,522,550 10,123 Retirement of Class A treasury shares (2,000) (81) (2,000) 81 Issuance of common shares for cash, net of issuance costs (Note 6b) 2,030,950 23,041 --------- ------- --------- ------ ----- ----- Balances at December 31, 1996 4,199,200 32,636 1,466,350 9,749 - - Net income Foreign currency translation adjustment Issuance of common stock in lieu of directors' fees 8,258 104 Issuance of common shares in conjunction with acquisition (Note 2) 26,254 346 Exercise of stock options, net 28,094 300 --------- ------- --------- ------ ----- ----- Balances at December 31, 1997 4,261,806 33,386 1,466,350 9,749 - - Net income Foreign currency translation adjustment Excess pension liability adjustment Issuance of common stock in lieu of directors' fees 6,363 124 Issuance of common shares in conjunction with acquisition (Note 2) 222,496 4,078 Exercise of stock options, net 1,026 16 Conversion of Class B common shares into Class A common shares 708,781 4,712 (708,781) (4,712) Purchase of Class A treasury shares 7,298 (145) --------- ------- --------- ------ ----- ----- Balances at December 31, 1998 5,200,472 $42,316 757,569 $5,037 7,298 $(145) ========= ======= ========= ====== ===== ===== Cumulative Foreign Currency Excess Translation Pension Retained Adjustment Liability Earnings Total ---------- --------- -------- ----- Balances at December 31, 1995 $ (139) $ (50) $ 8,330 $ 27,485 Net income 2,302 2,302 Foreign currency translation adjustment (6) (6) Excess pension liability adjustment 50 50 Exercise of warrants - Conversion of Class B common shares into Class A common shares - Conversion of Class A common shares into Class B common shares - Retirement of Class A treasury shares - Issuance of common shares for cash, net of issuance costs (Note 6b) 23,041 ----- -------- ------- ------- Balances at December 31, 1996 (145) - 10,632 52,872 Net income 6,953 6,953 Foreign currency translation adjustment (46) (46) Issuance of common stock in lieu of directors' fees 104 Issuance of common shares in conjunction with acquisition (Note 2) 346 Exercise of stock options, net 300 ----- -------- ------- ------- Balances at December 31, 1997 (191) - 17,585 60,529 Net income 10,076 10,076 Foreign currency translation adjustment (75) (75) Excess pension liability adjustment (15) (15) Issuance of common stock in lieu of directors' fees 124 Issuance of common shares in conjunction with acquisition (Note 2) 4,078 Exercise of stock options, net 16 Conversion of Class B common shares into Class A common shares - Purchase of Class A treasury shares (145) ----- -------- ------- ------- Balances at December 31, 1998 $(266) $ (15) $27,661 $74,588 ===== ======== ======= =======
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 30 31 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31 (Amounts in thousands)
1998 1997 1996 ------- ------- ------ Cash Flows From Operating Activities: Net income $10,076 $6,953 $2,302 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss - - 2,314 Depreciation 10,076 5,131 4,304 Amortization of goodwill and intangibles 2,213 1,885 1,749 Deferred income taxes 1,792 1,017 320 Amortization of debt discount and deferred financing costs 821 565 235 Gain on sales of rental equipment and property, plant and equipment (8,236) (2,871) (1,095) Change in assets and liabilities, net of effects of acquisitions: Accounts receivable (4,830) 3,111 1,610 Inventories (2,110) 527 (884) Prepaid income taxes 1,259 (865) 633 Accounts payable 3,991 (2,136) (740) Accrued liabilities and other long-term liabilities 5,487 (2,690) (2,368) Other, net (938) (260) (614) ------- ------- ------ Net cash provided by operating activities 19,601 10,367 7,766 ------- ------- ------ Cash Flows From Investing Activities: Property, plant and equipment additions (7,215) (4,410) (3,198) Proceeds from sale of fixed assets 1,097 - - Rental equipment additions (18,081) (4,875) (1,632) Proceeds from sales of rental equipment 11,298 3,628 1,098 Acquisitions, net of cash acquired (Note 2) (1,784) (33,467) (4,845) Other investing activities - (15) (69) ------- ------- ------ Net cash used in investing activities (14,685) (39,139) (8,646) ------- ------- ------ Cash Flows From Financing Activities: Repayments of long-term debt (4,276) (67,203) (41,656) Issuance of long-term debt - 100,000 22,819 Prepayment premium on extinguishment of long-term debt - - (2,400) Issuance of common shares 140 404 23,041 Financing costs and fees - (4,586) (358) Purchase of treasury shares (145) - - Payments to former shareholder for acquisition of common shares - - (1,000) ------ ------ ------ Net cash provided by (used in) financing activities (4,281) 28,615 446 ------ ------ ------ Effect of Exchange Rate Changes on Cash (75) (46) (6) ------ ------ ------ Net increase (decrease) in cash 560 (203) (440) Cash, beginning of year - 203 643 ------ ------ ------ Cash, end of year $560 $ - $203 ====== ====== ====== Supplemental Disclosures: Cash paid for income taxes $5,055 $4,919 $2,345 Cash paid for interest 10,763 4,736 6,582 Issuance of long-term debt to seller in conjunction with acquisition - 5,000 - Issuance of Class A common shares in conjunction with acquisition 4,078 346 -
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 31 32 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Comprehensive Income Years, Ended December 31 (Amounts in thousands)
1998 1997 1996 ------ ------ ------ Net income $10,076 $6,953 $2,302 Other comprehensive income Foreign currency translation adjustment (75) (46) (6) Excess pension liability adjustment (15) - 50 ------ ------ ------ Comprehensive income $9,986 $6,907 $2,346 ====== ====== ======
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 32 33 Dayton Superior Corporation and Subsidiaries Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 (Dollar amounts in thousands, except share and per share amounts) (1) The Company The accompanying consolidated financial statements include the accounts of Dayton Superior Corporation and its wholly owned subsidiaries, Dayton Superior Canada Ltd., Dur-O-Wal, Inc., Dur-O-Wal, Ltd., and commencing September 29, 1997, Symons Corporation ("Symons") (collectively referred to as the "Company"). All significant intercompany transactions have been eliminated. The Company is the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction and of metal accessories used in masonry construction. As of December 31, 1998, the Company has a distribution system consisting of a network of 10 manufacturing/distribution plants and 47 service/distribution centers in the United States and Canada and over 4,000 dealers. The Company employs 749 salaried and 1,326 hourly personnel, of whom approximately 1,000 of the hourly personnel and six of the salaried personnel are represented by labor unions. One collective bargaining agreement expiring in 1999 covers 25 hourly employees at the Company's Des Plaines, IL facility. In 1998, hourly employees (45 as of December 31, 1998) at the Company's Kankakee, IL facility voted to be represented by a labor union. As of December 31, 1998, no collective bargaining agreement was in place. The only significant difference between the Company's Class A Common Shares (1 vote per share) and its Class B Common Shares (10 votes per share) are the number of votes per share. The Company's Class B Common Shares are owned by Ripplewood Holdings L.L.C. ("Ripplewood"). Ripplewood holds 13% of the Common Shares of the Company, which represents 59% of the voting rights as of December 31, 1998. See Note 12 for subsequent event. (2) Acquisitions (a) Symons Corporation- On September 29, 1997, the Company purchased the stock of Symons. Symons was a private company, which owned two businesses. The first business, the Symons division, is a leading manufacturer of prefabricated concrete forming systems. The second business, Richmond Screw Anchor, manufactures and sells concrete accessories. The addition of these two businesses provides the Company with both a complementary fourth business platform, concrete forming systems, and expansion in the concrete accessories market. The Symons division is being operated on a stand alone basis while the Richmond Screw Anchor business has been blended with the Company's existing concrete accessories division. The Company paid $34,000 (plus acquisition costs of $3,349) for the Common Stock of Symons, of which $32,349 was paid in cash and $5,000 was paid by delivery of a seven year unsecured note. The Company also assumed $47,670 of long-term debt. The purchase agreement between the Company and the former stockholders of Symons (the "Former Stockholders") relating to the Acquisition (the "Purchase Agreement") provides for an adjustment to the 33 34 purchase price under certain circumstances. The Company has advised the Former Stockholders that it believes it is entitled to a purchase price adjustment in its favor, and the Former Stockholders similarly advised the Company that they believe they are entitled to a purchase price adjustment in their favor. If the Company and the Former Stockholders are unable to resolve these differences, the dispute will be referred to a mutually satisfactory accounting firm, which is expected to resolve such differences, in accordance with the terms of the Purchase Agreement. On June 12, 1998, the Former Stockholders filed a lawsuit in Delaware Chancery Court seeking a determination with respect to a limited number of issues involved in the dispute, which the Company believes can be resolved only through arbitration. On October 28, 1998, the Court granted the Company's motion to dismiss with respect to certain of these issues. On December 28, 1998, the Court stayed the proceeding with respect to the issues as to which it had retained jurisdiction, pending the outcome of arbitration commenced by the parties with respect to the purchase price adjustment. Either party may seek to reopen the proceedings following the arbitration. The Company intends to vigorously pursue its rights under the Purchase Agreement. The cash portion of the purchase price was paid from the proceeds of the Company's credit agreement (Note 5). The allocation of the purchase price to the net assets acquired is as follows: Current assets $49,758 Rental equipment and property, plant and equipment 55,283 Goodwill and intangible assets 8,607 Other non-current assets 1,597 Current liabilities (26,548) Long-term debt (47,670) Other long-term liabilities (3,678) ------- $37,349 =======
The unaudited pro forma statements of income as though Symons had been acquired as of the beginning of 1996 are as follows:
1997 1996 ---------- ---------- Net sales $252,326 $228,974 Gross profit 91,167 76,450 Income before extraordinary item 6,867 5,406 Basic income per share before extraordinary item 1.20 0.95 Diluted income per share before extraordinary item 1.16 0.92
The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the Symons acquisition been consummated as of the above date, nor are they necessarily indicative of future operating results. 34 35 (b) Cempro, Inc.- Effective January 1, 1999, the Company acquired substantially all of the assets and assumed certain of the liabilities of Cempro, Inc. for $5,400 in cash. The business is being operated as a part of the Company's construction chemicals business, which was established in early 1999. (c) Secure, Inc.- In June 1998, the Company purchased substantially all of the assets of Secure, Inc., a subsidiary of The Lofland Company, for $654 in cash, including acquisition costs of $50. This business is being operated as a part of the Company's paving products division. The acquisition has been accounted for as a purchase, and the results of Secure have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated based on the estimated fair values of the assets including goodwill of $50. Certain appraisals and evaluations are preliminary and may change. Pro forma financial information is not required. (d) Concrete Accessories, Inc.- In May 1998, the Company purchased all of the stock of Concrete Accessories, Inc. (CAI). The purchase price was $6,744, including acquisition costs of $240, and was paid in cash of $421, assumption of long-term debt of $2,245, and delivery of 222,496 Class A Common Shares valued at $4,078. CAI is being operated as a part of the Company's concrete forming systems division. The acquisition has been accounted for as a purchase, and the results of CAI have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated based on the estimated fair values of the assets acquired of $8,080, including goodwill of $2,155, and assumed liabilities other than long-term debt of $1,336. Certain appraisals and evaluations are preliminary and may change. Pro forma financial information is not required. (e) Northwoods- In May 1998, the Company purchased the assets of the Northwoods branches of Concrete Forming, Inc. for $750 in cash. The Northwoods branches are being operated as a part of the Company's concrete forming systems division. The acquisition has been accounted for as a purchase, and the results of the Northwoods branches have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated based on the estimated fair values of the assets acquired including goodwill of $450. Certain appraisals and evaluations are preliminary and may change. Pro forma financial information is not required. (f) Ironco Manufacturing Co., Inc.- In February 1997, the Company acquired certain of the assets and assumed certain of the liabilities of Ironco Manufacturing Co., Inc. and Birmingham Bar Coating, Inc. The purchase price, including acquisition costs, was $1,493 and was paid in cash of $1,147 and 26,254 Class A Common Shares. The acquisition was accounted for as a purchase and the results of the companies have been included in the accompanying consolidated financial statements since the date of acquisition. This purchase price has been allocated based on the fair value of the assets 35 36 acquired of $1,705, including goodwill of $504, and liabilities assumed of $212. Pro forma financial information is not required. (g) Steel Structures, Inc.- In April 1996, the Company purchased certain of the assets and assumed certain of the liabilities of Steel Structures, Inc., for $5,601 in cash. The business is being operated as a part of the Company's paving products business. The acquisition was accounted for as a purchase and the results have been included in the accompanying consolidated financial statements since the date of acquisition. This purchase price has been allocated on the basis of the appraised fair value of the assets acquired of $6,113, including goodwill of $1,374, and liabilities assumed of $512. Pro forma financial information is not required. (3) Summary of Significant Accounting Policies (a) Inventories- Substantially all inventories of the domestic concrete accessories, paving products and masonry products operations are stated at the lower of last-in, first-out ("LIFO") cost (which approximates current cost) or market. All other inventories of the Company are stated 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. The Company's inventories consist of raw materials of $7,659 and $6,957, and finished goods of $30,022 and $26,792 as of December 31, 1998 and 1997, net of net realizable value reserves of $1,623 and $876, respectively. The Company has no LIFO reserve as of December 31, 1998 and 1997. (b) Rental Equipment- Rental equipment is manufactured by the Company for resale and for rent to others on a short-term basis. Rental equipment is recorded at the lower of FIFO cost or market and is depreciated over the estimated useful life of the equipment, twelve to fifteen years, on a straight-line method. The balances as of December 31, 1998 and 1997 are net of accumulated depreciation of $6,796 and $2,496, respectively. Rental revenues were $44,242, $11,336 and $3,095 for the years ended December 31, 1998, 1997, and 1996, respectively. Cost of sales associated with rental revenues were $4,443, $1,475, and $1,175 for 1998, 1997, and 1996, respectively. (c) Property, Plant and Equipment- Property, plant and equipment are valued at cost and depreciated using straight-line and accelerated methods over their estimated useful lives of 10-30 years for buildings and improvements and 3-10 years for machinery and equipment. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful life of the improvement. Improvements and replacements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. (d) Goodwill and Intangible Assets- Goodwill and intangible assets are recorded at the date of acquisition at their allocated cost. Amortization is provided over the estimated useful 36 37 lives of 40 years for goodwill, the term of the loan (5 to 8 years) for deferred financing costs and the term of the agreement (1 to 5 years) for license agreements. Accumulated amortization as of December 31, 1998 and 1997 was $16,867 and $14,087, respectively. In accordance with Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the carrying value of goodwill and other long-lived assets is assessed for recoverability by management when changes in circumstances indicate that the carrying amount may not be recoverable, based on an analysis of undiscounted future expected cash flows from the use and ultimate disposition of the asset. (e) Income Taxes- Deferred income taxes are determined by applying current statutory tax rates to the cumulative temporary differences between the carrying value of assets and liabilities for financial reporting and tax purposes. (f) Environmental Remediation Liabilities- Effective January 1, 1997, the Company accounts for environmental remediation liabilities in accordance with the American Institute of Certified Public Accountants issued Statement of Position 96-1, "Environmental Remediation Liabilities," ("SOP 96-1"). Adoption of SOP 96-1 did not have a material impact on the Company's consolidated financial statements. (g) Foreign Currency Translation Adjustment- The financial statements of foreign subsidiaries and branches are maintained in their functional currency (Canadian dollars) and are then translated into U.S. dollars. The balance sheets are translated at end of year rates while revenues, expenses and cash flows are translated at weighted average rates throughout the year. Translation adjustments, which result from changes in exchange rates from period to period, are accumulated in a separate component of shareholders' equity. Transactions in foreign currencies are translated into U.S. dollars at the rate in effect on the date of the transaction. Changes in foreign exchange rates from the date of the transaction to the date of the settlement of the asset or liability is recorded as income or expense. (h) Net Income Per Share- Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding (adjusted for the stock split discussed in Note 6a) during the year. Diluted net income per share is computed by dividing net income available to common shareholders by the weighted average number of common and common share equivalents outstanding (adjusted for the stock split discussed in Note 6a) during the year. Common share equivalents include the number of shares issuable upon the exercise of outstanding options and warrants, less the shares that could be purchased with the proceeds from the exercise of the options and warrants, based on the Company's average trading price. 37 38 1998 ----------------------------------------------------- Income Shares Per Share ------------- ----------------- --------------- Basic net income per share $10,076 5,867,338 $1.72 Effect of stock options (Note 6c) - 230,867 ------------- ----------------- --------------- Diluted net income per share $10,076 6,098,205 $1.65 ============= ================= ===============
1997 ----------------------------------------------------- Income Shares Per Share ------------- ----------------- --------------- Basic net income per share $6,953 5,703,601 $1.22 Effect of stock options (Note 6c) - 229,643 ------------- ----------------- --------------- Diluted net income per share $6,953 5,933,244 $1.17 ============= ================= =============== 1996 ----------------------------------------------------- Income Shares Per Share ------------- ----------------- --------------- Basic net income per share $2,302 4,547,527 $0.51 Effect of stock options and warrants (Notes 6b and 6c) - 377,937 ------------- ----------------- --------------- Diluted net income per share $2,302 4,925,464 $0.47 ============= ================= ===============
(i) Financial Instruments- The Company uses interest rate swaps to manage interest rate risk associated with its floating rate borrowings. The swap agreements are contracts to exchange floating rate for fixed rate interest payments periodically over the life of the agreements without the exchange of the underlying amounts. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense. (j) Revenue Recognition- The Company recognizes revenue on product and rental equipment sales on the date of shipment. Rental revenues are recognized ratably over the terms of the rental agreements. (k) Use of Estimates- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. Examples of accounts in which estimates are used include the reserve for excess and obsolete inventory, the allowance for doubtful accounts and sales returns and allowances, the accrual for self-insured employee medical claims, the self-insured product and general liability accrual, the self-insured workers' compensation accrual, accruals for litigation losses, the valuation allowance for deferred tax assets, actuarial assumptions used in determining pension benefits, and actuarial assumptions used in determining other post-retirement benefits. (l) Reclassifications- Certain reclassifications have been made to prior years' amounts to conform to their 1998 classification. 38 39 (4) Extraordinary Item During June 1996, the Company prepaid its $40,000 unsecured senior promissory notes. In conjunction therewith, the Company paid a prepayment premium of $2,400 and expensed unamortized financing costs and debt discount of $795 and $538, respectively. The Company recorded an extraordinary loss of $2,314, net of an income tax effect of $1,419. The Company funded this repayment with $22,358 in proceeds from its public stock offering (Note 6b) and $20,042 from its 1996 credit facility. (5) Credit Arrangements The Company has a Credit Agreement to provide for a term loan and revolving credit facility, each of which is secured by substantially all of the assets of the Company. The Company used the proceeds of the Credit Agreement to fund the acquisition of all outstanding shares of Symons and to repay all amounts outstanding on the existing term and revolving loans of both the Company and Symons. As a result, deferred financing costs of $255 related to the Company's term and revolving loans were expensed and reflected as interest expense in the accompanying 1997 statement of income. The $100,000 Term Loan requires quarterly interest payments, with principal amount due in 2005. The Term Loan permits the Company to choose from various interest rate options and has a weighted average interest rate of 8.15% at December 31, 1998. Amounts available under the Revolving Credit Facility are equal to the lesser of (i) $40,000 or (ii) the sum of (x) 85% of eligible accounts receivable, and (y) 60% of eligible inventories. The amount available under the Revolving Credit Facility was $40,000 at December 31, 1998. The Revolving Credit Facility will terminate in 2002, and has interest options based on (a) Bank One, Dayton, NA's prime rate (7.75% at December 31, 1998) plus an amount between 0% and 1% depending on the level of certain financial ratios (0.5% at December 31, 1998), or (b) LIBOR plus an amount between 0.75% and 2.00% depending on the level of certain financial ratios (1.50% at December 31, 1998). The weighted average interest rate at December 31, 1998 was 7.3%. A commitment fee of between 0.125% and 0.400% per annum will be payable on the average unused amount depending on the level of certain financial ratios (0.25% at December 31, 1998). Average borrowings under the Revolving Credit Facility and its predecessors were $19,679, $25,266, and $21,400, during 1998, 1997, and 1996, respectively, at an approximate weighted average interest rate of 7.7%, 7.6%, and 8.2%, respectively. The maximum borrowings outstanding during 1998, 1997, and 1996 were $26,620, $32,403, and $28,180, respectively. To manage its interest rate risk, the Company entered into two interest rate swap agreements on a total of $50,000 of long-term debt that fixed the LIBOR-based component of the interest rate formula. The swaps have a fixed ninety-day LIBOR component of 6.30% and 6.33%, and expire on November 1, 2000. The ninety-day LIBOR as of December 31, 1998 was 5.07%. All fluctuations in rate resulting from the swaps are accounted for as interest expense. These swaps are required by the Company's Credit Agreement and are contracts to exchange floating rate for fixed rate interest payments without the exchange of underlying amounts. 39 40 The Credit Agreement contains certain restrictive covenants, which require that, among other things, the Company maintain a minimum leverage ratio, a minimum fixed charge coverage ratio and limit its ability to pay dividends on Common Shares. The Company was in compliance with its loan covenants as of December 31, 1998. In conjunction with the acquisition of Symons, the Company issued a $5,000, seven-year unsecured note to one of the Former Stockholders. The note requires monthly interest payments, with principal due in September 2004. The note bears interest at a fixed rate of 10.5%. The Company has an Economic Development Loan from the city of Parsons, Kansas. The loan bears interest at 7.0% and is payable in quarterly installments of $8 through July 2005. The loan is secured by real estate in Parsons. Following is a summary of the Company's long-term debt as of December 31, 1998 and 1997:
1998 1997 -------- -------- Revolving lines of credit $ 13,000 $ 15,000 1997 Term Loan 100,000 100,000 Note payable to one of the Former Shareholders 5,000 5,000 City of Parsons, Kansas Economic Development Loan 205 236 -------- -------- Total long-term debt 118,205 120,236 Less current portion (32) (32) -------- -------- Long-term portion $118,173 $120,204 ======== ========
Scheduled maturities of long-term debt are $32, $32, $32, $13,032, $32 and $105,045 for 1999, 2000, 2001, 2002, 2003, and thereafter, respectively. The fair market value of the Company's fixed rate long-term debt is estimated using discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements. At December 31, 1998, the estimated fair value of the Note payable to Former Shareholder of Symons is $5,782. The estimated fair value of the City of Parsons, Kansas Economic Development Loan is $203. The estimated fair values of the Term Loan and Revolving Credit Facility approximate their face values, as these facilities have variable interest rates tied to market rates. The estimated fair value of the interest rate swap agreements is a liability of $1,242. (6) Common and Redeemable Preferred Shares (a) Stock Split- In June 1996, the Company authorized a 50-for-1 stock split for Class A and B Common Shares. All references in the financial statements to number of shares or share prices have been restated to reflect the split. (b) Public Offering of Company Shares- In June 1996, the Company completed an initial public offering of 1,974,750 shares of Class A Common Shares and received proceeds of $22,358, net of expenses. The proceeds from the offering were used to prepay long-term debt. 40 41 In July 1996, the underwriters of the Company's initial public offering of Class A Common Shares exercised a portion of their over-allotment option pursuant to which the Company issued 56,200 shares of Class A Common Shares and Ripplewood Holdings L.L.C. converted 56,200 shares of its Class B Common Shares into Class A Common Shares and sold those shares. The Company's proceeds of $683 from the issuance of those shares were used to reduce the outstanding balance of the existing revolving line of credit. If the offering, the amendment of the Company's credit facility and the prepayment of the long-term debt had occurred on January 1, 1996, income before extraordinary item for the year ended December 31, 1996, would have been $5,561 and income per share before extraordinary item would have been $0.94. (c) Stock Option Plans- The Company has five stock option plans, the 1994 Stock Option Plan ("the 1994 Plan"), the 1995 Stock Option Plan ("the 1995 Plan"), the 1996 Stock Option Plan ("the 1996 Plan"), the 1997 Stock Option and Restricted Stock Plan ("the 1997 Restricted Plan") and the 1997 Non-employee Director Stock Option Plan ("the 1997 Director Plan"). Under all Plans, the option exercise price equals the stock's market price on date of grant. The Company accounts for these plans under APB Opinion No. 25, under which no compensation costs have been recognized. Had compensation cost for these plans been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
1998 1997 1996 ---- ---- ---- Income before extraordinary item available to common shareholders: As Reported $10,076 $6,953 $4,616 Pro Forma 9,835 6,857 4,561 Basic income per share before extraordinary item: As Reported 1.72 1.22 1.02 Pro Forma 1.68 1.20 1.00 Diluted income per share before extraordinary item: As Reported 1.65 1.17 0.94 Pro Forma 1.62 1.16 0.92
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. As of December 31, 1998, the Company may grant options for up to 228,000 and 24,667 shares under the 1997 Restricted Plan and the 1997 Director Plan, respectively. No further options may be granted under the 1994, 1995 and 1996 Plans. The Company granted 83,833 options during 1998, of which, 9,333 vested immediately, and the other 74,500 vest ratably over three years. All options expire ten years after the date of grant. 41 42 A summary of the status of the Company's stock option plans at December 31, 1998, 1997, 1996 and 1995 and changes during the years then ended is presented in the table and narrative below:
Number of Weighted Average Exercise Shares Price Per Share ------------- -------------------------- Outstanding at December 31, 1995 272,750 $ 2.44 Granted at a fair value of $4.26 25,000 10.38 ------- ------ Outstanding at December 31, 1996 297,750 3.11 Granted at a weighted average fair value of $5.25 31,000 12.52 Exercised (40,000) 4.17 Canceled (12,500) 10.38 ------- ------ Outstanding at December 31, 1997 276,250 3.57 Granted at a weighted average fair value of $6.83 83,833 17.11 Exercised (2,050) 2.46 ------- ------ Outstanding at December 31, 1998 358,033 $ 6.75 ======= ======
Price ranges and other information for stock options outstanding at December 31, 1998 are as follows:
Outstanding Exercisable -------------------------------------- --------------------- Weighted Weighted Weighted Average Average Average Exercise Remaining Exercise Range of Exercise Prices Shares Price Life Shares Price ------------------------ ------ ---------- ----------- ------ ------- $ 1.96 - $ 4.00 243,200 $ 2.44 5.6 years 243,200 $ 2.44 $12.50 - $12.63 31,000 12.52 8.5 24,750 12.53 $16.81 - $19.91 83,833 17.11 9.2 9,333 19.46 ------- ------- --------- ------- ------- 358,033 $ 6.75 6.7 years 277,283 $ 3.92 ======= ======= ========= ======= =======
The fair value of each option grant is estimated on the date of grant using the Black Scholes options pricing model with the following weighted average assumptions used for grants in 1998, 1997, and 1996, respectively: risk-free interest rates of 5.67% to 5.70%, 6.17% to 6.56%, and 6.11%; expected dividend yield of 0%; expected lives of 6 years; and expected volatility of 27.87%, 28.50%, and 27.96%. (d) Treasury Shares- The Company has agreed to repurchase Class A Common Shares issued to the former shareholders of CAI. Under certain circumstances, the former shareholders may require the Company to purchase Class A Common Shares at the previous day's closing price per share. The aggregate value of the purchases is limited to $250 during each three-month period beginning December 1, 1998 and ending May 22, 1999. As of December 31, 1998, 7,298 Class A Common Shares had been repurchased for $145 under such agreement. (7) Retirement Plans (a) Company-Sponsored Pension Plans- The pension plans cover virtually all salaried and hourly employees not covered by multi-employer pension plans and provide benefits of 42 43 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. Postretirement Benefits- The Company provides postretirement health care benefits on a contributory basis and life insurance benefits for Symons salaried and hourly employees that retired prior to May 1, 1995.
PENSION PENSION OTHER OTHER BENEFITS BENEFITS BENEFITS BENEFITS 1998 1997 1998 1997 -------- -------- -------- -------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 29,169 $ 6,796 $ 681 $ - Service cost 619 794 - - Interest cost 1,630 845 71 - Acquisition - 21,194 - 694 Amendments (360) - 312 - Actuarial loss (gain) 135 (1) (128) - Benefits paid (712) (459) (61) (13) -------- -------- -------- ---------- Benefit obligation at end of year $ 30,481 $ 29,169 $ 875 $ 681 ======== ======== ======== ========== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 27,249 $ 6,219 $ - $ - Actual return on plan assets 2,402 1,085 - - Acquisition - 19,707 - - Employer contribution 216 697 61 13 Benefits paid (712) (459) (61) (13) -------- -------- -------- ---------- Fair value of plan assets at end of year $ 29,155 $ 27,249 $ - $ - ======== ======== ======== ========== FUNDED STATUS $ (1,326) $ (1,920) $(875) $(681) Unrecognized prior service cost (155) 202 288 - Unrecognized net gain (759) (150) (124) - -------- -------- -------- ---------- Net amount recognized $ (2,240) $ (1,868) $(711) $(681) ======== ======== ======== ========== AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF: Accrued benefit liability $ (2,440) $ (1,868) $(875) $(681) Intangible asset 185 - 163 - Accumulated other comprehensive income 15 - - - -------- -------- -------- ---------- Net amount recognized $ (2,240) $ (1,868) $(712) $(681) ======== ======== ======== ========== ASSUMPTIONS AS OF DECEMBER 31 Discount rate 6.75% 7% 6.75% 8.25% Expected return on plan assets 8% 8% N/A N/A Rate of compensation increase 4% 4% N/A N/A COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 619 $ 794 $ - $ - Interest cost 1,630 845 70 - Expected return on plan assets (1,655) (898) (4) - Amortization of prior service cost (3) 17 24 - Recognized actuarial gain (3) - - - -------- -------- -------- ---------- Net periodic cost $ 588 $ 758 $ 90 $ - ======== ======== ======== ==========
43 44 The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $2,893, $2,855, and $2,692, respectively, as of December 31, 1998 and $1,200, $1,200, and $1,060, respectively as of December 31, 1997. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one percentage point change in assumed health care cost trend rates would have the following effects:
1 Percentage 1 Percentage Point Increase Point Decrease -------------- -------------- Effect on total of service and interest cost components $ 3 $ (3) Effect on the postretirement benefit obligation 46 (43)
(b) Multi-Employer Pension Plan- Approximately 12% of the Company's employees are currently covered by collectively bargained, multi-employer pension plans. Contributions are determined in accordance with the provisions of negotiated union contracts and generally are based on the number of hours worked. The Company does not have the information available to determine its share of the accumulated plan benefits or net assets available for benefits under the multi-employer pension plans. The aggregate amount charged to expense under these plans was $287, $157, and $89, for the years ended December 31, 1998, 1997, and 1996, respectively. (c) 401(k) Savings Plan- Most employees are eligible to participate in Company sponsored 401(k) savings plans. Company matching contributions vary from 0% to 50% (on the first 2%) according to terms of the individual plans and collective bargaining agreements. The aggregate amount charged to expense under these plans was $531, $345, and $295, for the years ended December 31, 1998, 1997, and 1996, respectively. (d) Retirement Contribution Account- During 1998, the Company implemented a defined contribution plan for substantially all salaried employees. No contributions are permitted by the employees, and the Company contributes 1.5% to 6.0% of eligible compensation, depending on the age of the employee. The amount expensed for the year ended December 31, 1998 was $1,167. (8) Income Taxes The following is a summary of the components of the Company's income tax provision for the years ended December 31, 1998, 1997, and 1996:
1998 1997 1996 ------ ------ ------ Currently payable: Federal $5,312 $3,521 $2,201 State and local 1,398 704 420 Deferred 1,534 1,052 917 ------ ------ ------ Total provision $8,244 $5,277 $3,538 ====== ====== ======
44 45 The effective income tax rate differs from the statutory federal income tax rate for the years ended December 31, 1998, 1997, and 1996 for the following reasons:
1998 1997 1996 ---- ---- ---- Statutory income tax rate 35.0% 34.0% 34.0% State income taxes (net of federal tax benefit) 4.8 4.0 2.6 Nondeductible goodwill amortization and other permanent differences 5.2 5.1 7.0 Other, net - - (0.2) ---- ---- ---- Effective income tax rate 45.0% 43.1% 43.4% ==== ==== ====
The components of the Company's future income tax benefits and deferred tax liabilities as of December 31, 1998 and 1997 are as follows:
1998 1997 ------- ------- Current deferred taxes: Inventory reserves $ 50 $ (657) Accounts receivable reserves 1,712 1,623 Alternative minimum tax credit carryforwards - 549 Accrued liabilities 2,280 2,218 Other (521) (76) ------- ------- Total 3,521 3,657 ------- ------- Long-term deferred taxes: Accelerated depreciation (13,034) (10,922) Other long-term liabilities 2,428 2,855 Other (938) (12) ------- ------- Total (11,544) (8,079) ------- ------- Net deferred taxes $(8,023) $(4,422) ======= =======
(9) Segment Reporting The Company operates in four segments, each with a general manager: concrete accessories (Dayton/Richmond(R)), concrete forming systems (Symons(R)), paving products (American Highway Technology(R)) and masonry products (Dur-O-Wal(R)). The segments are differentiated by their products and services, all of which serve the construction industry. Sales between segments for the year ended December 31, 1998 are recorded at normal selling price by the selling division and at cost for the buying division, with the profit recorded as an intersegment elimination. For the years ended December 31, 1997 and 1996, intersegment sales were not significant. Segment assets include accounts receivable; inventories; property, plant, and equipment; rental equipment; and an allocation of goodwill. Corporate and unallocated assets include cash, prepaid income taxes, future tax benefits, and financing costs. Export sales and sales by non-U.S. affiliates are not significant. 45 46 Information about the profit (loss) of each segment and the reconciliations to the consolidated amounts for the years ended December 31, 1998, 1997, and 1996 is as follows:
1998 1997 1996 --------- --------- --------- Concrete Accessories $ 128,119 $ 92,251 $ 76,637 Concrete Forming Systems 99,471 21,066 - Paving Products 30,967 29,177 21,930 Masonry Products 24,292 24,918 25,919 --------- --------- --------- Net sales to external customers $ 282,849 $ 167,412 $ 124,486 ========= ========= ========= Concrete Accessories $ 3,348 $ - $ - Concrete Forming Systems $ 5,240 $ - $ - --------- --------- --------- Net sales to other segments $ 8,588 $ - $ - ========= ========= ========= Concrete Accessories $ 4,053 $ 2,744 $ 3,735 Concrete Forming Systems 6,543 1,903 - Paving Products 567 466 415 Masonry Products 540 443 679 --------- --------- --------- Interest expense $ 11,703 $ 5,556 $ 4,829 ========= ========= ========= Concrete Accessories $ 19,387 $ 13,723 $ 9,477 Concrete Forming Systems 6,133 364 - Paving Products 1,677 1,377 906 Masonry Products 487 5 601 Intersegment Eliminations (4,153) - - Corporate (5,211) (3,239) (2,830) --------- --------- --------- Income before income taxes $ 18,320 $ 12,230 $ 8,154 ========= ========= ========= Concrete Accessories $ 3,383 $ 2,618 $ 2,892 Concrete Forming Systems 4,992 891 - Paving Products 379 311 142 Masonry Products 1,279 1,264 1,216 Corporate 43 47 54 --------- --------- --------- Depreciation $ 10,076 $ 5,131 $ 4,304 ========= ========= ========= Concrete Accessories $ 1,265 $ 1,225 $ 1,188 Concrete Forming Systems 341 24 - Paving Products 177 206 131 Masonry Products 430 430 430 --------- --------- --------- Amortization of goodwill and intangibles $ 2,213 $ 1,885 $ 1,749 ========= ========= =========
46 47 Information regarding each segment's assets and the reconciliation to the consolidated amounts as of December 31, 1998 and 1997 is as follows:
1998 1997 --------- --------- Concrete Accessories $ 93,898 $ 91,952 Concrete Forming Systems 116,064 90,796 Paving Products 9,445 9,134 Masonry Products 26,115 25,316 Corporate and Unallocated 8,098 9,732 --------- --------- Total Assets $ 253,620 $ 226,930 ========= =========
Information regarding capital expenditures by segment and the reconciliation to the consolidated amounts for the years ended December 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996 ------- ------ ------ Concrete Accessories $ 3,348 $2,449 $2,335 Concrete Forming Systems 2,044 1,231 - Paving Products 1,200 401 379 Masonry Products 439 320 480 Corporate 184 9 4 ------- ------ ------ Property, Plant, and Equipment Additions $ 7,215 $4,410 $3,198 ======= ====== ====== Concrete Accessories $ 2,860 $1,966 $1,632 Concrete Forming Systems $15,221 $2,909 $ - ------- ------ ------ Rental Equipment Additions $18,081 $4,875 $1,632 ======= ====== ======
(10) Commitments and Contingencies (a) Operating Leases- Rental expense for property, plant and equipment (principally office and warehouse facilities and office equipment) was $4,233, $2,758, and $1,899, for the years ended December 31, 1998, 1997 and 1996, respectively. Terms generally range from one to ten years and some contain renewal options. The approximate aggregate minimum annual rental commitments under non-cancelable operating leases are $4,117, $3,321, $1,951, $1,637, $910, and $1,547 for 1999, 2000, 2001, 2002, 2003, and thereafter, respectively. (b) Litigation- Symons is currently a defendant involved in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of their business. EFCO Corp. alleged that Symons engaged in false advertising, misappropriation of trade secrets, intentional interference with contractual relations, and certain other activities. After a jury trial, preliminary damages of approximately $14,000 were awarded against Symons in January 1999. The Company believes that there is no merit to these allegations, remains committed to vigorously pursuing post-trial motions and appeals, and is seeking to vacate the judgments in their entirety. The Company believes that, in the event the judgments against it are not completely set aside, it has numerous substantial grounds for a successful appeal and intends to vigorously pursue its appellate rights. A successful appeal could result in judgment for Symons or a new trial. Symons' liability, 47 48 if any, cannot finally be determined until such time as all rights of the parties have been exhausted or have expired by lapse of time. The Company considers the ultimate outcome of this litigation to be not estimable. Accordingly, the Company has not recorded any liability for the resolution of this suit. In the event the Company is unsuccessful in its post-trial motions and appeals, it may have a material adverse effect on its consolidated financial position, results of operations, or cash flows. Additionally, the Company is a defendant in other various legal proceedings arising out of the conduct of its business. While the ultimate outcome of these lawsuits cannot be determined at this time, management is of the opinion that any liability, notwithstanding recoveries from insurance, would not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows. (c) Self-Insurance- The Company is self-insured for certain of its group medical, workers' compensation and product and general liability claims. The Company has stop loss insurance coverage at various per occurrence and per annum levels depending on type of claim. The Company consults with third party administrators to estimate the reserves required for these claims. No material revisions were made to the estimates for the years ended December 31, 1998, 1997 and 1996. The Company has reserved $4,737 and $4,578 as of December 31, 1998 and 1997, respectively. (11) Related Party Transactions During 1997, the Company paid Ripplewood a fee of $400 for financial advisory services in connection with the acquisition of Symons Corporation and related financing transactions. During 1996, the Company paid Ripplewood a management fee of $125. This fee was not charged after the initial public offering. The Company paid Ripplewood a fee of $600 at the time the initial public offering was completed for additional services provided in connection with the offering and related transactions. In addition, prior to 1997, the Company reimbursed Ripplewood for the allocable costs of certain insurance policies purchased by Ripplewood which covered both the Company and Ripplewood. (12) Subsequent Event (Unaudited) On February 17, 1999, Ripplewood informed the Company that it was converting all 757,569 Class B Common Shares held by it into an equal number of Class A Common Shares and sold those Class A Common Shares. As a result of the conversion, no Class B Common Shares remain outstanding. 48 49 (13) Quarterly Financial Information (Unaudited) 1998 --------------------------------------------------------------- First Second Third Fourth Full Quarterly Operating Data Quarter Quarter Quarter Quarter Year ------------------------ ------- ------- ------- ------- ---- Net sales $ 59,227 $76,754 $82,809 $64,059 $282,849 Gross profit 20,254 28,441 34,174 25,557 108,426 Net income (loss) (1,009) 3,731 6,226 1,128 10,076 Basic net income (loss) per share(a) $ (0.18) $ 0.64 $ 1.05 $ 0.19 $ 1.72 Diluted net income (loss) per share(a) $ (0.18) $ 0.61 $ 1.01 $ 0.18 $ 1.65 Stock Price: High $20.375 $22.125 $21.375 $20.875 $ 22.125 Low $15.875 $16.500 $16.625 $14.375 $ 14.375
1997 --------------------------------------------------------------- First Second Third Fourth Full Quarterly Operating Data Quarter Quarter Quarter Quarter Year ------------------------ ------- ------- ------- ------- ---- Net sales $25,980 $39,839 $42,592 $59,001 $167,412 Gross profit 7,708 12,933 14,381 21,862 56,884 Net income 160 2,951 3,393 449 6,953 Basic net income per share(a) $ 0.03 $ 0.52 $ 0.60 $ 0.08 $ 1.22 Diluted net income per share(a) $0.03 $ 0.51 $ 0.58 $ 0.08 $ 1.17 Stock Price: High $13.500 $13.250 $19.438 $19.000 $ 19.438 Low $11.250 $ 9.750 $12.500 $14.813 $ 9.750
(a) The total of the quarterly income (loss) per share before extraordinary item does not equal the annual income per share before extraordinary item due to the timing of the issuance of the Company's Common Shares and the omission of common share equivalents in quarters with net losses for 1998 and due to rounding and to fluctuations in the Company's stock price for 1997. 49 50 Dayton Superior Corporation and Subsidiaries Schedule II - Valuation and Qualifying Accounts Years Ended December 31, 1998, 1997 and 1996 (Amounts in thousands)
Additions Deductions ------------------------- -------------------- Charges for Charged Which Balance at (Credited) Reserves Balance Beginning to Costs and Other Were at End of Year Expenses Additions Created Other of Year ---------- ------------ --------- ---------- ------ -------- Allowances for Doubtful Accounts and Sales Returns and Allowances For the year ended December 31, 1998 $5,015 3,086 - (2,422) (1,247)(2) $4,432 For the year ended December 31, 1997 $ 449 27 4,788(1) (249) - $5,015 For the year ended December 31, 1996 $ 708 (191) - (68) - $ 449
(1) Acquisition of Symons Corporation (2) Reduction of amount from acquisition of Symons Corporation 50 51 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item 10 is incorporated herein by reference to the information under the headings "Nominees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 12, 1999, except for certain information concerning the executive officers of the Company, which is set forth at the end of Part I of this Annual Report. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item 11 is incorporated by reference to the information under the headings "Compensation Committee Interlocks and Insider Participation in Compensation Decisions," "Executive Compensation," "Report of Compensation and Benefits Committee on Executive Compensation" and "Performance Graph" in the Company's Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 12, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item 12 is incorporated herein by reference to the information under the heading "Ownership of Common Shares" in the Company's Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 12, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Not applicable. 51 52 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS The following consolidated financial statements of the Company and subsidiaries are incorporated by reference as part of this Report under Item 8. Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1998 and 1997. Consolidated Statements of Income for the years ended December 31, 1998, 1997, and 1996. Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997, and 1996. Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996. Consolidated Statements of Comprehensive Income for the years ended December 31, 1998, 1997, and 1996. Notes to Consolidated Financial Statements. (a)(2) FINANCIAL STATEMENT SCHEDULE Schedule II - Valuation and Qualifying Accounts (at Item 8 of this Report) All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (a)(3) EXHIBITS. See Index to Exhibits following the signature pages to this Report for a list of exhibits. (b) Reports on Form 8-K. During the quarter ended December 31, 1998, the Company filed the following Current Reports on Form 8-K: CURRENT REPORT ON FORM 8-K. dated December 31, 1998 reporting under Item 5 (Other Events) a jury verdict rendered against Symons Corporation. 52 53 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Dayton Superior Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DAYTON SUPERIOR CORPORATION March 30, 1999 By /s/ John A. Ciccarelli ---------------------- John A. Ciccarelli President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Dayton Superior Corporation and in the capacities and on the dates indicated.
NAME TITLE DATE /s/ John A. Ciccarelli Director, President and Chief Executive March 30, 1999 - ---------------------------- Officer John A. Ciccarelli /s/ Alan F. McIlroy Vice President and Chief Financial Officer March 30, 1999 - ---------------------------- (Principal Financial Officer) Alan F. McIlroy /s/ Thomas W. Roehrig Corporate Controller March 30, 1999 - ---------------------------- (Principal Accounting Officer) Thomas W. Roehrig /s/ Matthew O. Diggs, Jr. Non-Executive Chairman of the Board March 30, 1999 - ---------------------------- Matthew O. Diggs, Jr. /s/ William F. Andrews Director March 30, 1999 - ---------------------------- William F. Andrews /s/ Timothy C. Collins Director March 29, 1999 - ---------------------------- Timothy C. Collins /s/ Matthew M. Guerreiro Director March 23, 1999 - ---------------------------- Matthew M. Guerreiro /s/ Robert B. Holmes Director March 30, 1999 - ---------------------------- Robert B. Holmes
53 54 INDEX OF EXHIBITS ----------------- Exhibit No. Description (3) ARTICLES OF INCORPORATION AND BY-LAWS 3.1 Amended Articles of Incorporation of the Company [Incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (Reg. No. 333-2974).] + 3.2 Code of Regulations of the Company (as amended) [Incorporated herein by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 (Reg. No. 333-2974).] + (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES 4.1 Senior Unsubordinated Redeemable Note of the Company in the principal amount of $5,000,000. [Incorporated herein by reference to Exhibit A to the Agreement set forth as Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 2, 1997.] + 4.2 Credit Agreement dated as of September 29, 1997 among the Company and the other parties thereto. [Incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated October 13, 1997.] + 4.2.1 First Amendment to Credit Agreement dated as of October 23, 1997 ** 4.2.2 Third (sic) Amendment to Credit Agreement dated as of June 26, 1998 [Incorporated herein by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended July 3, 1998]. + (10) MATERIAL CONTRACTS 10.1 1994 Stock Option Plan [Incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 (Reg. No. 333-2974).] +* 10.1.1 First Amendment to 1994 Stock Option Plan [Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended September 26, 1997.] +* 10.2 1995 Stock Option Plan [Incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 (Reg. No. 333-2974).] +* 54 55 10.2.1 First Amendment to 1995 Stock Option Plan [Incorporated herein reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the Quarter ended September 26, 1997.] +* 10.3 1996 Stock Option Plan [Incorporated herein by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1 (Reg. No. 333-2974).] +* 10.4 1997 Stock Option and Restricted Stock Plan [Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 27, 1997.] +* 10.5 1997 Nonemployee Director Stock Option Plan [Incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 27, 1997.] +* 10.6 Nonemployee Directors Compensation Program [Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended July 3, 1998.] +* 10.7 Management Incentive Plan * 10.8 Agreement dated as of May 9, 1997 by and among Symons Corporation, the stockholders of Symons Corporation and the Company. [Incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 2, 1997.] + (21) SUBSIDIARIES OF THE REGISTRANT 21.1 Subsidiaries of the Company ** (23) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ** (99) FINANCIAL DATA SCHEDULE 99.1 Financial Data Schedule ** - ---------------------------- * Compensatory plan, contract or arrangement in which one or more directors or named executive officers participates. ** Filed herewith + Previously filed 55 EX-4.2.1 2 EXHIBIT 4.2.1 1 Exhibit 4.2.1 FIRST AMENDMENT TO THE CREDIT AGREEMENT This FIRST AMENDMENT, dated as of October 23, 1997 (this "AMENDATORY AGREEMENT"), to the Existing Credit Agreement (as defined below), is made among DAYTON SUPERIOR CORPORATION, an Ohio corporation (the "BORROWER"), the various financial institutions signatories hereto (the "LENDERS"), DLJ CAPITAL FUNDING, INC., as syndication agent (the "SYNDICATION AGENT") for the Lenders, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as documentation agent (the "DOCUMENTATION AGENT") for the Lenders, BANKERS TRUST COMPANY, as administrative agent (the "ADMINISTRATIVE AGENT") for the Lenders and BANK ONE, N.A., as facility agent (the "FACILITY AGENT") for the Lenders. WITNESSETH: ----------- WHEREAS, the Borrower, the Lenders, and the Agents are parties to a Credit Agreement, dated as of September 29, 1997 (the "EXISTING CREDIT AGREEMENT") WHEREAS, the Borrower has requested that the Lenders amend the Existing Credit Agreement in certain respects; and WHEREAS, the Lenders have agreed, subject to the terms and conditions hereinafter set forth, to amend the Existing Credit Agreement in certain respects as provided below (the Existing Credit Agreement, as so amended by this Amendatory Agreement, being referred to as the "CREDIT AGREEMENT") NOW, THEREFORE, in consideration of the agreements herein contained, the parties hereto agree as follows: PART I DEFINITIONS SUBPART 1.1. CERTAIN DEFINITIONS. The following terms (whether or not underscored) when used in this Amendatory Agreement shall have the following meanings (such meanings to be equally applicable to the singular and plural form thereof): "ADMINISTRATIVE AGENT" is defined in the PREAMBLE. "AMENDATORY AGREEMENT" is defined in the PREAMBLE. 2 AMENDMENT NO. 1 " is defined in SUBPART 3.1. "BORROWER" is defined in the PREAMBLE. "CREDIT AGREEMENT" is defined in the THIRD RECITAL. "DOCUMENTATION AGENT" is defined in the PREAMBLE. "EXISTING CREDIT AGREEMENT" is defined in the FIRST RECITAL. "FACILITY AGENT" is defined in the PREAMBLE. "FIRST AMENDMENT EFFECTIVE DATE" is defined in SUBPART 3.1. "LENDERS" is defined in the PREAMBLE. "SYNDICATION AGENT" is defined in the PREAMBLE. SUBPART 1.2. OTHER DEFINITIONS. Terms for which meanings are provided in the Existing Credit Agreement are, unless otherwise defined herein or the context otherwise requires, used in this Amendatory Agreement with such meanings. PART II AMENDMENTS TO THE EXISTING CREDIT AGREEMENT Effective on (and subject to the occurrence of) the First Amendment Effective Date, the Existing Credit Agreement is hereby amended in accordance with this Part II. Except as so amended, the Existing Credit Agreement shall continue in full force and effect in accordance with its terms. SUBPART 2.1. AMENDMENTS TO SECTION 1.1. Section 1.1 of the Existing Credit Agreement is hereby amended by inserting the following definitions in such Section in the appropriate alphabetical sequence: "AMENDMENT NO. 1" means the First Amendment to the Credit Agreement, dated as of October 23, 1997, among the Borrower, the Lenders signatory thereto, and the Agents. "APPROVED FUND" means, with respect to any Lender that is a fund that invests in commercial loans, any other fund that invests in commercial loans and is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. -2- 3 "FIRST AMENDMENT EFFECTIVE DATE" is defined in Subpart 3.1 of Amendment No. 1. "NON-U.S. LENDER" means any Lender (including each Assignee Lender) that is not (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or any state thereof, or (iii) an estate or trust that is subject to U.S. Federal income taxation regardless of the source of its income. "REGISTER" is defined in CLAUSE (b) of SECTION 2.8. "REGISTERED NOTE" means a promissory note of the Borrower payable to any Registered Noteholder, in the form of EXHIBIT B-1 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Revolving Loans or Term Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "REGISTERED NOTEHOLDER" means any Lender that has been issued a Registered Note. SUBPART 2.2. The Existing Credit Agreement is hereby amended by adding a new Section 2.8 thereof to read as follows: SECTION 2.8 REGISTERED NOTES. (a) Any Lender may request the Borrower (through the Facility Agent), and the Borrower agrees (i) to exchange for any Notes held by such Lender, or (ii) to issue to such Lender on the date it becomes a Lender, promissory notes(s) registered as provided in CLAUSE (b) of this SECTION 2.8 (each, a "REGISTERED NOTE", to be in substantially the form of EXHIBIT B-1 hereto). Registered Notes may not be exchanged for Notes that are not Registered Notes. (b) The Borrower shall maintain, or cause to be maintained, a register (the "REGISTER") (which, at the request of the Borrower, shall be kept by the Facility Agent on behalf of the Borrower at no extra charge to the Borrower at the address to which notices to the Facility Agent are to be sent under this Agreement) on which it enters the name of the registered owner of the Lender's Obligation(s) evidenced by a Registered Note and the amount of such Obligations(s). (c) The Register shall be available for inspection by the Borrower and any Lender at any reasonable time upon reasonable prior notice. -3- 4 SUBPART 2.3. Section 4.6 of the Existing Credit Agreement is hereby amended by adding a new clause (c) thereof to read as follows: (c) Each Non-U.S. Lender shall, (i) on or prior to the date it becomes a Lender, execute and deliver to the Borrower and the Facility Agent, two or more (as the Borrower or the Agents may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or, solely if such Lender is claiming exemption from United States withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", United States Internal Revenue Service Forms W-8 and a certificate signed by a duly authorized officer of such Lender representing that such Lender is not a "bank" within the meaning of Section 881 (c)(3)(A) of the Code, or such other forms or documents (or successor forms or documents), appropriately completed, establishing that payments to such Lender are exempt from withholding or deduction of Taxes; and (ii) deliver to the Borrower and the Facility Agent two further copies of any such form or documents on or before the date that any such form or document expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent such form or document previously delivered by it to the Borrower. SUBPART 2.4. Clause (b) of Section 10.11.1 of the Existing Credit Agreement is hereby amended to read as follows: (b) with notice to the Borrower, the Facility Agent and (in the case of any assignment of participations in Letters of Credit or Revolving Loan Commitments) the Issuer, but without the consent of the Borrower, the Facility Agent or the Issuer, may assign and delegate to any of its Affiliates, to any other Lender or to an Approved Fund of any Lender SUBPART 2.5. The Existing Credit Agreement is hereby amended by adding a new Section 10.11.3 thereof to read as follows: SECTION 10.11.3. ASSIGNMENT OF REGISTERED NOTES. A Registered Note and the Obligations evidenced thereby may be assigned or otherwise transferred in whole or in part pursuant to the terms of SECTION 10.11.1 and only by registration of such assignment or transfer of such Registered Note and the Obligations evidenced thereby on the Register (and each Registered Note shall expressly so provide). Any assignment or transfer of all or part of such Obligations and the Registered Note(s) evidencing the same shall be registered on the Register only upon surrender for registration of assignment or transfer of the Registered Note(s) evidencing such Obligations, duly endorsed by (or accompanied by a written instrument of assignment or transfer duly executed by) the Registered Noteholder thereof, and thereupon one or more new Registered Note(s) in the same aggregate principal amount shall be issued to the designated Assignee Lender, and the old Registered Note(s) shall be returned by the Facility Agent to the Borrower marked "canceled." Prior to the due presentment for registration of assignment or transfer of any Registered Note, the Borrower and the Agents shall treat the Person in whose name such Obligations and the Registered Note(s) evidencing the same is -4- 5 registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding any notice to the contrary. SUBPART 2.6. The existing Credit Agreement is hereby amended by adding a new Exhibit B-1 thereto (Form of Registered Note) as set forth on Annex I attached hereto. PART III CONDITIONS TO EFFECTIVENESS SUBPART 3.1. FIRST AMENDMENT EFFECTIVE DATE. This Amendatory Agreement (and the amendments and modifications contained herein) shall become effective, and shall thereafter be referred to as "Amendment No. 1", on the date (the "FIRST AMENDMENT EFFECTIVE DATE") when all of the conditions set forth in this SUBPART 3.1 have been satisfied. SUBPART 3.1.1. EXECUTION OF COUNTERPARTS. The Syndication Agent shall have received counterparts of this Amendatory Agreement, duly executed and delivered on behalf of the Borrower and each of the Required Lenders. SUBPART 3.1.2. LEGAL DETAILS, ETC. All documents executed or submitted pursuant hereto shall be satisfactory in form and substance to the Agents and their counsel. The Agents and their counsel shall have received all information and such counterpart originals or such certified or other copies or such materials, as the Agents or their counsel may reasonably request, and all legal matters incident to the transactions contemplated by this Amendatory Agreement shall be satisfactory to the Agents and their counsel. PART IV MISCELLANEOUS SUBPART 4.1. CROSS-REFERENCES. References in this Amendatory Agreement to any Part or Subpart are, unless otherwise specified or otherwise required by the context, to such Part or Subpart of this Amendatory Agreement. SUBPART 4.2. LOAN DOCUMENT PURSUANT TO EXISTING CREDIT AGREEMENT. This Amendatory Agreement is a Loan Document executed pursuant to the Existing Credit Agreement and shall be construed, administered and applied in accordance with all of the terms and provisions of the Existing Credit Agreement. SUBPART 4.3. COMPLIANCE WITH WARRANTIES. NO DEFAULT. ETC. The Borrower represents and warrants on the First Amendment Effective Date for its Subsidiaries and itself, both before and after giving effect to this Amendatory Agreement, as follows: -5- 6 (a) the representations and warranties set forth in Article VI of the Credit Agreement (excluding those contained in Section 6.7 thereof) and in each other Loan Document are, in each case, true and correct in all material respects (unless stated to relate solely to an earlier date, in which case such representations and warranties were true and correct in all material respects as of such earlier date); (b) no adverse development has occurred in any litigation, action, proceeding, labor controversy, arbitration or governmental investigation disclosed pursuant to Section 6.7 of the Credit Agreement which could reasonably be expected to have a Material Adverse Effect; (c) the sum of (A) the aggregate outstanding principal amount of all Revolving Loans and (B) the aggregate amount of all Letter of Credit Outstandings does not exceed the lesser of(c) the Revolving Loan Commitment Amount and (y) the Borrowing Base Amount; and (d) no Default has occurred and is continuing, and neither the Borrower, any other Obligor, nor any of its Subsidiaries are in material violation of any law or governmental regulation or court order or decree. SUBPART 4.4. SUCCESSORS AND ASSIGNS. This Amendatory Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. SUBPART 4.5. COUNTERPARTS. This Amendatory Agreement may be executed by the parties hereto in several counterparts, each of which when executed and delivered shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SUBPART 4.6. GOVERNING LAW. THIS AMENDATORY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. -6- 7 IN WITNESS WHEREOF, the parties hereto have caused this Amendatory Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. DAYTON SUPERIOR CORPORATION BANK ONE, N.A., as Facility Agent, the Issuer and a Lender DUJ CAPITAL FUNDING, INC., as Syndication Agent and a Lender BANKERS TRUST COMPANY, as Administrative Agent and a Lender BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Documentation Agent and a Lender 8 NATIONAL CITY BANK OF DAYTON, as a Lender 9 ANNEX I EXHIBIT B-1 REGISTERED NOTE THIS REGISTERED NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT REFERRED TO BELOW. TRANSFERS OF THIS REGISTERED NOTE MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE FACILITY AGENT PURSUANT TO THE TERMS OF SUCH CREDIT AGREEMENT. $___________________ ______________ ___, ____ FOR VALUE RECEIVED, the undersigned, DAYTON SUPERIOR CORPORATION, an Ohio corporation (the "BORROWER") , promises to pay to the order of __________________ (the "LENDER") the principal sum of _________________ DOLLARS ($ ________) or, if less, the aggregate unpaid principal amount of all the [Term and Revolving] Loans shown on the schedule attached hereto (and any continuation thereof) made by the Lender pursuant to that certain Credit Agreement, dated as of September 29, 1997 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT") , among the Borrower, the various financial institutions as are or may become parties thereto, DLJ Capital Funding, Inc., as the Syndication Agent, Bankers Trust Company, as the Administrative Agent, Bank of America National Trust and Savings Association, as the Documentation Agent and Bank One, N.A., as the Facility Agent for the Lenders, payable as set forth in the Credit Agreement and on the Stated Maturity Date for all [Term and Revolving] Loans. Unless otherwise defined, terms used herein have the meanings provided in the Credit Agreement. The Borrower also promises to pay interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and, after maturity, until paid, at the rates per annum and on the dates specified in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America in same day or immediately available funds to the account designated by the Facility Agent pursuant to the Credit Agreement. This Registered Note is one of the Notes referred to in, and evidences Indebtedness incurred under, the Credit Agreement, to which reference is made for a description of the security for this Registered Note and for a statement of the terms and 10 conditions on which the Borrower is permitted and required to make prepayments and repayments of principal of the Indebtedness evidenced by this Registered Note and on which such Indebtedness may be declared to be immediately due and payable. As provided in Section 10.11.3 of the Credit Agreement, this Registered Note and the Obligation(s) evidenced hereby may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer of this Registered Note and the Obligation(s) evidenced hereby on the Register described in clause (b) of Section 2.8 of the Credit Agreement. Any assignment or transfer of all or part of such Obligations(s) and this Registered Note evidencing the same shall be registered on the Register only upon surrender for registration of assignment or transfer of this Registered Note evidencing such Obligations(s), duly endorsed by (or accompanied by a written instrument of assignment or transfer duly executed by) the Registered Noteholder hereof, and thereupon one or more new Registered Note(s) in the same aggregate principal amount shall be issued to the designated Assignee Lender, and this Registered Note shall be returned by the Facility Agent to the Borrower marked "canceled". Prior to the due presentment for registration of assignment or transfer of this Registered Note, the Borrower and the Facility Agent shall treat the Person in whose name such Obligation(s) and this Registered Note(s) evidencing the same is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding any notice to the contrary. This Registered Note may not be exchanged for promissory notes that are not Registered Notes. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. 2 11 THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. DAYTON SUPERIOR CORPORATION By___________________________ Title: 3 EX-10.7 3 EXHIBIT 10.7 1 EXHIBIT 10.7 DAYTON SUPERIOR CORPORATION MANAGER INCENTIVE PLAN ---------------------- PURPOSE: To provide an annual incentive bonus opportunity - ------- for selected managers. PARTICIPANTS: Managers of Dayton Superior Corporation and its - ------------ subsidiaries (collectively, the "COMPANY") selected by the President with the approval of the Compensation and Benefits Committee of the Board of Directors ("COMPENSATION COMMITTEE"). DETERMINATION OF BONUS OPPORTUNITY: Targeted incentive bonus opportunity will be a - ----------------- percentage of base salary (varying by position and reflecting the level of responsibility and industry compensation levels), as recommended by the President and approved by the Compensation Committee. The targeted percentage of base salary will be the midpoint between no bonus and the maximum bonus payable under the Plan. PERFORMANCE MEASURE COMPONENTS: A bonus is earned by a participating manager based - ---------- on performance in one, two or three (depending on the manager's position) of the following areas: (i) corporate performance, (ii) divisional performance, and (iii) individual performance. The percentage of each manager's bonus, if any, which is based on a particular component varies based on the manager's position. The measures of performance for each of the components are as follows: (i) corporate performance is measured by the Company's consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") (with 70% of budgeted EBITDA being minimum performance, 100% of budgeted EBITDA being targeted performance and 120% of budgeted EBITDA being maximum performance); (ii) divisional performance is measured by divisional EBITDA, improvement in controlling divisional working capital and success in achieving other approved divisional financial goals; and (iii) individual performance is measured by the manager's achievement of individual goals approved by the President. PAYMENT: Incentive bonuses generally will be paid by March - ------- 15 of the year following the year with respect to which they are earned. Unless otherwise approved, a bonus will be paid only if the manager remains employed by the Company through the date the bonuses are paid. EFFECTIVE DATE: 1998 - -------------- 2 EXHIBIT 10.7 DAYTON SUPERIOR CORPORATION MANAGER INCENTIVE PLAN ---------------------- PURPOSE: To provide an annual incentive bonus opportunity - ------- for selected managers. PARTICIPANTS: Managers of Dayton Superior Corporation and its - ------------ subsidiaries (collectively, the "COMPANY") selected by the President with the approval of the Compensation and Benefits Committee of the Board of Directors ("COMPENSATION COMMITTEE"). DETERMINATION OF BONUS OPPORTUNITY: Targeted incentive bonus opportunity will be a - ----------------- percentage of base salary (varying by position and reflecting the level of responsibility and industry compensation levels), as recommended by the President and approved by the Compensation Committee. The targeted percentage of base salary will be the midpoint between no bonus and the maximum bonus payable under the Plan. PERFORMANCE MEASURE COMPONENTS: A bonus is earned by a participating manager based - ---------- on performance in one, two or three (depending on the manager's position) of the following areas: (i) corporate performance, (ii) divisional performance, and (iii) individual performance. The percentage of each manager's bonus, if any, which is based on a particular component varies based on the manager's position. The measures of performance for each of the components are as follows: (i) corporate performance is measured by the Company's consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") (with 70% of budgeted EBITDA being minimum performance, 100% of budgeted EBITDA being targeted performance and 120% of budgeted EBITDA being maximum performance); (ii) divisional performance is measured by divisional EBITDA, improvement in controlling divisional working capital and success in achieving other approved divisional financial goals; and (iii) individual performance is measured by the manager's achievement of individual goals approved by the President. PAYMENT: Incentive bonuses generally will be paid by March - ------- 15 of the year following the year with respect to which they are earned. Unless otherwise approved, a bonus will be paid only if the manager remains employed by the Company through the date the bonuses are paid. EFFECTIVE DATE: 1998 - -------------- EX-21.1 4 EXHIBIT 21.1 1 Exhibit 21.1 Subsidiaries of Dayton Superior Corporation ------------------------------------------- Name Jurisdiction of Incorporation ---- ----------------------------- Concrete Accessories, Inc. North Carolina Dayton Superior Canada Ltd. Ontario Dur-O-Wal, Inc. Delaware Symons Corporation Delaware All subsidiaries are wholly-owned, directly or indirectly, by Dayton Superior Corporation. 56 EX-23 5 EXHIBIT 23 1 Exhibit 23 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our report, included in this Form 10-K, into the Company's previously filed Registration Statement File No. 333-25155, File No. 333-28057, File No. 333-28059 and File No. 333-28061. ARTHUR ANDERSEN LLP Dayton, Ohio March 31, 1999 57 EX-27 6 EXHIBIT 27
5 0000854709 DAYTON SUPERIOR CORPORATION 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 560 0 42,996 4,432 36,058 88,359 63,850 22,069 253,620 43,632 118,173 0 0 47,353 27,235 253,620 282,849 282,849 174,423 174,423 78,403 3,086 11,703 18,320 8,244 10,076 0 0 0 10,076 1.72 1.65
-----END PRIVACY-ENHANCED MESSAGE-----