-----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, Kmno2Rlyq8Ptbye2rP/RBlpvkqbiNIVy3U7S7Ggs3gZhLHBImR3OwKtN+N9R4DIc NNu1rzEDOa4qOk2dYxnZog== 0000950152-99-008968.txt : 19991115 0000950152-99-008968.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950152-99-008968 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991001 FILED AS OF DATE: 19991112 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-Q SEC ACT: SEC FILE NUMBER: 001-11781 FILM NUMBER: 99749472 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-Q 1 DAYTON SUPERIOR CORPORATION 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED COMMISSION FILE NUMBER OCTOBER 1, 1999 1-11781 DAYTON SUPERIOR CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) OHIO 31-0676346 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) Washington Village Dr., Suite 130 Dayton, Ohio 45459 - --------------------------------- ---------------------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: 937-428-6360 -------------- NOT APPLICABLE - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed from last report) Indicate by mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- 5,943,183 Class A Common Shares were outstanding as of November 10, 1999 2 PART I. - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Dayton Superior Corporation and Subsidiaries Consolidated Balance Sheets As of October 1, 1999 and December 31, 1998 (Amounts in thousands) (Unaudited)
October 1, December 31, 1999 1998 ------------ ------------ ASSETS Current assets Cash $ 3,584 $ 560 Accounts receivable, net of allowances for doubtful accounts and sales returns and allowances of $5,768 and $4,432 59,069 42,996 Inventories (Note 3) 36,386 36,058 Prepaid expenses and other current assets 3,574 4,396 Prepaid income taxes - 828 Future income tax benefits 3,467 3,521 --------- --------- Total current assets 106,080 88,359 --------- --------- Rental equipment, net (Note 3) 59,025 52,586 --------- --------- Property, plant and equipment 70,200 63,850 Less accumulated depreciation (28,100) (22,069) --------- --------- Net property, plant and equipment 42,100 41,781 --------- --------- Goodwill and intangible assets, net of accumulated amortization 70,909 70,130 Other assets 370 764 --------- --------- Total assets $ 278,484 $ 253,620 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt (Note 4) $ 32 $ 32 Accounts payable 25,346 20,749 Accrued compensation and benefits 10,869 12,443 Accrued income taxes 3,304 - Other accrued liabilities 6,761 10,408 --------- --------- Total current liabilities 46,312 43,632 Long-term debt (Note 4) 128,779 118,173 Deferred income taxes 11,152 11,544 Other long-term liabilities 5,435 5,683 --------- --------- Total liabilities 191,678 179,032 --------- --------- Shareholders' equity Class A common shares 47,417 42,316 Class B common shares - 5,037 Class A treasury shares (387) (145) Cumulative other comprehensive income (302) (281) Retained earnings 40,078 27,661 --------- --------- Total shareholders' equity 86,806 74,588 --------- --------- Total liabilities and shareholders' equity $ 278,484 $ 253,620 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 2 3 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Income For The Three and Nine Fiscal Months Ended October 1, 1999 and October 2, 1998 (Amounts in thousands, except share and per share amounts) (Unaudited)
Three Fiscal Months Ended Nine Fiscal Months Ended --------------------------- --------------------------- October 1, October 2, October 1, October 2, 1998 1998 1999 1999 ----------- ----------- ----------- ----------- Net sales $ 93,729 $ 82,809 $ 250,561 $ 218,790 Cost of sales 55,857 49,512 156,381 137,993 ----------- ----------- ----------- ----------- Gross profit 37,872 33,297 94,180 80,797 Selling, general and administrative expenses 20,643 18,690 60,720 54,396 Amortization of goodwill and intangibles 578 497 1,761 1,529 ----------- ----------- ----------- ----------- Income from operations 16,651 14,110 31,699 24,872 Other expenses Interest expense, net 2,921 2,967 8,945 8,781 Other expense, net 92 (177) 177 (178) ----------- ----------- ----------- ----------- Income before provision for income taxes 13,638 11,320 22,577 16,269 Provision for income taxes 6,137 5,094 10,160 7,321 ----------- ----------- ----------- ----------- Net income $ 7,501 $ 6,226 $ 12,417 $ 8,948 =========== =========== =========== =========== Basic net income per share $ 1.26 $ 1.05 $ 2.09 $ 1.53 =========== =========== =========== =========== Basic weighted average common shares outstanding 5,943,183 5,953,803 5,945,161 5,839,008 =========== =========== =========== =========== Diluted net income per share $ 1.22 $ 1.01 $ 2.01 $ 1.47 =========== =========== =========== =========== Diluted weighted average common and common equivalents shares outstanding 6,169,760 6,193,038 6,183,032 6,073,046 =========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 3 4 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Cash Flows For The Nine Fiscal Months Ended October 1, 1999 and October 2, 1998 (Amounts in thousands) (Unaudited)
October 1, October 2, 1999 1998 ---------- ---------- Cash Flows From Operating Activities: Net income $ 12,417 $ 8,948 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 8,649 7,888 Amortization of goodwill and intangibles 1,761 1,529 Deferred income taxes (1,082) (1,263) Amortization of deferred financing costs 643 593 Gain on sales of rental equipment and property, plant and (5,198) (5,690) equipment Changes in assets and liabilities, net of effects of acquisitions (Note 2): Accounts receivable (15,505) (15,818) Inventories 26 (1,911) Prepaid and accrued income taxes 3,999 3,666 Accounts payable 4,491 6,734 Accrued liabilities and other long-term liabilities (3,776) 3,438 Other, net 953 375 -------- -------- Net cash used in operating activities 7,378 8,489 -------- -------- Cash Flows From Investing Activities: Property, plant and equipment additions (5,006) (3,894) Proceeds from sales of fixed assets 292 759 Rental equipment additions (13,144) (14,707) Proceeds from sales of rental equipment 8,395 8,170 Acquisitions (Note 2) (5,415) (1,602) -------- -------- Net cash used in investing activities (14,878) (11,274) -------- -------- Cash Flows From Financing Activities: Issuance of long-term debt 10,606 2,748 Purchase of treasury shares (242) - Issuance of common stock 181 132 -------- -------- Net cash provided by financing activities 10,545 2,880 -------- -------- Effect of Exchange Rate Changes on Cash (21) (77) -------- -------- Net increase in cash 3,024 18 Cash, beginning of period 560 - -------- -------- Cash, end of period $ 3,584 $ 18 ======== ======== Supplemental Disclosures: Cash paid for income taxes $ 7,182 $ 4,053 Cash paid for interest 8,778 8,035 Issuance of common stock in conjunction with acquisition (Note 2) (117) 4,000
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 4 5 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Comprehensive Income For The Three and Nine Fiscal Months Ended October 1, 1999 and October 2, 1998 (Amounts in thousands) (Unaudited)
Three Fiscal Months Nine Fiscal Months Ended Ended ------------------------ ------------------------ October 1, October 2, October 1, October 2, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net income $ 7,501 $ 6,226 $ 12,417 $ 8,948 Other comprehensive income: Foreign currency translation adjustment (83) (51) (21) (77) ---------- ---------- ---------- ---------- Comprehensive income $ 7,418 $ 6,175 $ 12,396 $ 8,871 ========== ========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 5 6 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 1, 1999 AND OCTOBER 2, 1998 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) (1) CONSOLIDATED FINANCIAL STATEMENTS The interim consolidated financial statements included herein have been prepared by the Company, without audit, and include, in the opinion of management, all adjustments necessary to state fairly the information set forth therein. Any such adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these unaudited consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual financial statements for the year ended December 31, 1998. (2) ACQUISITIONS (a) SYMONS CORPORATION-- On September 29, 1997, the Company purchased the stock of Symons Corporation ("Symons"). 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 dispute has been referred to a mutually satisfactory accounting firm, which is expected to resolve such differences in accordance with 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 (as to which the Company intends to proceed with arbitration) and retained jurisdiction with respect to the remainder of the 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. 6 7 At this time, the Company can make no determination as to the amount of the adjustment, if any, which will be made to the purchase price. The Company intends to vigorously pursue its rights under the Purchase Agreement. (b) CEMPRO, INC.-- Effective January 1, 1999, the Company acquired substantially all of the assets and assumed certain of the liabilities of Cempro, Inc. ("Cempro") for approximately $5,400 in cash, including acquisition costs of approximately $100. The business is being operated as a part of the Company's concrete accessories business. The acquisition has been accounted for as a purchase, and the results of Cempro 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 and liabilities assumed. Certain appraisals and evaluations are preliminary and may change. Pro forma financial information is not required. (c) SECURE, INC.-- In June 1998, the Company purchased substantially all of the assets of Secure, Inc., ("Secure") a subsidiary of The Lofland Company, for approximately $700 in cash, including acquisition costs of approximately $100. This business is being operated as a part of the Company's paving products business. 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 acquired. Pro forma financial information is not required. (d) SYMONS CONCRETE FORMS, INC.-- In May 1998, the Company purchased the stock of Symons Concrete Forms, Inc. (formerly known as CAI). The purchase price was approximately $6,600, including acquisition costs of approximately $200, and was paid in cash of approximately $400, assumption of long-term debt of approximately $2,200, and delivery of 216,040 Class A Common Shares valued at approximately $4,000, including a purchase price reduction of approximately $100 (6,456 Class A Common Shares) in 1999 related to uncollected accounts receivable. The business 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 Symons Concrete Forms 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 and liabilities assumed. 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. ("Northwoods") for approximately $800 in cash. The Northwoods branches are being operated as a 7 8 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. Pro forma financial information is not required. (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim consolidated financial statements have been prepared in accordance with the accounting policies described in the notes to the Company's consolidated financial statements for the year ended December 31, 1998. While management believes that the procedures followed in the preparation of interim financial information are reasonable, the accuracy of some estimated amounts is dependent upon facts that will exist or calculations that will be accomplished at year end. Examples of such estimates include changes in the LIFO reserve (based upon the Company's best estimate of inflation to date) and management bonuses. Any adjustments pursuant to such estimates during the fiscal quarter were of a normal recurring nature. (a) FISCAL QUARTER-- The Company's fiscal quarters are defined as the periods ending on the Friday nearest to the end of March, June and September. (b) INVENTORIES-- Substantially all inventories of the domestic Dayton Superior and Dur-O-Wal operations are stated at the lower of last in, first out (LIFO) cost or market (which approximates current cost). All other inventories are stated at the lower of first-in, first-out (FIFO) cost or market. The Company had no LIFO reserve as of October 1, 1999 and December 31, 1998. Following is a summary of the components of inventories as of October 1, 1999 and December 31, 1998: October 1, December 31, 1999 1998 -------- -------- Raw materials $ 9,130 $ 7,659 Finished goods and work in progress 30,053 30,022 -------- -------- 39,183 37,681 Net realizable value reserve (2,797) (1,623) -------- -------- $ 36,386 $ 36,058 ======== ======== (c) RENTAL EQUIPMENT-- Rental equipment is manufactured by the Company for resale and for rent to others on a short-term basis. Rental equipment is recorded at the lower of FIFO cost or market and is depreciated over the estimated useful life of the equipment, twelve to fifteen years, on a straight-line basis. The balances as of October 1, 1999 and December 31, 1998 are net of accumulated depreciation of $9,608 and $6,796, respectively. Rental revenues and cost of sales associated with rental revenue are as follows: 8 9 Three fiscal months Nine fiscal months ended ended ---------------------- ---------------------- October 1, October 2, October 1, October 2, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Rental revenue $14,306 $13,295 $37,124 $31,757 Cost of sales 2,263 2,253 6,256 5,805 (d) 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 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 agreements is recognized as an adjustment to interest expense. The fair value of the interest rate swaps in place at October 1, 1999 is a liability of $237. (e) RECLASSIFICATIONS--Certain reclassifications have been made to the 1998 amounts to conform to their 1999 classifications. (4) CREDIT ARRANGEMENTS Following is a summary of the Company's long-term debt as of October 1, 1999 and December 31, 1998:
October 1, December 31, 1999 1998 ---------- ------------ Revolving line of credit, weighted average interest rate of 6.9% $ 23,630 $ 13,000 Term Loan, weighted average interest rate of 8.1% 100,000 100,000 Note payable to one of the Former Stockholders, 10.5% 5,000 5,000 City of Parsons, Kansas Economic Development Loan, 7.0% 181 205 --------- --------- Total long-term debt 128,811 118,205 Less current portion (32) (32) --------- --------- Long-term portion $ 128,779 $ 118,173 ========= =========
During 1999, the Revolving Credit Facility was increased from $40,000 to $50,000. At October 1, 1999, $50,000 of the $50,000 Revolving Credit Facility was available, of which $23,630 of borrowings was outstanding. The average borrowing, maximum borrowing, and weighted average interest rate for the periods indicated are as follows:
Three fiscal months Nine fiscal months ended ended ----------------------- ----------------------- October 1, October 2, October 1, October 2, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Average borrowing $27,656 $22,505 $27,668 $20,712 Maximum borrowing 32,560 25,280 37,140 26,620 Weighted average interest rate 7.0% 7.5% 6.9% 7.7%
9 10 The Credit Agreement contains certain restrictive covenants which, among other things, require that the Company maintain a minimum fixed charge coverage ratio, not exceed a certain leverage ratio and prohibit the payment of dividends on Common Shares. The Company was in compliance with its loan covenants as of October 1, 1999. (5) STOCK OPTION PLANS The Company has five stock option plans all of which provide for an option exercise price equal to the stock's market price on the date of grant and all of which are accounted for 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 net income per share for the three and nine fiscal months ended October 1, 1999 and October 2, 1998 would have been reduced to the following pro forma amounts:
Three fiscal months Nine fiscal months ended ended -------------------------- --------------------------- October 1, October 2, October 1, October 2, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net income As Reported $ 7,501 $ 6,226 $ 12,417 $ 8,948 Pro Forma 7,416 6,170 12,100 8,758 Basic net income per share As Reported 1.26 1.05 2.09 1.53 Pro Forma 1.25 1.04 2.04 1.50 Diluted net income per share As Reported 1.22 1.01 2.01 1.47 Pro Forma 1.21 1.00 1.97 1.45
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. A summary of the activity of the Company's stock option plans for the nine fiscal months ended October 1, 1999 is presented in the table below: Weighted Average Number of Exercise Price Shares Per Share --------- -------------- Outstanding at December 31, 1998 358,033 $ 6.75 Granted at a weighed average fair value of $8.27 92,600 19.44 Exercised (2,984) 8.38 Cancelled (866) 16.81 -------- ------- Outstanding at October 1, 1999 446,783 $ 9.35 ======== ======= 10 11 (6) RETIREMENT PLANS The Company has been in the process of terminating and merging various defined benefit plans. As a result, in the second fiscal quarter of 1999, the Company recorded a non-recurring pension plan termination gain of approximately $0.8 million, of which approximately $0.7 million was recorded as selling, general, and administrative expenses and approximately $0.1 million was recorded as cost of goods sold. (7) SEGMENT REPORTING The Company operates in four segments, each with a general manager: concrete accessories, concrete forming systems, paving products, and masonry products. The segments are differentiated by their products and services, all of which serve the construction industry. Sales between segments are recorded at normal selling price by the selling division and at cost for the buying division, with the profit recorded as an intersegment elimination. Segment assets include accounts receivable; inventories; property, plant, and equipment; rental equipment; and an allocation of goodwill. Corporate and unallocated assets include cash, prepaid income taxes, future tax benefits, and financing costs. Export sales and sales by non-U.S. affiliates are not significant. Information about the profit (loss) of each segment and the reconciliations to the consolidated amounts for the nine fiscal months ended October 1, 1999 and October 2, 1998 is as follows:
Three fiscal months Nine fiscal months ended ended ----------------------- ----------------------- October 1, October 2, October 1, October 2, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Concrete Accessories $ 40,428 $ 37,669 $110,839 $ 99,540 Concrete Forming Systems 33,206 27,944 88,747 74,877 Paving Products 12,721 9,980 30,459 26,175 Masonry Products 7,374 7,216 20,516 18,198 -------- -------- -------- -------- Net sales to external customers $ 93,729 $ 82,809 $250,561 $218,790 ======== ======== ======== ======== Concrete Accessories $ 53 $ 404 $ 851 $ 2,669 Concrete Forming Systems 1,043 1,596 3,670 3,979 Paving Products 35 - 132 - -------- -------- -------- -------- Net sales to other segments $ 1,131 $ 2,000 $ 4,653 $ 6,648 ======== ======== ======== ======== Concrete Accessories $ 878 $ 1,012 $ 2,771 $ 2,995 Concrete Forming Systems 1,742 1,633 5,249 4,834 Paving Products 153 187 516 553 Masonry Products 148 135 409 399 -------- -------- -------- -------- Interest expense $ 2,921 $ 2,967 $ 8,945 $ 8,781 ======== ======== ======== ========
11 12
Three fiscal months Nine fiscal months ended ended ----------------------- ----------------------- October 1, October 2, October 1, October 2, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Concrete Accessories $ 9,428 $ 9,131 $ 18,370 $ 16,451 Concrete Forming Systems 3,987 2,775 7,255 4,718 Paving Products 1,461 1,028 1,912 1,921 Masonry Products 786 745 926 276 Intersegment Eliminations (558) (967) (2,290) (3,215) Corporate (1,466) (1,392) (3,596) (3,882) -------- -------- -------- -------- Income before income taxes $ 13,638 $ 11,320 $ 22,577 $ 16,269 ======== ======== ======== ======== Concrete Accessories $ 712 $ 895 $ 2,860 $ 2,464 Concrete Forming Systems 1,430 1,388 4,120 3,797 Paving Products 211 203 634 591 Masonry Products 332 331 994 990 Corporate 16 16 41 46 -------- -------- -------- -------- Depreciation $ 2,701 $ 2,833 $ 8,649 $ 7,888 ======== ======== ======== ======== Concrete Accessories $ 366 $ 281 $ 1,086 $ 921 Concrete Forming Systems 82 64 212 152 Paving Products 24 44 142 133 Masonry Products 106 108 321 323 -------- -------- -------- -------- Amortization of goodwill and intangibles $ 578 $ 497 $ 1,761 $ 1,529 ======== ======== ======== ========
Information regarding capital expenditures by segment and the reconciliation to the consolidated amounts for the nine fiscal months ended October 1, 1999 and October 2, 1998 is as follows:
Three fiscal months Nine fiscal months ended ended ----------------------- ----------------------- October 1, October 2, October 1, October 2, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Concrete Accessories $ 851 $ 116 $ 2,421 $ 1,455 Concrete Forming Systems 759 315 1,433 1,510 Paving Products 273 99 753 568 Masonry Products 66 199 352 292 Corporate - 35 47 69 ---------- ---------- ---------- ---------- Property, Plant, and Equipment Additions $ 1,949 $ 764 $ 5,006 $ 3,894 ========== ========== ========== ========== Concrete Accessories $ 591 $ 960 $ 1,534 $ 2,224 Concrete Forming Systems 2,990 5,571 11,516 12,483 Masonry Products 94 - 94 - ---------- ---------- ---------- ---------- Rental Equipment Additions $ 3,675 $ 6,531 $13,144 $14,707 ========== ========== ========== ==========
12 13 There has been no material change in the relative assets employed by each segment since December 31, 1998. (8) CONTINGENCIES 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. The events that precipitated this case occurred well before the acquisition of Symons in 1997. After a jury trial, preliminary damages of approximately $14,000 were awarded against Symons in January 1999. In ruling on post-trial motions in April 1999, the Judge dismissed EFCO's claim of intentional interference with contractual relations, but increased the damages awarded to EFCO by $100. This case is currently on appeal before the United States Court of Appeals for the Eighth Circuit. Symons and EFCO have filed their briefs with the court and have requested the opportunity to present oral arguments. The Company believes that Symons has grounds for a successful appeal and remains committed to vigorously pursuing its appellate rights. A successful appeal could overturn the judgment against Symons or result in 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 ultimate outcome of this litigation to be not estimable, and accordingly, the Company has not recorded any liability for the resolution of this suit. In the event that Symons is unsuccessful in its appeals, it may have a material adverse effect on its consolidated financial position, results of operations, or cash flows. (9) SUBSEQUENT EVENT (a) CONVERTIBLE PREFERRED TRUST SECURITIES-- On October 5, 1999, the Company completed an underwritten public offering of 1,062,500 convertible trust preferred securities at a price of $20 per security. The securities were issued by a limited purpose Delaware trust which used the proceeds to purchase from the Company the same principal amount of the Company's convertible junior subordinated debentures. The securities are guaranteed by the Company on a subordinated basis. Distributions are payable on the trust preferred securities at the rate of 10% per annum, and the securities are convertible into Dayton Superior Class A Common Shares at the rate of 0.80 common shares for each preferred security, which equates to a conversion price of $25 per common share, a 47% premium on the closing price on the date of issuance. The net proceeds of approximately $20,000 were used by the Company to repay some of its borrowings under its Revolving Credit Facility. The effect of 13 14 these securities, an increase of 850,000 common equivalent shares, has not been reflected in the diluted weighted average common and common equivalent shares outstanding for the three and nine months ended October 1, 1999. (b) SOUTHERN CONSTRUCTION PRODUCTS, INC.-- In October 1999, the Company purchased substantially all of the assets and assumed certain of the liabilities of Southern Construction Products, Inc. for approximately $8.6 million in cash, subject to adjustment. The business is being operated as part of the Company's masonry products and concrete accessories businesses. The acquisition has been accounted for as a purchase and the results of Southern Construction Products will be included in the financial statements from the date of acquisition. The purchase price will be allocated based on the estimated fair values of the assets acquired. Pro forma financial information is not required. 14 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW 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. 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 has four principal operating divisions, which are organized around the following product lines: - Concrete Accessories; - Concrete Forming Systems; - Paving Products; and - Masonry Products. 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 through 2004. The Company's paving products segment experienced 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. ACQUISITIONS The Company has completed five acquisitions since the beginning of 1998. These acquisitions were small add-on acquisitions, and are summarized in the following table:
Purchase Price Date Business Acquired Division (In millions) ---- ----------------- -------- --------- May 1998 Symons Concrete Forms Concrete Forming Systems $6.6 May 1998 Northwoods Concrete Forming Systems 0.8 June 1998 Secure Paving Products 0.6 January 1999 Cempro Concrete Accessories 5.4 October 1999 Southern Construction Masonry Products and 8.6* Concrete Accessories
*Subject to adjustment 15 16 RESULTS OF OPERATIONS The following table summarizes the Company's results of operations as a percentage of net sales for the periods indicated:
THREE FISCAL MONTHS NINE FISCAL MONTHS ENDED ENDED ----------------------- ----------------------- OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 59.6 59.8(1) 62.4 63.1(1) ---------- ---------- ---------- ---------- Gross profit 40.4 40.2(1) 37.6 36.9(1) ---------- ---------- ---------- ---------- Selling, general and administrative expenses 22.0 22.6(1) 24.2 24.8(1) Amortization of goodwill and intangibles 0.6 0.6 0.7 0.7 ---------- ---------- ---------- ---------- Total selling, general and administrative expenses 22.6 23.2 24.9 25.5 ---------- ---------- ---------- ---------- Income from operations 17.8 17.0 12.7 11.4 Interest expense, net 3.1 3.5 3.6 4.1 Other expense net 0.1 (0.2) 0.1 (0.1) ---------- ---------- ---------- ---------- Income before provision for income taxes 14.6 13.7 9.0 7.4 Provision for income taxes 6.6 6.2 4.0 3.3 ---------- ---------- ---------- ---------- Net Income 8.0% 7.5% 5.0% 4.1% ========== ========== ========== ==========
(1) We made a reclassification to the 1998 amounts to conform to the 1999 presentation. COMPARISON OF THREE FISCAL MONTHS ENDED OCTOBER 1, 1999 AND OCTOBER 2, 1998 NET SALES Net sales increased $10.9 million, or 13.2%, to $93.7 million in the third quarter of 1999 from $82.8 million in the third quarter of 1998. The following table summarizes our net sales by segment for the periods indicated:
Three fiscal months ended ------------------------------------------------ October 1, 1999 October 2, 1998 ------------------------ ---------------------- (In thousands) Net Sales % Net Sales % % Change --------- ------ --------- ------- -------- Concrete accessories $ 40,481 43.2% $ 38,073 46.0% 6.3% Concrete forming systems 34,249 36.5 29,540 35.7 15.9 Paving products 12,756 13.6 9,980 12.0 27.8 Masonry products 7,374 7.9 7,216 8.7 2.2 Intersegment eliminations (1,131) (1.2) (2,000) (2.4) (43.5) -------- ----- -------- ----- ----- Net sales $ 93,729 100.0% $ 82,809 100.0% 13.2% ======== ===== ======== ===== =====
Net sales of concrete accessories increased by 6.3% to $40.5 million in the third quarter of 1999 from $38.1 million in the third quarter of 1998, due primarily to the contribution of Cempro. Volume increases in most geographic areas offset a volume decrease in some portions of the western United States. Net sales of concrete forming systems increased 15.9% to $34.2 million for the third quarter of 1999 compared to $29.5 million in the third quarter of 1998, due to the expansion and introduction of new 16 17 products, including exclusive U.S. distribution rights to two European forming systems. Net sales of paving products increased 27.8% to $12.8 million in the third quarter of 1999 compared to $10.0 million in the third quarter of 1998 due to an increase in volume as a result of TEA-21 and marketing initiatives. Net sales of masonry products increased 2.2% to $7.4 million in the third quarter of 1999 from $7.2 million in the third quarter of 1998 due to volume gains of commodity products. GROSS PROFIT Gross profit for the third quarter of 1999 was $37.9 million, a 13.7% increase from $33.3 million in the third quarter of 1998, due primarily to increased net sales. Gross margin was 40.4% in the third quarter of 1999, increasing from 40.2% in 1998 due primarily to higher margin rental revenues in the concrete forming systems division that more than offset the impact of the higher proportion of lower gross margin paving products division. OPERATING EXPENSES Selling, general, and administrative expenses, including amortization of goodwill and intangibles ("SG&A expenses"), increased $2.0 to $21.2 million in the third quarter of 1999, from $19.2 million in the third quarter of 1998, due to increases in new product development and sales personnel. SG&A expenses were lower as a percent of net sales from 23.2% in the third quarter of 1998 to 22.6% in the third quarter of 1999, due to the effect of increased net sales on fixed costs. INTEREST EXPENSE Interest expense decreased from $3.0 million in the third quarter of 1998 to $2.9 million in the third quarter of 1999, despite the increase in debt, due to lower interest rates. INCOME BEFORE INCOME TAXES Income before income taxes in the third quarter of 1999 increased 20.5% to $13.6 million from $11.3 million in the third quarter of 1998 and was comprised of the following: Three fiscal months ended ----------------------------------- October 1, 1999 October 2, 1998 --------------- --------------- (In thousands) Concrete accessories $ 9,428 $ 9,131 Concrete forming systems 3,987 2,775 Paving products 1,461 1,028 Masonry products 786 745 Corporate (1,466) (1,392) Intersegment eliminations (558) (967) -------- -------- Income before income taxes $ 13,638 $ 11,320 ======== ======== 17 18 Concrete accessories' income before income taxes of $9.4 million in the third quarter of 1999 increased $0.3 million from $9.1 million in the third quarter of 1998 due primarily to the increase in net sales. Concrete forming systems' income before income taxes increased 43.7% to $4.0 million in the third quarter of 1999 from $2.8 million in the third quarter of 1998 due to the increase in net sales and a higher proportion of rental revenue. Income before income taxes from paving products increased to $1.5 million in the third quarter of 1999 from $1.0 million in the third quarter of 1998 due to the increase in net sales more than offsetting the increases in personnel made in anticipation of the growth of the business as a result of TEA-21. Income before income taxes from masonry products was $0.8 million in the third quarter of 1999 compared to $0.7 million in the third quarter of 1998 due to the increase in net sales. Corporate expenses increased slightly to $1.5 million from $1.4 million. Elimination of profit on intersegment sales was $0.6 million in the third quarter of 1999, compared to $1.0 million in the third quarter of 1998. NET INCOME The effective tax rate remained flat at 45.0% in the third quarter of 1999 compared to the third quarter of 1998. Net income for the third quarter of 1999 was $7.5 million, or $1.26 per basic share and $1.22 per diluted share, compared to $6.2 million, or $1.05 per basic share and $1.01 per diluted share, in the third quarter of 1998. COMPARISON OF NINE FISCAL MONTHS ENDED OCTOBER 1, 1999 AND OCTOBER 2, 1998 NET SALES Net sales increased $31.8 million, or 14.5%, to $250.6 million in the first nine months of 1999 from $218.8 million in the first nine months of 1998. The following table summarizes our net sales by segment:
Nine fiscal months ended ---------------------------------------------------- October 1, 1999 October 2, 1998 ------------------------- ------------------------ (In thousands) Net Sales % Net Sales % % Change ----------- -------- --------- -------- -------- Concrete accessories $ 111,690 44.6% $ 102,209 46.7% 9.3% Concrete forming systems 92,417 36.9 78,856 36.0 17.2 Paving products 30,591 12.2 26,175 12.0 16.9 Masonry products 20,516 8.2 18,198 8.3 12.7 Intersegment eliminations (4,653) (1.9) (6,648) (3.0) (30.0) --------- ----- --------- ----- ---- Net sales $ 250,561 100.0% $ 218,790 100.0% 14.5% ========= ===== ========= ===== ====
Net sales of concrete accessories increased by 9.3% to $111.7 million in the first nine months of 1999 from $102.2 million in the first nine months of 1998, due to the contribution of Cempro, increases in volume, and new product initiatives. Net sales of concrete forming systems were $92.4 million for the first nine months of 1999 compared to $78.9 million in the first nine months of 1998 due to the net sales of the 18 19 acquired Symons Concrete Forms and Northwoods businesses and the expansion and introduction of new products, including exclusive U.S. distribution rights to two European forming systems. Net sales of paving products increased 16.9% to $30.6 million in the first nine months of 1999 compared to $26.2 million in the first nine months of 1998 due to an increase in volume as a result of TEA-21 and marketing initiatives. Net sales of masonry products increased by 12.7% to $20.5 million in the first nine months of 1999 from $18.2 million in the first nine months of 1998 due to higher volume, strategic pricing initiatives, and a shift of resources to higher margin engineered products. GROSS PROFIT Gross profit for the first nine months of 1999 was $94.1 million, a 16.6% increase from $80.8 million in the first nine months of 1998, due primarily to increased net sales. Gross margin was 37.6% in the first nine months of this year, increasing from 36.9% in the first nine months of 1998 due primarily to higher manufacturing efficiencies in concrete accessories, the shift to higher margin engineered products in the masonry products division, and higher growth in the higher margin concrete forming systems business. OPERATING EXPENSES SG&A expenses increased $6.6 million to $62.5 million in the first nine months of 1999 from $55.9 million in the first nine months of 1998, due to the acquisitions and increases in new product development and sales personnel. Additionally, the Company recorded a $0.7 million non-recurring pension plan termination gain in the second quarter of 1999. SG&A expenses were lower as a percent of net sales from 25.5% in the first nine months of 1998 to 24.9% (25.2% without the pension gain) in the first nine months of 1999, due to the effect of increased net sales on fixed costs. INTEREST EXPENSE Interest expense increased from $8.8 million in the first nine months of 1998 to $8.9 million in the first nine months of 1999 due to increased long-term debt resulting from the acquisition of Cempro and working capital growth, partially offset by lower interest rates. INCOME BEFORE INCOME TAXES Income before income taxes in the first nine months of 1999 increased to $22.6 million from $16.3 million in the first nine months of 1998 and was comprised of the following: Nine fiscal months ended --------------------------------------- October 1, 1999 October 2, 1998 --------------- --------------- (In thousands) Concrete accessories $ 18,370 $16,451 Concrete forming systems 7,255 4,718 Paving products 1,912 1,921 Masonry products 926 276 Corporate (3,596) (3,882) Intersegment eliminations (2,290) (3,215) -------- -------- Income before income taxes $ 22,577 $ 16,269 ======== ======== 19 20 Concrete accessories' income before income taxes of $18.4 million in the first nine months of 1999 increased 11.7% from $16.5 million in the first nine months of 1998 due primarily to the increase in net sales and manufacturing efficiencies. Concrete forming systems' income before income taxes increased 53.8% to $7.3 million in the first nine months of 1999 from $4.7 million in the first nine months of 1998 due to the increased net sales, a higher proportion of rental revenue, and the contribution of the acquired Symons Concrete Forms. Income before income taxes from paving products remained flat at $1.9 million in the first nine months of 1999 compared to the first nine months of 1998 due to the sales growth, offset by personnel increases made in anticipation of the growth of the business as a result of TEA-21. Income before income taxes from masonry products was $0.9 million in the first nine months of 1999 compared to $0.3 million in the first nine months of 1998 due to higher net sales and the shift to higher gross margin engineered products. Corporate expenses decreased to $3.6 million from $3.9 million due to the non-recurring pension gain, partially offset by the full nine month effect of 1998 personnel additions. Elimination of profit on intersegment sales was $2.3 million in the first nine months of 1999 as compared to $3.2 million in the first nine months of 1998. NET INCOME The effective tax rate remained flat at 45.0% in the first nine months of 1999 compared to the first nine months of 1998. Net income for the first nine months of 1999 was $12.4 million, or $2.09 per basic and $2.01 per diluted share, compared to $8.9 million, or $1.53 per basic share and $1.47 per diluted share, in the first nine months of 1998. Without the pension gain, net income per diluted share in the first nine months of 1999 was $1.94, a 32.0% increase from the first nine months of 1998. 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 our revolving credit facility and cash gap. Cash gap is defined as the average number of days of outstanding accounts receivable, plus the number of days of inventory on hand, less the number of days of outstanding accounts payable. The Company's capital requirements relate primarily to capital expenditures, debt service and the cost of acquisitions. Historically, the Company's primary sources of financing have been cash from operations, borrowings under its revolving facility credit and the issuance of long-term debt and equity. 20 21 Net cash provided by operating activities in the first nine months of 1999 was $7.4 million and was comprised of the following: - $12.4 million of net income, - $4.8 million of non-cash reductions to net income, and - $(9.8) million of normal seasonal working capital growth. The Company invested in the following: - $9.5 million in net capital expenditures and - $5.4 million of acquisitions. These uses of cash were funded by draws on the Revolving Credit Facility of $10.6 million, resulting in a net increase in cash of $3.0 million. At October 1, 1999, working capital was $59.8 million, compared to $44.7 million at December 31, 1998. The growth in working capital is primarily attributable to higher cash and higher accounts receivable from both the overall growth of the Company and the seasonally stronger third quarter. At October 1, 1999, all of the $50.0 million Revolving Credit Facility was available, of which $23.6 million of borrowings were outstanding. The term loan had an outstanding balance at October 1, 1999 of $100.0 million. Other long-term debt consisted of $5.0 million to one of the former stockholders of Symons Corporation and $0.2 million to the City of Parsons, Kansas. At October 1, 1999, the Company had $128.8 million of long-term debt outstanding, of which $32 thousand was current. The Company's net debt to total capitalization ratio, net of cash, decreased to 59.1% as of October 1, 1999 from 61.2% as of December 31, 1998, primarily due to the net income generated. For the first nine months of 1999, the Company's average cash gap days were 68, an improvement of 8 days from 76 days in the first nine months of 1998 due to the Company's continued focus on working capital management. The Company believes its liquidity, capital resources and cash flows from operations are sufficient to fund planned capital expenditures, working capital requirements and debt service in the absence of additional acquisitions. The Company intends to fund future acquisitions with cash, securities or a combination of cash and securities. To the extent the Company uses cash for all or part of any such acquisitions, it expects to raise such cash primarily from operations, borrowings under the Revolving Credit Facility or, if feasible and attractive, issuances of long-term debt or additional Class A Common Shares. On October 5, 1999, the Company completed an underwritten public offering of 1,062,500 convertible trust preferred securities at a price of $20 per security. The securities were issued by a limited purpose Delaware trust which used the proceeds to purchase from the Company the same principal amount of the Company's convertible 21 22 junior subordinated debentures. The securities are guaranteed by the Company on a subordinated basis. Distributions are payable on the trust preferred securities at the rate of 10% per annum, and the securities are convertible into Dayton Superior Class A Common Shares at the rate of 0.80 common shares for each preferred security, which equates to a conversion price of $25 per common share, a 47% premium on the closing price on the date of issuance. The net proceeds of approximately $20,000 were used by the Company to repay some of its borrowings under its Revolving Credit Facility. The effect of these securities, an increase of 850,000 common equivalent shares, has not been reflected in the diluted weighted average common and common equivalent shares outstanding for the three and nine months ended October 1, 1999. 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 annual 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 two years. In the past, the Company has been able to pass along all or a portion of the effects of increases in the price of steel, its principal raw material. There can be no assurance the Company will be able to continue to pass on the cost of such increases in the future. 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 continuously 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. 22 23 The compliance review has involved testing of hardware and software systems, including non-information technology systems such as telephones and Computer Numerically 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 the systems that 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 been given to those suppliers who may be the Company's only source for certain products or components. Approximately 95% of the third parties have responded indicating their Year 2000 readiness. The Company is diligently attempting to obtain responses from the remaining parties that have not responded and to clarify the readiness of those parties whose responses were not clear. Nevertheless, 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 has also given particular attention to customers and their ability to communicate orders and pay for goods received. 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 $905,000 of which $825,000 was capitalized and $80,000 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 $15,000 of which $5,000 is expected to be capitalized and $10,000 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 the second quarter of 1999. The Company completed substantially all of its Year 2000 projects by the end of the second quarter of 1999. The Company will continue to focus internal resources on ongoing contingency planning throughout the balance of 1999. The Company believes that its most reasonably likely worst case scenario would be related to the lack of success of third party vendors in addressing their Year 2000 issues, particularly suppliers who are the Company's only source, such as local electricity providers. If a facility is unable to manufacture products due to a lack of electricity, contingency plans include the transfer of production orders to other facilities. 23 24 The Company believes the impact would not be significant due to the seasonal capacity that exists in January. FORWARD-LOOKING STATEMENTS This Form 10-Q includes, and future filings by the Company on Form 10-K, Form 10-Q, and Form 8-K, and future oral and written statements by the Company and its management may include, certain forward-looking statements, including (without limitation) statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition and divestitive opportunities and other similar forecasts and statements of expectation. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and "should," and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements by the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as the result of a number of important factors. Representative examples of these factors include (without limitation) the cyclical nature of nonresidential building and infrastructure construction activity, which can be affected by factors outside the Company's control such as weakness in the general economy, a decrease in governmental spending, interest rate increases, changes in banking and tax laws, and the continued delay by the states in initiating construction projects under TEA-21 program; an unsuccessful outcome in the Company's legal proceedings and disputes; the Company's ability to successfully identify, finance, complete and integrate acquisitions; increases in the price of steel (the principal raw material in the Company's products) and the Company's ability to pass along such price increases to its customers; and the effects of weather and seasonality on the construction industry; increasing consolidation of the Company's customers; the mix of products the Company sells; and the failure of the Company's supplies or customers to address their Year 2000 issues. This list of factors is not intended to be exhaustive, and additional information concerning relative risk factors can be found in the Company's Registration Statement on Form S-3 and the Annual Report on Form 10-K filed with the Securities and Exchange Commission. 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. 24 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As of October 1, 1999, the Company had financial instruments that were sensitive to changes in interest rates. These financial instruments consist of a $50.0 million Revolving Credit Facility, of which approximately $23.6 million was outstanding; a $100.0 million Term Loan; variable-to-fixed interest rate swaps on $50.0 million of the Term Loan; and approximately $5.2 million in other fixed-rate long-term debt. 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 as of October 1, 1999 approximated its $23.6 million face value. The weighted average interest rate at October 1, 1999 was 6.9%. 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 Term Loan, as of October 1,1999, approximated its face value. The Term Loan had a weighted average interest rate of 8.1% at October 1, 1999. The Company has two interest rate swap agreements on a total of $50.0 million of the Term Loan 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 6.3% and expire on November 1, 2000. The ninety-day LIBOR as of October 1, 1999 was 6.1%. 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 as of October 1, 1999 is a liability of $0.2 million. Other long-term debt consists of a $5.0 million, 10.5% note payable due in 2004 with an estimated fair value as of October 1, 1999 of $5.6 million and a $0.2 million, 7.0% loan due in installments of $32 thousand per year with an estimated fair value as of October 1, 1999 of $0.2 million. 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 financial instruments to manage its domestic or international exposure to changes in commodity prices. 25 26 PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Symons currently is a defendant in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of its 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. In ruling on post-trial motions in April 1999, the Judge dismissed EFCO's claim of intentional interference with contractual relations but increased the damages awarded to EFCO by $0.1 million. This case is currently on appeal before the United States Court of Appeals for the Eighth Circuit. Symons and EFCO have filed their briefs with the court and have requested the opportunity to present oral arguments. The Company believes that Symons has grounds for a successful appeal and remains committed to vigorously pursuing its appellate rights. A successful appeal could overturn the judgment against Symons or result in 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 and, accordingly, the Company has not recorded any liability for the resolution of this suit. In the event the Company is unsuccessful in its appeals, it may have a material adverse effect on its consolidated financial position, results of operations, or cash flows. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. See Index to Exhibit following the signature page to this report for a list of Exhibits. (b) REPORTS ON FORM 8-K. During the quarter ended October 1, 1999, the Company did not file any Current Reports on Form 8-K. 26 27 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DAYTON SUPERIOR CORPORATION --------------------------- DATE: November 12, 1999 BY: /s/ Alan F. McIlroy --------------------- ------------------------ Alan F. McIlroy Chief Financial Officer 27 28 INDEX TO EXHIBITS ----------------- Exhibit No. Description - ----------- ----------- (4) Instruments Defining the Rights of Security Holders, Including Indentures 4.1 Certificate of Trust of Dayton Superior Capital Trust [Incorporated herein by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3 (Reg. No. 333-84613)] 4.2 Form of Amendment and Restated Trust Agreement of Dayton Superior Capital Trust among Dayton Superior Corporation, as Depositor, Firstar Bank, N.A., as Property Trustee, Mark A. Ferrucci, as Delaware Trustee, and the Administrative Trustees named therein [Incorporated herein by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-3 (Reg. No. 333-84613)] 4.3 Form of Junior Convertible Subordinated Indenture between Dayton Superior Corporation and Firstar Bank, N.A., as Indenture Trustee [Incorporated herein by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-3 (Reg. No. 333-84613)] 4.4 Form of Preferred Security (see Exhibit D to the Trust Agreement referred to as Exhibit 4.2) 4.5 Form of Junior Convertible Subordinated Debenture (see Sections 2.2 and 2.3 of the Indenture included as Exhibit 4.3) 4.6 Form of Guarantee Agreement between Dayton Superior Corporation, as Guarantor, and Firstar Bank, N.A., as Guarantee Trustee, with respect to the Preferred Securities of the Dayton Superior Capital Trust [Incorporated herein by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-3 (Reg. No. 333-84613)] (27) Financial Data Schedule 27.1 Financial Data Schedule ** - ------------ ** Filed herewith 28 EX-27 2 EXHIBIT 27
5 0000854709 DAYTON SUPERIOR CORPORATION 1,000 9-MOS DEC-31-1998 JAN-01-1999 OCT-01-1999 3,584 0 64,837 (5,768) 36,386 106,080 70,200 (28,100) 278,484 46,312 128,779 47,030 0 0 39,776 278,484 250,561 250,561 156,381 156,381 62,658 237 8,945 22,577 10,160 12,417 0 0 0 12,417 2.09 2.01
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