<PAGE> 1
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
September 26, 1997 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.)
721 Richard Street
Miamisburg, Ohio 45342
------------------- -----
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 937-866-0711
-----------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since 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
---------- ---------
5,717,823 Common Shares were outstanding as of October 7, 1997
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept 27, Sept 26,
1996 1997
----------- -----------
(Unaudited) (Unaudited)
ASSETS (Amounts in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $889 $1,750
Accounts Receivable, net of allowance for
doubtful accounts of $660 and $419 21,735 24,103
Inventories (Note 3) 15,338 16,762
Prepaid expenses 583 984
Prepaid income taxes 427 0
Future tax benefits 1,393 988
----------- -----------
Total current assets 40,365 44,587
----------- -----------
RENTAL EQUIPMENT, NET 1,867 3,102
----------- -----------
PROPERTY, PLANT & EQUIPMENT: 31,031 34,225
Less accumulated depreciation (12,455) (15,834)
----------- -----------
Net property, plant & equipment 18,576 18,391
GOODWILL AND INTANGIBLE ASSETS,
net of accumulated amortization 57,860 56,244
OTHER ASSETS 0 1,161
----------- -----------
Total assets $118,668 $123,485
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4) $3,282 $3,282
Accounts payable 12,553 11,815
Accrued compensation and benefits 3,794 4,501
Accrued liabilities 3,200 2,886
Income taxes payable 655 1,588
Accrued interest 754 205
----------- -----------
Total current liabilities 24,238 24,277
LONG-TERM DEBT (Note 4) 36,061 35,075
DEFFERED INCOME TAXES 2,558 2,352
OTHER LONG-TERM LIABILITIES 2,877 1,819
----------- -----------
Total liabilities 65,734 63,523
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Class A Common Shares 32,932 33,234
Class B Common Shares 9,749 9,749
Cumulative foreign currency translation adjustment (141) (157)
Excess pension liability (50) 0
Retained earnings 10,444 17,136
----------- -----------
Total shareholders' equity 52,934 59,962
----------- -----------
Total liabilities and shareholders' equity $118,668 $123,485
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements
<PAGE> 3
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Fiscal Months Ended Nine Fiscal Months Ended
------------------------- ------------------------
Sept 27, Sept 26, Sept 27, Sept 26,
1996 1997 1996 1997
----------- ------------ ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Amounts in thousands, except share and per share amounts)
<S> <C> <C>
NET SALES $37,086 $42,592 $97,162 $108,411
COST OF SALES 25,486 28,211 66,543 73,389
----------- ------------ ------------ -----------
Gross profit 11,600 14,381 30,619 35,022
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,940 7,113 17,387 19,861
AMORTIZATION OF GOODWILL AND INTANGIBLES 435 467 1,267 1,392
----------- ------------ ------------ -----------
Operating income 5,225 6,801 11,965 13,769
OTHER EXPENSES:
Interest expense, net 823 823 4,002 2,306
Other, net 70 9 54 20
----------- ------------ ------------ -----------
Income before income taxes and
extraordinary item 4,332 5,969 7,909 11,443
PROVISION FOR INCOME TAXES 1,769 2,576 3,481 4,939
----------- ------------ ------------ -----------
Net income before extraordinary item $2,563 $3,393 $4,428 $6,504
----------- ------------ ------------ -----------
EXTRAORDINARY LOSS ON DEBT EXTINGUISHMENT (Note 7) $0 $0 ($2,314) $0
----------- ------------ ------------ -----------
NET INCOME/(LOSS) $2,563 $3,393 $2,114 $6,504
=========== ============ ============ ===========
Income per share before extraordinary item $0.44 $0.57 $0.96 $1.09
----------- ------------ ------------ -----------
Extraordinary item per share $0.00 $0.00 ($0.50) $0.00
----------- ------------ ------------ -----------
Net income/(loss) per share $0.44 $0.57 $0.46 $1.09
=========== ============ ============ ===========
Weighted average common and common equivalent
shares outstanding 5,873,881 5,960,541 4,598,367 5,945,218
=========== ============ ============ ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE> 4
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 27, 1996 and September 26, 1997
<TABLE>
<CAPTION>
Sept 27, Sept 26,
1996 1997
--------- ---------
(Unaudited) (Unaudited)
(Amounts in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $2,114 $6,504
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary loss on debt extinguishment 2,314 0
Depreciation 2,948 3,076
Amortization of goodwill and intangibles 1,267 1,392
Deferred income taxes 427 (342)
Amortization of debt discount and deferred financing costs 176 130
Loss (gain) on sales of assets (5) (5)
Change in assets and liabilities, net of the effects of acquisitions:
Accounts receivable (7,274) (11,433)
Inventories (2,570) (2,288)
Rental equipment (984) (1,271)
Accounts payable 4,097 3,908
Accrued liabilities (381) (40)
Income tax payable 664 2,808
Accrued interest (1,309) 131
Other, net 81 (905)
--------- ---------
Net cash provided by/(used in) operating activities 1,565 1,665
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment additions (2,137) (1,847)
Proceeds from sales of assets 7 10
Other, net 0 (13)
Acquisition of the net assets of Ironco Manufacturing, Steel
Structures, Inc., and Baron Steel & Wire (Note 6) (4,845) (2,081)
--------- ---------
Net cash used in investing activities (6,975) (3,931)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt, net 25,838 6,049
Repayment of long-term debt (40,000) (2,461)
Prepayment premium on extinguishment of long-term debt (2,400) 0
Financing costs and fees (367) 0
Payments to former shareholder for acquisition of common stock (750) 0
Issuance of common stock (Notes 6 & 8) 23,337 237
--------- ---------
Net cash provided by financing activities 5,658 3,825
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2) (12)
--------- ---------
Net increase/(decrease) in cash 246 1,547
CASH, beginning of period 643 203
--------- ---------
CASH, end of period $889 $1,750
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for income taxes $1,612 $2,443
Cash paid for interest 5,150 2,072
Issuance of common stock in conjunction with acquisition (Notes 6 & 8) 0 451
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements
<PAGE> 5
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 1996 AND SEPTEMBER 26, 1997
(AMOUNTS IN THOUSANDS, EXCEPT FOR 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, 1996.
(2) SUBSEQUENT EVENT - ACQUISITION OF SYMONS CORPORATION AND DEBT REFINANCING
On September 29, 1997, the Company purchased the stock of Symons Corporation.
Symons was a private company which owned two divisions. The first division,
Symons is the leading manufacturer of prefabricated concrete forms. The second
division, Richmond Screw Anchor is in the concrete accessories business. The
Company paid $34,000 for the Common Stock of Symons, subject to adjustment
based on the net worth of Symons as of the date of closing of which $29,000 was
paid in cash and $5,000 was paid by delivery of a seven year unsecured note,
bearing interest at 10.5%. The purchase price will be allocated based upon the
appraised fair market value of the assets acquired.
On September 29, 1997, the Company prepaid its Revolving Credit Facility and
Term Loan. In conjunction therewith, the Company will expense $263 of
unamortized financing costs. These charges will result in an extraordinary loss
on the extinguishment of debt of $149, net of an income tax effect of $114 in
the fourth quarter.
(3) 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, 1996. 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 last Friday in March, June and
September.
(b) Inventories - Substantially all finished products and raw
materials are stated at the lower of last in, first out (LIFO)
cost or market (which approximates current cost). Following is
a summary of the components of inventories as of September 27,
1996 and September 26, 1997:
<PAGE> 6
<TABLE>
<CAPTION>
Sept 27, Sept 26,
1996 1997
------- -------
<S> <C> <C>
Raw materials ........................... $ 4,840 $ 4,401
Finished goods and work in progress ..... 10,498 12,361
------- -------
15,338 16,762
LIFO reserve ............................ -- --
------- -------
$15,338 $16,762
======= =======
</TABLE>
(c) Financial Instruments - The Company uses interest rate
swaps to manage interest rate risk associated with its
floating rate borrowing. 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.
(4) CREDIT ARRANGEMENTS
On June 17, 1996, the Company entered into an Amended Credit Facility
(as so amended, the "Amended Credit Facility") with Bank One, Dayton, NA and
Bank of America Illinois (collectively, the "Banks"). The Amended Credit
Facility provides for a Term Loan and a Revolving Credit Facility, each of which
will be secured by substantially all the assets of the Company. At September 26,
1997, $36,217 was available under the Revolving Credit Facility, of which
$28,363 was outstanding at a weighted average interest rate of 8.5%.
Average borrowings under the Revolving Credit Facility and its
predecessors were $28,222 and $20,377 during the nine fiscal months ended
September 26, 1997 and September 27, 1996, respectively, at an approximate
weighted average interest rate of 7.4% and 8.4%, respectively. The maximum
borrowings outstanding during the nine fiscal months ended September 26, 1997
and September 27, 1996, was $32,403 and $28,180, respectively.
Following is a summary of the Company's long-term debt as of September
27, 1996 and September 26, 1997:
<TABLE>
<CAPTION>
Sept 27, Sept 26,
1996 1997
------- -------
<S> <C> <C>
Revolving credit facility $26,059 $28,363
Term Loan, bearing a weighted average 13,000 9,750
interest rate of 8.5%
City of Parsons, KS Economic Development Loan 284 244
------- -------
Total long-term debt 39,343 38,357
Less current portion (3,282) (3,282)
------- -------
Long-term portion $36,061 $35,075
======= =======
</TABLE>
On September 29, 1997, the Company entered into a new 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 and its subsidiaries.
The Company borrowed $130,000 on the Credit Agreement to fund the acquisition of
all outstanding shares of Symons Corporation and to repay all amounts
outstanding on the existing term and revolving loans of both the Company and
Symons Corporation. On September 29, 1997, all of the $40,000 was available on
the new Revolving Credit Facility of which $30,000 of borrowings were
outstanding. The $100,000 new Term Loan was drawn in full on September 29, 1997.
The new 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, a minimum interest coverage ratio and limit
its ability to pay dividends on Common Shares.
<PAGE> 7
(5) INTEREST RATE MANAGEMENT
To manage its interest rate risk, on August 18, 1997, the Company
entered into an interest rate swap on $25,000 of long-term debt that fixed the
LIBOR-based component of the interest rate formula. The swap has a fixed LIBOR
component of 6.30%. In addition, the Company entered into a second swap on
$25,000 of long-term debt which will be effective November 1, 1997 at a fixed
LIBOR component of 6.33%. These swaps expire on November 1, 2000. LIBOR as of
September 26, 1997 was 5.72%. These swaps are required by the Company's new
Credit Agreement and are contracts to exchange floating rate for fixed interest
payments periodically over 3 years without the exchange of the underlying
amounts.
(6) ACQUISITION ACTIVITY
On September 26, 1997, the Company acquired certain of the assets of
Baron Wire and Steel Company, a privately held regional concrete accessories
products manufacturer located in Tustin, CA. The purchase price was
approximately $235, including expenses and is subject to post-closing
adjustments and was paid in cash. The acquisition was accounted for as a
purchase. The cost of the acquisition was funded through draws under the
Revolving Credit Facility. The purchase price was allocated on the basis of the
agreed upon fair value of the assets acquired.
On February, 21, 1997, the Company acquired certain of the assets and
assumed certain of the liabilities of Ironco Manufacturing Co., Inc. and
Birmingham Bar Coating Inc., privately held concrete paving products
manufacturers. The purchase price, including acquisition related costs of $74,
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. The cash cost of the acquisition was funded through
draws under the Revolving Credit Facility. This purchase price has been
allocated on the basis of the agreed upon fair value of the assets acquired and
liabilities assumed. The business is being operated as the Ironco Manufacturing
division of American Highway Technology.
On April 29, 1996, the Company purchased certain of the assets and
assumed certain of the liabilities of Steel Structures, Inc., a privately held
regional concrete paving products manufacturer based in Kankakee, IL. Steel
Structures was an epoxy coater and fabricator of paving products and, prior to
the acquisition, was both a major supplier of epoxy coating to the Company and
competitor in its concrete paving product line. Certain of the Company's
existing paving manufacturing equipment has been relocated from another plant to
the former Steel Structures facility in Kankakee. The business is being operated
by the Company under the name American Highway Technology.
As of September 26, 1997, the Company paid $5,213 of the $5,601
purchase price with the balance due by April 1998. The acquisition was accounted
for as a purchase and the results of American Highway Technology have been
included in the accompanying consolidated financial statements since the date of
acquisition. The cost of the acquisition was funded through draws under the
Revolving Credit Facility. This purchase price has been allocated on the basis
of appraised fair value of the assets acquired of $6,113, including $4,739 of
tangible assets, goodwill of $1,374, and liabilities assumed of $512.
<PAGE> 8
(7) EXTRAORDINARY LOSS ON DEBT EXTINGUISHMENT
In June 1996, the Company prepaid its $40,000 of unsecured promissory
notes. In conjunction therewith, the Company paid a prepayment premium of $2,400
and expensed unamortized finance 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 draws on its Revolving Credit
Facility.
(8) PUBLIC OFFERING OF COMPANY SHARES
On June 20, 1996, the Company completed an initial public offering of
1,974,750 shares of Class A Common Shares and received proceeds of $22,654, net
of expenses.
On July 16, 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 LLC 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 Revolving Credit Facility.
(9) STOCK OPTION PLANS
The Company has four 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 with Statement of Financial Accounting Standards No.123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net income
and earnings per share for the nine fiscal months of 1996 and 1997 would have
been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
Three fiscal Nine fiscal
months ended months ended
------------ ------------
Sept 27, 1996 Sept 26, 1997 Sept 27, 1996 Sept 26, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Income As Reported $2,563 $3,393 $2,114 $6,504
Pro Forma 2,558 3,344 2,098 6,412
Income per Share As Reported $0.44 $0.57 $0.46 $1.09
Pro Forma 0.44 0.56 0.46 1.08
</TABLE>
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.
<PAGE> 9
The Company may grant options of up to 40,000 shares under the 1997
Nonemployee Directors Stock Option Plan and up to 240,000 shares under the 1997
Stock Option and Restricted Stock Plan. A summary of the status of the Company's
stock option plans for the nine months ended September 26, 1997 is presented in
the table below:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
Per Share
Number of Shares
<S> <C> <C>
Outstanding at 12/31/96 297,750 $ 3.11
Forfeited (12,500) 10.38
Granted 31,000 12.56
------- -----
Outstanding at 09/26/97 316,250 $ 3.75
======== ======
</TABLE>
(10) RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128 "Earnings per Share."
This standard is effective for both interim and annual periods ending after
December 15, 1997. If the earnings per share were calculated in accordance with
SFAS 128, the Company's income (loss) per share would be as follows:
<TABLE>
<CAPTION>
Three fiscal months ended Nine fiscal months ended
------------------------- ------------------------
Sept 27, 1996 Sept 26, 1997 Sept 27, 1996 Sept 26, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic $0.44 $0.60 $0.46 $1.14
Diluted 0.44 0.58 0.46 1.11
</TABLE>
<PAGE> 10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Dayton Superior Corporation (the "Company") achieved record third quarter 1997
net sales of $42.6 million, which were 14.8% higher than net sales in the third
quarter of 1996. The Company's net sales by major product category during the
last two years were:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS THREE FISCAL MONTHS ENDED NINE FISCAL MONTHS ENDED
- ------------------- ------------------------- ------------------------
SEPT 26, 1997 SEPT 27, 1996 SEPT 26, 1997 SEPT 27, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Concrete Accessories $24.9 $22.0 $65.5 $59.0
Paving Products 10.8 7.5 23.6 18.2
Masonry Products 6.9 7.6 19.3 20.0
--- --- ---- ----
Net Sales $42.6 $37.1 $108.4 $97.2
===== ===== ====== =====
</TABLE>
Net sales of concrete accessories increased by $2.9 million, or 13.2%, to $24.9
million in the third quarter of 1997 due to strong market demand, especially in
the rental and tilt-up markets. Net sales of paving products increased $3.3
million, or 44.0%, to $10.8 million in the third quarter of 1997 due to the
acquisition of Ironco Manufacturing Co., Inc. in February 1997 and higher than
expected customer demand. Net sales of masonry products decreased in the third
quarter compared to last year, with a 9.2% decrease. The masonry product market
is currently very price competitive, particularly in the hot dipped and mill
galvanized masonry wall reinforcement markets.
Income before taxes was $6.0 million in the third quarter of 1997 compared to
$4.3 million in the third quarter of 1996.
Net income for the third quarter of 1997 was $3.4 million, or $0.57 per share,
compared to $2.6 million, or $0.44, per share in the third quarter of 1996.
IMPLEMENTATION OF BUSINESS STRATEGY
On September 29, 1997, the Company purchased the stock of Symons Corporation.
Symons was a private company, which owned two divisions. The first division,
Symons is the leading manufacturer of prefabricated concrete forms. The second
division is Richmond Screw Anchor, which is in the concrete accessories
business. The addition of these two businesses provide both a complementary
fourth business platform and expansion in the concrete accessories market.
Symons was a private company which owned two divisions. The first division,
Symons is the leading manufacturer of prefabricated concrete forms. The second
division, Richmond Screw Anchor is in the concrete accessories business. The
Company paid $34,000 for the Common Stock of Symons, subject to adjustment
based on the net worth of Symons as of the date of closing of which $29,000 was
paid in cash and $5,000 was paid by delivery of a seven year unsecured note,
bearing interest at 10.5%. The purchase price will be allocated based upon the
appraised fair market value of the assets acquired. The Symons division will be
operated as a stand alone business unit while the Richmond Screw Anchor
business will be blended with the Company's existing concrete accessory
products division.
<PAGE> 11
On September 26, 1997, the Company acquired inventory and equipment of Baron
Wire and Steel Company, a privately held regional concrete accessories products
manufacturer located in Tustin, CA. The assets will be moved to existing
facilities. The sellers have agreed to a ten year non-compete agreement and will
work with the Company to insure a smooth transition for Baron's customers.
To strengthen its position in concrete paving products, in February 1997, the
Company acquired the principal assets of Ironco Manufacturing Co., Inc. and
Birmingham Bar Coating, Inc. The business is being operated under the name
Ironco Manufacturing, as part of the Company's American Highway Technology
division.
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percentage of net sales.
<TABLE>
<CAPTION>
THREE FISCAL MONTHS ENDED NINE FISCAL MONTHS ENDED
---------------------------- ----------------------------
SEPT 26, 1997 SEPT 27, 1996 SEPT 26, 1997 SEPT 27, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales 100.0 100.0 100.0 100.0
Cost of goods sold 66.3 68.7 67.7 68.5
----- ----- ----- -----
Gross profit 33.7 31.3 32.3 31.5
Selling, general and administrative expenses 16.7 16.0 18.3 17.9
Amortization of goodwill and intangibles 1.1 1.2 1.3 1.3
----- ----- ----- -----
Operating income 15.9 14.1 12.7 12.3
Interest expense, net 1.9 2.2 2.1 4.1
Other, net - 0.2 - 0.1
----- ----- ----- -----
Income before income taxes 14.0 11.7 10.6 8.1
Provision for income taxes 6.0 4.8 4.6 3.5
----- ----- ----- -----
Net income before extraordinary item 8.0 6.9 6.0 4.6
Extraordinary item - - - (2.4)
----- ----- ----- -----
Net income 8.0 6.9 6.0 2.2
===== ===== ===== =====
- ------------------------
</TABLE>
COMPARISON OF THREE FISCAL MONTHS ENDED SEPTEMBER 26, 1997 AND SEPTEMBER 27,
1996
NET SALES
Net sales increased $5.5 million, or 14.8%, from $37.1 million in the third
quarter of 1996 to $42.6 million in the third quarter of 1997. Net sales of
concrete accessories increased by 13.2% from $22.0 million in the third quarter
of 1996 to $24.9 million in the third quarter of 1997, due to strong performance
in our rental and tilt-up product lines, and, to a lesser extent, new product
sales. Net sales of paving products increased $3.3 million, or 44.0% from the
third quarter of 1996 to the third quarter of 1997. The acquisition of the
assets of Ironco Manufacturing Co., Inc. in February 1997 and strong demand from
customers drove the increase. Net sales of masonry products decreased $0.7
million, to $6.9 million in the third quarter of 1997 compared to the third
quarter 1996 levels. Competition continues at a high level in the hot dipped and
mill galvanized masonry wall reinforcement product markets.
<PAGE> 12
GROSS PROFIT
Gross profit for the third quarter of 1997 was $14.4 million, a 24.1% increase
over $11.6 million from the third quarter of 1996. As a percent of net sales,
gross margin was 33.7% in the third quarter of this year, up from 31.3% last
year. The increase in gross margin was primarily caused by a favorable mix
within the concrete accessories category to higher margin products and higher
margins on paving products.
OPERATING EXPENSES
SG&A expenses (excluding the amortization of goodwill and intangibles) were up
as a percent of net sales from 16.0% in the third quarter of last year, to 16.7%
in the third quarter of this year. SG&A expenses increased $1.2 million, or
20.3%, from $5.9 million in the third quarter of 1996, to $7.1 million in the
third quarter of 1997. The increase resulted, in part, from costs associated
with building and strengthening the new American Highway Technology Division.
American Highway Technology locations in Kankakee, IL and Birmingham, AL were
added in April 1996 and February 1997, respectively. Additional costs associated
with new product development and testing and the hiring and/or relocation of
management personnel also contributed to the increase in SG&A expenses.
Income before income taxes and extraordinary item increased $0.8 million to $3.4
million in the third quarter 1997 compared to $2.6 million in the third quarter
of 1996. The difference in effective tax rates from statutory rates is due to
nondeductible goodwill amortization and state taxes.
COMPARISON OF NINE FISCAL MONTHS ENDED SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996
NET SALES
For the first nine months of 1997, net sales were a record $108.4 million, a
11.5% increase from $97.2 million in 1996. Net sales of concrete accessories
increased by $6.5 million, or 11.0%, to $65.5 million in 1997 due to strong
heavy construction activity in the U.S. and to a lesser extent, new product
sales of concrete accessories. Net sales of paving products increased $5.4
million, or 29.7%, from $18.2 million for the first nine months of 1996 to $23.6
million in the first nine months of 1997. The acquisition of Ironco
Manufacturing Co., Inc. in February 1997 and full year utilization of the
refurbished Kankakee facility drove the increase. Net sales of masonry products
decreased slightly in the first nine months from $20.0 million in 1996 to $19.3
million in 1997, representing a 3.6% decrease due to strong competition in the
hot dipped and mill galvanized masonry wall reinforcement product markets. The
masonry division (Dur-O-Wal) raised selling prices on June 1, 1997 in response
to the exceptional price increases in converter steel rod, the primary raw
material in masonry products. Some competitors chose to delay their price
increases in hopes of obtaining more sales. The majority of competitors have now
raised prices and sales volume is recovering.
<PAGE> 13
GROSS PROFIT
Gross profit for the first nine months of 1997 was $35.0 million, a 14.4%
increase over $30.6 million for the first nine months of 1996. As a percent of
net sales, gross margin was 32.3% in the first nine months of 1997, compared to
31.5% in the first nine months of 1996. The improvement in gross margin was
attributable to improved selling prices and a shift in sales mix in favor of
higher margin products on the Company's concrete accessories, and improvement of
margins on paving products.
OPERATING EXPENSES
SG&A expenses (excluding the amortization of goodwill and intangibles) were up
slightly as a percent of net sales from 17.9% in the first nine months of 1996
to 18.3% in the first nine months of 1997. SG&A expenses increased $2.5 million,
or 14.4% from $17.4 million in the nine months of 1996 to $19.9 million in the
same period of 1997. The increase primarily resulted from incurring costs
associated with being a publicly owned company and costs to build and strengthen
a new division-American Highway Technology. Additional costs associated with new
product development and testing and the hiring and/or relocation of management
personnel also contributed to the increase in SG&A expenses.
INTEREST AND OTHER EXPENSES
Interest expense decreased $1.7 million from $4.0 million in the first nine
months of 1996 to $2.3 million in the first nine months of 1997. The Company
used the proceeds from the initial public offering in June 1996 to reduce debt
levels which also facilitated more favorable interest rates.
NET INCOME
Income before income taxes and extraordinary item increased $3.5 million to
$11.4 million in the first nine months of 1997 compared to $7.9 million in the
first nine months of 1996. The difference in effective tax rates from statutory
rates is due to nondeductible goodwill amortization and state taxes.
Net income in the first nine months of 1997 was $6.5 million, or $1.09 per share
compared to $2.1 million, or $0.46, per share in the first nine months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
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 line of credit and the issuance of long-term debt and equity.
Net cash provided by operating activities in the first nine months of 1997 was
$1.7 million. Net income before non-cash charges of depreciation, amortization
and deferred taxes provided $10.8 million of operating cash flow. Working
capital growth used $9.1
<PAGE> 14
million of operating cash flow. Significant working capital uses included
seasonal increases in accounts receivable and inventory of $11.4 million and
$2.3 million, net of acquisitions, respectively. Investments in rental equipment
utilized $1.3 million of operating cash flow. Accounts payable growth provided
$3.9 million in the first nine months of 1997 due to normal seasonal expansion.
Income taxes payable increased by $2.8 million reflecting the timing of required
estimated payments. Net cash generated from draws on the line of credit funded
the seasonal increases in operating activities, investments in property, plant
and equipment, the acquisition of the principal assets of Ironco Manufacturing
Co., Inc., Birmingham Bar Coating Inc. and Baron Wire and Steel Company, and the
scheduled term loan repayments.
At September 26, 1997, working capital was $20.3 million, compared to $16.1
million at September 27, 1996. The growth in working capital is primarily
attributable to acquisitions and growth in the base business.
In June 1996, the Company entered into an Amended Credit Facility to provide for
term loans to the Company and Dur-O-Wal (together, the "Term Loan") and
revolving credit facilities for the Company and Dur-O-Wal (together, the
"Revolving Credit Facility"), each of which is secured by substantially all the
assets of the Company and Dur-O-Wal. At September 26, 1997, $36.2 million of the
$37.0 million Revolving Credit Facility was available, of which $28.4 million of
borrowings were outstanding. The Term Loan had an outstanding balance at
September 26, 1997 of $9.8 million. At September 26, 1997, the Company had $38.4
million of long-term debt outstanding, of which $3.3 million was current. Net
borrowings during the first nine months of 1997 were $3.6 million. The Company's
debt to total capitalization ratio decreased from 42.6% in September 1996 to
39.0% in September 1997 primarily as a result of increased equity from earnings
and to a lesser extent repayment of debt from operating cash flow.
On September 29, 1997, the Company entered into a new 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 and its subsidiaries. The
Company borrowed $130.0 million on the Credit Agreement to fund the acquisition
of all outstanding shares of Symons Corporation and to repay all amounts
outstanding on the existing term and revolving loans of both the Company and
Symons Corporation. On September 29, 1997, following the acquisition of Symons
Corporation all of $40.0 million Revolving Credit Facility was available of
which $30.0 million of borrowings were outstanding. The $100.0 million Term Loan
was drawn in full on September 29, 1997. The new 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, a minimum interest coverage ratio, and limit its ability to pay dividends
on Common Shares. Following the Symons' acquisition and associated refinancing,
the Company's debt to capitalization ratio was 68.5%.
To manage its interest rate risk, on August 18, 1997, the Company entered into
an interest rate swap on $25.0 million of long-term debt that fixed the
LIBOR-based component of the interest rate formula. The swap expires on November
1, 2000 and has a fixed LIBOR component of 6.30%. In addition, on August 18,
1997, the Company entered into a second swap on $25.0 million of long-term debt,
which will be effective
<PAGE> 15
November 1, 1997 through November 1, 2000 at a fixed LIBOR component of 6.33%.
LIBOR as of September 26, 1997 was 5.72%. The differential paid or received on
the interest rate agreements is recognized as an adjustment to interest expense.
These swaps are required by the Company's new Credit Agreement and 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 Company invested $1.8 million in property, plant and equipment additions
during the first nine months of 1997, which is a slight decrease from the
investment level in the first nine months of 1996. Significant investments were
made in equipment to further improve efficiencies and expand capacity in the
concrete paving product line, concrete chemical product line and masonry
accessory product line.
On February 21, 1997, the Company acquired certain of the assets of Ironco
Manufacturing Co., Inc. and Birmingham Bar Coating Inc., privately held concrete
paving products manufacturers. The purchase price, including acquisition related
costs, was $1.5 million and was paid in cash and Class A Common Shares. The
acquisition was accounted for as a purchase. The cash cost of the acquisition
was funded through draws under the Revolving Credit Facility. The purchase price
was allocated on the basis of the agreed upon fair value of the assets acquired
and liabilities assumed.
On September 26, 1997, the Company acquired certain of the assets of Baron Wire
and Steel Company, a privately held regional concrete accessories products
manufacturer located in Tustin, CA. The purchase price was $0.2 million,
including expenses and is subject to post-closing adjustments and was paid in
cash. The acquisition was accounted for as a purchase. The cost of the
acquisition was funded through draws under the Revolving Credit Facility. The
purchase price was allocated on the basis of the agreed upon fair value of the
assets acquired.
The new Credit Agreement provides the Company with additional liquidity. 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 absence of significant 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
cash generated from operations, borrowings under the new Credit Agreement 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.
<PAGE> 16
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1996, the American Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental Remediation Liabilities" ("SOP
96-1"). As described in footnote 2(f) of the December 31, 1996 consolidated
financial statements, the Company adopted the provisions of SOP 96-1 on January
1, 1997. The adoption did not have a material impact on the Company's financial
position or results of operations.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share." This
standard is effective for both interim and annual periods ending after December
15, 1997.
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 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
<PAGE> 17
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.
<PAGE> 18
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: October 16, 1997 BY: /s/Alan F. McIlroy
---------------- --------------------------------
Alan F. McIlroy
Chief Financial Officer and Treasurer
(Principal Accounting and Financial Officer)
<PAGE> 19
INDEX TO EXHIBITS
-----------------
(10) Material Contracts
10.1 First Amendment to 1994 Stock Option Plan
10.2 First Amendment to 1995 Stock Option Plan
(11) Statement Re: Computation of Earnings Per Share:
11.1 Computation of Earnings Per Share
(27) Financial Data Schedule
- -------------------
<PAGE> 1
Exhibit 10.1
FIRST AMENDMENT TO
DAYTON SUPERIOR CORPORATION
1994 STOCK OPTION PLAN
---------------------------
THIS FIRST AMENDMENT is made as of the 17th day of July, 1997, under
the following circumstances:
A. The Dayton Superior Corporation (the "COMPANY") 1994 Stock
Option Plan (the "PLAN") was approved by the Board of Directors of the
Company on May 23, 1994 and by the shareholders of the Company on May
26, 1994.
B. Section 8 of the Plan provides that the Plan may be amended
by the Board of Directors of the Company unless shareholder approval is
required to comply with Rule 16b-3 under the Securities Exchange Act of
1934, as amended, or to comply with any other law, regulation or stock
exchange rule.
C. This First Amendment to the Plan has been approved by the
Board of Directors of the Company on July 17, 1997. No shareholder
approval of this amendment is required.
NOW, THEREFORE, the Plan hereby is amended as follows:
1. DEFINITIONS. Section 2 of the Plan hereby is amended to remove the
definition of "Book Value" set forth in Section 2(c); to include the following
additional definitions; and to reletter the paragraphs of the section
accordingly:
(_) "MARKET VALUE" means the average of the highest sale price
and the lowest sale price of a Share on the date the value of a Share
is to be determined, as reported on the New York Stock Exchange and
published in the WALL STREET JOURNAL, or if no sale is reported for
such date, then on the next preceding date for which a sale is reported
or, if the Shares no longer are traded on the New York Stock Exchange,
the determination of such value shall be made by the Committee in good
faith.
(_) "TAX DATE" means the date as of which the amount of a
withholding tax payment with respect to the exercise of an Option is
calculated.
2. SUBSTITUTION OF MARKET VALUE. Section 6(f) of the Plan hereby is
amended to replace the words "Book Value" in each place in which they appear in
such section with the words "Market Value."
3. PAYMENT OF TAX WITHHOLDING. Section 12(b) of each of the Plans
hereby is amended by adding the following at the end of such section:
An Optionee may elect to have the Company retain from the
Shares to be issued upon the exercise of an Option, or may
deliver to the Company, a number of Shares having a Market
Value on the Tax Date equal to all or any part of the
mandatory federal, state and local withholding tax payments to
be made on behalf of the Optionee with respect to the exercise
of the Option in lieu of making such payments in cash.
----------------------------------------
<PAGE> 1
Exhibit 10.2
FIRST AMENDMENT TO
DAYTON SUPERIOR CORPORATION
1995 STOCK OPTION PLAN
---------------------------
THIS FIRST AMENDMENT is made as of the 17th day of July, 1997, under
the following circumstances:
A. The Dayton Superior Corporation (the "COMPANY") 1995 Stock
Option Plan (the "PLAN") was approved by the Board of Directors of the
Company on October 11, 1995 and by the shareholders of the Company on
October 13, 1995.
B. Section 8 of the Plan provides that the Plan may be amended
by the Board of Directors of the Company unless shareholder approval is
required to comply with Rule 16b-3 under the Securities Exchange Act of
1934, as amended, or to comply with any other law, regulation or stock
exchange rule.
C. This First Amendment to the Plan has been approved by the
Board of Directors of the Company on July 17, 1997. No shareholder
approval of this amendment is required.
NOW, THEREFORE, the Plan hereby is amended as follows:
1. DEFINITIONS. Section 2 of the Plan hereby is amended to remove the
definition of "Book Value" set forth in Section 2(c); to include the following
additional definitions; and to reletter the paragraphs of the section
accordingly:
(_) "MARKET VALUE" means the average of the highest sale price
and the lowest sale price of a Share on the date the value of a Share
is to be determined, as reported on the New York Stock Exchange and
published in the WALL STREET JOURNAL, or if no sale is reported for
such date, then on the next preceding date for which a sale is reported
or, if the Shares no longer are traded on the New York Stock Exchange,
the determination of such value shall be made by the Committee in good
faith.
(_) "TAX DATE" means the date as of which the amount of a
withholding tax payment with respect to the exercise of an Option is
calculated.
2. SUBSTITUTION OF MARKET VALUE. Section 6(f) of the Plan hereby is
amended to replace the words "Book Value" in each place in which they appear in
such section with the words "Market Value."
3. PAYMENT OF TAX WITHHOLDING. Section 12(b) of each of the Plans
hereby is amended by adding the following at the end of such section:
An Optionee may elect to have the Company retain from the
Shares to be issued upon the exercise of an Option, or may
deliver to the Company, a number of Shares having a Market
Value on the Tax Date equal to all or any part of the
mandatory federal, state and local withholding tax payments to
be made on behalf of the Optionee with respect to the exercise
of the Option in lieu of making such payments in cash.
----------------------------------------
<PAGE> 1
Exhibit 11.1
DAYTON SUPERIOR CORPORATION
EXHIBIT 11 - COMPUTATION OF EARNINGS
PER COMMON AND COMMON EQUIVALENT SHARE
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
THREE FISCAL MONTHS ENDED NINE FISCAL MONTHS ENDED
------------------------- ------------------------
Sept 27, Sept 26, Sept 27, Sept 26,
1996 1997 1996 1997
------------------------ -------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding during the period 5,653,943 5,714,188 4,159,725 5,695,964
Common equivalent shares outstanding (a) 219,938 246,353 438,642 249,254
Weighted average common and common ------------------------ -------------------------
equivalent shares outstanding 5,873,881 5,960,541 4,598,367 5,945,218
Income before income taxes and extraordinary
item $2,563 $3,393 $4,428 $6,504
Extraordinary item 0 0 (2,314) 0
------------------------ -------------------------
Income (loss) per share before extraordinary item $2,563 $3,393 $2,114 $6,504
======================== =========================
Income per share before extraordinary item $0.44 $0.57 $0.96 $1.09
Extraordinary item 0.00 0.00 (0.50) 0.00
------------------------ -------------------------
Net income (loss) per share $0.44 $0.57 $0.46 $1.09
======================== =========================
<FN>
Fully diluted earnings per share are not significantly different from primary
earnings per share.
==================
Notes:
(a) Common equivalent shares are shares issuable upon the exercise of stock
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 1996 and the company's ending trading
price for 1997.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000854709
<NAME> DAYTON SUPERIOR CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-27-1997
<PERIOD-END> SEP-26-1997
<CASH> 1,750
<SECURITIES> 0
<RECEIVABLES> 24,103
<ALLOWANCES> 419
<INVENTORY> 16,762
<CURRENT-ASSETS> 44,587
<PP&E> 34,225
<DEPRECIATION> 15,834
<TOTAL-ASSETS> 123,485
<CURRENT-LIABILITIES> 24,277
<BONDS> 35,075
<COMMON> 42,983
0
0
<OTHER-SE> 16,979
<TOTAL-LIABILITY-AND-EQUITY> 123,485
<SALES> 42,592
<TOTAL-REVENUES> 42,592
<CGS> 28,211
<TOTAL-COSTS> 28,211
<OTHER-EXPENSES> 7,589
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 823
<INCOME-PRETAX> 5,969
<INCOME-TAX> 2,576
<INCOME-CONTINUING> 3,393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,393
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
