<PAGE> 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
April 3, 1998 1-11781
DAYTON SUPERIOR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0676346
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
721 Richard Street
Miamisburg, Ohio 45342
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 937-866-0711
------------
NOT APPLICABLE
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(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
--------- ---------
5,729,928 Common Shares were outstanding as of May 5, 1998
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF APRIL 3, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
April 3, December 31,
1998 1997
--------- ---------
(Unaudited)
(Amounts in thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ -- $ --
Accounts receivable, net of allowance for
doubtful accounts of $3,432 and $5,015 42,456 36,656
Inventories (Note 3) 34,826 32,873
Prepaid expenses 1,066 1,445
Prepaid income taxes 2,027 2,087
Future tax benefits 2,200 4,184
--------- ---------
Total current assets 82,575 77,245
--------- ---------
RENTAL EQUIPMENT, NET 40,405 38,327
--------- ---------
PROPERTY, PLANT & EQUIPMENT 59,222 58,063
Less accumulated depreciation (18,300) (16,711)
--------- ---------
Net property, plant & equipment 40,922 41,352
--------- ---------
GOODWILL AND INTANGIBLE ASSETS,
net of accumulated amortization 67,385 68,590
OTHER ASSETS 1,748 1,943
--------- ---------
Total assets $ 233,035 $ 227,457
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4) $ 32 $ 32
Accounts payable 19,882 15,753
Accrued compensation and benefits 7,140 6,913
Accrued liabilities 6,531 8,755
Accrued interest 1,131 960
--------- ---------
Total current liabilities 34,716 32,413
LONG-TERM DEBT (Note 4) 125,027 120,204
DEFERRED INCOME TAXES 7,175 8,606
OTHER LONG-TERM LIABILITIES 6,577 5,705
--------- ---------
Total liabilities 173,495 166,928
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SHAREHOLDERS' EQUITY:
Class A Common Shares 37,789 33,386
Class B Common Shares 5,360 9,749
Cumulative foreign currency translation adjustment (185) (191)
Retained earnings 16,576 17,585
--------- ---------
Total shareholders' equity 59,540 60,529
--------- ---------
Total liabilities and shareholders' equity $ 233,035 $ 227,457
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
2
<PAGE> 3
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE FISCAL MONTHS ENDED APRIL 3, 1998 AND MARCH 28, 1997
<TABLE>
<CAPTION>
April 3, March 28,
1998 1997
----------- ----------
(Unaudited) (Unaudited)
(Amounts in thousands, except
share and per share amounts)
<S> <C> <C>
NET SALES $ 59,227 $ 25,980
COST OF SALES 38,973 18,272
----------- ----------
Gross profit 20,254 7,708
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 18,502 6,273
AMORTIZATION OF GOODWILL AND INTANGIBLES 495 457
----------- ----------
Operating income 1,257 978
OTHER EXPENSES:
Interest expense, net 2,993 686
Other, net 4 11
----------- ----------
Income (loss) before provision (benefit) for income taxes (1,740) 281
PROVISION (BENEFIT) FOR INCOME TAXES (731) 121
----------- ----------
NET INCOME (LOSS) $ (1,009) $ 160
=========== ==========
Basic net income (loss) per share $ (0.18) $ 0.03
=========== ==========
Basic weighted average common shares outstanding 5,728,996 5,676,414
=========== ==========
Diluted net income (loss) per share $ (0.18) $ 0.03
=========== ==========
Diluted weighted average common and common equivalent
shares outstanding 5,728,996 5,899,325
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
3
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DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FISCAL MONTHS ENDED APRIL 3, 1998 AND MARCH 28, 1997
<TABLE>
<CAPTION>
April 3, March 28,
1998 1997
------- -------
(Unaudited) (Unaudited)
(Amounts in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,009) $ 160
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation 2,745 1,041
Amortization of goodwill and intangibles 495 457
Deferred income taxes (114) (109)
Amortization of deferred financing costs 182 41
Gain on sales of rental equipment (501) --
Change in assets and liabilities, net of the effects of acquisitions:
Accounts receivable (4,516) (3,982)
Inventories (1,953) (4,438)
Prepaid income taxes 60 229
Accounts payable 4,129 3,713
Accrued liabilities and other long-term liabilities (670) (910)
Accrued interest 171 299
Other, net 30 (309)
------- -------
Net cash used in operating activities (951) (3,808)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (1,159) (558)
Rental equipment additions, net (2,733) (371)
Acquisitions, net of cash acquired (Note 2) -- (1,098)
Other investing activities -- 3
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Net cash used in investing activities (3,892) (2,024)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 4,823 5,729
Issuance of common stock 14 --
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Net cash provided by financing activities 4,837 5,729
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 6 (4)
Net decrease in cash -- (107)
CASH, beginning of period -- 203
------- -------
CASH, end of period $ -- $ 96
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash refunded for income taxes $ (728) $ (1)
Cash paid for interest 2,640 1,222
Issuance of common stock in conjunction with acquisition (Note 2) -- 346
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements
4
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DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE FISCAL MONTHS ENDED APRIL 3, 1998 AND MARCH 28, 1997
<TABLE>
<CAPTION>
April 3, March 28,
1998 1997
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(Unaudited) (Unaudited)
(Amounts in thousands)
<S> <C> <C>
NET INCOME (LOSS) $(1,009) $ 160
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment 6 (4)
------- -----
COMPREHENSIVE INCOME (LOSS) $(1,003) $ 156
======= =====
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
5
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DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 3, 1998 and MARCH 28, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(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, 1997.
(2) ACQUISITIONS
(a) Symons Corporation--On September 29, 1997, the Company purchased the
stock of Symons Corporation (Symons). Symons was a private company,
which owned two divisions. The first division, Symons, is a leading
manufacturer of prefabricated concrete forms, is based in the Chicago
area, and will be operated as a stand alone business unit. The second
division, Richmond Screw Anchor, is in the concrete accessories
business and is being blended with the Company's existing concrete
accessories division.
The acquisition has been accounted for as a purchase, and the results
of Symons have been included in the accompanying consolidated
financial statements since the date of acquisition. The purchase price
consisted of cash paid of $32,036, a $5,000 note payable to one of the
selling shareholders and assumed liabilities of $81,897. The purchase
agreement between the Company and the former shareholders of Symons
("the Former Shareholders") relating to the Acquisition ("the Purchase
Agreement") provides for an adjustment to the purchase price under
certain circumstances. The Company has advised the Former Shareholders
that it believes it is entitled to a purchase price adjustment in its
favor, and the Former Shareholders similarly advised the Company that
they believe they are entitled to a purchase price adjustment in their
favor. If the Company and the Former Shareholders are unable to
resolve these differences, the dispute will be referred to a mutually
satisfactory accounting firm, which is expected to resolve such
differences, in accordance with the Purchase
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Agreement. At this time, the Company can make no determination as to
the amount of the adjustment, if any, that will be made to the
purchase price. The company intends to vigorously pursue its rights
under the Purchase Agreement.
The unaudited pro forma statement of operations as though Symons had
been acquired on January 1, 1997 is as follows:
1997
-------
Net sales $47,555
Gross profit 16,110
Net loss (1,274)
Basic net loss per share (0.22)
Diluted net loss per share (0.22)
The pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating
results that would have occurred had the Symons acquisition been
consummated as of the above date, nor are they necessarily indicative
of future operating results.
(b) Ironco Manufacturing Co, Inc.--In February 1997, the Company acquired
certain of the assets and assumed certain of the liabilities of Ironco
Manufacturing Co., Inc. and Birmingham Bar Coating, Inc. for $1.5
million, payable in $1.1 million of cash and 26,254 Class A Common
Shares. These operations remained in Birmingham, AL and are a part of
the Company's American Highway Technology division.
(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, 1997. 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 finished products and raw materials 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
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are stated at the lower of first-in, first-out (FIFO) cost or market.
Following is a summary of the components of inventories as of April 3,
1998 and December 31, 1997:
April 3, December 31,
1998 1997
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Raw materials $ 7,636 $ 6,957
Finished goods and work in progress 27,190 25,916
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34,826 32,873
LIFO reserve -- --
------- -------
$34,826 $32,873
======= =======
(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.
(d) Net Income (Loss) Per Share--In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 128 "Earnings per Share." This standard was
effective for both interim and annual periods ending after December
15, 1997. As a result, the Company's reported earnings per share for
the first quarter of 1997 were impacted as follows:
Per Share
Amounts
-------
March 28,
1997
-----
Primary net income per share, as reported $0.03
Effect of SFAS 128 --
-----
Basic net income per share, as restated $0.03
-----
March 28,
1997
-----
Fully diluted net income per share,
as reported $0.03
Effect of SFAS 128 --
-----
Diluted net income per share, as restated $0.03
-----
8
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(d) Reclassifications--Certain reclassifications have been made to the
1997 amounts to conform to their 1998 classifications.
(4) CREDIT ARRANGEMENTS
Following is a summary of the Company's long-term debt as of April 3, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
April 3, December 31,
1998 1997
--------- ---------
<S> <C> <C>
Revolving lines of credit, weighted average interest
rate of 7.3% $ 19,830 $ 15,000
Term Loan, weighted average interest rate of 8.4% 100,000 100,000
Note payable to one of the Former Shareholders 5,000 5,000
City of Parsons, Kansas Economic Development Loan 229 236
-------- --------
Total long-term debt 125,059 120,236
Less current portion 32 32
-------- --------
Long-term portion $125,027 $120,204
======== ========
</TABLE>
At April 3, 1998, $40,000 of the $40,000 Revolving Credit Facility was
available, of which $19,830 of borrowings was outstanding. Average borrowings
under the Revolving Credit Facility and its predecessors were $17,694 and
$24,944 during the first quarter of 1998 and 1997, respectively, at an
approximate weighted average interest rate of 8.1% and 7.3%, respectively. The
maximum borrowings outstanding during the first quarter of 1998 and 1997,
respectively, were $21,220 and $28,963, respectively.
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 sixty-day LIBOR
component of 6.30%. In addition, on August 18, 1997, the Company entered into a
second swap on $25,000 of long-term debt, which was effective November 1, 1997,
at a fixed thirty-day LIBOR component of 6.33%. These swaps expire on November
1, 2000. Thirty-day and sixty-day LIBOR as of April 3, 1998 were 5.66% and
5.69%, respectively. All fluctuations in rate resulting from the swaps are
accounted for as interest expense. These swaps are required by the Company's new
Credit Agreement and are contracts to exchange floating rate for fixed interest
payments over three years without the exchange of underlying amounts. The fair
value of the agreements is a liability of $677 as of April 3, 1998.
9
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The new 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 limit the payment of dividends on
Common Shares. The Company was in compliance with its loan covenants as of April
3, 1998.
(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
(loss) and net income (loss) per share for the quarters ended April 3, 1998 and
March 28, 1997 would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
For the three fiscal
--------------------
months ended
------------
April 3, March 28,
1998 1997
------- ----
<S> <C> <C> <C>
Net income (loss) As Reported $(1,009) $160
Pro Forma (1,044) 150
Basic net income (loss) per share As Reported (0.18) 0.03
Pro Forma (0.18) 0.03
Diluted net income (loss) per share As Reported (0.18) 0.03
Pro Forma (0.18) 0.02
</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.
A summary of the activity of the Company's stock option plans for the three
fiscal months ended April 3, 1998 is presented in the table below:
Weighted
Average
Exercise
Number Price Per
of Shares Share
--------- ------
Outstanding at December 31, 1997 276,250 $ 3.57
Exercised (2,050) 2.46
Granted 75,833 16.81
------- ------
Outstanding at April 3, 1998 350,033 $ 6.44
======= ======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Dayton Superior Corporation (the "Company") achieved record first quarter 1998
net sales of $59.2 million, which were more than double net sales in the first
quarter of 1997 of $26.0 million. The Company's first quarter net sales by major
product category during the last two years were:
DOLLARS IN MILLIONS THREE FISCAL MONTHS
-------------------
ENDED
------
APRIL 3, MARCH 28,
1998 1997
----- -----
Concrete Accessories $29.1 $17.3
Forming Products 21.3 0.0
Paving Products 6.0 3.6
Masonry Products 5.1 5.1
Intercompany Eliminations (2.3) 0.0
----- -----
Net Sales $59.2 $26.0
===== =====
- ------------------------------
The acquisition of Symons Corporation ("Symons"), a leading manufacturer of
prefabricated concrete forms, on September 29, 1997 contributed 80% of the net
sales growth in 1998 over 1997. Net sales in the first quarter of 1998 increased
by $11.6 million, or 24.5%, from pro forma net sales of $47.6 million in the
first quarter of 1997. This was primarily due to milder weather in the first
quarter of 1998 as compared to 1997, especially in the northeast, east coast,
and midwest sections of the country. This allowed an earlier start to the spring
and summer construction season. Accordingly, this may have pulled sales forward
from the second quarter. Additionally, the first quarter of 1998 had six more
days than the first quarter of 1997.
Loss before income taxes was ($1.7) million in the first quarter of 1998
compared to income before income taxes of $0.3 million in the first quarter of
1997 due primarily to the increased interest expense associated with the debt
issued to acquire Symons.
Net loss for the first quarter of 1998 was ($1.0) million, or ($0.18) per basic
and diluted share, compared to net income of $0.2 million, or $0.03 per basic
and diluted share, in the first quarter of 1997. Pro forma net loss for the
first quarter of 1997 was ($1.3) million, or ($0.22) per basic and diluted
share.
IMPLEMENTATION OF BUSINESS STRATEGY
On September 29, 1997, the Company purchased the stock of Symons. Symons was a
private company, which owned two divisions. The first division, Symons, is a
leading manufacturer of prefabricated concrete forms. The second division,
Richmond Screw Anchor, is in the concrete accessories business. The addition of
these two businesses provides both a complementary fourth business platform and
expansion in the concrete
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accessories market. The Symons division is being operated as a stand alone
business unit while the Richmond Screw Anchor business is being blended with the
Company's existing concrete accessories division.
The Company paid $34.0 million (plus acquisition costs of $3.0 million) for the
Common Stock of Symons, of which $32.0 million was paid in cash and $5.0 million
was paid by delivery of a seven year unsecured note. The purchase agreement
between the Company and the former shareholders of Symons ("the Former
Shareholders") relating to the Acquisition ("the Purchase Agreement") provides
for an adjustment to the purchase price under certain circumstances. The Company
has advised the Former Shareholders that it believes it is entitled to a
purchase price adjustment in its favor, and the Former Shareholders similarly
advised the Company that they believe they are entitled to a purchase price
adjustment in their favor. If the Company and the Former Shareholders are unable
to resolve these differences, the dispute will be referred to a mutually
satisfactory accounting firm, which is expected to resolve such differences, in
accordance with the Purchase Agreement. At this time, the Company can make no
determination as to the amount of the adjustment, if any, that will be made to
the purchase price. The company intends to vigorously pursue its rights under
the Purchase Agreement.
To further improve its position in paving products, in February 1997, the
Company acquired certain of the assets and assumed certain of the liabilities of
Ironco Manufacturing Co., Inc. and Birmingham Bar Coating, Inc. (collectively,
"Ironco") for $1.5 million, payable in $1.1 million of cash and 26,254 Class A
Common Shares. These operations remained in Birmingham, AL and are a 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.
THREE FISCAL MONTHS
-------------------
ENDED
-----
APRIL 3, MARCH 28,
1998 1997
----- -----
Net sales 100.0% 100.0%
Cost of goods sold 65.8 70.3
---- ---
Gross profit 34.2 29.7
Selling, general and administrative expenses 31.2 24.1
Amortization of goodwill and intangibles 0.8 1.8
---- ---
Operating income 2.2 3.8
Interest expense, net 5.1 2.7
Other, net 0.0 0.0
---- ---
Income (loss) before income taxes (2.9) 1.1
Provision (benefit) for income taxes (1.2) 0.5
---- ---
Net income (loss) (1.7%) 0.6%
==== ===
- ------------------------------
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COMPARISON OF THREE FISCAL MONTHS ENDED APRIL 3, 1998 AND MARCH 28, 1997
NET SALES
Net sales increased $33.2 million, or 128%, from $26.0 million in the first
quarter of 1997 to $59.2 million in the first quarter of 1998. Net sales of
concrete accessories increased by 68% from $17.3 million in the first quarter of
1997 to $29.1 million in the first quarter of 1998, due primarily to the
addition of the Richmond Screw Anchor division of Symons ($7.7 million of the
increase). The remaining increase is due to milder weather in the first quarter
of 1998 compared to the first quarter of 1997, which allowed an earlier start to
the spring and summer construction season. Forming product net sales were $21.3
million for the first quarter of 1998 due to the acquisition of Symons. The
increase of $3.6 million, or 20.3% from pro forma net sales of $17.7 million
during the first quarter of 1997 is due primarily to milder weather. Net sales
of paving products increased $2.4 million, or 67% from the first quarter of 1997
to the first quarter of 1998, due to milder weather and a full quarter of sales
from Ironco, acquired in February 1997. Net sales of masonry products remained
flat at $5.1 million. Competition continues at a high level in the hot dipped
and mill galvanized masonry wall reinforcement product markets.
GROSS PROFIT
Gross profit for the first quarter of 1998 was $20.3 million, a 163% increase
over $7.7 million from the first quarter of 1997 due primarily to the Symons
acquisition. As a percent of net sales, gross margin was 34.2% in the first
quarter of this year, up from 29.7% last year. The gross margin increased
primarily as a result of the inclusion of the Symons division, as forming
products have higher gross margins than existing product lines. The increase
from 1997 pro forma gross margin of 33.9% is due to the Company's continued
focus on cost improvement programs and the start of the implementation of
synergies from the Symons acquisition.
OPERATING EXPENSES
Selling, general, and administrative expenses, including amortization of
goodwill and intangibles ("SG&A expenses"), increased $12.3 million from $6.7
million in the first quarter of 1997, to $19.0 million in the first quarter of
1998. The acquisition of Symons resulted in $10.3 million, or 84%, of the
increase. SG&A expenses also increased due to personnel relocations;
consolidation of existing distribution facilities; and commissions, incentives,
and shipping costs related to the net sales. SG&A expenses were up as a percent
of net sales from 25.9% in the first quarter of 1997, to 32.0% in the first
quarter of 1998, due to the Symons division having a higher percentage of SG&A
expenses to net sales. This reflects the additional distribution and service
costs associated with the management of Symons' rental equipment fleet.
INTEREST EXPENSE
Interest expense increased from $0.7 million in 1997 to $3.0 million in 1998 due
to the increased long-term debt resulting from the acquisition of Symons.
Interest rates in the
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first quarter of 1998 were also slightly higher as a result of the long-term
debt refinancing in September 1997.
NET INCOME
Loss before income taxes was ($1.7) million in the first quarter 1998 compared
to income before income taxes of $0.3 million in the first quarter of 1997,
primarily due to the increased interest expense from the acquisition of Symons.
The difference in effective tax rates from statutory rates is due to
nondeductible goodwill amortization and state taxes. Net loss for the first
quarter of 1998 was ($1.0) million, or ($0.18) per basic and diluted share,
compared to net income of $0.2 million, or $0.03 per basic and diluted share, in
the first quarter of 1997. Pro forma net loss for the first quarter of 1997 was
($1.3 million), or ($0.22) per basic and diluted share.
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 used in operating activities in the first quarter of 1998 was $1.0
million as compared to $3.8 million in the first quarter of 1997 due to improved
working capital management. Net loss before non-cash charges of depreciation,
amortization, deferred taxes, and gain on sales of rental equipment provided
$1.8 million of operating cash flow in the first quarter of 1998 as compared to
$1.6 million in the first quarter of 1997. Working capital growth used $2.8
million of operating cash flow as compared to $5.4 million in the first quarter
of 1997. Significant working capital uses in 1998 included seasonal increases in
accounts receivable and inventory of $4.5 million and $2.0 million,
respectively. Accounts payable growth provided $4.1 million in the first quarter
of 1998 due to normal seasonal expansion. The Company invested $3.9 million in
property, plant and equipment and net rental equipment additions during the
first quarter of 1998. Significant investments were made in growth of the Symons
rental fleet and in equipment for the concrete accessories and paving products
divisions to further improve efficiencies. Net cash generated from draws on the
line of credit of $4.8 million funded the seasonal increases in working capital
and the investments in property, plant and equipment and rental equipment.
At April 3, 1998, working capital was $47.9 million, compared to $44.8 million
at December 31, 1997. The growth in working capital is primarily attributable to
seasonal growth as the Company prepares for the spring and summer construction
season.
In September 1997, the Company entered into a new Credit Agreement which
provided 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 and to repay all amounts outstanding on the
existing term and revolving loans of both the Company and Symons. The new Credit
Agreement contains certain
14
<PAGE> 15
restrictive covenants which, among other things, require that the Company
maintain a minimum fixed charge coverage ratio, not exceed a certain leverage
ratio and limit the payment of dividends on Common Shares. At April 3, 1998,
$40.0 million of the $40.0 million Revolving Credit Facility was available, of
which $19.8 million of borrowings was outstanding. The Term Loan had an
outstanding balance at April 3, 1998 of $100.0 million. At April 3, 1998, the
Company had $125.1 million of long-term debt outstanding, of which $32 thousand
was current. The Company's debt to total capitalization ratio increased to 67.7%
as of April 3, 1998 from 66.5% as of December 31, 1997, primarily due to the
Company's net loss in the first quarter of 1998 and seasonal borrowings on the
line of credit.
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 has a fixed 60-day
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 was effective
November 1, 1997, at a fixed 30-day LIBOR component of 6.33%. These swaps expire
on November 1, 2000. Thirty-day and sixty-day LIBOR as of April 3, 1998 were
5.66% and 5.69%, respectively. All fluctuations in rate resulting from the swaps
are accounted for as 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 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 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 75% of cash flow
from operations is generated in the fourth quarter.
INFLATION
The Company does not believe inflation had a significant impact on its
operations over the past three years. In the past, the Company has been able to
pass along all or a portion of the effects of 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.
15
<PAGE> 16
RECENTLY ISSUED ACCOUNTING STANDARDS
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. As a result, the Company's reported earnings per share for the first
quarter of 1997 were impacted as follows:
PER SHARE
AMOUNTS
-------
March 28,
1997
----
Primary net income per share, as reported $0.03
Effect of SFAS 128 --
-----
Basic net income per share, as restated $0.03
=====
March 28,
1997
----
Fully diluted net income per share,
as reported $0.03
Effect of SFAS 128 --
-----
Diluted net income per share, as restated $0.03
=====
In July 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. The objective of SFAS 130 is to report a
measure of all changes in the equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with shareholders. Comprehensive income is the total of net income and all other
non-shareholder changes in equity. The Company has adopted SFAS 130 in the first
quarter of 1998.
In July 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 introduces a new model for segment reporting, called the
"management approach". The management approach is based on the way that the
chief operating decision maker organizes segments within a company for making
operating decisions and assessing performance. Reportable segments may be based
on products and services, geography, legal structure, management structure - any
manner in which management disaggregates a company. The management approach
replaces the notion of industry and geographic segments in current FASB
standards. The Company is required to adopt SFAS 131 in its 1998 annual report.
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
16
<PAGE> 17
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 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.
17
<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: May 8, 1998 BY: /s/ ALAN F. MCILROY
----------- -----------------------
Alan F. McIlroy
Chief Financial Officer
18
<PAGE> 19
INDEX TO EXHIBITS
(27) Financial Data Schedule
- -------------------
19
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000854709
<NAME> DAYTON SUPERIOR CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> APR-03-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 42,456
<ALLOWANCES> 3,432
<INVENTORY> 34,826
<CURRENT-ASSETS> 82,575
<PP&E> 59,222
<DEPRECIATION> 18,300
<TOTAL-ASSETS> 233,035
<CURRENT-LIABILITIES> 34,716
<BONDS> 125,027
0
0
<COMMON> 43,149
<OTHER-SE> 16,391
<TOTAL-LIABILITY-AND-EQUITY> 233,035
<SALES> 59,227
<TOTAL-REVENUES> 59,227
<CGS> 38,973
<TOTAL-COSTS> 38,973
<OTHER-EXPENSES> 19,001
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 2,993
<INCOME-PRETAX> (1,740)
<INCOME-TAX> (731)
<INCOME-CONTINUING> (1,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,009)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
