<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11781
DAYTON SUPERIOR CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-0676346
(State of incorporation) (I.R.S. Employer Identification No.)
721 Richard Street
Miamisburg, Ohio 45342
(Address of principal executive office)
Registrant's telephone number, including area code: (937) 866-0711
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- -------------------
<S> <C>
Class A Common Shares, without par value New York Stock Exchange
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of the close of business on March 20, 1998, the aggregate market value of
voting shares held by non-affiliates of the registrant (determined by
multiplying the highest selling price of Class A Common Shares on the New York
Stock Exchange on such date by the total number of Class A Common Shares
outstanding not beneficially owned by directors or officers of the registrant or
Ripplewood Holdings L.L.C.) was $77,410,795.
Number of Class A Common Shares, outstanding on March 20, 1998 4,922,832
Number of Class B Common Shares, outstanding on March 20, 1998 806,350
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held on May 7, 1998 (definitive copies of which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1997) are incorporated by reference in Part III of this Report.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
Dayton Superior Corporation (the "Company") believes it is the largest
North American manufacturer and distributor of specialized metal accessories and
prefabricated forming systems used in concrete and masonry construction. The
Company's products are used primarily in two segments of the construction
industry: non-residential building projects such as institutional buildings,
retail sites, commercial offices and manufacturing facilities; and
infrastructure projects such as highways, bridges, utilities, water and waste
treatment facilities and airport runways.
The Company's distribution system consists of a network of approximately 50
Company operated service/distribution centers in the United States and Canada
and 4,000 dealers across North America. The Company also rents forming systems
and tilt-up bracing to contractors through rental centers and distributors
nationwide. The Company's customers include stocking dealers, brokers, rebar
fabricators, precast concrete manufacturers, brick and concrete block
manufacturers, general contractors, subcontractors, distributors of construction
supplies and metal fabricators.
The Company manufactures most of its products at ten manufacturing
facilities in the United States using, in many cases, high-volume, automated
equipment designed and built or custom modified by in-house personnel. The
Company sells products in four principal product lines: concrete accessories,
forming systems, paving products, and masonry products.
Since 1990, the Company has completed nine acquisitions, the largest of
which was its 1997 acquisition of Symons Corporation ("Symons"). The Symons
Division is the leading North American manufacturer of prefabricated forming
systems, and the Richmond Screw Anchor Division manufactures a broad line of
concrete accessories and hardware.
The Company was incorporated in 1959. The Company's principal executive
offices are located at 721 Richard Street, Miamisburg, Ohio 45342, and its
telephone number is (937) 866-0711.
PRODUCTS
Although almost all of the Company's products are used in concrete or
masonry construction, the function and nature of the products differ widely. The
Company currently offers more than 18,000 different items and believes its brand
names, such as Dayton Superior(R), Symons(R), Richmond Screw Anchor(R),
Dur-O-Wal(R), and American Highway Technology(R), are widely recognized in the
construction industry. The Company continually attempts to increase the number
of products it offers by using engineers and product development teams to
introduce new products and refine existing products.
Concrete Accessories. The Company's concrete accessories products are
comprised primarily of wall-forming products, bridge deck products, bar
supports, precast and prestressed concrete construction products, tilt-up
construction products, plastic and elastomeric formliner products, and chemicals
used in concrete construction. Sales of concrete accessories accounted for
approximately $92.2 million, or 55%, of the net sales of the Company in 1997,
including $5.9 in net sales by the Richmond Division, which was acquired as part
of the Symons acquisition on September 29, 1997.
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Wall-forming products, such as snap ties, coil ties, she bolts and he
bolts, are used in the fabrication of job-built and prefabricated modular forms
for poured-in-place concrete walls. The products, which generally are not
reusable, are made of wire or plastic (or a combination of both materials) and
generally are manufactured by the Company on customized high-speed automatic
equipment.
Bridge deck products (used to support the formwork of bridges) include
hangers and sidewalk overhang brackets (used to support the formwork used by
contractors in the construction and rehabilitation of bridges), coil nuts and
bolts, haunch carriers, screed supports and cast wing nuts.
Bar supports are non-structural metal or plastic accessories used to
position rebar within a horizontal slab or form to be filled with concrete. Bar
supports are often plastic or epoxy coated, galvanized or equipped with plastic
tips to prevent creating a conduit for corrosion of the embedded rebar. The
Company sells more than 100 basic types of bar supports in a wide variety of
standard and custom sizes and finishes.
Precast and prestressed concrete construction products, such as anchors,
inserts, holddowns and pushdowns, are used in the manufacture of precast
concrete panels and prestressed concrete beams and structural members. Precast
concrete panels and prestressed concrete beams are fabricated away from the
construction site and transported to the site for erection. Precast concrete
panels are used in the construction of prisons, freeway sound barrier walls,
external building facades and other similar applications. Prestressed concrete
beams use multiple strands of steel under tension embedded in concrete beams to
provide rigidity and bearing strength, and often are used in the construction of
bridges, parking garages and other applications where long, unsupported spans
are required.
The Company offers a complete line of inserts, lifting hardware and
adjustable beams used in the tilt-up method of construction, in which the
concrete floor slab is used as part of a form for casting the walls of a
building. After the cast walls have hardened on the floor slab, a crane is used
to "tilt-up" the walls, which then are braced in place until they are secured to
the rest of the structure. Tilt-up construction generally is considered to be a
faster method of constructing low-rise buildings than conventional
poured-in-place concrete construction.
Formliner products include plastic and elastomeric products sold for use in
the forming of textured surfaces and in architectural work.
The Company also manufactures or distributes chemicals used in concrete
construction, including form coatings, bond breakers, curing agents, liquid
hardeners, sealers, water repellents, bonding agents, epoxy grouts, floor
hardeners, patching cements, self-leveling floor under-layments and coatings.
Forming Systems. The Company's forming systems products include standard
and specialty concrete forming systems, shoring systems and accessory products.
In addition to the sale of prefabricated forming equipment, the Company also
rents forming products because of their reusability and relativity high unit
cost. The Company believes that, through its Symons Division, it is the largest
prefabricated forming systems manufacturer in North America. Following the
Symons acquisition on September 29, 1997, revenues related to Symons' forming
systems products accounted for $21.1 million, or 13%, of the Company's 1997 net
sales.
Forming systems are reusable modular molds which hold liquid concrete in
place on concrete construction jobs. Standard forming systems are sold or rented
for use in the creation of concrete walls and columns. Specialty forming systems
consist primarily of steel forms that are designed to meet architects' specific
needs for concrete placements.
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Shoring systems include aluminum beams and joists, post shores and shoring
frames used to support deck forms and other false work while concrete is being
poured.
Accessory products sold by the Symons Division include form release agents,
curing compounds, grouts and epoxies and other chemicals used in the pouring,
stamping and placement of concrete.
Paving Products. The Company's paving products consist primarily of welded
dowel assemblies and dowel baskets used to transfer dynamic loads between two
adjacent slabs of concrete roadway. Paving products are used in the construction
and rehabilitation of roads, highways and airport runways to extend the life of
the pavement. The Company sells paving products under both the American Highway
Technology(R) and Dayton Superior(R) names. The Company manufactures welded
dowel assemblies primarily using automated and semi-automatic equipment. Sales
of paving products were approximately $29.2 million, or 17%, of the Company's
net sales in 1997.
Masonry Products. The Company's masonry product line consists primarily of
masonry wall reinforcement ("MWR") products, masonry anchors and other
accessories used in masonry construction and restoration. These products are
manufactured and sold primarily by the Company's Dur-O-Wal, Inc. subsidiary.
Sales of masonry products accounted for approximately $24.9 million, or 15%, of
the net sales of the Company in 1997.
The Company believes that it is the largest manufacturer of MWR products in
North America. MWR products are wire products that are placed between courses of
masonry and covered with mortar to add tensile and structural strength to
masonry walls in order to control shrinkage and cracking, to provide the
principal horizontal reinforcement in engineered masonry walls, to bond masonry
wythes (single thicknesses of brick) in composite and cavity walls, to reinforce
stack bond masonry and to bond intersecting walls. The products improve the
performance and longevity of masonry walls by providing crack control, greater
elasticity, higher ductility to withstand seismic shocks and better resistance
to rain penetration.
The Company has the in-house ability to produce hot-dipped zinc galvanized
finishes on MWR products. "Hot-dip" galvanizing occurs after products are
fabricated and requires skilled personnel and special systems to prevent the
products from adhering to one another. Hot-dipped galvanized finishes are
considered to provide superior protection against corrosion compared to
mill-galvanized finishes. Products with hot-dipped galvanized finishes generally
are sold at a premium and at greater profit margins compared to mill-galvanized
products. In recent years, model building codes in a number of regions of the
country in which masonry construction is used have been amended to require use
of hot-dipped galvanized MWR products. The Company also manufactures MWR
products with mill-galvanized finishes by applying zinc finishes to wire prior
to fabrication.
The Company sells other masonry products such as wall ties, which connect
masonry to masonry; masonry anchors, which connect masonry to the building
structure; stone anchors, which attach building stone (generally ornamental) to
the structural frame of a building; restoration products, which are anchors and
ties used in the restoration of existing masonry construction and for seismic
retrofitting of existing brick veneer surfaces; and moisture control products,
such as flashing and vents, which control the flow of moisture in cavity walls.
DISTRIBUTION
The Company distributes its products through a system of approximately 50
service/distribution centers located in the continental United States and two
Canadian provinces. Of these centers, 16 are dedicated principally to the
distribution of concrete accessories, 21 are dedicated principally to the
distribution of forming systems, two are dedicated primarily to the distribution
of paving products, four are dedicated principally to the
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distribution of masonry products and seven carry both concrete accessories and
masonry products. Most of the Company's products are shipped to the
service/distribution centers from the Company's ten principal manufacturing
plants; however, a majority of the centers also are able to produce smaller
batches of some products on an as-needed basis to fill rush orders.
The Company has an on-line inventory tracking system for concrete
accessories and paving products which enables the Company's customer service
representatives to identify, reserve and ship inventory quickly from any Company
location in response to telephone orders. The system provides the Company with a
competitive advantage since its service representatives are able to answer
customer questions about availability and shipping dates while still on the
telephone, rather than calling back with the information. The Company primarily
uses third-party common carriers to ship its products.
In addition, the Company utilizes its distribution system to sell products
which are manufactured by third parties. These products usually are sold under
the Company's name, and often are produced for it on an exclusive basis. Sales
of third-party products allow the Company to utilize its distribution network to
increase sales without making significant capital investments.
CUSTOMERS
The Company has over 4,000 customers, consisting principally of stocking
dealers, brokers, rebar fabricators, precast and prestressed concrete
manufacturers, brick and concrete block manufacturers, general contractors,
subcontractors, distributors of construction supplies and metal fabricators. The
Company believes that over 75% of its customers purchase its products for
resale, including those that incorporate the Company's products into products
manufactured by the customer. The Company's customer base is geographically
diverse, with no customer accounting for more than 5% of net sales in 1997 and
with its ten largest customers accounting for less than 15% of net sales. The
Company's sales are not concentrated in any particular geographic region.
Customers who purchase the Company's products for resale generally do not sell
the Company's products exclusively.
The Company has instituted a certified dealer program for dealers who
handle its tilt-up construction products. This program was established to
educate dealers in the proper use of the Company's tilt-up products and to
assist them in providing engineering assistance to customers. Certified dealers
are not permitted to carry other manufacturers' tilt-up products, which the
Company believes are incompatible with those sold by the Company and, for that
reason, could be unsafe if used with the Company's products. The Company
currently has 57 certified dealers of tilt-up construction products.
SALES AND MARKETING
The Company employs approximately 200 sales and marketing personnel, of
whom approximately one-half are salesmen and one-half are customer service
representatives. Sales and marketing personnel are located in all of the
Company's service/distribution centers. The Company produces product catalogs
and promotional materials that illustrate certain construction techniques in
which the Company's products can be used to solve typical construction problems.
The Company also promotes its products through seminars and other customer
education efforts and works directly with architects and engineers to secure the
use of the Company's products whenever possible.
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MANUFACTURING
The Company manufactures the majority of the products it sells. In the case
of the Company's concrete accessories, paving products, and masonry products,
most products are manufactured at eight principal facilities in the United
States, although a majority of the Company's service/distribution facilities can
produce smaller lots of some products. The Company's production volumes enable
it to design and build or custom modify much of the equipment it uses to
manufacture these products, using a team of experienced manufacturing engineers
and tool and die makers. By developing its own automatic high-speed
manufacturing equipment, the Company believes that it generally has achieved
significantly greater productivity, lower capital equipment costs, lower scrap
rates, higher product quality, faster changeover times and lower inventory
levels than most of its competitors. In addition, Dur-O-Wal's ability to
"hot-dip" galvanize products at its Aurora, Illinois manufacturing facility
provides it with an advantage over most competitors manufacturing MWR products,
who lack this internal capability.
The Company's forming systems are manufactured at two facilities in the
United States. These facilities incorporate semi-automated and automated
production lines, heavy metal presses, forging equipment, stamping equipment,
robotic welding machines, drills, punches, and other heavy machinery typical for
this type of manufacturing operation.
The Company generally operates its manufacturing facilities two shifts per
day, five days per week (six days per week during peak months), with the number
of employees increasing or decreasing as necessary to satisfy demand.
RAW MATERIALS
The Company's principal raw materials are steel wire rod, steel hot rolled
bar, metal stampings and flat steel, aluminum sheets and extrusions, plywood,
cement and cementitious ingredients, liquid chemicals, zinc and injection-molded
plastic parts. The Company currently purchases products from over 300 vendors
and is not dependent on any single vendor or small group of vendors for any
material portion of its purchases.
COMPETITION
Although the Company believes it is the largest North American manufacturer
and distributor of specialized metal accessories and prefabricated forming
systems used in concrete construction and masonry construction, the industry in
which the Company competes is highly competitive in most product categories and
geographic regions. The Company competes with a relatively small number of
full-line national manufacturers of concrete accessories, forming systems,
masonry product and paving products, and a much larger number of regional
manufacturers and/or manufacturers with limited product lines. The Company
believes that competition is largely based on, among other things, price,
quality, breadth of product lines, distribution capabilities (including quick
delivery times) and customer service. In certain circumstances, due primarily to
factors such as freight rates, quick delivery times and customer preference for
local suppliers, certain manufacturers and suppliers may have a competitive
advantage over the Company in a given region. The Company believes that its size
and breadth of product lines provide it with certain advantages of scale in both
distribution and production relative to its competitors.
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PATENTS AND TRADEMARKS
The Company sells most products under the registered trade names Dayton
Superior(R), Symons(R), Richmond Screw Anchor(R), Dur-O-Wal(R) and American
Highway Technology(R), which the Company believes are widely recognized in the
construction industry and, therefore, important to its business. Although
certain of the Company's products (and components thereof) are protected by
patents, the Company does not believe these patents are material to its
business.
EMPLOYEES
The Company employs 665 salaried and 1,169 hourly personnel, of whom 813 of
the hourly personnel and seven of the salaried personnel are represented by
labor unions. Employees at the Company's Miamisburg, Ohio; Parsons, Kansas; Des
Plaines, Illinois; New Braunfels, Texas; Tremont, Pennsylvania; St. Joseph,
Missouri and Aurora, Illinois manufacturing facilities and its
service/distribution centers in Baltimore, Maryland; Atlanta, Georgia and Santa
Fe Springs, California are covered by collective bargaining agreements. The
collective bargaining agreement covering the Aurora, Illinois facility expires
in 1998, as does the collective bargaining agreement covering the seven salaried
employees at the Company's Santa Fe Springs, California facility. The Company
believes that it has satisfactory employee and labor relations.
SEASONALITY
The Company's operations are seasonal in nature with approximately 60% of
sales historically occurring in the second and third quarters. Working capital
and borrowings fluctuate with sales volume. Historically, more than 50% of cash
flow from operations is generated in the fourth quarter.
BACKLOG
The Company typically ships its products within one week after receipt of
an order and often within 24 hours. Accordingly, the Company does not maintain
significant backlog and backlog as of any particular date is not representative
of actual sales for any succeeding period.
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ITEM 2. PROPERTIES.
The Company's corporate headquarters are located at its principal
manufacturing plant in Miamisburg, Ohio. The Company's principal facilities are
located throughout North America, as follows:
<TABLE>
<CAPTION>
LOCATION USE LEASED/OWNED SIZE (SQ. FT.)
-------- --- ------------ --------------
<S> <C> <C> <C>
Des Plaines, Illinois Manufacturing, Service/Distribution Owned 171,650
and Symons Headquarters
Miamisburg, Ohio Manufacturing, Service/Distribution and Owned 126,000
Corporate Headquarters
Kankakee, Illinois Manufacturing, Service/Distribution and Leased 107,900
American Highway Technology Headquarters
Aurora, Illinois Manufacturing and Service/Distribution Owned 104,000
Tremont, Pennsylvania Manufacturing and Owned 102,650
Service/Distribution
Parsons, Kansas Manufacturing and Service/Distribution Owned 98,250
New Braunfels, Texas Manufacturing and Service/Distribution Owned 89,600
Atlanta, Georgia Service/Distribution Leased 74,090
Parker, Arizona Manufacturing and Service/Distribution Leased 60,000
Birmingham, Alabama Service/Distribution Leased 55,000
Centralia, Illinois Service/Distribution Owned 53,500
St. Joseph, Missouri Manufacturing and Service/Distribution Owned 53,342
Seattle, Washington Service/Distribution Leased 42,825
Santa Fe Springs, California Service/Distribution Leased 40,000
Toronto, Ontario Service/Distribution Leased 40,000
Oregon, Illinois Service/Distribution Owned 39,000
Fort Worth, Texas Service/Distribution Owned 35,304
and Richmond Headquarters
Helena, Alabama Manufacturing and Leased 32,000
Service/Distribution
Folcroft, Pennsylvania Service/Distribution Owned 32,000
Baltimore, Maryland Service/Distribution Owned 30,000
</TABLE>
The Company believes that its facilities provide adequate manufacturing and
distribution capacity for its needs. The Company also believes that all of the
leases were entered into on market terms.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to regulation under various and changing federal,
state and local laws and regulations relating to the environment and to employee
safety and health. These environmental laws and regulations govern the
generation, storage, transportation, disposal and emission of various
substances. Permits are required for operation of the Company's business
(particularly air emission permits), and these permits are subject to renewal,
modification and, in certain circumstances, revocation. The Company believes
that it is in substantial compliance with such laws and permitting requirements.
The Company is also subject to regulation under various and changing federal,
state and local laws and regulations which allow regulatory authorities to
compel (or seek reimbursement for) cleanup of environmental contamination at its
own sites and at facilities where its waste is or has been disposed.
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The Company expects to incur on-going capital and operating costs to
maintain compliance with currently applicable environmental laws and
regulations. The Company does not expect such costs, in the aggregate, to be
material to its financial condition, results of operations or liquidity.
The Company does not believe that there are any pending legal proceedings
to which the Company or any of its subsidiaries is a party which, if adversely
determined, would have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 20, 1998 and their ages,
positions with the Company and their principal occupation during the past five
years (unless otherwise stated, positions with the Company) are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John A. Ciccarelli 58 President, Chief Executive Officer and Director
Alan F. McIlroy 47 Vice President and Chief Financial Officer
John M. Rutherford 37 Treasurer and Assistant Secretary
James C. Stewart 50 Vice President, Corporate Development
Michael C. Deis, Sr. 47 Vice President and General Manager, Concrete
Accessories
James W. Fennessy 54 Vice President and General Manager, Dayton
Superior Canada Ltd.
Mark K. Kaler 40 Vice President and General Manager, American
Highway Technology
Mario J. Catani 65 Vice President, Engineering
Raymond E. Bartholomae 51 Vice President and General Manager, Symons
John R. Paine, Jr. 55 Vice President, Sales and Marketing of Concrete
Accessories
</TABLE>
Mr. Ciccarelli has been President of the Company since 1989 and has been
Chief Executive Officer and a Director of the Company since 1994.
Mr. McIlroy has been Vice President and Chief Financial Officer of the
Company since July, 1997. From January, 1994 until July, 1997, Mr. McIlroy was
President of The Greenock Group, a private operational investment company. Mr.
McIlroy was Senior Vice President for Harris Chemical Group, a specialty
chemical company, from 1990 to 1993.
Mr. Rutherford has been Treasurer and Assistant Secretary of the Company
since January, 1998. From January, 1993 until January, 1998, Mr. Rutherford was
Director of Treasury and Risk Management for Gibson Greetings, Inc., a greeting
card manufacturer.
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Mr. Stewart has been Vice President, Corporate Development of the Company
since February, 1998. From 1984 to February, 1998, he was the Company's Vice
President, Western Division.
Mr. Deis has been Vice President and General Manager, Concrete Accessories
of the Company since February, 1998. From 1987 to February, 1998, he was the
Company's Vice President, Eastern Division.
Mr. Fennessy has been a Vice President of the Company and General Manager,
Dayton Superior Canada, Ltd. since 1988.
Mr. Kaler has been a Vice President of the Company since 1990 and Vice
President and General Manager, American Highway Technology since April 1996.
Mr. Catani has been the Company's Vice President, Engineering since May,
1997, and has been President of Dur-O-Wal since 1984. Dur-O-Wal was acquired by
the Company in October, 1995.
Mr. Bartholomae has been the Company's Vice President and General Manager,
Symons since February, 1998, and has been Executive Vice President and General
Manager of Symons since 1986. Symons was acquired by the Company in September,
1997.
Mr. Paine has been Vice President, Sales and Marketing of Concrete
Accessories of the Company since 1984.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Class A Common Shares are traded on the New York Stock
Exchange under the symbol "DSD". The prices presented in the following table are
the high and low sales prices for the Class A Common Shares for the periods
presented as reported by the New York Stock Exchange. Prior to the Company's
initial public offering of the Class A Common Shares in June, 1996, there was no
established public trading market for the Class A Common Shares.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1997
1st Quarter $13.500 $11.250
2nd Quarter 13.250 9.750
3rd Quarter 19.438 12.500
4th Quarter 19.000 14.813
High Low
---- ---
1996
2nd Quarter $13.750 $13.000
3rd Quarter 13.625 11.750
4th Quarter 13.125 9.625
</TABLE>
As of March 13, 1998, the Company had 42 shareholders of record. Based on
requests from brokers and other nominees, the Company estimates there are 630
additional beneficial owners of its shares.
The Company has paid no dividends on its Common Shares. The Company
currently intends to retain its future earnings, if any, to fund the development
and growth of its business and, therefore, does not anticipate declaring or
paying cash dividends on the common shares in the near term. The decision
whether to apply legally available funds to the payment of dividends on common
shares will be made by the Board of Directors of the Company from time to time
in the exercise of its business judgment, taking into account, among other
things, the Company's results of operations and financial condition, any then
existing or proposed commitments for the use by the Company of available funds
and the Company's obligations with respect to any then outstanding class or
series of its preferred shares.
The Company is restricted by the terms of its credit agreements from paying
cash dividends on the Common Shares and may in the future enter into loan or
other agreements or issue debt securities or preferred shares that restrict the
payment of cash dividends on the Common Shares. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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ITEM 6. SELECTED FINANCIAL DATA.
(All dollar amounts in thousands, except share data)
The earnings statement data and the balance sheet data presented below have
been derived from the company's consolidated financial statements and should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
and Notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net Sales $ 75,154 $ 82,341 $ 92,802 $ 124,486 $ 167,412
Cost of Sales 55,427 58,011 63,990 86,021 110,528
----------- ----------- ----------- ----------- -----------
Gross Profit 19,727 24,330 28,812 38,465 56,884
Selling, general, and administrative
expenses, excluding amortization of
goodwill and intangibles 14,568 16,722 18,698 23,637 37,277
Amortization of goodwill and intangibles 1,303 1,305 1,491 1,749 1,885
----------- ----------- ----------- ----------- -----------
Income from operations 3,856 6,303 8,623 13,079 17,722
Interest expense, net 10,118 6,017 4,231 4,829 5,556
Other expense (income), net -- 873 (3) 96 (64)
Provision (benefit) for income taxes (2) (89) 95 690 3,538 5,277
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary item (6,173) (682) 3,705 4,616 6,953
Extraordinary items, net of tax -- 31,354(1) -- (2,314)(3) --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (6,173) $ 30,672 $ 3,705 $ 2,302 $ 6,953
=========== =========== =========== =========== ===========
Net income (loss) available to common
shareholders $ (6,173) $ 30,175 $ 71 $ 2,302 $ 6,953
=========== =========== =========== =========== ===========
Basic income (loss) per share before
extraordinary items $ (124.33) $ (0.67) $ 0.02 $ 1.02 $ 1.22
Basic net income per share $ (124.33) $ 17.08 $ 0.02 $ 0.51 $ 1.22
Basic weighted average common and common
share equivalents outstanding(4) 49,650 1,766,700 2,990,847 4,547,527 5,703,601
Diluted income (loss) per share before
extraordinary items $ (65.46) $ (0.58) $ 0.02 $ 0.94 $ 1.17
Diluted net income per share $ (65.46) $ 14.93 $ 0.02 $ 0.47 $ 1.17
Diluted weighted average common and common
share equivalents outstanding(4) 94,304 2,020,717 3,558,908 4,925,464 5,933,244
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total assets $ 75,818 $72,371 $103,860 $107,835 $227,457
Long-term debt (including current portion) 64,483 24,448 53,012 34,769 120,236
Shareholders' equity (deficit) (8,848) 27,674 27,485 52,872 60,529
</TABLE>
12
<PAGE> 13
(1) In December 1992, the Company defaulted on certain financial covenants in
its senior debt and was unable to make payments of principal and interest
as they came due. From December 1992 to May 1994, the Company accrued
additional penalty interest on its senior debt. In May 1994, the Company
reached an agreement with its lenders to restructure its debt, resulting in
an extraordinary gain of $31,354, net of an income tax effect of $92.
(2) In 1993, an income tax benefit was recorded to the extent the Company was
able to obtain federal or state income tax refunds. In 1994, the provision
for income taxes related to alternative minimum taxes. In 1995, the
provision for income taxes was reduced to reflect the utilization of net
operating losses.
(3) During June 1996, the Company prepaid its $40,000 unsecured senior
promissory notes. In conjunction therewith, the Company paid a prepayment
premium of $2,400 and expensed unamortized financing costs and debt
discount of $795 and $538, respectively. The Company recorded an
extraordinary loss of $2,314, net of an income tax effect of $1,419. The
Company funded this repayment with $22,358 in proceeds from its public
stock offering and $20,042 from its credit facility.
(4) Basic net income per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares
outstanding during the year. Diluted net income per share is computed by
dividing net income available to common shareholders by the weighted
average number of common and common share equivalents outstanding during
the year. Common share equivalents include the number of shares issuable
upon the exercise of outstanding options and warrants, less the shares that
could be purchased with the proceeds from the exercise of the options and
warrants, based on the Company's average trading price for 1997 and 1996
and the initial public offering price of $13.00 per share for 1995. For the
purposes of calculating net income (loss) per common and equivalent share,
equivalent shares issued less than 12 months prior to the initial public
offering are included for all periods presented. Common equivalent shares
issued more than 12 months prior to the Offering are excluded in periods
with a net loss available to common shareholders. See Note 3(h) to the
consolidated financial statements of the Company.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Dayton Superior's record net sales of $167.4 million in 1997 were 34.5%
higher than 1996 and 80.4% higher than 1995. The Company's net sales for its
four major product categories during the last three years were:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS 1997 1996 1995
- -------------------- ------ ------ -----
<S> <C> <C> <C>
Concrete Accessories $ 92.2 $ 76.7 $70.4
Paving Products 29.2 21.9 17.6
Forming Systems 21.1 -- --
Masonry Products 24.9 25.9 4.8
------ ------ -----
Net sales $167.4 $124.5 $92.8
====== ====== =====
</TABLE>
The acquisition of Symons Corporation, a leading manufacturer of
prefabricated concrete forms, on September 29, 1997 contributed 62.9% of the net
sales growth in 1997 from 1996. The acquisition of Ironco Manufacturing Co.,
Inc. and Birmingham Bar Coating, Inc., privately held paving products
manufacturers contributed 7.9% of the net sales growth in 1997 over 1996.
Income before income taxes and extraordinary item was a record $12.2
million in 1997 versus $8.2 million in 1996 and $4.4 million in 1995. In June
1996, after the completion of its initial public offering, the Company prepaid
its $40.0 million of unsecured senior promissory notes and recorded an
extraordinary loss on the extinguishment of debt of $2.3 million, net of income
tax effect.
Net income in 1997 was $7.0 million ($1.17 per diluted share and $1.22 per
basic share) compared to $2.3 million ($0.47 per diluted share and $0.51 per
basic share) in 1996 and $3.7 million ($0.02 per diluted and basic share) in
1995. Excluding the extraordinary item, 1996 net income was $4.6 million ($0.94
per diluted share and $1.02 per basic share).
IMPLEMENTATION OF BUSINESS STRATEGY
On September 29, 1997, the Company purchased the stock of Symons
Corporation ("Symons"). Symons was a private company, which owned two 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 addition of these two businesses provided both a
complementary fourth business platform and expansion in the concrete accessories
market. The Company paid $34.0 million (plus acquisition costs to date of $3.0
million) for the stock of Symons, subject to adjustment based on the net worth
of Symons as of the date of closing, of which $32.0 million was paid in cash and
$5.0 million was paid by delivery of a seven year unsecured note, bearing
interest at 10.5%. 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,
14
<PAGE> 15
the dispute will be referred to a mutually satisfactory accounting firm, which
is expected to resolve such differences, in accordance with the terms of the
Purchase Agreement. 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 pursue vigorously its rights under the Purchase
Agreement. The Symons division will be operated as a stand alone business unit,
while the Richmond Screw Anchor business will be integrated into the Company's
existing concrete accessories division.
On September 26, 1997, the Company acquired inventory and equipment of
Baron Wire and Steel Company, a privately held regional concrete accessories
manufacturer located in Tustin, CA, for $0.3 million in cash. 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 further improve its position in paving products, in February 1997, the
Company acquired the principal assets of Ironco Manufacturing Co., Inc. and
Birmingham Bar Coating, Inc. for $1.5 million, payable in $1.1 million of cash
and 26,254 shares of Class A Common Shares. These operations will remain in
Birmingham, Alabama and will be operated as part of the American Highway
Technology division.
In June 1996, the Company completed an initial public offering of 2,030,950
shares of Class A Common Shares and received proceeds of $23.0 million, net of
expenses. The proceeds from the offering were used, in combination with new
borrowings, to prepay its $40.0 million of unsecured senior promissory notes.
In April 1996, the Company purchased certain assets of Steel Structures,
Inc. ("SSI Acquisition"), a privately held regional concrete paving products
manufacturer located in Kankakee, Illinois, for $5.6 million. These assets were
combined with the Company's existing concrete paving product business to form
the Company's new American Highway Technology division, headquartered in
Kankakee, Illinois.
In October 1995, the Company acquired Dur-O-Wal, Inc., ("Dur-O-Wal") a
leading manufacturer of masonry products, for $23.6 million in cash. Dur-O-Wal
represents the Company's masonry products.
Simultaneous with the October 1995 acquisition of Dur-O-Wal, the Company
repurchased Class B Common Shares and redeemable preferred shares (the
"Prudential Repurchase"), from the Prudential Insurance Company of America and
Pruco Life Insurance Company (collectively, "Prudential").
Two smaller investments in 1995 and 1996 gave the Company a growing
position in a new Formliner product line. In 1995, the Company purchased the
assets of C & B Construction Supplies, Inc. The Company now markets a wide range
of Formliner products under the Dayton Superior name. In December 1996, the
Company invested in a joint venture, Spec Formliner, Inc., a start-up
manufacturer of Formliner products, which manufactures products for Dayton
Superior as well as other customers.
15
<PAGE> 16
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percentage of net sales for the years 1995 through 1997 ending December 31.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of goods sold 66.0 69.1 69.0
----- ----- -----
Gross profit 34.0 30.9 31.0
Selling, general and administrative expenses ("SG&A") 22.3 19.0 20.1
Amortization of goodwill and intangibles 1.1 1.4 1.6
----- ----- -----
Income from operations 10.6 10.5 9.3
Interest expense, net 3.3 3.9 4.6
Other, net -- -- --
----- ----- -----
Income before income taxes and extraordinary item 7.3 6.6 4.7
Provision for income taxes 3.1 2.9 0.7
----- ----- -----
Income before extraordinary item 4.2 3.7 4.0
Extraordinary item, net of tax -- (1.9)(1) --
----- ----- -----
Net Income 4.2 1.8 4.0
===== ===== =====
</TABLE>
- --------------
(1) In June 1996, the Company extinguished debt creating an extraordinary loss
of $2.3 million, net of tax effects.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Sales - The 1997 net sales reached a record $167.4 million, a 34.5%
increase from $124.5 million in 1996. Concrete product net sales increased by
20.2% from $76.7 million in 1996 to $92.2 million in 1997, due to the addition
of the Richmond Screw Anchor division of Symons, which contributed 38.0% of the
increase. Additionally, strong heavy construction activity in the U.S. and new
product sales of concrete accessories also contributed to the increased net
sales. Net sales of paving products increased by 33.3% to $29.2 million in 1997
from $21.9 million in 1996 because of the acquisition of Ironco, a full year's
net sales resulting from the SSI Acquisition, and an increased presence in the
market place. Net sales of masonry accessories were $24.9 million for 1997
versus $25.9 million in 1996. Competition continues at a high level in the hot
dipped and mill galvanized masonry wall reinforcement product markets. Forming
product net sales were $21.1 million for the fourth quarter as a result of the
acquisition of Symons.
Gross Profit - Gross profit for 1997 was $56.9 million, a 47.9% increase
over $38.5 million for 1996. As a percent of net sales, gross margin was 34.0%
in 1997 compared to 30.9% in 1996. The gross margin increased primarily as a
result of the inclusion of the sales of Symons in the fourth quarter, as forming
products have higher gross margins than the existing product lines. The increase
in gross profit dollars is attributable to the fourth quarter contribution of
Symons, and, to a lesser extent, improved selling prices and a shift in sales
mix in favor of higher margin products in the Company's concrete accessories
products. Continued major investments in fixed assets also added to margin in
1997 by allowing the Company to reduce its manufacturing costs and the Company
continued its focus on cost improvement programs.
16
<PAGE> 17
Operating Expenses - SG&A expenses (excluding the amortization of goodwill
and intangibles) were up as a percent of sales from 19.0% in 1996 to 22.3% in
1997, due to Symons having a higher percentage of SG&A expenses to net sales.
SG&A expenses increased $13.7 million, or 57.7%, from $23.6 million in 1996 to
$37.3 million in 1997. About 70% of the increase resulted from the acquisition
of Symons. SG&A expenses also were up due to the addition of Ironco, management
personnel relocations, and integration costs from the Symons acquisition.
Interest and Other Expenses - Interest expense increased 15.1% to $5.6
million in 1997 from $4.8 million in 1996 because of higher debt resulting from
the Symons acquisition. Additionally, deferred financing costs of $0.3 million
related to the previous credit facility were expensed. The lower average debt
outstanding in the first three quarters of 1997 and the lower interest rates
obtained in the June 1996 debt restructuring were offset by the increased
financing for the Symons acquisition.
Net Income - Income before income taxes and extraordinary item increased
$4.0 million to $12.2 million in 1997 from $8.2 million in 1996 due to the
factors described above.
The effective tax rate in 1997 was 43.1%, or $5.3 million, compared to a
rate of 43.4%, or $3.5 million, in 1996. Nondeductible goodwill amortization and
state and local taxes caused the Company's effective tax rate to exceed federal
statutory levels.
As described in footnote 4 of the consolidated financial statements, the
Company prepaid certain indebtedness in June 1996 that resulted in an
extraordinary charge of $2.3 million.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Sales - The 1996 net sales reached a record $124.5 million, a 34.1%
increase from $92.8 million in 1995. Having a full year of masonry product sales
from Dur-O-Wal accounted for $21.1 million, two-thirds of the net sales
increase. Net sales of concrete accessories increased by 8.9% to $76.7 million
in 1996 from $70.4 million in 1995, because of strong heavy construction
activity in the U.S. and new product sales of concrete accessories. Net sales of
paving products increased 24.4% to $21.9 million in 1996 from $17.6 million in
1995 primarily due to the SSI Acquisition. Net sales of masonry accessories were
$25.9 million for 1996 versus only $4.8 million in 1995 due to the acquisition
of Dur-O-Wal in October 1995. The Company believes it has increased overall
market share in masonry products despite the presence of a new competitor in the
market for hot-dipped masonry accessories.
Gross Profit - Gross profit for 1996 was $38.5 million, a 33.5% increase
over $28.8 million for 1995. As a percent of net sales, gross margin was 30.9%
in 1996 compared to 31.0% in 1995. The gross margin decreased slightly as a
result of the inclusion of a full year of masonry accessory sales and increased
concrete paving product sales from SSI, both of which traditionally command a
lower margin than concrete accessories. The increase in gross profit dollars is
attributable to a full year of masonry products sales, and, to a lesser extent,
improved selling prices and a shift in sales mix in favor of higher margin
products in the Company's concrete accessories. Favorable raw material costs
also contributed to the improvement in 1996 gross profit. Continued major
investments in fixed assets, particularly in the concrete paving products line
in 1995, also added to margin in 1996 by allowing the Company to reduce its
manufacturing costs.
17
<PAGE> 18
Operating Expenses - SG&A expenses (excluding the amortization of goodwill
and intangibles) were down as a percent of sales from 20.1% in 1995 to 19.0% in
1996. SG&A expenses increased $4.9 million, or 26.4%, from $18.7 million in 1995
to $23.6 million in 1996. Most of the increase resulted from the inclusion of a
full year of Dur-O-Wal expenses. SG&A expenses also were up due to incurring
costs associated with being a publicly owned company and costs incurred to build
and strengthen a new division - American Highway Technology.
Interest and Other Expenses - Interest expense increased 14.1% from $4.2
million in 1995 to $4.8 million in 1996, reflecting higher debt resulting from
the Dur-O-Wal Acquisition, the redemption of $10.0 million of the Company's
preferred shares in October 1995, and the SSI Acquisition in April 1996.
Favorable interest rates obtained in the June 1996 debt restructuring reduced
the weighted average interest rate.
Net Income - Income before income taxes and extraordinary item increased
$3.8 million to $8.2 million in 1996 compared to $4.4 million in 1995.
The effective tax rate in 1996 was 43.4%, or $3.5 million, compared to a
rate of 15.7%, or $0.7 million, in 1995, which benefited from availability of a
tax loss carryforward. The 1996 provision for income taxes returned to a normal
level. Nondeductible goodwill amortization and state and local taxes caused the
Company's effective tax rate to exceed federal statutory levels.
As described in footnote 4 of the consolidated financial statements, the
Company prepaid certain indebtedness in June 1996 that resulted in an
extraordinary charge of $2.3 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements relate primarily to capital
expenditures, debt service and the cost of acquisitions. Historically, the
Company's primary sources of financing have been cash generated from operations,
borrowings under its revolving line of credit and the issuance of long-term debt
and equity.
Net cash provided by operating activities for 1997 was $10.4 million.
Sources of operating cash flow for 1997 included $7.0 million in net income and
$7.6 million from non-cash charges for depreciation and amortization and was
reduced by $2.9 million in gains on sales of rental equipment and property,
plant, and equipment. Working capital changes included a decrease in accounts
receivable of $3.1 million, net of acquisitions, as a result of improved
collection efforts. Uses of cash from operations, net of acquisitions, included
a $2.9 million decrease in accrued liabilities, and a $2.1 million decrease in
accounts payable. Net cash generated by operations and provided by financing
activities was used to fund strategic acquisitions as described in footnote 2 of
the consolidated financial statements.
At December 31, 1997, working capital was $44.8 million, compared to $10.9
million at December 31, 1996. The growth in working capital is primarily
attributable to the Symons acquisition.
In September 1997, the Company entered into a new Credit Agreement to
provide for a term loan and a revolving credit facility, each of which is
secured by substantially all 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 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. At December 31, 1997, $40.0 million of the $40.0
million Revolving Credit Facility was available, of which $15.0 million of
18
<PAGE> 19
borrowings were outstanding. The Term Loan had an outstanding balance at
December 31, 1997 of $100.0 million. At December 31, 1997, the Company had
$120.2 million of long-term debt outstanding, of which $32 thousand was current.
Net debt issuances during 1997 increased borrowings by $85.5 million, a 245.8%
increase. The Company's debt to total capitalization ratio increased from 39.7%
in 1996 to 66.5% in 1997 primarily as a result of the acquisition of Symons.
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
sixty-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 thirty-day LIBOR component of 6.33%.
These swaps expire on November 1, 2000. Thirty-day and sixty-day LIBOR as of
December 31, 1997 were 5.69% and 5.94%, 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 Company invested $5.7 million in property, plant, and equipment and net
rental equipment additions during 1997. Significant investments were made in the
paving products and masonry accessories product lines.
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
cash generated from operations, borrowings under the Credit Facility or, if
feasible and attractive, issuances of long-term debt or additional Class A
Common Shares.
The Company is addressing any "Year 2000" issues and does not believe that
the costs will be significant.
SEASONALITY
The Company's operations are seasonal in nature, with approximately 60% of
sales historically occurring in the second and third quarters. Working capital
and borrowings fluctuate with sales volume. Historically, more than 50% of cash
flow from operations is generated in the fourth quarter.
INFLATION
The Company does not believe inflation had a significant impact on its
operations over the past three years. In the past, the Company has been able to
pass along all or a portion of the effects of steel price increases. There can
be no assurance the Company will be able to continue to pass on the cost of such
increases in the future.
19
<PAGE> 20
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 3(f) of the consolidated financial
statements, the Company adopted SOP 96-1, effective January 1, 1997. Adoption of
SOP 96-1 did not have a material impact on the Company's financial position or
results of operations.
In February 1997, the Financial and Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 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 1996 and 1995 were restated. However, diluted earnings per share was
the same as earnings per share previously reported.
In July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of financial statements.
The objective of the Statement is to report a measure of all changes in equity
of an enterprise that result from transactions and other economic events of the
period other than transactions with owners ("comprehensive income").
Comprehensive income is the total of net income and all other nonowner changes
in equity. The Company is required to adopt SFAS 130 for its first quarter of
1998.
In July 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information". SFAS 131 introduces a new model for
segment reporting, called the "management approach". The management approach is
based on the way that the chief operating decision maker organizes segments
within a company for making operating decisions and assessing performance.
Reportable segments are based on 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
for its 1998 annual report.
20
<PAGE> 21
FORWARD-LOOKING STATEMENTS
This Form 10-K includes; and future filings by the Company on 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
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.
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report Of Independent Public Accountants
To Dayton Superior Corporation:
We have audited the accompanying consolidated balance sheets of Dayton Superior
Corporation (an Ohio corporation) and Subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dayton Superior Corporation and
Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Part IV, Item
14(a)(2) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Dayton, Ohio
February 10, 1998
22
<PAGE> 23
Dayton Superior Corporation And Subsidiaries
Consolidated Balance Sheets
As of December 31
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS (Note 5)
Current assets
Cash $ -- $ 203
Accounts receivable, net of allowance for doubtful accounts
of $5,015 and $449 36,656 12,348
Inventories (Note 3) 32,873 14,155
Prepaid expenses 1,445 528
Prepaid income taxes 2,087 1,222
Future income tax benefits (Notes 3 and 9) 4,184 986
-------- --------
Total current assets 77,245 29,442
-------- --------
Rental equipment, net (Note 3) 38,327 2,090
-------- --------
Property, plant and equipment (Note 3)
Land 6,476 932
Building and improvements 19,266 8,697
Machinery and equipment 32,321 22,110
-------- --------
58,063 31,739
Less accumulated depreciation (16,711) (13,041)
-------- --------
Net property, plant and equipment 41,352 18,698
-------- --------
Goodwill and intangible assets, net of accumulated amortization (Note 3) 68,590 57,229
Other assets 1,943 376
-------- --------
Total assets $227,457 $ 107,835
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt (Note 5) $ 32 $ 3,282
Accounts payable 15,753 7,701
Accrued interest 960 74
Accrued compensation and benefits 6,913 4,480
Other accrued liabilities 8,755 3,031
-------- --------
Total current liabilities 32,413 18,568
Long-term debt (Note 5) 120,204 31,487
Deferred income taxes (Notes 3 and 9) 8,606 2,694
Other long-term liabilities (Notes 7 and 8) 5,705 2,214
-------- --------
Total liabilities 166,928 54,963
-------- --------
Commitments and contingencies (Note 10)
Shareholders' equity (Note 6)
Class A common shares; no par value; 20,539,500 shares authorized; 4,261,806 and
4,199,200 shares issued and outstanding; 1 vote per share 33,386 32,636
Class B common shares; no par value; 1,466,350 shares authorized, issued, and
outstanding; 10 votes per share 9,749 9,749
Cumulative foreign currency translation adjustment (191) (145)
Retained earnings 17,585 10,632
-------- --------
Total shareholders' equity 60,529 52,872
-------- --------
Total liabilities and shareholders' equity $227,457 $107,835
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
23
<PAGE> 24
Dayton Superior Corporation and Subsidiaries
Consolidated Statements Of Income
Years Ended December 31
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 167,412 $ 124,486 $ 92,802
Cost of sales 110,528 86,021 63,990
---------- ---------- ----------
Gross profit 56,884 38,465 28,812
Selling, general and administrative expenses 37,277 23,637 18,698
Amortization of goodwill and intangibles 1,885 1,749 1,491
---------- ---------- ----------
Income from operations 17,722 13,079 8,623
Other expenses
Interest expense, net 5,556 4,829 4,231
Other, net (64) 96 (3)
---------- ---------- ----------
Income before income taxes and extraordinary item 12,230 8,154 4,395
Provision for income taxes (Note 9) 5,277 3,538 690
---------- ---------- ----------
Income before extraordinary item 6,953 4,616 3,705
Extraordinary item (Note 4)
Loss on extinguishment of debt, net of income tax effect of $1,419 -- (2,314) --
---------- ---------- ----------
Net income 6,953 2,302 3,705
Dividends on redeemable preferred shares -- -- (470)
Accretion on redeemable preferred shares -- -- (192)
Redemption of redeemable preferred shares in excess of book value -- -- (2,972)
---------- ---------- ----------
Net income available to common shareholders $ 6,953 $ 2,302 $ 71
========== ========== ==========
Basic income per share before extraordinary item $ 1.22 $ 1.02 $ 0.02
Basic extraordinary item per share -- (0.51) --
---------- ---------- ----------
Basic net income per share $ 1.22 $ 0.51 $ 0.02
========== ========== ==========
Weighted average common shares outstanding 5,703,601 4,547,527 2,990,847
========== ========== ==========
Diluted income per share before extraordinary item $ 1.17 $ 0.94 $ 0.02
Diluted extraordinary item per share -- (0.47) --
---------- ---------- ----------
Diluted net income per share $ 1.17 $ 0.47 $ 0.02
========== ========== ==========
Weighted average common and common share equivalents outstanding 5,933,244 4,925,464 3,558,908
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
24
<PAGE> 25
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1997, 1996 and 1995
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Cumulative
Class A Class B Foreign
Common Shares Common Shares Currency Excess
----------------------- ------------------ Translation Pension
Shares Amount Shares Amount Adjustment Liability
------ ---------- ------ ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 2,040,000 $ 14,554 873,400 $ 1,714 $(157) $ (295)
Net income
Foreign currency translation 18
adjustment
Excess pension liability adjustment 245
Dividends on redeemable preferred
Class A shares, $9.40 per share
Accretion on redeemable preferred
Class B shares
Acquisition of common shares (Note 11) (873,400) (1,714)
Redemption of redeemable preferred
shares (Note 6d)
Issuance of common shares for cash,
net of issuance costs 764,500 2,929 485,500 1,942 -- --
--------- -------- --------- -------- ----- --------
Balances at December 31, 1995 2,804,500 17,483 485,500 1,942 (139) (50)
Net income
Foreign currency translation (6)
adjustment
Excess pension liability adjustment 50
Exercise of warrants (Note 6b) 346,600 -- --
Conversion of Class B common shares
into Class A common shares 541,700 2,316 (541,700) (2,316)
Conversion of Class A common shares
into Class B common shares (1,522,550) (10,123) 1,522,550 10,123
Retirement of treasury shares (2,000) (81)
Issuance of common shares for cash,
net of issuance costs (Note 6b) 2,030,950 23,041
--------- -------- --------- -------- ----- --------
Balances at December 31, 1996 4,199,200 32,636 1,466,350 9,749 (145)
Net income
Foreign currency translation
adjustment (46) (46)
Issuance of common stock in lieu of
directors' fees 8,258 104
Issuance of common shares in
conjunction with acquisition
(Note 2) 26,254 346
Exercise of stock options, net 28,094 300
--------- -------- --------- -------- ----- ------
Balances at December 31, 1997 4,261,806 $ 33,386 1,466,350 $ 9,749 $(191) $ --
========= ======== ========= ======== ===== ======
</TABLE>
<TABLE>
<CAPTION>
Treasury
Shares
Retained --------------------
Earnings Shares Amount Total
-------- ------ ------ -----
<S> <C> <C> <C> <C>
Balances at December 31, 1994 $11,939 2,000 $ (81) $27,674
Net income 3,705 3,705
Foreign currency translation 18
adjustment
Excess pension liability adjustment 245
Dividends on redeemable preferred
Class A shares, $9.40 per share (470) (470)
Accretion on redeemable preferred
Class B shares (192) (192)
Acquisition of common shares (Note 11) (3,680) (5,394)
Redemption of redeemable preferred
shares (Note 6d) (2,972) (2,972)
Issuance of common shares for cash,
net of issuance costs -- 4,871
------- ----- -------- -------
Balances at December 31, 1995 8,330 2,000 (81) 27,485
Net income 2,302 2,302
Foreign currency translation (6)
adjustment 50
Excess pension liability adjustment
Exercise of warrants (Note 6b) --
Conversion of Class B common shares
into Class A common shares --
Conversion of Class A common shares
into Class B common shares --
Retirement of treasury shares (2,000) 81
Issuance of common shares for cash,
net of issuance costs (Note 6b) 23,041
------- ----- -------- -------
Balances at December 31, 1996 10,632 -- -- 52,872
Net income 6,953 6,953
Foreign currency translation
adjustment (46)
Issuance of common stock in lieu of
directors' fees 104
Issuance of common shares in
conjunction with acquisition
(Note 2) 346
Exercise of stock options, net 300
------- -------
Balances at December 31, 1997 $17,585 $-- $ -- $60,529
======= === ====== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
25
<PAGE> 26
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31
(Amounts in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 6,953 $ 2,302 $ 3,705
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary loss -- 2,314 --
Depreciation 5,131 4,304 2,777
Amortization of goodwill and intangibles 1,885 1,749 1,491
Deferred income taxes 1,017 320 (120)
Amortization of debt discount and deferred financing costs 565 235 409
Gain on sales of rental equipment and property, plant and
equipment (2,871) (1,095) (741)
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable 3,111 1,610 206
Inventories 527 (884) (352)
Prepaid income taxes (865) 633 (473)
Accounts payable (2,136) (740) (425)
Accrued interest 255 (1,989) 2,059
Accrued liabilities and other long-term liabilities (2,945) (379) (70)
Other, net (260) (614) (141)
-------- -------- --------
Net cash provided by operating activities 10,367 7,766 8,325
-------- -------- --------
Cash Flows From Investing Activities:
Property, plant and equipment additions (4,410) (3,198) (2,730)
Rental equipment additions, net (1,247) (534) (99)
Acquisitions, net of cash acquired (Note 2) (33,467) (4,845) (23,628)
Other investing activities (15) (69) 37
-------- -------- --------
Net cash used in investing activities (39,139) (8,646) (26,420)
-------- -------- --------
Cash Flows From Financing Activities:
Repayments of long-term debt (67,203) (41,656) (98)
Issuance of long-term debt 100,000 22,819 28,594
Prepayment premium on extinguishment of long-term debt -- (2,400) --
Issuance of common shares 404 23,041 4,871
Financing costs and fees (4,586) (358) (247)
Acquisition of common shares -- -- (4,394)
Payments to former shareholder for acquisition of common shares -- (1,000) --
Redemption of redeemable preferred shares -- -- (10,000)
Dividends paid on redeemable preferred shares -- -- (470)
-------- -------- --------
Net cash provided by financing activities 28,615 446 18,256
-------- -------- --------
Effect of Exchange Rate Changes on Cash (46) (6) 18
-------- -------- --------
Net increase (decrease) in cash (203) (440) 179
Cash, beginning of year 203 643 464
-------- -------- --------
Cash, end of year $ -- $ 203 $ 643
======== ======== ========
Supplemental Disclosures:
Cash paid for income taxes $ 4,919 $ 2,345 $ 1,132
Cash paid for interest 4,736 6,582 1,763
Long-term debt to seller in conjunction with acquisition 5,000 -- --
Issuance of common shares in conjunction with acquisition 346 -- --
Accretion of redeemable preferred shares -- -- 192
Payable to former shareholder for acquisition of common shares -- -- 1,000
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
26
<PAGE> 27
Dayton Superior Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(Dollar amounts in thousands, except share and per share amounts)
(1) The Company
The accompanying consolidated financial statements include the accounts of
Dayton Superior Corporation and its wholly owned subsidiaries, Dayton
Superior Canada Ltd. and commencing September 29, 1997, Symons Corporation
and commencing October 16, 1995, Dur-O-Wal, Inc. and Dur-O-Wal, Ltd.
(collectively referred to as the "Company"). All significant intercompany
transactions have been eliminated.
The Company operates in one segment: manufacturing and distributing
concrete and masonry accessories. The Company is the largest North American
manufacturer and distributor of specialized metal accessories used
primarily in concrete construction and masonry construction. As of December
31, 1997, the Company has a distribution system consisting of a network of
52 Company-operated service/distribution centers in the United States and
Canada and over 4,000 dealers. The Company employs 665 salaried and 1,169
hourly personnel, of whom approximately 813 of the hourly personnel and
seven of the salaried personnel are represented by labor unions. Two
collective bargaining agreements expiring in 1998 cover approximately 100
hourly employees at the Company's Tremont, PA facility and seven salaried
employees at the Company's Santa Fe Springs, CA facility.
As of December 31, 1994, Dayton Superior Corporation was a 52%-owned,
indirect subsidiary of Onex Corporation ("Onex"), an Ontario corporation
listed on the Toronto and Montreal Stock Exchanges. During 1995 and 1996,
Onex's shares in the Company were transferred to Ripplewood Holdings L.L.C.
("Ripplewood"). Ripplewood holds 26% of the Common Shares of the Company,
which represents 78% of the voting rights as of December 31, 1997. Onex is
a minority shareholder of Ripplewood. Subsequent to yearend, Ripplewood
converted 660,000 Class B Common Shares into Class A Common Shares and sold
them. This sale reduced Ripplewood's ownership to 14% of the Common Shares,
which represents 62% of the voting rights.
(2) Acquisitions
(a) Symons Corporation- On September 29, 1997, the Company purchased the
stock of Symons Corporation (Symons). Symons was a privately held
company based in the Chicago area. Symons is the leading manufacturer
of prefabricated concrete forms, and through its Richmond Screw Anchor
division, was a competitor of the Company in the concrete accessories
business. Symons has 21 manufacturing and distribution facilities
throughout the United States and Canada for prefabricated concrete
forms and eight manufacturing and distribution facilities throughout
the United States for concrete accessories. Sales are made principally
to stocking dealers, general contractors, subcontractors and
distributors.
27
<PAGE> 28
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 (Note 5) 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. As provided in the Purchase Agreement, the
Company and the Former Shareholders are in the process of trying to
resolve the issues related to the purchase price. 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
terms of 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 pursue vigorously
its rights under the Purchase Agreement.
The cash portion of the purchase price was paid from the proceeds of
the Company's new term loan (Note 5). The excess of the purchase price
over the net assets acquired has been allocated to goodwill. The
preliminary allocation of the purchase price to the net assets
acquired is as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets $48,648
Rental equipment and property, plant
and equipment 54,798
Goodwill and intangible assets 8,890
Other non-current assets 1,597
Current liabilities (25,478)
Long-term debt (47,670)
Other long-term liabilities (3,749)
-------
$37,036
=======
</TABLE>
Certain appraisals and evaluations are preliminary and may change
during 1998.
The unaudited pro forma statements of income as though Symons had been
acquired as of the beginning of 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net sales $252,326 $228,974
Gross profit 88,183 76,450
Income before extraordinary item 6,867 5,406
Basic income per share before
extraordinary item 1.20 0.95
Diluted income per share before
extraordinary item 1.16 0.92
</TABLE>
28
<PAGE> 29
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) Baron Wire and Steel Company- On September 26, 1997, the Company
acquired certain of the assets of Baron Wire and Steel Company
("Baron"), a privately held regional concrete accessories products
manufacturer located in Tustin, CA. The purchase price was
approximately $284, including expenses and was paid in cash. The
acquisition was accounted for as a purchase and the results of Baron
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. The
purchase price was allocated on the basis of the agreed upon fair
value of the assets acquired. Pro forma financial information is not
required.
(c) Ironco Manufacturing Co., Inc.- 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 costs, was $1,493 and was paid in cash of
$1,147 and 26,254 Class A Common Shares. The acquisition was accounted
for as a purchase and the results of the companies have been included
in the accompanying consolidated financial statements since the date
of acquisition. 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 of $1,705, including goodwill of $504, and liabilities
assumed of $212. Pro forma financial information is not required.
(d) Steel Structures, Inc.- 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, Illinois. 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 a competitor in its concrete paving product line. Certain of the
Company's existing paving manufacturing equipment have 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 December 31, 1997, the Company has paid $5,226 of the $5,601
purchase price with the balance due in 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 the
appraised fair value of the assets acquired of $6,113, including
goodwill of $1,374, and liabilities assumed of $512. Pro forma
financial information is not required.
29
<PAGE> 30
(e) Dur-O-Wal, Inc.- On October 16, 1995, the Company purchased all of the
outstanding shares of Dur-O-Wal, Inc., a Chicago-area based
manufacturer of masonry wall reinforcement products with seven
manufacturing and distribution facilities throughout the United States
and Canada. Sales are made principally to masonry block manufacturers
and wholesalers of masonry materials throughout the United States and
Canada. The acquisition was accounted for as a purchase, and the
results of Dur-O-Wal, Inc. and its subsidiary have been included in
the accompanying consolidated financial statements since the date of
acquisition. The purchase price of $23,641 has been allocated on the
basis of appraised fair value of the assets acquired of $31,015,
including goodwill of $17,167, and liabilities assumed of $7,374.
(3) Summary of Significant Accounting Policies
(a) Inventories- Substantially all finished products and raw materials of
the domestic Dayton Superior Corporation and Dur-O-Wal operations are
stated at the lower of last-in, first-out ("LIFO") cost (which
approximates current cost) or market. All other inventories of the
Company are stated at the lower of first-in, first-out ("FIFO") cost
or market. The Company provides net realizable value reserves which
reflect the Company's best estimate of the excess of the cost of
potential obsolete and slow moving inventory over the expected net
realizable value. The Company's inventories consist of raw materials
of $6,957 and $3,031, and finished goods of $25,916 and $11,124 as of
December 31, 1997 and 1996, net of net realizable value reserves of
$876 and $318, respectively. The Company has no LIFO reserve as of
December 31, 1997 and 1996.
(b) Rental Equipment- Rental equipment is manufactured by the Company for
resale and for rent to others on a short-term basis. Rental equipment
is recorded at the lower of FIFO cost or market and is amortized over
the estimated useful life of the equipment, twelve to fifteen years,
on a straight-line method. The balances as of December 31, 1997 and
1996 are net of accumulated amortization of $2,496 and $1,947,
respectively. Annual amortization is charged to cost of sales. Rental
revenues accounted for 6.8% and 2.5% of the Company's net sales for
1997 and 1996, respectively.
(c) Property, Plant and Equipment- Property, plant and equipment are
valued at cost and depreciated using straight-line and accelerated
methods over their estimated useful lives of 10-30 years for buildings
and improvements and 3-10 years for machinery and equipment.
Leasehold improvements are amortized over the lesser of the term of
the lease or the estimated useful life of the improvement.
Improvements and replacements are capitalized, while expenditures for
maintenance and repairs are charged to expense as incurred.
(d) Goodwill and Intangible Assets- Goodwill and intangible assets are
recorded at the date of acquisition at their allocated cost.
Amortization is provided over the estimated useful lives of 40 years
for goodwill, 3-8 years for deferred financing costs and 1-5 years for
license agreements and other. Accumulated amortization as of December
31, 1997 and 1996 was $14,087 and $11,303, respectively.
In accordance with Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"), the carrying value of goodwill
and other long-lived assets is assessed for recoverability by
management when changes in circumstances indicate that the carrying
amount may not be
30
<PAGE> 31
recoverable, based on an analysis of undiscounted future expected cash
flows from the use and ultimate disposition of the asset.
(e) Income Taxes- Deferred income taxes are determined by applying current
statutory tax rates to the cumulative temporary differences between
the carrying value of assets and liabilities for financial reporting
and tax purposes.
(f) Environmental Remediation Liabilities- Effective January 1, 1997, the
Company accounts for environmental remediation liabilities in
accordance with the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation
Liabilities" ("SOP 96-1"). Adoption of SOP 96-1 did not have a
material impact on the Company's consolidated financial statements.
(g) Foreign Currency Translation Adjustment- The financial statements and
transactions of Dayton Superior Canada, Ltd., Symons Canada, and
Dur-O-Wal, Ltd. are maintained in their functional currency (Canadian
dollars) and are then translated into U.S. dollars. The balance sheets
are translated at end of year rates while revenues, expenses and cash
flows are translated at weighted average rates throughout the year.
Translation adjustments, which result from changes in exchange rates
from period to period, are accumulated in a separate component of
shareholders' equity.
(h) Net Income Per Share- In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS 128"). 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
1996 and 1995 were restated as follows:
<TABLE>
<CAPTION>
PER SHARE AMOUNTS
-------------------------
1996 1995
----- -----
<S> <C> <C>
Primary net income per $0.47 $0.02
share, as reported
Effect of SFAS 128 0.04 --
----- -----
Basic net income per share,
as restated $0.51 $0.02
===== =====
1996 1995
----- -----
Fully diluted net income $0.47 $0.02
per share, as reported
Effect of SFAS 128 -- --
----- -----
Diluted net income per
share, as restated $0.47 $0.02
===== =====
</TABLE>
Basic net income per share is computed by dividing net income
available to common shareholders by the weighted average number of
common shares outstanding (adjusted for the stock split discussed in
Note 6a) during the year.
Diluted net income per share is computed by dividing net income
available to common shareholders by the weighted average number of
common and common share equivalents outstanding (adjusted for the
stock split discussed in Note 6a) during the year. Common share
equivalents include the number of shares issuable upon the exercise of
outstanding options and warrants, less the shares that could be
purchased with the proceeds from the exercise of the options and
warrants, based on the Company's average trading price for 1997 and
1996 and the
31
<PAGE> 32
initial public offering price of $13.00 per share for 1995. For the
purposes of calculating net income per common and common equivalent
share, common equivalent shares issued less than 12 months prior to
the initial public offering are included for all periods presented.
<TABLE>
<CAPTION>
1997
------------------------------------
Income Shares Per Share
------ ------ ---------
<S> <C> <C> <C>
Basic net income per share $6,953 5,703,601 $1.22
=====
Effect of stock options (Note 6c) -- 229,643
------ ---------
Diluted net income per share $6,953 5,933,244 $1.17
====== ========= =====
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------
Income Shares Per Share
------ ------ ---------
<S> <C> <C> <C>
Basic net income per share $2,302 4,547,527 $0.51
=====
Effect of stock options and
warrants (Notes 6b and 6c) -- 377,937
------ ---------
Diluted net income per share $2,302 4,925,464 $0.47
====== ========= =====
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------
Income Shares Per Share
------ ------ ---------
<S> <C> <C> <C>
Net income $ 3,705
Less: Preferred stock dividends,
accretion and redemption (3,634)
-------
Basic net income available to common
shareholders 71 2,990,847 $0.02
=====
Effect of stock options and
warrants (Notes 6b and 6c) -- 568,061
------- ---------
Diluted net income available to common
shareholders $ 71 3,558,908 $0.02
======= ========= =====
</TABLE>
(i) 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.
(j) Revenue Recognition- The Company recognizes revenue on product and
rental equipment sales on the date of shipment. Rental revenues are
recognized ratably over the lives of the rental agreements.
(k) Comprehensive Income- 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 is required to adopt SFAS 130 in the first quarter of 1998.
(l) Disclosures About Segments of an Enterprise and Related Information-
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
32
<PAGE> 33
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.
(m) Use of Estimates- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the balance sheet date and the
reported amounts of revenues and expenses during the year. Actual
results could differ from those estimates. Examples of accounts in
which estimates are used include the reserve for excess and obsolete
inventory, the allowance for doubtful accounts, the accrual for
self-insured employee medical claims, the self-insured product and
general liability accrual, the self-insured workers' compensation
accrual, the valuation allowance for deferred tax assets, actuarial
assumptions used in determining pension benefits, and actuarial
assumptions used in determining other post-retirement benefits.
(n) Reclassifications- Certain reclassifications have been made to the
1996 and 1995 amounts to conform to their 1997 classification.
(4) Extraordinary Item
During June 1996, the Company prepaid its $40,000 unsecured senior
promissory notes. In conjunction therewith, the Company paid a prepayment
premium of $2,400 and expensed unamortized financing costs and debt
discount of $795 and $538, respectively. The Company recorded an
extraordinary loss of $2,314, net of an income tax effect of $1,419. The
Company funded this repayment with $22,358 in proceeds from its public
stock offering (Note 6b) and $20,042 from its 1996 Credit Facility.
(5) Credit Arrangements
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. The Company used
the proceeds of the new Credit Agreement to fund the acquisition of all
outstanding shares of Symons and to repay all amounts outstanding on the
existing term and revolving loans of both the Company and Symons. As a
result, deferred financing costs of $255 related to the Company's term and
revolving loans were expensed and reflected as interest expense in the
accompanying statements of income.
The $100,000 new Term Loan requires quarterly interest payments, with
principal amount due in 2005. The Term Loan permits the Company to choose
from various interest rate options and has a weighted average interest rate
of 8.66% at December 31, 1997.
Amounts available under the Revolving Credit Facility will be equal to the
lesser of (i) $40,000 or (ii) the sum of (x) 85% of eligible accounts
receivable, and (y) 60% of eligible inventories. The amount available under
the Revolving Credit Facility was $40,000 at December 31, 1997. The
Revolving Credit Facility will terminate in 2002, and has interest options
based on (a) Bank One, Dayton, NA's prime rate (8.50% at December 31, 1997)
or (b) LIBOR plus an amount between 1.00% and 2.75% (LIBOR plus 1.75% at
December 31, 1997) depending on the level of certain financial ratios. The
weighted average
33
<PAGE> 34
interest rate at December 31, 1997 was 7.76%. A commitment fee of between
0.125% and 0.40% per annum will be payable on the average unused amount
depending on the level of certain financial ratios (0.25% at December 31,
1997).
Average borrowings under the Revolving Credit Facility and its predecessors
were $25,266, $21,400, and $3,852 during 1997, 1996, and 1995,
respectively, at an approximate weighted average interest rate of 7.6%,
8.2%, and 10.2%, respectively. The maximum borrowings outstanding during
1997, 1996 and 1995 were $32,403, $28,180, and $18,400, 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 December 31, 1997 were 5.69% and 5.94%, 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 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. The Company
was in compliance with its loan covenants as of December 31, 1997.
In conjunction with the acquisition of Symons, the Company issued a $5,000
seven year senior unsecured note to one of the Former Shareholders. The
note requires quarterly interest payments, with principal due in September
2004. The note bears interest at a fixed rate of 10.5% per annum,
compounded semi-annually.
The Company has an Economic Development Loan from the city of Parsons,
Kansas. The loan bears interest at 7.0% and is payable in quarterly
installments of $8 through July 2005. The loan is secured by real estate in
Parsons.
Following is a summary of the Company's long-term debt as of December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Revolving lines of credit $ 15,000 $ 23,118
1997 Term Loan 100,000 --
1996 Term Loan, prepaid during 1997 -- 11,375
Note payable to one of the Former Shareholders 5,000 --
City of Parsons, Kansas Economic Development Loan 236 276
--------- --------
Total long-term debt 120,236 34,769
Less current portion (32) (3,282)
--------- --------
Long-term portion $ 120,204 $ 31,487
========= ========
</TABLE>
Scheduled maturities of long-term debt are $32, $32, $32, $32, $15,032, and
$105,076 for 1998, 1999, 2000, 2001, 2002, and thereafter, respectively.
34
<PAGE> 35
The fair market value of the Company's fixed-rate long-term debt is
estimated using discounted cash flow analyses based on current incremental
borrowing rates for similar types of borrowing arrangements. At December
31, 1997, the estimated fair value of the Note payable to Former
Shareholder of Symons is approximately $5,802. The estimated fair value of
the City of Parsons, Kansas Economic Development Loan is approximately
$227. The estimated fair values of the Term Loan and Revolving Credit
Facility approximate their face values, as these facilities have variable
interest rates tied to market rates. The estimated fair value of the
interest rate swap agreements is a liability of $904.
(6) Common and Redeemable Preferred Shares
(a) Stock Split- On June 18, 1996, the Company authorized a 50-for-1 stock
split for Class A and B Common Shares. All references in the financial
statements to number of shares or share prices have been restated to
reflect the split.
(b) Public Offering of Company Shares- 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 $22,358, net of expenses. The
proceeds from the offering were used to prepay long-term debt.
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 L.L.C.
converted 56,200 shares of its Class B Common Shares into Class A
Common Shares and sold those shares. The Company's proceeds of $683
from the issuance of those shares were used to reduce the outstanding
balance of the existing revolving line of credit.
If the offering, the amendment of the Company's credit facility and
the prepayment of the long-term debt had occurred on January 1, 1996,
income before extraordinary item for the year ended December 31, 1996,
would have been $5,561 and income per share before extraordinary item
would have been $0.94.
(c) Stock Option Plans- The Company has five stock option plans, the 1994
Stock Option Plan ("the 1994 Plan"), the 1995 Stock Option Plan ("the
1995 Plan"), the 1996 Stock Option Plan ("the 1996 Plan"), the 1997
Stock Option and Restricted Stock Plan ("the 1997 Restricted Plan")
and the 1997 Non-employee Director Stock Option Plan ("the 1997
Director Plan"). Under all Plans, the option exercise price equals the
stock's market price on date of grant. The Company accounts for these
plans under APB Opinion No. 25, under which no compensation costs have
been recognized. Had compensation cost for these plans been determined
consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's
net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C> <C>
Income before extraordinary item available to
common shareholders: As Reported $6,953 $4,616 $ 71
Pro Forma 6,857 4,561 66
Basic income per share before extraordinary
item: As Reported 1.22 1.02 0.02
Pro Forma 1.20 1.00 0.02
Diluted income per share before
extraordinary item: As Reported 1.17 0.94 0.02
Pro Forma 1.16 0.92 0.02
</TABLE>
35
<PAGE> 36
Because the SFAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
As of December 31, 1997, the Company may grant options for up to
240,000, 34,000 and 62,500 shares under the 1997 Restricted Plan, the
1997 Director Plan and the 1996 Plan, respectively. No further options
may be granted under the 1994 and 1995 Plans. The 1994 and 1995 Plan
options expire after ten years. The Company granted 31,000 options
during 1997, of which, 18,500 vested immediately, and the other 12,500
vest ratably over two years. All options granted during 1997 expire
after ten years.
A summary of the status of the Company's stock option plans at
December 31, 1997, 1996 and 1995 and changes during the years then
ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
Number of Weighted Average Exercise
Shares Price Per Share
------ ---------------
<S> <C> <C>
Outstanding at December 31, 1994 208,250 $ 1.96
Granted at a fair value of $1.63 64,500 4.00
------- ------
Outstanding at December 31, 1995 272,750 2.44
Granted at a fair value of $4.26 25,000 10.38
------- ------
Outstanding at December 31, 1996 297,750 3.11
Granted at a weighted average fair value of $5.25
31,000 12.52
Exercised (40,000) 4.17
Cancelled (12,500) 10.38
------- ------
Outstanding at December 31, 1997 276,250 $ 3.57
======= ======
</TABLE>
245,250 of the 276,250 options outstanding at December 31, 1997 have
exercise prices between $1.96 and $4.00, with a weighted average
exercise price of $2.44 and a weighted average remaining contractual
life of 6.7 years. All of these options are exercisable. The remaining
31,000 options have an exercise price between $12.50 and $12.63, with
a weighted average exercise price of $12.52 and a remaining
contractual life of 9.5 years. 18,500 of these options are
exercisable.
The fair value of each option grant is estimated on the date of grant
using the Black Scholes options pricing model with the following
weighted average assumptions used for grants in 1997, 1996, and 1995,
respectively: risk-free interest rates of 6.17%-6.56%, 6.11% and
6.01%; expected dividend yield of 0%; expected lives of 6 years; and
expected volatility of 28.50%, 27.96% and 27.96%.
(d) Redeemable Preferred Shares- The Class A Redeemable Preferred Shares
had a liquidation preference of $5,000. Dividends accrued at a rate of
12% and were payable semiannually. The Class B Redeemable Preferred
Shares were recorded at their estimated fair market value ($1,700) on
the date of issuance. The difference between the fair market value and
the liquidation value was being accreted to retained earnings at an
effective rate of approximately 13%. During October 1995, the Company
purchased all of its Redeemable Preferred Shares from the holders at
the $10,000 liquidation value. The difference between the liquidation
value and the book value was charged to retained earnings.
36
<PAGE> 37
(7) Retirement Plans
The Company has pension or profit sharing plans covering substantially all
of its employees.
(a) Company-Sponsored Pension Plans- The pension plans cover virtually all
salaried and hourly employees not covered by multi-employer pension
plans and provide benefits of stated amounts for each year of credited
service. The Company funds such plans at a rate that meets or exceeds
the minimum amounts required by applicable regulations. The plans'
assets are primarily invested in mutual funds comprised primarily of
common stocks and corporate and U.S. government obligations. In
determining the amounts below, the Company has used 7% for its
weighted average discount rate assumption, 8% for its expected rate of
return on assets assumption, and, if applicable, 4% for its expected
rate of increase in future compensation levels assumption.
The components of pension expense for these plans for the years ended
December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -------
<S> <C> <C> <C>
Service cost $ 794 $ 511 $ 459
Interest on projected benefit obligation 845 428 366
Actual return on plan assets (1,085) (610) (1,047)
Net amortization and deferral 204 199 720
------- ----- -------
Total $ 758 $ 528 $ 498
======= ===== =======
</TABLE>
The Company-sponsored pension plans' funded status as of December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------------
Accumulated
Assets Exceed Benefits
Accumulated Exceed
Benefits Assets Total
-------- ------ -----
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 21,630 $ 1,054 $22,684
======== ======= ========
Accumulated benefit obligation $ 22,153 $ 1,200 $23,353
======== ======= ========
Projected benefit obligation $ 27,969 $ 1,200 $29,169
Plan assets at fair market value 26,189 1,060 27,249
-------- ------- -------
Projected benefit obligation in excess of
1,780 140 1,920
plan assets
Unrecognized net gain (loss) 182 (32) 150
Prior service cost not yet recognized in
net periodic pension costs (202) -- (202)
-------- ------- -------
Pension liability $ 1,760 $ 108 $ 1,868
======= ======= ========
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
1996
-----------------------------------------------
Accumulated
Assets Exceed Benefits
Accumulated Exceed
Benefits Assets Total
-------- ------ -----
<S> <C> <C> <C>
Actuarial present value of benefit Obligations:
Vested benefit obligation $2,876 $ 2,267 $ 5,143
====== ======= =======
Accumulated benefit obligation $3,009 $ 2,407 $ 5,416
====== ======= =======
Projected benefit obligation $4,309 $ 2,487 $ 6,796
Plan assets at fair market value 3,906 2,313 6,219
------ ------- -------
Projected benefit obligation in excess of
plan assets 403 174 577
Unrecognized net gain 101 31 132
Prior service cost not yet recognized in
net periodic pension costs -- (219) (219)
Adjustment required to recognize
Minimum liability -- 170 170
------ ------- -------
Pension liability $ 504 $ 156 $ 660
====== ======= =======
</TABLE>
The minimum liability was reflected as an intangible asset of
$170 as of December 31, 1996.
(b) Multi-Employer Pension Plan- Approximately 13% of the
Company's employees are currently covered by collectively
bargained, multi-employer pension plans. Contributions are
determined in accordance with the provisions of negotiated
union contracts and generally are based on the number of hours
worked. The Company does not have the information available to
determine its share of the accumulated plan benefits or net
assets available for benefits under the multi-employer pension
plans. The aggregate amount charged to expense under these
plans was $157, $89, and $77, for the years ended December 31,
1997, 1996, and 1995, respectively.
(c) 401(k) Savings Plan- Most employees are eligible to
participate in Company sponsored 401(k) savings plans. Company
matching contributions vary from 0% to 50% (on the first 2%)
according to terms of the individual plans and collective
bargaining agreements. The aggregate amount charged to expense
under these plans was $345, $295, and $242, for the years
ended December 31, 1997, 1996 and 1995, respectively.
(8) Postretirement Benefits
The Company provides postretirement health care benefits on a
contributory basis and life insurance benefits for Symons salaried and
hourly employees that retired prior to May 1, 1995. The status of
postretirement benefit plans is as follows as of December 31, 1997:
Accumulated postretirement benefit obligation (APBO):
Retirees $681
Fully eligible active plan participants -
-----
Accrued postretirement benefit $681
=====
Assumptions used to value the APBO:
Discount rate 8.25%
Health care cost trend rate 6.00%
38
<PAGE> 39
A one percentage point increase in the assumed health care cost trend
rate would increase the APBO at December 31, 1997, by approximately
$68. The Company's postretirement health care benefits are not funded.
(9) Income Taxes
The following is a summary of the components of the Company's income
tax provision for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal $3,521 $2,201 $789
State and local 704 420 21
Deferred 1,052 917 (120)
------ ------ ----
Total provision $5,277 $3,538 $690
====== ====== ====
</TABLE>
The effective income tax rate differs from the statutory federal
income tax rate for the years ended December 31, 1997, 1996 and 1995
for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate 34.0% 34.0% 34.0%
State income taxes (net of federal
tax benefit) 4.0 2.6 0.3
Nondeductible goodwill
amortization and other
permanent differences 5.1 7.0 10.4
Change in valuation allowance -- -- (29.5)
Other, net -- (0.2) 0.5
---- ---- ----
Effective income tax rate 43.1% 43.4% 15.7%
==== ==== ====
</TABLE>
39
<PAGE> 40
The components of the Company's future income tax benefits and deferred
tax liabilities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current deferred taxes:
Inventory reserves $ (657) $ (638)
Allowance for doubtful accounts 1,623 168
Alternative minimum tax credit
Carryforwards 549 122
Accrued liabilities 2,745 1,319
Other (76) 15
-------- -------
Total 4,184 986
-------- -------
Long-term deferred taxes:
Accelerated depreciation (10,922) (3,111)
Other long-term liabilities 2,328 460
Other (12) (43)
-------- -------
Total (8,606) (2,694)
-------- -------
Net deferred taxes $ (4,422) $(1,708)
======== =======
</TABLE>
(10) Commitments and Contingencies
(a) Operating Leases- Rental expense for property, plant and
equipment (principally office and warehouse facilities and
office equipment) was $2,758, $1,899, and $1,288 for the years
ended December 31, 1997, 1996 and 1995, respectively. Terms
generally range from one to ten years and some contain renewal
options. The approximate aggregate minimum annual rental
commitments under non-cancelable operating leases are $3,775,
$3,151, $2,608, $1,537, $913, and $1,444 for 1998, 1999, 2000,
2001, 2002, and thereafter, respectively.
(b) Litigation- The Company is a defendant in various legal
proceedings arising out of the conduct of its business. While
the ultimate outcome of these lawsuits cannot be determined at
this time, management is of the opinion that any liability,
notwithstanding recoveries from insurance, would not have a
material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
(c) Self-Insurance- The Company is self-insured for certain of its
group medical, workers' compensation and product and general
liability claims. The Company has stop loss insurance coverage
at various per occurrence and per annum levels depending on
type of claim. The Company consults with third party
administrators to estimate the reserves required for these
claims. No material revisions were made to the estimates for
the years ended December 31, 1997, 1996 and 1995. The Company
has reserved $4,578 as of December 31, 1997.
40
<PAGE> 41
(11) Related Party Transactions
During 1997, the Company paid Ripplewood a fee of $400 for financial
advisory services in connection with the acquisition of Symons
Corporation and related financing transactions.
During 1996 and 1995, the Company paid Ripplewood a management fee of
$125 and $30, respectively. This fee was not charged after the initial
public offering. The Company paid Ripplewood a fee of $600 at the time
the initial public offering was completed for additional services
provided in connection with the offering and related transactions. In
addition, prior to 1997, the Company reimbursed Ripplewood for the
allocable costs of certain insurance policies purchased by Ripplewood
which covered both the Company and Ripplewood.
The Company paid a director/shareholder a management fee of $25 in
1995.
The Company paid Onex a management fee of $195 in 1995. In addition, in
October 1995, the Company paid Onex a fee of $400 for financial
advisory services in connection with the acquisition of Dur-O-Wal, Inc.
and related financing transactions.
(12) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
First Second Third Fourth Full
Quarterly Operating Data Quarter Quarter Quarter Quarter Year
------------------------ ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Net Sales $25,980 $39,839 $42,592 $59,001 $167,412
Gross Profit 7,708 12,933 14,381 21,862 56,884
Net income 160 2,951 3,393 449 6,953
Basic net income per share (a) $ 0.03 $ 0.52 $ 0.60 $ 0.08 $ 1.22
Diluted net income per share (a) $ 0.03 $ 0.51 $ 0.58 $ 0.08 $ 1.17
Stock Price:
High $13.500 $13.250 $19.438 $19.000 $ 19.438
Low $11.250 $ 9.750 $12.500 $14.813 $ 9.750
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Net Sales $23,615 $ 36,461 $37,086 $27,324 $124,486
Gross Profit 7,469 11,550 11,600 7,846 38,465
Income (loss) before
Extraordinary item (401) 2,266 2,563 188 4,616
Basic income (loss) per share before
extraordinary item (a) $ (0.12) $ 0.64 $ 0.45 $ 0.03 $ 1.02
Diluted income (loss) per share
before extraordinary item (a) $ (0.12) $ 0.64 $ 0.44 $ 0.03 $ 0.94
Stock Price:
High N/A $ 13.750 $13.625 $ 13.125 $ 13.750
Low N/A $ 13.000 $11.750 $ 9.625 $ 9.625
<FN>
(a) The total of the quarterly income (loss) per share before
extraordinary item does not equal the annual income per share before
extraordinary item due to the timing of the issuance of the Company's
Common Shares and the omission of common share equivalents in quarters
with net losses for 1996 and due to fluctuations in the Company's
stock price for 1997.
</TABLE>
41
<PAGE> 42
Dayton Superior Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 1997, 1996 and 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
Deductions
-----------
Charged Charges for
Balance at (Credited) Which
Beginning to Costs and Other Reserves Were Balance at
of Year Expenses Additions Created End of Year
------- -------- --------- ------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
For the year ended December 31, 1997 $449 27 4,788(1) (249) $5,015
For the year ended December 31, 1996 $708 (191) -- (68) $ 449
For the year ended December 31, 1995 $764 (86) 47(2) (17) $ 708
</TABLE>
(1) Acquisition of Symons Corporation
(2) Acquisition of Dur-O-Wal, Inc.
42
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item 10 is incorporated herein
by reference to the information under the heading "Nominees" in the Company's
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
May 7, 1998, except for certain information concerning the executive officers of
the Company, which is set forth at the end of Part I of this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is incorporated by
reference to the information under the headings "Compensation Committee
Interlocks and Insider Participation in Compensation Decisions," "Executive
Compensation," "Report of Compensation and Benefits Committee on Executive
Compensation" and "Performance Graph" in the Company's Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held on May 7, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 12 is incorporated herein
by reference to the information under the heading "Ownership of Common Shares"
in the Company's Proxy Statement for the Annual Meeting of Shareholders
scheduled to be held on May 7, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is incorporated herein
by reference to the information under the heading "Certain Relationships and
Related Party Transactions" in the Company's Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on May 7, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS The following consolidated financial
statements of the Company and subsidiaries are incorporated by reference as part
of this Report under Item 8.
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Income for the years ended December
31, 1997, 1996, and 1995.
43
<PAGE> 44
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1996, and 1995.
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995.
Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts (at Item 8 of
this Report)
All other schedules are omitted because they are not applicable,
or not required, or because the required information is included in the
consolidated financial statements or notes thereto.
(a)(3) Exhibits. See Index to Exhibits following the signature
pages to this Report for a list of exhibits.
(b) Reports on Form 8-K. During the quarter ended December 31,
1997, the Company filed the following Current Reports on Form 8-K:
Current Report on Form 8-K dated October 13, 1997 (including
audited financial statements of Symons Corporation and
certain unaudited pro forma financial information
concerning the Company and Symons Corporation)
Current Report on Form 8-K dated November 20, 1997 (including
certain unaudited pro forma financial information
concerning the Company and Symons Corporation)
Current Report on Form 8-K dated December 15, 1997
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Dayton Superior Corporation has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DAYTON SUPERIOR CORPORATION
March 26, 1998
By /s/ JOHN A. CICCARELLI
---------------------------
John A. Ciccarelli
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
Dayton Superior Corporation and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ JOHN A. CICCARELLI Director, President and Chief Executive Officer March 26, 1998
- ---------------------------------
John A. Ciccarelli
/s/ ALAN F. MCILROY Vice President and Chief Financial Officer March 26, 1998
- --------------------------------- (Principal Financial and Accounting Officer)
Alan F. McIlroy
/s/ MATTHEW O. DIGGS, JR. Non-Executive Chairman of the Board March 26, 1998
- ---------------------------------
Matthew O. Diggs, Jr.
/s/ WILLIAM F. ANDREWS Director March 26, 1998
- ---------------------------------
William F. Andrews
/s/ TIMOTHY C. COLLINS Director March 26, 1998
- ---------------------------------
Timothy C. Collins
/s/ MATTHEW M. GUERREIRO Director March 26, 1998
- ---------------------------------
Matthew M. Guerreiro
/s/ ROBERT B. HOLMES Director March 26, 1998
- ---------------------------------
Robert B. Holmes
</TABLE>
45
<PAGE> 46
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit No. Description Page
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Amended Articles of Incorporation of the Company [Incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1
(Reg. No. 333-2974).] +
3.2 Code of Regulations of the Company (as amended) [Incorporated herein by
reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1
(Reg. No. 333-2974).] +
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4.1 Senior Unsubordinated Redeemable Note of the Company in the principal amount
of $5,000,000. [Incorporated herein by reference to Exhibit A to the Agreement
set forth as Exhibit 2.1 to the Company's Current Report on Form 8-K dated
June 2, 1997.] +
4.2 Credit Agreement dated as of September 29, 1997 among the Company and the
other parties thereto. [Incorporated herein by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K dated October 13, 1997.] +
(10) MATERIAL CONTRACTS
10.1 Amended and Restated Shareholder Agreement dated as of June 26, 1996 among
the Company and certain shareholders of the Company [Incorporated herein by
reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1
(Reg. No. 333-2974).] +
10.2 First Amendment to Amended and Restated Shareholder Agreement dated as of
December 30, 1996 [Incorporated herein by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.]
+
10.3 Management Incentive Program [Incorporated herein by reference to Exhibit 10.8
to the Company's Registration Statement on Form S-1 (Reg. No. 333-2974).] + *
10.4 1994 Stock Option Plan [Incorporated herein by reference to Exhibit 10.9 to
the Company's Registration Statement on Form S-1 (Reg. No. 333-2974).]
+ *
10.5 1995 Stock Option Plan [Incorporated herein by reference to Exhibit 10.10 to
the Company's Registration Statement on Form S-1 (Reg. No. 333-2974).] + *
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10.6 1996 Stock Option Plan [Incorporated herein by reference to Exhibit 10.12 to
the Company's Registration Statement on Form S-1 (Reg. No. 333-2974).]
+ *
10.7 Executive Compensation Plan effective as of January 1, 1996 [Incorporated + *
herein by reference to Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.]
10.8 1997 Stock Option and Restricted Stock Plan [Incorporated herein by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the Quarter ended June 27, 1997.] + *
10.9 1997 Nonemployee Director Stock Option Plan [Incorporated herein
by reference to Exhibit 10.2 to the Company's Quarterly Report on + *
Form 10-Q for the Quarter ended June 27, 1997.]
10.10 Nonemployee Directors Compensation Program [Incorporated herein by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the Quarter
ended June 27, 1997.] + *
10.11 Agreement dated as of May 9, 1997 by and among Symons Corporation, the
stockholders of Symons Corporation and the Company. [Incorporated herein
by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated June 2, 1997.] +
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS **
(21) SUBSIDIARIES OF THE REGISTRANT
21.1 Subsidiaries of the Company **
(23) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS **
(27) FINANCIAL DATA SCHEDULE
27 Financial Data Schedule **
</TABLE>
- ----------------------------
* Compensatory plan, contract or arrangement in which one or more directors or
named executive officers participates.
** Filed herewith
+ Previously filed
47
<PAGE> 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 Twelve Fiscal Months Ended
------------------------- --------------------------
Dec 31, Dec 31, Dec 31, Dec 31,
1996 1997 1996 1997
-------------------------- ---------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding during the period 5,665,550 5,724,998 4,547,527 5,703,601
Common equivalent shares outstanding(a) 223,176 222,579 377,937 229,643
Weighted average common and common --------- --------- --------- ---------
equivalent shares outstanding 5,888,726 5,947,577 4,925,464 5,933,244
Income before income taxes and extraordinary
item $188 $449 $4,616 $6,953
Extraordinary item 0 0 (2,314) 0
--------- --------- --------- ---------
Income (loss) per share before extraordinary item $188 $449 $2,302 $6,953
========= ========= ========= =========
Basic income per share
before extraordinary item 0.03 0.08 1.02 1.22
Basic income per share 0.03 0.08 0.51 1.22
Basic weighted average
common shares outstanding 5,665,550 5,724,998 4,547,527 5,703,601
--------- --------- --------- ---------
Diluted income per share
before extraordinary item 0.03 0.08 0.94 1.17
Diluted income per share 0.03 0.08 0.47 1.17
Diluted weighted average
common and common share
equivalents outstanding 5,888,726 5,947,577 4,925,464 5,933,244
--------- --------- --------- ---------
</TABLE>
- -------------------
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.
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF DAYTON SUPERIOR CORPORATION
Name Jurisdiction of Incorporation
---- -----------------------------
Dayton Superior Canada Ltd. Ontario
Dur-O-Wal, Inc. Delaware
Dur-O-Wal Limited Ontario
Omni Investors, Inc. Delaware
Symons Corporation Delaware
All subsidiaries are wholly-owned, directly or indirectly, by Dayton Superior
Corporation.
<PAGE> 1
Exhibit 23
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report, incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statement File No. 333-25155, File No. 333-28057,
File No. 333-28059, File No. 333-28061 and File No. 333-37875.
ARTHUR ANDERSEN LLP
Dayton, Ohio
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000854709
<NAME> DAYTON SUPERIOR CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 36,656
<ALLOWANCES> 5,015
<INVENTORY> 32,873
<CURRENT-ASSETS> 77,245
<PP&E> 58,063
<DEPRECIATION> 16,711
<TOTAL-ASSETS> 227,457
<CURRENT-LIABILITIES> 32,413
<BONDS> 120,204
43,135
0
<COMMON> 0
<OTHER-SE> 17,394
<TOTAL-LIABILITY-AND-EQUITY> 227,457
<SALES> 167,412
<TOTAL-REVENUES> 167,412
<CGS> 110,528
<TOTAL-COSTS> 110,528
<OTHER-EXPENSES> 39,162
<LOSS-PROVISION> 27
<INTEREST-EXPENSE> 5,556
<INCOME-PRETAX> 12,230
<INCOME-TAX> 5,277
<INCOME-CONTINUING> 6,953
<DISCONTINUED> 6,953
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,953
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000854709
<NAME> DAYTON SUPERIOR CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 203
<SECURITIES> 0
<RECEIVABLES> 12,348
<ALLOWANCES> 449
<INVENTORY> 14,155
<CURRENT-ASSETS> 29,442
<PP&E> 31,739
<DEPRECIATION> 13,041
<TOTAL-ASSETS> 107,835
<CURRENT-LIABILITIES> 18,568
<BONDS> 31,487
0
0
<COMMON> 42,385
<OTHER-SE> 10,487
<TOTAL-LIABILITY-AND-EQUITY> 107,835
<SALES> 124,486
<TOTAL-REVENUES> 124,486
<CGS> 86,021
<TOTAL-COSTS> 86,021
<OTHER-EXPENSES> 25,482
<LOSS-PROVISION> (191)
<INTEREST-EXPENSE> 4,829
<INCOME-PRETAX> 8,154
<INCOME-TAX> 3,538
<INCOME-CONTINUING> 4,616
<DISCONTINUED> 4,616
<EXTRAORDINARY> (2,314)
<CHANGES> 0
<NET-INCOME> 2,302
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.47
</TABLE>
