<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
OCTOBER 2, 1998 1-11781
DAYTON SUPERIOR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0676346
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
7777 Washington Village Dr., Suite 130
DAYTON, OHIO 45459
------------------------- ----------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 937-428-6360
------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
------- --------
5,953,703 Common Shares were outstanding as of November 9, 1998
<PAGE> 2
The Dayton Superior Corporation Form 10-Q/A for the Quarter Ended October
2, 1998 is being amended hereby to correct an inadvertent Edgar filing error in
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations. As a result of the correction of this error, the Management's
Discussion and Analysis of Financial Condition and Results of Operations now
includes the Year 2000 disclosure.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 2, 1998 AND DECEMBER 31, 1997
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
October 2, December 31,
1998 1997
--------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 18 $ -
Accounts receivable, net of allowance for
doubtful accounts of $1,703 and $5,015 54,695 35,054
Inventories (Note 3) 35,876 32,873
Prepaid expenses and other current assets 2,770 3,047
Prepaid income taxes - 2,087
Future tax benefits 2,873 3,657
--------- ---------
Total current assets 96,232 76,718
--------- ---------
RENTAL EQUIPMENT, NET 50,603 38,327
--------- ---------
PROPERTY, PLANT & EQUIPMENT 61,858 58,063
Less accumulated depreciation (20,987) (16,711)
--------- ---------
Net property, plant & equipment 40,871 41,352
--------- ---------
GOODWILL AND INTANGIBLE ASSETS,
net of accumulated amortization 69,239 68,590
OTHER ASSETS 1,104 1,943
--------- ---------
Total assets $ 258,049 $ 226,930
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4) $ 32 $ 32
Accounts payable 23,080 15,753
Income taxes payable 1,579 -
Accrued compensation and benefits 10,175 7,480
Accrued liabilities 7,377 7,128
Accrued interest 1,113 960
--------- ---------
Total current liabilities 43,356 31,353
LONG-TERM DEBT (Note 4) 125,511 120,204
DEFERRED INCOME TAXES 7,139 8,079
OTHER LONG-TERM LIABILITIES 8,511 6,765
--------- ---------
Total liabilities 184,517 166,401
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Class A Common Shares 41,907 33,386
Class B Common Shares 5,360 9,749
Cumulative foreign currency translation adjustment (268) (191)
Retained earnings 26,533 17,585
--------- ---------
Total shareholders' equity 73,532 60,529
--------- ---------
Total liabilities and shareholders' equity $ 258,049 $ 226,930
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
3
<PAGE> 4
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND NINE FISCAL MONTHS ENDED OCTOBER 2, 1998 AND
SEPTEMBER 26, 1997
(Amounts in thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Fiscal Months Ended Nine Fiscal Months Ended
------------------------- ------------------------
October 2, September 26, October 2, September 26,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 82,809 $ 42,592 $ 218,790 $ 108,411
COST OF SALES 48,635 28,211 135,921 73,389
----------- ----------- ----------- -----------
Gross profit 34,174 14,381 82,869 35,022
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 19,567 7,113 56,468 19,861
AMORTIZATION OF GOODWILL AND INTANGIBLES 497 467 1,529 1,392
----------- ----------- ----------- -----------
Operating income 14,110 6,801 24,872 13,769
OTHER EXPENSES:
Interest expense, net 2,967 823 8,781 2,306
Other, net (177) 9 (178) 20
----------- ----------- ----------- -----------
Income before provision for income taxes 11,320 5,969 16,269 11,443
PROVISION FOR INCOME TAXES 5,094 2,576 7,321 4,939
----------- ----------- ----------- -----------
NET INCOME $ 6,226 $ 3,393 $ 8,948 $ 6,504
=========== =========== =========== ===========
Basic net income per share $ 1.05 $ 0.59 $ 1.53 $ 1.14
=========== =========== =========== ===========
Basic weighted average common shares outstanding 5,953,803 5,714,188 5,839,008 5,695,964
=========== =========== =========== ===========
Diluted net income per share $ 1.01 $ 0.57 $ 1.47 $ 1.10
=========== =========== =========== ===========
Diluted weighted average common and common equivalent
shares outstanding 6,193,038 5,949,092 6,073,046 5,930,576
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
4
<PAGE> 5
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE FISCAL MONTHS ENDED OCTOBER 2, 1998 AND SEPTEMBER 26, 1997
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
October 2, September 26,
1998 1997
---------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,948 $ 6,504
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 7,888 3,076
Amortization of goodwill and intangibles 1,529 1,392
Deferred income taxes (1,263) (342)
Amortization of deferred financing costs 593 130
Gain on sales of rental equipment and property,
plant and equipment (5,690) (5)
Change in assets and liabilities, net of the effects of acquisitions:
Accounts receivable (15,818) (11,433)
Inventories (1,911) (2,288)
Prepaid income taxes and income taxes payable 3,666 2,808
Accounts payable 6,734 3,908
Accrued liabilities and other long-term liabilities 3,285 (40)
Accrued interest 153 131
Other, net 375 (905)
-------- --------
Net cash provided by operating activities 8,489 2,936
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (3,894) (1,847)
Proceeds from sale of property, plant and equipment 759 10
Rental equipment additions, net (6,537) (1,271)
Acquisitions, net of cash acquired (Note 2) (1,602) (2,081)
Other investing activities - (13)
-------- --------
Net cash used in investing activities (11,274) (5,202)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 2,748 3,588
Issuance of common stock 132 237
-------- --------
Net cash provided by financing activities 2,880 3,825
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (77) (12)
-------- --------
Net increase in cash 18 1,547
CASH, beginning of period - 203
-------- --------
CASH, end of period $ 18 $ 1,750
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for income taxes $ 4,053 $ 2,443
Cash paid for interest 8,035 2,072
Issuance of common stock in conjunction with acquisition (Note 2) 4,000 451
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements
5
<PAGE> 6
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE FISCAL MONTHS ENDED OCTOBER 2, 1998 AND
SEPTEMBER 26, 1997
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Fiscal Months Ended Nine Fiscal Months Ended
------------------------- ------------------------
October 2, September 26, October 2, September 26,
1998 1997 1998 1997
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
NET INCOME $ 6,226 $ 3,393 $ 8,948 $ 6,504
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment (51) (7) (77) (12)
------- ------- ------- -------
COMPREHENSIVE INCOME $ 6,175 $ 3,386 $ 8,871 $ 6,492
======= ======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
6
<PAGE> 7
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1998 AND SEPTEMBER 26, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The interim consolidated financial statements included herein have been prepared
by the Company, without audit, and include, in the opinion of management, all
adjustments necessary to state fairly the information set forth therein. Any
such adjustments were of a normal recurring nature. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these unaudited
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's annual
financial statements for the year ended December 31, 1997.
(2) ACQUISITIONS
(a) SYMONS CORPORATION--On September 29, 1997, the Company purchased the
stock of Symons Corporation (Symons). Symons was a private company,
which owned two businesses. The first business, Symons, a leading
manufacturer of prefabricated concrete forms, is based in the Chicago
area, and is being operated by the Company as a stand alone unit. The
second business, Richmond Screw Anchor, manufactures and sells concrete
accessories and has been combined with the Company's existing concrete
accessories division.
The acquisition has been accounted for as a purchase, and the results
of Symons have been included in the accompanying consolidated financial
statements since the date of acquisition. The purchase price consisted
of cash paid of approximately $32,300, a note payable to one of the
selling shareholders of $5,000 and assumed long-term debt of
approximately $47,700. The purchase agreement between the Company and
the former shareholders of Symons ("the Former Shareholders") relating
to the Acquisition ("the Purchase Agreement") provides for an
adjustment to the purchase price under certain circumstances. The
Company has advised the Former Shareholders that it believes it is
entitled to a purchase price adjustment in its favor, and the Former
Shareholders similarly advised the Company that they believe they are
entitled to a purchase price adjustment in their favor. If the Company
and the Former Shareholders are unable to resolve these differences,
the dispute will be referred to a mutually satisfactory accounting
firm, which is expected to resolve such differences, in accordance with
the Purchase Agreement. On June 12, 1998, the Former
7
<PAGE> 8
Stockholders filed a lawsuit in Delaware Chancery Court seeking a
determination with respect to a limited number of issues involved in
the dispute, which the Company believes can be resolved only through
arbitration. On October 28, 1998, the Court granted the Company's
motion to dismiss with respect to certain of these issues (as to which
the Company intends to proceed with arbitration) and retained
jurisdiction with respect to the remainder of the issues. At this time,
the Company can make no determination as to the amount of the
adjustment, if any, that will be made to the purchase price. The
company intends to vigorously pursue its rights under the Purchase
Agreement.
The unaudited pro forma income statement as though Symons had been
acquired on January 1, 1997 is as follows:
<TABLE>
<CAPTION>
Three fiscal months Nine fiscal months
ended Sept. 26, 1997 ended Sept. 26, 1997
----------------------- ----------------------
<S> <C> <C>
Net sales $77,112 $ $193,325
Gross profit 28,603 69,305
Net income 4,285 6,417
Basic net income per share 0.75 1.13
Diluted net income per share 0.72 1.08
</TABLE>
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) CONCRETE ACCESSORIES, INC.--In May 1998, the Company purchased all of
the stock of Concrete Accessories, Inc. (CAI) for 218,158 Class A
Common Shares valued at $4,000, plus the assumption of $2,245 of
long-term debt. In accordance with the share exchange agreement between
the Company and the former shareholders of CAI, the purchase price has
been increased by $259 and will be paid with a combination of cash and
Class A Common Shares. CAI is being operated as a part of the Company's
concrete forming systems division.
The acquisition has been accounted for as a purchase, and the results
of CAI have been included in the accompanying consolidated financial
statements since the date of acquisition. The purchase price has been
allocated based on the estimated fair values of the assets acquired and
liabilities assumed. Certain appraisals and evaluations are
preliminary and may change.
(c) IRONCO MANUFACTURING CO., INC.--In February 1997, the Company acquired
certain of the assets and assumed certain of the liabilities of Ironco
Manufacturing Co., Inc. and Birmingham Bar Coating, Inc. for $1,493,
payable in $1,147 of cash and
8
<PAGE> 9
26,254 Class A Common Shares. These operations are a part of the
Company's paving products division.
(d) NORTHWOODS--In May 1998, the Company purchased the assets of the
Northwoods branches of Concrete Forming, Inc. for $750 in cash. The
Northwoods branches are being operated as a part of the Company's
concrete forming systems division.
The acquisition has been accounted for as a purchase, and the results
of the Northwoods branches have been included in the accompanying
consolidated financial statements since the date of acquisition. The
purchase price has been allocated based on the estimated fair values of
the assets acquired. Certain appraisals and evaluations are preliminary
and may change.
(e) SECURE, INC.--In June 1998, the Company purchased substantially all of
the assets of Secure, Inc., a subsidiary of The Lofland Company, for
approximately $600 in cash. This business is being operated as a part
of the Company's paving products division.
The acquisition has been accounted for as a purchase, and the results
of the business have been included in the accompanying consolidated
financial statements since the date of acquisition. The purchase price
has been allocated based on the estimated fair values of the assets
acquired and liabilities assumed.
Certain appraisals and evaluations are preliminary and may change.
(3) ACCOUNTING POLICIES
The interim consolidated financial statements have been prepared in accordance
with the accounting policies described in the notes to the Company's
consolidated financial statements for the year ended December 31, 1997. While
management believes that the procedures followed in the preparation of interim
financial information are reasonable, the accuracy of some estimated amounts is
dependent upon facts that will exist or calculations that will be accomplished
at year end. Examples of such estimates include changes in the LIFO reserve
(based upon the Company's best estimate of inflation to date) and management
bonuses. Any adjustments pursuant to such estimates during the fiscal quarter
were of a normal recurring nature.
(a) FISCAL QUARTER--The Company's fiscal quarters are defined as the
periods ending on the Friday nearest to the end of March, June and
September.
9
<PAGE> 10
(b) INVENTORIES--Substantially all inventories of the domestic Dayton
Superior and Dur-O-Wal operations are stated at the lower of last in,
first out (LIFO) cost or market (which approximates current cost). All
other inventories are stated at the lower of first-in, first-out (FIFO)
cost or market. Following is a summary of the components of inventories
as of October 2, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
October 2, December 31,
1998 1997
----------------- ------------------
<S> <C> <C>
Raw materials $7,594 $6,957
Finished goods and work in progress 28,282 25,916
----------------- ------------------
35,876 32,873
LIFO reserve - -
----------------- ------------------
$35,876 $32,873
================= ==================
</TABLE>
(c) FINANCIAL INSTRUMENTS--The Company uses interest rate swaps to manage
interest rate risk associated with its floating rate borrowing. The
swap agreements are contracts to exchange floating rate for fixed
interest payments periodically over the life of the agreements without
the exchange of the underlying amounts. The differential paid or
received on the interest rate agreements is recognized as an adjustment
to interest expense. The fair value of the interest rate swaps in place
at October 2, 1998 is a liability of $1,762.
(d) NET INCOME PER SHARE--In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
128 "Earnings per Share" ("SFAS 128"). This standard was effective for
both interim and annual periods ending after December 15, 1997. As a
result, the Company's reported earnings per share for the three and
nine fiscal months ended September 26, 1997 were impacted as follows:
<TABLE>
<CAPTION>
Per Share Amounts
-----------------
Three fiscal months Nine fiscal months
ended ended
Sept. 26, 1997 Sept. 26, 1997
-------------- --------------
<S> <C> <C>
Primary net income per share, as reported $0.57 $1.09
Effect of SFAS 128 0.02 0.05
-------------- --------------
Basic net income per share, as restated $0.59 $1.14
-------------- --------------
Fully diluted net income per share, as reported $0.57 $1.09
Effect of SFAS 128 - 0.01
-------------- --------------
Diluted net income per share, as restated $0.57 $1.10
============== ==============
</TABLE>
10
<PAGE> 11
A reconciliation of basic net income per share to diluted net income
per share is as follows:
<TABLE>
<CAPTION>
Net Income Shares Per Share
---------- ------ ---------
<S> <C> <C> <C>
For the three fiscal months ended Oct. 2, 1998:
Basic net income per share $6,226 5,953,803 $1.05
==============
Effect of stock options - 239,235
--------------- --------------
Diluted net income per share $6,226 6,193,038 $1.01
=============== ============== ==============
For the nine fiscal months ended Oct. 2, 1998:
Basic net income per share $8,948 5,839,008 $1.53
==============
Effect of stock options - 234,038
--------------- --------------
Diluted net income per share $8,948 6,073,046 $1.47
=============== ============== ==============
For the three fiscal months ended Sept. 26, 1997:
Basic net income per share $3,393 5,714,188 $0.59
==============
Effect of stock options - 234,904
--------------- --------------
Diluted net income per share $3,393 5,949,092 $0.57
=============== ============== ==============
For the nine fiscal months ended Sept. 26, 1997:
Basic net income per share $6,504 5,695,964 $1.14
==============
Effect of stock options - 234,612
--------------- --------------
Diluted net income per share $6,504 5,930,576 $1.10
=============== ============== ==============
</TABLE>
(e) RECLASSIFICATIONS--Certain reclassifications have been made to the
1997 amounts to conform to their 1998 classifications.
(4) CREDIT ARRANGEMENTS
Following is a summary of the Company's long-term debt as of October 2, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
October 2, December 31,
1998 1997
--------- ---------
<S> <C> <C>
Revolving lines of credit, weighted average interest rate
of 7.4% $ 20,330 $ 15,000
Term Loan, weighted average interest rate of 8.4% 100,000 100,000
Note payable to one of the Former Shareholders, 10.5% 5,000 5,000
City of Parsons, Kansas Economic Development Loan, 7% 213 236
--------- ---------
Total long-term debt 125,543 120,236
Less current portion 32 32
--------- ---------
Long-term portion $125,511 $120,204
======== ========
</TABLE>
11
<PAGE> 12
At October 2, 1998, $40,000 of the $40,000 Revolving Credit Facility was
available, of which $20,330 of borrowings was outstanding. Average borrowings
under the Revolving Credit Facility and its predecessors were $20,712 and
$28,222 during the first nine months of 1998 and 1997, respectively, at an
approximate weighted average interest rate of 7.7% and 7.4%, respectively. The
maximum borrowings outstanding during the first nine months of 1998 and 1997,
respectively, were $26,620 and $32,403, respectively.
The Credit Agreement contains certain restrictive covenants which, among other
things, require that the Company maintain a minimum fixed charge coverage ratio,
not exceed a certain leverage ratio and limit the payment of dividends on Common
Shares. The Company was in compliance with its loan covenants as of October 2,
1998.
(5) STOCK OPTION PLANS
The Company has five stock option plans all of which provide for an option
exercise price equal to the stock's market price on the date of grant and all of
which are accounted for under APB Opinion No. 25, under which no compensation
costs have been recognized. Had compensation cost for these plans been
determined consistent with Statement of Financial Accounting Standards No.123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net income
and net income per share for the three and nine fiscal months ended October 2,
1998 and September 26, 1997 would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
For the three fiscal For the nine fiscal
months ended months ended
---------------------------- ----------------------------
Oct. 2, Sept. 26, Oct. 2, Sept. 26,
1998 1997 1998 1997
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net income As Reported $6,226 $3,393 $8,948 $6,504
Pro Forma 6,170 3,344 8,758 6,412
Basic net income per share As Reported 1.05 0.59 1.53 1.14
Pro Forma 1.04 0.59 1.50 1.13
Diluted net income per share As Reported 1.01 0.57 1.47 1.10
Pro Forma 1.00 0.56 1.45 1.08
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
12
<PAGE> 13
A summary of the activity of the Company's stock option plans for the nine
fiscal months ended October 2, 1998 is presented in the table below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Number of Price Per
Shares Share
-------------- ---------------
<S> <C> <C>
Outstanding at December 31, 1997 276,250 $ 3.57
Exercised (2,050) 2.46
Granted 83,833 17.11
============== ===============
Outstanding at October 2, 1998 358,033 $ 6.75
============== ===============
</TABLE>
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Dayton Superior Corporation (the "Company") achieved record third quarter 1998
net sales of $82.8 million, which were 94.4% higher than net sales in the third
quarter of 1997 of $42.6 million. The Company's quarter and year-to-date net
sales by major product category during the last two years were:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS THREE FISCAL MONTHS ENDED NINE FISCAL MONTHS ENDED
-------------------------------- -------------------------------
OCT. 2, SEPT. 26, OCT. 2, SEPT. 26,
1998 1997 1998 1997
------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Concrete Accessories $38.1 $24.9 $102.2 $65.5
Concrete Forming Systems 29.5 - 78.8 -
Paving Products 10.0 10.8 26.2 23.6
Masonry Products 7.2 6.9 18.2 19.3
Intercompany Eliminations (2.0) - (6.6) -
------------- --------------- ------------ ---------------
Net Sales $82.8 $42.6 $218.8 $108.4
============= =============== ============ ===============
- ------------------------------
</TABLE>
The acquisition of Symons Corporation ("Symons") on September 29, 1997
contributed more than 80% of the net sales growth in 1998 over 1997 for both the
three and nine fiscal months ended October 2, 1998.
Income before income taxes was $11.3 million in the third quarter of 1998
compared to $6.0 million in the third quarter of 1997 due to the contribution of
Symons as well as growth of the Company's existing business, net of the
increased interest expense from the acquisition of Symons.
Net income for the third quarter of 1998 was $6.2 million, or $1.05 per basic
share and $1.01 per diluted share, compared to $3.4 million, or $0.59 per basic
share and $0.57 per diluted share, in the third quarter of 1997. Net income for
the first nine months of 1998 was $8.9 million, or $1.53 per basic share and
$1.47 per diluted share, compared to $6.5 million, or $1.14 per basic share and
$1.10 per diluted share, in the first nine months of 1997.
IMPLEMENTATION OF BUSINESS STRATEGY
On September 29, 1997, the Company purchased the stock of Symons. Symons was a
private company, which operated two businesses. The first business, Symons, is a
leading manufacturer of prefabricated concrete forms. The second business,
Richmond Screw Anchor, manufactures and sells concrete accessories. The addition
of these two businesses provides the Company with both a complementary fourth
business platform and expansion in the concrete accessories market. The Symons
business is being operated on a stand alone basis while the Richmond Screw
Anchor business has been blended with the Company's existing concrete
accessories division.
14
<PAGE> 15
The Company paid $34.0 million (plus acquisition costs of $3.3 million) for the
Common Stock of Symons, of which $32.3 million was paid in cash and $5.0 million
was paid by delivery of a seven year unsecured note. The Company also assumed
$47.7 million of long-term debt. The purchase agreement between the Company and
the former stockholders of Symons ("the Former Stockholders") relating to the
Acquisition ("the Purchase Agreement") provides for an adjustment to the
purchase price under certain circumstances. The Company has advised the Former
Stockholders that it believes it is entitled to a purchase price adjustment in
its favor, and the Former Stockholders similarly advised the Company that they
believe they are entitled to a purchase price adjustment in their favor. If the
Company and the Former Stockholders are unable to resolve these differences, the
dispute will be referred to a mutually satisfactory accounting firm, which is
expected to resolve such differences, in accordance with the Purchase Agreement.
On June 12, 1998, the Former Stockholders filed a lawsuit in Delaware Chancery
Court seeking a determination with respect to a limited number of issues
involved in the dispute, which the Company believes can be resolved only through
arbitration. On October 28, 1998, the Court granted the Company's motion to
dismiss with respect to certain of these issues (as to which the Company intends
to proceed with arbitration) and retained jurisdiction with respect to the
remainder of the issues. At this time, the Company can make no determination as
to the amount of the adjustment, if any, that will be made to the purchase
price. The Company intends to vigorously pursue its rights under the Purchase
Agreement.
In June 1998, the Company purchased substantially all of the assets of Secure,
Inc., a subsidiary of The Lofland Company, for $0.6 million in cash. This
business is being operated as a part of the Company's paving products business.
In May 1998, the Company purchased the stock of Concrete Accessories, Inc.
("CAI") for 218,158 Class A Common Shares totaling $4.0 million, plus the
assumption of $2.2 million of long-term debt. In accordance with the share
exchange agreement between the Company and the former shareholders of CAI, the
purchase price has been increased by $0.3 million and will be paid with a
combination of cash and Class A Common Shares. CAI is being operated as a part
of the Company's concrete forming systems business.
In May 1998, the Company purchased the assets of the two Northwoods branches of
Concrete Forming, Inc. for $0.8 million in cash. The Northwoods branches are
being operated as a part of the Company's concrete forming systems business.
In February 1997, the Company acquired certain of the assets and assumed certain
of the liabilities of Ironco Manufacturing Co., Inc. and Birmingham Bar Coating,
Inc. (collectively, "Ironco") for $1.5 million, of which $1.1 million was paid
in cash and the remainder was paid by delivery of 26,254 Class A Common Shares.
These operations are a part of the Company's paving products business.
15
<PAGE> 16
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percentage of net sales.
<TABLE>
<CAPTION>
THREE FISCAL MONTHS ENDED NINE FISCAL MONTHS ENDED
----------------------------- -----------------------------
OCT. 2, SEPT. 26, OCT. 2, SEPT 26,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 58.7 66.3 62.1 67.7
------------ ------------ ------------ ------------
Gross profit 41.3 33.7 37.9 32.3
Selling, general and administrative expenses 23.6 16.7 25.8 18.3
Amortization of goodwill and intangibles 0.6 1.1 0.7 1.3
------------ ------------ ------------ ------------
Operating income 17.1 15.9 11.4 12.7
Interest expense, net 3.4 1.9 4.0 2.1
------------ ------------ ------------ ------------
Income before income taxes 13.7 14.0 7.4 10.6
Provision for income taxes 6.2 6.0 3.3 4.6
------------ ------------ ------------ ------------
Net income 7.5% 8.0% 4.1% 6.0%
============ ============ ============ ============
- ------------------------------
</TABLE>
COMPARISON OF THREE FISCAL MONTHS ENDED OCTOBER 2, 1998 AND SEPTEMBER 26, 1997
NET SALES
Net sales increased $40.2 million, or 94.4%, to $82.8 million in the third
quarter of 1998 from $42.6 million in the third quarter of 1997. Net sales of
concrete accessories increased by 52.8% to $38.1 million in the third quarter of
1998 from $24.9 million in the third quarter of 1997, due primarily to the
addition of the Richmond Screw Anchor division of Symons. Net sales of concrete
forming systems were $29.5 million for the third quarter of 1998 due to the
acquisition of Symons and, to a lesser extent, the acquisitions of CAI and
Northwoods. Net sales of paving products decreased $0.8 million, or 7.1%, from
the third quarter of 1997 to the third quarter of 1998 due to the delay in the
passage and funding of the Transportation Equity Act of the 21st Century, the
federal highway funding legislation. Net sales of masonry products increased
$0.3 million, or 4.2%, due to strategic pricing initiatives as well as a shift
of resources to engineered products.
GROSS PROFIT
Gross profit for the third quarter of 1998 was $34.2 million, more than double
the $14.4 million from the third quarter of 1997, due primarily to the Symons
acquisition. As a percent of net sales, gross margin was 41.3% in the third
quarter of this year, increasing from 33.7% last year. The gross margin
increased primarily as a result of the acquisition of Symons, as concrete
forming systems have higher gross margins than other product lines. The gross
margin of 41.3% in the third quarter of 1998 also increased from pro forma gross
margin of 37.1% in the third quarter of 1997 due to better product mix and raw
material costs.
16
<PAGE> 17
OPERATING EXPENSES
Selling, general, and administrative expenses, including amortization of
goodwill and intangibles ("SG&A expenses"), increased $12.5 million to $20.1
million in the third quarter of 1998, from $7.6 million in the third quarter of
1997. The acquisition of Symons resulted in approximately 80% of the increase.
SG&A expenses were up as a percent of net sales from 17.8% in the third quarter
of 1997 to 24.2% in the third quarter of 1998, due to concrete forming systems
having a higher percentage of SG&A expenses to net sales. This reflects the
additional distribution and service costs associated with the management of the
rental equipment fleet.
INTEREST EXPENSE
Interest expense increased to $3.0 million in the third quarter of 1998 from
$0.8 million in the third quarter of 1997 due to the increased long-term debt
resulting from the acquisition of Symons.
NET INCOME
Income before income taxes was $11.3 million in the third quarter of 1998
compared to $6.0 million in the third quarter of 1997, due to the contribution
of operating income from Symons and organic growth of existing business, net of
the increased interest expense from the acquisition of Symons. The effective tax
rate was 45.0% in the third quarter of 1998 compared to 43.2% in the third
quarter of 1997. The difference in effective tax rates from statutory rates is
due to nondeductible goodwill amortization and state taxes. Net income for the
third quarter of 1998 was $6.2 million, or $1.05 per basic share and $1.01 per
diluted share, compared to $3.4 million, or $0.59 per basic share and $0.57 per
diluted share, in the third quarter of 1997.
COMPARISON OF NINE FISCAL MONTHS ENDED OCTOBER 2, 1998 AND SEPTEMBER 26, 1997
NET SALES
Net sales increased $110.4 million to $218.8 million in the first nine months of
1998, more than double the $108.4 million in the first nine months of 1997. Net
sales of concrete accessories increased by 56.0% to $102.2 million in the first
nine months of 1998 from $65.5 million in the first nine months of 1997, due
primarily to the addition of the Richmond Screw Anchor division of Symons. Net
sales of concrete forming systems were $78.9 million for the first nine months
of 1998 due to the acquisitions of Symons and, to a lesser extent, the
acquisitions of CAI and Northwoods. Net sales of paving products increased $2.6
million, or 11.2%, from the first nine months of 1997 to the first nine months
of 1998 due to market share gain and a program to increase winter sales. Net
sales of masonry products decreased 5.9%, or $1.1 million, due to a high level
of competition in the hot dipped and mill galvanized masonry wall reinforcement
product markets somewhat offset by a shift to higher margin, lower volume
engineered products.
17
<PAGE> 18
GROSS PROFIT
Gross profit for the first nine months of 1998 was $82.9 million, more than
double the $35.0 million from the first nine months of 1997, due primarily to
the Symons acquisition. As a percent of net sales, gross margin was 37.9% in the
first nine months of 1998, up from 32.3% in 1997. The gross margin increased
primarily as a result of the acquisition of Symons, as concrete forming systems
have higher gross margins than other product lines. The 1998 gross margin of
37.9% also increased from the pro forma gross margin of 35.8% for the first nine
months of 1997 due to better product mix and raw material costs.
OPERATING EXPENSES
Selling, general, and administrative expenses, including amortization of
goodwill and intangibles ("SG&A expenses"), increased $36.7 million to $58.0
million in the first nine months of 1998, from $21.3 million in the first nine
months of 1997. The acquisition of Symons resulted in approximately 80% of the
increase. SG&A expenses were up as a percent of net sales from 26.5% in the
first nine months of 1998, from 19.6% in the first nine months of 1997, due to
concrete forming systems having a higher percentage of SG&A expenses to net
sales. This reflects the additional distribution and service costs associated
with the management of the rental equipment fleet.
INTEREST EXPENSE
Interest expense increased to $8.8 million in the first nine months of 1998 from
$2.3 million in the first nine months of 1997 due to the increased long-term
debt resulting from the acquisition of Symons.
NET INCOME
Income before income taxes was $16.3 million in the first nine months of 1998
compared to $11.4 million in the first nine months of 1997, primarily due to the
contribution of operating income from Symons and from growth of the existing
business, net of the increased interest expense from the acquisition of Symons.
The effective tax rate was 45.0% in the first nine months of 1998 compared to
43.2% in the first nine months of 1997. The difference in effective tax rates
from statutory rates is due to nondeductible goodwill amortization and state
taxes. Net income for the first nine months of 1998 was $8.9 million, or $1.53
per basic share and $1.47 per diluted share, compared to $6.5 million, or $1.14
per basic share and $1.10 per diluted share, in the first nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements relate primarily to capital expenditures,
debt service and the cost of acquisitions. Historically, the Company's primary
sources of financing have been cash from operations, borrowings under its
revolving line of credit and the issuance of long-term debt and equity.
18
<PAGE> 19
Net cash provided by operating activities in the first nine months of 1998 was
$8.4 million as compared to $2.9 million provided in the first nine months of
1997 due to higher net income and improved working capital management. Net
income before non-cash charges of depreciation, amortization, deferred taxes,
and gain on sales of rental equipment and property, plant and equipment provided
$12.0 million of operating cash flow in the first nine months of 1998 as
compared to $10.8 million in the first nine months of 1997. Working capital
growth used $3.5 million of operating cash flow as compared to $7.8 million in
the first nine months of 1997. Significant working capital uses in 1998 included
seasonal increases in accounts receivable and inventory of $15.8 million and
$1.9 million, respectively. Accounts payable growth provided $6.7 million in the
first nine months of 1998 due to normal seasonal expansion. The Company invested
$9.7 million in property, plant and equipment and rental equipment additions,
net of proceeds on sales, during the first nine months of 1998. Significant
investments were made in growth of the concrete forming rental fleet and in
marketing equipment for the concrete accessories and paving products divisions
to further improve efficiencies. Acquisitions used $1.6 million in cash in
addition to the assumption of $2.2 million of debt. Draws on the line of credit
of $2.7 million funded the seasonal increases in working capital, the
investments in property, plant and equipment and rental equipment, and the
acquisitions.
At October 2, 1998, working capital was $52.9 million, compared to $45.4 million
at December 31, 1997. The growth in working capital is primarily attributable to
growth for the summer construction season.
At October 2, 1998, all of the $40.0 million Revolving Credit Facility was
available, of which $20.3 million of borrowings were outstanding. The Term Loan
had an outstanding balance at October 2, 1998 of $100.0 million. At October 2,
1998, the Company had $125.5 million of long-term debt outstanding, of which $32
thousand was current. The Company's debt to total capitalization ratio decreased
to 63.0% as of October 2, 1998 from 66.5% as of December 31, 1997.
The Company believes its liquidity, capital resources and cash flows from
operations are sufficient to fund planned capital expenditures, working capital
requirements and debt service in the absence of additional acquisitions.
The Company intends to fund future acquisitions with cash, securities or a
combination of cash and securities. To the extent the Company uses cash for all
or part of any such acquisitions, it expects to raise such cash primarily from
operations, borrowings under the Revolving Credit Facility or, if feasible and
attractive, issuances of long-term debt or additional Class A Common Shares.
SEASONALITY
The Company's operations are seasonal in nature with approximately 60% of sales
historically occurring in the second and third quarters. Working capital and
borrowings fluctuate with sales volume. Historically, more than 75% of cash flow
from operations is generated in the fourth quarter.
19
<PAGE> 20
INFLATION
The Company does not believe inflation had a significant impact on its
operations over the past three years. In the past, the Company has been able to
pass along all or a portion of the effects of increases in the price of steel,
its principal raw material. There can be no assurance the Company will be able
to continue to pass on the cost of such increases in the future.
YEAR 2000
Certain software and hardware systems are date sensitive. Older date sensitive
systems often use a two digit dating convention ("00" rather than "2000") that
could result in system failure and disruption of operations as the year 2000
approaches. This is referred to as the "Year 2000" issue. The Year 2000 issue
will impact the Company, its suppliers, customers and other third parties that
transact business with the Company.
The Company has a Year 2000 compliance team. This team is reviewing
substantially all hardware and software systems within the Company, products
sold by the Company, and significant suppliers and other third parties that
transact business with the Company. Projects have been established to address
all significant Year 2000 issues identified in this review. The Year 2000 team
reports regularly to senior management on the progress of significant Year 2000
projects. Senior management reports to the Board of Directors on the Company's
progress with Year 2000 projects.
The compliance review has involved testing of hardware and software systems,
including non-information technology systems such as telephones and CNC
machines. The Company has determined that it needs to replace or modify some of
its software and hardware systems. The Company is replacing or upgrading most of
the systems which have been identified as having Year 2000 issues.
The Company believes it has no material exposure to contingencies related to the
Year 2000 issue for products sold as almost none of the company products contain
time sensitive hardware or software systems.
The Company has initiated communications with significant suppliers, customers
and other relevant third parties to identify and minimize disruptions to the
Company's operations and to assist in resolving Year 2000 issues. Particular
attention has been given to those suppliers who may be the Company's only source
for certain products or components. However, there can be no certainty that the
impacted systems and products of other parties on which the Company relies will
be Year 2000 compliant.
The estimated cost for resolving Year 2000 issues is approximately $200,000.
Most of these costs are to replace existing software and hardware systems. The
Company's estimates of Year 2000 costs are based on numerous assumptions; actual
costs could be greater than estimates. Specific factors that might cause such
differences include, but are not limited to, the continuing availability of
personnel trained in this area and the Company's ability to timely identify and
correct all relevant software and hardware systems and the success of third
party vendors in addressing their own Year 2000 issues.
The Company believes it is diligently addressing the Year 2000 issues and that
it will satisfactorily resolve all significant Year 2000 problems. The Company
anticipates that it will complete a major test of its integrated systems in the
fourth quarter of 1998 and completing substantially all of its Year 2000
projects by the end of the second quarter of 1999. In the event the Company
falls short of these milestones, additional internal resources will be focused
on completing these projects or implementing contingency plans.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes, and future filings by the Company on Form 10-K, Form
10-Q, and Form 8-K, and future oral and written statements by the Company and
its management may include, certain forward-looking statements, including
(without limitation) statements with respect to anticipated future operating and
financial performance, growth opportunities and growth rates, acquisition and
divestitive opportunities and other similar forecasts and statements of
expectation. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and "should," and variations of these words and
similar expressions, are intended to identify these forward-looking statements.
Forward-looking statements by the Company and its management are based on
estimates, projections, beliefs and assumptions of management and are not
guarantees of future performance. The Company disclaims any obligation to update
or revise any forward-looking statement based on the occurrence of future
events, the receipt of new information, or otherwise.
Actual future performance, outcomes and results may differ materially from those
expressed in forward-looking statements made by the Company and its management
as the result of a number of important factors. Representative examples of these
factors include (without limitation) the cyclical nature of nonresidential
building and infrastructure construction activity, which can be affected by
factors outside the Company's control such as the general economy, governmental
expenditures and changes in banking and tax laws; the Company's ability to
successfully identify, finance, complete and integrate acquisitions; the mix of
products sold by the Company; the Company's ability to successfully develop and
introduce new products; increases in the price of steel (the principal raw
material in the Company's products) and the Company's ability to pass along such
price increases to its customers; and the seasonality of the 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.
20
<PAGE> 21
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAYTON SUPERIOR CORPORATION
DATE: January 6, 1999 BY: /s/ Alan F. McIlroy
----------------- ---------------------------
Alan F. McIlroy
Chief Financial Officer
