<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
MARCH 31, 2000 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
----- -----
5,946,233 Class A Common Shares were outstanding as of May 4, 2000
<PAGE> 2
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Dayton Superior Corporation and Subsidiaries
Consolidated Balance Sheets
As of March 31, 2000 and December 31, 1999
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash $ 2,188 $ 4,553
Accounts receivable, net of allowances for doubtful accounts and
sales returns and allowances of $7,010 and $5,589 53,090 45,085
Inventories (Note 4) 43,680 39,340
Prepaid expenses and other current assets 5,007 5,551
Prepaid income taxes 131 1,038
Future income tax benefits 3,920 3,998
--------- ---------
Total current assets 108,016 99,565
--------- ---------
Rental equipment, net (Note 4) 60,309 58,748
--------- ---------
Property, plant and equipment 75,924 73,651
Less accumulated depreciation (31,465) (29,741)
--------- ---------
Net property, plant and equipment 44,459 43,910
--------- ---------
Goodwill and intangible assets, net of accumulated amortization 76,184 75,522
--------- ---------
Other assets 1,032 934
--------- ---------
Total assets $ 290,000 $ 278,679
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt (Note 5) $ 5,032 $ 5,032
Accounts payable 25,484 22,802
Accrued compensation and benefits 8,615 11,302
Other accrued liabilities 8,465 9,960
--------- ---------
Total current liabilities 47,596 49,096
Long-term debt (Note 5) 113,581 100,141
Deferred income taxes 15,404 16,566
Other long-term liabilities 4,917 4,548
--------- ---------
Total liabilities 181,498 170,351
--------- ---------
Company-obligated mandatorily redeemable convertible trust preferred securities of
Dayton Superior Capital Trust which holds solely debentures
19,558 19,556
--------- ---------
Shareholders' equity
Class A common shares 47,424 47,417
Class A treasury shares (387) (387)
Cumulative other comprehensive income (246) (254)
Retained earnings 42,153 41,996
--------- ---------
Total shareholders' equity 88,944 88,772
--------- ---------
Total liabilities and shareholders' equity $ 290,000 $ 278,679
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
2
<PAGE> 3
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Income
For The Three Fiscal Months Ended March 31, 2000 and April 2, 1999
(Amounts in thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Fiscal Months Ended
---------------------------
March 31, April 2,
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 76,505 $ 68,196
Cost of sales 48,544 43,898
----------- -----------
Gross profit 27,961 24,298
Selling, general and administrative expenses 23,737 21,322
Amortization of goodwill and intangibles 624 647
----------- -----------
Income from operations 3,600 2,329
Other expenses
Interest expense, net 2,728 2,975
Other expense, net 19 -
----------- -----------
Income (loss) before provision for income taxes 853 (646)
Provision (benefit) for income taxes 380 (291)
----------- -----------
Net income (loss) 473 (355)
Dividends on Company-obligated mandatorily redeemable
convertible trust preferred securities, net of income tax benefit 316 -
----------- -----------
Net income (loss) available to common shareholders $ 157 $ (355)
=========== ===========
Basic net income per share $ 0.03 $ (0.06)
=========== ===========
Basic weighted average common shares outstanding 5,945,093 5,947,516
=========== ===========
Diluted net income per share $ 0.03 $ (0.06)
=========== ===========
Diluted weighted average common and common equivalent shares outstanding
6,189,874 5,947,516
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
3
<PAGE> 4
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For The Three Fiscal Months Ended March 31, 2000 and April 2, 1999
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Fiscal Months Ended
--------------------------
March 31, April 2,
2000 1999
---------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 473 $ (355)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation 3,073 3,015
Amortization of goodwill and intangibles 624 647
Deferred income taxes (1,084) (430)
Amortization of deferred financing costs 193 200
Gain on sales of rental equipment and property, plant
and equipment (1,407) (2,076)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (7,863) (5,111)
Inventories (4,134) (1,990)
Accounts payable 2,515 2,630
Accrued liabilities and other long-term liabilities (3,815) (3,711)
Prepaid income taxes and other, net 794 1,106
-------- ----------
Net cash used in operating activities (10,631) (6,075)
-------- ----------
Cash Flows From Investing Activities:
Property, plant and equipment additions (2,207) (1,607)
Proceeds from sales of fixed assets - 232
Rental equipment additions (4,158) (6,012)
Proceeds from sales of rental equipment 2,639 2,971
Acquisitions (Note 3) (1,467) (5,528)
Other investing activities 320 -
-------- ---------
Net cash used in investing activities (4,873) (9,944)
-------- ---------
Cash Flows From Financing Activities:
Issuance of long-term debt, net 13,440 15,562
Dividends on Company-obligated mandatorily redeemable convertible trust
preferred securities, net of income tax benefit (316) -
Purchase of treasury shares - (121)
Issuance of Class A common shares 7 -
-------- ----------
Net cash provided by financing activities 13,131 15,441
-------- ----------
Effect of exchange rate changes on cash 8 18
-------- ----------
Net decrease in cash (2,365) (560)
Cash, beginning of period 4,553 560
-------- ----------
Cash, end of period $ 2,188 $ -
======== ==========
Supplemental Disclosures:
Cash paid (refunded) for income taxes $ (86) $ 353
Cash paid for interest 3,927 2,715
</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 Comprehensive Income
For The Three Fiscal Months Ended March 31, 2000 and April 2, 1999
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Fiscal Months
Ended
-------------------
March 31, April 2,
2000 1999
--------- --------
<S> <C> <C>
Net income (loss) $ 473 $(355)
Dividends on Company-obligated mandatorily redeemable
convertible trust preferred securities, net of income tax benefit (316) -
Other comprehensive income:
Foreign currency translation adjustment 8 18
--------- --------
Comprehensive income (loss) $ 165 $(337)
========= ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
5
<PAGE> 6
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND APRIL 2, 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The interim consolidated financial statements included herein have been prepared
by the Company, without audit, and include, in the opinion of management, all
adjustments necessary to state fairly the information set forth therein. Any
such adjustments were of a normal recurring nature. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
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, 1999.
(2) THE COMPANY
On January 19, 2000, the Company signed a definitive merger agreement with an
affiliate of Odyssey Investment Partners, LLC, the manager of a New York based
private equity investment fund, for $27.00 per share in cash, for a total
transaction value (debt and equity) of approximately $315 million. Holders of
the Company-obligated mandatorily redeemable convertible trust preferred
securities will have the right to receive cash in the amount of $22.00, plus
accrued dividends, per preferred security upon consummation of the
recapitalization merger. The recapitalization merger is conditioned on Company
shareholder approval, receipt of financing, government regulatory approvals and
other customary conditions. The Federal Trade Commission has granted early
termination of the Hart-Scott-Rodino waiting period. A Special Shareholders'
Meeting to vote on the merger agreement is scheduled for May 23, 2000. The
closing is currently anticipated to occur in the second quarter of 2000.
(3) ACQUISITIONS
(a) SYMONS CORPORATION - On September 29, 1997, the Company purchased the
stock of Symons Corporation ("Symons"). The purchase agreement between
the Company and the former stockholders of Symons ("the Former
Stockholders") relating to the acquisition provides for an adjustment to
the purchase price under certain circumstances. In April 2000, an
arbitrator determined that the Company was entitled to receive a
purchase price reduction of approximately $1,800, which will be recorded
as a reduction of goodwill, net of professional fees, upon receipt from
the Former Stockholders.
In 1998, the Former Stockholders had filed a lawsuit in Delaware to
contest the purchase price adjustment. As a result of the arbitrator's
ruling in April 2000, the Company has filed, with the Former
Stockholders, a joint motion to dismiss the lawsuit.
(b) POLYTITE MANUFACTURING CORP. - On February 9, 2000, the Company acquired
substantially all of the assets and assumed certain of the liabilities
of Polytite Manufacturing Corp.
6
<PAGE> 7
("Polytite") for approximately $1,500 in cash, including acquisition
costs and is subject to a working capital adjustment. The business is
being operated as part of the Company's masonry products and concrete
accessories businesses.
The acquisition has been accounted for as a purchase, and the results of
Polytite have been included in the accompanying consolidated financial
statements since the date of acquisition. The purchase price has been
allocated based on the estimated fair values of the assets acquired and
liabilities assumed. Certain appraisals and evaluations are preliminary
and may change. Pro forma financial information is not required.
(c) SOUTHERN CONSTRUCTION PRODUCTS, INC. - On October 4, 1999, the Company
acquired substantially all of the assets and assumed certain of the
liabilities of Southern Construction Products, Inc. ("Southern") for
approximately $8,300 in cash, including acquisition costs, and net of a
purchase price reduction of approximately $300 received in January 2000.
The business is being operated as part of the Company's masonry products
and concrete accessories businesses.
The acquisition has been accounted for as a purchase, and the results of
Southern have been included in the accompanying consolidated financial
statements since the date of acquisition. The purchase price has been
allocated based on the estimated fair values of the assets acquired and
liabilities assumed. Certain appraisals and evaluations are preliminary
and may change. Pro forma financial information is not required.
(d) CEMPRO, INC. - Effective January 1, 1999, the Company acquired
substantially all of the assets and assumed certain of the liabilities
of Cempro, Inc. ("Cempro") for approximately $5,400 in cash, including
acquisition costs. The business is being operated as a part of the
Company's concrete accessories business.
The acquisition has been accounted for as a purchase, and the results of
Cempro have been included in the accompanying consolidated financial
statements since the date of acquisition. The purchase price has been
allocated based on the estimated fair values of the assets acquired and
liabilities assumed. Pro forma financial information is not required.
(4) 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, 1999. While
management believes that the procedures followed in the preparation of interim
financial information are reasonable, the accuracy of some estimated amounts is
dependent upon facts that will exist or calculations that will be accomplished
at year end. Examples of such estimates include changes in the LIFO reserve
(based upon the Company's best estimate of inflation to date) and management
bonuses. Any adjustments pursuant to such estimates during the fiscal quarter
were of a normal recurring nature.
(a) FISCAL QUARTER-- The Company's fiscal quarters are defined as the
periods ending on the Friday nearest to the end of March, June and
September.
(b) INVENTORIES-- Substantially all inventories of the domestic Dayton
Superior and Dur-O-Wal
7
<PAGE> 8
operations are stated at the lower of last in, first out (LIFO) cost or
market (which approximates current cost). All other inventories are
stated at the lower of first-in, first-out (FIFO) cost or market. The
Company had no LIFO reserve as of March 31, 2000 and December 31, 1999.
Following is a summary of the components of inventories as of March 31,
2000 and December 31, 1999:
March 31, December 31,
2000 1999
-------- --------
Raw materials $ 10,091 $ 8,787
Finished goods and work in progress 36,365 32,920
-------- --------
46,456 41,707
Net realizable value reserve (2,776) (2,367)
-------- --------
$ 43,680 $ 39,340
======== ========
(c) RENTAL EQUIPMENT-- Rental equipment is manufactured by the Company for
resale and for rent to others on a short-term basis. Rental equipment is
recorded at the lower of FIFO cost or market and is depreciated over the
estimated useful life of the equipment, twelve to fifteen years, on a
straight-line method. The balances as of March 31, 2000 and December 31,
1999 are net of accumulated depreciation of $11,288 and $9,855,
respectively. Rental revenues and cost of sales associated with rental
revenue are as follows:
Three fiscal months
ended
----------------------
March 31, April 2,
2000 1999
-------- --------
Rental revenue $ 11,280 $ 10,509
Cost of sales 2,175 1,900
(d) FINANCIAL INSTRUMENTS--The Company uses interest rate swaps to manage
interest rate risk associated with its floating rate borrowings. The
swap agreements are contracts to exchange floating rate for fixed
interest payments periodically over the life of the agreements without
the exchange of the underlying amounts. The differential paid or
received on the interest rate agreements is recognized as an adjustment
to interest expense. The fair value of the interest rate swaps in place
at March 31, 2000 is an asset of $39.
(e) RECLASSIFICATIONS--Certain reclassifications have been made to the 1999
amounts to conform to their 2000 classifications.
(5) CREDIT ARRANGEMENTS
Following is a summary of the Company's long-term debt as of March 31, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ---------
<S> <C> <C>
Revolving line of credit, weighted average interest rate of 7.5% $ 13,440 $ -
Term Loan, weighted average interest rate of 8.7% 100,000 100,000
Note payable to one of the Former Stockholders, 10.5% 5,000 5,000
City of Parsons, Kansas Economic Development Loan, 7.0% 173 173
--------- ---------
Total long-term debt 118,613 105,173
Less current portion (5,032) (5,032)
--------- ---------
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C>
Long-term portion $ 113,581 $ 100,141
========= =========
</TABLE>
At March 31, 2000, $50,000 of the $50,000 Revolving Credit Facility was
available, of which $13,440 of borrowings was outstanding. The average
borrowings, maximum borrowings, and weighted average interest rate for the
periods indicated are as follows:
Three fiscal months
ended
--------------------
March 31, April 2,
2000 1999
------- -------
Average borrowings $ 5,545 $23,043
Maximum borrowings 14,095 29,770
Weighted average interest rate 9.5% 7.1%
The Credit Agreement contains certain restrictive covenants which, among other
things, require that the Company maintain a minimum fixed charge coverage ratio,
not exceed a certain leverage ratio and prohibit the payment of dividends on
Common Shares. The Company was in compliance with its loan covenants as of March
31, 2000.
(6) 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 fiscal months ended March 31, 2000 and
April 2, 1999 would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
Three fiscal months
ended
--------------------------
March 31, April 2,
2000 1999
---------- -----------
<S> <C> <C> <C>
Net income (loss) available to common
shareholders As Reported $157 $(355)
Pro Forma 99 (438)
Basic net income (loss) per share As Reported 0.03 (0.06)
Pro Forma 0.02 (0.07)
Diluted net income (loss) per share As Reported 0.03 (0.06)
Pro Forma 0.02 (0.07)
</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.
9
<PAGE> 10
A summary of the activity of the Company's stock option plans for the three
fiscal months ended March 31, 2000 is presented in the table below:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise Price
Shares Per Share
------------------- ---------------------
<S> <C> <C>
Outstanding at December 31, 1999 442,283 $9.28
Exercised (3,050) 2.29
------------------- ---------------------
Outstanding at March 31, 2000 439,233 $ 9.33
=================== =====================
</TABLE>
(7) SEGMENT REPORTING
The Company operates in four segments, each with a general manager: concrete
accessories, concrete forming systems, paving products, and masonry. The
segments are differentiated by their products and services, all of which serve
the construction industry.
Sales between segments are recorded at normal selling price by the selling
division and at cost for the buying division, with the profit recorded as an
intersegment elimination. Segment assets include accounts receivable;
inventories; property, plant, and equipment; rental equipment; and an allocation
of goodwill. Corporate and unallocated assets include cash, prepaid income
taxes, future tax benefits, and financing costs. Export sales and sales by
non-U.S. affiliates are not significant.
Information about the profit (loss) of each segment and the reconciliations to
the consolidated amounts for the three fiscal months ended March 31, 2000 and
April 2, 1999 is as follows:
<TABLE>
<CAPTION>
Three fiscal months
ended
------------------------
March 31, April 2,
2000 1999
-------- --------
<S> <C> <C>
Concrete Accessories $ 34,920 $ 30,681
Concrete Forming Systems 26,487 24,876
Paving Products 7,295 6,673
Masonry Products 7,803 5,966
-------- --------
Net sales to external customers $ 76,505 $ 68,196
======== ========
Concrete Accessories $ 1,249 $ 1,060
Concrete Forming Systems 2,006 1,232
Paving Products 659 97
Masonry Products 40 -
-------- --------
Net sales to other segments $ 3,954 $ 2,389
======== ========
Concrete Accessories $ 736 $ 975
Concrete Forming Systems 1,662 1,701
Paving Products 130 182
Masonry Products 200 117
-------- --------
Interest expense $ 2,728 $ 2,975
======== ========
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C>
Concrete Accessories $ 4,126 $ 2,679
Concrete Forming Systems 409 139
Paving Products (148) (499)
Masonry Products (182) (386)
Intersegment Eliminations (1,869) (1,181)
Corporate (1,483) (1,398)
-------- --------
Income before income taxes $ 853 $ (646)
======== ========
Concrete Accessories $ 893 $ 977
Concrete Forming Systems 1,602 1,470
Paving Products 214 223
Masonry Products 350 332
Corporate 14 13
-------- --------
Depreciation $ 3,073 $ 3,015
======== ========
Concrete Accessories $ 357 $ 367
Concrete Forming Systems 97 109
Paving Products 29 64
Masonry Products 141 107
-------- --------
Amortization of goodwill and intangibles $ 624 $ 647
======== ========
</TABLE>
Information regarding capital expenditures by segment and the reconciliation to
the consolidated amounts for the three fiscal months ended March 31, 2000 and
April 2, 1999 is as follows:
Three fiscal months
ended
--------------- ------
March 31, April 2,
2000 1999
------ ------
Concrete Accessories $ 546 $ 746
Concrete Forming Systems 656 385
Paving Products 471 276
Masonry Products 521 155
Corporate 13 45
------ ------
Property, Plant, and Equipment Additions $2,207 $1,607
====== ======
Concrete Accessories $ 900 $ 328
Concrete Forming Systems 3,258 5,684
------ ------
Rental Equipment Additions $4,158 $6,012
====== ======
There has been no material change in the relative assets employed by each
segment since December 31, 1999.
11
<PAGE> 12
(8) CONTINGENCIES
Symons is currently a defendant involved in a civil suit brought by EFCO Corp.,
a competitor of Symons in one portion of their business. EFCO Corp. alleged that
Symons engaged in false advertising, misappropriation of trade secrets,
intentional interference with contractual relations, and certain other
activities. After a jury trial, preliminary damages of approximately $14,000
were awarded against Symons in January 1999. In ruling on post-trial motions in
April 1999, the Judge dismissed EFCO's claim of intentional interference with
contractual relations, but increased the damages awarded to EFCO by $100. This
case is currently on appeal before the United States Court of Appeals for the
Eighth Circuit. Symons and EFCO have filed their briefs with the Court and have
presented oral arguments. The Company is waiting the decision of the Court.
The Company believes that Symons has grounds for a successful appeal and remains
committed to vigorously pursuing its appellate rights. A successful appeal could
result in judgment for Symons or a new trial. Symons' liability, if any, cannot
finally be determined until such time as all rights of the parties have been
exhausted or have expired by lapse of time. The Company considers the ultimate
outcome of this litigation to be not estimable. Accordingly, the Company has not
recorded any liability for the resolution of this suit. In the event that Symons
is unsuccessful in its post-trial motions and appeals, it may have a material
adverse effect on its consolidated financial position, results of operations, or
cash flows.
The Company, all of its directors and one officer are defendants in a purported
shareholder class action civil suit brought in January 2000 in the Court of
Common Pleas in Montgomery County, Ohio. The plaintiff alleges that the Company
and the other defendants have engaged in self dealing and breached their
fiduciary duties to shareholders with respect to the recapitalization merger
discussed in Note 2. The Company believes this suit is without merit and is
committed to vigorously defending itself and the other defendants. The Company
filed a motion to dismiss the complaint, which is currently pending before the
Court. In the event the Company is unsuccessful in its defense, it may have a
material adverse effect on its consolidated financial position, results of
operations, or cash flows.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We believe we are the largest North American manufacturer and distributor of
metal accessories and forms used in concrete construction and of metal
accessories used in masonry construction. Although almost all of our products
are used in concrete or masonry construction, the function and nature of the
products differ widely. We have four principal operating divisions, which are
organized around the following product lines:
- Concrete Accessories;
- Concrete Forming Systems;
- Paving Products; and
- Masonry Products.
ACQUISITIONS
We have completed and integrated three acquisitions since the beginning of 1999.
These acquisitions were small add-on acquisitions, and are summarized in the
following table:
<TABLE>
<CAPTION>
Purchase Price (In
Date Business Acquired Division Millions)
---- ----------------- -------- ---------
<S> <C> <C> <C>
January 1999 Cempro Concrete Accessories $5.4
October 1999 Southern Construction Products Masonry Products and Concrete 8.3
Accessories
February 2000 Polytite Masonry Products 1.5*
</TABLE>
*Subject to working capital adjustment
RESULTS OF OPERATIONS
The following table summarizes our results of operations as a percentage of net
sales.
<TABLE>
<CAPTION>
Three Fiscal Months Ended
-------------------------------
March 31, April 2,
2000 1999
-------------- -------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 63.5 64.4
-------------- -------------
Gross profit 36.5 35.6
-------------- -------------
Selling, general and administrative expenses 31.0 31.3
Amortization of goodwill and intangibles 0.8 0.9
-------------- -------------
Total selling, general and administrative expenses 31.8 32.2
-------------- -------------
Income from operations 4.7 3.4
Interest expense, net 3.6 4.3
-------------- -------------
Income (loss) before income taxes 1.1 (0.9)
Provision (benefit) for income taxes 0.5 (0.4)
-------------- -------------
Net income (loss) 0.6 (0.5)
Dividends on Company-obligated mandatorily redeemable convertible trust
preferred securities, net of income tax benefit 0.4 -
-------------- -------------
Net income (loss) available to common shareholders 0.2% (0.5)%
============== =============
</TABLE>
13
<PAGE> 14
COMPARISON OF THREE FISCAL MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
NET SALES
Net sales increased $8.3 million, or 12.2%, to $76.5 million in the first
quarter of 2000 from $68.2 million in the first quarter of 1999. The following
table summarizes our net sales by segment:
<TABLE>
<CAPTION>
Three fiscal months ended
--------------------------------------------------
March 31, 2000 April 2, 1999
----------------------- -----------------------
(In thousands)
Net Sales % Net Sales % % Change
<S> <C> <C> <C> <C> <C>
Concrete accessories $ 36,169 47.3% $ 31,741 46.5% 14.0%
Concrete forming systems 28,493 37.2 26,108 38.3 9.1
Paving products 7,954 10.4 6,770 9.9 17.5
Masonry products 7,843 10.3 5,966 8.7 31.5
Intersegment eliminations (3,954) (5.2) (2,389) (3.4) 65.5
-------- ----- -------- -----
Net sales $ 76,505 100.0% $ 68,196 100.0% 12.2%
======== ===== ======== =====
</TABLE>
Net sales of concrete accessories increased by 14.0% to $36.2 million in the
first quarter of 2000 from $31.7 million in the first quarter of 1999, primarily
due to increases in volume from new products and penetration into new markets
and, to a lesser extent, the contribution of Southern Construction Products. Net
sales of concrete forming systems increased 9.1% to $28.5 million for the first
quarter of 2000 compared to $26.1 million in the first quarter of 1999,
primarily due to volume gains and the expansion and introduction of new
products, including distribution rights to two European forming systems. Net
sales of paving products increased $1.2 million, or 17.5%, in the first quarter
of 2000 compared to the first quarter of 1999 due to an increase in volume as a
result of the Transportation Equity Act for the 21st Century, known as TEA-21,
and marketing initiatives. Net sales of masonry products increased $1.9 million,
or 31.5%, primarily due to the acquisitions of Southern Construction Products
and Polytite, and other volume gains.
GROSS PROFIT
Gross profit for the first quarter of 2000 was $28.0 million, a 15.1% increase
from $24.3 million in the first quarter of 1999, due primarily to the increased
net sales. Gross margin was 36.5% in the first quarter of 2000, increasing from
35.6% in 1999 due to manufacturing efficiencies and purchasing synergies, a
higher mix of rental revenue, and leverage of fixed manufacturing costs.
OPERATING EXPENSES
Selling, general, and administrative expenses, including amortization of
goodwill and intangibles ("SG&A expenses"), increased $2.4 to $24.4 million in
the first quarter of 2000, from $22.0 million in the first quarter of 1999, due
to the acquisitions and higher volume. SG&A expenses were lower as a percent of
net sales to 31.8% in the first quarter of 2000 from 32.2% in the first quarter
of 1999, due to the leverage of fixed costs on higher net sales, partially
offset by increases in new product development and sales personnel.
14
<PAGE> 15
INTEREST EXPENSE
Interest expense decreased to $2.7 million in the first quarter of 2000 from
$3.0 million in the first quarter of 1999 due to lower long-term debt balances
resulting from the issuance of the convertible trust preferred securities,
partially offset by higher interest rates.
INCOME BEFORE INCOME TAXES
Income before income taxes in the first quarter of 2000 increased to $0.9
million from a loss of ($0.6) million in the first quarter of 1999 and was
comprised of the following:
<TABLE>
<CAPTION>
Three fiscal months ended
-------------------------------------
March 31, 2000 April 2, 1999
-------------- -------------
(In thousands)
<S> <C> <C>
Concrete accessories $ 4,126 $ 2,679
Concrete forming systems 409 139
Paving products (148) (499)
Masonry products (182) (386)
Intersegment eliminations (1,869) (1,181)
Corporate (1,483) (1,398)
-------- ---------
Income before income taxes $ 853 $ (646)
======== =========
</TABLE>
Income before income taxes from concrete accessories of $4.1 million, or 11.4%
of net sales in the first quarter of 2000, from $2.7 million, or 8.4% of net
sales in the first quarter of 1999, due primarily to the increase in net sales,
manufacturing efficiencies and leverage of fixed costs. Income before income
taxes from concrete forming systems was $0.4 million, or 1.4% of net sales in
the first quarter of 2000, in comparison to $0.1 million, or 0.5% of net sales
in the first quarter of 1999, due to the increase in net sales, higher growth in
rental revenue, and leverage of fixed costs. Income before income taxes from
paving products improved to $(0.2) million in the first quarter of 2000 from
($0.5) million in the first quarter of 1999 due to higher net sales. Income
before income taxes from masonry products improved to $(0.2) million in the
first quarter of 2000 compared to ($0.4) million in the first quarter of 1999
due to the increase in net sales. Elimination of profit on intersegment sales
was $1.9 million in the first quarter of 2000, increasing from $1.2 million in
the first quarter of 1999, due to higher intersegment sales. Corporate expenses
increased slightly to $1.5 million from $1.4 million.
NET INCOME
The effective tax rate was 44.5% in the first quarter of 2000 compared to 45.0%
in the first quarter of 1999. The difference in effective tax rates from
statutory rates is due to nondeductible goodwill amortization and state and
local income taxes. Net income available to common shareholders for the first
quarter of 2000 was $0.2 million, or $0.03 per basic and diluted share, compared
to ($0.4) million, or ($0.06) per basic and diluted share, in the first quarter
of 1999.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
Our key statistics for measuring liquidity and capital resources are net cash
provided by operating activities, capital expenditures, debt to total
capitalization ratio, amounts available under our revolving credit facility and
cash gap. Cash gap is defined as the average number of days of outstanding
accounts receivable, plus the average number of days of inventory on hand, less
the average number of days of outstanding accounts payable.
Our capital requirements relate primarily to capital expenditures, debt service
and the cost of acquisitions. Historically, our primary sources of financing
have been cash from operations, borrowings under our revolving line of credit
and the issuance of long-term debt and equity.
Net cash used in operating activities in the first quarter of 2000 was $10.6
million and was comprised of the following:
- $0.5 million of net income,
- $1.4 million of non-cash reductions to net income, and
- ($12.5) million of normal seasonal working capital growth.
We invested in the following:
- $3.7 million in net capital expenditures and
- $1.2 million of acquisitions, net of a $0.3 million refund
for a working capital adjustment from a 1999 acquisition.
Net cash provided by financing activities was comprised of the following:
- $13.4 million of draws on the Revolving Credit Facility and
- ($0.3) million in dividends on the convertible trust preferred
securities, net of income tax benefit.
As a result of the above, cash decreased $2.4 million.
At March 31, 2000, working capital was $60.4 million, compared to $50.5 million
at December 31, 1999. The growth in working capital is primarily attributable to
seasonal growth as net sales in March 2000 were greater than net sales in
December 1999 and inventories were increased to meet the expected demand from
the spring and summer construction season.
At March 31, 2000, all of the $50.0 million Revolving Credit Facility was
available, of which $13.4 million of borrowings were outstanding. The Term Loan
had an outstanding balance at March 31, 2000 of $100.0 million. Other long-term
debt consisted of $5.0 million to one of the Former Stockholders. At March 31,
2000, we had $118.6 million of long-term debt outstanding, of which $5.0 million
was current. Our net debt to total capitalization ratio increased to 51.8% as of
March 31, 2000 from 48.2% as of December 31, 1999 due to normal seasonal
increase of long-term debt. Our net debt to total capitalization ratio decreased
to 51.8% as of March 31, 2000 from 64.3% as of April 2, 1999, due to the net
income generated in the last twelve months and the issuance of our convertible
trust preferred securities.
16
<PAGE> 17
In the fourth quarter of 1999, we completed an underwritten public offering of
1,062,500 Company-obligated mandatorily redeemable convertible trust preferred
securities at a price of $20 per security, generating $19.6 million in net
proceeds. The securities were issued by a limited purpose Delaware trust which
used the proceeds to purchase from us the same principal amount of our
convertible junior subordinated debentures. The securities are guaranteed by us
on a subordinated basis.
Dividends are payable on the convertible trust preferred securities at the rate
of 10% per year and the securities are convertible into our Class A Common
Shares at the rate of 0.80 common shares for each preferred security, which
equates to a conversion price of $25 per common share, a 47% premium on the
closing price on the date of issuance.
For the first quarter of 2000 our average cash gap days were 71, flat with the
first quarter of 1999 as we have maintained focus on working capital management
as it grows.
We believe our 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.
We intend to fund future acquisitions with cash, securities or a combination of
cash and securities. To the extent we use cash for all or part of any such
acquisitions, we expect 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
Our 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
We do not believe inflation had a significant impact on our operations over the
past two years. In the past, we have been able to pass along all or a portion of
the effects of increases in the price of steel, our principal raw material.
There can be no assurance we will be able to continue to pass on the cost of
such increases in the future.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes, and future filings by us on Form 10-K, Form 10-Q, and
Form 8-K, and future oral and written statements by us and our 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 us and our management are based on estimates, projections, beliefs
and assumptions of management and are not guarantees of future
17
<PAGE> 18
performance. We disclaim 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 us and our 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 our control such as weakness in the general economy, a decrease
in governmental spending, interest rate increases, and changes in banking and
tax laws; an unsuccessful outcome in our legal proceedings and disputes; our
ability to successfully identify, finance, complete and integrate acquisitions;
increases in the price of steel (the principal raw material in our products) and
our ability to pass along such price increases to our customers; and the effects
of weather and seasonality on the construction industry; increasing
consolidation of our customers; the mix of products we sell; the competitive
nature of our industry; and the amount of debt we must service. This list of
lists is not intended to be exhaustive. 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 our future
business.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of March 31, 2000, we had financial instruments that were sensitive to
changes in interest rates. These financial instruments consist of a $50.0
million Revolving Credit Facility, of which $13.4 million was outstanding; a
$100.0 million Term Loan; $5.2 million in other fixed-rate, long-term debt; and
variable-to-fixed interest rate swaps on $50.0 million of the Term Loan.
The Revolving Credit Facility terminates in 2002 and has several interest rate
options which re-price on a short-term basis. Accordingly, the fair value of the
Revolving Credit Facility approximates its $13.4 million face value. The
weighted average interest rate at March 31, 2000 was 7.5%.
The $100.0 million Term Loan is due in 2005. The Term Loan permits us to choose
from various interest rate options which re-price on a short-term basis.
Accordingly, the fair value of the Term Loan approximates its face value. The
Term Loan had a weighted average interest rate of 8.7% at March 31, 2000.
We have two interest rate swap agreements on a total of $50.0 million of the
Term Loan that fixed the LIBOR-based component of the interest rate formula as
required by our Credit Agreement. The swaps have a fixed ninety-day LIBOR
component of 6.3% and expire on November 1, 2000. The ninety-day LIBOR as of
March 31, 2000 was 6.3%. These swaps are contracts to exchange floating rate for
fixed rate interest payments without the exchange of underlying amounts. The
estimated fair value of the interest rate swaps is an asset of approximately
$39,000.
Other long-term debt consists of a.) a $5.0 million, 10.5% note payable due in
2004 with an estimated fair value of $5.4 million and b.) a $0.2 million, 7.0%
loan due in installments of $32 thousand per year with an estimated fair value
of $0.2 million.
In the ordinary course of our business, we also are exposed to price changes in
raw materials (particularly steel bar and rod and steel flat plate) and products
purchased for resale. The prices of these items can change significantly due to
changes in the markets in which our suppliers operate. We generally do not use
financial instruments to manage our exposure to changes in commodity prices.
19
<PAGE> 20
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Symons is currently a defendant involved in a civil suit brought by EFCO Corp.,
a competitor of Symons in one portion of its business, in 1996 in the United
States District Court for the Southern District of Iowa (Case No.
4-96-CV-80552). EFCO Corp. alleged that Symons engaged in false advertising,
misappropriation of trade secrets, intentional interference with contractual
relations, and certain other activities. After a jury trial, preliminary damages
of approximately $14 million were awarded against Symons in January 1999. In
ruling on post-trial motions in April 1999, the Judge dismissed EFCO's claim of
intentional interference with contractual relations, but increased the damages
awarded to EFCO by $100,000. This case is currently on appeal before the United
States Court of Appeals for the Eighth Circuit. Symons and EFCO have filed their
briefs with the Court and have presented oral arguments before the United States
Court of Appeals for the Eighth Circuit in March 2000. We are waiting the
decision of the Court.
We believe that Symons has grounds for a successful appeal and remain committed
to vigorously pursuing our appellate rights. A successful appeal could result in
judgment for Symons or a new trial. Symons' liability, if any, cannot finally be
determined until such time as all rights of the parties have been exhausted or
have expired by lapse of time. We consider the ultimate outcome of this
litigation to be not estimable. Accordingly, we have not recorded any liability
for the resolution of this suit. In the event that Symons is unsuccessful in our
post-trial motions and appeals, it may have a material adverse effect on our
consolidated financial position, results of operations, or cash flows.
The 1997 agreement to acquire Symons provided for a post-closing purchase price
adjustment. The Former Stockholders filed a lawsuit in Delaware to contest the
purchase price adjustment prepared by our accountants. The Delaware court stayed
the lawsuit while the parties proceeded to binding arbitration as required under
the terms of the purchase agreement. In April 2000, the arbitrator issued a
final ruling in our favor and approved a purchase price adjustment of $1.8
million. All claims by the Former Stockholders were denied. Since there are no
issues remaining in the Delaware court, we and the Former Stockholders filed a
joint motion to dismiss the lawsuit.
We, all of our directors and one officer are defendants in a purported
shareholder class action civil suit brought in January 2000 in the Court of
Common Pleas in Montgomery County, Ohio (Case No. 2000 CV 00415). The plaintiff
alleges that we and the other defendants have engaged in self dealing and
breached our fiduciary duties to shareholders with respect to the
recapitalization merger discussed in Note 2 to the consolidated financial
statements. We believe this suit is without merit and are committed to
vigorously defending ourselves and the other defendants. We filed a motion to
dismiss the complaint, which is currently pending before the Court. In the event
we are unsuccessful in our defense, it may have a material adverse effect on our
consolidated financial position, results of operations, or cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In connection with the proposed recapitalization merger of Stone Acquisition
Corp., a wholly-owned subsidiary of Odyssey Investment Partners Fund, L.P., a
New York-based private equity investment fund, into us, we have given notice of
the dissolution and liquidation of the Dayton
20
<PAGE> 21
Superior Capital Trust, effective at the time the merger becomes effective. The
Trust issued 1,062,500 of its 10% Convertible Trust Preferred Securities in a
public offering in 1999. As a result of the liquidation of the Trust, each
outstanding Trust Preferred Security automatically will be exchanged for $20 in
principal amount of Dayton Superior's 10% Convertible Subordinated Debentures
due September 30, 2029. In addition, effective upon completion of the merger,
the Debentures no longer will be convertible into our common shares and will be
convertible instead only into the right to receive $22 for each $20 in principal
amount of Debentures converted, plus any unpaid interest on the principal amount
of the Debentures converted to the date of conversion. If the merger is not
completed, the Trust will not be dissolved and liquidated and the adjustment to
the conversion right of the Debentures will not be made.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. See Index to Exhibit following the signature page to this
report for a list of Exhibits.
(b) REPORTS ON FORM 8-K. During the quarter ended March 31, 2000, we filed
following the Current Report on Form 8-K:
Current Report on Form 8-K dated January 19, 2000, reporting under Item
5 (Other Events) the signing of a definitive merger agreement providing
for the recapitalization of us with an affiliate of Odyssey Investment
Partners, LLC, the manager of a New York based private equity
investment fund, for $27.00 per Class A common share in cash.
21
<PAGE> 22
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on our behalf by the
undersigned thereunto duly authorized.
DAYTON SUPERIOR CORPORATION
---------------------------
DATE: May 12, 2000 BY: /s/ Alan F. McIlroy
--------------- --------------------------
Alan F. McIlroy
Chief Financial Officer
22
<PAGE> 23
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
(27) Financial Data Schedule
27.1 Financial Data Schedule **
- ------------
** Filed herewith
23
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000854709
<NAME> DAYTON SUPERIOR CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 2,188
<SECURITIES> 0
<RECEIVABLES> 60,100
<ALLOWANCES> (7,010)
<INVENTORY> 43,680
<CURRENT-ASSETS> 108,016
<PP&E> 75,924
<DEPRECIATION> (31,465)
<TOTAL-ASSETS> 290,000
<CURRENT-LIABILITIES> 47,596
<BONDS> 113,581
19,558
0
<COMMON> 47,037
<OTHER-SE> 41,907
<TOTAL-LIABILITY-AND-EQUITY> 290,000
<SALES> 76,505
<TOTAL-REVENUES> 76,505
<CGS> 48,544
<TOTAL-COSTS> 48,544
<OTHER-EXPENSES> 24,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,728
<INCOME-PRETAX> 853
<INCOME-TAX> 380
<INCOME-CONTINUING> 473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 473
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
