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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
OCTOBER 1, 2004 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 by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [ ] NO [X]
4,585,871 Common Shares were outstanding as of November 11, 2004
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Dayton Superior Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
As of October 1, 2004 and December 31, 2003
(Amounts in thousands)
(Unaudited)
October 1, December 31,
2004 2003
------------ ------------
ASSETS
Current assets:
Cash $ - $ 1,995
Accounts receivable, net of allowances for doubtful accounts and
sales returns and allowances of $4,605 and $4,939 77,681 64,849
Inventories 63,416 49,437
Prepaid expenses and other current assets 10,373 4,610
Prepaid income taxes 1,453 956
Deferred income taxes 5,176 5,368
------------ ------------
Total current assets 158,099 127,215
------------ ------------
Rental equipment, net of accumulated depreciation of $36,503 and $27,794 76,454 78,042
------------ ------------
Property, plant and equipment 117,468 113,366
Less accumulated depreciation (57,518) (51,128)
------------ ------------
Net property, plant and equipment 59,949 62,238
------------ ------------
Goodwill 110,618 110,308
Intangible assets, net of accumulated amortization 7,935 10,532
Deferred income taxes 295 -
Other assets 4,873 5,049
------------ ------------
Total assets $ 418,223 $ 393,384
------------ ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ 2,527 $ 3,067
Accounts payable 23,550 20,526
Accrued compensation and benefits 16,920 19,704
Other accrued liabilities 14,853 12,324
------------ ------------
Total current liabilities 57,850 55,621
Long-term debt, net of current portion 381,813 338,823
Other long-term liabilities 6,203 6,207
------------ ------------
Total liabilities 445,866 400,651
------------ ------------
Shareholders' deficit:
Common shares 116,024 115,951
Loans to shareholders (2,757) (2,729)
Treasury shares, at cost, 36,747 shares in 2004 and 2003 (1,184) (1,184)
Cumulative other comprehensive loss (1,238) (1,209)
Accumulated deficit (138,488) (118,096)
------------ ------------
Total shareholders' deficit (27,643) (7,267)
------------ ------------
Total liabilities and shareholders' deficit $ 418,223 $ 393,384
============ ============
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
2
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Operations
For The Three and Nine Fiscal Months Ended October 1, 2004 and
September 26, 2003
(Amounts in thousands)
(Unaudited)
Three Fiscal Months Ended Nine Fiscal Months Ended
------------------------------ ------------------------------
October 1, September 26, October 1, September 26,
2004 2003 2004 2003
------------ ------------- ------------ -------------
Product sales $ 96,640 $ 85,695 $ 273,101 $ 229,247
Rental revenue 11,449 10,391 30,792 24,021
Used rental equipment sales 6,459 5,202 14,978 26,190
------------ ------------ ------------ ------------
Net sales 114,548 101,288 318,871 279,458
------------ ------------ ------------ ------------
Product cost of sales 71,266 67,854 204,948 177,417
Rental cost of sales 8,480 7,717 23,852 19,153
Used rental equipment cost of sales 2,743 2,079 5,956 7,797
------------ ------------ ------------ ------------
Cost of sales 82,489 77,650 234,756 204,367
------------ ------------ ------------ ------------
Product gross profit 25,374 17,841 68,153 51,830
Rental gross profit 2,969 2,674 6,940 4,868
Used rental equipment gross profit 3,716 3,123 9,022 18,393
------------ ------------ ------------ ------------
Gross profit 32,059 23,638 84,115 75,091
Selling, general and administrative expenses 21,757 21,980 66,294 61,036
Facility closing and severance expenses 429 499 1,393 1,243
Loss (gain) on disposals of property, plant, and
equipment (464) 72 (386) 138
Amortization of intangibles 302 184 857 443
------------ ------------ ------------ ------------
Income from operations 10,035 903 15,957 12,231
Other expenses
Interest expense 11,923 11,199 35,507 28,272
Loss on early extinguishment of long-term debt
- - 842 2,480
Other expense (income) (45) (42) - 29
------------ ------------ ------------ ------------
Loss before benefit for income taxes (1,843) (10,254) (20,392) (18,550)
Benefit for income taxes - (3,861) - (6,307)
------------ ------------ ------------ ------------
Net loss $ (1,843) $ (6,393) $ (20,392) $ (12,243)
============ ============ ============ ============
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
3
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For The Nine Fiscal Months Ended October 1, 2004 and September 26, 2003
(Amounts in thousands)
(Unaudited)
Nine Fiscal Months Ended
------------------------------
October 1, September 26,
2004 2003
------------ -------------
Cash Flows From Operating Activities:
Net loss $ (20,392) $ (12,243)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 20,369 18,110
Amortization of intangibles 857 443
Loss on early extinguishment of long-term debt 842 2,480
Deferred income taxes (103) (801)
Amortization of deferred financing costs and debt discount 3,914 2,229
Gain on sales of rental equipment (9,022) (18,393)
(Gain) loss on sales of property, plant and equipment (386) 138
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable (12,832) (10,817)
Inventories (13,979) (2,802)
Accounts payable 3,024 (1,494)
Accrued liabilities and other long-term liabilities (259) (3,645)
Prepaid expenses and other assets (5,913) (1,268)
------------ -------------
Net cash used in operating activities (33,880) (28,063)
------------ -------------
Cash Flows From Investing Activities:
Property, plant and equipment additions (3,819) (5,932)
Proceeds from sales of property, plant and equipment 689 82
Rental equipment additions (16,671) (21,501)
Proceeds from sales of rental equipment 14,978 26,190
Acquisition (245) (13,535)
------------ -------------
Net cash used in investing activities (5,068) (14,696)
------------ -------------
Cash Flows From Financing Activities:
Repayments of long-term debt (2,185) (176,563)
Issuance of long-term debt 41,675 206,195
Financing costs incurred (2,553) (1,278)
Changes in loans to shareholders (28) 154
Issuance of common shares 73 13,049
------------ -------------
Net cash provided by financing activities 36,982 41,557
------------ -------------
Effect of Exchange Rate Changes on Cash (29) 466
------------ -------------
Net decrease in cash (1,995) (736)
Cash, beginning of period 1,995 2,404
------------ -------------
$ - $ 1,668
============ ============
Cash, end of period
Supplemental Disclosures:
Cash paid (refunded) for income taxes $ 573 $ (3,531)
Cash paid for interest 30,578 21,596
Purchases of equipment on capital leases 389 2,958
Issuance of note with in conjunction with acquisition - 6,965
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
4
Dayton Superior Corporation and Subsidiaries
Consolidated Statements of Comprehensive Loss
For The Three and Nine Fiscal Months Ended October 1, 2004 and
September 26, 2003
(Amounts in thousands)
(Unaudited)
Three Fiscal Months Ended Nine Fiscal Months Ended
---------------------------- ----------------------------
October 1, September 26, October 1, September 26,
2004 2003 2004 2003
---------- ------------- ------------ -------------
Net loss $ (1,843) $ (6,393) $ (20,392) $ (12,243)
Other comprehensive income (loss):
Foreign currency translation adjustment 201 (25) (29) 466
---------- ---------- ---------- ------------
Comprehensive loss $ (1,642) $ (6,418) $ (20,421) $ (11,777)
========== ========== ========== ==========
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
5
DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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,
2003. The interim results may not be indicative of future periods.
(2) ACQUISITION
On July 29, 2003 we acquired substantially all of the fixed assets and
rental fleet assets of Safway Formwork Systems, L.L.C. for $20,878, after
purchase price adjustments and including acquisition costs of $1,090. The
initial purchase price of $19,965 was comprised of $13,000 in cash and a
$12,000 non-interest bearing (other than in the case of default) senior
unsecured note with an initial present value of $6,965 payable to the
seller. The note was issued at a discount, which is being accreted to the
face value using the effective interest method and is reflected as
interest expense. The note has a net book value of $6,115 as of October 1,
2004. For purposes of calculating the net present value of the senior
unsecured note, the Company has assumed an interest rate of 14.5%. The
$13,000 of cash was funded through the issuance of common shares to the
Company's majority shareholder. The first $250 installment payment on the
note was paid on September 30, 2003, and an additional $750 installment
payment was due on December 31, 2003. The settlement of normal purchase
price adjustments resulted in a $417 reduction in the payment made in
December to $333. A subsequent purchase price adjustment of $240 was paid
in March 2004. The September 30, 2004 installment of $1,000 was paid and
annual payments of $1,000 are due on September 30 of each year from 2005
through 2008, with a final balloon payment of $6,000 due on December 31,
2008.
The Company exercised its option to acquire additional rental equipment
from Safway. The Company issued a non-interest bearing note, which is
being accreted to its face value using the effective interest method with
an interest rate of 6% and is reflected as interest expense. The net
present value of the note at October 1, 2004 was $1,487. Minimum payments
are $50 for the remainder of 2004, $282 in 2005, $398 in 2006, $563 in
2007, and $464 in 2008. Payments may be accelerated if certain revenue
targets are met.
The acquisition has been accounted for as a purchase, and the results of
Safway have been included in the Company's consolidated financial
statements from the date of acquisition. The Company received the final
valuation of the acquired assets in the first quarter of 2004. As a
result, the value of rental equipment and goodwill increased by
approximately $1,800 and $300, respectively, and intangible assets
decreased by approximately $2,100. The purchase price has been allocated
based on the estimated fair value of the assets acquired, as follows:
Rental equipment $ 15,837
Property, plant and equipment 798
Goodwill 2,844
Intangible assets 2,970
Accrued liabilities (1,571)
---------
Purchase price, including acquisition costs of $1,090 $ 20,878
=========
6
Components of the purchase price are as follows:
Cash paid at closing $ 13,000
Acquisition costs 1,085
Initial purchase price adjustment (417)
---------
2003 Cash portion of acquisition 13,668
Present value of seller note 6,965
2004 purchase price adjustment 240
Acquisition costs 5
---------
Total purchase price $ 20,878
=========
The following pro forma information sets forth the consolidated results of
operations for the three and nine fiscal months ended October 1, 2003 as
though the acquisition had been completed at the beginning of the period
presented:
Pro Forma Pro Forma
Three fiscal months Nine fiscal months
ended ended
September 26, 2003 September 26, 2003
------------------- ------------------
Net sales $ 102,650 $ 292,054
Loss before benefit for income taxes $ (11,095) $ (21,559)
In accordance with SEC rules and regulations, pro forma information does
not exclude costs that are expected to be eliminated under the company's
ownership.
(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, 2003. 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 made at year end. Examples of such estimates
include changes in the deferred tax accounts and management bonuses, among
others. Any adjustments pursuant to such estimates during the fiscal
quarter were of a normal recurring nature.
(a) Fiscal Quarter -- The Company's fiscal year end is December 31. The
Company's fiscal quarters are defined as the 13-week periods ending
on a Friday near the end of March, June and September.
(b) Inventories -- The Company values all inventories at the lower of
first-in, first-out ("FIFO") cost or market. The Company provides
net realizable value reserves which reflect the Company's best
estimate of the excess of the cost of potential obsolete and slow
moving inventory over the expected net realizable value.
Following is a summary of the components of inventories as of
October 1, 2004 and December 31, 2003:
October 1, 2004 December 31, 2003
--------------- -----------------
Raw materials $ 18,894 $ 9,588
Work in progress 4,289 2,742
Finished goods 40,233 37,107
--------- ---------
Total Inventory $ 63,416 $ 49,437
========= =========
7
(c) New Accounting Pronouncements -- In May 2003, the FASB issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity." SFAS No. 150 requires certain financial
instruments that embody obligations of the issuer and have characteristics
of both liabilities and equity to be classified as liabilities. The
provisions of SFAS 150 are effective for financial instruments entered
into or modified after May 31, 2003 and to all other instruments that
exist as of the beginning of the first interim financial reporting period
beginning after June 15, 2003, except for mandatory redeemable financial
instruments of a nonpublic entity, this statement was effective for
periods beginning after December 15, 2003. The adoption of this
pronouncement did not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation (FIN) No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of APB No.
50." FIN No. 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated financial
support from other parties. FIN No. 46 is effective for all new variable
interest entities created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1, 2003, the
provisions of FIN No. 46 must be applied for the first interim or annual
period beginning after December 15, 2003. The adoption of this
pronouncement did not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
In December 2003, FASB issued a revised interpretation of FIN No. 46, "FIN
No. 46-R." This supercedes Fin No. 46 and clarifies and expands current
accounting guidance for variable interest entities. Fin No. 46 and Fin No.
46-R are effective immediately for all variable interest entities created
after January 31, 2003, and for variable interest entities created prior
to February 1, 2003, no later than the end of the first reporting period
after March 15, 2004. We have not utilized such entities and therefore the
adoption of Fin No. 46 and FIN No. 46-R had no effect on our consolidated
financial statements.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This
statement revises the disclosures required for pension plans and other
postretirement benefit plans. The company adopted this revised statement
effective December 31, 2003. See Note 6 to the consolidated financial
statements for the revised disclosures.
(d) Stock Options -- The Company measures compensation cost for stock options
issued using the intrinsic value-based method of accounting in accordance
with Accounting Principles Board Opinion (APB) No. 25. If compensation
cost for the Company's stock options had been determined based on the fair
value method of SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company's net loss and net loss per share would have been increased to
the pro forma amounts as follows:
Three fiscal months ended Nine fiscal months ended
--------------------------- ---------------------------
October 1, September 26, October 1, September 26,
2004 2003 2004 2003
---------- ------------ ---------- -------------
Net income (loss) As Reported $ (1,843) $ (6,393) $ (20,392) $ (12,243)
Deduct: Total stock-based
employee compensation
expense determined under
fair value-based method for
all awards, net of related
tax effect (61) (62) (186) (193)
---------- ----------- ---------- ----------
Pro Forma $ (1,904) $ (6,455) $ (20,578) $ (12,436)
========== =========== ========== ==========
8
(e) Reclassifications -- Certain reclassifications have been made to the
2003 amounts to conform to their 2004 classifications.
(4) CREDIT ARRANGEMENTS
Following is a summary of the Company's long-term debt as of October 1, 2004 and
December 31, 2003:
October 1, December 31,
2004 2003
---------- ------------
Revolving credit facility, weighted average interest rate of 4.35% $ 66,050 $ 24,375
Senior Second Secured Notes, interest rate of 10.75% 165,000 165,000
Debt discount on Senior Second Secured Notes (6,526) (7,454)
Senior Subordinated Notes, interest rate of 13.0% 154,729 154,729
Debt discount on Senior Subordinated Notes (7,688) (8,514)
Notes payable to seller of Safway, non-interest bearing, accreted at
6.0% to 14.5% 7,602 7,999
Debentures previously held by Dayton Superior Capital Trust, interest
rate of 9.1%, due on demand 1,102 1,110
Capital lease obligations 4,047 4,590
City of Parsons, Kansas Economic Development Loan, interest rate of
7.0% 24 55
---------- -----------
Total long-term debt 384,340 341,890
Less current maturities (2,527) (3,067)
---------- -----------
Long-term portion $ 381,813 $ 338,823
========== ===========
As of October 1, 2004, the senior second secured notes (the "Senior Notes") have
a principal amount of $165,000 and mature in June 2008. The Notes were issued in
June 2003 at a discount, which is being accreted to the face value using the
effective interest method and is reflected as interest expense. The proceeds of
the offering of the Senior Notes were $156,895 and were used to repay the
Company's acquisition credit facility, certain of the Company's then current
debt, and a portion of the revolving credit facility. As a result of the
transactions, the Company incurred a loss on the early extinguishment of
long-term debt of $2,550 in the second quarter of 2003, due to the expensing of
deferred financing costs. The estimated fair value of the notes is $176.6
million as of October 1, 2004. The senior second secured notes are secured by
substantially all assets of the Company and its domestic subsidiaries.
As of October 1, 2004, the Senior Subordinated Notes (the "Notes") have a
principal amount of $154,729 and mature in June 2009. During the second quarter
of 2003, the Company repurchased a portion of the Notes. A principal amount of
$15,271, with a net book value of $14,381, was repurchased using the revolving
credit facility for $14,311, resulting in a gain on the early extinguishment of
long-term debt of $70. The Notes were issued at a discount, which is being
accreted to the face value using the effective interest method and is reflected
as interest expense. The Notes were issued with warrants that allow the holders
to purchase 117,276 of the Company's Common Shares for $0.01 per share. The
estimated fair value of the notes is $151.6 million as of October 1, 2004.
The Company has a $95,000 senior secured revolving credit facility that matures
on January 30, 2007. The credit facility has no financial covenants.
Availability of borrowings is limited to 85% of eligible accounts receivable and
60% of eligible inventories and rental equipment, less $10,000. At October 1,
2004, all $95,000 was available under the calculation and the Company had
outstanding letters of credit of $7,265 and available borrowings of $21,685. The
credit facility is secured by substantially all assets of the Company and its
domestic subsidiaries.
9
The average borrowings, maximum borrowings and weighted average interest rates
on the revolving credit facility and its predecessor for the periods indicated
were as follows:
Three fiscal months ended Nine fiscal months ended
------------------------- -------------------------
October 1, September 26, October 1, September 26,
2004 2003 2004 2003
-------- -------- -------- --------
Revolving Credit Facility:
Average borrowings $ 63,198 $ 18,508 $ 51,763 $ 22,787
Maximum borrowing 71,900 25,875 71,900 35,225
Weighted average interest rate 4.4% 5.9% 4.4% 5.5%
The Company's wholly owned domestic subsidiaries (Aztec Concrete Accessories,
Inc.; Trevecca Holdings, Inc.; Dayton Superior Specialty Chemical Corp.; Symons
Corporation; Dur-O-Wal, Inc.; and Southern Construction Products, Inc.) have
guaranteed the Notes and the Senior Notes on a full, unconditional and joint and
several basis. Pursuant to Regulation S-X, Rule 3-10(f), separate financial
statements have not been presented for the guarantor subsidiaries. The wholly
owned foreign subsidiary of the Company is not a guarantor of the Notes or the
Senior Notes and does not have any credit arrangements senior to the Notes or
the Senior Notes. The following supplemental consolidating condensed balance
sheets as of October 1, 2004 and December 31, 2003 and the supplemental
consolidating condensed statements of operations for the three and nine fiscal
months ended October 1, 2004 and September 26, 2003 and cash flows for the nine
fiscal months ended October 1, 2004 and September 26, 2003 depict in separate
columns, the parent company, those subsidiaries which are guarantors, those
subsidiaries which are non-guarantors, elimination adjustments and the
consolidated total. This financial information may not necessarily be indicative
of the result of operations or financial position of the subsidiaries had they
been operated as independent entities.
10
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Balance Sheet
As of October 1, 2004
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Cash $ (2,398) $ 1,175 $ 1,223 $ - $ -
Accounts receivable, net 47,192 27,579 2,910 - 77,681
Inventories 33,519 28,922 975 - 63,416
Intercompany 64,136 (63,699) (437) - -
Other current assets 14,052 2,893 57 - 17,002
------------ ------------ ------------- ----------- -----------
TOTAL CURRENT ASSETS 156,501 (3,130) 4,728 - 158,099
Rental equipment, net 3,983 72,197 274 - 76,454
Property, plant and equipment, net 24,156 35,607 186 - 59,949
Investment in subsidiaries 123,041 - - (123,041) -
Other assets 50,816 72,892 13 - 123,721
------------ ------------ ------------- ----------- -----------
TOTAL ASSETS $ 358,497 $ 177,566 $ 5,201 $ (123,041) $ 418,223
============ ============ ============= =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current maturities of long-term debt $ 2,285 $ 242 $ - $ - $ 2,527
Accounts payable 10,863 12,384 303 - 23,550
Accrued liabilities 25,778 5,314 681 - 31,773
------------ ------------ ------------- ----------- -----------
TOTAL CURRENT LIABILITIES 38,926 17,940 984 - 57,850
Long-term debt, net 380,121 1,692 - - 381,813
Other long-term liabilities (8,783) 14,986 - - 6,203
Total shareholders' equity (deficit) (51,767) 142,948 4,217 (123,041) (27,643)
------------ ------------ ------------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 358,497 $ 177,566 $ 5,201 $ (123,041) $ 418,223
============ ============ ============= =========== ===========
11
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Balance Sheet
As of December 31, 2003
Dayton Non
Superior Guarantor Guarantor
Corporation Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Cash $ 860 $ (1,240) $ 2,375 $ - $ 1,995
Accounts receivable, net 37,123 26,500 1,226 - 64,849
Inventories 27,016 21,776 645 - 49,437
Intercompany 61,638 (61,549) (89) - -
Other current assets 12,901 (1,432) (535) - 10,934
----------- ----------- ------------ ----------- ----------
TOTAL CURRENT ASSETS 139,538 (15,945) 3,622 - 127,215
Rental equipment, net 3,609 74,342 91 - 78,042
Property, plant and equipment, net 24,919 37,135 184 - 62,238
Investment in subsidiaries 123,041 - - (123,041) -
Other assets 50,628 75,261 - 125,889
----------- ----------- ------------ ----------- ----------
TOTAL ASSETS $ 341,735 $ 170,793 $ 3,897 $(123,041) $ 393,384
=========== =========== ============ ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current maturities of long-term debt $ 2,132 $ 935 $ - $ - $ 3,067
Accounts payable 10,722 9,537 267 - 20,526
Accrued liabilities 20,793 11,019 216 - 32,028
----------- ----------- ------------ ----------- ----------
TOTAL CURRENT LIABILITIES 33,647 21,491 483 - 55,621
Long-term debt, net 337,413 1,410 - - 338,823
Other long-term liabilities (4,341) 10,525 23 - 6,207
Total shareholders' equity (deficit) (24,984) 137,367 3,391 (123,041) (7,267)
----------- ----------- ------------ ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 341,735 $ 170,793 $ 3,897 $(123,041) $ 393,384
=========== =========== ============ ========= =========
12
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Three Fiscal Months Ended October 1, 2004
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 43,236 $ 67,081 $ 4,231 $ 114,548
Cost of sales 30,268 49,977 2,244 82,489
----------- ----------- ------------ -------------
Gross profit 12,968 17,104 1,987 32,059
Selling, general and administrative expenses 8,023 13,202 532 21,757
Facility closing and severance expenses 105 324 - 429
Management fees (93) - 93 -
Amortization of intangibles 30 272 - 302
Loss (gain) on disposals on property, plant, and
equipment - (464) - (464)
----------- ----------- ------------ -------------
Income from operations 4,903 3,770 1,362 10,035
Other expenses
Interest expense 11,896 27 - 11,923
Loss on early extinguishment of long-term debt - - - -
Other expense (income) 1 (32) (14) (45)
----------- ----------- ------------ -------------
Income (loss) before provision (benefit) for
income taxes (6,994) 3,775 1,376 (1,843)
Provision (benefit) for income taxes - - - -
----------- ----------- ------------ -------------
Net income (loss) available to common shareholders $ (6,994) $ 3,775 $ 1,376 $ (1,843)
=========== =========== ============ =============
13
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Three Fiscal Months Ended September 26, 2003
Dayton Non
Superior Guarantor Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 43,054 $ 55,963 $ 2,271 $ 101,288
Cost of sales 28,011 47,737 1,902 77,650
----------- ----------- ----------- ------------
Gross profit 15,043 8,226 369 23,638
Selling, general and administrative
expenses 9,993 11,468 519 21,980
Facility closing and severance expenses 312 187 - 499
Amortization of intangibles 73 111 - 184
Management fees (96) - 96 -
Loss (gain) on disposals on property, plant, and
equipment 72 - - 72
----------- ----------- ----------- ------------
Income from operations 4,689 (3,540) (246) 903
Other expenses
Interest expense 11,034 165 - 11,199
Loss on early extinguishment of long-term debt - - - -
Other expense 7 11 (60) (42)
----------- ----------- ----------- ------------
Loss before benefit for income taxes (6,352) (3,716) (186) (10,254)
Benefit for income taxes (3,260) (570) (31) (3,861)
----------- ----------- ----------- ------------
Net loss available to common shareholders $ (3,092) $ (3,146) $ (155) $ (6,393)
=========== =========== =========== ============
14
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Nine Fiscal Months Ended October 1, 2004
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 129,392 $ 180,006 $ 9,473 $ 318,871
Cost of sales 91,606 137,947 5,203 234,756
----------- ----------- ----------- ------------
Gross profit 37,786 42,059 4,270 84,115
Selling, general and administrative
expenses 24,355 40,462 1,477 66,294
Facility closing and severance expenses 678 715 - 1,393
Management fees (281) - 281 -
Amortization of intangibles 93 764 - 857
Loss (gain) on disposals on property, plant, and
equipment - (386) - (386)
----------- ----------- ----------- ------------
Income from operations 12,941 504 2,512 15,957
Other expenses
Interest expense 35,329 178 - 35,507
Loss on early extinguishment of long-term debt 842 - - 842
Other expense (income) (20) 20 - -
----------- ----------- ----------- ------------
Income (loss) before provision (benefit) for
income taxes (23,210) 306 2,512 (20,392)
Provision (benefit) for income taxes - - - -
----------- ----------- ----------- ------------
Net income (loss) available to common shareholders $ (23,210) $ 306 $ 2,512 $ (20,392)
=========== =========== =========== ============
15
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Operations
Nine Fiscal Months Ended September 26, 2003
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
Net sales $ 114,860 $ 157,232 $ 7,366 $ 279,458
Cost of sales 86,710 112,447 5,210 204,367
----------- ----------- ----------- ------------
Gross profit 28,150 44,785 2,156 75,091
Selling, general and administrative
expenses 27,225 32,396 1,415 61,036
Facility closing and severance expenses 1,014 229 - 1,243
Management fees (246) - 246 -
Amortization of intangibles 219 224 - 443
Loss (gain) on disposals on property, plant, and
equipment 72 66 - 138
----------- ----------- ----------- ------------
Income from operations (134) 11,870 495 12,231
Other expenses
Interest expense 28,047 225 - 28,272
Loss on early extinguishment of long-term debt 2,480 - - 2,480
Other expense (income) 61 - (32) 29
----------- ----------- ----------- ------------
Income (loss) before provision (benefit) for
income taxes (30,722) 11,645 527 (18,550)
Provision (benefit) for income taxes (10,445) 3,959 179 (6,307)
----------- ----------- ----------- ------------
Net income (loss) available to common shareholders $ (20,277) $ 7,686 $ 348 $ (12,243)
=========== =========== =========== ============
16
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Nine Fiscal Months Ended October 1, 2004
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (23,211) $ 307 $ 2,512 $ (20,392)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,604 16,575 47 21,226
Loss on early extinguishment of long-term debt 842 - - 842
Deferred income taxes (103) - - (103)
Amortization of deferred financing costs and
debt discount 3,914 - - 3,914
Gain on sales of rental equipment and property,
plant and equipment (295) (8,972) (141) (9,408)
Change in assets and liabilities, net of the effects
of acquisitions (22,071) (3,819) (4,069) (29,959)
---------- ----------- ----------- ------------
Net cash provided by (used in) operating
activities (36,320) 4,091 (1,651) (33,880)
---------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (2,056) (1,733) (30) (3,819)
Proceeds from sales of property, plant and equipment - 689 - 689
Rental equipment additions (875) (15,557) (239) (16,671)
Proceeds from sales of rental equipment 1,062 13,467 449 14,978
Acquisition - (245) - (245)
---------- ----------- ----------- ------------
Net cash provided by (used in) investing
activities (1,869) (3,379) 180 (5,068)
---------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (1,738) (447) - (2,185)
Issuance of long-term debt 41,675 - - 41,675
Financing costs incurred (2,554) - - (2,554)
Issuance of common shares 73 - - 73
Changes in loans to shareholders (27) - - (27)
Intercompany (2,498) 2,150 348 -
---------- ----------- ----------- ------------
Net cash provided by financing activities 34,931 1,703 348 36,982
---------- ----------- ----------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (29) (29)
---------- ----------- ----------- ------------
Net increase (decrease) in cash (3,258) 2,415 (1,152) (1,995)
CASH, beginning of period 860 (1,240) 2,375 1,995
---------- ----------- ----------- ------------
CASH, end of period $ (2,398) $ 1,175 $ 1,223 $ -
========== =========== =========== ============
17
Dayton Superior Corporation and Subsidiaries
Supplemental Consolidating Condensed Statement of Cash Flows
Nine Fiscal Months Ended September 26, 2003
Dayton
Superior Guarantor Non-Guarantor
Corporation Subsidiaries Subsidiaries Consolidated
----------- ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (20,277) $ 7,686 $ 348 $ (12,243)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,002 14,511 40 18,553
Loss on early extinguishment of long-term debt 2,480 - - 2,480
Deferred income taxes (801) - - (801)
Amortization of deferred financing costs and
debt discount 2,229 - - 2,229
Gain on sales of rental equipment and
property, plant and equipment (1,128) (17,108) (19) (18,255)
Change in assets and liabilities, net of the
effects of acquisitions (15,756) (3,494) (776) (20,026)
---------- ----------- ------------ ------------
Net cash provided by (used in) operating
activities (29,251) 1,595 (407) (28,063)
---------- ----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (2,002) (3,922) (8) (5,932)
Proceeds from sales of property, plant and
equipment - 82 - 82
Rental equipment additions (588) (20,849) (64) (21,501)
Proceeds from sales of rental equipment 1,444 24,714 32 26,190
Acquisition - (13,535) - (13,535)
---------- ----------- ------------ ------------
Net cash used in investing activities (1,146) (13,510) (40) (14,696)
---------- ----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (176,563) - - (176,563)
Issuance of long-term debt, net 206,195 - - 206,195
Financing costs incurred (1,278) - - (1,278)
Issuance of common shares 13,049 - - 13,049
Changes in loans to shareholders 154 - - 154
Intercompany (11,635) 11,582 53 -
---------- ----------- ------------ ------------
Net cash provided by financing activities 29,922 11,582 53 41,557
---------- ----------- ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 466 466
---------- ----------- ------------ ------------
Net increase (decrease) in cash (475) (333) 72 (736)
CASH, beginning of period 1,605 (687) 1,486 2,404
---------- ----------- ------------ ------------
CASH, end of period $ 1,130 $ (1,020) $ 1,558 $ 1,668
========== =========== ============ ============
18
(5) STOCK OPTION PLANS
The Company's 2000 Stock Option Plan permits the grant of stock options to
purchase common shares. Options that are cancelled may be reissued. The Stock
Option Plan constitutes the amendment and merger into one plan of four previous
option plans and governs options that remained outstanding following our
recapitalization in 2000, as well as new option grants. The terms of the option
grants are ten years from the date of grant.
Generally, between 10% and 25% of the options have a fixed vesting period of
fewer than three years. The remaining options are eligible to become exercisable
in installments over one to five years from the date of grant based on the
Company's performance, but, in any case, become exercisable no later than nine
years after the grant date.
These options may be subject to accelerated vesting upon certain change in
control events based on Odyssey Investment Partners, LLC return on investment.
Under the Stock Option Plan, the option exercise price equals the stock's market
price on date of grant.
A summary of the status of the Company's stock option plans at October 1, 2004,
as well as changes during the fiscal nine months then ended is presented in the
table below:
Weighted Average
Number of Exercise Price Per
Shares Share
--------- ------------------
Outstanding at December 31, 2003 643,839 $ 25.03
Granted 79,400 25.85
Exercised (31,044) 1.96
Cancelled (9,217) 27.39
-------
Outstanding at October 1, 2004 682,978 $ 26.13
=======
(6) RETIREMENT PLANS
The Company's pension plans cover virtually all hourly employees not covered by
multi-employer pension plans and provide benefits of stated amounts for each
year of credited service. The Company funds such plans at a rate that meets or
exceeds the minimum amounts required by applicable regulations. The plans'
assets are primarily invested in mutual funds comprised primarily of common
stocks and corporate and U.S. government obligations.
The Company provides postretirement health care benefits on a contributory basis
and life insurance benefits for Symons salaried and hourly employees who retired
prior to May 1, 1995.
The following are the components of Net Periodic Benefit Cost for the nine
months ended October 1, 2004 and September 26, 2003:
Symons Symons
Pension Pension Postretirement Postretirement
Benefits 2004 Benefits 2003 Benefits 2004 Benefits 2003
------------- ------------- ------------- -------------
Service cost $ 448 $ 363 $ - $ -
Interest cost 447 422 27 35
Expected return on plan assets (449) (402) - -
Amortization of prior service cost 4 4 18 18
Amortization of net loss 57 41 - -
---------- ---------- -------- --------
Net periodic benefit cost $ 507 $ 428 $ 45 $ 53
========== ========== ======== ========
As of October 1, 2004, $794 of contributions has been made. The Company
presently anticipates contributing an additional $204 to fund its pension plan
in 2004 for a total of $998.
19
(7) SEGMENT REPORTING
Effective January 1, 2004, the Company changed its financial reporting to three
segments to monitor gross profit by sales type: product sales, rental revenue,
and used rental equipment sales. These types of sales are differentiated by
their source and gross margin percentage of sales.
Product sales represent sales of new products carried in inventories on the
balance sheet. Cost of goods sold for product sales include material, labor,
overhead, and freight.
Rental revenues are derived from leasing the rental equipment, and are
recognized ratably over the term of the lease. Cost of goods sold for rental
revenues include depreciation of the rental equipment, maintenance of the rental
equipment, and freight.
Sales of used rental equipment are sales of rental equipment after a period of
generating rental revenue. Cost of goods sold for sales of used rental equipment
is the net book value of the equipment.
All other expenses, as well as assets and liabilities, are not tracked by sales
type. Export sales and sales by non-U.S. affiliates is not significant.
Information about the gross profit of each sales type and the reconciliations to
the consolidated amounts for the three and nine fiscal months ended October 1,
2004 and September 26, 2003 follows. The 2003 amounts have been reclassified to
conform to the 2004 classification.
Three Fiscal Months Ended Nine Fiscal Months Ended
---------------------------- ----------------------------
October 1, September 26, October 1, September 26,
2004 2003 2004 2003
----------- ------------- ---------- -------------
Product sales $ 96,640 $ 85,695 $ 273,101 $ 229,247
Rental revenue 11,449 10,391 30,792 24,021
Used rental equipment sales 6,459 5,202 14,978 26,190
---------- ---------- ---------- ----------
Net sales 114,548 101,288 318,871 279,458
---------- ---------- ---------- ----------
Product cost of sales 71,266 67,854 204,948 177,417
Rental cost of sales 8,480 7,717 23,852 19,153
Used rental equipment cost of sales 2,743 2,079 5,956 7,797
---------- ---------- ---------- ----------
Cost of sales 82,489 77,650 234,756 204,367
---------- ---------- ---------- ----------
Product gross profit 25,374 17,841 68,153 51,830
Rental gross profit 2,969 2,674 6,940 4,868
Used rental equipment gross profit 3,716 3,123 9,022 18,393
---------- ---------- ---------- ----------
Gross profit $ 32,059 $ 23,638 $ 84,115 $ 75,091
========== ========== ========== ==========
Depreciation Expense:
Product sales (Property, plant, and equipment) $ 1,343 $ 1,482 $ 4,276 $ 4,572
Rental Revenue (rental equipment) 4,746 4,514 14,146 11,360
Corporate 790 778 1,947 2,178
---------- ---------- ---------- ----------
Total depreciation $ 6,879 $ 6,774 $ 20,369 $ 18,110
========== ========== ========== ==========
20
(8) FACILITY CLOSING AND SEVERANCE EXPENSES
During 2001, we approved and began implementing a plan to exit certain of
our manufacturing and distribution facilities and to reduce overall headcount in
order to keep our cost structure in alignment with net sales. Activity for this
plan for the year ended December 31, 2003, and for the nine months ended October
1, 2004 was as follows:
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Balance, January 1, 2003 $ - $ 210 $ - $ 311 $ 521
Facility closing and severance expenses - 379 - - 379
Items charged against reserve - (175) - (311) (486)
------- -------- ---------- ------------ --------
Balance, December 31, 2003 - 414 - - 414
Facility closing and severance expenses - - - - -
Items charged against reserve - (414) - - (414)
------- -------- ---------- ------------ --------
Balance, October 1, 2004 $ - $ - $ - $ - $ -
======= ======== ========== ============ ========
During 2002, we approved and began implementing a plan to exit certain of
our distribution facilities and to reduce overall headcount in order to keep our
cost structure in alignment with net sales. Activity for this plan for the year
ended December 31, 2003, and for the nine months ended October 1, 2004 was as
follows:
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Balance, January 1, 2003 $ 2,412 $ 84 $ - $ - $ 2,496
Facility closing and severance expenses 202 (11) - - 191
Items charged against reserve (2,414) (73) - - (2,487)
------- -------- ---------- ------------ --------
Balance, December 31, 2003 200 - - - 200
Facility closing and severance expenses - - - - -
Items charged against reserve (200) - - - (200)
------- -------- ---------- ------------ --------
Balance, October 1, 2004 $ - $ - $ - $ - $ -
======= ======== ========== ============ ========
During 2003, we approved and began implementing a plan to exit certain of
our manufacturing and distribution facilities and to reduce overall headcount in
order to keep our cost structure in alignment with net sales. Activity for this
plan for the year ended December 31, 2003 and the nine months ended October 1,
2004 was as follows:
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Facility closing and severance expenses $ 988 $ 27 $ - $ 921 $ 1,936
Items charged against reserve (988) (27) - (921) (1,936)
------- -------- ---------- ------------ --------
Balance, December 31, 2003 - - - - -
Facility closing and severance expenses 63 1 - 61 125
Items charged against reserve (63) (1) - (61) (125)
------- -------- ---------- ------------ --------
Balance, October 1, 2004 $ - $ - $ - $ - $ -
======= ======== ========== ============ ========
21
During 2004, we continued to execute our plan to exit additional
distribution facilities. Activity for this plan for the nine months ended
October 1, 2004 was as follows:
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Facility closing and severance expenses $ 427 $ 76 $ 412 $ 353 $ 1,268
Items charged against reserve (401) (76) (412) (353) (1,242)
------- -------- ---------- ------------ --------
Balance, October 1, 2004 $ 26 $ - $ - $ - $ 26
======= ======== ========== ============ ========
The total expected future expense for commitments under this plan is
approximately $500,000 and will be expensed in accordance with SFAS No. 146.
(9) BENEFIT FOR INCOME TAXES
In 2003, we carried back all available federal income tax losses and are now
carrying losses forward. Accordingly, tax benefits from operating losses are
offset by valuation allowances, resulting in no net tax benefit being recorded
until realization is reasonably assured.
22
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 a leading
manufacturer of metal accessories used in masonry construction in terms of
revenues. We operate in two sectors of the construction industry: infrastructure
construction, such as highways, bridges, utilities, water and waste treatment
facilities and airport runways, and non-residential building, such as schools,
stadiums, prisons, retail sites, commercial offices, hotels and manufacturing
facilities. We have expanded our business through acquisitions. On July 29, 2003
we completed the acquisition of substantially all of the fixed assets and rental
fleet assets of Safway Formwork Systems, L.L.C. ("Safway Formwork") for $20.9
million.
Effective January 1, 2004, the Company changed its financial reporting to three
segments to monitor gross profit by sales type: product sales, rental revenue,
and used rental equipment sales. These types of sales are differentiated by
their source and gross margin percents of sales.
- PRODUCT SALES CONSIST OF:
- CONCRETE ACCESSORIES, which are used for connecting forms for
poured-in-place concrete walls, anchoring or bracing for walls
and floors, supporting bridge framework and positioning steel
reinforcing bars, and include products which remain in place
at the convenience of the contractors.
- MASONRY PRODUCTS, which are placed between layers of brick and
concrete blocks and covered with mortar to provide additional
strength to walls.
- PAVING PRODUCTS, which are used in the construction and
rehabilitation of concrete roads, highways and airport runways
to extend the life of the pavement, and include products which
remain in place at the convenience of the contractors. Welded
dowel assemblies are a paving product used to transfer dynamic
loads between two adjacent slabs of concrete roadway. Metal
dowels are part of a dowel basket design that is imbedded in
two adjacent slabs to transfer the weight of vehicles as they
move over a road.
- CHEMICALS, which include a broad spectrum of chemicals for use
in concrete construction, including form release agents, bond
breakers, curing compounds, liquid hardeners, sealers, water
repellents, bonding agents, grouts and epoxies, and other
chemicals used in the pouring, placement, and stamping of
concrete as well as curing compounds used in concrete road
construction.
- RENTAL EQUIPMENT CONSISTS PRIMARILY OF:
- FORMING SYSTEMS, which are reusable engineered modular forms;
hold liquid concrete in place on concrete construction jobs
while it hardens. Standard forming systems are made of steel
and plywood and are used in the creation of concrete walls and
columns. Specialty forming systems consist primarily of steel
forms that are designed to meet architects' specific needs for
concrete placements. Both standard and specialty forming
systems and related accessories are sold as used rental
equipment and rented.
23
SAFWAY FORMWORK ACQUISITION
On July 29, 2003 we acquired substantially all of the fixed assets and rental
fleet assets of Safway Formwork Systems, L.L.C. ("Safway") for $20.9 million,
including acquisition costs of $1.1 million. The initial purchase price was
comprised of $13.0 million in cash and a $12.0 million non-interest bearing
(other than in the case of default) senior unsecured note with an initial
present value of $7.0 million payable to the seller. The note was issued at a
discount, which is being accreted to the face value using the effective interest
method and is reflected as interest expense. The net present value at October 1,
2004 was $6.1 million. The first $250,000 installment payment on the note was
paid on September 30, 2003, and an additional $750,000 installment payment was
due on December 31, 2003. The settlement of normal purchase price adjustments
resulted in a $417,000 reduction in the payment made in December to $333,000. A
subsequent purchase price adjustment of $240,000 was paid in March 2004. A $1.0
million payment was made at September 30, 2004 and annual payments of $1.0
million are due on September 30 of each year from 2005 through 2008, with a
final balloon payment of $6.0 million due on December 31, 2008.
The Company exercised its option to acquire additional rental equipment from
Safway. The Company issued a non-interest bearing note, which is being accreted
to its face value using the effective interest method with an interest rate of
6% and is reflected as interest expense. The net present value of the note at
October 1, 2004 was $1.5 million. Minimum payments of the note are $50,000 for
the remainder of 2004, $282,000 in 2005, $398,000 in 2006, $563,000 in 2007, and
$464,000 in 2008. Payments may be accelerated if certain revenue targets are
met.
Safway sold and rented concrete forming and shoring systems, principally
European style products designed and manufactured by its affiliated European
concrete forming and shoring business, to a national customer base. For the
period from October 1, 2002 through July 25, 2003, Safway Formwork had revenues
of $17.0 million. By acquiring the Safway Formwork rental fleet assets, which
had a gross book value at July 25, 2003 of approximately $41.8 million, we
expect to increase our presence in the concrete forming and shoring systems
business and expand our product offerings by advancing our plan to continue
augmenting Symons' existing rental fleet with European clamping systems. As part
of the asset acquisition we entered into an exclusive manufacturing and
distribution agreement with certain of Safway's affiliates under which we were
granted the exclusive right to manufacture, design, market, offer, sell and
distribute certain European formwork products within the United States, Mexico
and Canada. The acquisition has been accounted for as a purchase, and the
results of Safway Formwork have been included in our consolidated financial
statements from the date of acquisition. The purchase price has been allocated
based on the fair value of the assets acquired and liabilities assumed.
24
FACILITY CLOSING AND SEVERANCE EXPENSES
During 2001, we approved and began implementing a plan to exit certain of
our manufacturing and distribution facilities and to reduce overall headcount in
order to keep our cost structure in alignment with net sales. Activity for this
plan for the year ended December 31, 2003, and for the nine months ended October
1, 2004 was as follows:
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Balance, January 1, 2003 $ - $ 210 $ - $ 311 $ 521
Facility closing and severance expenses - 379 - - 379
Items charged against reserve - (175) - (311) (486)
------- -------- ---------- ------------ --------
Balance, December 31, 2003 - 414 - - 414
Facility closing and severance expenses - - - - -
Items charged against reserve - (414) - - (414)
------- -------- ---------- ------------ --------
Balance, October 1, 2004 $ - $ - $ - $ - $ -
======= ======== ========== ============ ========
During 2002, we approved and began implementing a plan to exit certain of
our distribution facilities and to reduce overall headcount in order to keep our
cost structure in alignment with net sales. Activity for this plan for the year
ended December 31, 2003, and for the nine months ended October 1, 2004 was as
follows:
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Balance, January 1, 2003 $ 2,412 $ 84 $ - $ - $ 2,496
Facility closing and severance expenses 202 (11) - - 191
Items charged against reserve (2,414) (73) - - (2,487)
------- -------- ---------- ------------ --------
Balance, December 31, 2003 200 - - - 200
Facility closing and severance expenses - - - - -
Items charged against reserve (200) - - - (200)
------- -------- ---------- ------------ --------
Balance, October 1, 2004 $ - $ - $ - $ - $ -
======= ======== ========== ============ ========
During 2003, we approved and began implementing a plan to exit certain of
our manufacturing and distribution facilities and to reduce overall headcount in
order to keep our cost structure in alignment with net sales. Activity for this
plan for the year ended December 31, 2003 and the nine months ended October 1,
2004 was as follows:
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Facility closing and severance expenses $ 988 $ 27 $ - $ 921 $ 1,936
Items charged against reserve (988) (27) - (921) (1,936)
------- -------- ---------- ------------ --------
Balance, December 31, 2003 - - - - -
Facility closing and severance expenses 63 1 - 61 125
Items charged against reserve (63) (1) - (61) (125)
------- -------- ---------- ------------ --------
Balance, October 1, 2004 $ - $ - $ - $ - $ -
======= ======== ========== ============ ========
25
During 2004, we continued to execute our plan to exit additional
distribution facilities. Activity for this plan for the nine months ended
October 1, 2004 was as follows:
Involuntary Lease Relocation Other Post-
Termination Termination of Closing
Benefits Costs Operations Costs Total
----------- ----------- ---------- ------------ --------
Facility closing and severance expenses $ 427 $ 76 $ 412 $ 353 $ 1,268
Items charged against reserve (401) (76) (412) (353) (1,242)
------- -------- ---------- ------------ --------
Balance, October 1, 2004 $ 26 $ - $ - $ - $ 26
======= ======== ========== ============ ========
The total expected future expense for commitments under this plan is
approximately $500,000 and will be expensed in accordance with SFAS No. 146.
26
RESULTS OF OPERATIONS
The following table summarizes our results of operations as a percentage of net
sales for the periods indicated.
Three Fiscal Months Ended Nine Fiscal Months Ended
--------------------------- ---------------------------
October 1, September 26, October 1, September 26,
2004 2003 2004 2003
---------- ------------- ---------- -------------
Product sales 84.4% 84.6% 85.6% 82.0%
Rental revenue 10.0 10.3 9.7 8.6
Used rental equipment sales 5.6 5.1 4.7 9.4
----- ----- ----- -----
Net sales 100.0 100.0 100.0 100.0
----- ----- ----- -----
Product cost of sales 73.7 79.2 75.0 77.4
Rental cost of sales 74.1 74.3 77.5 79.7
Used rental equipment cost of sales 42.5 40.0 39.8 29.8
----- ----- ----- -----
Cost of sales 72.0 76.7 73.6 73.1
----- ----- ----- -----
Product gross profit 26.3 20.8 25.0 22.6
Rental gross profit 25.9 25.7 22.5 20.3
Used rental equipment gross profit 57.5 60.0 60.2 70.2
----- ----- ----- -----
Gross profit 28.0 23.3 26.4 26.9
Selling, general and administrative expenses 19.0 21.7 20.8 21.8
Facility closing and severance expenses 0.4 0.5 0.4 0.4
(Gain) loss on disposals of property, plant, and
equipment (0.4) - (0.1) 0.1
Amortization of intangibles 0.3 0.2 0.3 0.2
----- ----- ----- -----
Income from operations 8.8 0.9 5.0 4.4
Interest expense 10.4 11.0 11.1 10.1
Loss on early extinguishment of long-term debt - - 0.3 0.9
Other expense (income) - - - -
----- ----- ----- -----
Loss before benefit for income taxes (1.6) (10.1) (6.4) (6.6)
Benefit for income taxes - (3.8) - (2.2)
----- ----- ----- -----
Net loss (1.6)% (6.3)% (6.4)% (4.4)%
===== ===== ===== =====
27
COMPARISON OF THREE FISCAL MONTHS ENDED OCTOBER 1, 2004 AND SEPTEMBER 26, 2003
NET SALES
Net sales increased $13.3 million, or 13.1%, to $114.6 million in the third
quarter of 2004 from $101.3 million in the third quarter of 2003. The following
table summarizes our net sales by product type:
Three fiscal months ended
------------------------------------------------
October 1, 2004 September 26, 2003
---------------------- ---------------------
(In thousands)
Net Sales % Net Sales % % Change
--------- ----- --------- ----- --------
Product sales $ 96,640 84.4% $ 85,695 84.6% 12.8%
Rental revenue 11,449 10.0 10,391 10.3 10.2
Used rental equipment sales 6,459 5.6 5,202 5.1 24.2
-------- ----- -------- -----
Net sales $114,548 100.0% $101,288 100.0% 13.1%
======== ===== ======== =====
Product sales increased $10.9 million, or 12.8%, to $96.6 million in the third
quarter of 2004 from $85.7 million in the third quarter of 2003. The increase in
sales was due to price increases over the last twelve months. This was partially
offset by a decrease in volume that was due to customers buying ahead of
anticipated sales price increases in the first six months of 2004.
Rental revenue increased $1.1 million, or 10.2%, to $11.5 million for the third
quarter of 2004, compared to $10.4 million in the third quarter of 2003. We
estimate that Safway added approximately $1.0 million in rental revenue while
the remaining increase was due to volume from existing product lines.
Used rental equipment sales increased to $6.5 million in the third quarter of
2004 from $5.2 million in the third quarter of 2003. The increase is due to the
timing of customer projects.
GROSS PROFIT
Gross profit on product sales for the third quarter of 2004 was $25.4 million,
or 26.3% of sales, an increase of $7.5 million from $17.8 million, or 20.8% of
sales, in the third quarter of 2003. The increase in gross profit dollars was
primarily due to the increased net sales as discussed above, partially offset by
increasing costs, primarily steel and freight. As a percent of revenue, gross
profit also increased due to productivity gains. We will continue to see higher
impacts of steel costs in future quarters, as the third quarter steel costs were
approximately 10% higher than the second quarter but still largely remain in
inventory.
Gross profit on rental revenue for the third quarter of 2004 was $3.0 million,
an increase of $0.3 million from the third quarter of 2003, which was $2.7
million. The increase in gross profit dollars was primarily due to the increased
net sales as discussed above, which was partially offset by the increase in
depreciation expense on rental equipment as a result of the acquisition of
Safway and higher freight costs.
Gross profit on sales of used rental equipment for the third quarter of 2004 was
$3.7 million, or 57.5% of sales, compared to $3.1 million, or 60.0% of sales, in
the third quarter of 2003. The increase in gross profit dollars was due to the
increased sales discussed previously. Gross profit as a percentage of sales
fluctuates based on the age and type of the specific equipment sold.
OPERATING EXPENSES
Selling, general and administrative expenses decreased $0.2 million to $21.8
million in the third quarter of 2004 from $22.0 million in the third quarter of
2003, despite adding approximately $0.7 million for Safway in the third quarter.
The third quarter of 2003 included some non-recurring expenses related to the
severance, hiring, and relocation costs from certain management changes.
28
Facility closing and severance expense during the third quarter of 2004 was $0.4
million compared to $0.5 million in the third quarter of 2003.
Amortization of intangibles was $0.3 million in the third quarter of 2004,
compared to $0.2 million in the third quarter of 2003.
OTHER EXPENSES
Interest expense increased to $11.9 million in the third quarter of 2004 from
$11.2 million in the third quarter of 2003. This was primarily due to higher
average borrowings.
INCOME (LOSS) BEFORE INCOME TAXES
Loss before income taxes in the third quarter of 2004 was $(1.8) million
compared to a loss of $(10.3) million in the third quarter of 2003, due to the
factors described above.
BENEFIT FOR INCOME TAXES
In 2003, we carried back all available federal income tax losses and are now
carrying such losses forward. Accordingly, in 2004, tax benefits from operating
losses are offset by valuation allowances, resulting in no net tax benefit being
recorded until realization is reasonably assured.
NET INCOME (LOSS)
Net loss in the third quarter of 2004 was $(1.8) million compared to $(6.4)
million in the third quarter of 2003, due to the factors described above.
COMPARISON OF NINE FISCAL MONTHS ENDED OCTOBER 1, 2004 AND SEPTEMBER 26, 2003
NET SALES
Net sales increased $39.4 million, or 14.1%, to $318.9 million in the first
three quarters of 2004 from $279.5 million in the first three quarters of 2003.
The following table summarizes our net sales by product type:
Nine fiscal months ended
--------------------------------------
October 1, 2004 September 26, 2003
------------------ ------------------
(In thousands)
Net Sales % Net Sales % % Change
--------- ----- --------- ----- --------
Product sales $273,101 85.6% $ 229,247 82.0% 19.1%
Rental revenue 30,792 9.7 24,021 8.6 28.2
Used rental equipment sales 14,978 4.7 26,190 9.4 (42.8)
-------- ----- --------- -----
Net sales $318,871 100.0% $ 279,458 100.0% 14.1%
======== ===== ========= =====
Product sales increased $43.8 million, or 19.1%, to $273.1 million in the first
three quarters of 2004 from $229.3 million in the first three quarters of 2003.
The majority of the increase in sales was due to price increases over the last
twelve months, while the remaining increase was due to volume.
Rental revenue increased $6.8 million, or 28.2%, to $30.8 million first three
quarters of 2004, compared to $24.0 million in the first three quarters of 2003.
We estimate that Safway added approximately $6.3 million in rental revenue,
while the remaining increase was due to volume from existing product lines.
Used rental equipment sales decreased to $15.0 million in the first three
quarters of 2004 from $26.2 million in the first three quarters of 2003. The
decrease is due to two large transactions in the first nine months of 2003 that
did not recur in the first nine months of 2004.
29
GROSS PROFIT
Gross profit on product sales for the first three quarters of 2004 was $68.2
million, or 25.0% of sales, an increase of $16.4 million from $51.8 million, or
22.6% of sales, in the first three quarters of 2003. The increase in gross
profit dollars was primarily due to the increased net sales as discussed above,
partially offset by an increase in material costs, primarily steel. As a percent
of revenue, gross profit also increased due to productivity gains. We will
continue to see higher impacts of steel costs in future quarters, as the third
quarter steel costs were approximately 10% higher than the second quarter but
still largely remain in inventory.
Gross profit on rental revenue for the first three quarters of 2004 was $6.9
million, a $2.0 million an increase over the first three quarters 2003, which
was $4.9 million. The increase in gross profit dollars was primarily due to the
increased net sales as discussed above. The increase was partially offset by
higher cost of sales, primarily depreciation expense due to the acquisition of
Safway and higher freight costs.
Gross profit on sales of used rental equipment for the first three quarters of
2004 was $9.0 million, or 60.2% of sales, compared to $18.4 million, or 70.2% of
sales, in the first three quarters of 2003. The decrease in gross profit dollars
was primarily due to the decreased sales discussed previously. Gross profit as a
percentage of sales, fluctuates based on the age and type of the specific
equipment sold.
OPERATING EXPENSES
Selling, general and administrative expenses increased $5.3 million to $66.3
million in the first three quarters of 2004 from $61.0 million in the first
three quarters of 2003. The increase was due to the acquisition of Safway, which
was partially offset by cost controls.
Facility closing and severance expense during the first three quarters of 2004
was $1.4 million compared to $1.2 million in first three quarters of 2003.
Amortization of intangibles was $0.9 million in the first three quarters of
2004, compared to $0.4 million in the first three quarters of 2003.
OTHER EXPENSES
Interest expense increased to $35.5 million in the first three quarters of 2004
from $28.3 million in the first three quarters of 2003. This was primarily due
to the higher interest rate from the new senior second secured notes and higher
average borrowings. The Company incurred a loss on the early extinguishment of
long-term debt of $0.8 million in the first nine months of 2004 and $2.6 million
in the first nine months of 2003. The 2004 loss was due to the expensing of
deferred financing costs on the Company's previous revolving line of credit. The
2003 loss was due to the expensing of deferred financing costs related to the
issuance of the $165.0 million senior second secured notes.
INCOME (LOSS) BEFORE INCOME TAXES
Loss before income taxes for the first three quarters of 2004 was $(20.4)
million compared to a loss of $(18.6) million in the first three quarters of
2003, due to the factors described above.
BENEFIT FOR INCOME TAXES
In 2003, we carried back all available federal income tax loses and are now
carrying such losses forward. Accordingly, in