UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
Form 10-K
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
December 31, 2007
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
Commission File Number 1-11781
DAYTON SUPERIOR
CORPORATION
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
31-0676346
|
(State of incorporation)
|
|
(I.R.S. Employer Identification
No.)
|
7777 Washington Village Dr.
Suite 130
Dayton, Ohio 45459
(Address of principal executive
office)
Registrants telephone number, including area code:
(937) 428-6360
Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, par value $0.01 per share, registered on The
Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer
o
|
|
Accelerated
filer
þ
|
|
Non-accelerated
filer
o
|
|
Smaller reporting
company
o
|
(Do not check if a smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
As of March 14, 2008, there were 19,066,212 shares of
common stock outstanding. As of June 30, 2007, the
aggregate market value of common stock held by non-affiliates
was $120,004,160 based on the closing market price value of the
common stock.
DOCUMENT
INCORPORATED BY REFERENCE
Dayton Superior Corporations proxy statement for its
Annual Meeting of Stockholders to be held on April 22,
2008; definitive copies of the proxy statement will be filed
with the Commission within 120 days of the Companys
most recently completed fiscal year. Only such portions of the
proxy statement as are specifically incorporated by reference
into Part III of this Report shall be deemed filed as part
of this Report.
TABLE OF CONTENTS
In this Annual Report on
Form 10-K,
unless otherwise noted, the terms Dayton Superior,
we, us and our refer to
Dayton Superior Corporation, a Delaware corporation and
successor (pursuant to a reincorporation merger effective
December 15, 2006) to an Ohio corporation of the same
name, and its subsidiary.
Part I
Available
Information
We file annual, quarterly, current reports, and other documents
with the Securities and Exchange Commission (SEC) under the
Securities Exchange Act of 1934. The public may read and copy
any materials that we file with the SEC at the SECs Public
Reference Room at 100 F Street, NW, Washington, DC
20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at
1-800-SEC-0330.
Also, the SEC maintains an Internet website that contains
reports and information statements, and other information
regarding issuers, including the Company, that file
electronically with the SEC. The public can obtain any documents
that we file with the SEC at
http://www.sec.gov.
General
We believe we are both the leading North American provider of
specialized products consumed in non-residential, concrete
construction and the largest concrete forming and shoring rental
company serving the domestic, non-residential construction
market. In many of our product lines, we believe we are the
lowest-cost provider, competing primarily with smaller, regional
suppliers that offer a more limited range of products and one
other smaller national competitor. Our products can be found on
construction sites nationwide and are used in non-residential
construction projects, including:
|
|
|
|
|
infrastructure projects, such as highways, bridges, airports,
power plants and water management projects;
|
|
|
|
institutional projects, such as schools, stadiums, hospitals and
government buildings; and
|
|
|
|
commercial projects, such as retail stores, offices and
recreational, distribution and manufacturing facilities.
|
Although certain of our products can be used in residential
construction projects, we believe that less than 5% of our
revenues are attributable to residential construction activity.
We sell most of our 18,000 products under well-established brand
names. Our products are used to help form, strengthen, move,
stabilize, cure or color concrete. Our products are generally
imbedded in, or applied to, concrete and consumed during the
construction process, thereby providing us with a source of
recurring revenue. Our products include metal and plastic bar
supports, anchor bolts, snap ties, wall forming products, rebar
splicing devices, load transfer units, precast and
tilt-up
construction lifting hardware and construction chemicals. In
addition, we sell a complete line of new and used forming and
shoring systems, which may be combined to create solutions for a
wide variety of customer-specific applications. We also rent a
complete line of forming and shoring systems, and believe our
rental fleet is the largest and most diverse in North America.
We manufacture and source our products through a balanced
combination of North American manufacturing facilities and
strategic outsourcing relationships. We use our network of 48
distribution, manufacturing, sales and service centers to
establish a strong local presence in each of the markets we
serve, which also allows us to deliver our broad product
offering, technical expertise and customer service in a timely
and efficient manner to our customers. We serve over 3,800
customers, consisting primarily of regional dealers and a broad
array of general contractors and sub-contractors. We believe our
distribution, manufacturing and service network is the largest
in our industry.
In 2007, we generated $483 million in net sales, 82% of
which were from product sales (including sales of new forming
and shoring systems). Approximately 84% of our 2007 product
sales (or approximately 69% of our total net sales) were
generated through the sale of consumable products. This mix of
consumable versus reusable products, which is typical for our
business, represents a significant source of recurring revenue
for our company.
1
Products
We offer more than 18,000 catalogued products, which we believe
to be significantly more than our competitors who are mostly
regional suppliers with limited product offerings. Most of our
products are consumable, providing us with a source of recurring
revenue. We continually attempt to increase the number of
products we offer by using engineers and product development
teams to introduce new products and refine existing products.
Most of our products are sold under industry-recognized brand
names including:
Dayton/Richmond
®
,
Aztec
®
,
Symons
®
,
BarLock
®
,
Jahn
®
,
Swift
Lift
®
,
Steel-Ply
®
,
Dayton
Superior
®
,
Conspec
®
,
Edoco
®
,
Dur-O-Wal
®
and American Highway
Technology
®
.
Product
Sales Consist Of:
|
|
|
|
|
Wall-Forming Products.
Wall-forming products
include shaped metal ties and accessories used to hold concrete
forms in place while the concrete is curing.
|
|
|
|
Bridge Deck Products.
Bridge deck products are
metal assemblies of varying designs used to support the formwork
used by contractors in the construction and rehabilitation of
bridges.
|
|
|
|
Bar Supports.
Bar supports are non-structural
steel, plastic, or cementitious supports used to position rebar
within a horizontal slab or concrete form.
|
|
|
|
Splicing Products.
Splicing products are used
to join two pieces of rebar together at a construction site
without the need for extensive preparation of the rebar ends.
|
|
|
|
Precast and Prestressed Concrete Construction
Products.
Precast and prestressed concrete
construction products are metal assemblies of varying designs
used or consumed in the manufacture of precast concrete panels
and prestressed concrete beams and structural members.
|
|
|
|
Formliner Products.
Formliner products include
plastic and elastomeric products that adhere to the inside face
of forms to provide shape or texture to the surface of the
concrete.
|
|
|
|
Chemical Products.
Chemical products 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 and
placement of concrete.
|
|
|
|
Masonry Products.
Masonry products are wire
products that improve the performance and longevity of masonry
walls by providing crack control, better water resistance,
greater elasticity and higher strength to withstand seismic
shocks.
|
|
|
|
Welded Dowel Assemblies.
Welded dowel
assemblies are used to transfer dynamic loads between two
adjacent slabs of concrete roadway.
|
|
|
|
Architectural Paving Products.
Architectural
paving products are used to apply decorative texture and
coloration to concrete surfaces.
|
|
|
|
Tilt-Up
Construction
Products.
Tilt-up
construction products include a complete line of inserts,
reusable lifting hardware and adjustable beams used in the
tilt-up
method of construction.
|
|
|
|
Forming Systems.
Forming systems are reusable,
engineered modular forms which hold liquid concrete in place on
concrete construction jobs while it cures.
|
|
|
|
Shoring Systems.
Shoring systems, including
aluminum beams and joists, are reusable post shores and shoring
frames used to support deck and other raised forms while
concrete is being poured.
|
Rental
Revenues and Sales of Used Rental Equipment Consist
Of:
|
|
|
|
|
Forming systems, shoring systems and
tilt-up
construction products, each as described above.
|
2
Manufacturing
We manufacture, in 19 facilities throughout North America, a
majority of the products we sell and rent. These facilities
incorporate semi-automated and automated production lines, heavy
metal presses, forging equipment, stamping equipment, robotic
welding machines, drills, punches and other heavy machinery
typical for this type of manufacturing operation. Our production
volumes enable us to use a combination of custom-designed and
standard production equipment. We support our equipment with a
team of experienced manufacturing engineers and tool and die
makers.
Through investment in advanced technology for both production
equipment and ERP-driven product planning, combined with our
lean manufacturing management techniques we believe we generally
have achieved significantly greater productivity, lower capital
equipment costs, lower scrap rates, higher product quality,
faster changeover times and lower inventory levels than most of
our competitors. We also have a flexible manufacturing setup and
can make the same products at several locations, which allows us
to respond to local market requirements in a timely manner.
Given the high volume of certain of our products, we have
recently been able to reduce our costs of sales by sourcing
finished products and components through our manufacturing
facility in Reynosa, Mexico and through foreign sourcing
initiatives, including in China.
Fleet
Management
We believe our rental fleet is the largest in North America. We
actively manage our fleet mix to ensure certain products are
regionally focused to address geography-specific applications.
We also monitor our fleet purchases to maintain appropriate
inventory levels and to manage our deployment of capital
resources.
Distribution
We distribute our products to customers through our network of
22 service/distribution centers located in the United States and
Canada. We ship most of our products to our service/distribution
centers from our manufacturing plants. We have an on-line
inventory tracking system that enables us to identify, reserve
and ship inventory quickly from our locations in response to
customer orders.
Sales and
Marketing
We employed approximately 300 sales and marketing personnel at
December 31, 2007, of whom approximately two-thirds were
field sales people and one-third were customer service
representatives. Sales and marketing personnel are located in
most of our service/distribution centers and are instrumental in
driving the productivity of our regional operating model. We
provide product documentation and consult on certain
non-residential construction techniques in which our products
can be used to solve typical construction problems. We promote
our products through seminars and other customer education
efforts and work directly with architects, engineers and
contractors to secure the use of our products whenever possible.
Technical
and Customer Service
Each of our seven regions is supported by product specialists,
engineers and customer service representatives who provide our
customers with product application technical support,
engineering consultation and product training. In addition, all
of our regions are supported by one or more captive distribution
facilities with make-to-order manufacturing capabilities. These
capabilities allow us to deliver our products to any
construction site in the United States in a timely manner
and support our belief that our customer support infrastructure
is a significant competitive strength in our industry. We employ
approximately 85 individuals in our engineering department who
combine region-specific product and application expertise with
proprietary software applications to advise and consult on
non-residential construction projects. We also make our library
of product literature and training manuals readily available to
our customers.
3
Customers
We have over 3,800 customers, of which approximately 50%
purchase our products for resale and 50% are end users. Our
customer base is geographically diverse and consists of
distributors, rebar fabricators, precast and prestressed
concrete manufacturers, brick and concrete block manufacturers,
general contractors and sub-contractors.
Raw
Materials
Our principal raw materials are steel wire rod, steel hot rolled
bar, metal stampings and flat steel, aluminum sheets and
extrusions, plywood, cement and cementitious ingredients, liquid
chemicals, zinc, plastic resins and injection-molded plastic
parts. We currently purchase materials from over 800 vendors and
are not dependent on any single vendor or small group of vendors
for any significant portion of our raw material purchases.
Steel, in its various forms, typically constitutes approximately
22.5% of our product cost of sales.
Competition
Our industry is highly competitive in most product categories
and geographic regions. We compete with smaller, regional
suppliers that offer a more limited range of products, and one
smaller national competitor. We believe competition in our
industry is largely based on, among other things, price,
quality, breadth of product offering, distribution capabilities
(including quick delivery times), customer service and
expertise. Due primarily to factors such as freight rates, quick
delivery times and customer preference for local suppliers, some
local or regional manufacturers and suppliers may have a
competitive advantage over us in a given region. We believe the
size, breadth, and quality of our product offerings provide us
with advantages of scale in both distribution and production
relative to our competitors.
Trademarks
and Patents
Our products are sold under our registered trademarks that are
well known throughout the concrete construction industry and are
therefore important to our business. Among our better-known
trademarks are Dayton
Superior
®
,
Dayton/Richmond
®
,
Symons
®
,
Aztec
®
,
Dur-O-Wal
®
,
American Highway
Technology
®
,
Conspec
®
,
Edoco
®
,
Jahn
®
,
Swift
Lift
®
,
Bar
Lock
®
,
Steel-Ply
®
,
the Hexagon
Logo
®
and the S &
Diamond
®
design. Many of our products are protected by our patents, which
we consider an important asset. As of December 31, 2007, we
had 112 patents and 37 pending patent applications, domestic and
foreign, and 182 registered trademarks and pending applications
for registration.
Employees
We employ approximately 700 salaried and 1,000 hourly
personnel, of whom approximately 550 of the hourly personnel and
4 of the salaried personnel are represented by labor unions.
Employees at the Miamisburg, Ohio; Parsons, Kansas; Elk Grove,
Illinois; New Braunfels, Texas; Tremont, Pennsylvania;
Santa Fe Springs, California; City of Industry, California,
and Aurora, Illinois facilities are covered by collective
bargaining agreements. Of the union contracts, three expire in
2008, three expire in 2009, two expire in 2010, and one expires
in 2011. We believe we have good employee and labor relations
and that no one contract is individually significant.
Seasonality
Due to weather, our operations are seasonal in nature, with
approximately 55% of our sales historically occurring in the
second and third quarters. Working capital and borrowings under
the revolving credit facility fluctuate with sales volume such
that our peak revolving credit facility borrowings are generally
in the second quarter or third quarter.
Backlog
We typically ship most of our products, other than paving
products and most specialty forming systems, within one week and
often within 24 hours after we receive the order. Other
product lines, including paving products and
4
specialty forming systems, may be shipped up to two years after
we receive the order, depending on our customers needs.
Accordingly, we do not maintain significant backlog, and backlog
as of any particular date has not been representative of our
actual sales for any succeeding period.
The non-residential construction industry is cyclical, and we
may experience prolonged depressed market conditions for our
products and services.
The non-residential
construction industry is cyclical, and a downturn in the
non-residential construction industry could cause a decline in
the demand for our products. Our products are primarily used in
domestic, non-residential construction, therefore our sales and
earnings are strongly influenced by non-residential construction
activity, which historically has been cyclical. Most recently,
during the period from 2001 to 2005, the commercial sector of
the non-residential construction market experienced a downward
trend, and as a result our sales and earnings were negatively
affected. Non-residential construction activity can decline
because of many other factors we cannot control, such as:
|
|
|
|
|
a decline in general economic activity;
|
|
|
|
a decrease in government spending on construction projects;
|
|
|
|
an increase in raw material and overall construction costs;
|
|
|
|
interest rate increases, which make borrowings used to finance
construction projects more expensive; and
|
|
|
|
changes in banking and tax laws, which may reduce incentives to
begin construction projects.
|
Demand for some of our products is seasonal, and we may
experience significant variations in quarterly
performance.
Due to weather, the non-residential
construction industry is seasonal in most of North America. As a
result, we typically experience seasonal fluctuations in sales
and profitability, with generally lower sales and profit in the
first and fourth quarters of our fiscal year. Demand for our
products generally is higher in the spring and summer than in
the winter and late fall. As a result, our first quarter net
sales typically are the lowest of the year. Our net sales and
operating income in the fourth quarter also generally are less
than in the second and third quarters. Consequently, our working
capital requirements tend to be higher in the second and third
quarters and, accordingly, can adversely affect our liquidity
and cash flow. Adverse weather, such as unusually prolonged
periods of cold, rain, blizzards, hurricanes and other severe
weather patterns, could delay or halt construction activity over
wide regions of the country. For example, a severe winter, such
as the winter of
2002-2003,
could lead to reduced construction activity and thus magnify the
seasonal decline in our revenues and earnings during the winter
months. Sustained extreme adverse weather conditions could have
a material adverse effect on our business, financial condition
and results of operations.
Our substantial level of indebtedness could adversely affect
our business, financial condition or results of operations and
adversely affect the price of our common
stock.
We currently have substantial
indebtedness. As of December 31, 2007, we had
$324.6 million ($330.3 million as adjusted for the
refinancing of the Senior Second Secured Notes discussed in
Note 3 to the consolidated financial statements) of total
indebtedness outstanding. Our substantial indebtedness could
make it difficult for us to satisfy our obligations under our
outstanding indebtedness. As of December 31, 2007, after
giving effect to the refinancing of the Senior Second Secured
Notes, our debt service costs for the years ending
December 31, 2008 and 2009 are expected to be
$48.6 million and $343.5 million, respectively. Credit
conditions in the United States have been reported to have
deteriorated over the past year. We rely on credit being
available at reasonable costs to operate our business. Although
we have refinanced our Senior Second Secured Notes during the
first quarter of 2008, we must either repay or refinance our
Senior Subordinated Notes before their maturity in 2009.
In addition, our substantial indebtedness could:
|
|
|
|
|
increase our vulnerability to general adverse economic and
industry conditions;
|
|
|
|
require us to dedicate a substantial portion of our cash flow
from operations to payments of principal and interest on our
indebtedness, thereby reducing the availability of our cash flow
for operations and other general purposes;
|
5
|
|
|
|
|
limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
|
|
|
|
place us at a disadvantage to our competitors that have less
debt; and
|
|
|
|
limit, along with other restrictive covenants in our
indebtedness agreements, among other things, our ability to
borrow additional funds.
|
Further, the terms of the indentures governing our senior
subordinated notes may permit us to incur substantial additional
indebtedness in the future. If we incur any additional
indebtedness, the related risks that we now face could intensify.
Our debt instruments governing our revolving credit facility
and our outstanding terms notes and senior subordinated notes
impose significant operating restrictions on
us.
Our revolving credit facility and the
indentures governing our senior notes and senior subordinated
notes, among other things, restrict our ability to:
|
|
|
|
|
incur additional indebtedness;
|
|
|
|
create liens;
|
|
|
|
pay dividends and make distributions in respect of our capital
stock;
|
|
|
|
enter into agreements that restrict our subsidiaries
ability to pay dividends or make distributions;
|
|
|
|
redeem or repurchase our capital stock;
|
|
|
|
make investments or other restricted payments;
|
|
|
|
issue or sell preferred stock of our subsidiaries;
|
|
|
|
enter into transactions with affiliates; and
|
|
|
|
consolidate, merge or sell all or substantially all of our
assets.
|
In addition to the above restrictions, we are also required to
comply with certain financial covenants under our new credit
facilities. Our ability to comply with these restrictions and
covenants may be affected by events beyond our control, and an
adverse development affecting our business could require us to
seek waivers or amendments of covenants, alternative or
additional sources of financing or reductions in expenditures.
We may not be able to obtain such waivers, amendments or
alternative or additional financings on terms acceptable to us
or at all. A breach of any of the covenants or restrictions
contained in any of our existing or future financing agreements
could result in an event of default under those agreements. Such
a default could allow the creditors under our financing
agreements to discontinue lending, to accelerate the related
debt as well as any other debt to which a cross-acceleration or
cross-default provision applies, and to declare all borrowings
outstanding thereunder to be due and payable. If our creditors
require immediate repayments, we may not be able to repay them.
We have a history of losses and may experience substantial
losses in the future. We cannot assure you that our net
operating loss carryforwards will result in any significant tax
savings in future periods.
Our business has
experienced substantial net losses over the past several years
and may continue to do so in the future. We reported net losses
of $114.7 million in 2005, $18.0 million in 2006 and
$6.7 million in 2007 and our stockholders deficit was
$89.6 million as of December 31, 2007. Our results of
operations will continue to be affected by events and conditions
both within and beyond our control, including competition,
economic, financial, business and other conditions. We cannot
assure you that our operations will become or remain profitable
in the future. As of December 31, 2007, we had deferred tax
assets of $51.7 million related to net operating loss
carryforwards. We had valuation allowances of $48.0 million
for these net operating loss carryforwards and other deferred
tax assets as of December 31, 2007, as estimated levels of
taxable income are less than the amount needed to realize these
assets. In addition, our use of net operating loss carryforwards
may be limited under Section 382 of the Internal Revenue
Code of 1986, as amended. Section 382 imposes limitations
on a companys ability to use net operating loss
carryforwards if a company experiences a more-than-50-percent
ownership change over a three-year testing period. As a result
our ability to use our net operating loss carryforwards in
future periods may be limited as provided in Section 382.
6
We expect to incur additional facility closing expenses in
2008.
Facility closing and severance expenses
were $1.8 million in 2007, due primarily to moving our
manufacturing and distribution operation from a leased facility
in Des Plaines, Illinois to a newly leased facility in Elk
Grove, Illinois. The move is expected to be completed in the
first quarter of 2008. We estimate that we will incur expenses
and expend cash of an additional $1.0 million in connection
with the completion of the relocation.
Our substantial stockholders deficit may require us to
maintain additional working capital.
As of
December 31, 2007, we had a stockholders deficit of
$89.6 million, resulting primarily from our history of net
losses. Our stockholders deficit may make it more
difficult for us to obtain credit from suppliers and other
parties in the future. In addition, some of our suppliers may
impose less advantageous terms on timing of payment. As a
result, we may require additional working capital, which may
negatively affect our cash flow and liquidity.
Increased costs of raw materials and energy resources may
result in increased operating expenses and adversely affect our
results of operations and cash flow.
Significant
variations in the costs, quality and availability of raw
materials and energy may negatively affect our results of
operations. Steel, in its various forms, is our principal raw
material, constituting approximately 22.5% of our product cost
of sales in 2007. Any decrease in our volume of steel purchases
could affect our ability to secure volume purchase discounts
that we have obtained in the past. In addition, an overall
increase in energy costs, including the cost of natural gas and
petroleum products, could adversely impact our overall operating
costs in the form of higher raw material, utilities, and freight
costs. We typically do not enter into forward contracts to hedge
commodity price risks that we face. Even though our costs may
increase, our customers may not accept corresponding price
increases for our products, or the prices for our products may
decline. Our ability to achieve acceptable margins is
principally dependent on managing our cost structure and
managing changes in raw materials prices, which fluctuate based
upon factors beyond our control. If the prices of our products
decline, or if our raw material costs increase, such changes
could have a material adverse effect on our operating margins
and profitability.
Our rental fleet is subject to residual value risk upon
disposition.
The market value of any piece of
rental equipment could be less than its depreciated value at the
time it is sold. In that event, we could recognize a loss on the
sale of that equipment. Losses on sales of used equipment (or
related impairment charges) could have a material adverse impact
on our results of operations. The market value of used rental
equipment depends on several factors, including:
|
|
|
|
|
the market price for new equipment of a like kind;
|
|
|
|
wear and tear on the equipment relative to its age;
|
|
|
|
the time of year that it is sold (generally prices are higher
during the peak construction season);
|
|
|
|
demand for used equipment; and
|
|
|
|
general economic conditions.
|
Losing certain key customers could materially affect our
revenues, and continuing consolidation of our customer base
could reduce our profit margins.
Our top ten
customers accounted for 25% of our net sales for the year ended
December 31, 2007 and our largest customer accounted for
approximately 6%, 7%, and 5% of our net sales for the years
ended December 31, 2007, 2006 and 2005, respectively. The
loss of any of these customers could have a material adverse
effect on our revenue and could also adversely affect our
liquidity and cash flow from operating activities. Further,
increasing consolidation of our customers may negatively affect
our earnings. We believe there is an increasing trend among our
distributor customers to consolidate into larger entities. As
our customers increase in size and gain market power, they may
be able to exert pressure on us to reduce prices or increase
price competition by dealing more readily with our competitors.
If the consolidation of our customers does result in increased
price competition, our sales and profit margins may be adversely
affected.
Our business may be subject to significant environmental
investigation, remediation and compliance
costs.
Our business and our facilities are
subject to a number of federal, state and local environmental
laws and regulations that govern, among other things, the
discharge of hazardous materials into the air and water as well
as the use, generation, handling, storage, transport and
disposal of these materials. Many of these laws and regulations
provide for substantial fines and criminal sanctions for
violations. Permits are required for operation of our businesses
7
(particularly air emission permits), and these permits are
subject to renewal, modification and, in certain circumstances,
revocation. Pursuant to certain environmental laws, a current or
previous owner or operator of land may be liable for the costs
of investigation and remediation of hazardous materials at the
property. These laws can often impose liability whether or not
the owner or operator knew of, or was responsible for, the
presence of any hazardous materials. Persons who arrange (as
defined under these statutes) for the disposal or treatment of
hazardous materials also may be liable for the costs of
investigation and remediation of these substances at the
disposal or treatment site, regardless of whether the affected
site is owned or operated by them. We may be liable for costs
under certain environmental laws even if we did not cause the
condition causing such liability. Changes in environmental laws
or unexpected investigations could adversely affect our
business. Since we own and operate a number of facilities where
industrial activities have been historically conducted and
because we arrange for the disposal of hazardous materials at
many disposal sites, we may incur costs for investigation and
remediation, as well as capital costs associated with compliance
with these laws. More stringent environmental laws as well as
more vigorous enforcement policies or discovery of previously
unknown conditions requiring remediation could impose material
costs and liabilities on us which could have a material adverse
effect on our business, financial condition and results of
operations.
Our Mexican operations and foreign sourcing relationships are
subject to local business risks which could have a material
adverse effect on our financial condition, results of operations
and cash flows.
We operate a manufacturing
facility in Reynosa, Mexico and have increased our purchasing of
raw materials and finished goods from China and other foreign
sources. The success of our operations in Mexico and our foreign
sourcing initiatives, including in China, depend on numerous
factors, many of which are beyond our control, including our
inexperience with operating abroad, general economic conditions,
restrictions on the repatriation of assets, compliance with
foreign laws and standards and political risks. Our Mexican
operations and foreign outsourcing relationships are affected
directly and indirectly by global regulatory, economic and
political conditions, including:
|
|
|
|
|
new and different legal and regulatory requirements in local
jurisdictions;
|
|
|
|
export duties or import quotas;
|
|
|
|
domestic and foreign customs and tariffs or other trade barriers;
|
|
|
|
potential difficulties in staffing and labor disputes;
|
|
|
|
managing and obtaining support and distribution for local
operations;
|
|
|
|
increased costs of, and availability of, transportation or
shipping;
|
|
|
|
credit risk and financial conditions of local customers and
distributors;
|
|
|
|
potential difficulties in protecting intellectual property;
|
|
|
|
risk of nationalization of private enterprises by foreign
governments;
|
|
|
|
potential imposition of restrictions on investments;
|
|
|
|
potentially adverse tax consequences, including imposition or
increase of withholding and other taxes on remittances and other
payments by subsidiaries;
|
|
|
|
capital controls;
|
|
|
|
foreign exchange restrictions and fluctuations; and
|
|
|
|
local political, economic and social conditions, including the
possibility of hyperinflationary conditions and political
instability in certain countries.
|
We cannot assure you that we will succeed in developing and
implementing policies and strategies to counter the foregoing
factors effectively in each location where we do business. Some
or all of these factors may have a material adverse effect on
our operations or upon our financial condition and results of
operations in the future.
Acquisitions that we may undertake involve a number of
inherent risks, any of which could cause us not to realize the
anticipated benefits.
We may complete
acquisitions that disrupt our business. If we make acquisitions,
8
we could do any of the following, which could adversely affect
our business, financial condition and results of operations:
|
|
|
|
|
incur substantial additional debt, which may reduce funds
available for operations and future opportunities and increase
our vulnerability to adverse general economic and industry
conditions and competition;
|
|
|
|
assume contingent liabilities; or
|
|
|
|
take substantial charges to write off goodwill and other
intangible assets.
|
In addition, acquisitions can involve other risks, such as:
|
|
|
|
|
difficulty in integrating the acquired operations and products
into our existing business;
|
|
|
|
costs that are greater than anticipated or cost savings that are
less than anticipated;
|
|
|
|
diversion of management time and attention; and
|
|
|
|
adverse effects on existing business relationships with our
suppliers and customers and the suppliers and customers of the
acquired business.
|
The high level of competition in our industry could
materially adversely affect our business.
The
markets in which we compete are highly competitive. Many of the
markets in which we operate are served by numerous competitors,
ranging from multi-regional companies to small, independent
businesses with a limited number of locations. We generally
compete on the basis of, among other things: price, quality,
breadth of product offering, distribution capabilities
(including quick delivery times), customer service and
expertise. However, the uniformity of products among our
competitors results in substantial pressure on pricing and
profit margins. As a result of these pricing pressures, we may
experience reductions in the profit margins on our sales, or we
may be unable to pass any cost increases on to our customers. We
cannot assure you that we will be able to maintain or increase
the current market share of our products or compete successfully
in the future. If competitive pressures were to cause us to
reduce our prices, our operating margins may be adversely
impacted. If we were to maintain our prices in the face of price
reductions by our competitors, our net sales could decline. We
may encounter increased competition from existing competitors or
new market entrants in the future, which could have a material
adverse effect on our business, financial condition and results
of operations.
We are effectively controlled by a major stockholder, whose
interests may conflict with yours.
Pursuant to
the terms of a voting agreement, Odyssey Investment Partners
Fund, LP (Odyssey) and its affiliates control the
voting of 53.5% of our common stock and, therefore, have the
power to control or substantially affect the outcome of matters
on which stockholders are entitled to vote. These include the
election of directors, the adoption or amendment of our
certificate of incorporation and by-laws, and possible mergers,
corporate control contests and significant corporate
transactions. Through their control of our board of directors,
Odyssey and its affiliates also have the ability to appoint or
replace our senior management, issue additional shares of our
common stock or repurchase common stock, declare dividends or
take other actions. Our controlling stockholder may make
decisions regarding our company and business that are opposed to
your interests or with which you disagree. To the extent the
interests of our public stockholders are harmed by the actions
of our controlling stockholder, the price of our common stock
may be harmed.
We are a controlled company within the meaning of
the listing requirements for the Nasdaq Global Market and, as a
result, will qualify for, and intend to rely on, exemptions from
certain corporate governance requirements.
Pursuant to the
terms of a voting agreement, certain members of our management
have granted Odyssey the right to vote their shares of our
common stock. As a result, affiliates of Odyssey control a
majority of our common stock and we are a controlled
company under Nasdaq Rule 4350(c). Accordingly, if we
so elect, we are not required to comply with certain corporate
governance requirements, including the requirements that
(1) a majority of our board of directors consist of
independent directors, (2) nominations for our board of
directors, or recommendations to our board for such nominations,
be made by our independent directors or a nominations committee
that consists entirely of independent directors and
(3) compensation of our executive officers be determined,
or recommended to the board for determination, by our
independent directors or by a compensation committee that
consists entirely of independent directors. We have availed
ourselves of these exemptions. As a result, we do not have a
majority of
9
independent directors nor does our nominating and corporate
governance committee or compensation committee consist entirely
of independent directors. Accordingly, you do not have the same
protections afforded to stockholders of companies that are
subject to all of the Nasdaq Global Markets corporate
governance requirements.
Labor disputes with our employees could interrupt our
operations and adversely affect our business.
We
depend on our highly trained employees, and any work stoppage or
difficulty hiring similar employees would adversely affect our
business. We could be adversely affected by a shortage of
skilled employees. As of December 31, 2007, approximately
one-third of our employees were unionized. We are subject to
several collective bargaining agreements with employees at our
Miamisburg, Ohio; Parsons, Kansas; Elk Grove, Illinois; New
Braunfels, Texas; Tremont, Pennsylvania; Santa Fe Springs,
California; City of Industry, California; and Aurora, Illinois
facilities. These collective bargaining agreements are scheduled
to terminate beginning in March 2008 through May 2011, and we
cannot offer assurances that we will be able to negotiate a
satisfactory renewal of these collective bargaining agreements
or that our employee relations will remain stable. Any shortage
of labor could have a material adverse effect on our business,
financial condition and results of operations.
We depend on our key personnel and the loss of the services
provided by any of our executive officers or other key employees
could harm our business and results of
operations.
Our success depends to a significant
degree upon the continued contributions of our senior
management, many of whom would be difficult to replace.
Generally, these employees may voluntarily terminate their
employment with us at any time. In such event, we may not be
able to successfully retain existing personnel or identify, hire
and integrate new personnel. Accordingly, it is possible that
our business would be materially adversely affected if one or
more of these key individuals left. We do not maintain any
key-man or similar insurance policies covering any of our senior
management or key personnel.
The nature of our business involves product liability and
construction-related risks that could adversely affect our
operating results.
Our products are used in
various construction projects, and defects in our products could
result in claims for personal injury or death and property
damage. While we maintain insurance to cover these claims, it is
possible that existing or future claims will exceed our
insurance coverage. In addition, it is possible that third-party
insurance will not continue to be available to us on
economically reasonable terms. Claims brought against us that
are not covered by insurance could have a material adverse
effect on our operating results and financial condition. Our
operations are subject to hazards inherent in the construction
industry that could result in personal injury or death, work
stoppage or serious damage to our equipment or to the property
of our customers. To protect ourselves against such casualty and
liability risks, we maintain an insurance program. Our
deductibles per incident are $500,000 for general liability,
$350,000 workers compensation liability and $1,000 for
automobile liability. In addition, we maintain a one-time annual
deductible of $4.0 million for general liability and
$5.0 million for workers compensation liability
coverage. We maintain outside insurance for such liability in
excess of these deductibles. Our deductibles may cause us to
incur significant costs. If our insurance premiums or other
costs rise significantly in the future, our profitability could
be reduced.
The price of our common stock may fluctuate
significantly.
Volatility in the market price of
our common stock may prevent you from being able to sell your
stock at prices equal to or greater than your purchase price.
The market price of our common stock could fluctuate
significantly for various reasons, including:
|
|
|
|
|
our operating and financial performance and prospects;
|
|
|
|
our quarterly or annual earnings or those of other companies in
our industry;
|
|
|
|
the publics reaction to our press releases, other public
announcements and filings with the Securities and Exchange
Commission, or SEC;
|
|
|
|
changes in earnings estimates or recommendations by research
analysts who track our common stock or the stock of other
companies in our industry;
|
|
|
|
strategic actions by us or our competitors;
|
|
|
|
new laws or regulations or new interpretations of existing laws
or regulations applicable to our business;
|
|
|
|
changes in accounting standards, policies, guidance,
interpretations or principles;
|
10
|
|
|
|
|
changes in general economic conditions in the United States and
global economies or financial markets, including those resulting
from war, incidents of terrorism or responses to such events; and
|
|
|
|
sales of common stock by us or our principal stockholders or by
members of our management team.
|
In addition, in recent years, the stock market has experienced
significant price and volume fluctuations. This volatility has
had a significant impact on the market price of securities
issued by many companies, including companies in our industry.
The changes frequently occur without regard to the operating
performance of the affected companies. Hence, the price of our
common stock could fluctuate based upon factors that have little
or nothing to do with our business.
Our certificate of incorporation and by-laws contain
provisions that could discourage a third party from acquiring us
and consequently decrease the market value of an investment in
our common stock.
Our certificate of
incorporation and by-laws contain provisions that may make the
acquisition of our company more difficult without the approval
of our board of directors, including, but not limited to, the
following:
|
|
|
|
|
our board of directors is classified into three classes, each of
which serves for a staggered three-year term;
|
|
|
|
only our board of directors may call special meetings of our
stockholders;
|
|
|
|
we have authorized undesignated preferred stock, the terms of
which may be established and shares of which may be issued
without stockholder approval;
|
|
|
|
our stockholders have only limited rights to amend our
by-laws; and
|
|
|
|
we require advance notice for stockholder proposals.
|
These provisions could discourage proxy contests, make it more
difficult for our stockholders to elect directors and take other
corporate actions and may discourage, delay or prevent a change
in control or changes in our management that a stockholder might
consider favorable. Any delay or prevention of a change in
control or change in management that stockholders might
otherwise consider to be favorable could deprive holders of our
common stock of the opportunity to sell their common stock at a
price in excess of the prevailing trading price and cause the
trading price of our common stock to decline.
Our disclosure controls and procedures were not operating
effectively at December 31, 2007.
We
identified a material weakness in our internal controls over
financial reporting. This material weakness resulted in a
misstatement of the Companys December 31, 2006 and
2005 consolidated statements of cash flows. As a result,
management concluded that the Companys disclosure controls
and procedures were not operating effectively, due to the
material weakness. Specifically, the Company did not maintain
effective controls to appropriately apply Statement of Financial
Accounting Standard No. 95,
Statement of Cash Flows
,
related to cash received for sales of rental equipment. This
error resulted in a misstatement of cash flows from investing
and operating activities.
We have taken steps to correct this deficiency. We cannot be
certain, however, that these measures will ensure that we
maintain adequate disclosure controls and procedures in the
future. In addition, we may identify other material weaknesses
or significant deficiencies in our disclosure controls and
procedures that we have not discovered to date. There could be a
negative reaction in the financial markets due to a loss of
confidence in the reliability of our financial statements.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None
11
Our corporate headquarters is located in leased facilities in
Dayton, Ohio. We believe our facilities provide adequate
manufacturing and distribution capacity for our needs. We also
believe all of the leases were entered into on market terms. Our
other principal facilities as of December 31, 2007 are
located throughout North America, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
|
|
|
|
|
Size
|
|
|
Expiration
|
Location
|
|
Use
|
|
Leased/ Owned
|
|
|
(Sq. Ft.)
|
|
|
Date
|
|
Birmingham, Alabama
|
|
Manufacturing/Distribution
|
|
|
Leased
|
|
|
|
287,000
|
|
|
December 2021
|
Elk Grove, Illinois
|
|
Manufacturing/Distribution
|
|
|
Leased
|
|
|
|
230,768
|
|
|
May 2022
|
Rialto, California
|
|
Service/Distribution
|
|
|
Leased
|
|
|
|
191,809
|
|
|
February 2017
|
Kankakee, Illinois
|
|
Manufacturing/Distribution
|
|
|
Leased
|
|
|
|
172,954
|
|
|
December 2010
|
Des Plaines, Illinois
|
|
Service/Distribution
|
|
|
Leased
|
|
|
|
171,650
|
|
|
April 2008*
|
Miamisburg, Ohio
|
|
Service/Distribution
|
|
|
Leased
|
|
|
|
156,600
|
|
|
September 2017
|
Allentown, Pennsylvania
|
|
Service/Distribution
|
|
|
Leased
|
|
|
|
114,000
|
|
|
May 2015
|
Reynosa, Mexico
|
|
Manufacturing/Distribution
|
|
|
Leased
|
|
|
|
110,000
|
|
|
July 2008
|
Aurora, Illinois
|
|
Manufacturing/Distribution
|
|
|
Leased
|
|
|
|
103,700
|
|
|
October 2016
|
Parsons, Kansas
|
|
Manufacturing/Distribution
|
|
|
Leased
|
|
|
|
120,000
|
|
|
October 2018
|
New Braunfels, Texas
|
|
Manufacturing/Distribution
|
|
|
Owned
|
|
|
|
89,600
|
|
|
|
Tremont, Pennsylvania
|
|
Manufacturing/Distribution
|
|
|
Owned
|
|
|
|
86,000
|
|
|
|
Parker, Arizona
|
|
Manufacturing/Distribution
|
|
|
Leased
|
|
|
|
60,000
|
|
|
Month to Month
|
Kansas City, Kansas
|
|
Manufacturing/Distribution
|
|
|
Leased
|
|
|
|
56,600
|
|
|
September 2015
|
Fontana, California
|
|
Manufacturing/Distribution
|
|
|
Leased
|
|
|
|
56,000
|
|
|
February 2009
|
Modesto, California
|
|
Manufacturing/Distribution
|
|
|
Leased
|
|
|
|
54,100
|
|
|
December 2008
|
Grand Prairie, Texas
|
|
Service/Distribution
|
|
|
Leased
|
|
|
|
51,000
|
|
|
June 2010
|
Toronto, Ontario
|
|
Manufacturing/Distribution
|
|
|
Leased
|
|
|
|
45,661
|
|
|
January 2010
|
Kent, Washington
|
|
Service/Distribution
|
|
|
Leased
|
|
|
|
40,640
|
|
|
June 2008
|
Oregon, Illinois
|
|
Service/Distribution
|
|
|
Owned
|
|
|
|
39,000
|
|
|
|
Brandywine, Maryland
|
|
Service/Distribution
|
|
|
Leased
|
|
|
|
36,800
|
|
|
October 2010
|
Lemont, Illinois
|
|
Service/Distribution
|
|
|
Leased
|
|
|
|
33,400
|
|
|
December 2017
|
* We will be vacating this property at the expiration of
the lease.
|
|
Item 3.
|
Legal
Proceedings.
|
During the ordinary course of our business, we are from time to
time threatened with, or may become a party to, legal actions
and other proceedings. While we are currently involved in
various legal proceedings, we believe the results of these
proceedings will not have a material effect on our business,
financial condition, results of operations, or cash flows. We
believe that our potential exposure to these legal actions is
adequately covered by product and general liability insurance,
our legal liability reserves included in our financial
statements, and, in some instances, by indemnification
arrangements.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
Not applicable.
12
Executive
Officers
Our executive officers and their ages as of March 14, 2008,
are as follows:
|
|
|
|
|
|
|
Eric R. Zimmerman
|
|
|
57
|
|
|
President, Chief Executive Officer and Director
|
Peter J. Astrauskas
|
|
|
57
|
|
|
Vice President, Engineering
|
Jeffrey S. Dawley
|
|
|
44
|
|
|
Vice President, Manufacturing
|
Raymond E. Bartholomae
|
|
|
61
|
|
|
Executive Vice President and President, Symons
|
Edward J. Puisis
|
|
|
47
|
|
|
Executive Vice President and Chief Financial Officer
|
Thomas W. Roehrig
|
|
|
42
|
|
|
Vice President, Finance and Secretary
|
Keith M. Sholos
|
|
|
54
|
|
|
Vice President, Sales
|
Eric R. Zimmerman
has been President, Chief Executive
Officer and a director of our company since August 2005. He
served as President of the Gilbarco International and Service
Station Equipment units of Gilbarco Inc. from 1998 to 2003.
Peter J. Astrauskas
has been Vice President, Engineering
since September 2003. From 2001 to 2003, he was Vice President,
Engineering for Alcoa Automotive.
Raymond E. Bartholomae
has been Executive Vice President
and President, Symons since November 2005. He served as Vice
President, Sales and Marketing from August 2003 to November
2005. He has been employed by Symons since January 1970 and was
Vice President and General Manager, Symons, from February 1998
to August 2003.
Jeffrey S. Dawley
has been Vice President, Manufacturing
since January 2007. He has been employed with the Company since
2000. From February 2006 to January 2007, he served as Director,
Manufacturing Operations. From December 2003 to February 2006,
he served as Manager, Operations Analysis. From October 2002 to
December 2003, he served as Manager, Special Projects.
Edward J. Puisis
has been Executive Vice President and
Chief Financial Officer since November 2005. He served as Vice
President and Chief Financial Officer from August 2003 to
November 2005. From March 1998 to August 2003, he was General
Manager of Finance and Administration and Chief Financial
Officer of Gallatin Steel Company, a partnership owned by
Dofasco and Gerdau Ameristeel.
Thomas W. Roehrig
has been Vice President, Finance and
Secretary since January 2007. From November 2005 to January
2007, he served as Vice President of Corporate Accounting and
Secretary. He served as Vice President of Corporate Accounting
from February 2003 to November 2005 and was also Treasurer from
August 2003 to December 2003. He has been employed with the
Company since 1998 and as Corporate Controller from April 1998
to February 2003.
Keith M. Sholos
has been Vice President, Sales since
January 2007. He has been employed with the Company since 2002.
From September 2005 to January 2007, he served as Vice
President, Sales. From August 2004 to September 2005, he served
as Vice President, Dealer Sales. From January 2004 to August
2004, he served as Vice President, Sales & Marketing,
Construction Products Group.
13
Part II
|
|
Item 5.
|
Market
for Registrants Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities.
|
Our common stock is traded on The Nasdaq Stock Markets
Global Market under the symbol DSUP. The prices
presented in the following table are the high and the low
closing prices for the period presented as reported by The
Nasdaq Stock Markets Global Market. Prior to our initial
public offering of common stock in December 2006, there was no
established public trading market for our common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
2007
|
|
|
4
th
Quarter
|
|
$
|
8.70
|
|
|
$
|
3.86
|
|
|
2007
|
|
|
3
rd
Quarter
|
|
|
6.99
|
|
|
|
13.82
|
|
|
2007
|
|
|
2
nd
Quarter
|
|
|
9.90
|
|
|
|
14.13
|
|
|
2007
|
|
|
1
st
Quarter
|
|
|
10.22
|
|
|
|
11.70
|
|
|
2006
|
|
|
4
th
Quarter
|
|
|
11.74
|
|
|
|
10.58
|
|
As of February 27, 2008, we had approximately 100 holders
of record of our common stock.
We have paid no dividends on our common stock. We intend to
retain all future earnings, if any, for use in the operation and
expansion of our business and to fund future growth. We do not
anticipate paying any dividends for the foreseeable future. The
decision whether to pay dividends will be made by our board of
directors in light of conditions then existing, including
factors such as our results of operations, financial condition
and requirements, business condition and covenants under any
applicable contractual arrangements. Our ability to pay
dividends on our common stock is limited by the covenants of our
revolving credit facility and the indentures governing our
outstanding debt securities.
14
|
|
Item 6.
|
Selected
Financial Data.
|
The following table sets forth selected historical consolidated
financial information as of and for each of the years in the
five-year period ended December 31, 2007. The selected
historical financial information as of December 31, 2007,
2006, 2005, 2004, and 2003 and for each of the years in the
five-year period ended December 31, 2007 has been derived
from our audited consolidated financial statements. Our audited
consolidated financial statements for the three years ended
December 31, 2007 are included elsewhere herein. You should
read the following table together with the
Managements Discussion and Analysis of Financial
Condition and Results of Operations section below and our
consolidated financial statements and their related notes
included elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
482,958
|
|
|
$
|
479,310
|
|
|
$
|
418,983
|
|
|
$
|
418,639
|
|
|
$
|
379,457
|
|
Cost of sales
|
|
|
331,192
|
|
|
|
340,902
|
|
|
|
320,399
|
|
|
|
311,335
|
|
|
|
278,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
151,766
|
|
|
|
138,408
|
|
|
|
98,584
|
|
|
|
107,304
|
|
|
|
101,112
|
|
Selling, general and administrative expenses
|
|
|
106,882
|
|
|
|
106,453
|
|
|
|
94,526
|
|
|
|
90,724
|
|
|
|
85,487
|
|
Facility closing and severance expenses
|
|
|
1,753
|
|
|
|
423
|
|
|
|
1,712
|
|
|
|
2,036
|
|
|
|
2,294
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
64,000
|
(3)
|
|
|
|
|
|
|
|
|
Loss (gain) on disposals of property, plant and equipment
|
|
|
560
|
|
|
|
(1,504
|
)
|
|
|
4,529
|
|
|
|
(248
|
)
|
|
|
(636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
42,571
|
|
|
|
33,036
|
|
|
|
(66,183
|
)
|
|
|
14,792
|
|
|
|
13,967
|
|
Interest expense
|
|
|
47,019
|
|
|
|
49,983
|
|
|
|
48,133
|
|
|
|
47,207
|
|
|
|
40,186
|
|
Interest income
|
|
|
(493
|
)
|
|
|
113
|
|
|
|
(163
|
)
|
|
|
(559
|
)
|
|
|
(53
|
)
|
Loss on early extinguishment of long-term
debt
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
842
|
(4)
|
|
|
2,480
|
(5)
|
Other (income) expense
|
|
|
2,300
|
|
|
|
555
|
|
|
|
(89
|
)
|
|
|
(134
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision (benefit) for income taxes and cumulative
effect of change in accounting principle
|
|
|
(6,255
|
)
|
|
|
(17,615
|
)
|
|
|
(114,064
|
)
|
|
|
(32,564
|
)
|
|
|
(28,666
|
)
|
Provision (benefit) for income taxes
|
|
|
437
|
|
|
|
394
|
|
|
|
639
|
|
|
|
4,863
|
(1)(6)
|
|
|
(11,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,692
|
)
|
|
$
|
(18,009
|
)
|
|
$
|
(114,703
|
)
|
|
$
|
(37,427
|
)
|
|
$
|
(17,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.37
|
)
|
|
$
|
(1.76
|
)
|
|
$
|
(11.57
|
)
|
|
$
|
(3.77
|
)
|
|
$
|
(1.92
|
)
|
Diluted
|
|
$
|
(0.37
|
)
|
|
$
|
(1.76
|
)
|
|
$
|
(11.57
|
)
|
|
$
|
(3.77
|
)
|
|
$
|
(1.92
|
)
|
Weighted average shares outstanding
|
|
|
18,283,773
|
|
|
|
10,224,765
|
|
|
|
9,916,425
|
|
|
|
9,932,872
|
|
|
|
9,194,577
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
(As Restated)
|
|
|
(As Restated)
|
|
|
(As Restated)
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
25,353
|
|
|
$
|
26,479
|
|
|
$
|
97,427
|
(3)
|
|
$
|
31,738
|
|
|
$
|
27,693
|
|
Property, plant and equipment additions, net
|
|
|
19,905
|
|
|
|
13,216
|
|
|
|
5,140
|
|
|
|
4,586
|
|
|
|
6,935
|
|
Rental equipment additions,
net
(2)
|
|
|
1,515
|
|
|
|
1,997
|
|
|
|
148
|
|
|
|
(7,739
|
)
|
|
|
(13,251
|
)
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
|
62,045
|
|
|
|
81,358
|
|
|
$
|
63,584
|
|
|
$
|
93,623
|
|
|
$
|
70,029
|
|
Goodwill and intangibles
|
|
|
46,332
|
|
|
|
48,705
|
|
|
|
48,668
|
|
|
|
114,828
|
|
|
|
120,117
|
|
Total assets
|
|
|
317,253
|
|
|
|
321,638
|
|
|
|
281,520
|
|
|
|
394,763
|
|
|
|
396,195
|
|
Long-term debt (including current
portion)
(7)
|
|
|
324,597
|
|
|
|
322,450
|
|
|
|
369,254
|
|
|
|
379,735
|
|
|
|
345,547
|
|
Stockholders
deficit
(1)
|
|
|
(89,643
|
)
|
|
|
(90,222
|
)
|
|
|
(160,277
|
)
|
|
|
(48,076
|
)
|
|
|
(10,416
|
)
|
|
|
|
(1)
|
|
In 2007, the Company determined that it had overstated its
valuation allowance for deferred tax assets that was established
at December 31, 2004. The tax valuation allowance, which
was recorded to reduce the deferred tax asset related to the
Companys net operating loss carryforwards, did not
properly consider the reversal of a deferred tax liability
related to accelerated depreciation. The Company has concluded
that the deferred tax liability should have reduced the tax
valuation allowance, as it will reverse within the net operating
loss carryforward period. This was adjusted by decreasing
stockholders deficit as of December 31, 2004, and
resulted in a decrease to the Companys stockholders
deficit and total liabilities as of December 31, 2004,
2005, and 2006.
|
|
(2)
|
|
In 2007, the Company determined that it had reported proceeds
from sales of rental equipment on the statements of cash flows
incorrectly. The Company had reported proceeds from sales of
rental equipment on the statements of cash flows equal to used
rental equipment sales on the statements of operations rather
than adjusting for the change in the non-cash portion of such
sales.
|
|
(3)
|
|
In accordance with SFAS No. 142, we assess our
goodwill recoverability annually. Prior to 2006, the
Companys financial performance had gradually deteriorated
over several years due to a general decline in nonresidential
construction activity and rising costs, such as steel and fuel.
The Company had been unable to sustain positive cash flow and
its future ability to do so was uncertain. Accordingly, the
Company recorded an impairment charge of $64 million in
2005 to reduce the carrying value of goodwill to its implied
fair value.
|
|
(4)
|
|
In 2004, we established an $80 million senior secured
revolving credit facility which was used to refinance our
previous $50 million revolving credit facility. As a result
of the transaction, we incurred a loss on the early
extinguishment of long-term debt of $0.8 million, due to
the expensing of deferred financing costs related to the
previous revolving credit facility. The senior secured revolving
credit facility was increased to $130 million in December
2006.
|
|
(5)
|
|
In 2003, we completed an offering of $165.0 million of
senior second secured notes in a private placement. The proceeds
of the offering were used to repay other long-term debt. As a
result, we incurred a loss on the early extinguishment of
long-term debt of $2.5 million, due to the expensing of
deferred financing costs.
|
|
(6)
|
|
In the fourth quarter of 2004, we recorded a non-cash valuation
allowance for our net deferred tax assets related to net
operating loss carryforwards as a result of adherence to
FAS 109, as our estimated levels of future taxable income
are less than the amount needed to realize the deferred tax
asset related to the carryforwards. Future changes in these
estimates could result in a non-cash increase or decrease to net
income.
|
|
(7)
|
|
On March 3, 2008, we redeemed our $165 million senior
second secured notes with the proceeds of a new
$100 million term loan and a new $150 million
revolving credit facility which replaced a $130 million
senior secured revolving credit faciltiy. The notes were
redeemed at a premium of 2.813% of face value, or
$4.6 million, which, along with the write-off of the
remaining debt discount and deferred financing costs of
$1.6 million, will be expensed as a loss on extinguishment
of long-term debt in the first quarter of 2008. The new
facilities initially matures in March 2009, but are
automatically extended to March 2014 if our $154.7 million
senior subordinated notes are paid off prior to the initial
maturity.
|
16
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Certain amounts in the consolidated balance sheet and
consolidated statements of cash flows information in the
following discussion related to 2006 and 2005 include the
effects of a restatement. See Note 13
Restatement of Consolidated Financial Statements contained in
the Notes to Consolidated Financial Statements in Item 8
for a more detailed discussion of the restatement The following
discussion should be read in conjunction with our consolidated
financial statements and the related notes included elsewhere in
this document. This discussion contains forward-looking
statements that involve risks and uncertainties. See Risk
Factors included elsewhere in this document for a
discussion of important factors that could cause actual results
to differ materially from those described or implied by the
forward-looking statements contained in this discussion. Please
refer to Cautionary Note Concerning Forward-Looking
Statements included elsewhere in this document.
Overview
We believe we are both the leading North American provider of
specialized products consumed in non-residential, concrete
construction and the largest concrete forming and shoring rental
company serving the domestic, non-residential construction
market. Demand for our products and rental equipment is driven
primarily by the level of non-residential construction activity
in the United States, which consists primarily of:
|
|
|
|
|
infrastructure projects, such as highways, bridges, airports,
power plants and water management projects;
|
|
|
|
institutional projects, such as schools, stadiums, hospitals and
government buildings; and
|
|
|
|
commercial projects, such as retail stores, offices, and
recreational, distribution and manufacturing facilities.
|
Although certain of our products can be used in residential
construction projects, we believe that less than 5% of our
revenues are attributable to residential construction activity.
We use three segments to monitor gross profit by sales type:
product sales, rental revenue, and used rental equipment sales.
These sales are differentiated by their source and gross margin
as a percentage of sales. Accordingly, this segmentation
provides information for decision-making and resource
allocation. Product sales represent sales of new products
carried in inventories on the balance sheet. Cost of goods sold
for product sales include material, manufacturing labor,
overhead costs, and freight. Rental revenues represent the
leasing of the rental equipment and are recognized ratably over
the lease term. Cost of goods sold for rental revenues includes
depreciation of the rental equipment, maintenance of the rental
equipment, and freight. Sales of used rental equipment represent
sales of the rental equipment after a period of generating
rental revenue. Cost of goods sold for sales of used rental
equipment consists of the net book value of the rental equipment.
17
Results
of Operations
The following table summarizes our results of operations as a
percentage of net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Product sales
|
|
|
82.4
|
%
|
|
|
81.0
|
%
|
|
|
84.2
|
%
|
Rental revenue
|
|
|
12.4
|
|
|
|
13.1
|
|
|
|
11.8
|
|
Used rental equipment sales
|
|
|
5.2
|
|
|
|
5.9
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product cost of sales
|
|
|
73.5
|
|
|
|
76.4
|
|
|
|
78.5
|
|
Rental cost of sales
|
|
|
55.8
|
|
|
|
58.7
|
|
|
|
76.9
|
|
Used rental equipment cost of sales
|
|
|
19.9
|
|
|
|
27.1
|
|
|
|
31.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
68.6
|
|
|
|
71.1
|
|
|
|
76.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross profit
|
|
|
26.5
|
|
|
|
23.6
|
|
|
|
21.5
|
|
Rental gross profit
|
|
|
44.2
|
|
|
|
41.3
|
|
|
|
23.1
|
|
Used rental equipment gross profit
|
|
|
80.1
|
|
|
|
72.9
|
|
|
|
68.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
31.4
|
|
|
|
28.9
|
|
|
|
23.5
|
|
Selling, general and administrative expenses
|
|
|
22.1
|
|
|
|
22.2
|
|
|
|
22.5
|
|
Facility closing and severance expenses
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.4
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
15.3
|
|
Loss (gain) on disposals of property, plant and equipment
|
|
|
0.1
|
|
|
|
(0.3
|
)
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
8.8
|
|
|
|
6.9
|
|
|
|
(15.8
|
)
|
Interest expense
|
|
|
9.7
|
|
|
|
10.5
|
|
|
|
11.5
|
|
Interest income
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
Other expense
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(1.3
|
)
|
|
|
(3.7
|
)
|
|
|
(27.2
|
)
|
Provision for income taxes
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1.4
|
)%
|
|
|
(3.8
|
)%
|
|
|
(27.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of Years Ended December 31, 2007 and 2006
Net Sales.
Our 2007 net sales were
$483.0 million, a 0.8% increase from $479.3 million in
2006. The following table summarizes our net sales by product
type for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Sales
|
|
|
%
|
|
|
Sales
|
|
|
%
|
|
|
% Change
|
|
|
|
($ in thousands)
|
|
|
Product sales
|
|
$
|
398,404
|
|
|
|
82.4
|
%
|
|
$
|
388,100
|
|
|
|
81.0
|
%
|
|
|
2.7
|
%
|
Rental revenue
|
|
|
59,671
|
|
|
|
12.4
|
|
|
|
62,769
|
|
|
|
13.1
|
|
|
|
(4.9
|
)
|
Used rental equipment sales
|
|
|
24,883
|
|
|
|
5.2
|
|
|
|
28,441
|
|
|
|
5.9
|
|
|
|
(12.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
482,958
|
|
|
|
100.0
|
%
|
|
$
|
479,310
|
|
|
|
100.0
|
%
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales increased $10.3 million, or 2.7%, to
$398.4 million in 2007 from $388.1 million in 2006.
The increase in product sales was due to price increases of
$15.9 million, partially offset by a reduction in unit
volume of $5.6 million as a result of declines in the
nonresidential construction markets.
18
Rental revenue decreased $3.1 million, or 4.9%, to
$59.7 million in 2007, compared to $62.8 million in
2006. The decrease was due to declines in the nonresidential
construction markets.
Used rental equipment sales decreased to $24.9 million in
2007 from $28.4 million in 2006 due to lower customer
demand. Used rental equipment sales may vary significantly from
period to period.
Gross Profit.
Gross profit for 2007 was
$151.8 million, a $13.4 million increase from the
$138.4 million for 2006. Gross profit was 31.4% of sales in
2007, increasing from 28.9% in 2006. Each segment experienced
increased gross profit as a percentage of sales.
Product gross profit was $105.5 million, or 26.5% of
product sales, in 2007, compared to $91.7 million, or 23.6%
of product sales, in 2006. The $13.7 million increase in
product gross profit was due to higher product sales, which
contributed $14.6 million of product gross profit, and
$9.7 million of lower costs due to operating efficiencies,
partially offset by inflation in costs of $10.6 million.
Rental gross profit increased $0.5 million to
$26.4 million, or 44.2% of rental revenue in 2007, from
$25.9 million, or 41.3% of rental revenue, in 2006.
Depreciation on rental equipment in 2007 was $16.6 million,
as compared to $19.2 million in 2006, due to the rental
equipment acquired in a 2003 acquisition having primarily a
3-year
estimated useful life. Rental gross profit before depreciation
decreased to $43.0 million, or 72.0% of rental revenue, in
2007 from $45.1 million, or 71.8% of rental revenue in
2006, due to decreased rental revenue as discussed above.
Gross profit on used rental equipment sales was
$20.0 million, or 80.1% of used rental equipment sales,
compared to $20.7 million, or 72.9% of used rental
equipment sales, in 2006. The decrease in gross profit dollars
was 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 and was higher than normal
due to more sales of fully depreciated rental equipment.
Operating Expenses.
Selling, general, and
administrative expenses was virtually flat at
$106.9 million in 2007 as compared to $106.5 million
in 2006. Stock compensation expense, a non-cash expense, was
$2.8 million in 2007 as compared to $2.2 million in
2006. Professional fees decreased $2.2 million, as reduced
consulting fees for profit improvement initiatives were
partially offset by Sarbanes-Oxley compliance costs. Rent
expense at distribution centers increased $2.1 million due
to more square footage. Depreciation expense increased
$0.8 million due to investments in information systems and
distribution centers. All other items netted to a
$0.9 million decrease.
Facility closing and severance expenses were $1.8 million
in 2007 and $0.4 million in 2006, due to moving our
manufacturing and distribution operation from a leased facility
in Des Plaines, Illinois to a newly leased facility in Elk
Grove, Illinois. The move is expected to be completed in the
first quarter of 2008. We estimate that we will incur expenses
and expend cash of an additional $1.0 million in connection
with the completion of the relocation.
Other Expenses.
Interest expense decreased to
$47.0 million in 2007 from $50.0 million in 2006 due
to the proceeds of the Companys December 2006 initial
public offering being used to pay down debt. Other expense
increased to $2.3 million in 2007 due to $2.2 million
of costs related to terminated merger discussions.
Loss Before Provision for Income Taxes.
The
loss before income taxes in 2007 was $6.3 million, as
compared to $17.6 million in 2006 due to the factors
described above.
Provision for Income Taxes.
We have recorded a
non-cash valuation allowance to reduce our deferred tax assets,
primarily related to net operating loss carryforwards, to zero,
as estimated levels of future taxable income are less than the
amount needed to realize this asset. If such estimates change in
the future, the valuation allowance will be decreased or
increased appropriately, resulting in a non-cash increase or
decrease to net income. The provision for income taxes is a
result of foreign earnings and state and local taxes.
Net Loss.
The net loss for 2007 was
$6.7 million, compared to a loss of $18.0 million in
2006 due to the factors described above.
19
Comparison
of Years Ended December 31, 2006 and 2005
Net Sales.
Our 2006 net sales were
$479.3 million, a 14.4% increase from $419.0 million
in 2005. The following table summarizes our net sales by product
type for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Sales
|
|
|
%
|
|
|
Sales
|
|
|
%
|
|
|
% Change
|
|
|
|
($ in thousands)
|
|
|
Product sales
|
|
$
|
388,100
|
|
|
|
81.0
|
%
|
|
$
|
352,888
|
|
|
|
84.2
|
%
|
|
|
10.0
|
%
|
Rental revenue
|
|
|
62,769
|
|
|
|
13.1
|
|
|
|
49,485
|
|
|
|
11.8
|
|
|
|
26.8
|
|
Used rental equipment sales
|
|
|
28,441
|
|
|
|
5.9
|
|
|
|
16,610
|
|
|
|
4.0
|
|
|
|
71.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
479,310
|
|
|
|
100.0
|
%
|
|
$
|
418,983
|
|
|
|
100.0
|
%
|
|
|
14.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales increased $35.2 million, or 10.0%, to
$388.1 million in 2006 from $352.9 million in 2005.
The increase in product sales was due to an increase in unit
volume of $27.3 million as a result of improvement in the
nonresidential construction markets. The balance of the increase
was due to price increases.
Rental revenue increased $13.3 million, or 26.8%, to
$62.8 million in 2006, compared to $49.5 million in
2005. The increase was due to increased customer demand as a
result of improvement in the nonresidential construction markets.
Used rental equipment sales decreased to $28.4 million in
2006 from $16.6 million in 2005 due to higher customer
demand. In addition, $1.0 million of the increase related
to the acquisition of one customer by another customer that
occurred in the first nine months of 2006. Used rental equipment
sales may vary significantly from period to period.
Gross Profit.
Gross profit for 2006 was
$138.4 million, a $39.8 million increase from the
$98.6 million for 2005. Gross profit was 28.9% of sales in
2006, increasing from 23.5% in 2005. Each segment experienced
increased gross profit as a percentage of sales, and those
segments with higher gross profit as a percentage of sales
experienced higher sales growth.
Product gross profit was $91.7 million, or 23.6% of product
sales, in 2006, compared to $75.8 million, or 21.5% of
product sales, in 2005. The $15.9 million increase in
product gross profit was due to the higher product sales, which
contributed $13.8 million of product gross profit,
$4.1 million of lower costs due to outsourcing, and
manufacturing efficiencies of $3.5 million, partially
offset by material cost increases of $5.5 million.
Rental gross profit increased $14.5 million to
$25.9 million, or 41.3% of rental revenue in 2006, from
$11.4 million, or 23.1% of rental revenue, in 2005.
Depreciation on rental equipment in 2006 was $19.2 million,
as compared to $24.5 million in 2005. The difference was
primarily due to a change in the estimated useful lives of
certain rental equipment effective January 1, 2006, which
reduced depreciation expense on rental equipment in 2006 by
approximately $3.0 million. Rental gross profit before
depreciation increased to $45.1 million, or 71.9% of rental
revenue, in 2006 from $35.9 million, or 72.5% of rental
revenue in 2005. The increase in gross profit was due to
increased rental revenue as discussed above.
Gross profit on used rental equipment sales was
$20.7 million, or 72.9% of used rental equipment sales,
compared to $11.4 million, or 68.4% of used rental
equipment sales, in 2005. 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 and remained within
historical ranges.
Operating Expenses.
Selling, general, and
administrative expenses increased to $103.6 million in 2006
from $94.0 million in 2005. The increase was primarily due
to increases in consulting fees of $3.9 million for profit
improvement initiatives, selling costs of $2.3 million,
distribution costs of $1.9 million, discretionary
retirement account costs of $1.1 million, and healthcare
costs of $0.4 million, most of which were due to the higher
revenues and gross profit discussed above. These increases
exceeded the non-recurring severance cost of $1.0 million
related to the termination of a former executive recorded in
2005.
20
Stock compensation expense, a non-cash expense, was
$2.2 million in 2006 and primarily related to the partial
vesting, as a result of our initial public offering, of
restricted stock granted to certain executives in 2006.
Facility closing and severance expenses were approximately
$0.4 million in 2006 and approximately $1.7 million in
2005. During 2006, we initiated a plan to move our manufacturing
and distribution operation from a leased facility in Des
Plaines, Illinois to a newly leased facility in Elk Grove,
Illinois. No expense was incurred during 2006 for this plan.
Amortization of intangibles and impairment of goodwill decreased
$64.0 million to $0.6 million in 2006 from
$64.6 million in 2005. Prior to 2006, our financial
performance had gradually deteriorated over several years due to
a general decline in nonresidential construction activity and
rising costs, such as steel and fuel. We were unable to sustain
positive cash flow and, at that time, our future ability to do
so was uncertain. Accordingly, we recorded a non-cash impairment
charge of $64.0 million in 2005 to reduce the carrying
value of goodwill to its estimated implied fair value.
The gain on disposals of property, plant and equipment was
$1.5 million in 2006, as compared to a loss of
$4.5 million in 2005. The gain in 2006 was due to the
amortization of the gain on the sale/leaseback of the Des
Plaines, IL facility. The loss in 2005 was due to the
sale/leaseback of the Kansas City, KS facility and the closure
of a portion of the facility in Long Beach, CA.
Other Expenses.
Interest expense increased to
$50.0 million in 2006 from $48.1 million in 2005 due
to higher weighted average interest rates and higher average
borrowings on the revolving line of credit.
Loss Before Provision for Income Taxes.
The
loss before income taxes in 2006 was $17.6 million, as
compared to $114.1 million in 2005 due to the factors
described above.
Provision for Income Taxes.
We have recorded a
non-cash valuation allowance to reduce our deferred tax assets,
primarily related to net operating loss carryforwards, to zero,
as estimated levels of future taxable income are less than the
amount needed to realize this asset. If such estimates change in
the future, the valuation allowance will be decreased or
increased appropriately, resulting in a non-cash increase or
decrease to net income. The provision for income taxes is a
result of foreign earnings.
Net Loss.
The net loss for 2006 was
$18.0 million, compared to a loss of $114.7 million in
2005 due to the factors described above.
Liquidity
and Capital Resources
Historically, working capital borrowings under our revolving
credit facility fluctuate with sales volume, such that our peak
revolving credit borrowings are generally in the late second or
early third quarter. Our key measure of liquidity and capital
resources is cash and cash equivalents and the amount available
under our revolving credit facility. As of December 31,
2007, we had $3.4 million of cash and cash equivalents,
with an additional $96.8 million available under our
revolving credit facility.
21
Our capital uses relate primarily to capital expenditures and
debt service. Our capital expenditures consist primarily of
additions to our rental equipment fleet and additions to our
PP&E. PP&E consists primarily of manufacturing and
distribution equipment and management information systems. We
finance these capital expenditures with cash on hand or
borrowings under our revolving credit facility, and with
proceeds of sales of our used rental equipment. The following
table sets forth a summary of these capital events for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental equipment additions
|
|
$
|
25,230
|
|
|
$
|
21,535
|
|
|
$
|
27,842
|
|
Property, plant, and equipment additions
|
|
|
19,943
|
|
|
|
13,237
|
|
|
|
6,687
|
|
Proceeds from sales of used rental equipment
|
|
|
(23,715
|
)
|
|
|
(23,532
|
)
|
|
|
(27,990
|
)
|
Proceeds from sales of property, plant, and equipment
|
|
|
(38
|
)
|
|
|
(21
|
)
|
|
|
(1,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net capital expenditures
|
|
$
|
21,420
|
|
|
$
|
11,219
|
|
|
$
|
4,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We believe we can manage the capital requirements of our rental
fleet, and thus our cash flow, through the careful monitoring of
our rental fleet additions. Sales of used equipment can be
adjusted to increase cash available for fleet additions or other
corporate purposes.
Our cash requirements relate primarily to capital expenditures,
debt service, and the cost of acquisitions. Historically, our
primary sources of financing have been cash generated from
operations, borrowings under our revolving credit facility and
the issuance of long-term debt and equity. In December 2006, we
completed an initial public offering of our common stock and
received $87.8 million in proceeds, net of issuance costs.
Net cash used in operating activities for 2007 was
$1.2 million compared to net cash provided by operating
activities for 2006 of $3.8 million, comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in millions)
|
|
|
Net loss
|
|
$
|
(6.7
|
)
|
|
$
|
(18.0
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities
|
|
|
14.6
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
7.9
|
|
|
|
(7.2
|
)
|
Changes in assets and liabilities
|
|
|
(9.1
|
)
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(1.2
|
)
|
|
$
|
3.8
|
|
|
|
|
|
|
|
|
|
|
The subtotal of net loss and adjustments to reconcile net loss
to net cash provided by (used in) operating activities for 2007
was $7.9 million compared to ($7.2) million in 2006.
The improvement was primarily due to the reduced net loss
discussed above. Changes in assets and liabilities resulted in a
$9.1 million use of cash in 2007, as compared to a
$11.0 million source of cash in 2006. The change in
accounts receivable was a $3.5 million source of cash in
2007, compared to a $4.5 million use of cash in 2006. This
was due to the flat sales in the fourth quarter of 2007 as
compared to 2006, whereas the sales in the fourth quarter of
2006 increased $14.7 million from the fourth quarter of
2005. The increase in inventories was $8.1 million use of
cash in 2007 compared to $1.0 million in 2006, due to
inflation and the buildup of inventory related to the move to
our Elk Grove, Illinois facility. Accounts payable were a
$0.1 million use of cash in 2007 as compared to
$9.6 million source of cash in 2006, due to the timing of
purchases and payments. Accrued and other long-term liabilities
were a $4.1 million use of cash in 2007 as compared to
$7.3 million source of cash in 2006, due to lower accrued
compensation and higher defined benefit plan contributions.
Net cash used in investing activities was $21.4 million in
2007 compared to $11.2 million in 2006. Net PP&E
additions increased to $19.9 million in 2007 from
$13.2 million in 2006 due to the move to the Elk Grove,
Illinois facility, and increased investments in manufacturing
and distribution equipment and facilities and information
22
systems. Net additions to rental equipment were a
$1.5 million use of cash in 2007 as compared to a
$2.0 million source of cash in 2006 due to the higher
additions of rental equipment.
For the year ended December 31, 2007, our gross long-term
debt borrowings, which represent the sum of individual days with
borrowings on the revolving credit facility, were
$106.4 million. This was offset by repayments on the
revolving credit facility of $106.4 million and
$2.3 million of repayments of other long-term debt.
As of December 31, 2007, we had a $130.0 million
senior secured revolving credit facility, which had no financial
maintenance covenants and was scheduled to matures on
July 31, 2008. Availability of borrowings was limited to
85% of eligible accounts receivable and 60% of eligible
inventories and rental equipment, less $15.0 million. Under
the calculation, $107.1 million of the $130.0 million
was available as of December 31, 2007. Letters of credit of
$10.3 million were outstanding at December 31, 2007,
resulting in available borrowings of $96.8 million under
the revolving credit facility. The credit facility was secured
by substantially all of our assets.
On March 3, 2008, we entered into a new $150.0 million
revolving credit facility, which replaced the
$130.0 million senior secured revolving credit facility
discussed above. The facility is subject to availability under a
borrowing base calculation. Availability of borrowings is
limited to 85% of eligible accounts receivable and 60% of
eligible inventories and rental equipment, less
$15.0 million. The credit facility expires in March 2009,
but is automatically extended to March 2014 if the Senior
Subordinated Notes are paid off prior to the initial maturity of
the new revolving credit facility. The credit facility is
secured by substantially all assets of the Company. Deferred
financing costs of $0.3 million will be expensed as loss on
extinguishment of long-term debt in the first quarter of 2008.
As of December 31, 2007, our other long-term debt consisted
of the following:
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Senior Second Secured Notes, interest rate of 10.75%
|
|
$
|
165,000
|
|
Debt discount on Senior Second Secured Notes
|
|
|
(1,393
|
)
|
Senior Subordinated Notes, interest rate of 13.0%
|
|
|
154,729
|
|
Debt discount on Senior Subordinated Notes
|
|
|
(3,045
|
)
|
Senior notes payable related to 2003 acquisition, non-interest
bearing, accreted at 6.0% to 14.5%
|
|
|
6,907
|
|
Debentures previously held by Dayton Superior Capital Trust,
interest rate of 9.1%, due on demand
|
|
|
1,035
|
|
Capital lease obligations
|
|
|
1,364
|
|
|
|
|
|
|
Total long-term debt
|
|
|
324,597
|
|
Less current maturities
|
|
|
(8,990
|
)
|
|
|
|
|
|
Long-term portion
|
|
$
|
315,607
|
|
|
|
|
|
|
On March 3, 2008, we redeemed the Senior Second Secured
Notes, including accrued interest through April 2, 2008.
The Senior Notes were redeemed at a premium of 2.813% of face
value, or $4.6 million, which, along with the write-off of
the remaining debt discount and deferred financing costs of
$1.3 million, will be expensed as a loss on extinguishment
of long-term debt in the first quarter of 2008. In addition to
borrowings under the new revolving credit facility, the Senior
Second Secured Notes, and related prepayment premium and accrued
interest, were repaid with the proceeds of a new
$100 million term loan issued on March 3, 2008. The
new term loan was issued with net proceeds of
$94.25 million, which will be accreted to the face value
using the effective interest method and reflected as interest
expense. The loan initially matures in March 2009, but is
automatically extended to March 2014 if the Senior Subordinated
Notes are paid off prior to the initial maturity of the new term
loan. The loan is subject to financial covenants for debt to
adjusted EBITDA, as defined in the agreement, and interest
coverage. The loan has a second security interest in
substantially all assets of the Company.
At December 31, 2007, working capital was
$62.0 million, compared to $81.4 million at
December 31, 2006. The $19.4 million decrease was
comprised primarily of the following:
|
|
|
|
|
a $23.4 million decrease in cash and cash equivalents from
our 2007 investing activities,
|
23
|
|
|
|
|
a $3.0 million decrease in accounts receivable due to
improved collections, and
|
|
|
|
$1.3 million of other changes, offset by:
|
|
|
|
an $8.3 million increase in inventories due to material
cost inflation and higher finished goods levels related to the
move to the new Elk Grove, Illinois facility.
|
We believe our liquidity, capital resources, and cash flows from
operations are sufficient to fund the capital expenditures and
rental fleet additions we have planned as well as our debt
service requirements for at least the next 12 months.
However, our ability to make scheduled payments of principal, or
to pay the interest on, or to refinance, our indebtedness, or to
fund planned capital expenditures and rental fleet additions
will depend on our future performance, which, to a certain
extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our
control. We cannot assure you that our business will generate
sufficient cash flow from operations or that operating
improvements will be realized on schedule or that future
borrowings will be available to us under our revolving credit
facility in an amount sufficient to enable us to pay our
indebtedness or to fund our other liquidity needs. We may from
time to time seek to retire our outstanding debt through cash
purchases
and/or
exchanges for equity securities, in open market purchases, in
privately negotiated transactions, or otherwise. Any such
repurchases or exchanges will depend on prevailing market
conditions, our liquidity requirements, contractual
restrictions, and other factors. The amounts involved may be
material. We may need to refinance all or a portion of our
indebtedness on or before maturity. We cannot assure you that we
will be able to refinance any of our indebtedness, including our
senior subordinated notes, on commercially reasonable terms or
at all.
Although we regularly consider acquisition opportunities as a
means of expanding our product offerings and geographic reach,
our current capital structure restricts our ability to pursue
acquisitions financed with additional borrowings. Nevertheless,
we may consider debt-financed acquisitions where the agreements
governing our outstanding debt permit them, or acquisitions
financed with our common stock. Any such acquisition may have a
material impact on our business and results of operations in
future periods. Any such acquisition financed through the
issuance of additional equity securities could result in
dilution to our current stockholders.
Commitments
Scheduled payments of long-term debt, interest, future minimum
lease payments under capital leases, future minimum lease
payments under non-cancelable operating leases, unrecognized tax
benefits, and other long-term liabilities at December 31,
2007, after giving effect to the refinancing of the Senior
Second Secured Notes discussed above, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
|
|
|
Other
|
|
|
|
|
|
|
Long-term
|
|
|
Interest
|
|
|
Capital
|
|
|
Operating
|
|
|
Tax
|
|
|
Long-Term
|
|
|
|
|
Year
|
|
Debt
|
|
|
Payments
|
|
|
Leases
|
|
|
Leases
|
|
|
Benefits
|
|
|
Liabilities
|
|
|
Total
|
|
|
|
($ in thousands)
|
|
|
2008
|
|
$
|
7,942
|
|
|
$
|
39,578
|
|
|
$
|
1,112
|
|
|
$
|
9,520
|
|
|
$
|
|
|
|
$
|
50
|
|
|
$
|
58,202
|
|
2009
|
|
|
329,739
|
|
|
|
13,464
|
|
|
|
294
|
|
|
|
7,695
|
|
|
|
|
|
|
|
|
|
|
|
351,192
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
7,145
|
|
|
|
|
|
|
|
|
|
|
|
7,196
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,717
|
|
|
|
|
|
|
|
|
|
|
|
6,717
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,902
|
|
|
|
|
|
|
|
|
|
|
|
5,902
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,566
|
|
|
|
987
|
|
|
|
|
|
|
|
33,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
337,681
|
|
|
$
|
53,042
|
|
|
$
|
1,457
|
|
|
$
|
69,545
|
|
|
$
|
987
|
|
|
$
|
50
|
|
|
$
|
462,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seasonality
Our operations are seasonal in nature, with approximately 55% of
our sales historically occurring in the second and third
quarters. Working capital and borrowings under the revolving
credit facility fluctuate with sales volume, such that our peak
revolving credit facility borrowings are generally in the late
second quarter or early in the third quarter.
24
Inflation
We may not be able to pass on the cost of commodity price
increases to our customers. Steel, in its various forms, is our
principal raw material, constituting approximately 22.5% of our
product cost of sales in 2007. We expect our overall steel costs
to increase, possibly significantly, in 2008. Additionally, the
overall increase in energy costs, including natural gas and
petroleum products, has adversely impacted our overall operating
costs in the form of higher raw material, utilities, and freight
costs. We cannot assure you we will be able to pass these cost
increases on to our customers.
Stock
Collateral Valuation Senior Second Secured
Notes
Rule 3-16
of the SECs
Regulation S-X
requires the presentation of a subsidiarys stand-alone,
audited financial statements if the subsidiarys capital
stock secures an issuers notes and the par value, book
value or market value (Applicable Value) of the
stock equals or exceeds 20% of the aggregate principal amount of
the secured class of securities (Collateral
Threshold). The indenture that governed our Senior Second
Secured Notes, which were redeemed on March 3, 2008, and
the security documents for the notes provided that the
collateral would never include the capital stock of any
subsidiary to the extent the Applicable Value of the stock was
equal to or greater than the Collateral Threshold. As a result,
we will not be required to present separate financial statements
of our subsidiary under
Rule 3-16.
In addition, in the event that
Rule 3-16
or
Rule 3-10
of
Regulation S-X
is amended, modified or interpreted by the SEC to require (or is
replaced with another rule or regulation, or any other law, rule
or regulation is adopted which would require) the filing with
the SEC (or any other governmental agency) of separate financial
statements of subsidiary due to the fact that such
subsidiarys capital stock or other securities secured our
Senior Second Secured Notes, then the capital stock or other
securities of such subsidiary automatically would have been
deemed not to be part of the collateral for the notes but only
to the extent necessary to not be subject to such requirement.
In such event, the security documents for the Senior Second
Secured Notes could have been amended or modified, without the
consent of any holder of notes, to the extent necessary to
release the liens of the Senior Second Secured Notes on the
shares of capital stock or other securities that were so deemed
to no longer constitute part of the collateral; however, the
excluded collateral would have continued to secure our first
priority lien obligations such as our senior secured revolving
credit facility. As a result of the provisions in the indenture
and security documents relating to subsidiary capital stock,
holders of our Senior Second Secured Notes could have lost all
or a portion of their security interest in the capital stock of
any of our other subsidiaries if the Applicable Value of that
stock were to become equal to or greater than the Collateral
Threshold. As of December 31, 2007, 65% of the voting
capital stock and 100% of the non-voting capital stock of our
subsidiary Dayton Superior Canada Ltd. constituted collateral
for the notes. We have based our determination of whether 65% of
the voting capital stock and 100% of the non-voting capital
stock of our subsidiary Dayton Superior Canada Ltd. constituted
collateral upon the book value, par value and estimated market
value of the capital as of December 31, 2007. The
Applicable Value for the capital stock was the greater of the
book value and estimated market value, as the value of the
subsidiarys capital stock was nominal and therefore did
not impact our calculation of Applicable Value.
The Applicable Value of Dayton Superior Canada Ltd. as of
December 31, 2007 was $7.5 million. Based upon the
foregoing, as of December 31, 2007, the Applicable Value of
the capital stock of Dayton Superior Canada Ltd. did not exceed
the Collateral Threshold. The Applicable Value of the common
stock of Dayton Superior Canada Ltd was based upon the estimated
market value. We have calculated the estimated market value of
our Dayton Superior Canada Ltd. capital stock by determining the
adjusted EBITDA (which is income from operations adjusted for
depreciation, amortization of intangibles and impairment of
goodwill; gain (loss) from disposals of property, plant, and
equipment; facility closing and severance expenses; and stock
compensation expense) for the year ended December 31, 2007,
and multiplied this adjusted EBITDA by 5.5 times. We determined
this multiple by multiplying our closing share price as of
December 31, 2007 by the number of the common shares and
equivalents outstanding, adding our long-term debt, and dividing
by our adjusted EBITDA.
25
Set forth below is the adjusted EBITDA of Dayton Superior Canada
Ltd. for the year ended December 31, 2007, together with a
reconciliation to net income:
|
|
|
|
|
|
|
Dayton Superior Canada Ltd.
|
|
|
|
($ in thousands)
|
|
|
Net income
|
|
$
|
563
|
|
Benefit for income taxes
|
|
|
(77
|
)
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
486
|
|
Interest income
|
|
|
(55
|
)
|
|
|
|
|
|
Income from operations
|
|
|
431
|
|
Depreciation expense
|
|
|
930
|
|
|
|
|
|
|
Adjusted valuation EBITDA
|
|
|
1,361
|
|
Multiple
|
|
|
5.5
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
7,486
|
|
|
|
|
|
|
As described above, we have used adjusted EBITDA of Dayton
Superior Canada Ltd. solely for purposes of determining the
estimated market value of the capital stock to determine whether
that capital stock was included in the collateral. Adjusted
EBITDA is not recognized financial measures under generally
accepted accounting principles and do not purport to be
alternatives to operating income as indicators of operating
performance or to cash flows from operating activities as
measures of liquidity. Additionally, adjusted EBITDA has
limitations as an analytical tool, and you should not consider
it in isolation or as a substitute for analysis of our
consolidated results as reported under generally accepted
accounting principles. Because not all companies use identical
calculations, the presentation of adjusted EBITDA also may not
be comparable to other similarly titled measures of other
companies. You are encouraged to evaluate the adjustments taken
and the reasons we consider them appropriate for analysis for
determining estimated market value of our subsidiaries
capital stock.
A change in the Applicable Value of the capital stock of Dayton
Superior Canada Ltd. could have resulted in capital stock
previously excluded from collateral becoming part of the
collateral or capital stock that was previously included in
collateral to become excluded. The Applicable Value of Dayton
Superior Canada Ltd. as of December 31, 2007 and the
adjusted EBITDA for the year ended December 31, 2007 would
have had to increase by $25.5 million and
$4.6 million, respectively, in order for Dayton Superior
Canada Ltd. capital stock to no longer constitute collateral.
Forward-Looking
Statements
This
Form 10-K
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 our management and us are based on
estimates, projections, beliefs and assumptions of management
and are not guarantees of future 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 as
a 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 the general economy, governmental
expenditures, interest rate increases, and changes in banking
and tax laws; the amount of debt we must service; the effects of
weather and the seasonality of the construction industry; our
ability to implement cost savings programs successfully and on a
timely basis; our ability to successfully integrate acquisitions
on a timely basis; the mix of product sales, rental
26
revenues, and sales of used rental equipment; cost increases in
raw materials and operating costs; and favorable market response
to sales price increases. This list of factors is not intended
to be exhaustive, and additional information concerning relevant
risk factors can be found under the heading Risk Factors above
and in future Quarterly Reports on
Form 10-Q,
and current Reports on
Form 8-K
we file with the Securities and Exchange Commission.
Critical
Accounting Policies
In preparing our consolidated financial statements, we follow
accounting principles generally accepted in the United States.
These principles require us to make certain estimates and apply
judgments that affect our financial position and results of
operations. We continually review our accounting policies and
financial information disclosures. On an ongoing basis, we
evaluate our estimates, including those related to allowance for
doubtful accounts, inventories, long-lived assets, income taxes,
self-insurance reserves, environmental contingencies,
litigation, and the fair value of the Company and its business
segments. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under
the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. We believe
the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of
our consolidated financial statements.
Inventories
We value our inventories at the lower of
first-in,
first-out, or FIFO, cost or market and include all costs
associated with manufacturing products: materials, inbound
freight, labor and manufacturing overhead. We provide net
realizable value reserves that reflect our best estimate of the
excess of the cost of potential obsolete and slow moving
inventory over the expected net realizable value. Excluding
newly introduced products, we reserve 100% of inventory items
that have had no sales or usage in the trailing twelve-month
period. We additionally reserve for items that have a quantity
on hand in excess of the trailing twelve months sales and
usage, ranging from 25% to 100% of the excess, depending on the
number of years supply on hand. Based on this calculation,
our reserve was approximately $3.7 million as of
December 31, 2007. If the range were decreased by 10%, the
reserve at December 31, 2007 would be reduced by $220,000.
If the range were increased by 10%, the reserve at
December 31, 2007 would be increased by $110,000.
Rental
Equipment
We manufacture and purchase rental equipment for resale and for
rent to others on a short-term basis. We record rental equipment
at the lower of FIFO cost or market and depreciate it over the
estimated useful life of the equipment, three to fifteen years,
on a straight-line method. Rental equipment that is sold is
charged to cost of sales on a FIFO basis.
Goodwill
and Intangible Assets
As with tangible and other intangible assets, periodic
impairment reviews of goodwill are required, at least annually,
as well as when events or circumstances change. As with the
Companys review of impairment of tangible and intangible
assets, the Company uses judgment in assessing goodwill for
impairment. The Company reviews the recorded value of its
goodwill annually on a reporting unit by reporting unit basis in
the fourth quarter using data as of the third quarter, or sooner
if events or changes in circumstances indicate that the carrying
amount may exceed fair value. The review for impairment requires
the Company to estimate the fair value of its long-lived assets
and considerable judgment must be exercised in determining these
values.
When exercising judgment, the Company carefully considers all of
the relevant facts and circumstances available to it at the
time. The critical factors affecting this analysis include:
|
|
|
|
|
the amount of adjusted EBITDA (which is income (loss) from
operations adjusted for depreciation, amortization of
intangibles and impairment of goodwill; loss on early
extinguishment of long-term debt; gain (loss) from disposals of
property, plant, and equipment; facility closing and severance
expenses; and stock compensation expense) generated by each of
the Companys business segments;
|
27
|
|
|
|
|
the Companys ability to meet operating results compared to
budget;
|
|
|
|
the level of expected activity in the nonresidential
construction industry; and
|
|
|
|
the Companys future prospects.
|
Taking all of these factors into account, the Company determined
the fair value of its business segments as of December 31,
2006 and 2007 by deriving enterprise value indications of its
business segments using a range of adjusted EBITDA multiples
from market transactions and market comparables in our industry,
as well as a discounted cash flow analysis.
Because impairment tests are based in part on managements
judgment as to the fair value of the Companys reporting
units relative to their carrying value which is
necessarily subjective managements discretion
impacts any decision to record an impairment charge and
therefore affects the Companys reported results of
operation.
Prior to 2006, the Companys financial performance had
gradually deteriorated over several years due to a general
decline in nonresidential construction activity and rising
costs, such as steel and fuel. The Company had been unable to
consistently sustain positive cash flow and, at that time, its
future ability to do so was uncertain. Accordingly, for the year
ended December 31, 2005, the Company recorded an impairment
charge of $64 million to reduce the carrying value of
goodwill to its implied fair value. The goodwill impairment has
been included in the caption amortization of intangibles
and impairment of goodwill in the consolidated statement
of operations. There was no impairment to goodwill in the years
ended December 31, 2006 and 2007 or to the amortizing
intangible assets in any year.
Income
Taxes
Deferred tax assets and liabilities are recorded for temporary
differences between financial statement carrying amounts and the
tax basis of assets and liabilities. Deferred tax assets and
liabilities reflect the enacted tax rates in effect for the
years the differences are expected to reverse. The Company
evaluates the need for a deferred tax asset valuation allowance
by assessing whether it is more likely than not that it will
realize deferred tax assets in the future and it records
liabilities for uncertain tax matters based on assessment of the
likelihood of sustaining certain tax positions. In estimating
whether deferred tax assets are realizable, it estimates levels
of future taxable income by considering historical results of
operations in recent years and would, if necessary, consider the
implementation of prudent and feasible tax planning strategies
to generate taxable income.
Insurance
Reserves
We are self-insured for certain of our group medical,
workers compensation and product and general liability
claims. We have stop loss insurance coverage at various per
occurrence and per annum levels depending on type of claim.
Actual claims experience can impact these calculations and, to
the extent that subsequent claim costs vary from estimates,
future earnings could be impacted and the impact could be
material.
Our group medical reserve is undiscounted and based on the
dollar-weighted average historical lag between the date the
service was incurred and the date the claim is paid, which was
approximately 75 days at December 31, 2007. A
5-day
increase or decrease in the lag would increase or decrease the
reserve by approximately $40,000.
Our workers compensation reserve is undiscounted and
estimated based on industry development factors of incurred and
paid losses. A one-percentage point increase or decrease in the
development factor would increase or decrease the reserve by
$100,000 at December 31, 2007.
The product and general liability reserve is undiscounted and is
the sum of the loss estimate of known claims and the estimate of
incurred but not reported (IBNR) claims. IBNR claims are
estimated based on the historical annual number of claims times
the historical cost per claim. A 10% increase or decrease in the
average cost would increase or decrease the December 31,
2007 reserve by $60,000.
28
Pension
Liabilities
Pension and other retirement benefits, including all relevant
assumptions required by accounting principles generally accepted
in the United States of America, are evaluated each year. Since
there are many assumptions used to estimate future retirement
benefits, differences between actual future events and prior
estimates and assumptions could result in adjustments to pension
expense and obligations. Certain actuarial assumptions, such as
the discount rate and expected long-term rate of return, have a
significant effect on the amounts reported for net periodic
pension cost and the related benefit obligations.
A one percentage point change in the discount rate would have
the following effects:
|
|
|
|
|
|
|
|
|
|
|
One Percentage Point
|
|
|
One Percentage Point
|
|
|
|
Increase
|
|
|
Decrease
|
|
|
|
($ in thousands)
|
|
|
Effect on 2007 net periodic pension cost
|
|
$
|
(144
|
)
|
|
$
|
238
|
|
Effect on December 31, 2007 pension benefit obligation
|
|
|
(1,972
|
)
|
|
|
2,478
|
|
Effect on 2007 postretirement cost
|
|
|
(1
|
)
|
|
|
1
|
|
Effect on December 31, 2007 postretirement benefit
obligation
|
|
|
(14
|
)
|
|
|
12
|
|
In accordance with the guidelines of the most recent actuarial
valuation of the pension plan, the Companys expected
return on plan assets is 8.0%, which represents a weighted
average of 11% for equity securities, 5.5% for debt securities,
and 4% for cash and cash equivalents and insurance contract
applied to the Plans target asset allocation. A one
percentage point change in the expected return on plan assets
would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
One Percentage Point
|
|
One Percentage Point
|
|
|
Increase
|
|
Decrease
|
|
|
($ in thousands)
|
|
Effect on 2007 net periodic pension cost
|
|
$
|
(122
|
)
|
|
$
|
122
|
|
Revenue
Recognition
Revenue is recognized from product sales when the product is
shipped from our facilities and risk of loss and title have
passed to the customer. Additionally, revenue is recognized at
the customers written request and when the customer has
made a fixed commitment to purchase goods on a fixed schedule
consistent with the customers business, where risk of
ownership has passed to the buyer, the goods are physically
segregated and we do not retain any specific performance
obligations. For customer-requested bill and hold transactions
in which a performance obligation exists on our part prior to
the delivery date, we do not recognize revenue until the total
performance obligation has been met and all of the above
criteria related to bill and hold transactions have been met. In
instances where the customer provides payment for these services
prior to the delivery date, the revenue is deferred until all
performance obligations have been met. Sales under bill and hold
arrangements were $3.1 million, $3.7 million, and
$1.0 million for the years ended December 31, 2007,
2006, and 2005, respectively. On rental equipment sales, revenue
is recognized and recorded on the date of shipment. Rental
revenues are recognized ratably over the terms of the rental
agreements. Sales orders with multiple deliverables are
allocated among the components based on the fair values of the
individual components.
Recently
Issued Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
, which
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. We complied with the
provisions of Interpretation No. 48 as of January 1,
2007 with the impacts described in Note 6 to the
consolidated financial statements.
In September 2006, the FASB issued Statement of Financial
Accounting Standard (SFAS) No. 157,
Fair
Value Measurements
. This Statement clarifies the definition
of fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. We will
be required to comply with Statement
29
No. 157 as of the first annual period that begins after
November 15, 2007. Statement No. 157 is not expected
to have an impact on our consolidated financial statements,
however, adoption will result in additional information being
included in the footnotes accompanying our consolidated
financial statements. Two FASB Staff Positions (FSP)
on SFAS No. 157 were subsequently issued. In February
2008, FSP
No. 157-1
excluded FASB No. 13
Accounting for Leases
and other
accounting pronouncements that address fair value measurements
for purposes of lease classification or measurement under FASB
No. 13. However, this scope exception does not apply to
assets acquired and liabilities assumed in a business
combination that are required to be measured at fair value under
FASB Statement No. 141,
Business Combinations
or
FASB No. 141R,
Business Combinations.
This FSP is
effective upon initial adoption of SFAS no. 157. In
February 2008, FSP
No. 157-2
delayed the effective date of this SFAS No. 157 for
non-financial assets and non-financial liabilities that are
recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. This FSP is effective for
fiscal years beginning after November 15, 2008.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115
. This Statement provides entities with an
option to report selected financial assets and liabilities at
fair value and establishes presentation and disclosure
requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types
of assets and liabilities. We will be required to comply with
Statement No. 159 as of the first annual period that begins
after November 15, 2007. Statement No. 159 is not
expected to have an impact on the Companys consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 141
(Revised 2007),
Business Combinations
. This statement
changes the accounting for business combinations, including the
measurement of acquirer shares issued in consideration for a
business combination, the recognition of contingent
consideration, the accounting for preacquisition gain and loss
contingencies, the recognition of capitalized in-process
research and development, the accounting for acquisition-related
restructuring cost accruals, the treatment of acquisition
related transaction costs and the recognition of changes in the
acquirers income tax valuation allowance. This statement
applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2008, except for certain tax adjustments for prior business
combinations. We will adopt this statement on January 1,
2009. We are currently evaluating the effect, if any, that the
adoption of SFAS No. 141R will have on our
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). SFAS 160 changes the accounting for
noncontrolling (minority) interests in consolidated financial
statements including the requirements to classify noncontrolling
interests as a component of consolidated stockholders
equity, and the elimination of minority interest
accounting in results of operations with earnings attributable
to noncontrolling interests reported as part of consolidated
earnings. Additionally, SFAS 160 revises the accounting for both
increases and decrease in a parentss controlling ownership
interest. SFAS 160 is effective for fiscal years beginning after
December 15, 2008, with early adoption prohibited. We do
not expect the adoption of SFAS 160 to have a material impact
on our consolidated financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
As of December 31, 2007, the only financial instrument we
had that was sensitive to changes in interest rates was our
$130.0 million revolving credit facility. No balance was
outstanding on the facility as of December 31, 2007. The
facility had several interest rate options, which re-priced on a
short-term basis.
During the year ended December 31, 2007, our weighted
average interest rate on the facility was 13.5%. A one
percentage point increase or decrease in our weighted average
interest rate on the facility would have increased or decreased
our annual interest expense by approximately $0.1 million.
On March 3, 2008 we entered into a new $150.0 million revolving
credit facility, which replaced the $130.0 million senior
secured revolving credit facility discussed above. This facility
is sensitive to changes in interest rates and has several
interest rate options, which re-price on a short-term basis.
30
We issued a new $100 million term loan on March 3, 2008. The
loan is sensitive to changes in interest rates in that it bears
interest at a fixed rate above LIBOR, with a LIBOR floor of
3.25%. The loan also requires that we obtain an interest rate
swap for at least $50 million of the loan beginning 120 days
from the issuance of the loan.
In the ordinary course of our business, we also are exposed to
price changes in raw materials (particularly steel rod and steel
bar), freight due to fuel costs, 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 do
not use financial instruments to manage our exposure to changes
in commodity prices.
31
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dayton Superior Corporation Dayton, OH
We have audited the accompanying consolidated balance sheets of
Dayton Superior Corporation (a Delaware corporation) and
subsidiary (the Company) as of December 31,
2007 and 2006, and the related consolidated statements of
operations, stockholders deficit, cash flows, and
comprehensive loss for each of the three years in the period
ended December 31, 2007. Our audits also included the
financial statement schedule listed in the Index at
Item 15(a)(2). These consolidated financial statements and
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Dayton Superior Corporation and its subsidiary as of
December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 2, effective January 1, 2007, the
Company adopted Financial Accounting Standards Board
Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes an Interpretation of Financial
Accounting Standards Board Statement No. 109.
Also, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123 (Revised 2004)
,
Share-Based Payment
, on January 1, 2006 and
Statement of Financial Accounting Standards No. 158
,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Benefit Plans an amendment of
FASB Statements No. 87, 88, 106, and 132(R)
, on
December 31, 2006.
As discussed in Note 13, the accompanying consolidated
financial statements and financial statement schedule for the
years ended December 31, 2006 and 2005 have been restated.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2007, based on the criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 14, 2008 expressed an
adverse opinion on the Companys internal control over
financial reporting.
DELOITTE & TOUCHE LLP
Dayton, OH
March 14, 2008
32
Dayton
Superior Corporation and Subsidiary
Consolidated Balance Sheets
As of
December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 (As
|
|
|
|
|
|
|
Restated
|
|
|
|
2007
|
|
|
See Note 13)
|
|
|
|
($ in thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,381
|
|
|
$
|
26,813
|
|
Accounts receivable, net of reserves for doubtful accounts and
sales returns and allowances of $4,447 and $5,430
|
|
|
68,593
|
|
|
|
71,548
|
|
Inventories
|
|
|
66,740
|
|
|
|
58,396
|
|
Prepaid expenses and other current assets
|
|
|
5,718
|
|
|
|
5,910
|
|
Prepaid income taxes
|
|
|
740
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
145,172
|
|
|
|
162,987
|
|
|
|
|
|
|
|
|
|
|
Rental equipment, net of accumulated depreciation of $67,276 and
$63,469
|
|
|
67,640
|
|
|
|
63,766
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
|
2,020
|
|
|
|
1,857
|
|
Building and improvements
|
|
|
18,391
|
|
|
|
16,330
|
|
Machinery and equipment
|
|
|
94,943
|
|
|
|
85,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,354
|
|
|
|
103,629
|
|
Less accumulated depreciation
|
|
|
(58,542
|
)
|
|
|
(57,932
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
56,812
|
|
|
|
45,697
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
43,643
|
|
|
|
43,643
|
|
Other assets
|
|
|
3,986
|
|
|
|
5,545
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
317,253
|
|
|
$
|
321,638
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
8,990
|
|
|
$
|
2,551
|
|
Accounts payable
|
|
|
39,204
|
|
|
|
40,883
|
|
Accrued compensation and benefits
|
|
|
15,456
|
|
|
|
18,001
|
|
Accrued interest
|
|
|
6,193
|
|
|
|
6,234
|
|
Accrued freight
|
|
|
4,065
|
|
|
|
4,849
|
|
Other accrued liabilities
|
|
|
9,219
|
|
|
|
9,111
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
83,127
|
|
|
|
81,629
|
|
Other long-term debt, net of current portion
|
|
|
315,607
|
|
|
|
319,899
|
|
Other long-term liabilities
|
|
|
8,162
|
|
|
|
10,332
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
406,896
|
|
|
|
411,860
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders deficit Common stock; $0.01 par value;
100,000,000 shares authorized; 19,066,212 (502,984
unvested) and 18,773,283 shares (754,475 unvested)
outstanding
|
|
|
191
|
|
|
|
188
|
|
Additional paid-in capital
|
|
|
207,181
|
|
|
|
201,602
|
|
Loans to stockholders
|
|
|
(1,085
|
)
|
|
|
(2,268
|
)
|
Accumulated other comprehensive loss
|
|
|
(618
|
)
|
|
|
(1,124
|
)
|
Accumulated deficit
|
|
|
(295,312
|
)
|
|
|
(288,620
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(89,643
|
)
|
|
|
(90,222
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
317,253
|
|
|
$
|
321,638
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
33
Dayton
Superior Corporation and Subsidiary
Consolidated Statements of Operations
Years
Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ and shares in thousands,
|
|
|
|
except per share amounts)
|
|
|
Product sales
|
|
$
|
398,404
|
|
|
$
|
388,100
|
|
|
$
|
352,888
|
|
Rental revenue
|
|
|
59,671
|
|
|
|
62,769
|
|
|
|
49,485
|
|
Used rental equipment sales
|
|
|
24,883
|
|
|
|
28,441
|
|
|
|
16,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
482,958
|
|
|
|
479,310
|
|
|
|
418,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product cost of sales
|
|
|
292,946
|
|
|
|
296,351
|
|
|
|
277,107
|
|
Rental cost of sales
|
|
|
33,295
|
|
|
|
36,845
|
|
|
|
38,038
|
|
Used rental equipment cost of sales
|
|
|
4,951
|
|
|
|
7,706
|
|
|
|
5,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
331,192
|
|
|
|
340,902
|
|
|
|
320,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross profit
|
|
|
105,458
|
|
|
|
91,749
|
|
|
|
75,781
|
|
Rental gross profit
|
|
|
26,376
|
|
|
|
25,924
|
|
|
|
11,447
|
|
Used rental equipment gross profit
|
|
|
19,932
|
|
|
|
20,735
|
|
|
|
11,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
151,766
|
|
|
|
138,408
|
|
|
|
98,584
|
|
Selling, general and administrative expenses
|
|
|
106,882
|
|
|
|
106,453
|
|
|
|
94,526
|
|
Facility closing and severance expenses
|
|
|
1,753
|
|
|
|
423
|
|
|
|
1,712
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
64,000
|
|
Loss (gain) on disposals of property, plant and equipment
|
|
|
560
|
|
|
|
(1,504
|
)
|
|
|
4,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
42,571
|
|
|
|
33,036
|
|
|
|
(66,183
|
)
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
47,019
|
|
|
|
49,983
|
|
|
|
48,133
|
|
Interest income
|
|
|
(493
|
)
|
|
|
113
|
|
|
|
(163
|
)
|
Other (income) expense
|
|
|
2,300
|
|
|
|
555
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(6,255
|
)
|
|
|
(17,615
|
)
|
|
|
(114,064
|
)
|
Provision for income taxes
|
|
|
437
|
|
|
|
394
|
|
|
|
639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,692
|
)
|
|
$
|
(18,009
|
)
|
|
$
|
(114,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per common share
|
|
$
|
(0.37
|
)
|
|
$
|
(1.76
|
)
|
|
$
|
(11.57
|
)
|
Weighted average number of common shares outstanding
|
|
|
18,284
|
|
|
|
10,225
|
|
|
|
9,916
|
|
Diluted net loss per common share
|
|
$
|
(0.37
|
)
|
|
$
|
(1.76
|
)
|
|
$
|
(11.57
|
)
|
Weighted average number of common shares and equivalents
outstanding
|
|
|
18,284
|
|
|
|
10,225
|
|
|
|
9,916
|
|
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
34
Dayton
Superior Corporation and Subsidiary
Consolidated Statements of Stockholders Deficit
Years
Ended December 31, 2007, 2006, and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
Post-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Retirement
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Paid-in
|
|
|
Loans to
|
|
|
Treasury stock
|
|
|
Currency
|
|
|
Benefits
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stockholders
|
|
|
Shares
|
|
|
Amount
|
|
|
Translation
|
|
|
liability
|
|
|
Deficit
|
|
|
Total
|
|
|
|
($ in thousands)
|
|
|
Balance at January 1, 2005 (As Restated-See Note 13)
|
|
|
9,488,472
|
|
|
$
|
110,557
|
|
|
|
|
|
|
$
|
(331
|
)
|
|
|
79,641
|
|
|
$
|
(1,184
|
)
|
|
$
|
309
|
|
|
$
|
(1,519
|
)
|
|
$
|
(155,908
|
)
|
|
$
|
(48,076
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114,703
|
)
|
|
|
(114,703
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
Change in minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(874
|
)
|
|
|
|
|
|
|
(874
|
)
|
Excess of redemption value of common stock subject to put over
exercise price of stock options
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Expiration of put options
|
|
|
2,167
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Redemption of common stock
|
|
|
31,526
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
31,526
|
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
Change in redemption value of common stock subject to put
|
|
|
|
|
|
|
4,275
|
|
|
|
|
|
|
|
(1,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005 (As Restated-See Note 13)
|
|
|
9,522,165
|
|
|
|
115,248
|
|
|
|
|
|
|
|
(1,643
|
)
|
|
|
111,167
|
|
|
|
(1,509
|
)
|
|
|
631
|
|
|
|
(2,393
|
)
|
|
|
(270,611
|
)
|
|
|
(160,277
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,009
|
)
|
|
|
(18,009
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
Change in minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
733
|
|
|
|
|
|
|
|
733
|
|
Adoption of SFAS 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
(40
|
)
|
Reincorporation as a Delaware corporation
|
|
|
(111,167
|
)
|
|
|
(115,154
|
)
|
|
|
113,645
|
|
|
|
|
|
|
|
(111,167
|
)
|
|
|
1,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of put options
|
|
|
506,318
|
|
|
|
5
|
|
|
|
800
|
|
|
|
(805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of stock options and restricted stock
|
|
|
1,005,967
|
|
|
|
10
|
|
|
|
2,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,249
|
|
Changes in loans to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
Issuance of common stock, net of issuance costs of $9,203
|
|
|
7,850,000
|
|
|
|
79
|
|
|
|
84,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006 (As Restated-See Note 13)
|
|
|
18,773,283
|
|
|
|
188
|
|
|
|
201,602
|
|
|
|
(2,268
|
)
|
|
|
|
|
|
|
|
|
|
|
576
|
|
|
|
(1,700
|
)
|
|
|
(288,620
|
)
|
|
|
(90,222
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,692
|
)
|
|
|
(6,692
|
)
|
Change in minimum pension and other post-retirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251
|
)
|
|
|
|
|
|
|
(251
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
757
|
|
|
|
|
|
|
|
|
|
|
|
757
|
|
Issuance of common stock, net of issuance costs of $402
|
|
|
250,000
|
|
|
|
3
|
|
|
|
2,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,598
|
|
Exercise of stock options, including benefit for income taxes of
$25
|
|
|
20,641
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
Exercise of warrants
|
|
|
22,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
2,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,779
|
|
Changes in loans to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
19,066,212
|
|
|
$
|
191
|
|
|
$
|
207,181
|
|
|
$
|
(1,085
|
)
|
|
|
|
|
|
|
|
|
|
$
|
1,333
|
|
|
$
|
(1,951
|
)
|
|
$
|
(295,312
|
)
|
|
$
|
(89,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
35
Dayton
Superior Corporation and Subsidiary
Consolidated Statements of Cash Flows
Years
Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 (As
|
|
|
2005 (As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
2007
|
|
|
See Note 13)
|
|
|
See Note 13)
|
|
|
|
($ in thousands)
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,692
|
)
|
|
$
|
(18,009
|
)
|
|
$
|
(114,703
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
25,106
|
|
|
|
25,919
|
|
|
|
32,857
|
|
Amortization of intangibles
|
|
|
247
|
|
|
|
560
|
|
|
|
,570
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
64,000
|
|
Stock compensation expense
|
|
|
2,779
|
|
|
|
2,249
|
|
|
|
|
|
Deferred income taxes
|
|
|
(9
|
)
|
|
|
(315
|
)
|
|
|
288
|
|
Amortization of deferred financing costs and debt discount
|
|
|
7,021
|
|
|
|
5,680
|
|
|
|
5,572
|
|
Amortization of deferred gain from sale-leaseback
|
|
|
(1,624
|
)
|
|
|
(3,021
|
)
|
|
|
(2,462
|
)
|
Gain on sale of rental equipment
|
|
|
(19,932
|
)
|
|
|
(20,735
|
)
|
|
|
(11,356
|
)
|
Loss on sale of property, plant, and equipment
|
|
|
1,050
|
|
|
|
435
|
|
|
|
6,362
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,494
|
|
|
|
(4,546
|
)
|
|
|
912
|
|
Inventories
|
|
|
(8,142
|
)
|
|
|
(1,024
|
)
|
|
|
2,017
|
|
Prepaid expenses and other assets
|
|
|
220
|
|
|
|
(581
|
)
|
|
|
(853
|
)
|
Prepaid income taxes
|
|
|
(415
|
)
|
|
|
226
|
|
|
|
(181
|
)
|
Accounts payable
|
|
|
(125
|
)
|
|
|
9,576
|
|
|
|
6,181
|
|
Accrued liabilities and other long-term liabilities
|
|
|
(4,153
|
)
|
|
|
7,336
|
|
|
|
1,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(1,175
|
)
|
|
|
3,750
|
|
|
|
(8,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment additions
|
|
|
(19,943
|
)
|
|
|
(13,237
|
)
|
|
|
(6,687
|
)
|
Proceeds from sale of property, plant, and equipment
|
|
|
38
|
|
|
|
21
|
|
|
|
1,547
|
|
Rental equipment additions
|
|
|
(25,230
|
)
|
|
|
(21,535
|
)
|
|
|
(27,842
|
)
|
Proceeds from sales of used rental equipment
|
|
|
23,715
|
|
|
|
23,532
|
|
|
|
27,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(21,420
|
)
|
|
|
(11,219
|
)
|
|
|
(4,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt, including revolving credit facility
|
|
|
(108,767
|
)
|
|
|
(190,608
|
)
|
|
|
(148,490
|
)
|
Issuance of long-term debt, including revolving credit facility
|
|
|
106,449
|
|
|
|
139,028
|
|
|
|
134,375
|
|
Financing costs incurred
|
|
|
(712
|
)
|
|
|
(1,272
|
)
|
|
|
(3
|
)
|
Proceeds from sale/leaseback transaction
|
|
|
|
|
|
|
|
|
|
|
23,180
|
|
Issuance of common stock subject to put option
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Issuance of common stock, net of issuance costs
|
|
|
791
|
|
|
|
87,009
|
|
|
|
|
|
Changes in common stock subject to put option from activity in
loans to stockholders
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Net change in loans to stockholders
|
|
|
1,183
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(1,056
|
)
|
|
|
34,337
|
|
|
|
9,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash
|
|
|
219
|
|
|
|
(55
|
)
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(23,432
|
)
|
|
|
26,813
|
|
|
|
(4,504
|
)
|
Cash, beginning of year
|
|
|
26,813
|
|
|
|
|
|
|
|
4,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
3,381
|
|
|
$
|
26,813
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
568
|
|
|
$
|
341
|
|
|
$
|
398
|
|
Cash paid for interest
|
|
|
39,546
|
|
|
|
44,771
|
|
|
|
42,120
|
|
Purchase of equipment on capital lease
|
|
|
|
|
|
|
917
|
|
|
|
430
|
|
Property, plant and equipment and rental equipment additions in
accounts payable
|
|
|
3,710
|
|
|
|
2,762
|
|
|
|
1,471
|
|
Financing cost additions in accounts payable
|
|
|
71
|
|
|
|
736
|
|
|
|
|
|
Common share issuance costs in accounts payable
|
|
|
|
|
|
|
2,012
|
|
|
|
|
|
Sales of used rental equipment in accounts and notes receivable
|
|
|
12,451
|
|
|
|
11,283
|
|
|
|
6,376
|
|
Reclassification of common stock due to change in redemption
value of common stock subject to put option
|
|
|
|
|
|
|
|
|
|
|
2,963
|
|
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
36
Dayton
Superior Corporation and Subsidiary
Consolidated Statements of Comprehensive Loss
Years
Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 (As
|
|
|
2005 (As
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
2007
|
|
|
See Note 13)
|
|
|
See Note 13)
|
|
|
|
($ in thousands)
|
|
|
Net loss
|
|
$
|
(6,692
|
)
|
|
$
|
(18,009
|
)
|
|
$
|
(114,703
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
757
|
|
|
|
(55
|
)
|
|
|
322
|
|
Change in pension and other post-retirement benefits liability
|
|
|
(251
|
)
|
|
|
693
|
|
|
|
(874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(6,186
|
)
|
|
$
|
(17,371
|
)
|
|
$
|
(115,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
37
Notes to
Consolidated Financial Statements
December 31, 2007, 2006 and 2005
($ in thousands, except per share amounts)
The accompanying consolidated financial statements include the
accounts of Dayton Superior Corporation and its wholly-owned
subsidiary (collectively referred to as the
Company). All intercompany transactions have been
eliminated.
Odyssey Investment Partners Fund, LP (Odyssey) is
our principal stockholder. Along with certain of its affiliates,
co-investors, and certain members of the Companys
management who are a party to a voting agreement, Odyssey
controlled 53.5% of the Company as of December 31, 2007.
In December 2006, in connection with the Companys initial
public offering of its common stock, the Company amended its
certificate of incorporation to effectuate 2.1673-for-1 stock
split. All common share amounts in the consolidated financial
statements have been retroactively adjusted for all periods
presented to give effect to the stock split.
In its initial public offering, the Company issued
7,850,000 shares of common stock and received net proceeds
of $84,997, net of issuance costs. In January 2007, the
underwriters of the offering exercised a portion of their
over-allotment option. The Company issued an additional
250,000 shares of common stock and received net proceeds of
$2,790, net of issuance costs.
The Company believes it is the largest North American
manufacturer and distributor of metal accessories and forms used
in concrete construction and of metal accessories used in
masonry construction. The Company has a distribution network
consisting of 17 manufacturing/distribution plants and 23
service/distribution centers in the United States and Canada.
The Company employs approximately 700 salaried and
900 hourly personnel, of whom approximately 550 of the
hourly personnel and 4 of the salaried personnel are represented
by labor unions. Employees at the Miamisburg, Ohio; Parsons,
Kansas; Elk Grove, Illinois; New Braunfels, Texas; Tremont,
Pennsylvania; Santa Fe Springs, California; City of
Industry, California, and Aurora, Illinois facilities are
covered by collective bargaining agreements.
|
|
(2)
|
Summary
of Significant Accounting Policies
|
Accounts
Receivable Reserves
The Company maintains reserves for sales discounts and
allowances and for doubtful accounts for estimated losses
resulting from customer disputes
and/or
the
inability of our customers to make required payments.
Receivables are charged to the allowance for doubtful accounts
when an account is deemed to be uncollectible. Recoveries of
receivables previously charged off as uncollectible are credited
to the allowance.
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
Companys best estimate of the excess of the cost of
potential obsolete and slow moving inventory over the expected
net realizable value. Those reserves were $3,670 and $3,695 as
of December 31, 2007 and 2006, respectively. Following is a
summary of the components of inventories as of December 31,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Raw materials
|
|
$
|
13,534
|
|
|
$
|
14,095
|
|
Work in progress
|
|
|
3,518
|
|
|
|
2,282
|
|
Finished goods
|
|
|
49,688
|
|
|
|
42,019
|
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
66,740
|
|
|
$
|
58,396
|
|
|
|
|
|
|
|
|
|
|
38
Notes to
Consolidated Financial
Statements (Continued)
Rental
Equipment
Rental equipment is manufactured and purchased by the Company
for rent to others on a short-term basis. Additionally, used
rental equipment is sold to customers. Rental equipment is
recorded at the lower of FIFO cost or market and is depreciated
over the estimated useful lives of the equipment, three to
fifteen years, on a straight-line method. Effective
January 1, 2006, the Company changed its estimate of
depreciable lives on certain families of rental equipment from
three years to fifteen years on a prospective basis. The
families changed were acquired as part of an acquisition in 2003
and the Company used an estimated useful life of three years
based primarily on the risk of realizable value and uncertain
resale value of this equipment when sold as used rental
equipment. Subsequent data showed demand for the equipment was
strong and that resale values of the equipment were consistent
with other rental equipment. The physical utilization of the
rental equipment lasts approximately fifteen years. The impact
of this change in estimate reduced rental cost of sales by
approximately $3,000 for the year ended December 31, 2006.
Property,
Plant and Equipment
Property, plant and equipment are valued at cost and depreciated
using straight-line methods over their estimated useful lives of
10-30 years
for buildings and improvements and 3-10 years for machinery
and equipment.
Leasehold improvements are amortized over the lesser of the term
of the lease or the estimated useful lives of the improvements.
Improvements and replacements are capitalized, while
expenditures for maintenance and repairs are charged to expense
as incurred.
Included in the cost of property, plant and equipment and rental
equipment are assets obtained through capital leases. As of
December 31, 2007, the cost of assets under capital lease
is $4,829 with accumulated amortization of $2,765. As of
December 31, 2006, the cost of assets under capital lease
was $5,085, with accumulated amortization of $2,819.
Amortization expense related to assets under capital lease was
$553, $778, and $843 for the periods ended December 31,
2007, 2006, and 2005, respectively.
Goodwill
and Intangible Assets
As with tangible and other intangible assets, periodic
impairment reviews of goodwill are required, at least annually,
as well as when events or circumstances change. The Company
reviews the recorded value of its goodwill annually on a
reporting unit by reporting unit basis in the fourth quarter
using data as of the third quarter, or sooner if events or
changes in circumstances indicate that the carrying amount may
exceed fair value. The review for impairment requires the
Company to estimate the fair value of its long-lived assets and
considerable judgment must be exercised in determining these
values. The Company combines the used rental sales and rental
revenue segments of the company into one reporting unit for this
review. Product sales are considered the other reporting unit.
When exercising judgment, the Company carefully considers all of
the relevant facts and circumstances available to it at the
time. The critical factors affecting this analysis include:
|
|
|
|
|
the amount of adjusted EBITDA (which is income (loss) from
operations adjusted for depreciation, amortization of
intangibles and impairment of goodwill; gain (loss) from
disposals of property, plant, and equipment; facility closing
and severance expenses; and stock compensation expense)
generated by each of the Companys business segments;
|
|
|
|
the Companys ability to meet operating results compared to
budget;
|
|
|
|
the level of expected activity in the nonresidential
construction industry; and
|
|
|
|
the Companys future prospects.
|
Taking all of these factors into account, the Company determined
the fair value of its reporting units as of December 31,
2007 and 2006 by deriving enterprise value indications of its
business segments using a range of adjusted EBITDA multiples
from market transactions and market multiples in the
Companys industry, as well as a discounted cash flow
analysis.
39
Notes to
Consolidated Financial
Statements (Continued)
Because impairment tests are based in part on managements
judgment as to the fair value of the Companys reporting
units relative to their carrying value which is
necessarily subjective managements discretion
impacts any decision to record an impairment charge and
therefore affects the Companys reported results of
operation.
Prior to 2006, the Companys financial performance had
gradually deteriorated over several years due to a general
decline in nonresidential construction activity and rising
costs, such as steel and fuel. The Company had been unable to
consistently sustain positive cash flow and, at that time, its
future ability to do so was uncertain. Accordingly, for the year
ended December 31, 2005, the Company recorded an impairment
charge of $64,000 to reduce the carrying value of goodwill to
its implied fair value. The goodwill impairment has been
included in the caption impairment of goodwill in
the consolidated statement of operations. There was no
impairment to goodwill in the years ended December 31, 2007
and 2006 or to the amortizing intangible assets in any year.
The following is a reconciliation of goodwill by reporting unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
|
|
|
|
|
|
|
|
Revenue/
|
|
|
|
|
|
|
|
|
|
Used Rental
|
|
|
|
|
|
|
Product
|
|
|
Equipment
|
|
|
|
|
|
|
Sales
|
|
|
Sales
|
|
|
Total
|
|
|
Balance at January 1, 2005
|
|
$
|
96,292
|
|
|
$
|
11,351
|
|
|
$
|
107,643
|
|
Impairment
|
|
|
(52,649
|
)
|
|
|
(11,351
|
)
|
|
|
(64,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005, 2006 and 2007
|
|
$
|
43,643
|
|
|
$
|
|
|
|
$
|
43,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions often result in recording intangible
assets, which are recognized at the time of an acquisition,
based upon their fair value. Similar to long-lived tangible
assets, intangible assets are subject to amortization and
periodic impairment reviews whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Amortization is provided over the term of
the agreement (3 to 7.5 years) for non-compete agreements
and license agreements, and over the estimated useful life
(1-15 years) for intellectual property. Amortization of
non-compete agreements, intellectual property, license
agreements, and dealer network is reflected as Selling,
general, and administrative expenses in the accompanying
consolidated statements of operations. The estimated aggregate
amortization expense for each of the next five years is as
follows: $129 in 2008, $120 in each of 2009 and 2010, and $72 in
each of 2011 and 2012. Intangible assets consist of the
following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Non-compete agreements
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
198
|
|
|
$
|
(171
|
)
|
|
$
|
27
|
|
License agreements
|
|
|
306
|
|
|
|
(153
|
)
|
|
|
153
|
|
|
|
307
|
|
|
|
(84
|
)
|
|
|
223
|
|
Intellectual property
|
|
|
1,047
|
|
|
|
(322
|
)
|
|
|
725
|
|
|
|
1,047
|
|
|
|
(250
|
)
|
|
|
797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,353
|
|
|
$
|
(475
|
)
|
|
$
|
878
|
|
|
$
|
1,552
|
|
|
$
|
(505
|
)
|
|
$
|
1,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
Deferred tax assets and liabilities are recorded for temporary
differences between financial statement carrying amounts and the
tax basis of assets and liabilities. Deferred tax assets and
liabilities reflect the enacted tax rates in effect for the
years the differences are expected to reverse. The Company
evaluates the need for a deferred tax asset valuation allowance
by assessing whether it is more likely than not that it will
realize deferred tax assets in the future and it records
liabilities for uncertain tax matters based on assessment of the
likelihood of sustaining certain tax positions. In estimating
whether deferred tax assets are realizable, it estimates levels
of future taxable income by considering historical results of
operations in recent years and would, if necessary, consider the
implementation of prudent and feasible tax planning strategies
to generate taxable income.
40
Notes to
Consolidated Financial
Statements (Continued)
Environmental
Remediation Liabilities
The Company accounts for environmental remediation liabilities
in accordance with the American Institute of Certified Public
Accountants issued Statement of Position
96-1,
Environmental Remediation Liabilities,. The Company
accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably
estimable. Such accruals are adjusted as further information
develops or circumstances change. Costs of future expenditures
for environmental remediation obligations are not discounted to
their present value.
Foreign
Currency Translation Adjustment
The financial statements of the Companys foreign
subsidiary are maintained in their functional currency (Canadian
dollars) and are then translated into U.S. dollars. The
balance sheets are translated at end of year rates while
revenues, expenses and cash flows are translated at weighted
average rates throughout the year. Translation adjustments,
which result from changes in exchange rates from period to
period, are accumulated in a separate component of
stockholders deficit. Transactions in foreign currencies
are translated into U.S. dollars at the rate in effect on
the date of the transaction. Changes in foreign exchange rates
from the date of the transaction to the date of the settlement
of the asset or liability are recorded as income or expense.
Revenue
Recognition
Revenue is recognized from product sales when the product is
shipped from the Companys facilities and risk of loss and
title have passed to the customer. Additionally, revenue is
recognized at the customers written request and when the
customer has made a fixed commitment to purchase goods on a
fixed schedule consistent with the customers business,
where risk of ownership has passed to the buyer, the goods are
physically segregated and the Company does not retain any
specific performance obligations. For customer-requested bill
and hold transactions in which a performance obligation exists
on the part of the Company prior to the delivery date, the
Company does not recognize revenue until the total performance
obligation has been met and all of the above criteria related to
bill and hold transactions have been met. In instances where the
customer provides payment for these services prior to the
delivery date, the revenue is deferred until all performance
obligations have been met. Sales under bill and hold
arrangements were $3,064, $3,675, and $979, for the years ended
December 31, 2007, 2006, and 2005, respectively.
On rental equipment sales, revenue is recognized and recorded on
the date of shipment. Rental revenues are recognized ratably
over the terms of the rental agreements. Sales orders with
multiple deliverables are allocated among the components based
on the fair values of the individual components.
Customer
Rebates
The Company offers rebates to certain customers that are
redeemable only if the customer meets certain specified
thresholds relating to an aggregate level of sales. The Company
records such rebates as a reduction of sales in the period that
the underlying transaction that results in progress by the
customer in earning the rebate. The rebates accrued as of
December 31, 2007 and 2006 were $2,849 and $3,459,
respectively.
Stock
Compensation Expense
Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 123R
that amends SFAS No. 123,
Accounting for
Stock-Based Compensation
, using a modified prospective
application. Previously, the Company measured compensation cost
for stock options issued using the intrinsic value-based method
of accounting in accordance with Accounting Principles Board
Opinion (APB) No. 25.
Loss
Per Share of Common Stock
Basic loss per share of common stock is computed by dividing net
loss by the weighted average number of vested shares of common
stock outstanding during the period. Diluted EPS is computed by
dividing net loss by the weighted average number of shares of
common stock and potential shares of common stock outstanding,
if dilutive,
41
Notes to
Consolidated Financial
Statements (Continued)
during each period. The Companys potential undistributed
common shares represent the effect of unvested shares, warrants
and stock options. For the years ended December 31, 2007
and 2006, the 502,984 and 754,475 unvested shares were not
included as their effect would have been anti-dilutive. For the
years ended December 31, 2007, 2006, and 2005, the
potential undistributed shares, consisting of warrants for
231,880, 254,172, and 254,172 shares, and stock options for
743,762, 859,445, and 871,391 shares, respectively, were
not included in the calculation of diluted loss per share as
their effect would have been anti-dilutive.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at
the balance sheet date and the reported amounts of revenues and
expenses during the year. Actual results could differ from those
estimates. Examples of accounts in which estimates are used
include the allowance for doubtful accounts and sales returns
and allowances, the reserve for excess and obsolete inventory,
the fair value of the Company and its business segments, the
accrual for self-insured employee medical claims, the
self-insured product and general liability accrual, the
self-insured workers compensation accrual, accruals for
litigation losses, the valuation allowance for deferred tax
assets, stock-based compensation, actuarial assumptions used in
determining pension benefits, and actuarial assumptions used in
determining other post-retirement benefits.
Fair
Value of Financial Instruments
The carrying amount of cash and accounts receivable approximate
fair value because of the relatively short maturity of these
financial instruments. Fair values of debt are based on the last
trade of the instrument prior to the balance sheet date.
Recent
Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), which prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. This Interpretation also provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition. The Company complied with the provisions of
Interpretation No. 48 as of January 1, 2007 with the
impacts described in Note 6.
In September 2006, the FASB issued Statement of Financial
Accounting Standard (SFAS) No. 157,
Fair
Value Measurements
. This Statement clarifies the definition
of fair value, establishes a framework for measuring fair value,
and expands the disclosures on fair value measurements. The
Company will be required to comply with Statement No. 157
as of the first annual period that begins after
November 15, 2007. Two FASB Staff Positions
(FSP) on SFAS No. 157 were subsequently
issued. In February 2008, FSP
No. 157-1
excluded FASB No. 13
Accounting for Leases
and other
accounting pronouncements that address fair value measurements
for purposes of lease classification or measurement under FASB
No. 13. However, this scope exception does not apply to
assets acquired and liabilities assumed in a business
combination that are required to be measured at fair value under
FASB Statement No. 141,
Business Combinations
or
FASB No. 141R,
Business Combinations.
This FSP is
effective upon initial adoption of SFAS no. 157. In
February 2008, FSP
No. 157-2
delayed the effective date of this SFAS No. 157 for
non-financial assets and non-financial liabilities that are
recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. This FSP is effective for
fiscal years beginning after November 15, 2008. Statement
No. 157 is not expected to have an impact on the
Companys consolidated financial statements, however,
adoption will result in additional information being included in
the footnotes accompanying our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115
. This Statement provides entities with an
option to report selected financial assets and liabilities at
fair value and establishes presentation and disclosure
42
Notes to
Consolidated Financial
Statements (Continued)
requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types
of assets and liabilities. The Company will be required to
comply with Statement No. 159 as of the first annual period
that begins after November 15, 2007. Statement No. 159
is not expected to have an impact on the Companys
consolidated financial statements.
In December 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 141 (Revised 2007),
Business Combinations
(SFAS No. 141R). SFAS 141(R)
changes the accounting for business combinations, including the
measurement of acquirer shares issued in consideration for a
business combination, the recognition of contingent
consideration, the accounting for preacquisition gain and loss
contingencies, the recognition of capitalized in-process
research and development, the accounting for acquisition-related
restructuring cost accruals, the treatment of acquisition
related transaction costs and the recognition of changes in the
acquirers income tax valuation allowance. SFAS 141(R)
applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2008, except for certain tax adjustments for prior business
combinations. Accordingly, we will adopt this statement on
January 1, 2009. The Company is currently evaluating the
effect, if any, that the adoption of SFAS No. 141R
will have on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160.
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51 (SFAS
160). SFAS 160 changes the accounting for noncontrolling
(minority) interests in consolidated financial statements
including the requirements to classify noncontrolling interests
as a component of consolidated stockholders equity, and
the elimination of minority interest accounting in
results of operations with earnings attributable to
noncontrolling interests reported as part of consolidated
earnings. Additionally, SFAS 160 revises the accounting for both
increases and decreases in a parents controlling ownership
interest. SFAS 160 is effective for fiscal years beginning after
December 15, 2008, with early adoption prohibited. The
Company does not expect the adoption of SFAS 160 to have a
material impact on its consolidated financial statements.
Following is a summary of the Companys long-term debt as
of December 31, 2007 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Senior Second Secured Notes, interest rate of 10.75%
|
|
$
|
165,000
|
|
|
$
|
165,000
|
|
Debt discount on Senior Second Secured Notes
|
|
|
(1,393
|
)
|
|
|
(3,208
|
)
|
Senior Subordinated Notes, interest rate of 13.0.%
|
|
|
154,729
|
|
|
|
154,729
|
|
Debt discount on Senior Subordinated Notes
|
|
|
(3,045
|
)
|
|
|
(4,746
|
)
|
Senior notes payable to seller in 2003 acquisition, non-interest
bearing, accreted at 6.0% to 14.5%
|
|
|
6,907
|
|
|
|
7,286
|
|
Debentures previously held by Dayton Superior Capital Trust,
interest rate
of 9.1%, due on demand
|
|
|
1,035
|
|
|
|
1,063
|
|
Capital lease obligations
|
|
|
1,364
|
|
|
|
2,326
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
324,597
|
|
|
|
322,450
|
|
Less current maturities
|
|
|
(8,990
|
)
|
|
|
(2,551
|
)
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
315,607
|
|
|
$
|
319,899
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the Company had no amounts
outstanding on its $130,000 revolving credit facility, which was
scheduled to mature on July 31, 2008. At December 31,
2007, $10,309 of letters of credit were outstanding under the
facility. The facility had no financial covenants and was
subject to availability under a borrowing base calculation.
Availability of borrowings is limited to 85% of eligible
accounts receivable and 60% of eligible inventories and rental
equipment, less $15,000. Under the calculation, $107,086 of the
$130,000 was
43
Notes to
Consolidated Financial
Statements (Continued)
available, resulting in available borrowings of $96,777 as of
December 31, 2007. The credit facility was secured by
substantially all assets of the Company.
On March 3, 2008, the Company entered into a new $150,000
revolving credit facility to replace the existing facility. The
new facility is subject to availability under a borrowing base
calculation. Availability of borrowings is limited to 85% of
eligible accounts receivable and 60% of eligible inventories and
rental equipment, less $15,000. The new credit facility expires
in March 2009, but is automatically extended to March 2014 if
the Senior Subordinated Notes are paid off prior to the initial
maturity of the new revolving credit facility. The credit
facility is secured by substantially all assets of the Company.
Deferred financing costs of $263 will be expensed as a loss of
extinguishment of long-term debt in the first quarter of 2008.
The average borrowings, maximum borrowings and weighted average
interest rates on the revolving credit facility for the periods
indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Average borrowing
|
|
$
|
11,925
|
|
|
$
|
69,784
|
|
|
$
|
63,564
|
|
Maximum borrowing
|
|
|
27,050
|
|
|
|
83,200
|
|
|
|
77,500
|
|
Weighted average interest rate
|
|
|
13.5
|
%
|
|
|
8.1
|
%
|
|
|
6.3
|
%
|
The weighted average interest rate is calculated by dividing
interest expense (which is the sum of interest on borrowings,
letter of credit fees, and commitment fees on unused credit and
borrowing availability) by average borrowings. The high weighted
average interest rate for the year ended December 31, 2007
is a reflection of the limited average borrowings during those
periods. Interest expense on the facility for the year ended
December 31, 2007 was $1,611, consisting of $962 of
interest on borrowings (8.1%), $239 of letter of credit fees
(2.0%), and $410 for commitment fees on unused availability
(3.4%).
As of December 31, 2007, the Company had $165,000 of senior
second secured notes (the Senior Notes) outstanding.
The notes were scheduled to mature in June 2008 and were issued
at a discount that was being accreted to the face value using
the effective interest method and was reflected as interest
expense. The estimated fair value of the notes was $168,506 as
of December 31, 2007. The Senior Notes were secured by
substantially all assets of the Company. On March 3, 2008,
the Company redeemed the Senior Notes, including accrued
interest through April 2, 2008. The Senior Notes were
redeemed at a premium of 2.813% of face value, or $4,641, which,
along with the write-off of the remaining debt discount and
deferred financing costs of $1,292, will be expensed as a loss
on extinguishment of long-term debt in the first quarter of
2008. In addition to borrowings on the new revolving credit
facility, the Senior Notes were repaid with the proceeds of a
new $100,000 term loan issued on March 3, 2008. The new
term loan was issued with net proceeds of $94,250, which will be
accreted to the face value using the effective interest method
and reflected as interest expense. The loan initially matures in
March 2009, but is automatically extended to March 2014 if the
Senior Subordinated Notes are paid off prior to the initial
maturity of the new term loan. The new term loan is subject to
financial covenants for debt to adjusted EBITDA, as defined in
the agreement, and interest coverage, and has a second security
interest in substantially all assets of the Company. Due to the
refinancing of the Senior Notes with long-term debt, the Senior
Notes are classified as long-term as of December 31, 2007.
As of December 31, 2007, the Senior Subordinated Notes (the
Notes) had a principal amount of $154,729 and mature
in June 2009. The Notes were issued at a discount that 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 254,172 shares
of the Companys common stock for $0.0046 per share, of
which 231,880 remain outstanding as of December 31, 2007.
The estimated fair value of the notes was $145,445 as of
December 31, 2007.
44
Notes to
Consolidated Financial
Statements (Continued)
The Company has two non-interest bearing notes to the seller of
an acquisition in 2003. As of December 31, 2007, the notes
have a book value of $6,907 and remaining payments of $7,777,
all of which are due in 2008. The difference is being accreted
at 6.0% to 14.5% using the effective interest method and is
reflected as interest expense.
Our other long-term debt of $2,399 at December 31, 2007
consisted of $1,035 of 9.1% junior subordinated debentures and
$1,364 of capital lease obligations. The debentures have an
estimated fair value of $880 and are due on demand, but have an
ultimate maturity of September 30, 2029. The capital lease
obligations are due in monthly payments through September 2010.
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.
Scheduled maturities of long-term debt and future minimum lease
payments under capital leases, after giving effect to the
refinancing of the Senior Notes with long-term debt maturing in
2009, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
Capital
|
|
|
|
|
Year
|
|
Debt
|
|
|
Leases
|
|
|
Total
|
|
|
2008
|
|
$
|
7,942
|
|
|
$
|
1,112
|
|
|
$
|
9,054
|
|
2009
|
|
|
319,729
|
|
|
|
294
|
|
|
|
320,023
|
|
2010
|
|
|
|
|
|
|
51
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt and Lease Payments
|
|
|
327,671
|
|
|
|
1,457
|
|
|
|
329,128
|
|
Less: Debt Discount
|
|
|
(4,438
|
)
|
|
|
|
|
|
|
(4,438
|
)
|
Less: Amounts Representing Interest
|
|
|
|
|
|
|
(93
|
)
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
323,233
|
|
|
$
|
1,364
|
|
|
$
|
324,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company capitalizes financing costs associated with
obtaining debt instruments and amortizes them over the life of
the credit agreement. The costs are reflected as Other
assets on the consolidated balance sheets and had a net
value of $1,810 and $4,015 as of December 31, 2007 and
2006, respectively. The amortization is reflected as
Interest expense on the consolidated statements of
operation and was $2,556, $1,821, and $1,937 for the years ended
December 31, 2007, 2006, and 2005, respectively.
Stock
Option Plan
The 2000 Dayton Superior Corporation Stock Option Plan, as
amended, (Stock Option Plan), permits the grant of
stock options to purchase 1,667,204 shares of common stock.
Options that are cancelled may be reissued. The following table
sets forth the status of the authorized options as of
December 31, 2007:
|
|
|
|
|
Granted and outstanding
|
|
|
726,543
|
|
Granted and exercised
|
|
|
122,998
|
|
Available for granting
|
|
|
817,663
|
|
|
|
|
|
|
Total
|
|
|
1,667,204
|
|
|
|
|
|
|
The terms of the option grants are five or ten years from the
date of grant. The weighted average remaining life of the
outstanding options was 4.5 years as of December 31,
2007. The options granted in 2007 vested upon stockholder
approval, which was approximately a month after the grant date.
The options granted during 2006 vested on the grant date. For
the options granted prior to 2006, between 10% and 25% of each
option has a fixed vesting period of less than three years, with
the remaining 75% to 90% of the option becoming exercisable nine
years after the grant date. These options may be subject to
accelerated vesting over one to five years from the date grant
based on Company performance or upon certain change in control
events based on the rate of return on investment achieved by the
Companys largest stockholder. Under the Stock Option Plan,
the option exercise price must not be less than the stocks
market price on date of grant.
45
Notes to
Consolidated Financial
Statements (Continued)
The Company accounts for stock options in accordance with
SFAS No. 123R, which amends SFAS No. 123,
Accounting for Stock-Based Compensation
, and recorded
non-cash compensation expense of $144, and $699 for the years
ended December 31, 2007 and 2006. Due to the Companys
net operating losses, no income tax benefit was recognized
related to these options. The remaining expected future
compensation expense for unvested stock options, based on
estimated forfeitures of 5%, was $358 as of December 31,
2007, and is expected to be expensed over a weighted average
period of 1.7 years.
The fair value of each option grant is estimated on the date of
grant using the Black Scholes options pricing model with the
following assumptions used for grants during the years ended
December 31, 2007 and 2006:
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Risk-free interest rates
|
|
4.19 4.61%
|
|
4.80%
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
Expected life
|
|
2 2.5 years
|
|
1 year
|
Expected volatility
|
|
16.31 47.03%
|
|
158.75%
|
The expected life is based on the estimated future exercise
patterns. The expected volatility was based on the continuously
compounded rate of return of the Companys daily stock
price.
Previously, the Company measured 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
Companys stock options had been determined based on the
fair value method of SFAS No. 123R, the Companys
net loss would have been increased to the following pro forma
amounts:
|
|
|
|
|
|
|
2005
|
|
|
Net loss, as reported
|
|
$
|
(114,703
|
)
|
Stock compensation expense, net of benefit for income taxes
|
|
|
(250
|
)
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(114,953
|
)
|
|
|
|
|
|
Pro forma net loss per basic and diluted share
|
|
$
|
(11.59
|
)
|
|
|
|
|
|
46
Notes to
Consolidated Financial
Statements (Continued)
A summary of the status of the Companys stock option plans
at December 31, 2007, 2006, and 2005, and changes during
the years then ended is presented in the table and narrative
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Unvested
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Shares
|
|
|
Value
|
|
|
Value
|
|
|
Outstanding at January 1, 2005
|
|
|
1,480,218
|
|
|
$
|
12.06
|
|
|
|
1,138,144
|
|
|
$
|
2.81
|
|
|
$
|
278
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
(22,341
|
)
|
|
|
2.11
|
|
|
|
|
|
Exercised
|
|
|
(8,669
|
)
|
|
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Expired
|
|
|
(156,256
|
)
|
|
|
11.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(443,902
|
)
|
|
|
12.58
|
|
|
|
(443,902
|
)
|
|
|
2.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
871,391
|
|
|
|
11.96
|
|
|
|
671,901
|
|
|
|
2.93
|
|
|
|
|
|
Granted
|
|
|
80,307
|
|
|
|
12.46
|
|
|
|
80,307
|
|
|
|
2.93
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
(80,307
|
)
|
|
|
2.93
|
|
|
|
|
|
Expired
|
|
|
(13,142
|
)
|
|
|
12.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(79,111
|
)
|
|
|
12.67
|
|
|
|
(79,111
|
)
|
|
|
2.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
859,445
|
|
|
|
11.93
|
|
|
|
592,790
|
|
|
|
3.02
|
|
|
|
293
|
|
Granted
|
|
|
35,091
|
|
|
|
8.13
|
|
|
|
35,091
|
|
|
|
1.02
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
(35,091
|
)
|
|
|
1.02
|
|
|
|
|
|
Exercised
|
|
|
(20,641
|
)
|
|
|
8.74
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
Expired
|
|
|
(20,592
|
)
|
|
|
12.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(109,541
|
)
|
|
|
12.51
|
|
|
|
(109,541
|
)
|
|
|
3.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
743,762
|
|
|
$
|
11.74
|
|
|
|
483,249
|
|
|
$
|
2.96
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price ranges and other information for stock options outstanding
at December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
Range of Exercise Prices
|
|
Shares
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
|
$4.12
|
|
|
17,219
|
|
|
$
|
4.12
|
|
|
|
10.0
|
|
|
$
|
|
|
|
|
17,219
|
|
|
$
|
4.12
|
|
|
$
|
|
|
$7.76 - $8.97
|
|
|
29,290
|
|
|
|
8.36
|
|
|
|
0.6
|
|
|
|
|
|
|
|
29,290
|
|
|
|
8.36
|
|
|
|
|
|
$11.07 - $12.69
|
|
|
697,253
|
|
|
|
12.07
|
|
|
|
4.4
|
|
|
|
|
|
|
|
214,004
|
|
|
|
12.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
743,762
|
|
|
$
|
11.74
|
|
|
|
4.4 years
|
|
|
$
|
|
|
|
|
260,513
|
|
|
$
|
11.22
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the number of shares exercisable
and expected to become exercisable was 719,020. The weighted
average exercise price was $11.72, the weighted average
remaining life was 4.4 years, and the aggregate intrinsic
value was $0. The aggregate intrinsic value in the tables above
is the amount by which the market value of the underlying stock
exceeded the exercise price of outstanding options, and
represents only in-the-money options.
On June 30, 2006, the Compensation Committee of the Board
of Directors of the Company approved the issuance of
1,005,967 shares of restricted common stock to certain
executives. Due to the completion of the Companys initial
public offering in December 2006, 25% of the stock vested on
each of December 31, 2006 and 2007 and 25% will vest on
each of December 31, 2008 and 2009. The unvested portion of
the stock is subject to
47
Notes to
Consolidated Financial
Statements (Continued)
forfeiture by the executive under certain circumstances and is
subject to accelerated vesting upon a change of control, as
defined.
In accordance with SFAS 123R, the per share grant-date fair
value was the fair value of a share of common stock on
June 30, 2006. The Company recorded $2,635 and $1,550 of
compensation expense for the years ended December 31, 2007
and 2006, respectively. The remaining compensation expense for
unvested restricted stock will be $1,211 in 2008 and $485 in
2009. There was no cash impact to the Company for the restricted
stock. Due to the Companys net operating losses, no income
tax benefit was recognized related to the stock.
A summary of the status of the Companys outstanding
restricted stock as of and for the year ended December 31,
2007, is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Total
|
|
|
Unvested
|
|
|
Average
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Outstanding at December 31, 2005
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
1,005,967
|
|
|
|
1,005,967
|
|
|
|
5.85
|
|
Vested
|
|
|
|
|
|
|
(251,492
|
)
|
|
|
5.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
1,005,967
|
|
|
|
754,475
|
|
|
|
5.85
|
|
Vested
|
|
|
|
|
|
|
(251,493
|
)
|
|
|
5.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
1,005,967
|
|
|
|
502,982
|
|
|
$
|
5.85
|
|
As of December 31, 2007, the stock had an intrinsic value
of $3,923 and had an indefinite remaining term.
Company-Sponsored
Pension Plans
The Companys 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 approximately
35 salaried and hourly employees who retired prior to
May 1, 1995.
48
Notes to
Consolidated Financial
Statements (Continued)
The following table sets forth the funded status of the
Companys plans and the amounts recognized in the
Companys consolidated balance sheets and consolidated
statements of operations as of and for the years ended
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Pension
|
|
|
Postretirement
|
|
|
Postretirement
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
13,920
|
|
|
$
|
13,273
|
|
|
$
|
539
|
|
|
$
|
501
|
|
Service cost
|
|
|
432
|
|
|
|
682
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
813
|
|
|
|
760
|
|
|
|
30
|
|
|
|
28
|
|
Actuarial loss/(gain)
|
|
|
(143
|
)
|
|
|
(407
|
)
|
|
|
|
|
|
|
1
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
128
|
|
|
|
115
|
|
Benefits paid
|
|
|
(413
|
)
|
|
|
(388
|
)
|
|
|
(186
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
14,609
|
|
|
$
|
13,920
|
|
|
$
|
511
|
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
11,683
|
|
|
$
|
9,990
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
483
|
|
|
|
1,036
|
|
|
|
|
|
|
|
|
|
Participant contribution
|
|
|
|
|
|
|
|
|
|
|
128
|
|
|
|
115
|
|
Employer contribution
|
|
|
1,338
|
|
|
|
1,045
|
|
|
|
58
|
|
|
|
(9
|
)
|
Benefits paid
|
|
|
(413
|
)
|
|
|
(388
|
)
|
|
|
(186
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
13,091
|
|
|
$
|
11,683
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(1,517
|
)
|
|
$
|
(2,237
|
)
|
|
$
|
(511
|
)
|
|
$
|
(539
|
)
|
Unrecognized prior service cost
|
|
|
37
|
|
|
|
45
|
|
|
|
72
|
|
|
|
96
|
|
Unrecognized net loss (gain)
|
|
|
2,772
|
|
|
|
2,497
|
|
|
|
(122
|
)
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
1,292
|
|
|
$
|
305
|
|
|
$
|
(561
|
)
|
|
$
|
(573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the statement of financial position
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(44
|
)
|
|
$
|
(43
|
)
|
Long-term liability
|
|
|
(1,517
|
)
|
|
|
(2,237
|
)
|
|
|
(467
|
)
|
|
|
(496
|
)
|
Accumulated other comprehensive loss
|
|
|
2,809
|
|
|
|
2,542
|
|
|
|
(50
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
1,292
|
|
|
$
|
305
|
|
|
$
|
(561
|
)
|
|
$
|
(573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
432
|
|
|
$
|
682
|
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
813
|
|
|
|
760
|
|
|
|
30
|
|
|
|
27
|
|
Expected return on plan assets
|
|
|
(973
|
)
|
|
|
(816
|
)
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss
|
|
|
70
|
|
|
|
145
|
|
|
|
(9
|
)
|
|
|
(10
|
)
|
Amortization of prior service cost
|
|
|
8
|
|
|
|
14
|
|
|
|
24
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cost
|
|
$
|
350
|
|
|
$
|
785
|
|
|
$
|
45
|
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in other comprehensive loss
|
|
$
|
267
|
|
|
$
|
(659
|
)
|
|
$
|
(16
|
)
|
|
$
|
(34
|
)
|
49
Notes to
Consolidated Financial
Statements (Continued)
The weighted average assumptions used in the actuarial
computation that derived the above funded status amounts were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Pension
|
|
Postretirement
|
|
Postretirement
|
|
|
Benefits
|
|
Benefits
|
|
Benefits
|
|
Benefits
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Discount rate
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The weighted average assumptions used in the actuarial
computation that derived net periodic benefit cost were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Pension
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
|
|
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Postretirement
|
|
|
Postretirement
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
Benefits 2006
|
|
|
Benefits 2005
|
|
|
Discount rate
|
|
|
6.00
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
|
|
6.00
|
%
|
Expected return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
A one percentage point change in the discount rate would have
the following effects:
|
|
|
|
|
|
|
|
|
|
|
One Percentage Point
|
|
|
One Percentage Point
|
|
|
|
Increase
|
|
|
Decrease
|
|
|
Effect on 2007 net periodic pension cost
|
|
$
|
(144
|
)
|
|
$
|
238
|
|
Effect on December 31, 2007 pension benefit obligation
|
|
|
(1,972
|
)
|
|
|
2,478
|
|
Effect on 2007 postretirement cost
|
|
|
(1
|
)
|
|
|
1
|
|
Effect on December 31, 2007 postretirement benefit
obligation
|
|
|
(14
|
)
|
|
|
12
|
|
One of the principal components of the net periodic pension cost
calculation is the expected long-term rate of return on assets.
The required use of an expected long-term rate of return on plan
assets may result in recognized pension income that is greater
or less than the actual returns of those plan assets in any
given year. Over time, however, the expected long-term returns
are designed to approximate the actual long-term returns and
therefore result in a pattern of income and expense recognition
that more closely matches the pattern of the services provided
by the employees. The defined benefit pension plans assets
are invested primarily in equity and fixed income mutual funds.
The Company uses its long-term historical actual return
experience and estimates of future long-term investment return
with consideration to the expected investment mix of the
plans assets to develop the expected rate of return
assumption used in the net periodic pension cost calculation.
In accordance with the guidelines of the most recent actuarial
valuation of the pension plan, the Companys expected
return on plan assets is 8.0%, which represents a weighted
average of 11% for equity securities, 5.5% for debt securities,
and 4% for cash and cash equivalents and insurance contract
applied to the Plans target asset allocations. A one
percentage point change in the expected return on plan assets
would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
1 Percentage Point
|
|
1 Percentage Point
|
|
|
Increase
|
|
Decrease
|
|
Effect on 2007 net periodic pension cost
|
|
$
|
(122
|
)
|
|
$
|
122
|
|
Our postretirement healthcare benefit plan is unfunded and has
no plan assets. Therefore, the expected long-term rate of return
on plan assets is not a factor in accounting for this benefit
plan.
As of December 31, 2007 and 2006, the pension plan had
accumulated benefit obligations of $14,608 and $13,892,
respectively.
50
Notes to
Consolidated Financial
Statements (Continued)
Assumed health care cost trend rates:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Health care cost trend rate assumed for next year
|
|
|
11.5
|
%
|
|
|
12.0
|
%
|
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
2015
|
|
|
|
2015
|
|
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plan. A one
percentage point change in assumed health care cost trend rates
would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
1 Percentage
|
|
1 Percentage
|
|
|
Point
|
|
Point
|
|
|
Increase
|
|
Decrease
|
|
Effect on 2007 postretirement cost
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
Effect on the postretirement benefit obligation
|
|
|
14
|
|
|
|
(12
|
)
|
The pension plan asset allocations at December 31, 2007 and
2006, by asset category were as follows:
|
|
|
|
|
|
|
|
|
|
|
Plan Assets at December 31,
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
Equity Securities
|
|
|
48
|
%
|
|
|
52
|
%
|
Debt Securities
|
|
|
26
|
|
|
|
27
|
|
Cash and Cash Equivalents
|
|
|
22
|
|
|
|
16
|
|
Insurance Contract
|
|
|
4
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The Companys pension plan asset investment strategy is to
invest in a combination of equities and fixed income investments
while maintaining a moderate risk posture. The targeted asset
allocation within the investment portfolio is 55% equities and
45% fixed income. The Company evaluates the performance of the
pension investment program in the context of a three to
five-year horizon.
The Companys contributions meet the minimum funding
requirements of the Internal Revenue Service. For the year ended
December 31, 2007, contributions totaling $1,338 were made,
comprised of $247 for the fourth quarterly installment for the
2006 plan year, $191 for the final contribution for the 2006
plan year, and three quarterly installments of $300 each for the
2007 plan year. Total contributions in 2008 are expected to be
$1,116, comprised of $300 for the 2007 plan year made in the
first quarter of 2008, and quarterly contributions for the 2008
plan year of $272 per quarter, payable in the second, third, and
fourth quarters of 2008.
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
2008
|
|
$
|
493
|
|
|
$
|
45
|
|
2009
|
|
|
507
|
|
|
|
46
|
|
2010
|
|
|
538
|
|
|
|
47
|
|
2011
|
|
|
579
|
|
|
|
38
|
|
2012
|
|
|
656
|
|
|
|
38
|
|
Years
2013-2017
|
|
|
4,216
|
|
|
|
178
|
|
Multi-Employer
Pension Plan
Approximately 20% of the Companys employees are currently
covered by collectively bargained, multi-employer pension plans.
Contributions are determined in accordance with the provisions
of negotiated union contracts and generally are based on the
number of hours worked. The Company does not have the
information
51
Notes to
Consolidated Financial
Statements (Continued)
available to determine its share of the accumulated plan
benefits or net assets available for benefits under the
multi-employer pension plans. The aggregate amount charged to
expense under these plans was $523, $336, and $335 for the years
ended December 31, 2007, 2006, and 2005, respectively.
401(k)
Savings Plan
Most employees are eligible to participate in Company sponsored
401(k) savings plans. Company matching contributions vary from
0% to 50% according to terms of the individual plans and
collective bargaining agreements. The aggregate amount charged
to expense under these plans was $808, $751, and $763 for the
years ended December 31, 2007, 2006, and 2005, respectively.
Retirement
Contribution Account
The Company has a defined contribution plan for substantially
all salaried employees. Employees are not permitted to
contribute to the plan. Company contributions to this plan are
discretionary. Depending on the age of the employee,
participants earned 1.5% to 6.0% of eligible compensation for
2007 and 2006, and 0.75% to 3.0% of eligible compensation for
the period July 1, 2005 through December 31, 2005. The
amounts charged to expense for the years ended December 31,
2007, 2006, and 2005 were $2,005, $1,862, and $430, respectively.
The following is a summary of the components of the
Companys income tax provision for the years ended
December 31, 2007, 2006, and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Currently payable (receivable):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State and local
|
|
|
493
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(47
|
)
|
|
|
709
|
|
|
|
351
|
|
Deferred (future tax benefit)
|
|
|
(1,227
|
)
|
|
|
(5,777
|
)
|
|
|
(23,709
|
)
|
Change in valuation allowance
|
|
|
1,218
|
|
|
|
5,462
|
|
|
|
23,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
437
|
|
|
$
|
394
|
|
|
$
|
639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective income tax rate differs from the statutory federal
income tax rate for the years ended December 31, 2007,
2006, and 2005 for the following reasons:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory income tax rate
|
|
|
35.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income taxes, net of federal tax benefit and before
valuation allowance
|
|
|
(7.8
|
)
|
|
|
3.9
|
|
|
|
4.1
|
|
Nondeductible goodwill impairment and other permanent differences
|
|
|
(18.0
|
)
|
|
|
(4.5
|
)
|
|
|
(17.8
|
)
|
Foreign income taxes
|
|
|
3.9
|
|
|
|
(2.0
|
)
|
|
|
|
|
Valuation allowance
|
|
|
(19.2
|
)
|
|
|
(31.0
|
)
|
|
|
(20.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(0.8
|
)
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(6.9
|
)%
|
|
|
(2.2
|
)%
|
|
|
(0.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
Notes to
Consolidated Financial
Statements (Continued)
The components of the Companys deferred taxes as of
December 31, 2007 and 2006 are the result of book/tax basis
differences related to the following items:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable reserves
|
|
$
|
1,730
|
|
|
$
|
2,055
|
|
Inventory reserves
|
|
|
1,898
|
|
|
|
1,387
|
|
Goodwill and intangible assets
|
|
|
2,156
|
|
|
|
2,617
|
|
Deferred gain on sale-leaseback
|
|
|
1,590
|
|
|
|
2,161
|
|
Accrued liabilities
|
|
|
3,178
|
|
|
|
3,404
|
|
Other long-term liabilities
|
|
|
86
|
|
|
|
1,402
|
|
Net operating loss carryforwards
|
|
|
51,723
|
|
|
|
47,675
|
|
Other
|
|
|
407
|
|
|
|
259
|
|
Valuation allowance
|
|
|
(48,010
|
)
|
|
|
(46,792
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,758
|
|
|
|
14,168
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
|
|
(14,495
|
)
|
|
|
(13,641
|
)
|
Note payable to seller of Safway
|
|
|
(286
|
)
|
|
|
(559
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(14,781
|
)
|
|
|
(14,200
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
(23
|
)
|
|
$
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
For federal income tax purposes, the Company has federal net
operating loss carryforwards of approximately $134,000 that
expire over a nine-year period beginning in 2019. The Company
also has state net operating tax loss carryforwards of
approximately $107,000 that expire over a period of five to
twenty years beginning in 2008. The Company has recorded a
non-cash valuation allowance to reduce its deferred tax asset
related to these net operating loss carryforwards and other
deferred tax assets, as estimated levels of future taxable
income are less than the amount needed to realize these assets.
If such estimates change in the future, the valuation allowance
would be decreased or increased, resulting in a non-cash
increase or decrease to net income.
The adoption of Interpretation No. 48 did not have a
material impact on the consolidated financial statements. The
Company files income tax returns in the United States, Canada,
and in various state, local, and provincial jurisdictions. The
Company is subject to U.S. Federal income tax examination
for 2004 through 2006, and in other jurisdictions for 1999
through 2006. Use of net operating losses from years prior to
these may re-open the examination period for those prior years.
The Company recognizes interest and penalties as a component of
the provision for income taxes. A reconciliation of the
beginning and ending balance of unrecognized tax benefits is as
follows:
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
563
|
|
Additions for new tax positions in current year
|
|
|
570
|
|
Additions to tax positions from prior year
|
|
|
12
|
|
Reductions in tax positions from prior year
|
|
|
(170
|
)
|
Foreign currency translation
|
|
|
12
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
987
|
|
|
|
|
|
|
The amount is reflected as $864 as a reduction to the deferred
tax asset related to the net operating loss carryforwards and
$123 as an income tax payable. There was no impact to the
provision for income taxes or the effective rate reconciliation
as a result of FIN 48. The total amount of accrued interest
and penalties at December 31,
53
Notes to
Consolidated Financial
Statements (Continued)
2007 was $14. The Company does not expect any material changes
in its uncertain tax positions for the next 12 months.
A provision has not been made for domestic or additional foreign
taxes on the undistributed portion of earnings of our foreign
subsidiary as those earnings have been permanently reinvested.
The undistributed earnings of the Companys foreign
subsidiary approximate $9,000. The amount of the deferred tax
liability associated with these earnings has not been
calculated, as it is impractical to determine.
The Company uses 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. Accordingly, this
segmentation provides information for decision-making and
resource allocation. Product sales represent sales of new
products carried in inventories on the balance sheet. Cost of
goods sold for product sales include material, manufacturing
labor, overhead costs, and freight. Rental revenues represent
the leasing of the rental equipment and are recognized ratably
over the lease term. Cost of goods sold for rental revenues
includes depreciation of the rental equipment, maintenance of
the rental equipment, and freight. Sales of used rental
equipment represent sales of the rental equipment after a period
of generating rental revenue. Cost of goods sold for sales of
used rental equipment consists of the net book value of the
rental equipment. All other expenses, as well as assets and
liabilities, are not tracked by sales type and therefore it is
not practicable to disclose this information by segment.
Depreciation was reflected in determining segment gross profit;
however, it is not practicable to allocate the depreciation
expense between the rental and used rental equipment segments.
Export sales and sales by
non-U.S. affiliates
is not significant.
Information about the income of each segment and the
reconciliations to the consolidated amounts for the years ended
December 31, 2007, 2006, and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Product sales
|
|
$
|
398,404
|
|
|
$
|
388,100
|
|
|
$
|
352,888
|
|
Rental revenue
|
|
|
59,671
|
|
|
|
62,769
|
|
|
|
49,485
|
|
Used rental equipment sales
|
|
|
24,883
|
|
|
|
28,441
|
|
|
|
16,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
482,958
|
|
|
|
479,310
|
|
|
|
418,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product cost of sales
|
|
|
292,946
|
|
|
|
296,351
|
|
|
|
277,107
|
|
Rental cost of sales
|
|
|
33,295
|
|
|
|
36,845
|
|
|
|
38,038
|
|
Used rental equipment cost of sales
|
|
|
4,951
|
|
|
|
7,706
|
|
|
|
5,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
331,192
|
|
|
|
340,902
|
|
|
|
320,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross profit
|
|
|
105,458
|
|
|
|
91,749
|
|
|
|
75,781
|
|
Rental gross profit
|
|
|
26,376
|
|
|
|
25,924
|
|
|
|
11,447
|
|
Used rental equipment gross profit
|
|
|
19,932
|
|
|
|
20,735
|
|
|
|
11,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
151,766
|
|
|
$
|
138,408
|
|
|
$
|
98,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales (Property, plant, and equipment)
|
|
$
|
5,657
|
|
|
$
|
5,041
|
|
|
$
|
6,302
|
|
Rental Revenue (Rental equipment)
|
|
|
16,623
|
|
|
|
19,156
|
|
|
|
24,474
|
|
Corporate
|
|
|
2,826
|
|
|
|
1,722
|
|
|
|
2,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation
|
|
$
|
25,106
|
|
|
$
|
25,919
|
|
|
$
|
32,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
Notes to
Consolidated Financial
Statements (Continued)
|
|
(8)
|
Commitments
and Contingencies
|
Operating
Leases
Rental expense for property, plant and equipment (principally
manufacturing/distribution, service/distribution, office
facilities, forklifts, and office equipment) was $10,261,
$7,514, and $6,589, for the years ended December 31, 2007,
2006 and 2005, respectively. Lease terms range from
month-to-month to 20 years and some contain renewal options.
Aggregate minimum annual rental commitments under non-cancelable
operating leases are as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
|
2008
|
|
$
|
9,520
|
|
2009
|
|
|
7,695
|
|
2010
|
|
|
7,145
|
|
2011
|
|
|
6,717
|
|
2012
|
|
|
5,902
|
|
Thereafter
|
|
|
32,566
|
|
|
|
|
|
|
Total
|
|
$
|
69,545
|
|
|
|
|
|
|
Several of the Companys operating leases contain
predetermined fixed increases of the minimum rental rate during
the initial lease term. For these leases, the Company recognizes
the related rental expense on a straight-line basis and records
the difference between the amount charged to expense and the
rent paid as accrued rent. The amount of accrued rent as of
December 31, 2007 and 2006 was $1,797 and $707,
respectively.
Litigation
From time to time, the Company is involved in various legal
proceedings arising out of the ordinary course of business. None
of the matters in which the Company is currently involved,
either individually, or in the aggregate, is expected to have a
material adverse effect on the Companys consolidated
financial position, results of operations, or cash flows.
Self-Insurance
The Company is self-insured for certain of its group medical,
workers compensation and product and general liability
claims. The Company estimates the reserves required for these
claims, which are undiscounted. No material revisions were made
to the estimates for the years ended December 31, 2007,
2006 and 2005. The Company has reserved $6,387 and $6,985 as of
December 31, 2007 and 2006, respectively. The Company has
stop loss insurance coverage at various per occurrence and per
annum levels depending on the type of claim. The stop loss
amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
Per Occurrence and
|
|
|
Aggregate
|
|
Insurance Type
|
|
per Annum Levels
|
|
|
per Annum Levels
|
|
|
Group Medical
|
|
$
|
150
|
|
|
|
N/A
|
|
Workers Compensation
|
|
Up to $
|
350
|
|
|
Up to $
|
5,000
|
|
Product and General Liability
|
|
Up to $
|
500
|
|
|
Up to $
|
4,000
|
|
Severance
Obligations
The Company has employment agreements with certain of its
executive management with annual base compensation ranging in
value from $180 to $450. The agreements generally provide for
salary continuation in the event of termination without cause
for periods of one to three years. The agreements also contain
certain non-competition clauses. As of December 31, 2007,
the remaining aggregate commitment under these severance
agreements if all individuals were terminated without cause was
$3,100.
55
Notes to
Consolidated Financial
Statements (Continued)
|
|
(9)
|
Sale-Leaseback
Transactions
|
In April 2005, the Company sold its manufacturing facility in
Des Plaines, Illinois to an unrelated party and immediately
leased it back from the purchaser. The net proceeds after
commissions and other normal closing costs were $11,636. The
lease has an initial term of 24 months and was renewed for
an additional 12 months. The Company realized a gain of
$6,673 on the sale of the facility that was initially deferred
and was being recognized ratably over the initial term of the
lease. Upon the Companys exercise of its renewal option
during 2006, the recognition of the remaining deferred gain was
extended over the new remaining lease term.
In October 2005, the Company completed a sale-leaseback
transaction with a different unrelated party. The Company sold
its manufacturing facilities in Aurora, Illinois; Kansas City,
Kansas; and Parsons, Kansas and its distribution center in
Miamisburg, Ohio. At the same time, the Company also entered
into four separate leases, under which the Company immediately
leased the four facilities back. The terms range from 10 to
13 years and permit the Company to renew each lease for up
to two five-year renewal terms.
The net proceeds after commissions and other normal closing
costs were $11,544. The Company realized an aggregate gain of
$1,188 on the sale of these facilities, comprised of a.) gains
of $4,518 that the Company initially deferred and is recognizing
ratably over the terms of the applicable leases, and b.) a loss
of $3,330 that was recognized immediately.
|
|
(10)
|
Facility
Closing and Severance
|
Facility closing and severance expenses were $1,753 in 2007 and
related to moving the Companys manufacturing and
distribution operation from a leased facility in Des Plaines,
Illinois to a newly leased facility in Elk Grove, Illinois. The
move is expected to be completed in the first quarter of 2008.
The Company estimates that it will incur expenses and expend
cash of an additional $1,000 in connection with the completion
of the relocation.
In 2006 and 2005, the Company incurred $423 and $1,712 to
realign its management structure, exit certain of its
distribution facilities and reduce overall headcount.
|
|
(11)
|
Related
Party Transactions
|
For the years ended December 31, 2007, 2006, and 2005, the
Company reimbursed Odyssey for travel, lodging, and meals of
$86, $45, and $233, respectively.
|
|
(12)
|
Quarterly
Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Full
|
|
Quarterly Operating Data
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
Net sales
|
|
$
|
99,022
|
|
|
$
|
137,516
|
|
|
$
|
130,823
|
|
|
$
|
115,597
|
|
|
$
|
482,958
|
|
Gross profit
|
|
|
29,371
|
|
|
|
44,423
|
|
|
|
39,064
|
|
|
|
38,908
|
|
|
|
151,766
|
|
Net income (loss)
|
|
|
(8,159
|
)
|
|
|
4,383
|
|
|
|
386
|
|
|
|
(3,302
|
)
|
|
|
(6,692
|
)
|
Net income (loss) per basic share
|
|
|
(0.45
|
)
|
|
|
0.24
|
|
|
|
0.02
|
|
|
|
(0.18
|
)
|
|
|
(0.37
|
)
|
Net income (loss) per diluted share
|
|
|
(0.45
|
)
|
|
|
0.23
|
|
|
|
0.02
|
|
|
|
(0.18
|
)
|
|
|
(0.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Full
|
|
Quarterly Operating Data
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
Net sales
|
|
$
|
101,331
|
|
|
$
|
130,215
|
|
|
$
|
131,641
|
|
|
$
|
116,123
|
|
|
$
|
479,310
|
|
Gross profit
|
|
|
26,493
|
|
|
|
38,728
|
|
|
|
39,209
|
|
|
|
33,978
|
|
|
|
138,408
|
|
Net income (loss)
|
|
|
(9,075
|
)
|
|
|
1,494
|
|
|
|
(342
|
)
|
|
|
(10,086
|
)
|
|
|
(18,009
|
)
|
Net income (loss) per basic share
|
|
|
(0.91
|
)
|
|
|
0.15
|
|
|
|
(0.03
|
)
|
|
|
(0.91
|
)
|
|
|
(1.76
|
)
|
Net income (loss) per diluted share
|
|
|
(0.91
|
)
|
|
|
0.15
|
|
|
|
(0.03
|
)
|
|
|
(0.91
|
)
|
|
|
(1.76
|
)
|
56
Notes to
Consolidated Financial
Statements (Continued)
The full year per share amounts do not equal the sum of the
quarterly amounts due to rounding and to the timing of the
issuance of common stock.
|
|
(13)
|
Restatement
of Previously Issued Financial Statements
|
During the reporting and closing process relating to the
preparation of the December 31, 2007 financial statements,
the Company determined that it had misapplied Statement of
Financial Accounting Standard No. 109
(SFAS 109),
Accounting for Income Taxes
,
and Statement of Financial Accounting Standard No. 95
(SFAS 95),
Statement of Cash Flows
.
The Company determined that it had overstated its valuation
allowance for deferred tax assets that was established at
December 31, 2004. The tax valuation allowance, which was
recorded to reduce the deferred tax asset related to the
Companys net operating loss carryforwards, did not
properly consider the reversal of a deferred tax liability
related to accelerated depreciation or the deferred tax asset
related to the Companys minimum pension liability
component of accumulated other comprehensive loss. The Company
has concluded that the deferred tax liability should have
reduced the tax valuation allowance, as it will reverse within
the net operating loss carryforward period. This was adjusted by
decreasing stockholders deficit as of January 1,
2005, and resulted in a decrease to the Companys
stockholders deficit and total liabilities as of
December 31, 2004, 2005, and 2006.
The Company also determined that it had reported proceeds from
sales of rental equipment on the statements of cash flows
incorrectly. The Company had reported proceeds from sales of
rental equipment on the statements of cash flows equal to used
rental equipment sales on the statements of operations rather
than adjusting for the change in the non-cash portion of such
sales.
The effects of the restatement on the consolidated financial
statements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Prepaid expenses and other current assets
|
|
$
|
5,907
|
|
|
$
|
3
|
|
|
$
|
5,910
|
|
Total current assets
|
|
|
162,984
|
|
|
|
3
|
|
|
|
162,987
|
|
Total assets
|
|
|
321,635
|
|
|
|
3
|
|
|
|
321,638
|
|
Deferred income taxes
|
|
|
11,354
|
|
|
|
(11,319
|
)
|
|
|
35
|
|
Total liabilities
|
|
|
423,179
|
|
|
|
(11,319
|
)
|
|
|
411,860
|
|
Accumulated other comprehensive income
|
|
|
(981
|
)
|
|
|
(143
|
)
|
|
|
(1,124
|
)
|
Accumulated deficit
|
|
|
(300,085
|
)
|
|
|
11,465
|
|
|
|
(288,620
|
)
|
Total stockholders deficit
|
|
|
(101,544
|
)
|
|
|
11,322
|
|
|
|
(90,222
|
)
|
Total liabilities and stockholders deficit
|
|
|
321,635
|
|
|
|
3
|
|
|
|
321,638
|
|
57
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2006
|
|
|
For the Year Ended December 31, 2005
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Changes in assets and liabilities Accounts receivable
|
|
$
|
(9,222
|
)
|
|
$
|
4,676
|
|
|
$
|
(4,546
|
)
|
|
$
|
5,705
|
|
|
$
|
(4,793
|
)
|
|
$
|
912
|
|
Changes in assets and liabilities Prepaid expenses
and other assets
|
|
|
(813
|
)
|
|
|
232
|
|
|
|
(581
|
)
|
|
|
5,734
|
|
|
|
(6,587
|
)
|
|
|
(853
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(1,158
|
)
|
|
|
4,908
|
|
|
|
3,750
|
|
|
|
2,461
|
|
|
|
(11,380
|
)
|
|
|
(8,919
|
)
|
Proceeds from sales of rental equipment
|
|
|
28,440
|
|
|
|
(4,908
|
)
|
|
|
23,532
|
|
|
|
16,610
|
|
|
|
11,380
|
|
|
|
27,990
|
|
Net cash provided by (used in) investing activities
|
|
|
(6,311
|
)
|
|
|
(4,908
|
)
|
|
|
(11,219
|
)
|
|
|
(16,372
|
)
|
|
|
11,380
|
|
|
|
(4,992
|
)
|
Supplemental Disclosures Sale of used rental
equipment in accounts and notes receivable
|
|
|
|
|
|
|
11,283
|
|
|
|
11,283
|
|
|
|
|
|
|
|
6,376
|
|
|
|
6,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2006
|
|
For the Year Ended December 31, 2005
|
|
|
As Previously
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
Reported
|
|
Adjustments
|
|
As Restated
|
|
Reported
|
|
Adjustments
|
|
As Restated
|
|
Change in minimum pension and post-retirement liability
|
|
$
|
455
|
|
|
$
|
278
|
|
|
$
|
733
|
|
|
$
|
(542
|
)
|
|
$
|
(332
|
)
|
|
$
|
(874
|
)
|
Comprehensive loss
|
|
|
(17,609
|
)
|
|
|
278
|
|
|
|
(17,371
|
)
|
|
|
(114,923
|
)
|
|
|
(332
|
)
|
|
|
(115,255
|
)
|
On March 3, 2008, the Company redeemed its Senior Notes
with the proceeds of a new $100,000 term loan and a new $150,000
revolving credit facility. The Senior Notes were redeemed at a
premium of 2.813% of face value, or $4,641, which, along with
the write-off of the remaining debt discount and deferred
financing costs of $1,555, will be expensed as a loss on
extinguishment of long-term debt in the first quarter of 2008.
The new term loan was issued with net proceeds of $94,250, which
will be accreted to the face value using the effective interest
method and reflected as interest expense. The loan initially
matures in March 2009, but is automatically extended to March
2014 if the Senior Subordinated Notes are paid off prior to the
initial maturity of the new term loan. The new term loan is
subject to financial covenants for debt to adjusted EBITDA, as
defined in the agreement, and interest coverage.
58
DAYTON
SUPERIOR CORPORATION AND SUBSIDIARY
Schedule II
Valuation and Qualifying Accounts
Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges for
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
|
|
|
Which
|
|
|
|
|
|
|
Balance at
|
|
|
Costs
|
|
|
|
|
|
Reserves
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
and
|
|
|
|
|
|
Were
|
|
|
End of
|
|
|
|
Year
|
|
|
Expenses
|
|
|
Other
|
|
|
Created
|
|
|
Year
|
|
|
|
(Amounts in thousands)
|
|
|
Reserves for Doubtful Accounts and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Returns and Allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
$
|
5,430
|
|
|
$
|
3,023
|
|
|
$
|
|
|
|
$
|
(4,006
|
)
|
|
$
|
4,447
|
|
For the year ended December 31, 2006
|
|
|
5,435
|
|
|
|
3,712
|
|
|
|
|
|
|
|
(3,717
|
)
|
|
|
5,430
|
|
For the year ended December 31, 2005
|
|
|
5,375
|
|
|
|
3,956
|
|
|
|
|
|
|
|
(3,896
|
)
|
|
|
5,435
|
|
Net Realizable Value Reserve for Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
$
|
3,695
|
|
|
$
|
1,189
|
|
|
$
|
|
|
|
$
|
(1,214
|
)
|
|
$
|
3,670
|
|
For the year ended December 31, 2006
|
|
|
4,062
|
|
|
|
474
|
|
|
|
|
|
|
|
(841
|
)
|
|
|
3,695
|
|
For the year ended December 31, 2005
|
|
|
2,171
|
|
|
|
2,944
|
|
|
|
|
|
|
|
(1,053
|
)
|
|
|
4,062
|
|
Valuation Allowance for Deferred Tax Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
$
|
46,792
|
|
|
$
|
1,218
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
48,010
|
|
For the year ended December 31, 2006
|
|
|
41,330
|
|
|
|
5,462
|
|
|
|
|
|
|
|
|
|
|
|
46,792
|
|
For the year ended December 31, 2005
|
|
|
17,333
|
|
|
|
23,997
|
|
|
|
|
|
|
|
|
|
|
|
41,330
|
|
59
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure.
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), that are designed to provide
reasonable assurance that information required to be disclosed
in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is
accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required
disclosure.
Management, with the participation of our Chief Executive
Officer and Chief Financial Officer, performed an evaluation of
the effectiveness of our disclosure controls and procedures as
of the end of the fiscal year covered by this Annual Report on
Form 10-K.
Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that such disclosure controls
and procedures were not effective as noted below as of the end
of the fiscal year covered by this Annual Report on
Form 10-K.
Annual
Report of Management on Internal Control Over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with accounting principles
generally accepted in the United States of America. Internal
Control over financial reporting includes maintaining records
that in reasonable detail accurately and fairly reflect Dayton
Superior Corporations transactions; providing reasonable
assurance that transactions are recorded as necessary for
preparation of our financial statements; providing reasonable
authorization; and providing reasonable assurance that
unauthorized acquisition, use or disposition of Dayton Superior
Corporations assets that could have a material effect on
our financial statements would be prevented or detected on a
timely basis.
Management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our internal control over financial reporting as of
December 31, 2007, the end of our fiscal year. Management
based its assessment on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Managements assessment included evaluation of such
elements as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting
policies and our overall control environment. This assessment is
supported by testing and monitoring performed under the
direction of management.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Accordingly, even an effective system of internal control over
financial reporting will provide only reasonable assurance with
respect to financial statement preparation.
Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer identified a material weakness in the
Companys internal controls over financial reporting. A
material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting that
results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will
not be prevented or detected on a timely basis.
This material weakness resulted in a restatement of the
Companys December 31, 2006 and 2005 consolidated
statements of cash flows as discussed in Note 13 to the
accompanying consolidated financial statements. Management
concluded that the Companys internal control over
financial reporting was not operating effectively as the Company
did not maintain effective controls to ensure the consolidated
financial statements were prepared in
60
accordance with generally accepted accounting principles. As a
result, the Company misapplied Statement of Financial Accounting
Standard No. 95,
Statement of Cash Flows
, related to
cash received for sales of rental equipment.
The Companys registered public accounting firm has issued
an attestation report on the Companys internal controls
over financial reporting. That report is included below.
March 14, 2008
Remediation
Activities
As a result of the material weakness discussed above, the
Company changed its procedures in the first quarter of 2008 to
implement an additional review process to ensure the financial
statements are prepared in accordance with generally accepted
accounting principles.
Changes
in Internal Control over Financial Reporting
There have been no changes in the Companys internal
control over financial reporting, as such item is defined in
Exchange Act Rules 13a 15(f) and
15d 15(f), during the fiscal quarter ended
December 31, 2007, that have materially affected, or are
reasonable likely to materially affect the Companys
internal control over financial reporting. However, management
believes the measures that have been implemented to remediate
the material weakness have had a material impact on the
Companys internal control over financial reporting since
December 31, 2007, and anticipates that these measures and
other ongoing enhancements will continue to have a material
impact on the Companys internal control over financial
reporting in future periods.
61
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dayton Superior Corporation Dayton, OH
We have audited Dayton Superior Corporation (a Delaware
corporation) and subsidiarys (the
Companys) internal control over financial
reporting as of December 31, 2007, based on criteria
established in
Internal Control Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Annual Report of Management on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
that risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the companys annual or interim financial
statements will not be prevented or detected on a timely basis.
The following material weakness has been identified and included
in managements assessment: Management concluded that the
Companys internal control over financial reporting was not
operating effectively as the Company did not maintain effective
controls relating to the preparation of the consolidated
financial statements in accordance with generally accepted
accounting principles in the United States of America. As a
result, the Company misapplied Statement of Financial Accounting
Standard No. 95,
Statement of Cash Flows,
related to
cash received for sales of rental equipment. This material
weakness was considered in determining the nature, timing, and
extent of audit tests applied in our audit of the consolidated
financial statements and financial statement schedule as of and
for the year ended December 31, 2007, of the Company and
this report does not affect our report on such financial
statements and financial statement schedule.
In our opinion, because of the effect of the material weakness
identified above on the achievement of the objectives of the
control criteria, the Company has not maintained effective
internal control over financial reporting
62
as of December 31, 2007, based on the criteria established
in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2007, of
the Company and our report dated March 14, 2008 expressed
an unqualified opinion on those financial statements and
financial statement schedule and includes explanatory paragraphs
relating to the Companys adoption of Financial Accounting
Standards Board Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes an Interpretation of
Financial Accounting Standards Board Statement
No. 109,
Statement of Financial Accounting
Standards No. 123 (Revised 2004),
Share-Based
Payment,
and Statement of Financial Accounting
Standards No. 158,
Employers Accounting for
Defined Benefit Pension and Other Postretirement Benefit
Plans an amendment of FASB Statements No. 87,
88, 106, and 132(R),
discussed in Note 2 and the
restatement of the Companys consolidated financial
statements and financial statement schedule discussed in
Note 13.
DELOITTE & TOUCHE LLP
Dayton, OH
March 14, 2008
63
|
|
Item 9A(T)
|
Controls
and Procedures.
|
Not applicable.
|
|
Item 9B.
|
Other
Information
|
Not applicable.
Part III
|
|
Item 10.
|
Directors,
Executive Officers, and Corporate Governance of the
Registrant.
|
The information required by this Item 10 is incorporated
herein by reference to the information under the headings
Directors and Nominees and Corporate
Governance in our proxy statement for the Annual Meeting
of Stockholders scheduled to be held on April 22, 2008,
except for certain information concerning our executive
officers, which is set forth at the end of Part I of this
Annual Report on
Form 10-K.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item 11 is incorporated
herein by reference to the information under the headings
Compensation Committee Interlocks and Insider
Participation in Compensation Decisions and
Executive Compensation in our proxy statement for
the Annual Meeting of Stockholders scheduled to be held on
April 22, 2008.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management, and
Related Stockholder Matters
|
Equity
Compensation Plan Information
The following table sets forth information concerning our equity
compensation plans as of December 31, 2007, which currently
includes only the 2000 Dayton Superior Corporation Stock Option
Plan, as amended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities
|
|
|
|
|
|
Available for Future
|
|
|
|
to be Issued Upon
|
|
|
Weighted Average Exercise
|
|
|
Issuance Under Equity
|
|
|
|
Exercise of
|
|
|
Price of Outstanding
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Options, Warrants and
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Rights
|
|
|
Reflected in Column(a)
|
|
|
Equity compensation plans approved by security holders
|
|
|
743,762
|
|
|
$
|
11.74
|
|
|
|
817,663
|
|
Equity compensation plans not approved by security holders
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
743,762
|
|
|
$
|
11.74
|
|
|
|
817,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The other information required by this Item 12 is
incorporated herein by reference to the information under the
heading Beneficial Ownership of Common Stock in our
proxy statement for the Annual Meeting of Stockholders scheduled
to be held on April 22, 2008.
|
|
Item 13.
|
Certain
Relationships and Related Transactions and Director
Independence.
|
The information required by this Item 13 is incorporated
herein by reference to the information under the headings
Certain Relationships and Related Party Transactions
and Corporate Governance in our proxy statement for
the Annual Meeting of Stockholders scheduled to be held on
April 22, 2008.
64
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this Item 14 is incorporated
herein by reference to the information under the heading
Independent Auditors in our proxy statement for the
Annual Meeting of Stockholders scheduled to be held on
April 22, 2008.
Part IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)(1)
Financial Statements
The
following consolidated financial statements of the Company and
subsidiaries are incorporated by reference as part of this
Report under Item 8.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2007 and
2006 (as restated)
Consolidated Statements of Operations for the years ended
December 31, 2007, 2006, and 2005
Consolidated Statements of Stockholders Equity for the
years ended December 31, 2007, 2006 (as restated), and 2005
(as restated)
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 (as restated), and 2005 (as
restated)
Consolidated Statements of Comprehensive Loss for the years
ended December 31, 2007, 2006 (as restated), and 2005 (as
restated)
Notes to Consolidated Financial Statements
(a)(2)
Financial Statement Schedules
Schedule II
Valuation and Qualifying Accounts (at Item 8 of this
Report)
All other schedules are omitted because they are not applicable,
or not required, or because the required information is included
in the consolidated financial statements or notes thereto.
(a)(3)
Exhibits
.
See Index to
Exhibits following the signature pages to this Report for a list
of exhibits.
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Dayton Superior Corporation has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DAYTON SUPERIOR CORPORATION
Eric R. Zimmerman
President and Chief Executive
Officer
March 14, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of Dayton Superior Corporation and in the capacities
and on the dates indicated.
|
|
|
|
|
|
|
NAME
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
/s/ Eric
R. Zimmerman
Eric
R. Zimmerman
|
|
President, Chief Executive Officer and
Director
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Edward
J. Puisis
Edward
J. Puisis
|
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Thomas
W. Roehrig
Thomas
W. Roehrig
|
|
Vice President, Finance and Secretary
(Principal Accounting Officer)
|
|
March 14, 2008
|
|
|
|
|
|
/s/ Stephen
Berger
Stephen
Berger
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Steven
M. Berzin
Steven
M. Berzin
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Joseph
D. Hinkel
Joseph
D. Hinkel
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
/s/ William
F. Hopkins
William
F. Hopkins
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Sidney
J. Nurkin
Sidney
J. Nurkin
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ Douglas
Rotatori
Douglas
Rotatori
|
|
Director
|
|
March 17, 2008
|
66
Index
of Exhibits
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
Articles of Incorporation and By-Laws
|
|
|
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of the Company
|
|
|
|
|
|
|
3.2
|
|
Amended and Restated By-Laws of the Company
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
Instruments defining the Rights of Security Holders,
Including Indentures
|
|
|
|
|
|
|
4.1
|
|
Form of Junior Convertible Subordinated Indenture between the
Company and Firstar Bank, N.A., as Indenture Trustee
[Incorporated by reference to Exhibit 4.2.3 to the
Companys Registration Statement on Form S-3 (Reg.
333-84613)]
|
|
|
|
|
|
|
4.1.1
|
|
First Supplemental Indenture dated January 17, 2000, between the
Company and Firstar Bank, N.A., as Trustee [Incorporated by
reference to Exhibit 4.1.1 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2004]
|
|
|
|
|
|
|
4.1.2
|
|
Form of Junior Convertible Subordinated Debenture [Incorporated
by reference to Exhibit 4.2.3 to the Companys Registration
Statement on Form S-3 (Reg. 333-84613)]
|
|
|
|
|
|
|
4.1.3
|
|
Second Supplemental Indenture dated December 14, 2006 between
the Company and U.S. Bank N.A., as trustee [Incorporated by
reference to Exhibit 4.1.3 to the Companys Registration
Statement on Form S-1 (Reg. No. 333-137785)]
|
|
|
|
|
|
|
4.2
|
|
Indenture dated June 16, 2000 among the Company, the Guarantors
named therein, as guarantors, and United States Trust Company of
New York, as trustee, relating to $170,000,000 in aggregate
principal amount of 13% Senior Subordinated Notes due 2009
and registered 13% Senior Subordinated Notes due 2009
[Incorporated by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-4 (Reg. 333-41392)]
|
|
|
|
|
|
|
4.2.1
|
|
First Supplemental Indenture dated as of August 3, 2000.
[Incorporated by reference to Exhibit 4.5.1 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2001]
|
|
|
|
|
|
|
4.2.2
|
|
Second Supplemental Indenture dated as of January 4, 2001.
[Incorporated by reference to Exhibit 4.5.2 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2001]
|
|
|
|
|
|
|
4.2.3
|
|
Third Supplemental Indenture dated as of June 19, 2001.
[Incorporated by reference to Exhibit 4.5.3 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2001]
|
|
|
|
|
|
|
4.2.4
|
|
Fourth Supplemental Indenture dated as of September 30, 2003.
[Incorporated by reference to Exhibit 4.2.4 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2003]
|
|
|
|
|
|
|
4.2.5
|
|
Fifth Supplemental Indenture dated as of December 4, 2006.
[Incorporated by reference to Exhibit 4.2.5 to the
Companys Registration Statement on Form S-1 (Reg. No.
333-137785)]
|
|
|
|
|
|
|
4.2.6
|
|
Sixth Supplemental Indenture dated as of December 14, 2006.
[Incorporated by reference to Exhibit 4.2.6 to the
Companys Registration Statement on Form S-1 (Reg. No.
333-137785)]
|
|
|
|
|
|
|
4.3
|
|
Specimen Certificate of 13% Senior Subordinated Notes due
2009 [Incorporated by reference to Exhibit 4.2 to the
Companys Registration Statement on Form S-4 (Reg.
333-41392)]
|
|
|
|
|
|
|
4.4
|
|
Specimen Certificate of the registered 13% Senior
Subordinated Notes due 2009 [Incorporated by reference to
Exhibit 4.3 to the Companys Registration Statement on Form
S-4 (Reg. 333-41392)]
|
|
|
|
|
|
|
4.5
|
|
Warrant Agreement dated as of June 16, 2000 between the Company
and United States Trust Company of New York, as Warrant Agent
[Incorporated by reference to Exhibit 4.5 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2003]
|
|
|
67
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
|
|
|
|
|
|
4.6
|
|
Warrant Shares Registration Rights Agreement dated as of June
16, 2000 among the Company and the Initial Purchasers
[Incorporated by reference to Exhibit 4.6 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2003]
|
|
|
|
|
|
|
4.7
|
|
Senior Second Secured Notes Indenture with respect to the
10
3
/
4
% Senior
Second Secured Notes due 2008, among the Company, the Guarantors
named therein and The Bank of New York, as Trustee, dated June
9, 2003 [Incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on Form S-4 (Reg.
333-107071)]
|
|
|
|
|
|
|
4.7.1
|
|
First Supplemental Indenture dated as of December 14, 2006,
between the Company and The Bank of New York, as trustee.
[Incorporated by reference to Exhibit 4.8.1 to the
Companys Registration Statement on Form S-1 (Reg. No.
333-137785)]
|
|
|
|
|
|
|
4.8
|
|
Form of
10
3
/
4
% Senior
Second Secured Note due 2008 (included in Exhibit 4.7)
|
|
|
|
|
|
|
4.9
|
|
Second Amended and Restated Security Agreement, among the
Company, certain former subsidiaries of the Company and The Bank
of New York, as Collateral Agent and as Trustee, dated January
30, 2004 [Incorporated by reference to Exhibit 4.10 to the
Companys Registration Statement on Form S-4 (Reg.
333-107071)]
|
|
|
|
|
|
|
4.10
|
|
Second Amended and Restated Pledge Agreement, among the Company,
Trevecca Holdings, Inc. and The Bank of New York, as Collateral
Agent and as Trustee, dated January 30, 2004 [Incorporated by
reference to Exhibit 4.11 to the Companys Registration
Statement on Form S-4 (Reg. 333-107071)]
|
|
|
|
|
|
|
4.11
|
|
Term Loan Credit Agreement Dated as of March 3, 2008 among
Dayton Superior Corporation, as the Borrower the Lenders Party
Hereto and General Electric Capital Corporation as
Administrative Agent and Collateral Agent [Incorporated by
reference to Exhibit X.X to the Companys Current Report on
Form 8-K file March X, 2008]
|
|
|
|
|
|
|
4.12
|
|
Revolving Credit Agreement Dated as of March 3, 2008 among
Dayton Superior Corporation, as the Borrower the Lenders and L/C
Issuers Party Hereto and General Electric Capital Corporation as
Administrative Agent and Collateral Agent [Incorporated by
reference to Exhibit X.X to the Companys Current Report on
Form 8-K file March X, 2008]
|
|
|
|
|
|
|
4.13
|
|
Registration Rights Agreement among the Company, Odyssey
Investment Partners Fund, LP, Odyssey Coinvestors, LLC, DS
Coinvestment I, LLC and DS Coinvestment II, LLC
[Incorporated by reference to Exhibit 4.15 to the Companys
Registration Statement on Form S-1 (Reg. No. 333-137785)]
|
|
|
|
|
|
|
|
|
Certain instruments defining the rights of holders of long-term
debt of the Company have not been filed because the total amount
does not exceed 10% of the total assets of the Company and its
subsidiary on a consolidated basis. A copy of each such
instrument will be furnished to the Commission upon request.
|
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
Voting Trust Agreement
|
|
|
|
|
|
|
9.1
|
|
Voting Agreement and Irrevocable Proxy among the Company,
Odyssey and certain management shareholders [Incorporated by
reference to Exhibit 9.1 to the Companys Registration
Statement on Form S-1 (Reg. No. 333-137785)]
|
|
|
|
|
|
|
9.1.1
|
|
First Amendment to the Voting Agreement and Irrevocable Proxy
among the Company, Odyssey and certain management shareholders
[Incorporated by reference to Exhibit 9.1(a) to the
Companys Current Report on Form 8-K filed December 27,
2007]
|
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
Material Contracts
|
|
|
|
|
|
|
10.1
|
|
2008 Executive Incentive Plan
|
|
* **
|
|
|
|
|
10.2
|
|
Employment Agreement between the Company and Edward J. Puisis
[Incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q dated November 10, 2003]
|
|
*
|
|
|
|
|
10.3
|
|
Letter Agreement dated August 13, 2003 between Raymond
Bartholomae and the Company [Incorporated by reference to
Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q
dated November 10, 2003]
|
|
*
|
68
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
|
|
|
|
|
|
10.3.1
|
|
Letter Agreement dated as of December 15, 2005 between Raymond
Bartholomae and the Company amending prior Letter Agreement.
[Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K dated December 21, 2005]
|
|
*
|
|
|
|
|
10.4
|
|
Employment Agreement effective as of August 1, 2005 between Eric
R. Zimmerman and the Company. [Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K
dated August 2, 2005]
|
|
*
|
|
|
|
|
10.5
|
|
Dayton Superior Corporation 2000 Stock Option Plan [Incorporated
by reference to Exhibit 10.13 to the Companys Annual
Report on Form 10-K for the year ended December 31, 2001]
|
|
*
|
|
|
|
|
10.5.1
|
|
First Amendment to Dayton Superior Corporation 2000 Stock Option
Plan [Incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended March 30, 2001]
|
|
*
|
|
|
|
|
10.5.2
|
|
Second Amendment to Dayton Superior Corporation 2000 Stock
Option Plan dated July 15, 2002 [Incorporated by reference to
Exhibit 10.13.2 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2002]
|
|
*
|
|
|
|
|
10.5.3
|
|
Third Amendment to Dayton Superior Corporation 2000 Stock Option
Plan dated October 23, 2002 [Incorporated by reference to
Exhibit 10.13.3 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2002]
|
|
*
|
|
|
|
|
10.5.4
|
|
Fourth Amendment to Dayton Superior Corporation 2000 Stock
Option Plan dated February 10, 2004. [Incorporated by reference
to Exhibit 10.10.4 to the Companys Annual Report on Form
10-K for the year ended December 31, 2003]
|
|
*
|
|
|
|
|
10.5.5
|
|
Fifth Amendment to Dayton Superior Corporation 2000 Stock Option
Plan dated February 10, 2004 effective April 18, 2007
[Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K dated May 30, 2007]
|
|
*
|
|
|
|
|
10.5.6
|
|
Form of Amended and Restated Stock Option Agreement entered into
between the Company and certain of its executive officers
[Incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 28,
2002]
|
|
*
|
|
|
|
|
10.5.7
|
|
Form of First Amendment to Stock Option Agreement dated as of
July 1, 2003 [Incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended July 2, 2003]
|
|
*
|
|
|
|
|
10.5.8
|
|
Form of Stock Option Agreement entered into between the Company
and certain of its Directors dated April 18, 2007 [Incorporated
by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated April 25, 2007]
|
|
*
|
|
|
|
|
10.6
|
|
Restricted Stock Agreement dated as of June 30, 2006, between
the Company and Eric R. Zimmerman. [Incorporated by reference to
Exhibit 10.10 to the Companys Registration Statement on
Form S-1 (Reg. No. 333-137785)]
|
|
*
|
|
|
|
|
10.7
|
|
Restricted Stock Agreement dated as of June 30, 2006, between
the Company and Edward J. Puisis. [Incorporated by reference to
Exhibit 10.11 to the Companys Registration Statement on
Form S-1 (Reg. No. 333-137785)]
|
|
*
|
|
|
|
|
10.8
|
|
Restricted Stock Agreement dated as of June 30, 2006, between
the Company and Raymond E. Bartholomae. [Incorporated by
reference to Exhibit 10.12 to the Companys Registration
Statement on Form S-1 (Reg. No. 333-137785)]
|
|
*
|
|
|
|
|
10.9
|
|
Repayment and Stock Pledge Agreement dated June 16, 2000,
between the Company and Raymond E. Bartholomae. [Incorporated by
reference to Exhibit 10.14 to the Companys Registration
Statement on Form S-1 (Reg. No. 333-137785)]
|
|
*
|
|
|
|
|
10.10
|
|
Repayment and Stock Pledge Agreement dated March 30, 2001,
between the Company and Raymond E. Bartholomae. [Incorporated by
reference to Exhibit 10.15 to the Companys Registration
Statement on Form S-1 (Reg. No. 333-137785)]
|
|
*
|
|
|
|
|
10.11
|
|
Form of Indemnification Agreement between the Company and
certain of its Directors [Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K dated
March 21, 2007]
|
|
*
|
69
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
|
|
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
Code of Ethics
|
|
|
|
|
|
|
14
|
|
Code of Business Conduct and Ethics [Incorporated by reference
to Exhibit 14 to the Companys Current Report on Form 8-K
filed on December 22, 2006]
|
|
|
|
(21)
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries of the Registrant
|
|
|
|
|
|
|
21
|
|
Subsidiaries of the Company [Incorporated by reference to
Exhibit 21.1 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2004]
|
|
|
|
(23)
|
|
|
Consents of Experts and Counsel
|
|
|
|
|
|
|
23
|
|
Consent of Deloitte & Touche LLP
|
|
**
|
|
(31)
|
|
|
|
|
|
|
|
|
|
|
|
Rule 13a-14(a)/15d-14(a) Certifications
|
|
|
|
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of President and Chief
Executive Officer
|
|
**
|
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Vice President and
Chief Financial Officer
|
|
**
|
|
(32)
|
|
|
|
|
|
|
|
|
|
|
|
Section 1350 Certifications
|
|
|
|
|
|
|
32.1
|
|
Sarbanes-Oxley Section 1350 Certification of President and Chief
Executive Officer
|
|
**
|
|
|
|
|
32.2
|
|
Sarbanes-Oxley Section 1350 Certification of Vice President and
Chief Financial Officer
|
|
**
|
|
|
|
*
|
|
Compensatory plan, contract or arrangement in which one or more
directors or named executive officers participate.
|
|
**
|
|
Filed herewith
|
|
|
|
Previously filed
|
70
Dayton Superior Corp (MM) (NASDAQ:DSUP)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
Dayton Superior Corp (MM) (NASDAQ:DSUP)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024