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Washington,
D.C. 20549
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FOR
THE FISCAL YEAR ENDED DECEMBER 29,
2007
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(Exact name of registrant as specified in
its charter)
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(State
of incorporation)
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(I.R.S.
Employer Identification No.)
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(Address
of principal executive offices)
(Zip
Code)
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(Title
of Class)
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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
__ No X
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X
No_
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes
__ No X
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Synalloy Corporation
Form 10-K for Period
Ended December 29, 2007
Table of
Contents
Forward-Looking
Statements
This Annual Report on Form 10-K includes and incorporates by
reference "forward-looking statements" within the meaning of the securities
laws. All statements that are not historical facts are "forward-looking
statements." The words "estimate," "project," "intend," "expect," "believe,"
"anticipate," "plan," "outlook" and similar expressions identify
forward-looking statements. The forward-looking statements are subject to
certain risks and uncertainties, including without limitation those identified
below, which could cause actual results to differ materially from historical
results or those anticipated. Readers are cautioned not to place undue reliance
on these forward-looking statements. The following factors could cause actual
results to differ materially from historical results or those anticipated:
adverse economic conditions, the impact of competitive products and pricing,
product demand and acceptance risks, raw material and other increased costs, raw
materials availability, customer delays or difficulties in the production of
products, environmental issues, unavailability of debt financing on acceptable
terms and exposure to increased market interest rate risk, inability to comply
with covenants and ratios required by our debt financing arrangements and other
risks detailed from time-to-time in Synalloy's Securities and Exchange
Commission filings. Synalloy Corporation assumes no obligation to update any
forward-looking information included in this Annual Report on Form
10-K.
The
Company’s business is divided into two segments, the Metals Segment and the
Specialty Chemicals Segment. The Metals Segment, operating as Bristol Metals,
LLC (“Bristol”), manufactures pipe and piping systems from stainless steel and
other alloys for the chemical, petrochemical, pulp and paper, mining, power
generation (including nuclear), wastewater treatment, liquid natural gas,
brewery, food processing, petroleum, pharmaceutical and other industries. The
Specialty Chemicals Segment is comprised of four operating companies: Blackman
Uhler Specialties, LLC (“BU Specialties”), Organic Pigments, LLC (“OP”) and SFR,
LLC (“SFR”), all located in Spartanburg, South Carolina, and Manufacturers
Chemicals, LLC (“MC”), located in Cleveland, Tennessee and Dalton, Georgia. The
Specialty Chemicals Segment produces specialty chemicals, pigments and dyes for
the carpet, chemical, paper, metals, photographic, pharmaceutical, agricultural,
fiber, paint, textile, automotive, petroleum, cosmetics, mattress, furniture and
other industries.
A
significant amount of the pipe produced is further processed into piping systems
that conform to engineered drawings furnished by the customers. This allows the
customer to take advantage of the high quality and efficiency of Bristol's
fabrication shop rather than performing all of the welding at the construction
site. The pipe fabrication shop can make one and one-half diameter cold bends on
one-half inch through eight-inch stainless pipe with thicknesses up through
schedule 40S. Most piping systems are produced from pipe manufactured by
Bristol.
In order
to establish stronger business relationships, only a few raw material suppliers
are used. Five suppliers furnish more than two-thirds of total dollar purchases
of raw materials. However, raw materials are readily available from a number of
different sources and the Company anticipates no difficulties in obtaining its
requirements.
Specialty
Chemicals Segment – This Segment includes four operating companies, all
of which are wholly-owned subsidiaries of the Company. BU Specialties, OP, and
SFR operate out of a plant in Spartanburg, South Carolina, which is fully
licensed for chemical manufacture and maintains a permitted waste treatment
system. Manufacturers Soap and Chemical Company, which owns 100 percent of MC is
located in Cleveland, Tennessee and Dalton, Georgia and is fully licensed for
chemical manufacture. The Segment produces specialty chemicals,
pigments and dyes for the carpet, chemical, paper, metals, photographic,
pharmaceutical, agricultural, fiber, paint, textile, automotive, petroleum,
cosmetics, mattress, furniture and other industries.
MC, which
was purchased by the Company in 1996, produces over 500 specialty formulations
and intermediates for use in a wide variety of applications and industries. MC’s
primary product lines focus on the areas of defoamers, surfactants and
lubricating agents. Over 20 years ago, MC began diversifying its marketing
efforts and expanding beyond traditional textile chemical markets. These three
fundamental product lines find their way into a large number of manufacturing
businesses. Over the years, the customer list has grown to include end users and
chemical companies that supply paper, metal working, surface coatings, water
treatment, mining and janitorial applications. MC’s strategy has been
to focus on industries and markets that have good prospects for sustainability
in the U.S. in light of global trends. MC’s marketing strategy relies on sales
to end users through its own sales force, but it also sells chemical
intermediates to other chemical companies and distributors. It also has close
working relationships with a significant number of major chemical companies that
outsource their production for regional manufacture and distribution to
companies like MC. MC has been ISO registered since 1995.
MC has
utilized acquisitions to help further expand its markets. An acquisition in 2000
enabled the Company to enter into the sulfation of fats and oils. These products
are used in a wide variety of applications and represent a renewable resource,
animal and vegetable derivatives, as alternatives to more expensive and
non-renewable petroleum derivatives. In 2001 MC acquired the assets of a Dalton,
Georgia based company that serves the carpet and rug markets and also focuses on
processing aids for wire drawing. MC Dalton blends and sells specialty dyestuffs
and resells heavy chemicals and specialty chemicals manufactured in MC’s
Cleveland plant to its markets out of its leased warehousing facility. The
Dalton site also contains a shade matching laboratory and sales offices for the
group.
BU
Specialties’ business activities involve contract production and toll
manufacturing for a number of domestic and international chemical companies. It
also produces a small but growing number of finished products and intermediates
that are marketed by MC and by the Executive Vice President of BU Specialties
who spends a substantial amount of his time in sales and service to customers.
This location has also focused on markets that are believed to be long-term
outlets for its production and capacity. BU Specialties carries out high
temperature condensation and sulfates as does MC, but also hydrogenates,
methylates, distills, epoxidizes, grinds and spray dries chemicals to its
customers’ specifications. The location also is registered for FIFRA regulated
agricultural products, and it hammermills, dry blends and conducts precise
exothermic reactions. Both the MC and BU Specialties sites have extensive
chemical storage and blending capabilities. BU Specialties has produced
products
that are used in oil refining, automotive applications, cosmetics, agriculture
and the paper industry. Like MC, it is focusing primarily on raw
materials and product lines that will rely on renewable vegetable-sourced
chemicals for future growth and expansions of its business.
During
the first quarter of 2006, OP’s operations were relocated to Spartanburg from
Greensboro, North Carolina. OP’s production equipment, laboratories, sales
office and warehousing were relocated into available areas of the Spartanburg
plant, and the Greensboro plant site was sold. The improved utilization of
facilities in Spartanburg and the ability for BU Specialties and OP to share
certain services brings economies to both business units. OP sells aqueous
pigment dispersions that have traditionally been used by the textile industry.
While certain textile business continues to contribute a significant portion of
OP’s revenues, it, too, is continuing to diversify into stable markets that are
believed to be sustainable in the future. These include applications for
printing inks, graphic arts, paints, industrial coatings, flexographic printing,
plastic and agriculture. The dispersions are produced from organic intermediates
and inorganic chemicals, sourced domestically, as well as from Asia and Europe.
Redundant sources exist for most of the Company’s pigments bases. OP is known
for its higher solid and finer particle size dispersions that are especially
suited for non-textile applications.
In 2003
Synalloy Corporation entered into a Joint Development Agreement with the Felters
Group of Spartanburg, South Carolina to pursue the fire retardant market as it
relates to mattress and bedding, upholstery, appliance and transportation
applications. Since that time, chemical formulations have been
developed for application on a variety of substrates and the Felters Group has
directed sales and marketing efforts toward these target
markets. Products have been promoted under the Felters Sleep Safe ™
brand name. The U.S. Consumer Safety Commission Standards for fire retardant
properties of mattresses went into effect on July 1, 2007. In the fourth quarter
of 2006, SFR was established to oversee the product development, production,
quality assurance and technical servicing of the Segment’s fire retardant
products for promotion by the Felters Group. The products are being produced at
both the MC and BU Specialties locations. In addition, certain
intumescent formulations are being produced by a subcontractor to support the
anticipated demand. This business is currently being supported by one
chemist, the V.P. of Operations of MC and one full-time sales
employee.
Most raw
materials used by the Segment are generally available from numerous independent
suppliers while some raw material needs are met by a sole supplier or only a few
suppliers. However, the Company anticipates no difficulties in obtaining its
requirements.
Please
see Note P to the Consolidated Financial Statements, which are included in Item
8 of this Form 10-K, for financial information about the Company's
Segments.
members
of the management team of MC, along with the Executive Vice Presidents of BU
Specialties and OP, devote a substantial part of their time to sales. The
Specialty Chemicals Segment had one domestic customer that accounted for
approximately 13 percent of the Segment’s revenues in 2007, 2006 and 2005.
The Segment also had one domestic customer that accounted for approximately ten
and 13 percent of the Segment’s revenues in 2007 and 2006, respectively, and
less than ten percent in 2005. Loss of either of these customers’ revenues would
have a material adverse effect on the Specialty Chemicals Segment.
Research
and Development Activities
The Specialty Chemicals Segment operates primarily on the
basis of delivering products soon after orders are received. Accordingly,
backlogs are not a factor in these businesses. The same applies to commodity
pipe sales in the Metals Segment. However, backlogs are important in the Metals
Segment's piping systems’ products because they are produced only after orders
are received, generally as the result of competitive bidding. Order backlogs for
these products were $57,000,000 at the end of 2007, 80 percent of which should
be completed in 2008, and $54,900,000 and $20,100,000 at the 2006 and 2005
respective year ends.
Available
information
The
Company electronically files with the Securities and Exchange Commission (SEC)
its annual reports on Form 10-K, its quarterly reports on Form 10-Q, its
periodic reports on Form 8-K, amendments to those reports filed or furnished
pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the “1934
Act), and proxy materials pursuant to Section 14 of the 1934 Act. The SEC
maintains a site on the Internet, www.sec.gov, that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The Company also makes
its filings available, free of charge, through its Web site, www.synalloy.com, as
soon as reasonably practical after the electronic filing of such material with
the SEC.
Item 1A Risk Factors
There are inherent risks and uncertainties associated
with our business that could adversely affect our operating performance and
financial condition. Set forth below are descriptions of those risks and
uncertainties that we believe to be material, but the risks and uncertainties
described are not the only risks and uncertainties that could affect our
business. Reference should be made to “Forward-looking Statements” above, and
“Management's Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7 below.
The cyclical nature of the industries in which our
customers operate causes demand for our products to be cyclical, creating
uncertainty regarding future profitability. Various changes in general
economic conditions affect the industries in which our customers operate. These
changes include decreases in the rate of consumption or use of our customers’
products due to economic downturns. Other factors causing fluctuation in our
customers’ positions are changes in market demand, capital spending, lower
overall pricing due to domestic and international overcapacity, lower priced
imports, currency fluctuations, and increases in use or decreases in prices of
substitute materials. As a result of these factors, our profitability has been
and may in the future be subject to significant fluctuation.
Product pricing and raw material costs are subject to
volatility, both of which may have an adverse effect on our revenues.
From time-to-time, intense competition and excess manufacturing capacity in the
commodity stainless steel industry have resulted in reduced prices, excluding
raw material surcharges, for many of our stainless steel products sold by the
Metals Segment. These factors have had and may have an adverse impact on our
revenues, operating results and financial condition. Although inflationary
trends in recent years have been moderate, during the same period stainless
steel raw material costs, including surcharges on stainless steel, have been
volatile. While we are able to mitigate some of the adverse impact of rising raw
material costs, such as passing through surcharges to customers, rapid increases
in raw material costs may adversely affect our results of operations. Surcharges
on stainless steel are also subject to rapid declines which can result in
similar declines in selling prices causing a possible marketability problem on
the related inventory as well as negatively impacting revenues and
profitability. While there has been ample availability of raw materials, there
continues to be a significant consolidation of stainless steel suppliers
throughout the world which could have an impact on the cost and availability of
stainless steel in the future. The ability to implement price increases is
dependent on market conditions, economic factors, raw material costs, including
surcharges on stainless steel, availability of raw materials, competitive
factors, operating costs and other factors, most of which are beyond our
control. In addition, to the extent that we have quoted prices to customers and
accepted customer orders for products prior to purchasing necessary raw
materials, or have existing contracts, we may be unable to raise the price of
products to cover all or part of the increased cost of the raw
materials.
The Specialty Chemicals Segment uses significant
quantities of a variety of specialty and commodity chemicals in its
manufacturing processes which are subject to price and availability
fluctuations. Any significant variations in the cost and availability of
our specialty and commodity materials may negatively affect our business,
financial condition or results of operations. The raw materials we use are
generally available from numerous independent suppliers. However, some of our
raw material needs are met by a sole supplier or only a few suppliers. If any
supplier that we rely on for raw materials ceases or limits production, we may
incur significant additional costs, including capital costs, in order to find
alternate, reliable raw material suppliers. We may also experience significant
production delays while locating new supply sources. Purchase prices and
availability of these critical raw materials are subject to volatility. Some of
the raw materials used by this Segment are derived from petrochemical-based
feedstock, such as crude oil and natural gas, which have been subject to
historical periods
of rapid and significant movements in price. These
fluctuations in price could be aggravated by factors beyond our control such as
political instability, and supply and demand factors, including OPEC production
quotas and increased global demand for petroleum-based products. At any given
time we may be unable to obtain an adequate supply of these critical raw
materials on a timely basis, on price and other terms acceptable, or at all. If
suppliers increase the price of critical raw materials, we may not have
alternative sources of supply. We selectively pass changes in the prices of raw
materials to our customers from time-to-time. However, we cannot always do so,
and any limitation on our ability to pass through any price increases could
affect our financial performance.
We rely upon third parties for our supply of energy
resources consumed in the manufacture of our products in both of our Segments.
The prices for and availability of electricity, natural gas, oil and
other energy resources are subject to volatile market conditions. These market
conditions often are affected by political and economic factors beyond our
control. Disruptions in the supply of energy resources could temporarily impair
the ability to manufacture products for customers. Further, increases in energy
costs that cannot be passed on to customers, or changes in costs relative to
energy costs paid by competitors, has and may continue to adversely affect our
profitability.
We encounter significant competition in all areas of
our businesses and may be unable to compete effectively which could result in
reduced profitability and loss of market share. We actively compete with
companies producing the same or similar products and, in some instances, with
companies producing different products designed for the same uses. We encounter
competition from both domestic and foreign sources in price, delivery, service,
performance, product innovation and product recognition and quality, depending
on the product involved. For some of our products, our competitors
are larger and have greater financial resources and less debt than we do. As a
result, these competitors may be better able to withstand a change in conditions
within the industries in which we operate, a change in the prices of raw
materials or a change in the economy as a whole. Our competitors can be expected
to continue to develop and introduce new and enhanced products and more
efficient production capabilities, which could cause a decline in market
acceptance of our products. Current and future consolidation among
our competitors and customers also may cause a loss of market share as well as
put downward pressure on pricing. Our competitors could cause a reduction in the
prices for some of our products as a result of intensified price competition.
Competitive pressures can also result in the loss of major customers. If we
cannot compete successfully, our business, financial condition and consolidated
results of operations could be adversely affected.
The applicability of numerous environmental laws to
our manufacturing facilities could cause us to incur material costs and
liabilities. We are subject to federal, state, and local environmental,
safety and health laws and regulations concerning, among other things, emissions
to the air, discharges to land and water and the generation, handling, treatment
and disposal of hazardous waste and other materials. Under certain environmental
laws, we can be held strictly liable for hazardous substance contamination of
any real property we have ever owned, operated or used as a disposal site. We
are also required to maintain various environmental permits and licenses, many
of which require periodic modification and renewal. Our operations entail the
risk of violations of those laws and regulations, and we cannot assure you that
we have been or will be at all times in compliance with all of these
requirements. In addition, these requirements and their enforcement may become
more stringent in the future. Although we cannot predict the ultimate cost of
compliance with any such requirements, the costs could be material.
Non-compliance could subject us to material liabilities, such as government
fines, third-party lawsuits or the suspension of non-compliant operations. We
also may be required to make significant site or operational modifications at
substantial cost. Future developments also could restrict or eliminate the use
of or require us to make modifications to our products, which could have a
significant negative impact on our results of operations and cash flows. At any
given time, we are involved in claims, litigation, administrative proceedings
and investigations of various types involving potential environmental
liabilities, including cleanup costs associated with hazardous waste disposal
sites at our facilities. We cannot assure you that the resolution of these
environmental matters will not have a material adverse effect on our results of
operations or cash flows. The ultimate costs and timing of environmental
liabilities are difficult to predict. Liability under environmental laws
relating to contaminated sites can be imposed retroactively and on a joint and
several basis. We could incur significant costs, including cleanup costs, civil
or criminal fines and sanctions and third-party claims, as a result of past or
future violations of, or liabilities under, environmental laws. For additional
information related to environmental matters, see Note G to the Consolidated
Financial Statements.
We are dependent upon the continued safe operation of
our production facilities which are subject to a number of hazards. In
our Specialty Chemicals Segment, these production facilities are subject to
hazards associated with
the manufacture, handling, storage and transportation
of chemical materials and products, including leaks and ruptures, explosions,
fires, inclement weather and natural disasters, unscheduled downtime and
environmental hazards which could result in liability for workplace injuries and
fatalities. In addition, some of our production facilities are highly
specialized, which limits our ability to shift production to other facilities in
the event of an incident at a particular facility. If a production facility, or
a critical portion of a production facility, were temporarily shut down, we
likely would incur higher costs for alternate sources of supply for our
products. We cannot assure you that we will not experience these
types of incidents in the future or that these incidents will not result in
production delays or otherwise have a material adverse effect on our business,
financial condition or results of operations.
Certain of our employees in the Metals Segment are
covered by collective bargaining agreements, and the failure to renew these
agreements could result in labor disruptions and increased labor costs. We have 282
employees represented by unions at the Bristol, Tennessee facility which is 59
percent of our total employees. They are represented by two locals affiliated
with the AFL-CIO and one local affiliated with the Teamsters. Collective
bargaining contracts will expire in February 2009, December 2009 and March 2010.
Although we believe that our present labor relations are satisfactory, our
failure to renew these agreements on reasonable terms as the current agreements
expire could result in labor disruptions and increased labor costs, which could
adversely affect our financial performance.
The limits imposed on us by the restrictive covenants
contained in our credit facilities could prevent us from obtaining adequate
working capital, making acquisitions or capital improvements, or cause us to
lose access to our facilities. Our existing credit facilities contain
restrictive covenants that limit our ability to, among other things, borrow
money or guarantee the debts of others, use assets as security in other
transactions, make investments or other restricted payments or distributions,
change our business or enter into new lines of business, and sell or acquire
assets or merge with or into other companies. In addition, our credit facilities
require us to meet financial ratios which could limit our ability to plan for or
react to market conditions or meet extraordinary capital needs and could
otherwise restrict our financing activities. Our ability to comply with the
covenants and other terms of our credit facilities will depend on our future
operating performance. If we fail to comply with such covenants and terms, we
will be in default and the maturity of the related debt could be accelerated and
become immediately due and payable. We may be required to obtain waivers from
our lender in order to maintain compliance under our credit facilities,
including waivers with respect to our compliance with certain financial
covenants. If we are unable to obtain any necessary waivers and the debt under
our credit facilities is accelerated, our financial condition would be adversely
affected.
We may not have access to capital in the future.
We may need new or additional financing in the future to expand our
business or refinance existing indebtedness. If we are unable to access capital
on satisfactory terms and conditions, we may not be able to expand our business
or meet our payment requirements under our existing credit facilities. Our
ability to obtain new or additional financing will depend on a variety of
factors, many of which are beyond our control. We may not be able to obtain new
or additional financing because we may have substantial debt or because we may
not have sufficient cash flow to service or repay our existing or future debt.
In addition, depending on market conditions and our financial performance,
equity financing may not be available on satisfactory terms or at
all.
Our existing property and liability insurance
coverages contain exclusions and limitations on coverage. We have
maintained various forms of insurance, including insurance covering claims
related to our properties and risks associated with our operations. From
time-to-time, in connection with renewals of insurance, we have experienced
additional exclusions and limitations on coverage, larger self-insured
retentions and deductibles and higher premiums, primarily from our Specialty
Chemicals operations. As a result, in the future our insurance coverage may not
cover claims to the extent that it has in the past and the costs that we incur
to procure insurance may increase significantly, either of which could have an
adverse effect on our results of operations.
We may not be able to make changes
necessary to continue to be a market leader and an effective competitor.
We believe that we must continue to enhance our existing products and to
develop and manufacture new products with improved capabilities in order to
continue to be a market leader. We also believe that we must continue to make
improvements in our productivity in order to maintain our competitive position.
When we invest in new technologies, processes, or production capabilities, we
face risks related to construction delays, cost over-runs and unanticipated
technical difficulties. Our inability to anticipate, respond to or utilize
changing technologies could have a material adverse effect on our business and
our consolidated results of operations.
Our strategy of using acquisitions and dispositions
to position our businesses may not always be successful. We have
historically utilized acquisitions and dispositions in an effort to
strategically position our businesses and improve our ability to compete. We
plan to continue to do this by seeking specialty niches, acquiring businesses
complementary to existing strengths and continually evaluating the performance
and strategic fit of our existing business units. We consider acquisition, joint
ventures, and other business combination opportunities as well as possible
business unit dispositions. From time-to-time, management holds discussions with
management of other companies to explore such opportunities. As a result, the
relative makeup of the businesses comprising our Company is subject to change.
Acquisitions, joint ventures, and other business combinations involve various
inherent risks, such as: assessing accurately the value, strengths, weaknesses,
contingent and other liabilities and potential profitability of acquisition or
other transaction candidates; the potential loss of key personnel of an
acquired business; our ability to achieve identified financial and
operating synergies anticipated to result from an acquisition or other
transaction; and unanticipated changes in business and economic conditions
affecting an acquisition or other transaction.
Our internal controls over financial
reporting could fail to prevent or detect misstatements. 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.
Item
1B Unresolved Staff Comments
Not
applicable.
(1) Leased
facility.
(2) Plant
was closed in 2001 and all structures and manufacturing equipment have been
removed.
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2007
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2006
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Quarter
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High
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Low
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High
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|
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Low
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1st
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$ |
29.98 |
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$ |
18.01 |
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|
$ |
15.00 |
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$ |
10.38 |
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2nd
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|
|
47.45 |
|
|
|
29.50 |
|
|
|
15.13 |
|
|
|
11.40 |
|
|
3rd
|
|
|
36.32 |
|
|
|
17.01 |
|
|
|
15.40 |
|
|
|
12.39 |
|
|
4th
|
|
|
23.89 |
|
|
|
14.79 |
|
|
|
18.90 |
|
|
|
13.36 |
|
Unregistered
Sales of Equity Securities
Pursuant
to the compensation arrangement with directors discussed under Item 12 "Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters" in this Form 10-K, on April 26, 2007, the Company issued to each of its
directors, except Ron Braam, 389 shares of its common stock (an aggregate of
1,945 shares). Such shares were issued to the directors in lieu of $15,000 of
their annual cash retainer fees. Issuance of these shares was not registered
under the Securities Act of 1933 based on the exemption provided by Section 4(2)
thereof because no public offering was involved. During the fourth quarter ended
December 29, 2007, the Registrant did not issue or purchase any other shares of
common stock.
Neither
the Company, nor any affiliated purchaser (as defined in Rule 10b-18(a)(3) of
the Securities Exchange Act of 1934) on behalf of the Company repurchased any of
the Company’s securities during the fourth quarter of
2007.
(Dollar
amounts in thousands except for per share data)
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Operations
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
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|
$ |
178,285 |
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|
$ |
152,047 |
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|
$ |
131,408 |
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|
$ |
101,602 |
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|
$ |
80,408 |
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|
Gross
profit
|
|
|
28,163 |
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|
|
22,724 |
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|
|
16,781 |
|
|
|
13,976 |
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|
|
8,389 |
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|
Selling,
general & administrative expense
|
|
|
11,706 |
|
|
|
10,562 |
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|
|
10,369 |
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|
|
9,432 |
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|
|
8,177 |
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|
Asset
impairment & environmental costs
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|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
490 |
|
|
Operating
income (loss)
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|
|
16,457 |
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|
|
12,757 |
|
|
|
6,412 |
|
|
|
4,544 |
|
|
|
(278 |
) |
|
Net
income (loss) continuing operations
|
|
|
10,125 |
|
|
|
7,608 |
|
|
|
5,147 |
|
|
|
2,274 |
|
|
|
(580 |
) |
|
Net
loss discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
(51 |
) |
|
|
(1,100 |
) |
|
|
(840 |
) |
|
Net
income (loss)
|
|
|
10,125 |
|
|
|
7,608 |
|
|
|
5,096 |
|
|
|
1,174 |
|
|
|
(1,421 |
) |
|
Financial
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
96,621 |
|
|
|
89,357 |
|
|
|
70,982 |
|
|
|
71,202 |
|
|
|
64,925 |
|
|
Working
capital
|
|
|
46,699 |
|
|
|
46,384 |
|
|
|
28,664 |
|
|
|
35,088 |
|
|
|
28,706 |
|
|
Long-term
debt, less current portion
|
|
|
10,246 |
|
|
|
17,731 |
|
|
|
8,091 |
|
|
|
21,205 |
|
|
|
18,761 |
|
|
Shareholders'
equity
|
|
|
58,140 |
|
|
|
47,127 |
|
|
|
39,296 |
|
|
|
33,930 |
|
|
|
32,556 |
|
|
Financial
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
ratio
|
|
|
2.9 |
|
|
|
3.4 |
|
|
|
2.5 |
|
|
|
3.8 |
|
|
|
3.5 |
|
|
Gross
profit to net sales
|
|
|
16 |
% |
|
|
15 |
% |
|
|
13 |
% |
|
|
14 |
% |
|
|
10 |
% |
|
Long-term
debt to capital
|
|
|
15 |
% |
|
|
27 |
% |
|
|
17 |
% |
|
|
38 |
% |
|
|
37 |
% |
|
Return
on average assets
|
|
|
11 |
% |
|
|
9 |
% |
|
|
7 |
% |
|
|
3 |
% |
|
|
- |
|
|
Return
on average equity
|
|
|
19 |
% |
|
|
18 |
% |
|
|
14 |
% |
|
|
7 |
% |
|
|
- |
|
|
Per
Share Data (income/(loss) – diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) continuing operations
|
|
$ |
1.60 |
|
|
$ |
1.22 |
|
|
$ |
.84 |
|
|
$ |
.37 |
|
|
$ |
(.10 |
) |
|
Net
loss discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
(.01 |
) |
|
|
(.18 |
) |
|
|
(.14 |
) |
|
Net
income (loss)
|
|
|
1.60 |
|
|
|
1.22 |
|
|
|
.83 |
|
|
|
.19 |
|
|
|
(.24 |
) |
|
Dividends
declared and paid
|
|
|
.15 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Book
value
|
|
|
9.32 |
|
|
|
7.68 |
|
|
|
6.43 |
|
|
|
5.64 |
|
|
|
5.44 |
|
|
Other
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$ |
2,634 |
|
|
$ |
2,672 |
|
|
$ |
2,862 |
|
|
$ |
3,068 |
|
|
$ |
2,976 |
|
|
Capital
expenditures
|
|
$ |
4,486 |
|
|
$ |
3,092 |
|
|
$ |
3,246 |
|
|
$ |
2,313 |
|
|
$ |
1,325 |
|
|
Employees
at year end
|
|
|
482 |
|
|
|
437 |
|
|
|
434 |
|
|
|
442 |
|
|
|
470 |
|
|
Shareholders
of record at year end
|
|
|
834 |
|
|
|
897 |
|
|
|
935 |
|
|
|
1,009 |
|
|
|
1,039 |
|
|
Average
shares outstanding - diluted
|
|
|
6,296 |
|
|
|
6,234 |
|
|
|
6,139 |
|
|
|
6,142 |
|
|
|
5,997 |
|
|
Stock
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
range of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
47.45 |
|
|
$ |
18.90 |
|
|
$ |
12.34 |
|
|
$ |
10.75 |
|
|
$ |
8.54 |
|
|
Low
|
|
|
14.79 |
|
|
|
10.38 |
|
|
|
9.10 |
|
|
|
6.52 |
|
|
|
3.96 |
|
|
Close
|
|
|
17.67 |
|
|
|
18.54 |
|
|
|
10.46 |
|
|
|
9.90 |
|
|
|
6.92 |
|
The
Company continually reviews the recoverability of the carrying value of
long-lived assets. The Company also reviews long-lived assets for impairment
whenever events or changes in circumstances indicate the carrying amount of such
assets may not be recoverable. When the future undiscounted cash flows of the
operation to which the assets relate do not exceed the carrying value of the
asset, the assets are written down to fair value. Based on assessments performed
in 2007 on the assets of the Company, no write-downs were deemed necessary.
The Company believes that it is unlikely that these types of impairment charges
will occur with respect to its existing assets. However, if business conditions
at any of the plant sites were to deteriorate to an extent where cash flows and
other impairment measurements indicated values for the related long-lived assets
were less than the carrying values of those assets, impairment charges could be
necessary.
Cash flows provided by operations during 2007 totaled
$12,333,000. This compares to cash flows used in operations during 2006 of
$7,842,000, or an increase in cash flows of $20,175,000 from 2006 to 2007. The
Company’s inventories increased $7,256,000 from 2006 year end to 2007 year end
compared to increasing $17,063,000 from 2005 year end to 2006 year end. Almost
all of the increases in both years occurred in the Metals Segment primarily as a
result of the significant increase in cost from stainless steel surcharges
discussed below, coupled with an increase in special alloy and larger diameter
pipe requirements to meet customer orders and the increase in piping systems’
backlog. The increases in inventory were offset somewhat by the Metals Segment
receiving advance payments from customers, $6,031,000 in accrued expense at 2007
year end and $1,786,000 at 2006 year end, used to purchase stainless steel raw
materials specific to their orders. Accounts receivable declined $2,312,000 in
2007 after increasing $881,000 in 2006. The decrease in 2007 reflects the four
percent decline in sales experienced in the fourth quarter of 2007 compared to
the same period last year, and the increase in 2006 resulted primarily from the
improvement in sales experienced in 2006, up 16 percent over the
prior
year amount. Accounts payable increased $1,253,000 in 2007 and $584,000 in 2006.
Both increases resulted primarily from increases in the costs of raw materials
discussed above combined with the timing of the receipt of and payment for
stainless steel raw materials by the Metals Segment at each year end. Cash flows
were positively impacted in 2007 by net income from continuing operations of
$12,759,000 before depreciation and amortization expense of $2,634,000 compared
to $10,280,000 generated from net income before depreciation and amortization
expense in 2006. The net effect of the items described above was to increase
current assets by $5,338,000 and current liabilities by $5,023,000, which also
caused working capital for 2007 to increase by $315,000 to $46,699,000 from the
amount in 2006. The current ratio for the year ended December 30, 2007,
decreased to 2.9:1 from the 2006 year-end ratio of 3.4:1.
The
Company utilized its line of credit facility to fund its working capital needs
and fund capital expenditures of $4,486,000. As a result of the significant
increase in cash flows generated in 2007, the Company was able to reduce
borrowings by $7,485,000 in 2007. The Company expects that cash flows from 2008
operations and available borrowings will be sufficient to make debt payments,
fund estimated capital expenditures of $4,200,000 and normal operating
requirements, and pay a dividend of $.25 per share on March 7, 2008 for a cash
payment of $1,560,000. On December 13, 2005, the Company entered into a Credit
Agreement with a lender to provide a $27,000,000 line of credit that expires on
December 31, 2010, refinancing the Company’s existing bank indebtedness. The
Agreement provides for a revolving line of credit of $20,000,000, which includes
a $5,000,000 sub-limit for swing-line loans that requires additional
pre-approval by the bank, and a five-year $7,000,000 term loan requiring equal
quarterly payments of $117,000 with a balloon payment at the expiration date.
Borrowings under the revolving line of credit are limited to an amount equal to
a borrowing base calculation that includes eligible accounts receivable,
inventories, and cash surrender value of the Company’s life insurance as defined
in the Agreement. As of December 29, 2007, the amount available for borrowing
was $15,000,000, of which $4,646,000 was borrowed, leaving $10,354,000 of
availability. Borrowings under the Credit Agreement are collateralized by
substantially all of the assets of the Company. At December 29, 2007, the
Company was in compliance with its debt covenants which include, among others,
maintaining certain EBITDA, fixed charge and tangible net worth ratios and
amounts.
Results
of Operations
The
Company generated a 33 percent increase in net income earning $10,125,000, or
$1.60 per share, on sales of $178,285,000 which is a 17 percent increase over
the previous record sales of 2006. This compares to net earnings of $7,608,000,
or $1.22 per share, on sales of $152,047,000 in the prior year. For the fourth
quarter of 2007, net earnings declined 62 percent to $1,144,000, or $.18 per
share on a four percent sales decline to $38,431,000, compared to net earnings
of $3,003,000, or $.48 per share, on sales of $40,059,000 a year
earlier. Included in net earnings for the fiscal year ending December
30, 2006, was an after-tax gain from the sale of property and plant net of
relocation costs of $378,000, or $.06 per share, which was recorded in the first
nine months.
Consolidated
gross profits increased 24 percent or $5,439,000 to $28,163,000 in 2007 compared
to 2006, and as a percent of sales increased one percent to 16 percent of sales
in 2007 compared to 2006. Most of the increase in dollars and increase in
percentage of sales came from the Metals Segment as discussed in the Segment
comparisons below. Consolidated selling, general and administrative expense for
2007 increased by $1,144,000 compared to 2006, but remained unchanged as a
percent of sales at seven percent. The dollar increase came primarily from a
combination of incurring costs of more than $250,000 from implementing
Sarbanes-Oxley Section 404 Regulations covering internal controls, and increased
management incentives, which are based on profits, compared to the prior
year.
Comparison
of 2006 to 2005
The
Company generated net income of $7,608,000, or $1.22 per share, on a 16 percent
increase in net sales to $152,047,000. This compares to net income of
$5,096,000, or $.83 per share, on a 29 percent increase in net sales to
$131,408,000 in 2005. For the fourth quarter of 2006, the Company had net income
of $3,003,000, or $.48 per share, on a 12 percent increase in net sales to
$40,059,000, compared to net income for the fourth quarter of 2005 of
$2,081,000, or $.34 per share, on a 45 percent increase in net sales to
$35,922,000. Included in net earnings for the fiscal year ending December 30,
2006, was an after tax gain from the sale of property and plant, net of
relocation costs, of $378,000, or $.06 per share which was recorded in the first
nine months. Included in the fourth quarter 2005 results is a one time pre-tax
gain of $2,542,000 from the settlement of an anti-dumping
lawsuit
against certain foreign importers of stainless steel, partially offset by an
$840,000 pre-tax loss from the write-off of an investment in a Chinese pigment
plant and a $300,000 pre-tax environmental charge, resulting in an increase to
net earnings of $994,000, or $.16 per share for the year and fourth quarter of
2005. In 2005, the Company also recorded a net loss from discontinued operations
of $51,000, or $.01 per share, for the year and none for the
quarter.
Consolidated
gross profits increased 35 percent or $5,943,000 to $22,724,000 in 2006 compared
to 2005, and as a percent of sales increased two percent to 15 percent of sales
in 2006 compared to 2005. Most of the increase in dollars and increase in
percentage of sales came from the Metals Segment as discussed in the Segment
comparisons below. Consolidated selling, general and administrative expense for
2006 increased by $193,000 compared to 2005, but declined as a percent of sales
to seven percent in 2006 compared to eight percent in 2005. The dollar increase
came primarily from a combination of profit incentives offset by the recording
in 2005 of environmental charges discussed in Comparison of Corporate Expenses
below.
Consolidated
operating results for 2006 were impacted by the completion of the relocation of
Organic Pigments’ operations from Greensboro, NC to Spartanburg in the first
quarter of 2006. A $213,000 loss was recorded for the move in the first quarter
of 2006. The Greensboro plant was sold in August of 2006 for a sales price of
$811,000 and a pre-tax gain of $596,000 was recorded in the third quarter of
2006.
Consolidated
operating results for 2005 were significantly impacted by several transactions
that were recorded during the fourth quarter of 2005. In December of 2005, the
Company, along with several other domestic stainless steel pipe producers,
received funds from the settlement of an anti-dumping duty order against a
foreign producer and importer of stainless steel pipe issued under the Continued
Dumping and Subsidy Offset Act. The order covered the period from June 22, 1992
to November 30, 1994. As a result the Company recorded a gain of $2,542,000. The
Company’s OP subsidiary had an $840,000 note receivable from an affiliated
company in which OP owns 45 percent. The affiliated company has as its primary
asset a minority investment in a Chinese pigment plant under a joint venture
agreement that expires in 2008 from which OP purchases some of its raw
materials. The joint venture had been profitable since 1998, but reported an
operating loss for 2005 and indicated that market and operating conditions were
not expected to improve and anticipated incurring losses going forward. Based on
the current and anticipated operating losses of the joint venture and other
factors the Company was able to ascertain, the likelihood that the affiliated
company would be able to repay the note receivable became unlikely. The
receivable was written off at December 31, 2005 and the $840,000 loss was
included in other expense. Included in unallocated corporate expense is a
$300,000 environmental accrual recorded at year end to provide for remediation
of ground contamination at the Company’s Augusta, Georgia plant which was closed
in 2001. Reference should be made to Notes B and G to the Consolidated Financial
Statements included in Item 8 of this Form 10-K.
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
(Amount
in thousands)
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Net
sales
|
|
$ |
126,219 |
|
|
|
100.0 |
% |
|
$ |
102,822 |
|
|
|
100.0 |
% |
|
$ |
86,053 |
|
|
|
100.0 |
% |
|
Cost
of goods sold
|
|
|
104,816 |
|
|
|
83.0 |
% |
|
|
86,712 |
|
|
|
84.3 |
% |
|
|
74,744 |
|
|
|
86.9 |
% |
|
Gross
profit
|
|
|
21,403 |
|
|
|
17.0 |
% |
|
|
16,110 |
|
|
|
15.7 |
% |
|
|
11,309 |
|
|
|
13.1 |
% |
|
Selling
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
|
|
|
5,015 |
|
|
|
4.0 |
% |
|
|
4,498 |
|
|
|
4.4 |
% |
|
|
4,494 |
|
|
|
5.2 |
% |
|
Operating
income
|
|
$ |
16,388 |
|
|
|
13.0 |
% |
|
$ |
11,612 |
|
|
|
11.3 |
% |
|
$ |
6,815 |
|
|
|
7.9 |
% |
|
Year-end
backlogs -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Piping
systems
|
|
$ |
57,000 |
|
|
|
|
|
|
$ |
54,900 |
|
|
|
|
|
|
$ |
20,100 |
|
|
|
|
|
The
Metals Segment achieved sales growth of 23 percent for the year from a 61
percent increase in average selling prices, partially offset by a 24 percent
decline in unit volumes. Operating income of $16,388,000 was 41 percent higher
than 2006’s total of $11,612,000. The large increases in average selling prices
resulted partly from higher stainless steel surcharges, primarily in the first
three quarters, compared to 2006. More significant to the long-term future of
the Company is the contribution to increased selling prices resulting from
accomplishing our goal of expanding into markets that require larger pipe sizes,
higher-priced alloys, larger proportions of non-
commodity
products, and products fabricated by our piping sysstems plant. The change in
product mix includes the successful development of business from liquid natural
gas (LNG), wastewater and water treatment, biofuels and electric utility
scrubber projects. Many of the products produced for these markets are subject
to more stringent specifications including 100 percent x-ray of the weld seams.
In addition, some of these non-commodity products are made from expensive alloys
and are more difficult to produce. Accordingly, their cost and sales price are
much higher than commodity products.
The
decline in unit volume for 2007 as compared to 2006 resulted from a 37 percent
decline in pipe sales, partially offset by a 31 percent increase in piping
systems. The noteworthy increase in gross profit was more than accounted for by
a surge in our piping systems products to more than triple amounts earned in
2006, while pipe sales yielded slightly lower profits. Gross profits are
impacted from stainless steel surcharges which are assessed each month by the
stainless steel producers to cover the change in their costs of certain raw
materials. The Company, in turn, passes on the surcharge in the sales prices
charged to its customers. Under the Company’s first-in-first-out inventory
method, cost of goods sold is charged for the surcharges that were in effect
three or more months prior to the month of sale. Accordingly, if surcharges are
in an upward trend, reported profits will benefit. Conversely, when surcharges
go down, profits are reduced. During the first six months of 2007, the Company
continued to experience the upward trend in surcharges experienced in the third
and fourth quarters of 2006. As a result, surcharges were significantly higher
than they were in the first six months of 2006 with an accompanying benefit to
gross profits. Over the last six months of 2007, surcharges declined reducing
gross profits.
Sales for
the fourth quarter of 2007 declined 12 percent from a 44 percent decline in unit
volumes partially offset by a 57 percent increase in average selling prices
while operating income declined 60 percent to $1,937,000 for the fourth quarter
of 2007 compared to $4,892,000 in the fourth quarter of 2006. The decrease in
unit volume experienced in the fourth quarter of 2007 resulted from a 75 percent
decline in commodity pipe sales, partially offset by 31 percent higher piping
systems unit volumes compared to the fourth quarter of 2006. Weak market
conditions that began in the third quarter of 2007 deteriorated further in the
fourth quarter causing the big unit volume decrease in pipe sales. Stainless
steel surcharges declined significantly in August, September and October, and
although nickel prices rose in November and December, they flattened in January
2008 and fell in February 2008. This uncertainty of nickel pricing along with
distributors’ desire to reduce inventories at year end caused distributors to
limit purchases throughout the fourth quarter. Another factor causing the volume
declines for the year and fourth quarter of 2007 when compared to the same
periods of 2006 was the significant increase in imports, primarily from China.
Finally, the weakening of end-use demand for commodity pipe experienced toward
the end of the third quarter accelerated in the fourth quarter. Although our
non-commodity business in the fourth quarter of 2007 was strong, it was not
enough to offset the negative impact on profitability from the lower than
expected commodity pipe sales which generated substantial under absorption of
fixed and overhead costs. Piping systems continued to experience the favorable
impact of its strong backlog as operating income increased significantly in the
fourth quarter of 2007 compared to a year earlier. Piping systems’ backlog was
$57,000,000 at the end of 2007 compared to $54,900,000 at the end
2006.
Selling
and administrative expense increased $517,000, or 12 percent in 2007 when
compared to 2006, but remained unchanged at four percent of sales in 2007
consistent with 2006. The dollar increase came primarily from increased
management incentives, which are based on profits, and sales commissions, coming
from the increase in sales in 2007 compared to 2006, from amounts expensed in
2006.
Comparison
of 2006 to 2005 – Metals Segment
The
Metals Segment produced strong sales growth of 20 percent for the year and 18
percent for the fourth quarter of 2006 compared to the same periods of 2005. The
increase for the year resulted from a combination of 18 percent higher unit
volumes and a two percent increase in average selling prices. The increase for
the quarter resulted from a 21 percent increase in average selling prices
partially offset by a two percent decline in unit volumes. The Segment achieved
a surge in gross profits of 43 percent for 2006 and 112 percent in the fourth
quarter compared to the same periods of 2005. The increase in unit volumes for
the year resulted partly from an increase in commodity pipe sales resulting from
recapturing market share beginning in the last quarter of 2005. However, the
largest portion of the increase was from much higher production of piping
systems for energy and water treatment customers. The slight decline in fourth
quarter 2006 unit volumes as compared with fourth quarter 2005 resulted from an
unusually high level of commodity pipe sales in the fourth quarter of 2005 that
resulted from the aggressive program to recapture market share mentioned above.
The modest increase in selling prices for the year resulted from a more robust
increase in prices mostly offset by the change in product mix. The
significant
increase in fourth quarter selling prices reflects the higher costs of stainless
steel, including surcharges, in the fourth quarter of 2006 compared to 2005’s
fourth quarter, coupled with a change in product mix. During the third and
fourth quarters of 2006, stainless steel surcharges were significantly higher
than they were in the first six months with an accompanying significant benefit
to profits. The fourth quarter of 2005 also benefited from surcharges, but to a
much lesser extent than 2006. The significant increase in gross profits for 2006
resulted from a much improved operating level in piping systems plus the good
unit volume increase in pipe sales, partially offset by a lower surcharge
benefit. The significant increase in gross profit for the fourth quarter came
from the increase in selling prices and the significant benefit from rising
surcharges.
The
improvement in sales and operating income reflects management’s successful
efforts to penetrate new markets for piping systems as well as pipe sales. The
energy industry, including LNG and ethanol projects, together with wastewater
treatment provided a small percentage of the Segment’s sales prior to 2005.
Although the Segment has benefited from regaining market share in commodity
pipe, these new sources generated much of the improvement in 2006 results. With
these new industry segments comprising about 80 percent of the piping systems’
backlog, management believes that it has differentiated the Segment from its
domestic competitors by having unique manufacturing capabilities that give the
Segment a competitive advantage in pursuing non-commodity pipe sales as well as
piping systems’ projects.
Selling
and administrative expense increased only $4,000, or .1 percent in 2006 when
compared to 2005, and as a result declined to four percent of sales in 2006
compared to five percent of sales in 2005. As a result of all of the factors
listed above, the Segment experienced significant sales and profit improvement
for the year compared to 2005, with operating income increasing 70 percent for
the year and 185 percent in the fourth quarter of 2006 compared to the same
periods last year.
Specialty Chemicals
Segment–The following tables summarize operating results for the three
years indicated. Reference should be made to Note P to the Consolidated
Financial Statements included in Item 8 of this Form 10-K.
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
(Amount
in thousands)
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Net
sales
|
|
$ |
52,066 |
|
|
|
100.0 |
% |
|
$ |
49,225 |
|
|
|
100.0 |
% |
|
$ |
45,355 |
|
|
|
100.0 |
% |
|
Cost
of goods sold
|
|
|
45,306 |
|
|
|
87.0 |
% |
|
|
42,611 |
|
|
|
86.6 |
% |
|
|
39,883 |
|
|
|
87.9 |
% |
|
Gross
profit
|
|
|
6,760 |
|
|
|
13.0 |
% |
|
|
6,614 |
|
|
|
13.4 |
% |
|
|
5,472 |
|
|
|
12.1 |
% |
|
Selling
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
|
|
|
3,983 |
|
|
|
7.6 |
% |
|
|
3,970 |
|
|
|
8.1 |
% |
|
|
3,833 |
|
|
|
8.5 |
% |
|
Operating
income
|
|
$ |
2,777 |
|
|
|
5.4 |
% |
|
$ |
2,644 |
|
|
|
5.3 |
% |
|
$ |
1,639 |
|
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Specialty Chemicals Segment sales increased six percent for the year and 18
percent in the fourth quarter of 2007 compared to the same periods of 2006. The
increase in revenues in 2007 came primarily from adding several new products
during the year, an increase in demand for our contract manufacturing products,
and increased selling prices on our basic chemical products to pass on higher
energy related costs. Our basic chemical and contract manufacturing businesses
continued to benefit from favorable market conditions experienced throughout the
year. As a result, gross profits for the year increased two percent to
$6,760,000 compared to $6,614,000 for 2006. Although sales increased in the
fourth quarter of 2007 compared to 2006, gross profit as a percent of sales
declined two percent to 11 percent, or $1,479,000, compared to 13 percent, or
$1,483,000, generated in 2006. Sales and gross profits were negatively impacted
for the year and fourth quarter of 2007 by lower results in our pigment business
resulting from increased raw material costs we were unable to pass on, coupled
with a slowdown in business throughout the pigment product lines.
Selling
and administrative expense increased $13,000 or less than one percent in 2007
compared to 2006, and remained unchanged at eight percent of sales in 2007
consistent with 2006. As a result of the factors discussed above, operating
income for the year increased five percent to $2,777,000 compared to $2,644,000
for 2006, and declined 14 percent to $538,000 for the fourth quarter of 2007
compared to $622,000 for the fourth quarter of 2006.
Comparison
of 2006 to 2005 - Specialty Chemicals Segment
The
Specialty Chemicals Segment sales increased nine percent for the year ended 2006
and gross profit increased 21 percent to $6,614,000 compared to $5,472,000 for
2005, and increased to 13 percent of sales for the year compared to 12 percent
for 2005. A modest sales decline of three percent in the fourth quarter of 2006
was overshadowed by a 27 percent increase in gross profits to $1,483,000 for the
quarter compared to $1,166,000 for the same period of 2005. The increase in
revenues for the year resulted primarily from adding several new products during
the first three quarters of 2006, a significant increase in demand for one of
our contract manufacturing products, and increased selling prices to pass on
higher energy related costs. The minor decline in fourth quarter revenues
resulted from the normal fluctuation in demand from quarter-to-quarter. The
Segment completed the relocation of its pigment operations from Greensboro, NC
to Spartanburg, SC at the end of the first quarter of 2006 and benefited from
the improved efficiency resulting from the consolidation of the two operations
throughout the rest of the year. The combination of the cost savings from the
relocation and increase in revenues produced the profit improvement for the
year. The significant improvement in profit experienced in the fourth quarter
resulted from the cost savings in 2006 and the impact on the fourth quarter of
2005 earnings at the Spartanburg plant related to costs of developing new
products and upgrading of the staff in expectation of higher production levels
in 2006.
Selling
and administrative expense increased $137,000 or four percent in 2006 compared
to 2005, but declined as a percent of sales to eight percent in 2006 compared to
nine percent in 2005. The dollar increase resulted primarily from profit based
incentives. As a result of the factors discussed above, operating income
increased 61 percent to $2,644,000 compared to $1,639,000 for 2005. In the
fourth quarter of 2006 operating income increased 135 percent to $622,000 for
the quarter compared to $265,000 for the same period of 2005.
On March
25, 2004, the Company entered into an agreement to sell its liquid dye business
comprised of vat, sulfur, liquid disperse and liquid reactive dyes, which had
annual sales of approximately $4,500,000, for approximately its net book value,
and several customers and related products of the remaining textile dye business
were rationalized. Business conditions in the remaining dye business were poor
throughout 2004, especially in the first six months, as BU Colors (a newly
formed subsidiary of the Company called Blackman Uhler, LLC) experienced
operating losses in every quarter of 2004. In the third quarter of 2004, the
Company decided to attempt to sell the remaining dye business and on December
28, 2004, entered into a purchase agreement to sell the dye business. The
transaction closed on January 31, 2005. The terms included the sale of the
inventory of BU Colors along with certain equipment and other property
associated with the business being sold, and the licensing of certain
intellectual property, for a purchase price of approximately $4,872,000, of
which $4,022,000 was paid at closing, and the balance of $850,000 was to be paid
over time based on the operations of the purchaser. On January 17, 2006, the
Company and the purchaser amended the purchase agreement replacing the periodic
purchase price payments with a one-time payment of $400,000, which was received
on January 18, 2006, and was reclassified to a current note receivable in the
financial statements at December 31, 2005. As a result of the sale of the dye
business in 2004, the Company has discontinued the operations of BU Colors and
has presented the financial information of BU Colors as discontinued operations.
In December of 2004, the Company completed an impairment assessment in
accordance with FAS No. 144, on the plant and equipment located at the
Spartanburg facility related to the BU Colors operations. As a result, the
Company recognized an impairment charge of $581,000 from the write-down of plant
and equipment. Reference should be made to Notes B and S to the Consolidated
Financial Statements included in Item 8 of this Form 10-K.
Unallocated
Income and Expense
Corporate
expense increased $613,000, or 29 percent, to $2,708,000 for 2007 compared to
$2,095,000 incurred in 2006. The increase resulted primarily from increased
management incentives, environmental expenses of $441,000, compared to $360,000
in 2006, and more than $250,000 from implementing Sarbanes-Oxley Section 404
Regulations covering internal controls. Interest expense in 2007 increased
$359,000 from 2006 as a result of increases in borrowings, the LIBOR interest
rate under the lines of credit with the Company’s bank, and accruing a $195,000
liability with a corresponding entry to interest expense to reflect the fair
market value of the Company’s interest rate swap contract with its bank. See
Item 7a below.
Comparison
of 2006 to 2005 - Corporate
Corporate
expense increased $52,000, or three percent, to $2,094,000 for 2006 compared to
2005. The increase resulted primarily from increased management incentives
offset by environmental expenses of $360,000, compared to $719,000 in 2005.
Environmental expense for 2005 includes accrued environmental remediation costs
of $311,000 at the Spartanburg facility and $300,000 at the Augusta facility,
closed in 2001. Reference should be made to Note G to the Consolidated Financial
Statements included in Item 8 of this Form 10-K. Interest expense in 2006
decreased $126,000 from 2005 as a result of decreases in borrowings offset by
increases in the LIBOR interest rate under the lines of credit with a
lender.
Contractual
Obligations and Other Commitments
As of
December 29, 2008, contractual obligations and other commitments were as
follows:
|
(Amounts
in thousands)
|
|
|
|
|
Payment
Obligations for the Year Ended
|
|
|
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
(1)
|
|
$ |
6,067 |
|
|
$ |
467 |
|
|
$ |
467 |
|
|
$ |
5,133 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Revolving
credit facility
(1)
|
|
|
4,646 |
|
|
|
- |
|
|
|
- |
|
|
|
4,646 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Interest
payments (2)
|
|
|
2,850 |
|
|
|
982 |
|
|
|
950 |
|
|
|
918 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Operating
leases
|
|
|
303 |
|
|
|
103 |
|
|
|
87 |
|
|
|
79 |
|
|
|
34 |
|
|
|
- |
|
|
|
- |
|
|
Capital
leases
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Purchase
obligations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Deferred
compensation
(3)
|
|
|
409 |
|
|
|
72 |
|
|
|
72 |
|
|
|
72 |
|
|
|
72 |
|
|
|
83 |
|
|
|
38 |
|
|
Total
|
|
$ |
14,275 |
|
|
$ |
1,624 |
|
|
$ |
1,576 |
|
|
$ |
10,848 |
|
|
$ |
106 |
|
|
$ |
83 |
|
|
$ |
38 |
|
|
(1)
Includes only obligations to pay principal not interest
expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
Represents estimated interest payments to be made on the bank debt, with
principal payments made as
|
|
|
scheduled,
using average borrowings for each year times the average interest rate for
2007 on the debt.
|
|
|
(3)
for a description of the deferred compensation obligation, see Note H to
the Consolidated Financial Statements
|
|
|
included
in Item 8 of this Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance
Sheet Arrangements
See Note
R to the Consolidated Financial Statements included in Item 8 of this Form 10-K
for a discussion of the Company’s off-balance sheet arrangements.
The
extremely depressed unit volume sales of commodity pipe experienced in the last
half of 2007 has continued into early 2008. We believe these low volumes are
primarily the result of a surge in pipe imported from China rather than any loss
of market share to other domestic producers. Management believes China is
exporting pipe from excess capacity at dumped and subsidized prices into the US
market. As a result of the significant increases in stainless steel
pipe imported from China, the Metals Segment along with three other U.S.
producers of stainless steel pipe and the United Steelworkers Union filed an
unfair-trade case against China on January 30, 2008. It is the third case
involving pipe and tube imports from China filed in the past six months. So far,
preliminary Department of Commerce findings have supported petitioners in the
previous cases, although the U.S. International Trade Commission (ITC) has yet
to weigh in with final injury determinations. The ITC is expected to make
preliminary injury determinations within 45 days. The Department of Commerce is
expected to
make its
preliminary subsidy and dumping determinations within 90 to 160 days. We are
hopeful that this action will reduce unfair imports which should lead to more
normalized unit volume sales probably beginning in the second
quarter.
Prices,
including surcharges, of stainless steels from which we make commodity pipe are
significantly lower than the highs reached in the third quarter of
2007. This has led to our inventory costs being higher than current
replacement value. To meet competition, we are currently pricing sales based on
current rather than historical costs, which will negatively impact our commodity
pipe profits until the higher-priced inventory is sold. Unless conditions
change, this is likely to depress profits from commodity pipe into the second
quarter of 2008. The volatility in stainless steel prices, together with any
effects from the outcome of the trade case discussed above, make the short-term
performance of commodity pipe more uncertain than usual. Management believes
that the growth generated by our non-commodity pipe business in 2007, including
our significant piping systems business, should continue in 2008. Piping
systems’ $57,000,000 backlog at 2007 year-end, of which management expects about
80 percent to be completed over the next 12 months, should continue to provide a
higher level of non-commodity sales and profits for 2008 as compared to 2007.
Management continues to be optimistic about the piping systems business due to a
continuing demand for projects we believe will bid during future months. With
over 90 percent of the backlog coming from energy and water and wastewater
treatment projects, management continues to believe that it has positioned the
Metals Segment to benefit from the long-term growth of these areas. All of the
factors discussed above generate uncertainty for the overall performance of our
metals business for the first and to a lesser extent the second quarter of 2008.
However, we believe that the growth of our non-commodity business, coupled with
an anticipated improvement in the commodity pipe business that we believe should
begin during the second quarter, should generate improved results over the
balance of 2008.
Item 7A Quantitative and Qualitative Disclosures about Market
Risks
Fair
value of the Company's debt obligations, which approximated the recorded value,
consisted of:
At
December 29, 2007
$10,713,000 under a $27,000,000 line of
credit and term loan agreement expiring December 31, 2010 with a variable
interest rate of 6.73 percent.
Cash flow
hedges are hedges that use simple derivatives to offset the variability of
expected future cash flows. Variability can appear in floating rate liabilities
and can arise from changes in interest rates. The Company uses an interest rate
swap in which it pays a fixed rate of interest while receiving a variable rate
of interest to change the cash flow profile of its variable-rate borrowing to
match a fixed rate profile. As discussed in Note E to the Consolidated Financial
Statements, the Company entered into a long-term debt agreement with its bank
and pays interest based on a variable interest rate. To mitigate the variability
of the interest rate risk, the Company entered into a derivative/swap contract
in February of 2006 with the bank, coupled with a third party who will pay a
variable rate of interest (an “interest rate swap”). The interest rate swap is
for $4,500,000 with a fixed interest rate of 5.27 percent, and runs from March
1, 2006 to December 31, 2010, which equates to the final payment amount and due
date of the term loan. Although the swap is expected to effectively offset
variable interest in the borrowing, hedge accounting is not utilized. Therefore,
changes in its fair value are being recorded in current assets or liabilities,
as appropriate, with corresponding offsetting entries to interest
expense.
In the
ordinary course of business, the Company's income and cash flows may be affected
by fluctuations in the price of nickel, which is a component of stainless steel
raw materials used in its production of stainless steel pipe. The Company is
subject to raw material surcharges on the nickel component from its stainless
steel suppliers. For certain non-cancelable fixed price sales contracts having
delivery dates in the future, the Company is not able to obtain fixed price
purchase commitments to cover the nickel surcharge component of the stainless
steel raw material requirements of the sales contract which creates a cost
exposure from fluctuations in the nickel surcharges. Where such exposure exists,
the Company considers the use of cash settled commodity price swaps with
durations approximately equal to the expected delivery dates of the applicable
raw materials to hedge the price of its nickel requirements. The Company
designates these instruments as fair value hedges and the resulting changes in
their fair value are recorded as inventory costs. Subsequent gains and losses
are recognized into cost of products sold in the same period as the underlying
physical transaction. While these hedging activities may protect the Company
against higher nickel prices, they may also prevent realizing possible lower raw
material costs in the event that the market price of nickel falls below the
price stated in a forward sale or futures contract. There were no outstanding
hedging contracts on nickel commodities at December 29, 2007 or December 30,
2006.
|
|
|
|
|
|
|
|
|
Years
ended December 29, 2007 and December 30, 2006
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
28,269 |
|
|
$ |
21,413 |
|
|
Accounts
receivable, less allowance for doubtful
|
|
|
|
|
|
|
|
|
|
accounts
of $1,236,000 and $1,114,000, respectively
|
|
|
19,887,556 |
|
|
|
22,428,829 |
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
9,218,395 |
|
|
|
17,361,355 |
|
|
Work-in-process
|
|
|
28,824,639 |
|
|
|
13,323,868 |
|
|
Finished
goods
|
|
|
10,758,064 |
|
|
|
10,860,239 |
|
|
Total
inventories
|
|
|
48,801,098 |
|
|
|
41,545,462 |
|
|
Deferred
income taxes (Note K)
|
|
|
2,284,000 |
|
|
|
1,793,000 |
|
|
Prepaid
expenses and other current assets
|
|
|
433,250 |
|
|
|
307,740 |
|
|
Total
current assets
|
|
|
71,434,173 |
|
|
|
66,096,444 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
value of life insurance
|
|
|
2,805,500 |
|
|
|
2,723,565 |
|
|
Property,
plant and equipment, net (Note C)
|
|
|
20,858,606 |
|
|
|
18,951,820 |
|
|
Deferred
charges, net and other assets (Note D)
|
|
|
1,523,021 |
|
|
|
1,585,337 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
96,621,300 |
|
|
$ |
89,357,166 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt (Note E)
|
|
$ |
466,667 |
|
|
$ |
466,667 |
|
|
Accounts
payable
|
|
|
13,029,172 |
|
|
|
11,775,703 |
|
|
Accrued
expenses (Notes B, E and F)
|
|
|
10,772,331 |
|
|
|
6,043,750 |
|
|
Current
portion of environmental reserves (Note G)
|
|
|
467,371 |
|
|
|
226,053 |
|
|
Income
taxes
|
|
|
- |
|
|
|
1,200,198 |
|
|
Total
current liabilities
|
|
|
24,735,541 |
|
|
|
19,712,371 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt (Note E)
|
|
|
10,246,015 |
|
|
|
17,731,431 |
|
|
Environmental
reserves (Note G)
|
|
|
580,000 |
|
|
|
616,000 |
|
|
Deferred
compensation (Note H)
|
|
|
409,462 |
|
|
|
470,212 |
|
|
Deferred
income taxes (Note K)
|
|
|
2,510,000 |
|
|
|
3,700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity (Notes I and J)
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $1 per share - authorized
|
|
|
|
|
|
|
|
|
|
12,000,000
shares; issued 8,000,000 shares
|
|
|
8,000,000 |
|
|
|
8,000,000 |
|
|
Capital
in excess of par value
|
|
|
532,860 |
|
|
|
56,703 |
|
|
Retained
earnings
|
|
|
65,113,597 |
|
|
|
54,921,022 |
|
|
|
|
|
73,646,457 |
|
|
|
62,977,725 |
|
|
Less
cost of common stock in treasury: 1,762,695 and
|
|
|
|
|
|
|
|
|
|
1,864,433
shares, respectively
|
|
|
15,506,175 |
|
|
|
15,850,573 |
|
|
Total
shareholders' equity
|
|
|
58,140,282 |
|
|
|
47,127,152 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$ |
96,621,300 |
|
|
$ |
89,357,166 |
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
ended December 29, 2007, December 30, 2006 and December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
178,285,015 |
|
|
$ |
152,047,386 |
|
|
$ |
131,408,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
150,121,564 |
|
|
|
129,323,082 |
|
|
|
114,626,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
28,163,451 |
|
|
|
22,724,304 |
|
|
|
16,781,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expense
|
|
|
11,706,485 |
|
|
|
10,562,498 |
|
|
|
10,369,188 |
|
|
Gain
from sale of property and plant (Note B)
|
|
|
- |
|
|
|
(595,600 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
16,456,966 |
|
|
|
12,757,406 |
|
|
|
6,412,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(income) and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on trade case settlement (Note B)
|
|
|
- |
|
|
|
- |
|
|
|
(2,541,950 |
) |
|
Loss
on write-off of note receivable (Note B)
|
|
|
- |
|
|
|
- |
|
|
|
840,000 |
|
|
Interest
expense
|
|
|
1,153,413 |
|
|
|
793,884 |
|
|
|
919,812 |
|
|
Other,
net
|
|
|
(20,211 |
) |
|
|
(632 |
) |
|
|
(83,995 |
) |
|
Income
from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax
|
|
|
15,323,764 |
|
|
|
11,964,154 |
|
|
|
7,278,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
5,199,000 |
|
|
|
4,356,000 |
|
|
|
2,131,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
|
10,124,764 |
|
|
|
7,608,154 |
|
|
|
5,147,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
(73,413 |
) |
|
Benefit
from income taxes
|
|
|
- |
|
|
|
- |
|
|
|
(22,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from discontinued operations (Note S)
|
|
|
- |
|
|
|
- |
|
|
|
(51,413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
10,124,764 |
|
|
$ |
7,608,154 |
|
|
$ |
5,095,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per basic common share:
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
$ |
1.63 |
|
|
$ |
1.24 |
|
|
$ |
.85 |
|
|
Net
loss from discontinued operations
|
|
|
- |
|
|
|
- |
|
|
$ |
(.01 |
) |
|
Net
income
|
|
$ |
1.63 |
|
|
$ |
1.24 |
|
|
$ |
.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per diluted common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
$ |
1.60 |
|
|
$ |
1.22 |
|
|
$ |
.84 |
|
|
Net
loss from discontinued operations
|
|
|
- |
|
|
|
- |
|
|
$ |
(.01 |
) |
|
Net
income
|
|
$ |
1.60 |
|
|
$ |
1.22 |
|
|
$ |
.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of
|
|
|
|
|
|
|
|
|
|
|
Capital
in
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
Common
|
|
|
Excess
of
|
|
|
Retained
|
|
|
Stock
in
|
|
|
|
|
|
|
|
Stock
|
|
|
Par
Value
|
|
|
Earnings
|
|
|
Treasury
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2005
|
|
$ |
8,000,000 |
|
|
$ |
- |
|
|
$ |
42,553,345 |
|
|
$ |
(16,623,517 |
) |
|
$ |
33,929,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
5,095,951 |
|
|
|
|
|
|
|
5,095,951 |
|
|
Issuance
of 10,975 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
the treasury
|
|
|
|
|
|
|
32,774 |
|
|
|
|
|
|
|
92,231 |
|
|
|
125,005 |
|
|
Stock
options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
77,301 shares, net
|
|
|
|
|
|
|
(32,774 |
) |
|
|
(319,676 |
) |
|
|
498,004 |
|
|
|
145,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
8,000,000 |
|
|
|
- |
|
|
|
47,329,620 |
|
|
|
(16,033,282 |
) |
|
|
39,296,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
7,608,154 |
|
|
|
|
|
|
|
7,608,154 |
|
|
Issuance
of 6,554 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
the treasury
|
|
|
|
|
|
|
25,690 |
|
|
|
|
|
|
|
55,536 |
|
|
|
81,226 |
|
|
Stock
options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
21,173 shares, net
|
|
|
|
|
|
|
(44,611 |
) |
|
|
(16,752 |
) |
|
|
127,173 |
|
|
|
65,810 |
|
|
Employee
stock option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
|
|
|
|
|
|
75,624 |
|
|
|
|
|
|
|
|
|
|
|
75,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 30, 2006
|
|
|
8,000,000 |
|
|
|
56,703 |
|
|
|
54,921,022 |
|
|
|
(15,850,573 |
) |
|
|
47,127,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
10,124,764 |
|
|
|
|
|
|
|
10,124,764 |
|
|
Payment
of dividends, $.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
share
|
|
|
|
|
|
|
|
|
|
|
(927,189 |
) |
|
|
|
|
|
|
(927,189 |
) |
|
Issuance
of 1,945 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
the treasury
|
|
|
|
|
|
|
57,919 |
|
|
|
|
|
|
|
17,070 |
|
|
|
74,989 |
|
|
Stock
options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for 99,793
shares, net
|
|
|
|
|
|
|
223,137 |
|
|
|
|
|
|
|
327,328 |
|
|
|
550,465 |
|
|
Employee
stock option and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
grant
compensation
|
|
|
|
|
|
|
174,761 |
|
|
|
|
|
|
|
|
|
|
|
174,761 |
|
|
Capital
contribution
|
|
|
|
|
|
|
20,340 |
|
|
|
|
|
|
|
|
|
|
|
20,340 |
|
|
Utilization
of unrecognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax
benefits from prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
years
– (Note K)
|
|
|
|
|
|
|
|
|
|
|
995,000 |
|
|
|
|
|
|
|
995,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 29, 2007
|
|
$ |
8,000,000 |
|
|
$ |
532,860 |
|
|
$ |
65,113,597 |
|
|
$ |
(15,506,175 |
) |
|
$ |
58,140,282 |
|
See
accompanying notes to consolidated financial statements.
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Years
ended December 29, 2007, December 30, 2006 and December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
10,124,764 |
|
|
$ |
7,608,154 |
|
|
$ |
5,095,951 |
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of tax
|
|
|
- |
|
|
|
- |
|
|
|
51,413 |
|
|
Depreciation
expense
|
|
|
2,579,142 |
|
|
|
2,616,940 |
|
|
|
2,675,321 |
|
|
Amortization
of deferred charges
|
|
|
54,924 |
|
|
|
54,924 |
|
|
|
186,602 |
|
|
Deferred
income taxes
|
|
|
(581,000 |
) |
|
|
14,000 |
|
|
|
111,000 |
|
|
Utilization
of unrecognized tax benefits
|
|
|
(151,000 |
) |
|
|
- |
|
|
|
- |
|
|
Provision
for losses on accounts receivable
|
|
|
229,453 |
|
|
|
315,295 |
|
|
|
511,771 |
|
|
Provision
for write-down of note receivable
|
|
|
- |
|
|
|
- |
|
|
|
840,000 |
|
|
(Gain)
loss on sale of property, plant and equipment
|
|
|
(1,300 |
) |
|
|
(625,738 |
) |
|
|
96,720 |
|
|
Cash
value of life insurance
|
|
|
(81,935 |
) |
|
|
(84,051 |
) |
|
|
(85,415 |
) |
|
Environmental
reserves
|
|
|
205,318 |
|
|
|
126,854 |
|
|
|
(405,555 |
) |
|
Issuance
of treasury stock for director fees
|
|
|
74,989 |
|
|
|
81,226 |
|
|
|
125,005 |
|
|
Employee
stock option compensation
|
|
|
174,761 |
|
|
|
75,624 |
|
|
|
- |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
2,311,820 |
|
|
|
(881,272 |
) |
|
|
(7,825,011 |
) |
|
Inventories
|
|
|
(7,255,636 |
) |
|
|
(17,063,135 |
) |
|
|
1,867,805 |
|
|
Other
assets and liabilities
|
|
|
(85,480 |
) |
|
|
(341,401 |
) |
|
|
(222,286 |
) |
|
Accounts
payable
|
|
|
1,253,469 |
|
|
|
583,842 |
|
|
|
3,105,403 |
|
|
Accrued
expenses
|
|
|
4,728,581 |
|
|
|
196,851 |
|
|
|
3,603,798 |
|
|
Income
taxes payable
|
|
|
(1,247,586 |
) |
|
|
(520,504 |
) |
|
|
1,710,093 |
|
|
Net
cash provided by (used in) continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities
|
|
|
12,333,284 |
|
|
|
(7,842,391 |
) |
|
|
11,442,615 |
|
|
Net
cash provided by discontinued operating activities
|
|
|
- |
|
|
|
- |
|
|
|
3,982,643 |
|
|
Net
cash provided by (used in) operating activities
|
|
|
12,333,284 |
|
|
|
(7,842,391 |
) |
|
|
15,425,258 |
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(4,485,928 |
) |
|
|
(3,092,242 |
) |
|
|
(3,245,588 |
) |
|
Proceeds
from sale of property, plant and equipment
|
|
|
1,300 |
|
|
|
846,980 |
|
|
|
4,650 |
|
|
Decrease
in notes receivable
|
|
|
- |
|
|
|
400,000 |
|
|
|
28,000 |
|
|
Net
cash used in investing activities
|
|
|
(4,484,628 |
) |
|
|
(1,845,262 |
) |
|
|
(3,212,938 |
) |
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(payments on) proceeds from long-term debt
|
|
|
(7,485,416 |
) |
|
|
9,640,877 |
|
|
|
(8,647,845 |
) |
|
Proceeds
from exercised stock options, net
|
|
|
550,465 |
|
|
|
65,810 |
|
|
|
145,554 |
|
|
Dividends
paid
|
|
|
(927,189 |
) |
|
|
- |
|
|
|
- |
|
|
Capital
contributed
|
|
|
20,340 |
|
|
|
- |
|
|
|
- |
|
|
Net
cash (used in) provided by continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
financing activities
|
|
|
(7,841,800 |
) |
|
|
9,706,687 |
|
|
|
(8,502,291 |
) |
|
Net
cash used in discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
financing activities
|
|
|
- |
|
|
|
- |
|
|
|
(4,000,000 |
) |
|
Net
cash (used in) provided by financing activities
|
|
|
(7,841,800 |
) |
|
|
9,706,687 |
|
|
|
(12,502,291 |
) |
|
Increase
(decrease) in cash and cash equivalents
|
|
|
6,856 |
|
|
|
19,034 |
|
|
|
(289,971 |
) |
|
Cash
and cash equivalents at beginning of year
|
|
|
21,413 |
|
|
|
2,379 |
|
|
|
292,350 |
|
|
Cash
and cash equivalents at end of year
|
|
$ |
28,269 |
|
|
$ |
21,413 |
|
|
$ |
2,379 |
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
Use of Estimates. The
preparation of the financial statements in conformity with U. S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Accounting Period. The
Company’s fiscal year is the 52 or 53 week period ending the Saturday nearest to
December 31. Fiscal year 2007 ended on December 29, 2007, fiscal year 2006 ended
on December 30, 2006 and fiscal year 2005 ended on December 31, 2005, each
fiscal year having 52 weeks.
Revenue Recognition. Revenue
from product sales is recognized at the time ownership of goods transfers to the
customer and the earnings process is complete. Shipping costs of approximately
$2,169,000, $2,708,000 and $1,881,000 in 2007, 2006 and 2005, respectively, are
recorded in cost of goods sold.
Inventories. Inventories are
stated at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method. The Company writes down its inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost
of inventory and the estimated market value based upon assumptions about future
demand and current market conditions.
Long-Lived Assets. Property,
plant and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful life of the assets. Land
improvements and buildings are depreciated over a range of ten to 40 years, and
machinery, fixtures and equipment are depreciated over a range of three to 20
years.
The costs
of software licenses are amortized over five years using the straight-line
method. Debt expenses are amortized over the period of the underlying debt
agreement using the straight-line method.
Intangibles
arising from acquisitions represent the excess of cost over fair value of net
assets of businesses acquired. Goodwill and indefinite lived intangible assets
are not amortized but are reviewed annually for impairment. Other intangible
assets that are not deemed to have an indefinite life are amortized over their
useful lives.
The
Company continually reviews the recoverability of the carrying value of
long-lived assets. The Company also reviews long-lived assets for impairment
whenever events or changes in circumstances indicate the carrying amount of such
assets may not be recoverable. When the future undiscounted cash flows of the
operation to which the assets relate do not exceed the carrying value of the
asset, the assets are written down to fair value.
Cash Equivalents. The Company
considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents.
Concentrations of Credit Risk.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable
and cash surrender value of life insurance.
Accounts
receivable from the sale of products are recorded at net realizable value and
the Company generally grants credit to customers on an unsecured basis.
Substantially all of the Company’s accounts receivables are due from companies
located throughout the United States. The Company provides an allowance for
doubtful collections that is based upon a review of outstanding receivables,
historical collection information and existing economic conditions. The Company
performs periodic credit evaluations of its customers’ financial condition and
generally does not require collateral. Receivables are generally due within 30
to 45 days. Delinquent receivables are written off based on individual credit
evaluations and specific circumstances of the customer.
The cash
surrender value of life insurance is the contractual amount on policies
maintained with one insurance company. The Company performs a periodic
evaluation of the relative credit standing of this company as it relates to the
insurance industry.
Research and Development
Expense. The Company incurred research and development expense of
approximately $413,000, $312,000 and $566,000 in 2007, 2006 and 2005,
respectively.
Fair Value of Financial
Instruments. The carrying amounts reported in the balance sheet for cash
and cash equivalents, trade accounts receivable, cash surrender value of life
insurance, investments and borrowings under the Company’s line of credit
approximate their fair value.
Stock Options. Effective
January 1, 2006, the Company adopted Financial Accounting Standards Board
Statement (“FASB”) of Financial Accounting Standards No.123-Revised 2004 ("SFAS
123R"), "Share-Based Payment”, which was issued by the FASB in December 2004,
using the modified prospective application as permitted under SFAS 123R.
Accordingly, prior period amounts have not been restated. Under this
application, the Company is required to record compensation expense for all
awards granted after the date of adoption and for the unvested portion of
previously granted awards that remain outstanding at the date of adoption. Prior
to the adoption of SFAS 123R, the Company used the intrinsic value method as
prescribed by Accounting Principles Board (“APB”) No. 25 and thus recognized no
compensation expense for options granted with exercise prices equal to the fair
market value of the Company's common stock on the date of grant.
Fair Value Option for Financial
Assets and Liabilities. In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Liabilities” (“SFAS 159”). SFAS
159 is effective as of the beginning of the first fiscal year beginning after
November 15, 2007. SFAS 159 provides companies with an option to report selected
financial assets and liabilities at fair value that are not currently required
to be measured at fair value. Accordingly, companies would then be required to
report unrealized gains and losses on these items in earnings at each subsequent
reporting date. The objective is to improve financial reporting by providing
companies with the opportunity to mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently. SFAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for
similar types of assets and liabilities. SFAS 159 is effective for the Company
beginning in fiscal year 2008 and is not expected to have a significant impact
on the Company’s financial statements.
Business Combinations. In
December 2007, the FASB issued SFAS No. 141 (R), Business Combinations which
requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction;
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed; and requires the acquirer to disclose
to investors and other users all of the information they need to evaluate and
understand the nature and financial effect of the business
combination. In addition, this statement expands the scope of
acquisition accounting to all transactions and circumstances under which control
of a business is obtained. 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. Earlier adoption is prohibited.
Other Income and Expense: The
Company completed the move of Organic Pigments’ operations from Greensboro, NC
to Spartanburg, SC in the first quarter of 2006, recording plant relocation
costs of $213,000 in administrative expense in the quarter. The Greensboro plant
was closed in the first quarter of 2006 and on August 9, 2006, the Company sold
the property for a net sales price of $811,000. The property had a net book
value of $215,000, and the Company recorded a pre-tax gain on the sale of
approximately $596,000 in the third quarter of 2006.
In 2003,
the Company in conjunction with a group of domestic stainless steel pipe
producers (the “Domestic Producers”) filed a claim with the U.S. Bureau of
Customs and Border Protection pursuant to Federal regulations requesting the
distribution of antidumping duties levied against a foreign producer and
importer (the “Importer”) of stainless steel pipe under the Continued Dumping
and Subsidiary Offset Act (“CDSOA”) for the time period June 22, 1992 through
November 30, 1994. The Domestic Producers entered into an agreement with the
Importer to facilitate a settlement of the claim which called for the Domestic
Producers to retain 63 percent of monies to be paid by the Importer owed under
the CDSOA in return for the Importer ending years of litigation and
expeditiously paying the duties and interest to Customs. In December of 2005,
the Company received a distribution of its share of funds totaling $4,483,000 of
which $2,542,000 was recorded as a gain in other income, and $1,866,000 was
recorded as a current liability in accrued expenses, including $1,584,000 which
was paid to the Importer in January 2006 under the terms of the agreement. In
December 2005, Congress repealed the CDSOA program, effective with imports
entered after October 1, 2007.
As a part
of the acquisition of OP in 1998, the Company obtained an $840,000 note
receivable from an affiliated company in which OP owns 45 percent. The
affiliated company had as its primary asset a minority investment in a Chinese
pigment plant from which OP purchases some of its raw materials. The joint
venture agreement expires in 2008. The joint venture had been profitable since
1998, but reported an operating loss for 2005 and indicated that market and
operating conditions were not expected to improve and is anticipating incurring
losses going forward. Based on the current and anticipated operating losses of
the joint venture and other factors the Company was able to ascertain, the
likelihood that the affiliated company would be able to repay the note
receivable became unlikely. The receivable was written off at December 31, 2005
and the $840,000 loss was included in other expense in 2005.
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
305,618 |
|
|
$ |
305,618 |
|
|
Land
improvements
|
|
|
970,235 |
|
|
|
965,235 |
|
|
Buildings
|
|
|
11,675,486 |
|
|
|
10,592,438 |
|
|
Machinery,
fixtures and equipment
|
|
|
47,019,510 |
|
|
|
44,126,119 |
|
|
Construction-in-progress
|
|
|
1,261,289 |
|
|
|
860,454 |
|
|
|
|
|
61,232,138 |
|
|
|
56,849,864 |
|
|
Less
accumulated depreciation
|
|
|
40,373,532 |
|
|
|
37,898,044 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment
|
|
$ |
20,858,606 |
|
|
$ |
18,951,820 |
|
Note
D Deferred Charges and Other Assets
|
|
|
2007
|
|
|
2006
|
|
|
Deferred
charges
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
1,354,730 |
|
|
$ |
1,354,730 |
|
|
Product
license agreements
|
|
|
150,000 |
|
|
|
150,000 |
|
|
Debt
expense
|
|
|
185,639 |
|
|
|
185,639 |
|
|
|
|
|
1,690,369 |
|
|
|
1,690,369 |
|
|
Less
accumulated amortization
|
|
|
167,348 |
|
|
|
112,424 |
|
|
Total
deferred charges, net
|
|
|
1,523,021 |
|
|
|
1,577,945 |
|
|
Other
assets
|
|
|
- |
|
|
|
7,392 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred charges, net and other assets
|
|
$ |
1,523,021 |
|
|
$ |
1,585,337 |
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
$
15,000,000 Revolving line of credit
|
|
$ |
4,646,016 |
|
|
$ |
11,664,765 |
|
|
$ 7,000,000
Term loan
|
|
|
6,066,666 |
|
|
|
6,533,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,712,682 |
|
|
|
18,198,098 |
|
|
Less
current portion of term loan
|
|
|
466,667 |
|
|
|
466,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,246,015 |
|
|
$ |
17,731,431 |
|
On
December 13, 2005, the Company entered into a Credit Agreement with a lender to
provide a $27,000,000 line of credit that expires on December 31, 2010, and
refinanced the Company’s existing bank indebtedness. The Credit Agreement
provides for a revolving line of credit of $20,000,000, which includes a
$5,000,000 sub-limit for swing-line loans that requires additional pre-approval
by the bank, and a five-year $7,000,000 term loan that requires equal quarterly
payments of $117,000, plus interest, with a balloon payment at the expiration
date. Current interest rates are LIBOR plus 1.50 percent, and can vary based on
EBITDA performance from LIBOR plus 1.50 percent to LIBOR plus 3.00 percent. The
rate at December 29, 2007 was 6.73 percent. Borrowings under the revolving line
of credit are limited to an amount equal to a borrowing base calculation that
includes eligible accounts receivable, inventories, and cash surrender value of
the Company’s life insurance as defined in the Credit Agreement. As of December
29, 2007, the amount available for borrowing was $15,000,000, of which
$4,646,000 was borrowed, leaving $10,354,000 of availability.
Borrowings
under the Credit Agreement are collateralized by substantially all of the assets
of the Company. At December 29, 2007, the Company was in compliance with its
debt covenants which include, among others, maintaining certain EBITDA, fixed
charge and tangible net worth amounts.
Average
borrowings outstanding during fiscal 2007, 2006 and 2005 were $13,944,000,
$10,525,000 and $12,659,000 with weighted average interest rates of 6.79
percent, 6.57 percent and 5.84 percent, respectively. The Company made interest
payments of $1,003,000 in 2007, $647,000 in 2006 and $873,000 in 2005. The
amount of long-term debt maturities for the next five years is as follows: 2008
- - $467,000; 2009 - $467,000; and 2010 - $9,779,000.
On
February 23, 2006, the Company entered into an interest rate swap contract with
its bank for $4,500,000 at a fixed interest rate of 5.27 percent. The contract
runs from March 1, 2006 to December 31, 2010, which equates to the final payment
amount and due date of the term loan. The Company has accrued a $195,000
liability in accrued interest with a corresponding entry to interest expense to
reflect the fair market value of the swap at December 29, 2007, compared to
$48,000 accrued at Decemer 30, 2008. (See Note R)
|
|
|
2007
|
|
|
2006
|
|
|
Salaries,
wages and commissions
|
|
$ |
2,871,635 |
|
|
$ |
2,479,173 |
|
|
Advances
from customers
|
|
|
6,031,371 |
|
|
|
1,786,418 |
|
|
Insurance
|
|
|
451,488 |
|
|
|
589,347 |
|
|
Taxes,
other than income taxes
|
|
|
340,096 |
|
|
|
331,771 |
|
|
Benefit
plans
|
|
|
244,143 |
|
|
|
218,191 |
|
|
Interest
|
|
|
258,254 |
|
|
|
147,403 |
|
|
Professional
fees
|
|
|
194,148 |
|
|
|
112,872 |
|
|
Other
accrued items
|
|
|
381,196 |
|
|
|
378,575 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
accrued expenses
|
|
$ |
10,772,331 |
|
|
$ |
6,043,750 |
|
Prior to
1987, the Company utilized certain products at its chemical facilities that are
currently classified as hazardous materials. Testing of the groundwater in the
areas of the treatment impoundments at these facilities disclosed the presence
of certain contaminants. In addition, several solid waste management units
(“SWMUs”) at the plant sites have been identified. In 1998 the Company completed
an RCRA Facility Investigation at its
Spartanburg
plant site, and based on the results, completed a Corrective Measures Study in
2000. A Corrective Measures Plan specifying remediation procedures to be
performed was submitted in 2000 and the Company received regulatory approval.
During 2005, a remediation project was completed to clean up two of the four
remaining SWMUs on the Spartanburg plant site at a cost of approximately
$530,000 which was accrued at January 1, 2005. The Company is in the process of
completing an analysis of the remaining two SWMU’s and has accrued $610,000 at
December 29, 2007, to provide for completion of this project.
At the
Augusta plant site, the Company submitted a Risk Assessment and Corrective
Measures Plan for regulatory approval. A Closure and Post-Closure Care Plan was
submitted and approved in 2001 for the closure of the surface impoundment. The
Company completed the surface impoundment during 2002. During the fourth quarter
of 2005, the Company completed a preliminary analysis based on the risk
assessment of the surface contamination at the site, and has accrued $365,000 at
December 29, 2007, for additional estimated future remedial and cleanup
costs.
The
Company has identified and evaluated two SWMUs at its plant in Bristol,
Tennessee that revealed residual groundwater contamination. An Interim
Corrective Measures Plan was submitted for regulatory approval in 2000 to
address the final area of contamination identified which was approved in March
of 2005. The Company has $72,000 accrued at December 29, 2007, to provide for
estimated future remedial and cleanup costs.
The
Company has been designated, along with others, as a potentially responsible
party under the Comprehensive Environmental Response, Compensation, and
Liability Act, or comparable state statutes, at two waste disposal sites.
Notifications were received by the Company in November 2007 and February 2008.
It is impossible to determine the ultimate costs related to the two sites due to
several factors such as the unknown possible magnitude of possible
contamination, the unknown timing and extent of the corrective actions which may
be required, and the determination of the Company’s liability in proportion to
the other parties. At the present time, the Company does not have sufficient
information to form an opinion as to whether it has any liability, or the amount
of such liability, if any. However, it is reasonably possible that some
liability exists.
The
Company does not anticipate any insurance recoveries to offset the environmental
remediation costs it has incurred. Due to the uncertainty regarding court and
regulatory decisions, and possible future legislation or rulings regarding the
environment, many insurers will not cover environmental impairment risks,
particularly in the chemical industry. Hence, the Company has been unable to
obtain this coverage at an affordable price.
Note
H Deferred Compensation
The
Company has deferred compensation agreements with certain former officers
providing for payments for ten years in the event of pre-retirement death or the
longer of ten years or life beginning at age 65. The present value of such
vested future payments, $409,000 at December 29, 2007, has been
accrued.
Note
I Shareholders’ Rights
The
Company has a Shareholders’ Rights Plan (the “Plan”) which expires in March
2009. Under the terms of the Plan, the Company declared a dividend distribution
of one right for each outstanding share to holders of record at the close of
business on March 26, 1999. Each Right entitles holders to purchase 2/10 of one
share of Common Stock at a price of $25.00 per share. Initially, the Rights are
not exercisable and will automatically trade with the Common Stock. Each right
becomes exercisable only after a person or group acquires more than 15 percent
of the Company’s Common Stock, or announces a tender or exchange offer for more
than 15 percent of the stock. At that time, each right holder, other than the
acquiring person or group, may use the Right to purchase $25.00 worth of the
Company’s Common Stock at one-half of the then market price.
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Contractual
|
|
|
Value
of
|
|
|
Options
|
|
|
|
|
Price
|
|
|
Outstanding
|
|
|
Term
|
|
|
Options
|
|
|
Available
|
|
|
|
|
|
|
|
|
|
|
(in
years)
|
|
|
|
|
|
|
|
|
At
January 1, 2005
|
|
$ |
7.93 |
|
|
|
505,000 |
|
|
|
|
|
|
|
|
|
173,000 |
|
|
Granted
|
|
$ |
9.96 |
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
(80,000 |
) |
|
Exercised
|
|
$ |
5.89 |
|
|
|
(137,850 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
(106,100 |
) |
|
|
|
|
|
|
|
|
106,100 |
|
|
Expired
|
|
|
|
|
|
|
(9,500 |
) |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2005
|
|
$ |
9.64 |
|
|
|
331,550 |
|
|
|
|
|
$ |
740,000 |
|
|
|
199,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
$ |
6.21 |
|
|
|
(26,900 |
) |
|
|
|
|
$ |
254,000 |
|
|
|
|
|
|
Cancelled
|
|
$ |
4.65 |
|
|
|
(8,000 |
) |
|
|
|
|
$ |
111,000 |
|
|
|
8,000 |
|
|
Expired
|
|
$ |
18.88 |
|
|
|
(14,500 |
) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 30, 2006
|
|
$ |
9.64 |
|
|
|
282,150 |
|
|
|
4.1 |
|
|
$ |
2,512,000 |
|
|
|
207,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
$ |
10.39 |
|
|
|
(132,407 |
) |
|
|
|
|
|
$ |
2,400,000 |
|
|
|
|
|
|
Expired
|
|
$ |
12.14 |
|
|
|
(19,000 |
) |
|
|
|
|
|
$ |
369,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 29, 2007
|
|
$ |
8.51 |
|
|
|
130,743 |
|
|
|
4.6 |
|
|
$ |
1,198,000 |
|
|
|
207,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
options
|
|
$ |
7.79 |
|
|
|
87,289 |
|
|
|
3.4 |
|
|
$ |
863,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
|
|
|
|
Options
expected to vest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 30, 2006
|
|
$ |
9.96 |
|
|
|
55,856 |
|
|
|
8.1 |
|
|
$ |
6.77 |
|
|
|
|
|
|
Vested
|
|
$ |
9.96 |
|
|
|
(12,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 29, 2007
|
|
$ |
9.96 |
|
|
|
43,454 |
|
|
|
7.1 |
|
|
$ |
6.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes information about stock options outstanding at
December 29, 2007:
|
|
|
|
|
|
|
Outstanding
Stock Options
|
|
|
Exercisable
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
Range
of
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
|
|
Exercise
|
|
|
Exercise
Prices
|
|
|
Shares
|
|
|
Price
|
|
|
Life
in Years
|
|
|
Shares
|
|
|
Price
|
|
|
$
13.63
|
|
|
|
|
|
|
1,500 |
|
|
$ |
13.63 |
|
|
|
.33 |
|
|
|
1,500 |
|
|
$ |
13.63 |
|
|
$ 7.28
|
to
|
|
$ |
7.75
|
|
|
|
45,250 |
|
|
$ |
7.67 |
|
|
|
1.43 |
|
|
|
45,250 |
|
|
$ |
7.67 |
|
|
$ 6.75
|
|
|
|
|
|
|
|
1,500 |
|
|
$ |
6.75 |
|
|
|
2.38 |
|
|
|
1,500 |
|
|
$ |
6.75 |
|
|
$ 5.01
|
|
|
|
|
|
|
|
1,500 |
|
|
$ |
5.01 |
|
|
|
3.32 |
|
|
|
1,500 |
|
|
$ |
5.01 |
|
|
$ 4.65
|
|
|
|
|
|
|
|
14,900 |
|
|
$ |
4.65 |
|
|
|
4.32 |
|
|
|
14,900 |
|
|
$ |
4.65 |
|
|
$ 9.96
|
|
|
|
|
|
|
|
66,093 |
|
|
$ |
9.96 |
|
|
|
7.09 |
|
|
|
22,639 |
|
|
$ |
9.96 |
|
|
|
|
|
|
|
|
|
|
130,743 |
|
|
|
|
|
|
|
|
|
|
|
87,289 |
|
|
|
|
|
The
Company has three stock option plans. Stock option grants to purchase common
stock of the Company are available for officers and key employees under the 1998
Plan, and may be granted through April 30, 2008 to employees at a price not less
than the fair value on the date of grant. Options were granted through January
28, 1998 to employees under the 1988 Plan. Under the 1994 Non-Employee Directors
Plan, options were granted to
non-employee
directors through April 29, 2004. Under the 1988 and 1998 Plans, options may be
exercised beginning one year after date of grant at a rate of 20 percent
annually on a cumulative basis, and unexercised options expire ten years from
the grant date. Under the 1994 Non-Employee Directors’ Plan, options may be
exercised at the date of grant. All of the plans are incentive stock option
plans, therefore there are no income tax consequences to the Company when an
option is granted or exercised. The Company did not grant any options during
2007 and does not expect to grant options to its employees, officers or
non-employee directors in future periods. In 2007, 2006 and 2005, options for
132,407, 26,900 and 137,850 shares were exercised by employees and directors for
an aggregate exercise price of $1,375,000, $167,000 and $811,000, respectively,
with the proceeds generated from the repurchase of 32,614, 5,727 and 60,549
shares from employees and directors totaling $825,000, $101,000 and $666,000,
and cash received of $550,000, $66,000 and $146,000, respectively.
On
December 20, 2005, the Board of Directors of the Company passed a resolution to
accelerate the vesting schedules of substantially all outstanding unvested
options issued to officers and key employees effective as of the date of the
resolution. The Company determined that the modification to accelerate vesting
did not require recognition of compensation cost in its financial statements for
the year ended December 31, 2005 under the provisions of APB 25. As a result,
40,000 options with an exercise price of $4.65 became fully vested, 20,000 that
would have fully vested on April 25, 2006, and 20,000 that would have fully
vested on April 25, 2007. In addition, 24,144 options with an exercise price of
$9.96 became fully vested, 16,000 that would have fully vested on February 3,
2006, 3,598 that would have fully vested on February 3, 2007, and 4,546 that
would have vested at 2,000 per year on February 3, 2008 and 2009 and 546 in
2010.
At the
2007 and 2006 respective year ends, options to purchase 87,289 and 226,294
shares were fully exercisable. Compensation cost charged against income before
taxes for the options was approximately $76,000, or $.01 per share, for 2007 and
2006. As of December 29, 2007, there was $158,000 of total unrecognized
compensation cost related to unvested stock options granted under the Company's
stock option plans which is expected to be recognized over a period of 4 years.
The fair value of the unvested options computed under SFAS 123R was estimated at
the time the options were granted using the Black-Scholes option pricing model,
and is being recognized over the vesting period of the options. The following
weighted-average assumptions were used for 2005: risk-free interest rate of five
percent; volatility factors of the expected market price of the Company’s Common
Shares of .659; an expected life of the option of seven years. The dividend
yield used in the calculation was zero percent. The weighted average fair value
on the date of grant was $6.77. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility.
The
following illustrates the effect on net income available to common stockholders
if the Company had applied the fair value recognition provisions of SFAS 123R in
2005:
|
|
|
|
|
|
Net
income reported
|
|
$ |
5,095,951 |
|
|
Compensation
expense, net of tax
|
|
|
(305,192 |
) |
|
Pro
forma net income
|
|
$ |
4,790,759 |
|
|
Basic
income per share
|
|
$ |
0.84 |
|
|
Compensation
expense, net of tax
|
|
|
(0.05 |
) |
|
Pro
forma basic income per share
|
|
$ |
0.79 |
|
|
Diluted
income per share
|
|
$ |
0.83 |
|
|
Compensation
expense, net of tax
|
|
|
(0.05 |
) |
|
Pro
forma diluted income per share
|
|
$ |
0.78 |
|
On
February 8, 2007, the Compensation & Long-Term Incentive Committee of the
Board of Directors of the Company approved stock grants under the Company’s 2005
Stock Awards Plan, which was approved by shareholders at the April 28, 2005
Annual Meeting. On February 12, 2007, 22,510 shares, with a market price of
$25.00 per share, were granted under the Plan to certain management employees of
the Company. The stock awards vest in 20 percent increments annually on a
cumulative basis, beginning one year after the date of grant. In order for the
awards to vest, the employee must be in the continuous employment of the Company
since the date of the award. Any portion of an award that has not vested is
forfeited upon termination of employment. The Company may terminate any portion
of the award that has not vested upon an employee’s failure to comply with all
conditions of the award or the Plan. Shares representing awards that have not
yet vested are held in escrow by the Company. An employee is not entitled to any
voting rights with respect to any shares not yet vested, and the shares are not
transferable. Compensation expense totaling $555,000, before income taxes of
approximately
$189,000,
is being charged against earnings equally over the following 60 months from the
date of grant with the offset recorded in Shareholders’ Equity. Compensation
cost charged against income after taxes for the options was approximately
$99,000, $65,000 after income taxes of $34,000, or $.01 per share, for the year
ended December 29, 2007. As of December 29, 2007, there was $456,000 of total
unrecognized compensation cost related to unvested stock grants under the
Company's stock grants Plan. (See Note T)
Note
K Income Taxes
|
(Amounts
in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Inventory
valuation reserves
|
|
$ |
1,125 |
|
|
$ |
1,042 |
|
|
Allowance
for doubtful accounts
|
|
|
449 |
|
|
|
401 |
|
|
Inventory
capitalization
|
|
|
577 |
|
|
|
555 |
|
|
Environmental
reserves
|
|
|
237 |
|
|
|
248 |
|
|
Other
|
|
|
423 |
|
|
|
- |
|
|
Total
deferred tax assets
|
|
|
2,811 |
|
|
|
2,246 |
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Tax
over book depreciation and amortization
|
|
|
2,895 |
|
|
|
2,772 |
|
|
Prepaid
expenses
|
|
|
142 |
|
|
|
465 |
|
|
Other
|
|
|
- |
|
|
|
916 |
|
|
Total
deferred tax liabilities
|
|
|
3,037 |
|
|
|
4,153 |
|
|
Net
deferred tax liabilities
|
|
$ |
(226 |
) |
|
$ |
(1,907 |
) |
|
(Amounts
in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
5,324 |
|
|
$ |
4,001 |
|
|
$ |
1,696 |
|
|
State
|
|
|
456 |
|
|
|
341 |
|
|
|
335 |
|
|
Total
current
|
|
|
5,780 |
|
|
|
4,342 |
|
|
|
2,031 |
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(538 |
) |
|
|
1 |
|
|
|
84 |
|
|
State
|
|
|
(43 |
) |
|
|
13 |
|
|
|
16 |
|
|
Total
deferred
|
|
|
(581 |
) |
|
|
14 |
|
|
|
100 |
|
|
Total
|
|
$ |
5,199 |
|
|
$ |
4,356 |
|
|
$ |
2,131 |
|
|
(Amounts
in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
at US statutory rates
|
|
$ |
5,273 |
|
|
|
34.4 |
% |
|
$ |
4,087 |
|
|
|
34.2 |
% |
|
$ |
2,475 |
|
|
|
34.0 |
% |
|
State
income taxes, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
tax benefit
|
|
|
271 |
|
|
|
1.8 |
% |
|
|
205 |
|
|
|
1.7 |
% |
|
|
221 |
|
|
|
3.0 |
% |
|
Changes
in contingent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax
reserves
|
|
|
(151 |
) |
|
|
(1.0 |
%) |
|
|
259 |
|
|
|
2.2 |
% |
|
|
(501 |
) |
|
|
(6.8 |
%) |
|
Manufacturing
exemption
|
|
|
(340 |
) |
|
|
(2.2 |
%) |
|
|
(131 |
) |
|
|
(1.1 |
%) |
|
|
(34 |
) |
|
|
(.5 |
%) |
|
Other,
net
|
|
|
146 |
|
|
|
.9 |
% |
|
|
(64 |
) |
|
|
(.6 |
%) |
|
|
(30 |
) |
|
|
(.4 |
%) |
|
Total
|
|
$ |
5,199 |
|
|
|
33.9 |
% |
|
$ |
4,356 |
|
|
|
36.4 |
% |
|
$ |
2,131 |
|
|
|
29.3 |
% |
Income tax payments of approximately $5,757,000, $4,935,000
and $301,000 were made in 2007, 2006 and 2005, respectively. The Company has
South Carolina state net operating loss carryforwards of approximately
$40,200,000 at December 29, 2007, which expire between the years 2017
to 2026, and $38,400,000 at December 30, 2006. Since the likelihood of
recognizing these carryforwards is remote, they have been fully reserved in the
financial statements.
The
Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
Taxes,” at the beginning of fiscal year 2007. As a result of the implementation
the Company recognized a $995,000 decrease to reserves for uncertain tax
positions. This decrease was accounted for as an adjustment to the beginning
balance of retained earnings on the Balance Sheet. Including the cumulative
effect decrease, at the beginning of 2007, the Company had approximately
$350,000 of total gross unrecognized tax benefits that, if recognized, would
favorably affect the effective income tax rate in any future periods. During
2007, the Company recognized $151,000 of these benefits or $.02 per share,
leaving $199,000 accrued at December 29, 2007.The Company and its subsidiaries
are subject to U.S. federal income tax as well as income tax of multiple state
jurisdictions. The Company has substantially concluded all U.S. federal income
tax matters and substantially all material state and local income tax matters
for years through 2002. The Company’s continuing practice is to recognize
interest and/or penalties related to income tax matters in income tax expense.
The Company had $89,000 accrued for interest and $0 accrued for penalties at
December 29, 2007.
Note
L Benefit Plans and Collective Bargaining Agreements
The Company has a 401(k) Employee Stock Ownership Plan
covering all non-union employees. Employees may contribute to the Plan up to 100
percent of their salary with a maximum of $15,500 for 2007. Under
EGTRRA, employees who are age 50 or older may contribute an additional $5,000
per year for a maximum of $20,500 for 2007. Contributions by the
employees are invested in one or more funds at the direction of the employee;
however, employee contributions cannot be invested in Company stock. Contributions by the Company are made in cash and then used
by the Plan Trustee to purchase Synalloy stock. The Company contributes on
behalf of each eligible participant a matching contribution equal to a
percentage which is determined each year by the Board of Directors. For 2007 the
maximum was four percent. The matching contribution is allocated weekly.
Matching contributions of approximately $338,000, $319,000 and $321,000 and were
made for 2007, 2006 and 2005, respectively. The Company may also make a
discretionary contribution, which shall be distributed to all eligible
participants regardless of whether they contribute to the Plan. No discretionary
contributions were made to the Plan in 2007, 2006 and 2005. The Company also contributes to union-sponsored defined
contribution retirement plans. Contributions relating to these plans were
approximately $737,000, $595,000 and $515,000 for 2007, 2006 and 2005,
respectively.
The
Company has three collective bargaining agreements at its Bristol, Tennessee
facility. The number of employees of the Company represented by these unions is
282, or 59 percent. They are represented by two locals affiliated with the
AFL-CIO and one local affiliated with the Teamsters. Collective bargaining
contracts will expire in February 2009, December 2009 and March
2010.
Note
M Leases
The
Company’s Specialty Chemicals Segment leases a warehouse facility in Dalton
Georgia, and in addition, the Company leases various manufacturing and office
equipment at each of its locations, all under operating leases. The amount of
future minimum lease payments under the operating leases are as follows: 2008 -
$103,000; 2009 - $87,000; 2010 - $79,000; and 2011 - $34,000. Rent expense
related to operating leases was $104,000, $107,000 and $124,000 in 2007, 2006
and 2005, respectively. The Company does not have any leases that are classified
as capital leases for any of the periods presented in the financial
statements.
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
$ |
10,124,764 |
|
|
$ |
7,608,154 |
|
|
$ |
5,147,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
- weighted average shares
|
|
|
6,211,639 |
|
|
|
6,122,195 |
|
|
|
6,068,324 |
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock options and stock grants
|
|
|
84,272 |
|
|
|
112,092 |
|
|
|
70,775 |
|
|
Denominator
for diluted earnings per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
- weighted average shares
|
|
|
6,295,911 |
|
|
|
6,234,287 |
|
|
|
6,139,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income per share
|
|
$ |
1.63 |
|
|
$ |
1.24 |
|
|
$ |
.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share
|
|
$ |
1.60 |
|
|
$ |
1.22 |
|
|
$ |
.84 |
|
The
diluted earnings per share calculations exclude the effect of potentially
dilutive shares when the inclusion of those shares in the calculation would have
an anti-dilutive effect. The Company had 68,981, 170,058 and 260,775 weighted
average shares of common stock which were not included in the diluted earnings
per share calculation as their effect was anti-dilutive in 2007, 2006 and 2005,
respectively.
The Company operates in two principal industry segments:
metals and specialty chemicals. The Company identifies such segments based on
products and services. The Metals Segment consists of Synalloy Metals, Inc. a
wholly-owned subsidiary which owns 100 percent of Bristol Metals, LLC. The
Metals Segment manufactures welded stainless steel pipe and highly specialized
products, most of which are custom-produced to individual orders, required for
corrosive and high-purity processes used principally by the chemical,
petrochemical, pulp and paper, wastewater treatment and LNG industries. Products
include piping systems and a variety of other components. The Specialty
Chemicals Segment consists of Manufacturers Soap and Chemical Company, a wholly
owned subsidiary which owns 100 percent of Manufacturers Chemicals, LLC, and
Blackman Uhler Specialties, LLC, Organic Pigments, LLC and SFR, LLC, all of
which are wholly-owned subsidiaries of the Company. The Specialty Chemicals Segment manufactures a wide variety
of specialty chemicals, pigments and dyes for the carpet, chemical, paper,
metals, photographic, pharmaceutical, agricultural, fiber, paint, textile,
automotive, petroleum, cosmetics, mattress, furniture and other industries.
Operating
profit is total revenue less operating expenses, excluding interest expense and
income taxes of the continuing operations. Identifiable assets, all of which are
located in the United States, are those assets used in operations by each
Segment. Centralized data processing and accounting expenses are allocated to
the two Segments based upon estimates of their percentage of usage. Unallocated
corporate expenses include environmental charges of $507,000, $438,000 and
$821,000 for 2007, 2006 and 2005 respectively. (See Note G) Corporate assets
consist principally of cash, certain investments, and property and
equipment.
The
Metals Segment had one domestic customer (Hughes Supply, Inc.) that accounted
for approximately 12, 15 and 11 percent of the Metals Segment’s revenues in
2007, 2006 and 2005, respectively, and approximately ten percent of the
Company’s consolidated revenues in 2006. The Segment also had one domestic
customer that accounted for approximately 14 percent of the Segment’s revenues in 2006, and
less than ten percent for 2007 and 2005. Loss of either of these customers’
revenues would have a material adverse effect on both the Metals Segment and the
Company.
The
Specialty Chemicals Segment had one domestic customer that accounted for
approximately 13 percent of the Segment’s revenues in 2007, 2006 and 2005.
The Segment also had one domestic customer that accounted for approximately ten
and 13 percent of the Segment’s revenues in 2007 and 2006, respectively, and
less than ten percent in 2005. Loss of either of these customers’ revenues would
have a material adverse effect on the Specialty Chemicals Segment.
|
(Amounts
in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
Metals
Segment
|
|
$ |
126,219 |
|
|
$ |
102,822 |
|
|
$ |
86,053 |
|
|
Specialty
Chemicals Segment
|
|
|
52,066 |
|
|
|
49,225 |
|
|
|
45,355 |
|
|
|
|
$ |
178,285 |
|
|
$ |
152,047 |
|
|
$ |
131,408 |
|
|
Operating
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals
Segment
|
|
$ |
16,388 |
|
|
$ |
11,612 |
|
|
$ |
6,815 |
|
|
Specialty
Chemicals Segment
|
|
|
2,777 |
|
|
|
2,644 |
|
|
|
1,639 |
|
|
|
|
|
19,165 |
|
|
|
14,256 |
|
|
|
8,454 |
|
|
Less
unallocated corporate expenses
|
|
|
2,708 |
|
|
|
2,094 |
|
|
|
2,042 |
|
|
Gain
from sale of property and plant
|
|
|
- |
|
|
|
(596 |
) |
|
|
- |
|
|
Operating
income
|
|
|
16,457 |
|
|
|
12,758 |
|
|
|
6,412 |
|
|
Other
expense, net
|
|
|
1,133 |
|
|
|
794 |
|
|
|
(866 |
) |
|
Income
from continuing operations
|
|
$ |
15,324 |
|
|
$ |
11,964 |
|
|
$ |
7,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals
Segment
|
|
$ |
62,463 |
|
|
$ |
58,552 |
|
|
|
|
|
|
Specialty
Chemicals Segment
|
|
|
27,318 |
|
|
|
24,702 |
|
|
|
|
|
|
Corporate
|
|
|
6,840 |
|
|
|
6,103 |
|
|
|
|
|
|
|
|
$ |
96,621 |
|
|
$ |
89,357 |
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals
Segment
|
|
$ |
1,519 |
|
|
$ |
1,543 |
|
|
$ |
1,395 |
|
|
Specialty
Chemicals Segment
|
|
|
986 |
|
|
|
893 |
|
|
|
997 |
|
|
Corporate
|
|
|
129 |
|
|
|
236 |
|
|
|
470 |
|
|
|
|
$ |
2,634 |
|
|
$ |
2,672 |
|
|
$ |
2,862 |
|
|
Capital
expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals
Segment
|
|
$ |
2,222 |
|
|
$ |
1,913 |
|
|
$ |
2,635 |
|
|
Specialty
Chemicals Segment
|
|
|
2,128 |
|
|
|
1,172 |
|
|
|
534 |
|
|
Corporate
|
|
|
136 |
|
|
|
7 |
|
|
|
77 |
|
|
|
|
$ |
4,486 |
|
|
$ |
3,092 |
|
|
$ |
3,246 |
|
|
Geographic
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
173,144 |
|
|
$ |
148,572 |
|
|
$ |
126,676 |
|
|
Elsewhere
|
|
|
5,141 |
|
|
|
3,475 |
|
|
|
4,732 |
|
|
|
|
$ |
178,285 |
|
|
$ |
152,047 |
|
|
$ |
131,408 |
|
Note
Q Quarterly Results (Unaudited)
|
(Amount
in thousands exept for per share data)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
44,398 |
|
|
$ |
43,941 |
|
|
$ |
51,515 |
|
|
$ |
38,431 |
|
|
Gross
profit
|
|
|
8,820 |
|
|
|
8,312 |
|
|
|
6,977 |
|
|
|
4,054 |
|
|
Net
income
|
|
|
3,525 |
|
|
|
3,196 |
|
|
|
2,260 |
|
|
|
1,144 |
|
|
Per
common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
.57 |
|
|
|
.51 |
|
|
|
.36 |
|
|
|
.18 |
|
|
Diluted
|
|
|
.56 |
|
|
|
.50 |
|
|
|
.36 |
|
|
|
.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
36,162 |
|
|
$ |
36,729 |
|
|
$ |
39,097 |
|
|
$ |
40,059 |
|
|
Gross
profit
|
|
|
3,999 |
|
|
|
5,269 |
|
|
|
6,209 |
|
|
|
7,247 |
|
|
Net
income
|
|
|
698 |
|
|
|
1,498 |
|
|
|
2,409 |
|
|
|
3,003 |
|
|
Per
common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
.11 |
|
|
|
.24 |
|
|
|
.39 |
|
|
|
.49 |
|
|
Diluted
|
|
|
.11 |
|
|
|
.24 |
|
|
|
.39 |
|
|
|
.48 |
|
Note
R Derivative and Hedging Transactions
The
Company periodically utilizes derivative instruments that are designated and
qualify as hedges under Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" and related
pronouncements. Cash flow and fair value hedges are hedges that are intended to
eliminate the risk of changes in the fair values of assets, liabilities and
certain types of firm commitments. The Company's objective in using these
instruments is to help protect its earnings and cash flows from interest rate
risks on its long-term indebtedness and fluctuations in the fair value of
commodities used in the Company’s stainless steel raw materials. The Company
formally documents all relationships between hedging instruments and hedged
items, as well as its risk management objectives and strategies for undertaking
the hedge transactions. In this documentation, the Company specifically
identifies the asset, liability and non-cancelable commitment that has been
designated as a hedged item and states how the hedging instrument is expected to
hedge the risks related to that item. The Company formally measures
effectiveness of its hedging relationships both at the hedge inception and on an
ongoing basis. The Company discontinues hedge accounting prospectively when it
determines that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of a hedged item; when the derivative expires; when
it is probable that the forecasted transaction will not occur; when a hedged
firm commitment no longer meets the definition of a firm commitment; or when
management determines that designation of the derivative as a hedge instrument
is no longer appropriate.
Interest
Rate Swap
Cash flow
hedges are hedges that use simple derivatives to offset the variability of
expected future cash flows. Variability can appear in floating rate liabilities
and can arise from changes in interest rates. The Company uses an interest rate
swap in which it pays a fixed rate of interest while receiving a variable rate
of interest to change the cash flow profile of its variable-rate borrowing to
match a fixed rate profile. As discussed in Note E, the Company entered into a
long-term debt agreement with its bank and pays interest based on a variable
interest rate. To mitigate the variability of the interest rate risk, the
Company entered into a derivative/swap contract in February of 2006 with the
bank, coupled with a third party who will pay a variable rate of interest (an
“interest rate swap”). The interest rate swap is for $4,500,000 with a fixed
interest rate of 5.27 percent, and runs from March 1, 2006 to December 31, 2010,
which equates to the final payment amount and due date of the term loan.
Although the swap is expected to effectively offset variable interest in the
borrowing, hedge accounting is not utilized. Therefore, changes in its fair
value are being recorded in current assets or liabilities, as appropriate, with
corresponding offsetting entries to interest expense.
Commodity
Futures Contract
In the
ordinary course of business, the Company's income and cash flows may be affected
by fluctuations in the price of nickel, which is a component of stainless steel
raw materials used in its production of stainless steel pipe. The Company is
subject to raw material surcharges on the nickel component from its stainless
steel suppliers. For certain non-cancelable fixed price sales contracts having
delivery dates in the future, the Company is not able to obtain fixed price
purchase commitments to cover the nickel surcharge component of the stainless
steel raw material requirements of the sales contract which creates a cost
exposure from fluctuations in the nickel surcharges. Where such exposure exists,
the Company considers the use of cash settled commodity price swaps with
durations approximately equal to the expected delivery dates of the applicable
raw materials to hedge the price of its nickel requirements. The Company
designates these instruments as fair value hedges and the resulting changes in
their fair value are recorded as inventory costs. Subsequent gains and losses
are recognized into cost of products sold in the same period as the underlying
physical transaction. While these hedging activities may protect the Company
against higher nickel prices, they may also prevent realizing possible lower raw
material costs in the event that the market price of nickel falls below the
price stated in a forward sale or futures contract.
In May
2005, the Company entered into a derivative transaction to hedge the price of
nickel, a component of stainless steel raw materials. The futures contract
covered approximately 100 metric tonnes of nickel and expired on December 1,
2005. The Company paid $406,000 under the contract which was offset by the
difference in the price paid for the nickel surcharge component of the raw
materials being hedged, and therefore was added to the cost of the raw
materials. There were no outstanding hedging contracts on nickel commodities at
December 29, 2007 or December 30, 2006.
Note
S Discontinued Operations
On July 23, 2003 the Company purchased certain assets of Rite
Industries. These assets along with Synalloy’s existing textile dye business
were placed in a newly formed subsidiary of the Company called Blackman Uhler,
LLC (BU Colors) of which 75 percent was owned by the Company. The acquisition
provided a new customer base in the paper and other non-textile industries.
Total cost of the acquisition was $200,000 and the Company funded the
acquisition with available cash. As a result of the continuing downward trends
in the textile industry and poor financial performance of the textile dye
business, the Company decided to divest the liquid dye portion of its dye
business servicing the textile industry, and began downsizing the remaining dye
business in the fourth quarter of 2003. On March 25, 2004, the Company entered
into an agreement to sell the liquid dye business comprised of vat, sulfur,
liquid disperse and liquid reactive dyes with annual sales of approximately
$4,500,000 for approximately its net book value, and several customers and
related products of the remaining textile dye business were rationalized.
Business conditions in the remaining dye business were poor throughout 2004,
especially in the first six months, as BU Colors experienced operating losses in
every quarter of 2004. In the third quarter of 2004, the Company decided to
attempt to sell the remaining dye business and on December 28, 2004, entered
into a purchase agreement to sell the dye business. The transaction closed on
January 31, 2005. The terms included the sale of the inventory of BU Colors
along with certain equipment and other property associated with the business
being sold, and the licensing of certain intellectual property, for a purchase
price of approximately $4,872,000, of which $4,022,000 was paid at closing, and
the balance of $850,000 was to be paid over time based on the operations of the
purchaser. On January 17, 2006, the Company and the purchaser amended the
purchase agreement replacing the periodic purchase price payments with a
one-time payment of $400,000 which was received on January 18, 2006, and was
reclassified to a current note receivable in the financial statements at
December 31, 2005.
As a
result of the sale of the dye business in 2004, the Company has discontinued the
operations of BU Colors and has presented the financial information of BU Colors
as discontinued operations. In December of 2004, the Company completed an
impairment assessment in accordance with FAS No. 144, on the plant and equipment
located at the Spartanburg facility related to the BU Colors operations. As a
result, the Company recognized an impairment charge of $581,000 in 2004
from the write-down of plant and equipment. There were no assets in the
discontinued operations at the end of 2005. For the year ended December 31,
2005, the discontinued operations had sales of $1,586,000, gross profits of
$312,000, an operating loss of $35,000, interest expense of $38,000 for a total
loss from discontinued operations of $73,000.
Note
T Subsequent Events
On
February 7, 2008, the Board of Directors of the Company voted to pay an annual
dividend of $.25 per share payable on March 7, 2008 to holders of record on
February 21, 2008, for a total cash payment of $1,560,000. The Board presently
plans to review at the end of each fiscal year the financial performance and
capital needed to support future growth to determine the amount of cash
dividend, if any, which is appropriate.
On
February 6, 2008, the Compensation & Long-Term Incentive Committee of the
Board of Directors of the Company approved stock grants under the Company’s 2005
Stock Awards Plan. On February 12, 2008, 11,480 shares, with a market price of
$16.35 per share, were granted under the Plan to certain management employees of
the Company. The stock awards will vest in 20 percent increments annually on a
cumulative basis, beginning one year after the date of grant. In order for the
awards to vest, the employee must be in the continuous employment of the Company
since the date of the award. Any portion of an award that has not vested will be
forfeited upon termination of employment. The Company may terminate any portion
of the award that has not vested upon an employee’s failure to comply with all
conditions of the award or the Plan. Shares representing awards that have not
yet vested will be held in escrow by the Company. An employee will not be
entitled to any voting rights with respect to any shares not yet vested, and the
shares are not transferable. Compensation expense totaling $188,000, before
income taxes of approximately $64,000, will be recorded against earnings equally
over the following 60 months from the date of grant with the offset recorded in
Shareholders’ Equity. (See Note J)
Management’s
Annual Report On Internal Control Over Financial Reporting
Management
of the Company is responsible for preparing the Company’s annual consolidated
financial statements and for establishing and maintaining adequate internal
control over financial reporting for the Company. Management has
evaluated the effectiveness of the Company’s internal control over financial
reporting as of December 29, 2007 based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment,
management believes that the Company's internal control over financial reporting
as of December 29, 2007 was effective.
Report of
Independent Registered Public Accounting Firm
Shareholders
of Synalloy Corporation
We have
audited the accompanying consolidated balance sheets of Synalloy Corporation
(the “Company”) and subsidiaries as of December 29, 2007 and December 30, 2006,
and the related consolidated statements of operations, shareholders’ equity and
cash flows for each of the years in the three-year period ended December 29,
2007. Our audit also included the financial statement schedule listed in Item
15(a)2 to the Company’s Annual Report on Form 10-K. We also have audited the
Company’s internal control over financial reporting as of December 29, 2007,
based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial statements and schedule,
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 On Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on these financial
statements and an opinion on the Company’s internal control over financial
reporting 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
A
company’s internal control over financial reporting is a process designed 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 company’s 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 company’s
assets that could have a material effect on the financial
statements.
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.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Synalloy Corporation and
subsidiaries as of December 29, 2007 and December 30, 2006, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 29, 2007, in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion,
Synalloy Corporation and subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 29, 2007,
based on criteria established in Internal Control—Integrated Framework issued
by COSO. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.
As
discussed in Note K to the consolidated financial statements, in 2007 the
Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" an interpretation of FASB 109.
/s/ Dixon
Hughes PLLC
Charlotte,
NC
March 6,
2008
Item
9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item
9A Controls and Procedures
Based
on the evaluation required by 17 C.F.R. Section 240.13a-15(b) or 240.15d-15(b)
of the Company's disclosure controls and procedures (as defined in 17 C.F.R.
Sections 240.13a-15(e) and 240.15d-15(e)), the Company's chief executive officer
and chief financial officer concluded that such controls and procedures, as of
the end of the period covered by this annual report, were
effective.
Management’s
Annual Report on Internal Control over Financial Reporting and the attestation
report of the Company’s registered public accounting firm on the Company’s
internal control over financial reporting are set forth at the conclusion of the
Company’s consolidated statements set forth in Item 8 of this Form 10-K. There
has been no change in the Company's internal control over financial reporting
during the last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
Item
9B Other Information
Not
applicable
Code
of Ethics. The Company's Board of Directors has adopted a Code of Ethics that
applies to the Company's Chief Executive Officer, Vice President, Finance and
corporate and divisional controllers. The Code of Ethics is available on the
Company's website at: www.synalloy.com. Any amendment to, or waiver from, this
Code of Ethics will be posted on the Company's internet site.
Audit
Committee. The Company has a separately designated standing Audit Committee of
the Board of Directors established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934. The members of the Audit Committee are Carroll
D. Vinson, Murray H. Wright and Craig C. Bram.
Report,”
and "Compensation of Directors and Officers" in the Proxy Statement is
incorporated herein by reference. The Compensation Committee Report shall not,
however, be deemed filed or incorporated by reference into any filing under the
Securities Act of 1933 or any filing under the Securities Exchange Act of 1934,
except to the extent specifically incorporated by reference
therein.
Item
12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
(1)
|
Represents
shares remaining available for issuance under the 1998 Stock Option Plan
and the 2005 Stock Awards Plan.
|
Non-employee
directors are paid an annual retainer of $35,000, and each director has the
opportunity to elect to receive $15,000 of the retainer in restricted stock. For
2007, each director elected to receive $15,000 of the annual retainer in
restricted stock. The number of restricted shares is determined by the average
of the high and low stock price on the day prior to the Annual Meeting of
Shareholders. For 2007, each non-employee director received 389 shares of
restricted stock (an aggregate of 1,945 shares), issuance of the shares granted
to the directors is not registered under the Securities Act of 1933 and the
shares are subject to forfeiture in whole or in part upon the occurrence of
certain events. The above table does not reflect these shares issued to
non-employee directors.
The
information set forth under the captions “Board of Directors and Committees --
Related Party Transactions” and “--Director Independence” in the Proxy Statement
is incorporated therein by reference.
PART
IV
|
(a)
|
The
following documents are filed as a part of this report:
|
|
|
1.
|
Financial
Statements: The following consolidated financial statements of Synalloy
Corporation are included in Item 8:
|
|
|
|
|
Consolidated
Balance Sheets at December 29, 2007 and December 30, 2006
|
|
|
|
|
Consolidated
Statements of Operations for the years ended December 29, 2007, December
30, 2006 and December 31, 2005
|
|
|
|
|
Consolidated
Statements of Shareholders' Equity for the years ended December 29, 2007,
December 30, 2006 and December 31, 2005
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 29, 2007, December
30, 2006 and December 31, 2005
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
|
2.
|
Financial
Statements Schedules: The following consolidated financial statements
schedule of Synalloy Corporation is included in Item 15:
|
|
|
|
|
Schedule
II - Valuation and Qualifying Accounts for the years ended December 29,
2007, December 30, 2006 and December 31, 2005
|
|
|
|
|
All
other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
|
|
|
|
3.
|
Listing
of Exhibits:
|
|
|
|
|
See
"Exhibit Index"
|
|
|
Column
A
|
|
Column
B
|
|
|
Column
C
|
|
|
Column
D
|
|
|
Column
E
|
|
|
|
|
Balance
at
|
|
|
Charged
to
|
|
|
|
|
|
Balance
at
|
|
|
|
|
Beginning
|
|
|
Cost
and
|
|
|
Deductions
|
|
|
End
of
|
|
|
Description
|
|
of
Period
|
|
|
Expenses
|
|
|
|
(1)
|
|
|
Period
|
|
|
Year
ended December 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset account:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$ |
1,114,000 |
|
|
$ |
229,000 |
|
|
$ |
107,000 |
|
|
$ |
1,236,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset account:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$ |
1,039,000 |
|
|
$ |
315,000 |
|
|
$ |
240,000 |
|
|
$ |
1,114,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset account:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$ |
678,000 |
|
|
$ |
512,000 |
|
|
$ |
151,000 |
|
|
$ |
1,039,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Allowances, uncollected accounts and credit balances written off against
reserve, net of recoveries.
|
|
|
By /s/ Ronald H.
Braam
Ronald
H. Braam
Chief
Executive Officer
|
March 12, 2008
Date
|
|
By /s/ Gregory M.
Bowie
Gregory
M. Bowie
Chief
Financial Officer
|
March 12,
2008
Date
|
Registrant
|
By /s/ James G. Lane,
Jr.
James
G. Lane, Jr.
Chairman
of the Board
|
March 12,
2008
Date
|
|
By /s/ Sibyl N.
Fishburn
Sibyl
N. Fishburn
Director
|
March 12,
2008
Date
|
|
By /s/ Carroll D.
Vinson
Carroll
D. Vinson
Director
|
March 12,
2008
Date
|
|
By /s/ Murray H.
Wright
Murray
H. Wright
Director
|
March 12,
2008
Date
|
|
By /s/ Craig C.
Bram
Craig
C. Bram
Director
|
March 12,
2008
Date
|
|
from
Item
601 of
Regulation
S-B
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6
|
|
Credit
Agreement, dated as of December 13, 2005, between Registrant and Carolina
First Bank, incorporated by reference to Registrant's Form 10-K for
the year ended December 30, 2006
|
|
|
|
|
|
10.8
|
|
Employment
Agreement, dated January 1, 2006, between Registrant and Ronald H. Braam,
incorporated by reference to Registrant's Form 10-K for the year ended
December 30, 2006
|
|
10.9
|
|
Amendment
1 to the Synalloy Corporation 2005 Stock Awards Plan
|
|
|
|
Agreement
between Registrant’s Bristol Metals, L. P. subsidiary and the United
Steelworkers of America Local 4586, dated December 9, 2004, incorporated
by reference to the Form 10-K for the year ended January 1,
2005
|
|
10.11
|
|
Agreement
between Registrant’s Bristol Metals, L. P. subsidiary and the United
Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting
Industry of the United States and Canada Local Union No. 538, dated
February 16, 2004, incorporated by reference to the Form 10-K for the year
ended December 31, 2005
|
|
21
|
|
Subsidiaries
of the Registrant, incorporated by reference to the Form 10-K for the year
ended December 30, 2006
|
|
31
|
|
Rule
13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief
Financial Officer
|
|
|
|
Certifications
Pursuant to 18 U.S.C. Section 1350
|