UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
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ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR
THE FISCAL YEAR ENDED JANUARY 2, 2010
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TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER 0-19687
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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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Croft Industrial Park, P.O. Box
5627, Spartanburg, South Carolina 29304
(Address
of principal executive offices)
(Zip Code)
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Registrant's telephone number, including area
code: (864) 585-3605
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Securities registered pursuant
to Section 12(b) of the Act:
Common Stock, $1.00 Par
Value
(Title
of Class)
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Name of each exchange on which
registered:
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Securities
registered pursuant to Section 12(g) of the Act:
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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes
__ No X
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 has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to
submit and post such files).
Yes
__ No __ (Not yet applicable to
Registrant)
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
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Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of
"large accelerated filer," "accelerated filer" and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one)
Large
accelerated Filer
__ Accelerated
filer
__ Non-accelerated
filer __ Smaller reporting
company X
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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Based on the closing price as of
July 3, 2009, which was the last business day of the registrant's most
recently completed second fiscal quarter, the aggregate market value of
the common stock held by non-affiliates of the registrant was $45.5
million. Based on the closing price of March 2, 2010, the aggregate market
value of common stock held by non-affiliates of the registrant was $45.6
million. The registrant did not have any non-voting common equity
outstanding at either date.
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The number of shares outstanding
of the registrant's common stock as of March 2, 2010 was
6,277,235.
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Documents Incorporated By Reference
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Portions of the Proxy Statement
for the 2010 annual shareholders' meeting are incorporated by reference
into Part III of this Form 10-K.
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Synalloy
Corporation
Form
10-K
for
period ended January 2, 2010
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; ability to weather the current economic downturn; loss of consumer
or investor confidence 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.
Synalloy Corporation, a Delaware
corporation ("the Company"), was incorporated in 1958 as the successor to a
chemical manufacturing business founded in 1945. Its charter is perpetual. The
name was changed on July 31, 1967 from Blackman Uhler Industries, Inc. On June
3, 1988, the state of incorporation was changed from South Carolina to Delaware.
The Company's executive offices are located at Croft Industrial Park,
Spartanburg, South Carolina.
The
Company’s business is divided into two segments, the Metals Segment and the
Specialty Chemicals Segment. The Metals Segment operates as Bristol Metals, LLC
(“Bristol”) and Ram-Fab, LLC (“Ram-Fab”). Bristol manufactures pipe (“Bristol
Pipe”) and fabricates piping systems (“BPS”) from stainless steel and other
alloys, and Ram-Fab fabricates piping systems from carbon, chrome, stainless
steel and other alloys. The Metals Segment’s markets include the chemical,
petrochemical, pulp and paper, mining, power generation (including nuclear),
water and wastewater treatment, liquid natural gas (“LNG”), brewery, food
processing, petroleum, pharmaceutical and other industries. The Specialty
Chemicals Segment operates as Manufacturers Chemicals, LLC (“MC”), located in
Cleveland, Tennessee and Dalton, Georgia. The Specialty Chemicals Segment
produces specialty chemicals and dyes for the carpet, chemical, paper, metals,
mining, agricultural, fiber, paint, textile, automotive, petroleum, cosmetics,
mattress, furniture, janitorial and other industries.
Metals Segment – This Segment
is comprised of two wholly-owned subsidiaries: Synalloy Metals, Inc. which owns
100 percent of Bristol Metals, LLC, located in Bristol, Tennessee; and Ram-Fab,
LLC, located in Crossett, Arkansas.
Bristol
Pipe manufactures welded pipe, primarily from stainless steel, but also from
other corrosion-resistant metals. Pipe is produced in sizes from one-half inch
to 120 inches in diameter and wall thickness up to one and one-half inches.
Sixteen-inch and smaller pipe is made on equipment that forms and welds the pipe
in a continuous process. Pipe larger than 16 inches is formed on presses or
rolls and welded on batch welding equipment. Pipe is normally produced in
standard 20-foot lengths. However, Bristol Pipe has unusual capabilities in the
production of long length pipe without circumferential welds. This can reduce
installation cost for the customer. Lengths up to 60 feet can be produced in
sizes up to 16 inches in diameter. In larger sizes Bristol Pipe has a unique
ability among domestic producers to make 48-foot lengths in sizes up to 36
inches. Over the past four years, Bristol has made substantial capital
improvements to both Bristol Pipe and BPS, expanding and improving capabilities
to service markets requiring large diameter pipe and specialty alloy pipe such
as water and waste water treatment, LNG, and scrubber applications for the power
industry. These improvements
include
expanding its x-ray facilities which allows simultaneous use of real time and
film examination; updating material handling equipment; expanding capabilities
for forming large pipe on existing batch equipment, giving Bristol Pipe the
capability to produce 36-inch diameter pipe in 48-foot lengths with wall
thicknesses of up to one inch; adding a shear that has the capacity of shearing
stainless steel plate up to one-inch thick; completing plant expansions that
allow the manufacture of pipe up to 42 inches in diameter utilizing more readily
available raw materials at lower costs, provide additional manufacturing
capacity, and provide improved product handling and additional space for planned
equipment additions; and installing automated hydro-testing equipment for pipe
up to 72 inches in diameter. In addition, in 2009 Bristol Pipe completed a
capital project to renovate several of its continuous pipe mills which has
increased their capabilities while improving their performance.
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 BPS rather than
performing all of the welding at the construction site. BPS’s 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 Pipe.
With the acquisition of Ram-Fab, Inc.
on August 31, 2009, the Metals Segment has increased its fabrication
capabilities to include producing carbon and chrome alloy piping systems. Carbon
and chrome alloy pipe fabrication enhances the stainless fabrication business
giving the Segment the capability to quote on all types of pipe fabrication
projects utilizing any combination of these three material types. Ram-Fab was
established over 20 years ago in Crossett, Arkansas and provides affordable,
quality pipe fabrication in carbon steel and high chrome alloys. From power
plants to refineries to chemical plants, Ram-Fab serves a broad range of
customers, both domestic and international. As a carbon steel and high chrome
pipe fabrication facility Ram-Fab is poised to take advantage of the anticipated
increase in the construction of power generation plants utilizing coal or
natural gas, as well as nuclear. Refinery upgrades and environmental work will
also add to the requirements of quality shop-fabricated carbon steel and high
chrome systems. Since Bristol does not
manufacture carbon or chrome alloy pipe, these materials are purchased from
outside suppliers.
In order
to establish stronger business relationships, only a few raw material suppliers
are used. Five suppliers furnish about 82 percent of total dollar purchases of
raw materials, with one supplier totaling about 50 percent. However, the Company
does not believe that the loss of any of these suppliers would have a materially
adverse effect on the Company as raw materials are readily available from a
number of different sources, and the Company anticipates no difficulties in
fulfilling its requirements.
This
Segment's stainless steel products are used principally by customers requiring
materials that are corrosion-resistant or suitable for high-purity processes.
The largest users are the chemical, petrochemical, pulp and paper, waste water
treatment and LNG industries, with some other important industry users being
mining, power generation (including nuclear), water treatment, brewery, food
processing, petroleum, pharmaceutical and alternative fuels. The Segment’s
carbon and chrome alloy products are used primarily in the power generation and
chemical industries.
Specialty Chemicals Segment –
This Segment consists of the Company’s wholly-owned subsidiary Manufacturers
Soap and Chemical Company (MS&C). MS&C owns 100 percent of MC which is
located in Cleveland, Tennessee and Dalton, Georgia and is fully licensed for
chemical manufacture.
The Segment produces specialty
chemicals and dyes for the carpet, chemical, paper, metals, mining,
agricultural, fiber, paint, textile, automotive, petroleum, cosmetics, mattress,
furniture, janitorial 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 capabilities also include
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 its Dalton, Georgia facility, MC 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. Both MC sites have extensive chemical storage
and blending capabilities.
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.
The Specialty Chemicals Segment
maintains four laboratories for applied research and quality control which are
staffed by 12 employees.
Most raw
materials used by the Segment are generally available from numerous independent
suppliers and about 30 percent of total purchases are from its top five
suppliers. While some raw material needs are met by a sole supplier or only a
few suppliers, the Company anticipates no difficulties in fulfilling its raw
material requirements.
Please
see Note M to the Consolidated Financial Statements, which are included in Item
8 of this Form 10-K, for financial information about the Company's
Segments.
Metals Segment – The Metals
Segment utilizes separate sales organizations for its different product groups.
Stainless steel pipe is sold nationwide under the Brismet trade name through
authorized stocking distributors at warehouse locations throughout the country.
In addition, large quantity orders are shipped directly from Bristol's plant to
end-user customers. Producing sales and providing service to the distributors
and end-user customers are the Vice President of Sales, five outside sales
employees, seven independent manufacturers' representatives and eight inside
sales employees. The Metals Segment has one domestic customer that accounted for
less than ten percent and approximately 11 and 12 percent of the Metals
Segment’s revenues in 2009, 2008 and 2007, respectively. The Segment also has
one other domestic customer that accounted for approximately ten and 12 percent
of the Segment’s revenues in 2009 and 2008, respectively, and less than ten
percent for 2007. Loss of either of these customers’ revenues would have a
material adverse effect on both the Metals Segment and the Company.
Piping
systems are sold nationwide under both the Bristol Piping Systems and Ram-Fab
trade names by four outside sales employees. They are under the direction of the
President of the Piping Systems division who spends a substantial amount of his
time in sales and service to customers. Piping systems are marketed to
engineering firms and construction companies or directly to project owners.
Orders are normally received as a result of competitive bids submitted in
response to inquiries and bid proposals.
Specialty Chemicals Segment –
Specialty chemicals are sold directly to various industries nationwide by five
full-time outside sales employees and five manufacturers' representatives. In
addition, the President and other members of the management team of MC devote a
substantial part of their time to sales. The Specialty Chemicals Segment has one
domestic customer that accounted for approximately 24, 20 and 23 percent of the
Segment’s revenues in 2009, 2008 and 2007, respectively. Loss of this customer’s
revenues would have a material adverse effect on the Specialty Chemicals
Segment.
Competition
Metals Segment – Welded
stainless steel pipe is the largest sales volume product of the Metals Segment.
Although information is not publicly available regarding the sales of most other
producers of this product, management believes that the Company is one of the
largest domestic producers of such pipe. This commodity product is highly
competitive with seven known domestic producers and imports from many different
countries. The largest sales volume among the non-commodity specialized products
comes from fabricating stainless, nickel alloys, chrome alloys and carbon piping
systems. Management believes the Company is one of the largest
producers
of such systems. There is also significant competition in the piping systems’
markets with 13 known domestic suppliers with similar capabilities as BPS and
RF, along with many other smaller suppliers.
Specialty Chemicals Segment –
The Company is the sole producer of certain specialty chemicals manufactured for
other companies under processing agreements and also produces proprietary
specialty chemicals. The Company's sales of specialty products are insignificant
compared to the overall market for specialty chemicals. The market for most of
the products is highly competitive and many competitors have substantially
greater resources than does the Company. The market for dyes is highly
competitive and the Company has less than ten percent of the market for its
products.
Environmental expenditures that relate
to an existing condition caused by past operations and that do not contribute to
future revenue generation are expensed. Liabilities are recorded when
environmental assessments and/or cleanups are probable and the costs of these
assessments and/or cleanups can be reasonably estimated. Changes to laws and
environmental issues, including climate change, are made or proposed with some
frequency and some of the proposals, if adopted, might directly or indirectly
result in a material reduction in the operating results of one or more of our
operating units. We are presently unable to foresee the future well enough to
quantify such risks. See Note E to Consolidated Financial Statements, which are
included in Item 8 of this Form 10-K, for further discussion.
Research
and Development Activities
The
Company spent approximately $289,000 in 2009, $348,000 in 2008 and $347,000 in
2007 on research and development activities that were expensed in its Specialty
Chemicals Segment. Five individuals, all of whom are graduate chemists, are
engaged primarily in research and development of new products and processes, the
improvement of existing products and processes, and the development of new
applications for existing products.
Seasonal Nature of the
Business
The
Company’s businesses and products are not normally subject to any seasonal
impact causing significant variations from one quarter to another.
The
Specialty Chemicals Segment operates primarily on the basis of delivering
products soon after orders are received. Accordingly, backlogs are not a factor
in this business. 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
$44,300,000 at the end of 2009, of which $6,200,000 was orders booked by Ram-Fab
which was acquired on August 31, 2009. Approximately 80 percent of the backlog
should be completed in 2010. The backlog totaled $45,500,000 and $57,000,000 at
the 2008 and 2007 respective year ends.
As of January 2, 2010, the Company had
466 employees. The Company considers relations with employees to be
satisfactory. The number of employees of the Company represented by unions, all
located at the Bristol, Tennessee facility, is 242, or 52 percent of the
Company’s 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 January 2015, February 2014 and March
2015.
Financial Information about Geographic
Areas
Information about revenues derived
from domestic and foreign customers is set forth in Note M to the Consolidated
Financial Statements.
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.
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 adversely affected, 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
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, climate
changes 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 E 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 capabilities are highly
specialized, which limits our ability to shift production to another facility 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 242 employees represented by unions at the Bristol,
Tennessee facility, which is 52 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 January 2015,
February 2014 and March 2015. 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 any then outstanding 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.
None.
The Company operates the major plants
and facilities listed below, all of which are in adequate condition for their
current usage. All facilities throughout the Company are believed to be
adequately insured. The buildings are of various types of construction including
brick, steel, concrete, concrete block and sheet metal. All have adequate
transportation facilities for both raw materials and finished products. The
Company owns all of these plants and facilities, except the facilities located
in Crossett, AR, the dye blending and warehouse facilities located in Dalton,
GA, and the corporate offices located in Spartanburg, SC. The Company has an
option to purchase the Crossett AR property that expires on June 1, 2010,
which is expected to be exercised by the end of May 2010.
|
Location
|
Principal
Operations
|
Building Square Feet
|
Land
Acres
|
|
Cleveland,
TN
|
Chemical
manufacturing and warehousing facilities
|
115,000
|
8.6
|
|
Bristol,
TN
|
Manufacturing
of stainless steel pipe and stainless steel piping systems
|
275,000
|
73.1
|
|
Crossett,
AR
|
Manufacturing
carbon and chrome alloy piping systems (1)
|
105,000
|
13.5
|
|
Dalton,
GA
|
Dye
blending and warehouse facilities (1)
|
32,000
|
2.0
|
|
Spartanburg,
SC
|
Corporate
headquarters (1)
|
6,000
|
-
|
|
Augusta,
GA
|
Chemical
manufacturing (2)
|
-
|
46.0
|
(1)
Leased facility.
(2)
Plant was closed in 2001 and all structures and manufacturing equipment have
been removed.
For a discussion of legal proceedings,
see Notes E and K to the Consolidated Financial Statements included in Item 8 of
this Form 10-K.
Item 5 Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
The Company had 790 common
shareholders of record at March 1, 2010. The Company's common stock trades on
the NASDAQ Global Market under the trading symbol SYNL. The Company’s credit
agreement allows the payment of dividends. On February 25, 2010, the Company’s
Board of Directors voted to pay a $.25 cash dividend which was paid on March 22,
2010. The Company paid a $.10 cash dividend on March 10, 2009, a $.25 cash
dividend on March 7, 2008, and a $.15 cash dividend on March 15, 2007. The
prices shown below are the high and low sales prices for the common stock for
each full quarterly period in the last two fiscal years as quoted on the NASDAQ
Global Market.
|
|
|
2009
|
|
2008
|
|
Quarter
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
1st
|
|
$ 6.83
|
|
$ 3.85
|
|
$ 17.96
|
|
$ 11.00
|
|
2nd
|
|
8.68
|
|
5.25
|
|
17.52
|
|
11.85
|
|
3rd
|
|
10.49
|
|
7.88
|
|
17.44
|
|
12.00
|
|
4th
|
|
9.98
|
|
7.75
|
|
14.46
|
|
3.52
|
|
|
|
|
|
|
|
|
|
|
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 30, 2009, the Company issued to each of its
non-employee directors 2,532 shares of its common stock (an aggregate of 12,660
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 2009, the Company also issued
6,382 shares to management and key employees that vested pursuant to the 2005
Stock Awards Plan.
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 2009.
Item 6 Selected Financial Data
(Dollar
amounts in thousands except for per share data)
Selected Financial Data and
Other Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
103,640 |
|
|
$ |
167,269 |
|
|
$ |
155,704 |
|
|
$ |
131,404 |
|
|
$ |
113,008 |
|
|
Gross
profit
|
|
|
9,489 |
|
|
|
18,552 |
|
|
|
25,564 |
|
|
|
20,163 |
|
|
|
15,127 |
|
|
Selling,
general & administrative expense
|
|
|
8,787 |
|
|
|
9,729 |
|
|
|
10,079 |
|
|
|
8,835 |
|
|
|
8,835 |
|
|
Operating
income
|
|
|
702 |
|
|
|
8,823 |
|
|
|
15,485 |
|
|
|
11,328 |
|
|
|
6,292 |
|
|
Net
income continuing operations
|
|
|
219 |
|
|
|
5,631 |
|
|
|
9,481 |
|
|
|
6,699 |
|
|
|
5,640 |
|
|
Net
(loss) income discontinued operations
|
|
|
(4 |
) |
|
|
352 |
|
|
|
644 |
|
|
|
909 |
|
|
|
(544 |
) |
|
Net
income
|
|
|
215 |
|
|
|
5,983 |
|
|
|
10,125 |
|
|
|
7,608 |
|
|
|
5,096 |
|
|
Financial
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
78,252 |
|
|
|
94,666 |
|
|
|
96,621 |
|
|
|
89,810 |
|
|
|
70,982 |
|
|
Working
capital
|
|
|
44,123 |
|
|
|
49,433 |
|
|
|
45,446 |
|
|
|
43,237 |
|
|
|
25,064 |
|
|
Long-term
debt, less current portion
|
|
|
- |
|
|
|
9,959 |
|
|
|
10,246 |
|
|
|
17,731 |
|
|
|
8,091 |
|
|
Shareholders'
equity
|
|
|
62,721 |
|
|
|
62,867 |
|
|
|
58,140 |
|
|
|
47,127 |
|
|
|
39,296 |
|
|
Financial
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
ratio
|
|
|
4.5 |
|
|
|
3.7 |
|
|
|
2.7 |
|
|
|
2.9 |
|
|
|
2.1 |
|
|
Gross
profit to net sales
|
|
|
9 |
% |
|
|
11 |
% |
|
|
16 |
% |
|
|
15 |
% |
|
|
13 |
% |
|
Long-term
debt to capital
|
|
|
- |
|
|
|
14 |
% |
|
|
15 |
% |
|
|
27 |
% |
|
|
17 |
% |
|
Return
on average assets
|
|
|
- |
|
|
|
6 |
% |
|
|
10 |
% |
|
|
8 |
% |
|
|
8 |
% |
|
Return
on average equity
|
|
|
- |
|
|
|
9 |
% |
|
|
18 |
% |
|
|
16 |
% |
|
|
15 |
% |
|
Per
Share Data (income/(loss) – diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income continuing operations
|
|
$ |
.03 |
|
|
$ |
.90 |
|
|
$ |
1.51 |
|
|
$ |
1.07 |
|
|
$ |
.92 |
|
|
Net
income (loss) discontinued operations
|
|
|
- |
|
|
|
.05 |
|
|
|
.10 |
|
|
|
.15 |
|
|
|
(.09 |
) |
|
Net
income
|
|
|
.03 |
|
|
|
.95 |
|
|
|
1.61 |
|
|
|
1.22 |
|
|
|
.83 |
|
|
Dividends
declared and paid
|
|
|
.10 |
|
|
|
.25 |
|
|
|
.15 |
|
|
|
- |
|
|
|
- |
|
|
Book
value
|
|
|
10.01 |
|
|
|
10.06 |
|
|
|
9.32 |
|
|
|
7.68 |
|
|
|
6.43 |
|
|
Other
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$ |
2,402 |
|
|
$ |
2,082 |
|
|
$ |
1,997 |
|
|
$ |
2,095 |
|
|
$ |
2,041 |
|
|
Capital
expenditures
|
|
$ |
1,892 |
|
|
$ |
3,059 |
|
|
$ |
3,340 |
|
|
$ |
2,343 |
|
|
$ |
2,954 |
|
|
Employees
at year end
|
|
|
466 |
|
|
|
459 |
|
|
|
482 |
|
|
|
437 |
|
|
|
434 |
|
|
Shareholders
of record at year end
|
|
|
790 |
|
|
|
826 |
|
|
|
834 |
|
|
|
897 |
|
|
|
935 |
|
|
Average
shares outstanding - diluted
|
|
|
6,269 |
|
|
|
6,281 |
|
|
|
6,296 |
|
|
|
6,234 |
|
|
|
6,139 |
|
|
Stock
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
range of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
10.49 |
|
|
$ |
17.96 |
|
|
$ |
47.45 |
|
|
$ |
18.90 |
|
|
$ |
12.34 |
|
|
Low
|
|
|
3.85 |
|
|
|
3.52 |
|
|
|
14.79 |
|
|
|
10.38 |
|
|
|
9.10 |
|
|
Close
|
|
|
9.42 |
|
|
|
5.00 |
|
|
|
17.67 |
|
|
|
18.54 |
|
|
|
10.46 |
|
Note: Certain information in the prior
years have been restated to reflect discontinued operations.
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Critical Accounting Policies and
Estimates
Management's
Discussion and Analysis of Financial Condition and Results of Operations
discusses the Company's consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management evaluates
its estimates and judgments based on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among others,
affect its more significant judgments and estimates used in the preparation of
the Company's consolidated financial statements.
The Company maintains allowances for
doubtful accounts, $355,000 as of January 2, 2010, for estimated losses
resulting from the inability of its customers to make required payments and for
disputed claims and quality issues. If the financial condition of any of the
customers of the Company were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be
required.
The
Company writes down its inventory for estimated obsolescence or unmarketable
inventory in an amount equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and
current market conditions. As of January 2, 2010, the Company has $1,943,000
accrued for inventory obsolescence and market reserves. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required. See the Comparison of 2009 to 2008 –
Metals Segment below.
As noted
in Note E to the Consolidated Financial Statements included in Item 8 of this
Form 10-K, the Company has accrued $1,125,000 as of January 2, 2010, in
environmental remediation costs which, in management's best estimate, are
expected to satisfy anticipated costs of known remediation requirements as
outlined in Note E. Expenditures related to costs currently accrued are not
discounted to their present values and are expected to be made over the next
three to four years. However, as a result of the evolving nature of the
environmental regulations, the difficulty in estimating the extent and necessary
remediation of environmental contamination, and the availability and application
of technology, the estimated costs for future environmental compliance and
remediation are subject to uncertainties and it is not possible to predict the
amount or timing of future costs of environmental matters which may subsequently
be determined. Changes in information known to management or in applicable
regulations may require the Company to record additional remediation
reserves.
The
Company continually reviews the recoverability of the carrying value of
long-lived assets. Long-lived assets are reviewed for impairment when events or
changes in circumstances, (also referred to as “triggering events”), indicate
that the carrying value of a long-lived asset or group of assets (the “Assets”)
may no longer be recoverable. Triggering events include: a significant decline
in the market price of the Assets; a significant adverse change in the operating
use or physical condition of the Assets; a significant adverse change in legal
factors or in the business climate impacting the Assets’ value, including
regulatory issues such as environmental actions; the generation by the Assets of
historical cash flow losses combined with projected future cash flow losses; or,
the expectation that the Assets will be sold or disposed of significantly before
the end of the useful life of the Assets. The Company concluded that there were
no indications of impairment requiring further testing during the year ended
January 2, 2010.
If the
Company concluded that, based on its review of current facts and circumstances,
there were indications of impairment, then testing of the applicable Assets
would be performed. The recoverability of the Assets to be held and used is
tested by comparing the carrying amount of the Assets at the date of the test to
the sum of the estimated future undiscounted cash flows expected to be generated
by those Assets over the remaining useful life of the Assets. In estimating the
future undiscounted cash flows, the Company uses projections of cash flows
directly associated with, and which are expected to arise as a direct result of,
the use and eventual disposition of the Assets. This approach requires
significant judgments including the Company’s projected net cash flows, which
are derived using the most recent available estimate for the reporting unit
containing the Assets tested. Several
key
assumptions would include periods of operation, projections of product pricing,
production levels, product costs, market supply and demand, and inflation. If it
is determined that the carrying amount of the Assets are not recoverable, an
impairment loss would be calculated equal to the excess of the carrying amount
of the Assets over their fair value. Assets classified as held for sale are
recorded at the lower of their carrying amount or fair value less cost to sell.
Assets to be disposed of other than by sale are classified as held and used
until the Assets are disposed or use has ceased.
The
Company has goodwill of $1,355,000 recorded as part of its acquisition, in 1996,
of Manufacturers Soap and Chemical Company, a reporting unit operating within
the Chemicals Segment, and $1,000,000 recorded as part of its acquisition on
August 31, 2009, of Ram-Fab, Inc., a reporting unit operating within the Metals
Segment. Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is to be tested for impairment at least on an annual
basis. The initial step of the goodwill impairment test involves a comparison of
the fair value of the reporting unit in which the goodwill is recorded, with its
carrying amount. If the reporting unit’s fair value exceeds its carrying value,
no impairment loss is recognized and the second step, which is a calculation of
the impairment, is not performed. However, if the reporting unit’s carrying
value exceeds its fair value, an impairment charge equal to the difference in
the carrying value of the goodwill and the implied fair value of the goodwill is
recorded. Implied fair value of goodwill is determined in the same manner as the
amount of goodwill recognized in a business combination. That is, the fair value
of the reporting unit is allocated to the assets and liabilities of the
reporting unit as if it had been acquired in a business combination. The excess
of the fair value of the reporting unit over the amounts allocated to assets and
liabilities is the implied fair value of goodwill. In making our
determination of fair value of the reporting unit, we rely on the discounted
cash flow method. This method uses projections of cash flows from the reporting
unit. This approach requires significant judgments including the Company’s
projected net cash flows, the weighted average cost of capital (“WACC”) used to
discount the cash flows and terminal value assumptions. We derive these
assumptions used in our testing from several sources. Many of these assumptions
are derived from our internal budgets, which would include existing sales data
based on current product lines and assumed production levels, manufacturing
costs and product pricing. We believe that our internal forecasts are consistent
with those that would be used by a potential buyer in valuing our reporting
units. The WACC rate is based on an average of the capital structure, cost of
capital and inherent business risk profiles of the Company. The assumptions used
in our valuation are interrelated. The continuing degree of interrelationship of
these assumptions is, in and of itself a significant assumption. Because of the
interrelationships among the assumptions, we do not believe it would be
meaningful to provide a sensitivity analysis on any of the individual
assumptions. However, one key assumption in our valuation model is the WACC. If
the WACC, which is used to discount the projected cash flows, were higher, the
measure of the fair value of the net assets of the reporting unit would
decrease. Conversely, if the WACC were lower, the measure of the fair value of
the net assets of the reporting unit would increase. Changes in any of the
Company’s other estimates could also have a material effect on the estimated
future undiscounted cash flows expected to be generated by the reporting unit’s
assets. Based on the Company’s initial review in the fourth quarter of 2009,
each reporting unit’s fair value exceeded its carrying value, therefore no
impairment loss was recognized.
The
Company believes that if impairment charges should occur with respect to its
existing assets, the charges would not be material to the consolidated financial
statements. 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, including goodwill, were
less than the carrying values of those assets, significant impairment charges
could be necessary.
Liquidity and Capital
Resources
Cash
flows provided by operations during 2009 totaled $20,189,000 of which
$19,903,000 came from continuing operations. This compares to cash flows
provided by operations during 2008 of $5,940,000 and $6,444,000 from continuing
operations, or increases in cash flows of $14,262,000 and $13,412,000 from 2008
to 2009, respectively. Cash flows from continuing operations in 2009 were
generated from net income totaling $2,621,000 before depreciation and
amortization expense of $2,402,000. Cash flows were also positively impacted in
2009 by a $17,392,000 decrease in the Company’s inventories, as inventories
declined, net of reserves, from $38,958,000 at the end of 2008 to $25,504,000 at
the end of 2009. Almost all of the decrease occurred in the Metals Segment,
primarily as a result of the significant declines in stainless steel pipe unit
selling prices and volumes sold coupled
with
declines in cost from stainless steel surcharges, discussed further in the
Metals Segment Comparison of 2009 to 2008 below. Cash flows were also positively
impacted from a decrease in accounts receivable of $4,313,000 in 2009 compared
to 2008, reflecting a 30 percent decline in sales in the fourth quarter of 2009,
offset by a decrease in accounts payable of $2,053,000 in 2009 compared to 2008,
resulting primarily from the decline 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 year end. Cash flows were negatively
impacted in 2009 by a decline of $749,000 in accrued expenses at the end of 2009
compared to the end of 2008, as advances from customers (prepayments from
customers used to purchase raw materials required for piping systems projects)
declined $1,223,000, and accruals for profit based incentives declined $554,000
reflecting the reduction in profits earned in 2009 compared to 2008, offset by a
$1,100,000 increase in a claims reserve in the Metals Segment as discussed
further in the Metals Segment Comparison of 2009 to 2008 below.
Cash
flows provided by operations during 2008 totaled $5,940,000 of which $6,444,000
came from continuing operations. This compares to cash flows provided by
operations during 2007 of $12,333,000 and $11,607,000 from continuing
operations, or declines in cash flows of $ 6,393,000 and $ 5,163,000 from 2007
to 2008, respectively. Cash flows from continuing operations in 2008 were
generated from net income totaling $7,713,000 before depreciation and
amortization expense of $2,082,000. Cash flows were also positively impacted in
2008 by a $5,784,000 decrease in the Company’s inventories as inventories
declined, net of reserves, from $45,879,000 at the end of 2007 to $38,958,000 at
the end of 2008. Almost all of the decrease occurred in the Metals Segment,
primarily as a result of the significant declines in cost from stainless steel
surcharges, discussed further in the Metals Segment Comparison of 2008 to 2007
below. Accounts receivable increased $1,061,000 in 2008, reflecting an 11
percent increase in sales in the fourth quarter of 2008. In addition, accounts
payable decreased $3,498,000 in 2008, resulting primarily from the decline 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 year end. Also negatively impacting cash flows in 2008 was a decline in
accrued expenses at the end of 2008 compared to the end of 2007, as advances
from customers (prepayments from customers used to purchase raw materials
required for piping systems projects) declined $2,453,000, and accruals for
profit based incentives declined $1,157,000 reflecting the reduction in profits
earned in 2008 compared to 2007.
In 2009,
the Company’s current assets decreased $11,295,000 and current liabilities
decreased $5,926,000, from the year ended 2008 amounts, which caused working
capital for 2009 to decrease by $5,370,000 to $44,123,000 from the 2008 total of
$49,493,000. The current ratio for the year ended January 2, 2010, increased to
4.5:1 from the 2008 year-end ratio of 3.7:1.
As
discussed in the Results of Operations below, the Company divested part of the
operations of the Chemicals Segment in 2009. The Company also sold properties
reported under Corporate. Total net proceeds from these sales were $12,969,000
of which $11,807,000 was included in investing activities of discontinued
operations. The Company utilized these funds, along with the funds from
continuing operations, to pay off all of its bank debt totaling $10,426,000,
acquire Ram-Fab, Inc. for a purchase price of $5,708,000, fund capital
expenditures of $1,892,000, and pay a $631,000 dividend, leaving a cash balance
at January 2, 2010 of $14,097,000. The Company expects that along with the
existing amount of cash on hand, cash flows from 2010 operations and available
borrowings will be sufficient to make debt payments (if any), fund estimated
capital expenditures of approximately $7,000,000 (including $2,000,000 to
purchase in May 2010 the land and buildings of Ram-Fab to complete the
acquisition) and normal operating requirements, and pay a dividend on March 22,
2010 of $.25 per share, or a total of $1,569,000. In addition, the Company
should have sufficient resources to expand further into the Company’s metals
businesses.
The
Company’s Credit Agreement with a lender provides a $20,000,000 line of credit
that expires on December 31, 2010. 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. 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 January 2, 2010, the amount available for borrowing was $15,000,000, of which
none was borrowed, leaving $15,000,000 of availability. Any borrowings under the
Credit Agreement are collateralized by substantially all of the assets of the
Company. At January 2, 2010, 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. The Company is
currently
in the process of arranging new financing and expects to complete the agreement
in the second quarter of 2010 with terms consistent with its existing financing
agreements.
Results
of Operations
Certain
information for 2008 & 2007 has been restated to reflect discontinued
operations.
Comparison
of 2009 to 2008
For the
fiscal year ending January 2, 2010, the Company generated net earnings from
continuing operations of $219,000, or $.03 per share, on sales of $103,640,000,
compared to net earnings from continuing operations of $5,631,000, or $.90 per
share, on sales of $167,269,000 in the prior year. The Company generated a loss
from continuing operations of $143,000, or $.02 per share, on sales of
$25,843,000 in the fourth quarter of 2009, compared to a net loss from
continuing operations of $644,000, or $.10 per share, on sales of $36,657,000 in
the fourth quarter of 2008. The Company recorded net losses from discontinued
operations of $4,000, or $.00 per share, and $144,000, or $.03 per share, for
the fiscal year and fourth quarter of 2009, respectively, compared to net
earnings from discontinued operations of $352,000, or $.05 per share, and
$131,000, or $.02 per share, for the same periods a year earlier. As a result,
the Company earned $215,000, or $.03 per share, and lost $287,000, or $.05 per
share, for the fiscal year and fourth quarter of 2009, respectively, compared to
net earnings of $5,983,000, or $.95 per share, and a net loss $513,000, or $.08
per share, for the same periods in 2008.
Consolidated
gross profits from continuing operations declined 49 percent to $9,489,000 in
2009, compared to $18,552,000 in 2008, and as a percent of sales decreased to
nine percent of sales in 2009 compared to 11 percent of sales in 2008. The
decreases in dollars and in percentage of sales were attributable to the Metals
Segment as discussed in the Metals Segment Comparison of 2009 to 2008 below.
Consolidated selling, general and administrative expense from continuing
operations for 2009 decreased by $942,000, compared to 2008, but increased to
nine percent as a percent of sales from six percent. The dollar decrease in 2009
when compared to 2008 resulted primarily from a $554,000 decrease in management
incentives, which are based on profits, coupled with a $347,000 decline in
environmental expenses, which were favorably impacted by the divestiture of part
the chemical businesses.
Comparison
of 2008 to 2007
For 2008,
the Company generated net earnings from continuing operations of $5,631,000, or
$.90 per share, on sales of $167,269,000, compared to net earnings from
continuing operations of $9,481,000, or $1.51 per share, on sales of
$155,704,000 in the prior year. The Company generated a net loss from continuing
operations of $644,000, or $.10 per share, on sales of $36,657,000 in the fourth
quarter of 2008, compared to net earnings from continuing operations of
$1,139,000, or $.18 per share, on sales of $32,910,000 in the fourth quarter of
2007. The Company generated net income from discontinued operations of $352,000,
or $.05 per share, and $131,000, or $.02 per share, for the fiscal year and
fourth quarter of 2008, respectively, compared to net earnings from discontinued
operations of $644,000, or $.10 per share, and $ 5,000, or $.00 per
share, for the same periods a year earlier. As a result, the Company earned
$5,983,000, or $.95 per share, and had a net loss of $513,000, or $.08 per
share, for the fiscal year and fourth quarter of 2008, respectively, compared to
net earnings of $10,125,000, or $1.61 per share, and $1,144,000, or $.18 per
share, for the same periods in 2007.
Consolidated
gross profits from continuing operations declined 27 percent to $18,552,000 in
2008, compared to $25,564,000 in 2007, and as a percent of sales decreased to 11
percent of sales in 2008 compared to 16 percent of sales in 2007. Most of the
decreases in dollars and in percentage of sales were attributable to the Metals
Segment as discussed in the Metals Segment Comparison of 2008 to 2007 below.
Consolidated selling, general and administrative expense for 2008 decreased by
$350,000, compared to 2007, and was unchanged as a percent of sales at six
percent. The dollar decrease resulted primarily from a decrease in 2008 in
management incentives, which are based on profits, compared to
2007.
Metals Segment–The following
table summarizes operating results and backlogs for the three years indicated.
Reference should be made to Note M to the Consolidated Financial Statements
included in Item 8 of this Form 10-K.
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Amounts
in thousands)
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Net
sales
|
|
$ |
70,891 |
|
|
|
100.0 |
% |
|
$ |
131,877 |
|
|
|
100.0 |
% |
|
$ |
126,219 |
|
|
|
100.0 |
% |
|
Cost
of goods sold
|
|
|
66,713 |
|
|
|
94.1 |
% |
|
|
117,856 |
|
|
|
89.4 |
% |
|
|
104,816 |
|
|
|
83.0 |
% |
|
Gross
profit
|
|
|
4,178 |
|
|
|
5.9 |
% |
|
|
14,021 |
|
|
|
10.6 |
% |
|
|
21,403 |
|
|
|
17.0 |
% |
|
Selling
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
|
|
|
4,190 |
|
|
|
5.9 |
% |
|
|
4,695 |
|
|
|
3.6 |
% |
|
|
5,015 |
|
|
|
4.0 |
% |
|
Operating
(loss) income
|
|
$ |
(12 |
) |
|
|
0.0 |
% |
|
$ |
9,326 |
|
|
|
7.0 |
% |
|
$ |
16,388 |
|
|
|
13.0 |
% |
|
Year-end
backlogs -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Piping
systems
|
|
$ |
44,300 |
|
|
|
|
|
|
$ |
45,500 |
|
|
|
|
|
|
$ |
57,000 |
|
|
|
|
|
Comparison of 2009 to 2008 – Metals
Segment
The
Metals Segment sales decreased 46 percent for the year from a 37 percent decline
in average selling prices, coupled with a 12 percent decline in unit volumes.
Sales for the fourth quarter decreased 39 percent compared to 2008 from a 29
percent decline in average selling prices, coupled with a 12 percent decline in
unit volumes. The Segment experienced operating losses of $12,000 and $985,000
for the year and fourth quarter of 2009 compared to a profit of $9,326,000 for
the year and a fourth quarter loss of $1,196,000 in the same periods in 2008,
respectively. Sales of commodity pipe were down 47 percent and 48 percent for
the year and in the fourth quarter, as average selling prices declined 38
percent and 22 percent and unit volumes decreased 15 percent and 33 percent for
the year and in the quarter, respectively, compared to the same periods of 2008.
Non-commodity pipe and piping systems also experienced declines in sales for the
year and fourth quarter, down 44 percent and 31 percent respectively. The
decrease in sales for the year resulted from a 38 percent decline in average
selling prices and a nine percent decrease in unit volumes. The decrease for the
quarter resulted from a 47 percent decline in average selling prices, offset by
a 31 percent increase in unit volumes, when compared to the fourth quarter of
2008. The volume increase for non-commodity pipe and piping systems in the
fourth quarter resulted primarily from the acquisition on August 31, 2009, of
Ram-Fab.
The
significant decreases in selling prices together with unit volume declines in
both commodity and non-commodity pipe and piping systems, without including
Ram-Fab and when compared to the same periods in 2008, reflect the decrease in
demand for these products resulting from the worldwide economic turmoil and
recession. This contributed to the large decline in both gross profit and
operating income for 2009 compared to 2008, and to the losses incurred in the
fourth quarters of both 2009 and 2008. Stainless steel surcharges, resulting
primarily from the changes in nickel prices, peaked in October of 2009 after
incrementally increasing over the six-month period from May to October, and fell
slightly over the next three months. The surcharge averages remained at levels
equal to approximately half of 2008’s averages throughout most of 2009. Although
we cannot precisely calculate the effect of the price declines, we estimate that
they reduced profits by about $1,700,000 for 2009 compared to 2008. The lower
volumes also generated unabsorbed manufacturing costs and taken together with
the lower selling prices and unit volumes, caused commodity pipe to incur losses
for the year and fourth quarter of 2009. Responding to the poor economy, many of
the piping systems’ customers extended their delivery dates throughout 2009
causing a decline in both dollar and unit volume sales compared to last year,
and creating manufacturing inefficiencies throughout the Segment. The piping
systems operations benefitted in 2008 from the completion of several favorable
contracts, primarily in the LNG market, which generated significant volume,
revenues and profits in 2008. As a result of these factors, non-commodity pipe
and piping systems experienced significant reductions in sales and profits
compared to the same periods of 2008. Also contributing significantly to the
Segment’s losses for the year and fourth quarter of 2009 was the accrual of a
claim from a customer who is alleging that the Segment delivered defective pipe
in 2006 which the customer removed and replaced. While we believe the claim is
unwarranted, and we are vigorously defending it, approximately $1,100,000 in
claims expense was recorded in 2009, of which $343,000 was recorded in the
fourth quarter. All of these factors taken together caused the Segment to incur
losses for the year and fourth quarter of 2009.
Selling
and administrative expense decreased $505,000, or 11 percent in 2009 when
compared to 2008, but increased to six percent of sales in 2009 compared to four
percent of sales in 2008. The dollar decrease came primarily from decreased
management incentives, which are based on profits.
Comparison
of 2008 to 2007 – Metals Segment
The
Metals Segment sales increased five percent for the year ended 2008 compared to
2007 from a seven percent increase in average selling prices, partially offset
by a five percent decline in unit volumes. Gross profit for the year ended 2008
declined 35 percent to $14,021,000, or 11 percent of sales, from 2007 year end’s
total of $21,403,000, or 17 percent of sales. Operating income for
the year ended 2008 declined 43 percent to $9,325,000 from 2007 year end’s total
of $16,388,000. Sales for the fourth quarter of 2008 increased 11 percent to
$28,209,000 from sales of $25,410,000 in the fourth quarter of 2007, resulting
from a 49 percent increase in unit volumes, partially offset by a 16 percent
decline in average selling prices. The Segment had a negative gross margin of
$602,000 for the fourth quarter of 2008 compared to a gross profit of
$2,575,000, or ten percent of sales, for the fourth quarter of 2007. The Segment
experienced an operating loss of $1,196,000 for the fourth quarter of 2008
compared to generating operating income of $1,937,000 in the fourth quarter of
2007.
Commodity
pipe unit volumes increased 200 percent in the fourth quarter of 2008 resulting
in a three percent increase for the year compared to the fourth quarter and year
ended 2007. The increase in commodity volumes reflects the apparent benefit that
the unfair-trade case, filed in January 2008 by U.S. producers of stainless
steel pipe and the United Steelworkers Union against China, had on imports over
the last three quarters of 2008, coupled with the very low volume experienced in
2007’s fourth quarter. Gross profits are impacted by 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 (FIFO) 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. Unfortunately, stainless
steel surcharges began a decline in the third quarter of 2008, which accelerated
in the fourth quarter of 2008 and reduced profits significantly. This decline
created steady downward pressure on commodity selling prices causing average
selling prices to fall 32 percent in the fourth quarter of 2008 and 11 percent
for the year compared to the fourth quarter and year ended 2007. This resulted
in an approximately $2,000,000 loss in the fourth quarter of 2008 under our FIFO
inventory method that matched the low selling prices with much higher inventory
costs. The rapid decline in commodity pricing also created an inventory
valuation issue at year end as the market value of much of our commodity
inventory fell below our costs, which led to an approximate $1,000,000 charge in
the fourth quarter of 2008 to reduce the January 3, 2009 inventory value to
market prices.
The
non-commodity business continued to deliver excellent results. Although unit
volumes fell 14 percent for the year and 27 percent in the fourth quarter of
2008, average selling prices increased 31 percent for the year and 16 percent
for the quarter compared to the year and fourth quarter of 2007. The majority of
the decline in unit volumes was attributable to our piping systems operation as
customers pushed out delivery dates in the fourth quarter of 2008 in response to
the economic downturn. The increase in average selling prices was attributable
to a change in product mix. As a result, the non-commodity business generated
excellent gross profits for the year and in the fourth quarter of 2008. Piping
systems’ backlog was $45,500,000 at the end of the fourth quarter of 2008
compared to $57,000,000 at the end of the fourth quarter of 2007.
Selling
and administrative expense decreased $319,000, or six percent in 2008 when
compared to 2007, but remained unchanged at four percent of sales in 2008
consistent with 2007. The dollar decrease was attributable primarily to
decreased management incentives, which are based on profits, offset somewhat by
an increase in sales commission expense, resulting from the increase in sales in
2008 compared to 2007.
Specialty Chemicals
Segment–The following tables summarize operating results for the three
years indicated. Reference should be made to Note M to the Consolidated
Financial Statements included in Item 8 of this Form 10-K.
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Amounts
in thousands)
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Net
sales
|
|
$ |
32,749 |
|
|
|
100.0 |
% |
|
$ |
35,392 |
|
|
|
100.0 |
% |
|
$ |
29,485 |
|
|
|
100.0 |
% |
|
Cost
of goods sold
|
|
|
27,438 |
|
|
|
83.8 |
% |
|
|
30,861 |
|
|
|
87.2 |
% |
|
|
25,324 |
|
|
|
85.9 |
% |
|
Gross
profit
|
|
|
5,311 |
|
|
|
16.2 |
% |
|
|
4,531 |
|
|
|
12.8 |
% |
|
|
4,161 |
|
|
|
14.1 |
% |
|
Selling
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
|
|
|
2,589 |
|
|
|
7.9 |
% |
|
|
2,541 |
|
|
|
7.2 |
% |
|
|
2,356 |
|
|
|
8.0 |
% |
|
Operating
income
|
|
$ |
2,722 |
|
|
|
8.3 |
% |
|
$ |
1,990 |
|
|
|
5.6 |
% |
|
$ |
1,805 |
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of 2009 to 2008 –
Specialty Chemicals Segment
The
Specialty Chemicals Segment delivered very good results in 2009 as operating
income for the year increased 37 percent to $2,722,000 on sales of $32,749,000
compared to operating income of $1,990,000 on sales of $35,392,000 in 2008.
Operating income for the fourth quarter of 2009 increased 230 percent to
$783,000 on sales of $8,571,000 compared to operating income of $237,000 on
sales of $8,449,000 for the fourth quarter of 2008. During 2008, the Segment
experienced rising raw material and energy costs throughout the year and while
management increased prices in an effort to offset the cost increases, the
increases were not sufficient to prevent the cost increase from impacting
profitability. During 2009, the increases in raw material and energy costs
abated and in some cases actually declined, forcing Management to lower selling
prices, which caused the sales decline for the year. However, price levels
remained at levels allowing the Segment to maintain a higher level of
profitability in 2009 compared to 2008. The Segment experienced strong sales
volumes in the majority of its markets throughout the fourth quarter of 2009,
which contributed to the increases in sales and profits achieved in the fourth
quarter compared to the same period last year.
On
October 2, 2009, the Company entered into an Asset Purchase Agreement with
SantoLubes Manufacturing, LLC (“SM”) to sell the specialty chemical business of
Blackman Uhler Specialties, LLC (“BU”) for a purchase price of $10,366,000,
along with certain property, plant and equipment held by Synalloy Corporation
for a purchase price of $1,130,000, all located at the Spartanburg, SC location.
The purchase price of approximately $11,496,000, payable in cash, was equal to
the approximate net book values of the assets sold as of October 3, 2009, the
effective date of the sale, and the Company has recorded a loss of approximately
$250,000 resulting primarily from transaction fees and other costs related to
the sale. Divesting BU’s specialty chemicals business, which had annual sales of
approximately $14,500,000, has freed up resources and working capital to allow
further expansion into the Company’s metals businesses. BU along with Organic
Pigment’s (“OP”) pigment dispersion business, which was sold on March 6, 2009
and had annual sales of approximately $7,000,000, were both physically located
at the Spartanburg facility. OP completed all operating activities at the end of
the third quarter. As a result, these operations, which were previously included
in the Specialty Chemicals Segment, are being reported as discontinued
operations.
Selling
and administrative expense increased $48,000 or two percent of sales in 2009
compared to the 2008 amount, and increased to eight percent of sales in 2008
from seven percent of sales in 2008. The increase resulted primarily from
increased management incentives, which are based on profits.
Comparison
of 2008 to 2007 – Specialty Chemicals Segment
The
Specialty Chemicals Segment sales increased 20 percent for the year ended 2008
compared to 2007. Gross profit for the year ended 2008 increased nine percent to
$4,531,000, or 13 percent of sales, compared to a gross profit of $4,161,000, or
14 percent of sales, for 2007. Operating income increased ten percent to
$1,990,000 for the year ended 2008 compared to $1,805,000 earned in 2007. Sales
increased 13 percent to $8,448,000 for the fourth quarter of 2008 compared to
$7,500,000 for the fourth quarter of 2007. Gross profit for the fourth quarter
of 2008 was $890,000, or 11 percent of sales, which was down 19 percent from the
fourth quarter of 2007’s total of $1,101,000, or 15 percent of sales. Operating
income declined 56 percent to $237,000 for the fourth quarter of
2008
compared to $532,000 for the fourth quarter of 2007. The increase in revenues in
2008 resulted primarily from adding new products during the year, together with
increased selling prices of our basic chemical products to pass on some of the
higher raw material and energy-related costs. The declines in gross profit and
operating income for the fourth quarter of 2008, when compared to the same
period in 2007, were caused primarily by our inability to pass on all of the
increases in raw material and energy related costs.
Selling
and administrative expense increased $185,000 or eight percent in 2008 compared
to the 2007 amount, and decreased to seven percent of sales in 2008 from eight
percent of sales in 2007. The increase resulted primarily from increased selling
expenses primarily from commissions from the increase in sales in 2008 compared
to 2007.
Unallocated Income and
Expense
Reference should be made to Note M to
the Consolidated Financial Statements, included in Item 8 of this Form 10-K, for
the schedule that includes these items.
Comparison of 2009 to 2008 –
Corporate
Unallocated
corporate expenses in the fourth quarter of 2009 include a $106,000 favorable
adjustment from the reversal of accrued environmental remediation liabilities on
projects at the Company’s Spartanburg location that were completed in the
quarter. In addition, corporate expenses in the quarter were favorably impacted
by reduced quarterly environmental charges of approximately $100,000 that were
eliminated by the sale of BU at the end of the third quarter of 2009.
Unallocated Corporate Expenses for the year and fourth quarter also declined
over last year’s totals for the same periods as a result of decreased management
incentives, which are based on profits.
Comparison
of 2008 to 2007 – Corporate
Corporate
expense decreased $215,000, or eight percent, to $2,493,000 for 2008, compared
to $2,708,000 incurred in 2007. The decrease resulted primarily from a decrease
in management incentives totaling $299,000 in 2008 when compared to 2007’s total
of $762,000, offset somewhat by environmental expenses in 2008 of $647,000,
compared to $441,000 in 2007. Interest expense in 2008 decreased $321,000 from
2007 as a result of decreases in borrowings and in the LIBOR interest rate under
the lines of credit with the Company’s bank. The amount accrued to record the
fair market value of the Company’s interest rate swap increased $181,000 to
$376,000 at January 3, 2009, up from $195,000 accrued at 2007 year end, also
reflecting the reduction in the LIBOR interest rate. See Item 7A
below.
Contractual
Obligations and Other Commitments
As of
January 2, 2010, the Company’s contractual obligations and other commitments
were as follows:
|
(Amounts
in thousands)
|
|
|
|
|
Payment
Obligations for the Year Ended
|
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$ |
224 |
|
|
$ |
165 |
|
|
$ |
49 |
|
|
$ |
7 |
|
|
$ |
3 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Purchase
obligations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Deferred
compensation
(1)
|
|
|
381 |
|
|
|
72 |
|
|
|
72 |
|
|
|
72 |
|
|
|
82 |
|
|
|
83 |
|
|
|
- |
|
|
Total
|
|
$ |
605 |
|
|
$ |
237 |
|
|
$ |
121 |
|
|
$ |
79 |
|
|
$ |
85 |
|
|
$ |
83 |
|
|
$ |
- |
|
|
(1)
For a description of the deferred compensation obligation, see Note F to
the Consolidated Financial Statements included in Item 8 of this Form
10-K
|
|
Off-Balance
Sheet Arrangements
See Note
O 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.
Current Conditions and
Outlook
The
Metals Segment’s business is highly dependent on capital expenditures which have
been significantly impacted by the economic turmoil. Falling stainless steel
prices, the depressed economy, and distributors’ reluctance to restock
inventories, have created a poor pricing environment for our commodity pipe.
Surcharges began falling in November 2009, but appear to have bottomed in
January 2010, and have increased over the last two months through March 2010.
Distributors maintained their inventories at lower than normal levels through
the end of 2009, but activity for both commodity and non-commodity pipe over the
first part of 2010 has improved,
indicating
that distributors may be increasing their inventory levels. Management believes
it is benefiting from the stimulus spending by the Federal Government, which
includes a “Buy-American” provision covering iron and steel, as we have seen
increased bidding activity in both the water and wastewater treatment and power
generation areas, significant parts of our piping systems business. However,
business opportunities remain extremely competitive hurting product pricing in
all of our markets. Although Management is disappointed with the level of
profitability in 2009, we remain confident that we are in an excellent position
to benefit from the eventual improvement in economic conditions. While the
impact from current economic conditions both domestically and worldwide makes it
difficult to predict the performance of this Segment going into 2010, we are
seeing improvements in business conditions within our markets. We believe we are
the largest and most capable domestic producer of non-commodity stainless pipe
and an effective producer of commodity stainless pipe which should serve us well
in the long run. We also continue to be optimistic about the piping systems
business over the long term. Piping systems continues to maintain a strong
backlog, with approximately 80 percent of the backlog coming from energy and
water and wastewater treatment projects, and the Ram-Fab acquisition should
allow us to expand piping systems’ business. Piping systems’ customers have
begun increasing their delivery requests under our existing contracts which
should favorably impact profits over the first half of 2010. Piping systems’
backlog was $44,300,000 at 2009 year end, of which $6,200,000 was from orders
booked by Ram-Fab, which was acquired on August 31, 2009. This compared to
$45,500,000 at the end of 2008. We estimate that approximately 80 percent of the
backlog should be completed over the next twelve months.
The
Specialty Chemicals Segment ended 2009 with excellent results especially over
the last half of the year. Business conditions continue to be strong in our
markets and in anticipation of future growth, Management is adding capacity and
making capital improvements to its facilities. The Segment should continue to
generate consistent profit margins over the first half of 2010, assuming
conditions in the Segment’s markets do not deteriorate from their current
levels. However, the depressed economic conditions make the Segment's
performance uncertain over the next several quarters.
The Company is exposed to market risks
from adverse changes in interest rates. Changes in U. S. interest rates affect
the interest earned on the Company's cash and cash equivalents as well as
interest paid on its indebtedness. Except as described below, the Company does
not engage in speculative or leveraged transactions, nor does it hold or issue
financial instruments for trading purposes. The Company is exposed to changes in
interest rates primarily as a result of its borrowing activities used to
maintain liquidity and fund business operations.
Fair
value of the Company's debt obligations, which approximated the recorded value,
consisted of:
The Company had no outstanding bank
indebtedness
At
January 3, 2009
$10,426,000
under a $27,000,000 line of credit and term loan agreement expiring December 31,
2010 with a variable interest rate of 1.95 percent.
Item 8 Financial Statements and Supplementary Data
The Company’s consolidated financial
statements, related notes, report of management and report of the independent
registered public accounting firm follow on subsequent pages of this
report.
Consolidated Balance
Sheets
|
|
|
|
|
|
|
|
Years
ended January 2, 2010 and January 3, 2009
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
14,096,557 |
|
|
$ |
97,215 |
|
|
Accounts
receivable, less allowance for doubtful
|
|
|
|
|
|
|
|
|
|
accounts
of $355,000 and $816,000, respectively
|
|
|
14,041,130 |
|
|
|
17,758,767 |
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
8,639,078 |
|
|
|
11,508,920 |
|
|
Work-in-process
|
|
|
8,418,840 |
|
|
|
16,755,349 |
|
|
Finished
goods
|
|
|
8,446,406 |
|
|
|
10,693,811 |
|
|
Total
inventories
|
|
|
25,504,324 |
|
|
|
38,958,080 |
|
|
Deferred
income taxes (Note H)
|
|
|
1,702,000 |
|
|
|
1,877,000 |
|
|
Prepaid
expenses and other current assets
|
|
|
1,556,423 |
|
|
|
1,403,023 |
|
|
Current
assets of discontinued operations
|
|
|
- |
|
|
|
8,101,781 |
|
|
Total
current assets
|
|
|
56,900,434 |
|
|
|
68,195,866 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
value of life insurance
|
|
|
2,959,637 |
|
|
|
2,867,975 |
|
|
Property,
plant and equipment, net (Note B)
|
|
|
15,796,882 |
|
|
|
15,177,584 |
|
|
Goodwill
|
|
|
2,354,730 |
|
|
|
1,354,730 |
|
|
Deferred
charges, net and other non-current assets
|
|
|
240,000 |
|
|
|
70,535 |
|
|
Assets
of discontinued operations
|
|
|
- |
|
|
|
6,999,487 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
78,251,683 |
|
|
$ |
94,666,177 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt (Note C)
|
|
$ |
- |
|
|
$ |
466,667 |
|
|
Accounts
payable
|
|
|
6,581,631 |
|
|
|
8,176,181 |
|
|
Accrued
expenses (Notes C and D)
|
|
|
5,820,748 |
|
|
|
6,569,315 |
|
|
Current
portion of environmental reserves (Note E)
|
|
|
375,000 |
|
|
|
554,000 |
|
|
Current
liabilities of discontinued operations
|
|
|
- |
|
|
|
2,996,953 |
|
|
Total
current liabilities
|
|
|
12,777,379 |
|
|
|
18,763,116 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt (Note C)
|
|
|
- |
|
|
|
9,958,981 |
|
|
Environmental
reserves (Note E)
|
|
|
750,000 |
|
|
|
810,000 |
|
|
Deferred
compensation (Note F)
|
|
|
380,562 |
|
|
|
369,512 |
|
|
Deferred
income taxes (Note H)
|
|
|
1,623,000 |
|
|
|
1,898,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity (Note G)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
856,021 |
|
|
|
752,765 |
|
|
Retained
earnings
|
|
|
69,113,403 |
|
|
|
69,529,995 |
|
|
|
|
|
77,969,424 |
|
|
|
78,282,760 |
|
|
Less
cost of common stock in treasury: 1,733,424 and
|
|
|
|
|
|
|
|
|
|
1,752,466
shares, respectively
|
|
|
15,248,682 |
|
|
|
15,416,192 |
|
|
Total
shareholders' equity
|
|
|
62,720,742 |
|
|
|
62,866,568 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$ |
78,251,683 |
|
|
$ |
94,666,177 |
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
Consolidated Statements of
Operations
|
|
|
|
|
|
|
|
|
|
Years
ended January 2, 2010, January 3, 2009 and December 29,
2007
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
103,639,587 |
|
|
$ |
167,268,987 |
|
|
$ |
155,703,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
94,150,808 |
|
|
|
148,717,173 |
|
|
|
130,139,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
9,488,779 |
|
|
|
18,551,814 |
|
|
|
25,563,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expense
|
|
|
8,786,544 |
|
|
|
9,729,026 |
|
|
|
10,079,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
702,235 |
|
|
|
8,822,788 |
|
|
|
15,484,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(income) and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
350,400 |
|
|
|
684,943 |
|
|
|
1,006,413 |
|
|
Change
in fair value of interest rate swap (Note C)
|
|
|
(131,000 |
) |
|
|
181,000 |
|
|
|
147,000 |
|
|
Other,
net
|
|
|
131,210 |
|
|
|
(256 |
) |
|
|
(18,916 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income tax
|
|
|
351,625 |
|
|
|
7,957,101 |
|
|
|
14,350,085 |
|
|
Provision
for income taxes
|
|
|
133,000 |
|
|
|
2,326,000 |
|
|
|
4,869,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
|
218,625 |
|
|
|
5,631,101 |
|
|
|
9,481,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before income tax
|
|
|
36,891 |
|
|
|
521,591 |
|
|
|
973,679 |
|
|
Provision
for income taxes
|
|
|
41,000 |
|
|
|
170,000 |
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income from discontinued operations
|
|
|
(4,109 |
) |
|
|
351,591 |
|
|
|
643,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
214,516 |
|
|
$ |
5,982,692 |
|
|
$ |
10,124,764 |
|
|
Net
income (loss) per basic common share:
|
|
|
|
|
|
|
|
Continuing
operations
|
$ .03
|
|
$ |
.90
|
|
$
1.53
|
|
Discontinued
operations
|
(
.00)
|
|
|
.06
|
|
.10
|
|
Net
income
|
$ .03
|
|
$ |
.96
|
|
$
1.63
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per diluted common share:
|
|
|
|
|
|
|
|
Continuing
operations
|
$ .03
|
|
$ |
.90
|
|
$
1.51
|
|
Discontinued
operations
|
(
.00)
|
|
|
.05
|
|
.10
|
|
Net
income
|
$ .03
|
|
$ |
.95
|
|
$
1.61
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
Consolidated Statements of
Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
in
|
|
|
|
|
|
Cost
of Common
|
|
|
|
|
|
|
|
Common
|
|
|
Excess
of
|
|
|
Retained
|
|
|
Stock
in
|
|
|
|
|
|
|
|
Stock
|
|
|
Par
Value
|
|
|
Earnings
|
|
|
Treasury
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
Impact
of adoption of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN
48 - (Note H)
|
|
|
|
|
|
|
|
|
|
|
995,000 |
|
|
|
|
|
|
|
995,000 |
|
|
Balance
at December 29, 2007
|
|
|
8,000,000 |
|
|
|
532,860 |
|
|
|
65,113,597 |
|
|
|
(15,506,175 |
) |
|
|
58,140,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
5,982,692 |
|
|
|
|
|
|
|
5,982,692 |
|
|
Payment
of dividends, $.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
share
|
|
|
|
|
|
|
|
|
|
|
(1,566,294 |
) |
|
|
|
|
|
|
(1,566,294 |
) |
|
Issuance
of 9,229 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
the treasury
|
|
|
|
|
|
|
7,472 |
|
|
|
|
|
|
|
81,186 |
|
|
|
88,658 |
|
|
Stock
options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for 1,000
shares, net
|
|
|
|
|
|
|
(4,147 |
) |
|
|
|
|
|
|
8,797 |
|
|
|
4,650 |
|
|
Employee
stock option and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
grant
compensation
|
|
|
|
|
|
|
216,580 |
|
|
|
|
|
|
|
|
|
|
|
216,580 |
|
|
Balance
at January 3, 2009
|
|
|
8,000,000 |
|
|
|
752,765 |
|
|
|
69,529,995 |
|
|
|
(15,416,192 |
) |
|
|
62,866,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
214,516 |
|
|
|
|
|
|
|
214,516 |
|
|
Payment
of dividends,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$.10
per share
|
|
|
|
|
|
|
|
|
|
|
(631,108 |
) |
|
|
|
|
|
|
(631,108 |
) |
|
Issuance
of 19,042 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
the treasury
|
|
|
|
|
|
|
(106,219 |
) |
|
|
|
|
|
|
167,510 |
|
|
|
61,291 |
|
|
Employee
stock option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
grant compensation
|
|
|
|
|
|
|
209,475 |
|
|
|
|
|
|
|
|
|
|
|
209,475 |
|
|
Balance
at January 2, 2010
|
|
$ |
8,000,000 |
|
|
$ |
856,021 |
|
|
$ |
69,113,403 |
|
|
$ |
(15,248,682 |
) |
|
$ |
62,720,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
Years
ended January 2, 2010, January 3, 2009 and December 29,
2007
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
$ |
218,625 |
|
|
$ |
5,631,101 |
|
|
$ |
9,481,085 |
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
2,331,531 |
|
|
|
2,046,592 |
|
|
|
1,956,618 |
|
|
Amortization
of deferred charges
|
|
|
70,535 |
|
|
|
35,256 |
|
|
|
39,924 |
|
|
Deferred
income taxes
|
|
|
(100,000 |
) |
|
|
832,051 |
|
|
|
339,000 |
|
|
Reduction
in reserves for uncertain tax positions
|
|
|
- |
|
|
|
(199,000 |
) |
|
|
(151,000 |
) |
|
Provision
for losses on accounts receivable
|
|
|
497,576 |
|
|
|
106,265 |
|
|
|
222,611 |
|
|
Provision
for losses on inventories
|
|
|
(1,604,000 |
) |
|
|
1,137,000 |
|
|
|
(526,000 |
) |
|
(Gain)
loss on sale of property, plant and equipment
|
|
|
(4,973 |
) |
|
|
20,536 |
|
|
|
(1,300 |
) |
|
Cash
value of life insurance
|
|
|
(91,662 |
) |
|
|
(62,475 |
) |
|
|
(81,935 |
) |
|
Environmental
reserves
|
|
|
(239,000 |
) |
|
|
316,629 |
|
|
|
205,318 |
|
|
Issuance
of treasury stock for director fees
|
|
|
75,010 |
|
|
|
74,970 |
|
|
|
74,989 |
|
|
Employee
stock option and grant compensation
|
|
|
209,475 |
|
|
|
216,580 |
|
|
|
174,761 |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
4,313,283 |
|
|
|
(1,061,056 |
) |
|
|
2,964,059 |
|
|
Inventories
|
|
|
17,392,097 |
|
|
|
5,784,098 |
|
|
|
(7,549,799 |
) |
|
Other
assets and liabilities
|
|
|
(618,415 |
) |
|
|
(42,982 |
) |
|
|
(88,239 |
) |
|
Accounts
payable
|
|
|
(2,053,358 |
) |
|
|
(3,498,443 |
) |
|
|
1,041,598 |
|
|
Accrued
expenses
|
|
|
(748,568 |
) |
|
|
(4,102,675 |
) |
|
|
4,752,740 |
|
|
Accrued
income taxes
|
|
|
254,403 |
|
|
|
(790,478 |
) |
|
|
(1,247,586 |
) |
|
Net
cash provided by continuing operating activities
|
|
|
19,902,559 |
|
|
|
6,443,969 |
|
|
|
11,606,844 |
|
|
Net
cash provided by (used in) discontinued operating
activities
|
|
|
285,972 |
|
|
|
(504,026 |
) |
|
|
726,440 |
|
|
Net
cash provided by operating activities
|
|
|
20,188,531 |
|
|
|
5,939,943 |
|
|
|
12,333,284 |
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(1,892,195 |
) |
|
|
(3,058,727 |
) |
|
|
(3,340,281 |
) |
|
Proceeds
from sale of property, plant and equipment
|
|
|
1,162,119 |
|
|
|
- |
|
|
|
1,300 |
|
|
Acquisition
of Ram-Fab, Inc.
|
|
|
(5,707,773 |
) |
|
|
- |
|
|
|
- |
|
|
Net
cash used in continuing investing activities
|
|
|
(6,437,849 |
) |
|
|
(3,058,727 |
) |
|
|
(3,338,981 |
) |
|
Sale
of Blackman Uhler Specialties, LLC assets, net
|
|
|
10,365,757 |
|
|
|
- |
|
|
|
- |
|
|
Sale
of Organic Pigments, LLC assets, net
|
|
|
1,441,006 |
|
|
|
- |
|
|
|
- |
|
|
Purchases
of property, plant and equipment
|
|
|
(501,346 |
) |
|
|
(977,312 |
) |
|
|
(1,145,647 |
) |
|
Net
cash provided by (used in) discontinued investing
activities
|
|
|
11,305,417 |
|
|
|
(977,312 |
) |
|
|
(1,145,647 |
) |
|
Net
cash provided by (used in) investing activities
|
|
|
4,867,568 |
|
|
|
(4,036,039 |
) |
|
|
(4,484,628 |
) |
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
payments on long-term debt
|
|
|
(10,425,649 |
) |
|
|
(287,034 |
) |
|
|
(7,485,416 |
) |
|
Proceeds
from exercised stock options
|
|
|
- |
|
|
|
4,650 |
|
|
|
550,465 |
|
|
Dividends
paid
|
|
|
(631,108 |
) |
|
|
(1,566,294 |
) |
|
|
(927,189 |
) |
|
Excess
tax benefits from Stock Grant Plan
|
|
|
- |
|
|
|
13,720 |
|
|
|
- |
|
|
Capital
contributed
|
|
|
- |
|
|
|
- |
|
|
|
20,340 |
|
|
Net
cash used in financing activities
|
|
|
(11,056,757 |
) |
|
|
(1,834,958 |
) |
|
|
(7,841,800 |
) |
|
Increase
in cash and cash equivalents
|
|
|
13,999,342 |
|
|
|
68,946 |
|
|
|
6,856 |
|
|
Cash
and cash equivalents at beginning of year
|
|
|
97,215 |
|
|
|
28,269 |
|
|
|
21,413 |
|
|
Cash
and cash equivalents at end of year
|
|
$ |
14,096,557 |
|
|
$ |
97,215 |
|
|
$ |
28,269 |
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements
Note A Summary of Significant
Accounting Policies
Principles of Consolidation.
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All significant intercompany
transactions have been eliminated.
Use of Estimates. The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions, primarily for establishing reserves on accounts
receivable, inventories and environmental issues, 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 2009 ended on January 2, 2010, having 52 weeks, fiscal
year 2008 ended on January 3, 2009, having 53 weeks, and fiscal year 2007 ended
on December 29, 2007, 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
$1,730,000, $2,138,000 and $1,893,000 in 2009, 2008 and 2007, 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. As of January 2, 2010 and January 3, 2009,
$1,943,000 and $3,547,000, respectively, for inventory has been reduced for
obsolescence and market reserves.
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. Goodwill, representing intangibles
arising from the excess of purchase price over fair value of net assets of
businesses acquired, is not amortized but is reviewed annually in the fourth
quarter for impairment. Deferred charges represent other intangible assets that
are amortized over their useful lives. There were no deferred charges as of
January 2, 2010. Accumulated amortization of deferred charges totaled $115,000
as of January 3, 2009.
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 cash deposits, trade
accounts receivable and cash surrender value of life insurance. The Company
maintains cash balances at financial institutions with strong credit ratings.
Generally, amounts invested with financial institutions are in excess of FDIC
insurance limits. 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 and for disputed claims and quality issues.
The allowance 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 $289,000, $348,000 and $347,000 in 2009, 2008 and 2007,
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.
Fair Value Disclosures. The
Company determines the fair values of its financial instruments maximizing the
use of observable inputs and minimizing the use of unobservable inputs when
measuring fair value. The Company utilizes three levels of inputs when measuring
fair value. Level-1 measurements utilize quoted prices in active markets for
identical assets or liabilities. The Company does not currently have any Level-1
financial assets or liabilities. Level-2 measurements utilize
observable inputs other than Level-1 prices, such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other
inputs observable or that can be corroborated by observable market data for
substantially the full term of the assets or liabilities. The Company had a
level-2 liability from its interest rate swap having a fair value of $376,000
and $195,000 at January 3, 2009 and December 29, 2007, respectively, which was
eliminated on December 7, 2009. Changes in its fair value were recorded in
current liabilities with corresponding offsetting entries to other expense.
Level-3 measurements utilize unobservable inputs that are supported by little or
no market activity and that are significant to the fair value of the assets or
liabilities. The Company does not currently have any material Level-3 financial
assets or liabilities.
Reclassification. Certain
amounts in the consolidated financial statements of the prior year have been
reclassified to conform to the presentation of the current year for comparative
purposes.
Note
B Property, Plant and Equipment
Property,
plant and equipment consist of the following:
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$ |
191,523 |
|
|
$ |
245,566 |
|
|
Land
improvements
|
|
|
591,217 |
|
|
|
804,939 |
|
|
Buildings
|
|
|
9,282,636 |
|
|
|
10,643,932 |
|
|
Machinery,
fixtures and equipment
|
|
|
41,615,632 |
|
|
|
38,343,271 |
|
|
Construction-in-progress
|
|
|
848,824 |
|
|
|
361,440 |
|
|
|
|
|
52,529,832 |
|
|
|
50,399,148 |
|
|
Less
accumulated depreciation
|
|
|
36,732,950 |
|
|
|
35,221,564 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment
|
|
$ |
15,796,882 |
|
|
$ |
15,177,584 |
|
|
|
|
2009
|
|
|
2008
|
|
|
$
15,000,000 Revolving line of credit
|
|
$ |
- |
|
|
$ |
4,942,316 |
|
|
$ 7,000,000
Term loan
|
|
|
- |
|
|
|
5,483,332 |
|
|
|
|
|
- |
|
|
|
10,425,648 |
|
|
Less
current portion of term loan
|
|
|
- |
|
|
|
466,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
9,958,981 |
|
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. 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. The Agreement also included a five-year $7,000,000
term loan that required equal quarterly payments of $117,000, plus interest,
which was paid off in the second quarter of 2009. The rate at January 2, 2010
was 1.735 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 January 2, 2010, the amount
available for borrowing was $15,000,000, none of which was borrowed, leaving
$15,000,000 of availability. Borrowings under the Credit Agreement are
collateralized by substantially all of the assets of the Company. At January 2,
2010, the Company was in compliance with its debt covenants which include, among
others, maintaining certain EBITDA, fixed charge and tangible net worth amounts
as defined in the Credit Agreement. Average borrowings outstanding during fiscal
2009, 2008 and 2007 were $2,721,000, $11,708,000 and $13,944,000 with weighted
average interest rates of 1.95 percent, 4.37 percent and 6.79 percent,
respectively. The Company made interest payments of $525,000 in 2009, $ 706,000
in 2008 and $1,003,000 in 2007. There were no long-term debt maturities
outstanding as of January 2, 2010.
On
February 23, 2006, the Company entered into an interest rate swap contract with
its bank with a notional amount of $4,500,000 pursuant to which the Company
received interest at Libor and paid interest at a fixed interest rate of 5.27
percent. The contract ran from March 1, 2006 to December 31, 2010, which equated
to the final payment amount and due date of the term loan. The Company paid
$245,000 in December of 2009 and eliminated the swap. The Company had $376,000
accrued as of January 3, 2009 to reflect the fair market value of the swap. (See
Note O)
Accrued expenses consist of the
following:
|
|
|
2009
|
|
|
2008
|
|
|
Salaries,
wages and commissions
|
|
$ |
969,316 |
|
|
$ |
1,258,950 |
|
|
Advances
from customers
|
|
|
2,355,639 |
|
|
|
3,578,754 |
|
|
Insurance
|
|
|
337,039 |
|
|
|
479,365 |
|
|
Taxes,
other than income taxes
|
|
|
81,211 |
|
|
|
54,892 |
|
|
Benefit
plans
|
|
|
161,343 |
|
|
|
184,707 |
|
|
Interest
|
|
|
6,870 |
|
|
|
382,539 |
|
|
Professional
fees
|
|
|
113,400 |
|
|
|
147,505 |
|
|
Utilities
|
|
|
50,135 |
|
|
|
26,135 |
|
|
Customer
Claim - Note K
|
|
|
1,400,000 |
|
|
|
300,000 |
|
|
Other
accrued items
|
|
|
345,795 |
|
|
|
156,468 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
accrued expenses
|
|
$ |
5,820,748 |
|
|
$ |
6,569,315 |
|
Note E
Environmental Compliance Costs
At
January 2, 2010, the Company had accrued $1,125,000 in remediation costs which,
in management’s best estimate, are expected to satisfy anticipated costs of
known remediation requirements as outlined below. Expenditures related to costs
currently accrued are not discounted to their present values and are expected to
be made over the next three to four years. As a result of the evolving nature of
the environmental regulations, the difficulty in estimating the extent and
remedy of environmental contamination, and the availability and application of
technology, the estimated costs for future environmental compliance and
remediation are subject to uncertainties and it is not possible to predict the
amount or timing of future costs of environmental matters which may subsequently
be determined.
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 former wastewater 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. In
prior years remediation projects were completed to clean up ten of 14 SWMUs on
the Spartanburg plant site at a cost of approximately $530,000. The Company
completed the cleanup of the remaining four SWMUs in the fourth quarter of 2009
for a cost of approximately $438,000 and is awaiting final regulatory approval.
On October 2, 2009, the Company entered into an Asset Purchase Agreement and
sold the Spartanburg facilities as discussed in Note Q. As part of the
Agreement, the Company agreed to complete the SWMU cleanups described above and
several unrelated cleanup projects at the site. The purchaser agreed to assume
any future unidentified environmental liabilities at the site and pay all future
annual monitoring and reporting costs required by the RCRA permit covering the
site. The Company has completed substantially all of the RCRA-Permit required
cleanup projects and has accrued $150,000 at January 2, 2010, to provide for
additional work required, if any, to obtain regulatory approval for the work
performed in 2009 to close the four remaining SWMU’s and the other unrelated
cleanup costs.
At the
Augusta plant site, the Company submitted a Baseline 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 (former regulated unit). The Company completed and certified closure
of the surface impoundment during 2002. During 2005, the Company completed a
preliminary analysis of remedial alternatives to eliminate direct contact with
surface soils based on the Baseline Risk Assessment, and has accrued $900,000 at
January 2, 2010, for estimated future remedial and cleanup costs. As part of
Asset Purchase Agreement discussed in Note Q, the purchaser also agreed to
reimburse the Company for all future annual monitoring and reporting costs at
the Augusta facility required by the Georgia Department of Natural
Resources.
The
Company has identified and evaluated two SWMUs at its plant in Bristol,
Tennessee that revealed residual groundwater contamination. An Interim
Corrective Measures Plan to address the final area of contamination identified
was submitted for regulatory approval and was approved in March of 2005. The
Company had $75,000 accrued at January 2, 2010, 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
F 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, $381,000 at January 2, 2010, has been
accrued.
Note
G Stock Options,
Stock Grants and New
Stock Issues
A summary of activity in the
Company’s stock option plans is as follows:
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
|
Exercise
|
|
|
Options
|
|
|
Contractual
|
|
|
Value
of
|
|
|
Options
|
|
|
|
|
Price
|
|
|
Outstanding
|
|
|
Term
|
|
|
Options
|
|
|
Available
|
|
|
|
|
|
|
|
|
|
|
(in
years)
|
|
|
|
|
|
|
|
|
At
December 30, 2006
|
|
$ |
8.48 |
|
|
|
282,150 |
|
|
|
|
|
$ |
4,865 |
|
|
|
207,100 |
|
|
Exercised
|
|
$ |
10.39 |
|
|
|
(132,407 |
) |
|
|
|
|
$ |
8,550 |
|
|
|
|
|
|
Expired
|
|
$ |
12.14 |
|
|
|
(19,000 |
) |
|
|
|
|
|
|
|
|
|
- |
|
|
At
December 29, 2007
|
|
$ |
8.51 |
|
|
|
130,743 |
|
|
|
4.6 |
|
|
$ |
1,198,000 |
|
|
|
207,100 |
|
|
Exercised
|
|
$ |
4.65 |
|
|
|
(1,000 |
) |
|
|
|
|
|
$ |
8,550 |
|
|
|
|
|
|
Expired
|
|
$ |
13.63 |
|
|
|
(1,500 |
) |
|
|
|
|
|
|
|
|
|
|
(207,100 |
) |
|
At
January 3, 2009
|
|
$ |
8.48 |
|
|
|
128,243 |
|
|
|
3.7 |
|
|
$ |
4,865 |
|
|
|
- |
|
|
Expired
|
|
$ |
7.67 |
|
|
|
(45,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
At
January 2, 2010
|
|
$ |
8.92 |
|
|
|
82,993 |
|
|
|
4.5 |
|
|
$ |
76,923 |
|
|
|
- |
|
|
Exercisable
options
|
|
$ |
8.69 |
|
|
|
67,539 |
|
|
|
4.3 |
|
|
$ |
76,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
Date
|
|
|
|
|
|
|
Options
expected to vest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
|
|
|
|
At
December 29, 2007
|
|
$ |
9.96 |
|
|
|
43,454 |
|
|
|
7.1 |
|
|
$ |
6.77 |
|
|
|
|
|
|
Vested
|
|
$ |
9.96 |
|
|
|
(14,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
At
January 3, 2009
|
|
$ |
9.96 |
|
|
|
29,454 |
|
|
|
6.1 |
|
|
$ |
6.77 |
|
|
|
|
|
|
Vested
|
|
$ |
9.96 |
|
|
|
(14,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
At
January 2, 2010
|
|
$ |
9.96 |
|
|
|
15,454 |
|
|
|
5.1 |
|
|
$ |
6.77 |
|
|
|
|
|
The
following table summarizes information about stock options outstanding at
January 2, 2010:
| |
|
|
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
|
|
| $ |
6.75 |
|
|
|
1,500 |
|
|
$ |
6.75 |
|
|
|
.37 |
|
|
|
1,500 |
|
|
$ |
6.75 |
|
| $ |
5.01 |
|
|
|
1,500 |
|
|
$ |
5.01 |
|
|
|
1.31 |
|
|
|
1,500 |
|
|
$ |
5.01 |
|
| $ |
4.65 |
|
|
|
13,900 |
|
|
$ |
4.65 |
|
|
|
2.30 |
|
|
|
13,900 |
|
|
$ |
4.65 |
|
| $ |
9.96 |
|
|
|
66,093 |
|
|
$ |
9.96 |
|
|
|
5.08 |
|
|
|
50,639 |
|
|
$ |
9.96 |
|
| |
|
|
|
|
82,993 |
|
|
|
|
|
|
|
|
|
|
|
67,539 |
|
|
|
|
|
The
Company has two stock option plans, both of which terminated according to their
terms. After April 30, 2008, no options could be granted under either of the
Plans, and the Company did not grant any options during 2007 or 2008. Under the
1998 Plan covering officers and key employees, 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 were exercisable at the
date of grant. The 1998 Plan is an incentive stock option plans, therefore there
are no income tax consequences to the
Company
when an option is granted or exercised. No options were exercised in 2009. In
2008 and 2007, options for 1,000 and 132,407 shares were exercised by employees
and directors for an aggregate exercise price of $5,000 and $1,375,000
respectively. The proceeds were generated from cash received of $5,000 in 2008,
and from cash received of $550,000 and from the repurchase of 32,614 shares from
employees and directors totaling $825,000 in 2007. At the 2009, 2008 and 2007
respective year ends, options to purchase 67,539, 98,789 and 87,289 shares with
weighted average exercise prices of $8.69, $8.04 and $7.79, respectively, were
fully exercisable. Compensation cost charged against income before taxes for the
options was approximately $76,000, or $.01 per share, for 2009, 2008 and 2007.
As of January 2, 2010, there was $7,000 of total unrecognized compensation cost
related to unvested stock options granted under the Company's stock option plans
which is expected to be recognized during the first quarter of 2010. The fair
value of the unvested options was estimated at the time the options were
granted.
The
Company has a Stock Awards Plan in effect at January 2, 2010. A summary of plan
activity for 2007, 2008 and 2009 is as follows:
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
Shares
|
|
|
Grant
Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
Granted
February 12, 2007
|
|
|
22,510 |
|
|
$ |
25.00 |
|
|
Forfeited
or expired
|
|
|
(330 |
) |
|
$ |
25.00 |
|
|
Outstanding
at December 29, 2007
|
|
|
22,180 |
|
|
$ |
25.00 |
|
|
Granted
February 12, 2008
|
|
|
11,480 |
|
|
$ |
16.35 |
|
|
Vested
|
|
|
(4,436 |
) |
|
$ |
25.00 |
|
|
Forfeited
or expired
|
|
|
(3,980 |
) |
|
$ |
21.48 |
|
|
Outstanding
at January 3, 2009
|
|
|
25,244 |
|
|
$ |
21.62 |
|
|
Granted
February 12, 2009
|
|
|
5,500 |
|
|
$ |
5.22 |
|
|
Vested
|
|
|
(6,382 |
) |
|
$ |
21.97 |
|
|
Forfeited
or expired
|
|
|
(1,228 |
) |
|
$ |
21.76 |
|
|
Outstanding
at January 2, 2010
|
|
|
23,134 |
|
|
$ |
17.62 |
|
The
Compensation & Long-Term Incentive Committee of the Board of Directors of
the Company approves stock grants under the Company’s 2005 Stock Awards 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
$29,000, $188,000 and $555,000 on the grants issued in 2009, 2008 and 2007,
respectively, is being charged against earnings equally net of forfeitures, if
any, over a period of 60 months from the dates of the grants, with the offset
recorded in Shareholders’ Equity. Compensation cost charged against income for
the awards was approximately $134,000, $85,000 net of income taxes, or $.01 per
share, for 2009, $141,000, $90,000 net of income taxes, or $.01 per share in
2008, and $99,000, $65,000 net of income taxes, or $.01 per share, for 2007. As
of January 2, 2010, there was $304,000 of total unrecognized compensation cost
related to unvested stock grants under the 2005 Stock Awards Plan. (See Note
R)
On April
30, 2009, the Company issued to each of its non-employee directors 2,532 shares
of its common stock (an aggregate of 12,660 shares). Such shares were issued to
the directors in lieu of $15,000 of their annual cash retainer
fees.
Note
H Income Taxes
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company’s deferred tax liabilities and assets are as follows at the respective
year ends:
|
(Amounts
in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Inventory
valuation reserves
|
|
$ |
682 |
|
|
$ |
571 |
|
|
Allowance
for doubtful accounts
|
|
|
171 |
|
|
|
428 |
|
|
Inventory
capitalization
|
|
|
922 |
|
|
|
918 |
|
|
Environmental
reserves
|
|
|
419 |
|
|
|
319 |
|
|
Other
|
|
|
318 |
|
|
|
368 |
|
|
Total
deferred tax assets
|
|
|
2,512 |
|
|
|
2,604 |
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Tax
over book depreciation and amortization
|
|
|
2,183 |
|
|
|
2,349 |
|
|
Prepaid
expenses
|
|
|
250 |
|
|
|
276 |
|
|
Total
deferred tax liabilities
|
|
|
2,433 |
|
|
|
2,625 |
|
|
Net
deferred tax assets (liabilities)
|
|
$ |
79 |
|
|
$ |
(21 |
) |
Significant components of the
provision for and (benefits from) income taxes for continuing operations are as
follows:
|
(Amounts
in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
100 |
|
|
$ |
1,509 |
|
|
$ |
5,937 |
|
|
State
|
|
|
133 |
|
|
|
236 |
|
|
|
504 |
|
|
Total
current
|
|
|
233 |
|
|
|
1,745 |
|
|
|
6,441 |
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(16 |
) |
|
|
578 |
|
|
|
(1,455 |
) |
|
State
|
|
|
(84 |
) |
|
|
3 |
|
|
|
(117 |
) |
|
Total
deferred
|
|
|
(100 |
) |
|
|
581 |
|
|
|
(1,572 |
) |
|
Total
|
|
$ |
133 |
|
|
$ |
2,326 |
|
|
$ |
4,869 |
|
The reconciliation of income tax
computed at the U. S. federal statutory tax rates to income tax expense for
continuing operations is:
|
(Amounts
in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
at U.S. statutory rates
|
|
$ |
120 |
|
|
|
34.0 |
% |
|
$ |
2,705 |
|
|
|
34.0 |
% |
|
$ |
4,943 |
|
|
|
34.4 |
% |
|
State
income taxes, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
tax benefit
|
|
|
14 |
|
|
|
4.0 |
% |
|
|
158 |
|
|
|
2.0 |
% |
|
|
271 |
|
|
|
1.8 |
% |
|
Changes
in contingent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax
reserves
|
|
|
- |
|
|
|
- |
|
|
|
(199 |
) |
|
|
(2.5 |
%) |
|
|
(
151 |
) |
|
|
(1.0 |
%) |
|
Manufacturing
exemption
|
|
|
- |
|
|
|
- |
|
|
|
(123 |
) |
|
|
(1.6 |
%) |
|
|
(340 |
) |
|
|
(2.2 |
%) |
|
General
business credit
|
|
|
- |
|
|
|
- |
|
|
|
(46 |
) |
|
|
(.6 |
%) |
|
|
- |
|
|
|
- |
|
|
Other,
net
|
|
|
(1 |
) |
|
|
(0.1 |
%) |
|
|
(169 |
) |
|
|
(2.1 |
%) |
|
|
146 |
|
|
|
.9 |
% |
|
Total
|
|
$ |
133 |
|
|
|
37.9 |
% |
|
$ |
2,326 |
|
|
|
29.2 |
% |
|
$ |
4,869 |
|
|
|
33.9 |
% |
Income
tax payments of approximately $2,039,000, $2,646,000 and $5,757,000 were made in
2009, 2008 and 2007, respectively. The Company had South Carolina state net
operating loss carryforwards of approximately $38,649,000 at January 2, 2010,
which expire between the years 2017 to 2027, and $39,100,000 at January 3,
2009. Since the likelihood of recognizing these carryforwards is remote, they
have been fully reserved in the financial statements.
During
2007, the Company recognized a $995,000 decrease to reserves for uncertain tax
positions. This decrease was accounted for as an adjustment in 2007 to the
beginning balance of retained earnings on the Balance Sheet. After 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 unrecognized tax
benefits or $.02 per share, leaving $199,000 accrued at December 29, 2007.
During 2008, the Company favorably resolved all of the accrued uncertain tax
positions recognizing benefits of $199,000 or $.03 per share. 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 2005. The Company’s federal income tax return for
2007 was examined by the Internal Revenue Service in 2009 and federal income tax
and interest liabilities resulting from this examination were not material. The
Company’s continuing practice is to recognize interest and/or penalties related
to income tax matters in income tax expense. The Company had no accruals for
uncertain tax positions including interest and penalties at the end of 2009 or
2008.
Note
I 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 $16,500 for 2009. Under EGTRRA, employees who are age
50 or older may contribute an additional $5,500 per year for a maximum of
$22,000 for 2009. 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 2009 the maximum was four percent. The matching contribution is
allocated weekly. Matching contributions of approximately $330,000, $341,000 and
$338,000 were made for 2009, 2008 and 2007, respectively. The Company may also
make a discretionary contribution, which if made, would be distributed to all
eligible participants regardless of whether they contribute to the Plan. No
discretionary contributions were made to the Plan in 2009, 2008 or 2007.
The Company also contributes to
union-sponsored defined contribution retirement plans. Contributions relating to
these plans were approximately $474,000, $694,000 and $737,000 for 2009, 2008
and 2007, 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
242, or 52 percent of the Company’s total employees. They are represented by two
locals affiliated with the AFL-CIO and one local affiliated with the Teamsters.
The Company considers relationships with its union employees to be satisfactory.
Collective bargaining contracts will expire in January 2015, February 2014 and
March 2015.
Note
J 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: 2010 -
$165,000; 2011 - $49,000; 2012 - $7,000; 2013 - $3,000 and 2014 - $0. Rent
expense related to operating leases was $202,000, $ 88,000 and $ 90,000 in 2009,
2008 and 2007, respectively. The Company does not have any leases that are
classified as capital leases for any of the periods presented in the financial
statements.
The
Company is from time-to-time subject to various claims, other possible legal
actions for product liability and other damages, and other matters arising out
of the normal conduct of the Company’s business. The Company
has
accrued a $1,400,000 claim from a Metals Segment customer who is alleging that
the Segment delivered defective pipe in 2006 which the customer removed and
replaced. While the Company believes the claim is unwarranted, and is vigorously
defending against it, approximately $1,100,000 in claims expense was recorded in
2009 and $300,000 was recorded in 2008. The claim is subject to arbitration and
both parties have submitted their claims to arbitration. The Company does not
expect the arbitration proceeding to begin until sometime in the middle of 2010.
Other than the environmental contingencies discussed in Note E, management is
not currently aware of any other asserted or unasserted matters which could have
a significant effect on the financial condition or results of operations of the
Company.
Note L Earnings Per Share
The
following table sets forth the computation of basic and diluted earnings per
share from continuing operations:
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
$ |
218,625 |
|
|
$ |
5,631,101 |
|
|
$ |
9,481,085 |
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
- weighted average shares
|
|
|
6,261,805 |
|
|
|
6,245,344 |
|
|
|
6,211,639 |
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock options and stock grants
|
|
|
7,625 |
|
|
|
35,780 |
|
|
|
84,272 |
|
|
Denominator
for diluted earnings per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
- weighted average shares
|
|
|
6,269,430 |
|
|
|
6,281,124 |
|
|
|
6,295,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.03 |
|
|
$ |
.90 |
|
|
$ |
1.53 |
|
|
Diluted
|
|
$ |
.03 |
|
|
$ |
.90 |
|
|
$ |
1.51 |
|
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 98,502, 117,707 and 68,981 weighted average shares of common
stock in 2009, 2008 and 2007, respectively, which were not included in the
diluted earnings per share calculation as their effect was
anti-dilutive.
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, and Ram-Fab, LLC, a wholly owned subsidiary of the Company. The Metals
Segment manufactures pipe and fabricates piping systems from stainless steel and
other alloys and fabricates piping systems from carbon, chrome, stainless steel
and other alloys. The Segment’s products, many of which are custom-produced to
individual orders and required for corrosive and high-purity processes, are 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 of the Company which owns 100
percent of Manufacturers Chemicals, LLC.
The Specialty Chemicals Segment
manufactures a wide variety of specialty chemicals, pigments and dyes for the
carpet, chemical, paper, metals, mining, agricultural, fiber, paint, textile,
automotive, petroleum, cosmetics, mattress, furniture, janitorial and other
industries. (See Note Q)
Segment
operating income is the Segment’s total revenue less operating expenses,
excluding interest expense and income taxes. Identifiable assets, all of which
are located in the United States, are those assets used in operations by each
Segment. The Metals Segment’s identifiable assets include goodwill of $1,000,000
as of the year ended 2009, and the Chemicals Segment’s identifiable assets
include goodwill of $1,355,000 as of the years ended 2009 and 2008. 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 $343,000, $647,000 and $441,000 for 2009, 2008 and 2007 respectively. (See
Note E) Corporate assets consist principally of cash, certain investments, and
property and equipment.
The
Metals Segment has one domestic customer that accounted for less than ten
percent and approximately 11 and 12 percent of the Metals Segment’s revenues in
2009, 2008 and 2007, respectively. The Segment also has one other domestic
customer that accounted for approximately ten and 12 percent of the Segment’s
revenues in 2009 and 2008, respectively, and less than ten percent for 2007.
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 has
one domestic customer that accounted for approximately 24, 20 and 23 percent of
the Segment’s revenues in 2009, 2008 and 2007, respectively. Loss of this
customer’s revenues would have a material adverse effect on the Specialty
Chemicals Segment.
|
(Amounts
in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
Metals
Segment
|
|
$ |
70,891 |
|
|
$ |
131,877 |
|
|
$ |
126,219 |
|
|
Specialty
Chemicals Segment
|
|
|
32,749 |
|
|
|
35,392 |
|
|
|
29,485 |
|
|
|
|
$ |
103,640 |
|
|
$ |
167,269 |
|
|
$ |
155,704 |
|
|
Operating
(loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals
Segment
|
|
$ |
(12 |
) |
|
$ |
9,326 |
|
|
$ |
16,388 |
|
|
Specialty
Chemicals Segment
|
|
|
2,722 |
|
|
|
1,990 |
|
|
|
1,805 |
|
|
|
|
|
2,710 |
|
|
|
11,316 |
|
|
|
18,193 |
|
|
Less
unallocated corporate expenses
|
|
|
2,008 |
|
|
|
2,493 |
|
|
|
2,708 |
|
|
Operating
income
|
|
|
702 |
|
|
|
8,823 |
|
|
|
15,485 |
|
|
Other
expense, net
|
|
|
350 |
|
|
|
866 |
|
|
|
1,131 |
|
|
Pretax
income from continuing operations
|
|
$ |
352 |
|
|
$ |
7,957 |
|
|
$ |
14,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals
Segment
|
|
$ |
41,757 |
|
|
$ |
56,139 |
|
|
|
|
|
|
Specialty
Chemicals Segment
|
|
|
15,359 |
|
|
|
15,822 |
|
|
|
|
|
|
Corporate
|
|
|
21,136 |
|
|
|
7,604 |
|
|
|
|
|
|
Continuing
operations
|
|
|
78,252 |
|
|
|
79,565 |
|
|
|
|
|
|
Discontinued
operations
|
|
|
- |
|
|
|
15,101 |
|
|
|
|
|
|
|
|
$ |
78,252 |
|
|
$ |
94,666 |
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals
Segment
|
|
$ |
1,805 |
|
|
$ |
1,605 |
|
|
$ |
1,519 |
|
|
Specialty
Chemicals Segment
|
|
|
382 |
|
|
|
344 |
|
|
|
349 |
|
|
Corporate
|
|
|
215 |
|
|
|
133 |
|
|
|
129 |
|
|
|
|
$ |
2,402 |
|
|
$ |
2,082 |
|
|
$ |
1,997 |
|
|
Capital
expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals
Segment
|
|
$ |
1,416 |
|
|
$ |
2,472 |
|
|
$ |
2,222 |
|
|
Specialty
Chemicals Segment
|
|
|
396 |
|
|
|
475 |
|
|
|
983 |
|
|
Corporate
|
|
|
80 |
|
|
|
112 |
|
|
|
135 |
|
|
|
|
$ |
1,892 |
|
|
$ |
3,059 |
|
|
$ |
3,340 |
|
|
Geographic
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
101,814 |
|
|
$ |
162,952 |
|
|
$ |
154,440 |
|
|
Elsewhere
|
|
|
1,826 |
|
|
|
4,317 |
|
|
|
1,264 |
|
|
|
|
$ |
103,640 |
|
|
$ |
167,269 |
|
|
$ |
155,704 |
|
Note
N Quarterly Results (Unaudited)
The following is a summary of
continuing quarterly operations for 2009 and 2008:
|
(Amounts
in thousands except for per share data)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
30,393 |
|
|
$ |
21,692 |
|
|
$ |
25,712 |
|
|
$ |
25,843 |
|
|
Gross
profit
|
|
|
2,916 |
|
|
|
1,984 |
|
|
|
3,022 |
|
|
|
1,567 |
|
|
Net income
(loss)
|
|
|
340 |
|
|
|
(259 |
) |
|
|
281 |
|
|
|
(143 |
) |
|
Per
common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
.05 |
|
|
|
(.04 |
) |
|
|
.04 |
|
|
|
(.02 |
) |
|
Diluted
|
|
|
.05 |
|
|
|
(.04 |
) |
|
|
.04 |
|
|
|
(.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
45,109 |
|
|
$ |
46,635 |
|
|
$ |
38,868 |
|
|
$ |
36,657 |
|
|
Gross
profit
|
|
|
5,882 |
|
|
|
7,956 |
|
|
|
4,426 |
|
|
|
288 |
|
|
Net income
(loss)
|
|
|
1,801 |
|
|
|
3,243 |
|
|
|
1,231 |
|
|
|
(644 |
) |
|
Per
common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
.29 |
|
|
|
.52 |
|
|
|
.20 |
|
|
|
(.10 |
) |
|
Diluted
|
|
|
.29 |
|
|
|
.52 |
|
|
|
.20 |
|
|
|
(.10 |
) |
Note
O Interest Rate Swap
The
Company used 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
C, 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 an interest rate swap contract in
February of 2006 with the bank, coupled with a third party who will pay a
variable rate of interest. The interest rate swap had a notional amount of
$4,500,000 pursuant to which the Company received interest at LIBOR and paid
interest at a fixed interest rate of 5.27 percent, and ran from March 1, 2006 to
December 31, 2010, which equated to the final payment amount and due date of the
term loan discussed in Note C. Although the swap was expected to effectively
offset variable interest in the borrowing, hedge accounting was not utilized.
Therefore, changes in its fair value were recorded in current assets or
liabilities, as appropriate, with corresponding offsetting entries to other
expense. The swap liability was settled in December 2009 with a $245,000 payment
and the contract was terminated.
Note P Purchase of Ram-Fab,
Inc.
On August
31, 2009, the Company entered into an Asset Purchase Agreement with Ram-Fab,
Inc. to acquire certain assets and assume certain liabilities of its business
for a purchase price of $5,708,000. Ram-Fab, Inc. is a pipe fabricator located
in Crossett, Arkansas. The acquisition was for cash and was paid from currently
available funds. The purchase price of Ram-Fab, Inc. has initially been
allocated to the assets acquired and liabilities assumed according to their
estimated fair values at the time of acquisition. This allocation
included accounts receivable of $1,093,000, inventories of $2,334,000, other
assets of $33,000, machinery and equipment of $1,707,000, tax-deductible
goodwill of $1,000,000, and current liabilities of $459,000. The Company also
entered into a Lease Agreement to lease Ram-Fab, Inc.’s property and plant
buildings with an option to purchase the property and plant buildings for a
purchase price of approximately $2,000,000 on or before June 1, 2010. The
Company expects to exercise the option and purchase the property and plant
before the end of May 2010. Ram-Fab, Inc. had annual sales of approximately
$18,000,000 over the 12 months prior to the acquisition date and was profitable.
Historically, its primary business was to fabricate both carbon and stainless
piping systems. Management will focus on expanding the carbon fabrication
business which is a product line that we believe is strategically important for
future growth. Goodwill represents expected synergies as the carbon business
will complement our stainless steel piping systems’ operations generating new
opportunities for stainless steel piping
systems
require systems since many projects that bidders quote both carbon and stainless
steel fabrication. The new business operates as Ram-Fab, LLC and has been
assigned to our Metals Segment.
Note
Q Asset Sale of Certain Specialty Chemicals Segment’s Assets and Discontinued
Operations
On
October 2, 2009, the Company entered into an Asset Purchase Agreement with
SantoLubes Manufacturing, LLC (“SM”) to sell the specialty chemical business of
Blackman Uhler Specialties, LLC (“BU”) for a purchase price of $10,366,000,
along with certain property, plant and equipment held by Synalloy Corporation
for a purchase price of $1,130,000, all located at the Spartanburg, SC location.
The purchase price of approximately $11,496,000, payable in cash, was equal to
the approximate net book values of the assets sold as of October 3, 2009, the
effective date of the sale, and the Company has recorded a loss of approximately
$250,000 resulting primarily from transaction fees and other costs related to
the transaction. Divesting BU’s specialty chemicals business has freed up
resources and working capital to allow further expansion into the Company’s
metals businesses. The Company has entered into a lease agreement with SM to
lease office space in Spartanburg for corporate operations and has also entered
into an outsourcing agreement with SM to provide SM with certain accounting and
administration functions. BU, along with Organic Pigment, LLC’s pigment
dispersion business (“OP”), which was sold on March 6, 2009, were both
physically located at the Spartanburg facility. OP completed all operating
activities at the end of the third quarter. As a result, these two operations,
which were included in the Specialty Chemicals Segment, are being reported as
discontinued operations. Sales of the two businesses totaled $3,967,000 and
$6,486,000 for the third quarter of 2009 and 2008, respectively, and $13,042,000
and $19,204,000 for the nine months of 2009 and 2008, respectively. The Company
has reclassified the operations of these disposed businesses to reflect
discontinued operations in the financial statements for each of the years
presented.
Note
R Subsequent Events
On
February 12, 2010, the Board of Directors of the Company voted to pay an annual
dividend of $.25 per share that was paid on March 22, 2010 to holders of record
on March 8, 2010, for a total cash payment of $1,569,000. 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 24, 2010, 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 24, 2010, 51,500 shares, with a market price of
$7.88 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 $406,000, before
income taxes of approximately $148,000, 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 G)
The accompanying financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States of America and the financial statements for the years ended
January 2, 2010, January 3, 2009 and December 29, 2007 have been audited by
Dixon Hughes PLLC, Independent Registered Public Accounting Firm. Management of
the Company assumes responsibility for the accuracy and reliability of the
financial statements. In discharging such responsibility, management has
established certain standards which are subject to continuous review and are
monitored through the Company's financial management. The Board of Directors
pursues its oversight role for the financial statements through its Audit
Committee which consists of independent directors. The Audit Committee meets on
a regular basis with representatives of management and Dixon Hughes PLLC.
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 January 2, 2010 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 January 2, 2010 was effective.
This Annual Report does not include
an attestation report of the Company’s independent registered public accounting
firm that audited the Company’s consolidated financial statements regarding
internal control over financial reporting. Management’s report was not subject
to attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in the Annual
Report.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders
Synalloy
Corporation
We have
audited the accompanying consolidated balance sheets of Synalloy Corporation and
subsidiaries (the "Company") as of January 2, 2010 and January 3, 2009, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended January 2,
2010. Our audit also included the financial statement schedule listed
in Item 15(a)2 of the Company's Annual Report on Form 10-K. The
Company's management is responsible for these financial statements and
schedule. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Synalloy Corporation and
subsidiaries as of January 2, 2010 and January 3, 2009, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 2, 2010, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We were
not engaged to examine management's assessment of the effectiveness of the
Company's internal control over financial reporting as of January 2, 2010,
included in Management's Annual Report on Internal Control over Financial
Reporting, referred to in Item 9A(T) of the Company's Annual Report on Form
10-K, and, accordingly, we do not express an opinion thereon.
/s/ Dixon
Hghes PLLC
Charlotte,
North Carolina
March 22,
2010
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
Disclosure 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.
Internal Control over Financial
Reporting
Management’s
Annual Report on Internal Control over Financial Reporting on the Company’s
internal control over financial reporting is set forth at the conclusion of the
Company’s consolidated statements set forth in Item 8 of this Form 10-K. The
Annual Report does not include an attestation report of the Company’s
independent registered public accounting firm that audited the Company’s
consolidated financial statements regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s
independent registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this Annual Report.
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.
Not
applicable
Item 10 Directors, Executive Officers and Corporate
Governance
The
information set forth under the captions "Election of Directors," "Executive
Officers,” and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive proxy statement to be used in connection with its Annual
Meeting of Shareholder to be held April 29, 2010 (the "Proxy Statement") is
incorporated herein by reference.
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.
Audit
Committee Financial Expert. The Company's Board of Directors has determined that
the Company has at least one "audit committee financial expert," as that term is
defined by Item 407(d)(5) of Regulation S-K promulgated by the Securities and
Exchange Commission, serving on its Audit Committee. Mr. Carroll D. Vinson meets
the terms of the definition and is independent, as independence is defined for
audit committee members in the rules of the NASDAQ Global Market. Pursuant to
the terms of Item 407(d) of Regulation S-K, a person who is determined to be an
"audit committee financial expert" will not be deemed an expert for any purpose
as a result of
being
designated or identified as an "audit committee financial expert" pursuant to
Item 407(d), and such designation or identification does not impose on such
person any duties, obligations or liability that are greater than the duties,
obligations or liability imposed on such person as a member of the Audit
Committee and Board of Directors in the absence of such designation or
identification. Further, the designation or identification of a person as an
"audit committee financial expert" pursuant to Item 407(d) does not affect the
duties, obligations or liability of any other member of the Audit Committee or
Board of Directors.
The
information set forth under the captions “Board of Directors and
Committees--Compensation Committee Interlocks and Insider Participation,”
“Discussion of Executive Compensation,” and "Compensation of Directors and
Officers" in the Proxy Statement is incorporated herein by
reference.
Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The information set forth under the
captions "Beneficial Owners of More Than Five Percent of the Company's Common
Stock" and "Security Ownership of Management" in the Proxy Statement is
incorporated by reference.
Equity Compensation Plan Information.
The following table sets forth aggregated information as of January 2, 2010
about all of the Company's equity compensation plans.
|
Plan Category
|
|
Number of securities to be
issued upon exercise of outstanding options, warrants and rights (a)
|
|
|
Weighted average exercise price
of outstanding options, warrants and rights
(b)
|
|
|
Number of securities remaining
available for future issuance under equity compensation plans (excluding
securities reflected in column (a)(c))
(1)
|
|
Equity compensation plans
approved by security holders
|
|
|
82,993 |
|
|
$ |
8.92 |
|
|
|
264,800 |
|
Equity compensation plans not
approved by security holders
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
82,993 |
|
|
$ |
8.92 |
|
|
|
264,800 |
|
|
(1)
|
Represents shares remaining
available for issuance under 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
2009, 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 2009, each non-employee director received 2,532 shares of
restricted stock (an aggregate of 12,660 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.
Item 13 Certain Relationships and Related Transactions
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.
Item 14 Principal Accountant Fees and Services
The information set forth under the
captions "Independent Registered Public Accounting Firm - Fees Paid to
Independent Registered Public Accounting Firm" and "– Audit Committee
Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Registered Public Accounting Firm" in the Proxy Statement is incorporated herein
by reference.
Item 15 Exhibits
and Financial Statement Schedules
|
(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 Part II, Item 8:
|
|
|
|
Consolidated
Balance Sheets at January 2, 2010 and January 3, 2009
|
|
|
|
Consolidated
Statements of Operations for the years ended January 2, 2010, January 3,
2009 and December 29, 2007
|
|
|
|
Consolidated
Statements of Shareholders' Equity for the years ended January 2, 2010,
January 3, 2009 and December 29, 2007
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended January 2, 2010, January 3,
2009 and December 29, 2007
|
|
|
|
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 January 2,
2010, January 3, 2009 and December 29, 2007
|
|
|
|
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"
|
Schedule
II Valuation
and Qualifying
Accounts
|
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 January 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset account:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$ |
816,000 |
|
|
$ |
498,000 |
|
|
$ |
959,000 |
|
|
$ |
355,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended January 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset account:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$ |
1,004,000 |
|
|
$ |
106,000 |
|
|
$ |
294,000 |
|
|
$ |
816,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted
from asset account:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$ |
796,000 |
|
|
$ |
223,000 |
|
|
$ |
15,000 |
|
|
$ |
1,004,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Allowances, uncollected accounts and credit balances written off against
reserve, net of recoveries.
|
|
Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
By
/s/ Ronald H. Braam
Ronald
H. Braam
Chief
Executive Officer
|
March 22, 2010
Date
|
|
By
/s/ Gregory M. Bowie
Gregory
M. Bowie
Chief
Financial Officer and
Principal
Accounting Officer
|
March 22, 2010
Date
|
Registrant
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
|
By
/s/ James G. Lane, Jr.
James
G. Lane, Jr.
Chairman
of the Board
|
March 22, 2010
Date
|
|
By
/s/ Sibyl N. Fishburn
Sibyl
N. Fishburn
Director
|
March 22, 2010
Date
|
|
By
/s/ Carroll D. Vinson
Carroll
D. Vinson
Director
|
March 22, 2010
Date
|
|
By
/s/ Murray H. Wright
Murray
H. Wright
Director
|
March 22, 2010
Date
|
|
By
/s/ Craig C. Bram
Craig
C. Bram
Director
|
March 22, 2010
Date
|
|
By
/s/ Ronald H. Braam
Ronald
H. Braam
Chief
Executive Officer and Director
|
March 22, 2010
Date
|
|
from
Item
601 of
Regulation
S-K
|
|
Description
|
|
|
|
Restated Certificate of
Incorporation of Registrant, as amended, incorporated by reference to
Registrant's Form 10-Q for the period ended April 2,
2005
|
|
|
|
Bylaws of Registrant, as
amended, incorporated by reference to Registrant's Form 10-Q for the
period ended March 31, 2001 (the "first quarter 2001 Form
10-Q")
|
|
|
|
Form of Common Stock
Certificate, incorporated by reference to the first quarter 2001 Form
10-Q
|
|
|
|
Asset
Purchase and Sale Agreement, dated as of August 31,
2009 between Registrant and Organic Pigment , LLC, as buyer and
Ram-Fab, Inc. and Jones Resources Group, Inc., as
seller
|
|
|
|
Synalloy Corporation Restated
1994 Non-Employee Directors' Stock Option Plan, incorporated by reference
to the first quarter 2001 Form 10-Q
|
|
|
|
Synalloy Corporation 1998
Long-Term Incentive Stock Plan, incorporated by reference to the first
quarter 2001 Form 10-Q
|
|
|
|
Registrant's Subsidiary and
Divisional Management Incentive Plan, as restated, effective January 2,
2006, incorporated by reference to Registrant’s Form 10-K for the year
ended December 30, 2006
|
|
|
|
Synalloy Corporation 2005 Stock
Awards Plan, incorporated by reference to the Proxy Statement for the 2005
Annual Meeting of Shareholders
|
|
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
|
|
10.7
|
|
Agreement
for the purchase and sale of assets between Registrant and Blackman Uhler
Specialties, LLC, as sellers and SantoLubes Manufacturing LLC and
SantoLubes Spartanburg Holdings LLC, buyers, dated October 2,
2009
|
|
|
|
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 incorporated by
reference to Registrant’s Form 10-K for the year ended December 29,
2007
|
|
|
|
Agreement
between Registrant’s Bristol Metals, LLC. subsidiary and the United
Steelworkers of America Local 4586, dated December 10,
2010
|
|
10.11
|
|
Agreement
between Registrant’s Bristol Metals, LLC 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, 2009
|
|
10.12
|
|
Agreement
between Registrant’s Bristol Metals, LLC subsidiary and the Teamsters
Local Union No. 549, dated March 5, 2010
|
|
21
|
|
Subsidiaries
of the Registrant
|
|
31.1
|
|
Rule
13a-14(a)/15d-14(a) Certifications of Chief Executive
Officer
|
|
31.2
|
|
Rule
13a-14(a)/15d-14(a) Certification of the Chief Financial
Officer
|
|
|
|
Certifications
Pursuant to 18 U.S.C. Section 1350
|