FORM 10-Q Securities and Exchange Commission Washington, D. C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) _X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended April 1, 1995 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number 0-19687 SYNALLOY CORPORATION (Exact name of registrant as specified in its charter) Delaware 57-0426694 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Post Office Box 5627 Croft Industrial Park Spartanburg, South Carolina 29304 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code (803) 585-3605 Not Applicable (Former name, former address and former fiscal year, if changed since last year.) 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 ___ Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practical date. Number of Shares Outstanding Title of Class As of April 1, 1995 Common Stock, $1.00 Par Value 4,798,578 SYNALLOY CORPORATION INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets - April 1, 1995 Condensed consolidated statements of income - Three months ended April 1, 1995 and April 2, 1994 Condensed consolidated statements of cash flows - Three months ended April 1, 1995 and April 2, 1994 Notes to condensed consolidated financial statements - April 1, 1995 Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K PART 1. FINANCIAL STATEMENTS SYNALLOY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
April 1, 1995 December 31, 1994 (Unaudited) (Note) ASSETS Current assets Cash and cash equivalents 11,928 20,770 Accounts receivable, less allowance for doubtful accounts 19,672,452 14,758,847 Inventories: Raw materials 12,882,035 10,252,207 Work-in-process 5,797,637 3,765,329 Finished goods 15,321,132 13,958,918 Total inventories 34,000,804 27,976,454 Deferred income taxes 514,000 514,000 Prepaid expenses and other current assets 970,831 167,791 Total current assets 55,170,015 43,437,862 Cash surrender value of life insurance 1,553,981 1,535,131 Investment 543,100 543,100 Property, plant & equipment, net of accumulated depreciation of $20,759,000 and $20,156,000 16,812,463 16,239,584 Deferred charges and other assets 659,688 676,748 Total assets 74,739,247 62,432,425 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable 9,003,000 4,455,000 Accounts payable 10,403,765 5,900,018 Income taxes 1,983,901 448,367 Accrued expenses 3,366,072 3,024,370 Current portion of environmental reserves 266,332 356,800 Current portion of long-term debt 334,615 334,615 Total current liabilities 25,357,685 14,519,170 Long-term debt, less current portion 7,876,923 7,910,577 Environmental compliance costs 2,182,200 2,182,200 Deferred compensation 553,991 554,236 Deferred income taxes 377,000 377,000 Contingencies -- Note 3 Shareholders' equity Common stock, par value $1 per share - authorized 8,000,000 shares; issued 6,000,000 shares 6,000,000 6,000,000 Capital in excess of par value 6,944,691 6,931,064 Retained earnings 33,651,245 31,373,461 Less treasury stock (8,204,488) (7,415,283) Total shareholders' equity 38,391,448 36,889,242 Total liabilities and shareholders' equity 74,739,247 62,432,425 Note: The balance sheet at December 31, 1994 has been derived from the audited financial statements at that date. See accompanying notes to condensed consolidated financial statements
SYNALLOY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended April 1, 1995 April 2, 1994 Net sales 34,575,967 27,332,178 Cost of sales 27,401,191 23,140,593 Gross profit 7,174,776 4,191,585 Selling, general and administrative expense 2,605,167 2,025,618 Operating income 4,569,609 2,165,967 Other (income) and expense Interest expense 235,755 128,904 Other, net (14,903) (11,028) Income before taxes 4,348,757 2,048,091 Provision for income taxes 1,587,000 717,000 Net income 2,761,757 1,331,091 Net income per common share Primary and fully diluted $.56 $.27 Dividends paid per common share $.10 $.09 Average share outstanding 4,898,513 4,902,442 See accompanying notes to condensed consolidated financial statements
SYNALLOY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended April 1, 1995 April 2, 1994 Operating activities Net income 2,761,757 1,331,091 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 636,645 479,591 Deferred compensation (245) (440) Provision for losses on accounts receivable 255,971 67,009 Gain on sale of property, plant and (8,500) (3,750) Cash surrender value of life insurance (18,850) (18,850) Environmental compliance costs (90,468) (138,461) Changes in operating assets and liabilities: Accounts receivable (5,169,576) (807,392) Inventories (6,024,350) (452,639) Other assets (802,673) (491,559) Accounts payable and accrued expenses 4,845,449 1,648,929 Income taxes payable 1,535,534 546,354 Net cash (used in) provided by operating activities (2,079,306) 2,159,883 Investing activities Purchases of property, plant and equipment (1,194,313) (1,194,609) Proceeds from sale of property, plant and equipment 8,500 3,750 Proceeds from notes receivable 1,482 1,342 Net cash (used in) investing activities (1,184,331) (1,189,517) Financing activities Proceeds from revolving lines of credit 21,847,231 2,300,000 Payments on revolving lines of credit (17,299,231) (3,100,000) Principal payments on long-term debt (33,654) (104,807) Proceeds from exercising stock options 71,076 42,245 Purchase of treasury stock (1,050,979) (1,274) Dividends paid (483,973) (431,227) Contributions to 401(k)/ESOP 204,325 Net cash provided by (used in) financing activities 3,254,795 (1,295,063) Decrease in cash and cash equivalents (8,842) (324,697) Cash and cash equivalents at beginning of year 20,770 451,471 Cash and cash equivalents at end of year 11,928 126,774 See accompanying notes to condensed consolidated financial statements
SYNALLOY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) April 1, 1995 NOTE 1--BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended April 1, 1995, are not necessarily indicative of the results that may be expected for the year ending December 30, 1995. For comparative purposes, certain amounts in the 1994 financial statements have been reclassified to conform with the 1995 presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the period ended December 31, 1994. NOTE 2--INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. NOTE 3--LEGAL MATTERS In late summer 1983, the Company, together with co-defendants Allied Corporation and E.I. duPont de Nemours & Co., settled approximately 115 individual tort actions arising out of alleged injurious exposure to betanaphthylamine (BNA) by employees of Augusta Chemical Company and Synalloy Corporation from 1949 to 1972. As part of the settlement, the Company agreed to be responsible for certain future medical payments for approximately 80 individuals and for payment of certain amounts in the event an individual is diagnosed as having bladder cancer. To date, three individuals have received payments under these settlements. The Company does not believe a significant number of these individuals will have bladder cancer. Management and counsel of the Company do not believe that it is probable that any losses payable under the terms of the settled cases should be in an amount to significantly impair the consolidated operating results or financial condition of the Company. Furthermore, based on the Georgia Supreme Court holding in Newton v. Synalloy, 254 GA. 174 (1985), it is not anticipated that future claims will be brought against the Company. There is presently pending an action, H. B. Zachry v. Synalloy Corporation and Bristol Metals, Inc. v. U.S., in the 37th Judicial District, Bexar County, Texas, arising out of the sale by Bristol Metals to H.B. Zachry ("Zachry") of pipe for use at an Air Force base. After portions of the pipe ruptured, Zachry repaired the pipe at a cost of approximately $1,200,000. In July 1994, the Company filed a third-party action against the United States Government (the "Government") alleging they should indemnify the Company for any amount the Company is found liable to Zachry arising out of the Government's defective specification. The Government thereafter removed the case to Federal Court in San Antonio, Texas, and filed a counterclaim against the Company seeking indemnification for any amounts the Government is required to pay Zachry. Discovery is proceeding with a trial date expected in late 1995. The Company has also been vouched into the defense of a claim made by the U.S. Army Corps of Engineers against Natkin & Co. for pipe sold to Natkin for use at Ellsworth Air Force Base. The Company has not been made a party to this action. The Company is also aware that the Corps of Engineers rejected its pipe at Westover Air Force Base after installation by Lane Construction Co. but before the system was operated. At the present time, Lane is repairing the pipeline at this base and has a claim pending in the United States Court of Claims against the Government. The Company and its legal counsel believe that the pipe supplied met the Corps' specifications. At the present time, with the exception of the Zachry case it is unclear what, if any, damages will be asserted against the Company. Based on present information, it is unlikely that liability, if any, in the amount alleged exists and that the ultimate outcome will have a materially adverse effect on the consolidated operating results or financial position of the Company. NOTE 4--NET INCOME PER COMMON SHARE Income per share is computed using the weighted average shares of Common Stock and dilutive Common Stock equivalents (options) outstanding during the respective periods. SYNALLOY CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion of certain significant factors which affected the Company during the quarter ended April 1, 1995. Consolidated sales were $34,576,000 for the quarter reflecting a 27 percent increase over the same period one year ago. Consolidated net income increased 107 percent to $2,762,000 for the quarter, or $.56 per share, over the same period one year ago. Chemical Segment sales were $13,173,000 for the quarter reflecting a three percent increase over the same period one year ago. Operating income decreased five percent to $1,386,000 for the quarter over the same period one year ago. Demand for textile dyestuffs continued to exhibit the same softness experienced during 1994. Sales of the new line of sulphur dyes that the Company began marketing In May 1994 more than offset a modest decline in other dyestuff sales. Profit margins from these products were down modestly because of competitive conditions. Specialty chemicals contributed about the same percentage of operating profit that they did in the first quarter of 1994. Demand for dyes improved in March and based on current conditions the Company expects the second quarter to produce better results from this product group. Present production schedules for specialty chemicals should also generate more sales and profits from these products in the second quarter. Metal Segment sales were $21,403,000 for the quarter reflecting a 47 percent increase over the same period one year ago. Operating income increased 271 percent to $3,574,000 for the quarter over the same period one year ago. After five years of declining prices and weak demand, markets for stainless steel pipe have improved dramatically. Most of the sales increase came from a surge in unit volume. Higher sales prices resulting from increased raw material costs also made a contribution. The profit improvement resulted from increased raw material conditions, lower unit production costs associated with substantially higher volumes and inventory profits generated from the rising price of stainless steel. Sales prices in January were up only slightly, but February and March reflected a significant uptrend. These conditions make the Company believe that the average selling prices in the second quarter will exceed those of the first quarter. Demand seems to be holding up well so second quarter unit volume should also be strong. In addition, the Company should benefit from the increase in value of its large inventory because of the rising prices of stainless steel. Selling and administrative expense for the quarter was approximately 7 percent which is of consolidated sales consistent with prior year's amount. Interest expense increased significantly due to increased borrowings needed for working capital requirements. Cash flows from operations of $2,079,000 for the first quarter of the year were consistent with cash flows of $2,160,000 over the same period one year ago. Funds from operations were sufficient to pay normal dividends and capital expenditures. During the first quarter,the Company consolidated its two working capital lines into a single $9,000,000 line of credit and entered into a commitment with the same Bank to borrow $12,000,000 under a seven year Revolving Credit/Term Loan Facility. The proceeds will be used to refinance an existing $7,000,000 note payable with the Bank and fund two capital expenditure projects totaling $5,000,000. The Company expects that available cash and existing lines of credit will be sufficient to meet normal operating requirements, including increased capital expenditures over the near term. PART II: OTHER INFORMATION SYNALLOY CORPORATION Item 1. Legal Proceedings Reference is made to Note 3 on Page 6 and Note O in the Notes to Consolidated Financial Statements included in the Form 10-K for the year ended December 31, 1994. Item 2. Change In Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission Of Matters To A Vote Of Security Holders None Item 5. Other Information None Item 6. Exhibits And Reports On Form 8-K The following exhibits are included herein: None The Company did not file any reports on Form 8-K during the three months ended April 1, 1995. SYNALLOY CORPORATION SIGNATURES Pursuant to the requirements 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. SYNALLOY CORPORATION (Registrant) Date: May 8, 1995 /s/ James G. Lane, Jr. James G. Lane, Jr., Chairman and Chief Executive Officer Date: May 8, 1995 /s/ Gregory M. Bowie Gregory M. Bowie Vice President, Finance