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 July 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 July 1, 1995 Common Stock, $1.00 Par Value 7,211,300 SYNALLOY CORPORATION INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets - July 1, 1995 Condensed consolidated statements of income - Three and six months ended July 1, 1995 and July 2, 1994 Condensed consolidated statements of cash flows - Six months ended July 1, 1995 and July 2, 1994 Notes to condensed consolidated financial statements - July 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
July 1, December 31, 1995 1994 (Unaudited) (Note) ASSETS Current assets Cash and cash equivalents 14,588 20,770 Accounts receivable, less allowance for doubtful accounts 22,052,183 14,758,847 Inventories: Raw materials 13,727,242 10,252,207 Work-in-process 5,736,428 3,765,329 Finished goods 17,395,626 13,958,918 Total inventories 36,859,296 27,976,454 Deferred income taxes 514,000 514,000 Prepaid expenses and other current assets 628,106 167,791 Total current assets 60,068,173 43,437,862 Cash surrender value of life insurance 1,572,831 1,535,131 Investment 543,100 543,100 Property, plant & equipment, net of accumulated depreciation of $21,320,000 and $20,156,000 18,775,907 16,239,584 Deferred charges and other assets 691,113 676,748 Total assets 81,651,124 62,432,425 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable 7,219,000 4,455,000 Accounts payable 9,581,656 5,900,018 Income taxes 716,701 448,367 Accrued expenses 5,158,216 3,024,370 Current portion of environmental reserves 201,776 356,800 Current portion of long-term debt 334,615 334,615 Total current liabilities 23,211,964 14,519,170 Long-term debt, less current portion 12,800,000 7,910,577 Environmental compliance costs 2,182,200 2,182,200 Deferred compensation 553,746 554,236 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 8,000,000 shares period ended July 1, 1995 and 6,000,000 shares year ended December 31, 1994 8,000,000 6,000,000 Capital in excess of par value 664,538 6,931,064 Retained earnings 37,465,832 31,373,461 Less treasury stock (3,604,156) (7,415,283) Total shareholders' equity 42,526,214 36,889,242 Total liabilities and shareholders' equity 81,651,124 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 Six Months Ended July 1, July 2, July 1, July 2, 1995 1994 1995 1994 Net sales 41,380,776 30,217,198 75,956,743 57,549,376 Cost of sales 30,581,922 25,035,793 57,983,113 48,176,386 Gross profit 10,798,854 5,181,405 17,973,630 9,372,990 Selling, general and administrative expense 3,120,105 2,110,834 5,725,272 4,136,452 Operating income 7,678,749 3,070,571 12,248,358 5,236,538 Other (income) and expense Interest expense 297,245 144,812 533,000 273,716 Other, net (13,917) 4,073 (28,820) (6,955) Income before taxes 7,395,421 2,921,686 11,744,178 4,969,777 Provision for income taxes 2,782,000 1,023,000 4,369,000 1,740,000 Net income 4,613,421 1,898,686 7,375,178 3,229,777 Net income per common share Primary and fully diluted 0.63 0.26 1.01 0.44 Dividends paid per common share 0.06 0.06 0.13 0.12 Average shares outstanding 7,337,996 7,357,542 7,337,139 7,350,524 See accompanying notes to condensed consolidated financial statements.
SYNALLOY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
July 1, 1995 July 2, 1994 Operating activities Net income 7,375,178 3,229,777 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 1,237,463 966,286 Deferred compensation (490) (880) Provision for losses on accounts receivable 347,210 98,015 Gain on sale of property, plant and equipment (17,100) (13,430) Cash surrender value of life insurance (37,700) (37,700) Environmental compliance costs (155,024) (249,704) Changes in operating assets and liabilities: Accounts receivable (7,640,546) (1,741,149) Inventories (8,882,842) (1,850,878) Other assets (504,948) (454,616) Accounts payable and accrued expenses 5,815,484 4,443,902 Income taxes payable 268,334 (26,070) Net cash (used in) provided by operating activities (2,194,981) 4,363,553 Investing activities Purchases of property, plant and equipment (3,746,520) (2,501,741) Proceeds from sale of property, plant and equipment 17,100 25,295 Proceeds from notes receivable 3,002 2,719 Acquisition costs (350,000) Net cash (used in) investing activities (3,726,418) (2,823,727) Financing activities Proceeds from revolving lines of credit 39,821,231 11,350,000 Payments on revolving lines of credit (37,057,231) (12,195,000) Addition to long-term debt 5,000,000 Principal payments on long-term debt (110,577) (190,384) Proceeds from exercising stock options 100,441 63,411 Purchase of treasury stock (1,078,718) (14,768) Dividends paid (964,254) (863,328) Contributions to 401(k)/ESOP 204,325 Net cash provided by (used in) financing activities 5,915,217 (1,850,069) Decrease in cash and cash equivalents (6,182) (310,243) Cash and cash equivalents at beginning of year 20,770 451,471 Cash and cash equivalents at end of period 14,588 141,228 See accompanying notes to condensed consolidated financial statements.
SYNALLOY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 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 six-month period ended July 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 1982. 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, only three individuals have received payments under these settlements. The Company does not believe a significant number of these individuals will have bladder cancer. The Company also believes that it is not 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. On July 11, 1995, the Company entered into a settlement agreement with H.B. Zachry ("Zachry") and the United States resolving the 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 Zachry of pipe for use at an Air Force base. The specific terms of the settlement are subject to a confidentiality agreement; however, the Company's SYNALLOY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) contribution to the settlement was less than the $370,000 originally paid to the Company for the pipe. The Company is aware of two other claims between the government and contractors arising out of pipe purchased from Bristol. The Company is not party to either of these actions nor is it, in the opinion of the Company's counsel, bound by the terms of those actions. No separate action has been brought against the Company. The Company does not believe that either the amounts potentially involved in the BNA settlements or unasserted, but potential, claims arising out of the sale of pipe to two Air Force bases meet the disclosure requirements of Item 103 of Regulation S-K. Accordingly, unless new information changes these beliefs, these items will no longer be reported in the quarterly and annual reports of the Company filed under the Securities and Exchange Act of 1934. 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. Management believes that based on present information, it is unlikely that liability, if any, exists that would 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. NOTE 5--SHAREHOLDERS' EQUITY On April 28, 1995, the Board of Directors of the Company declared a three-for- two split of the Company's common stock. This was paid in the form of a stock dividend on June 12, 1995 to shareholders of record May 22, 1995. Accordingly, all share and per share information throughout the consolidated financial statements has been restated to reflect this split. The par value for the additional shares issued was transferred from capital in excess of par to common stock. 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 July 1, 1995. Consolidated sales were $41,381,000 for the quarter and $75,957,000 year-to- date reflecting 37 and 32 percent increases, respectively, over the same periods one year ago. Consolidated net income increased 143 percent to $4,613,000 for the quarter, or $.63 per share, and increased 128 percent to $7,375,000 year-to-date, or $1.01 per share, over the same periods one year ago. Chemical Segment sales were $14,451,000 for the quarter and $27,624,000 year- to-date reflecting five and four percent increases, respectively, over the same periods one year ago. Operating income increased 30 percent to $2,435,000 for the quarter and 15 percent to $3,821,000 year-to-date, over the same periods one year ago. Demand for textile dyestuffs, which represent the bulk of the chemical business, remained weak continuing the same softness experienced in the first quarter and in 1994. Sales and profits from these products were down approximately six and 13 percent, respectively, because of competitive conditions. However, sales of specialty chemicals almost doubled compared to last year's second quarter, and their contribution to operating income more than offset the decline in dyestuffs. Seasonal factors normally make the third quarter the weakest for sales and profits from textile dyestuffs. Price cutting by certain competitors and the question of when the cyclically depressed demand will improve add uncertainty to the third quarter. In addition, specialty chemicals sales and profits will decline from the second quarter level because of completion of annual production volumes of certain products. Metals Segment sales were $26,930,000 for the quarter and $48,333,000 year-to- date reflecting 64 and 56 percent increases, respectively, over the same periods one year ago. Operating income increased 291 percent to $5,850,000 for the quarter and 283 percent year-to-date, over the same periods one year ago. Higher sales for the quarter and year-to-date were partly the result of a significant increase in unit volume which was driven by stronger demand. Substantially higher prices that passed on the higher cost of stainless steel raw material made an even larger contribution to the sales gain. The surge in operating income for the quarter and year-to-date resulted from the convergence of three factors. Improved market conditions led to better profitability industry wide, increased volume resulted in lower unit production costs, and sharply rising prices generated profits from a large inventory. Demand continues to be strong from most of the industries using these products and current prices are much higher than they were in the second half of last year. Based on this, the Company expects sales and profits in the last half of this year to be substantially better than they were in the comparable period in 1994. Selling and administrative expense for the quarter and year-to-date were approximately seven percent of consolidated sales which is consistent with prior years' amounts. Interest expense increased significantly due to increased borrowings needed for working capital requirements. Cash flows from operations decreased $2,195,000 during the first six months of the year compared to a $4,364,000 increase during the same period one year ago. The significant increase in activity in the Metals Segment has caused an expected increase in accounts receivable and inventories, net of accounts payable, of $12,495,000 from December 31, 1994. In June 1995, the Company consolidated its two working capital lines into a single $9,000,000 line of credit and borrowed $12,000,000 under a seven year Revolving Credit/Term Loan Facility. The proceeds are being 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 capital expenditures and payment of dividends 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 A. The Annual Meeting of Shareholders was held April 28, 1995 at the offices of the Company. B. The following individuals were elected as directors at the Annual Meeting: Votes For Votes Withheld 1. James G. Lane, Jr. 3,729,820 13,311 2. Sibyl N. Fishburn 3,726,921 16,210 3. Richard E. Ingram 3,729,770 13,361 4. Glenn R. Oxner 3,729,820 13,311 5. Carroll D. Vinson 3,728,095 15,036 C. By a vote of 3,562,862 for, 115,408 against and 5,522 abstaining, the shareholders voted to amend the Non-Employee Director's Stock Option Plan to delete certain requirements limiting the exercise of such options. D. Ernst & Young LLP, independent certified public accountants, were selected as independent auditors for the fiscal year ending December 30, 1995 by a vote of 3,709,714 for, 21,003 against and 12,414 abstentions. 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 July 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: August 4, 1995 /s/ James G. Lane, Jr. James G. Lane, Jr., Chairman and Chief Executive Officer Date: August 4, 1995 /s/ Gregory M. Bowie Gregory M. Bowie Vice President, Finance