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 September 30, 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 September 30, 1995 Common Stock, $1.00 Par Value 7,221,251 SYNALLOY CORPORATION INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets - September 30, 1995 Condensed consolidated statements of income - Three and nine months ended September 30, 1995 and October 1, 1994 Condensed consolidated statements of cash flows - Nine months ended September 30, 1995 and October 1, 1994 Notes to condensed consolidated financial statements - September 30, 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
September 30, December 31, 1995 1994 (Unaudited) (Note) ASSETS Current assets Cash and cash equivalents 19,175 20,770 Accounts receivable, less allowance for doubtful accounts 19,910,350 14,758,847 Inventories: Raw materials 14,172,038 10,252,207 Work-in-process 7,186,330 3,765,329 Finished goods 20,207,030 13,958,918 Total inventories 41,565,398 27,976,454 Deferred income taxes 514,000 514,000 Prepaid expenses and other current assets 346,911 167,791 Total current assets 62,355,834 43,437,862 Cash surrender value of life insurance 1,591,681 1,535,131 Investment 543,100 543,100 Property, plant & equipment, net of accumulated depreciation of $21,860,000 and $20,156,000 19,321,626 16,239,584 Deferred charges and other assets 667,196 676,748 Total assets 84,479,437 62,432,425 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable 6,295,000 4,455,000 Accounts payable 9,186,027 5,900,018 Income taxes 434,477 448,367 Accrued expenses 6,225,348 3,024,370 Current portion of environmental reserves 114,316 356,800 Current portion of long-term debt 276,923 334,615 Total current liabilities 22,532,091 14,519,170 Long-term debt, less current portion 12,838,461 7,910,577 Environmental compliance costs 2,182,200 2,182,200 Deferred compensation 553,501 554,236 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 September 30, 1995 and 6,000,000 shares year ended December 31, 1994 8,000,000 6,000,000 Capital in excess of par value 752,047 6,931,064 Retained earnings 40,803,085 31,373,461 Less treasury stock (3,558,948) (7,415,283) Total shareholders' equity 45,996,184 36,889,242 Total liabilities and shareholders' equity 84,479,437 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 Nine Months Ended September 30, October 1, September 30, October 1, 1995 1994 1995 1994 Net sales 37,858,626 29,871,906 113,815,369 87,421,282 Cost of sales 28,394,922 24,802,819 86,378,035 72,979,205 Gross profit 9,463,704 5,069,087 27,437,334 14,442,077 Selling, general and administrative expense 2,852,482 2,119,108 8,577,754 6,270,560 Operating income 6,611,222 2,949,979 18,859,580 8,171,517 Other (income) and expense Interest expense 254,119 149,245 787,119 422,961 Other, net (12,852) (7,080) (41,672) (29,035) Income before taxes 6,369,955 2,807,814 18,114,133 7,777,591 Provision for income taxes 2,455,000 982,000 6,824,000 2,722,000 Net income 3,914,955 1,825,814 11,290,133 5,055,591 Net income per common share Primary and fully diluted 0.53 0.25 1.54 0.69 Dividends paid per common share 0.08 0.07 0.21 0.19 Average shares outstanding 7,372,808 7,363,434 7,349,784 7,350,524 See accompanying notes to condensed consolidated financial statements.
SYNALLOY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, October 1, 1995 1994 Operating activities Net income 11,290,133 5,055,591 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 1,842,862 1,460,783 Deferred compensation (735) (1,320) Provision for losses on accounts receivable 59,378 129,795 (Gain) loss on sale of property, plant and equipment (19,024) 50,154 Cash surrender value of life insurance (56,550) (56,550) Environmental compliance costs (242,484) (307,440) Changes in operating assets and liabilities: Accounts receivable (5,210,881) (2,787,816) Inventories (13,588,944) (4,062,222) Other assets (229,832) (10,201) Accounts payable and accrued expenses 6,486,987 4,748,806 Income taxes payable (13,890) 12,629 Net cash provided by operating activities 317,020 4,232,209 Investing activities Purchases of property, plant and equipment (4,895,086) (3,542,144) Proceeds from sale of property, plant and equipment 45,433 25,084 Proceeds from notes receivable 4,037 3,654 Acquisition costs (350,000) Net cash (used in) investing activities (4,845,616) (3,863,406) Financing activities Proceeds from revolving lines of credit 55,591,231 20,731,000 Payments on revolving lines of credit (53,751,231) (19,986,000) Addition to long-term debt 5,000,000 Principal payments on long-term debt (129,808) (256,730) Proceeds from exercising stock options 105,678 77,632 Purchase of treasury stock (1,079,058) (18,008) Dividends paid (1,541,955) (1,343,783) Contributions to 401(k)/ESOP 332,144 Net cash provided by (used in) financing activities 4,527,001 (795,889) Decrease in cash and cash equivalents (1,595) (427,086) Cash and cash equivalents at beginning of year 20,770 451,471 Cash and cash equivalents at end of period 19,175 24,385 See accompanying notes to condensed consolidated financial statements
SYNALLOY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 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 nine-month period ended September 30, 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 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 September 30, 1995. Consolidated sales were $37,858,000 for the quarter and $113,815,000 year-to- date reflecting 27 and 30 percent increases, respectively, over the same periods one year ago. Consolidated net income increased 114 percent to $3,915,000 for the quarter, or $.53 per share, and increased 123 percent to $11,290,000 year-to-date, or $1.54 per share, over the same periods one year ago. Chemical Segment sales were $11,005,000 for the quarter and $38,629,000 year- to-date reflecting 15 and two percent declines, respectively, compared to the same periods one year ago. Operating income declined 29 percent to $1,084,000 for the quarter and increased slightly by one percent to $4,905,000 year-to- date, compared to the same periods one year ago. About one-half of the expected decline in sales and operating income for the quarter resulted from the timing of production of certain non-dye specialty chemicals. Last year's third quarter reflected the highest production level of these products in 1994, while this quarter represented the lowest level scheduled for 1995. For the nine months, higher profits from specialty chemicals offset lower profits from textile dyestuffs. Demand for textile dyestuffs, which represent the bulk of the chemical business, continued to decline during the quarter resulting primarily from weak apparel demand. The decline is consistent with the trends experienced in the first two quarters and in 1994. Sales and profits for the quarter from these products were down approximately 15 and 19 percent, respectively, Specialty chemicals should show good improvement in the fourth quarter compared to the third quarter and last year's fourth quarter. However, demand for dyes has recently been at its weakest level which makes the overall outlook uncertain. Metals Segment sales were $26,853,000 for the quarter and $75,186,000 year-to- date reflecting 58 and 57 percent increases, respectively, over the same periods one year ago. Operating income increased 248 percent to $6,022,000 for the quarter and 269 percent to $15,446,000 year-to-date, over the same periods one year ago. Third quarter operating income soared to a new record while sales were about the same as the record set in the second quarter of this year. The bulk of the sales gain came from higher prices that passed on the increased cost of stainless steel raw material. A change in product mix with more sales of high priced super alloy pipe also contributed to the increase. The surge in income resulted from strong stainless pipe markets that led to better profitability industry wide, increased volume which produced lower unit production cost, and rising prices that generated profits from a large inventory. Raw material costs and selling prices have been reasonably stable during the past few months and will have a negative impact on inventory profits in the future. For this reason, fourth quarter operating income will probably be below the level achieved in the third quarter. However, demand SYNALLOY CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) continues to be strong from most of the industries using these products and current prices are much higher than they were a year ago. Based on this, the Company expects sales and profits in the fourth quarter 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 increased $317,000 during the first nine months of the year compared to a $4,232,000 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 $15,514,000 from December 31, 1994. 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 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 September 30,1995. 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: November 8, 1995 /s/ James G. Lane, Jr. James G. Lane, Jr., Chairman and Chief Executive Officer Date: November 8, 1995 /s/ Gregory M. Bowie Gregory M. Bowie Vice President, Finance