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 March 29, 1997 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 (864) 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 March 29, 1997 Common Stock, $1.00 Par Value 6,985,917 - - 1 - Synalloy Corporation Index PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets - March 29, 1997 and December 28,1996 Condensed consolidated statements of income - Three months ended March 29, 1997 and March 30, 1996 Condensed consolidated statements of cash flows - Three months ended March 29, 1997 and March 30, 1996 Notes to condensed consolidated financial statements - March 29, 1997 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 - - 2 - PART 1. FINANCIAL STATEMENTS Synalloy Corporation Condensed Consolidated Balance Sheets
Mar 29, 1997 Dec 28, 1996 (Unaudited) (Note) Assets Current assets Cash and cash equivalents $ 163,417 $ 115,828 Accounts receivable, less allowance for doubtful accounts 18,752,525 17,253,534 Inventories Raw materials 8,309,610 8,357,884 Work-in-process 3,858,209 5,112,695 Finished goods 14,423,689 16,384,891 Total inventories 26,591,508 29,855,470 Deferred income taxes 130,000 130,000 Prepaid expenses and other current assets 921,590 278,276 Total current assets 46,559,040 47,633,108 Cash value of life insurance 1,753,301 1,733,801 Investment 329,117 329,117 Property, plant & equipment, net of accumulated depreciation of $26,269,000 and $26,128,000 23,553,219 23,627,889 Deferred charges and other assets 3,202,395 3,265,211 Total assets $ 75,397,072 $ 76,589,126 Liabilities and Shareholders' Equity Current liabilities Notes payable $ 460,000 $ 1,500,000 Accounts payable 6,949,178 6,252,449 Income taxes 794,527 332,507 Accrued expenses 2,027,935 2,492,660 Current portion of environmental reserves 359,294 359,294 Current portion of long-term debt 1,400,000 1,400,000 Notes payable to an employee 1,154,805 Total current liabilities 11,990,934 13,491,715 Long-term debt, less current portion 11,200,000 11,200,000 Environmental reserves 1,185,921 1,300,100 Deferred compensation 1,297,001 1,299,176 Deferred income taxes 1,024,000 1,024,000 Contingencies Shareholders' equity Common stock, par value $1 per share - authorized and issued 8,000,000 shares 8,000,000 8,000,000 Capital in excess of par value 29,745 81,746 Retained earnings 49,457,541 49,074,919 Less cost of Common Stock in treasury (8,788,070) (8,882,530) Total shareholders' equity 48,699,216 48,274,135 Total liabilities and shareholders' equity $ 75,397,072 $ 76,589,126 Note: The balance sheet at December 28, 1996 has been derived from the audited financial statements at that date. See accompanying notes to condensed consolidated financial statements
- -3- Synalloy Corporation Condensed Consolidated Statements of Income
(Unaudited) Three Months Ended Mar 29, 1997 Mar 30, 1996 Net sales $ 30,903,356 $ 36,658,505 Cost of sales 26,657,262 29,228,982 Gross profit 4,246,094 7,429,523 Selling, general and administrative expense 2,461,877 2,560,310 Operating income 1,784,217 4,869,213 Other (income) and expense Gain on sale of investment 0 Interest expense 213,127 259,727 Other, net 6,738 7,456 Income before taxes 1,564,352 4,602,030 Provision for income taxes 553,000 1,680,000 Net income $ 1,011,352 $ 2,922,030 Net income per common share $.14 $.41 Dividends paid per common share $.09 $.08 Average shares outstanding 7,023,142 7,150,808 See accompanying notes to condensed consolidated financial statements
- -4- Synalloy Corporation Condensed Consolidated Statements of Cash Flows
(Unaudited) Three Months Ended Mar 29, 1997 Mar 30, 1996 Operating activities Net income $ 1,011,352 $ 2,922,030 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 798,916 699,867 Amortization of deferred charges 62,816 29,942 Deferred compensation (2,175) (401) Deferred income taxes 0 0 Provision for losses on accounts receivables 14,990 (196,171) Loss (gain) on sale of property, plant and 13,157 (650) Cash value of life insurance (19,500) (18,850) Environmental reserves (114,179) (149,814) Changes in operating assets and liabilities: Accounts receivable (1,513,981) (2,345,615) Inventories 3,263,962 4,091,260 Other assets (645,124) (962,378) Accounts payable and accrued expenses 232,004 (965,911) Income taxes payable 462,020 1,402,900 Net cash provided by operating activities 3,564,258 4,506,209 Investing activities Purchases of property, plant and equipment (739,603) (1,755,886) Proceeds from sale of property, plant and equipment 2,200 650 Proceeds from notes receivable 1,810 1,638 Net cash (used in) investing activities (735,593) (1,753,598) Financing activities Proceeds from revolving lines of credit 12,210,000 19,060,000 Payments on revolving lines of credit (13,250,000) (16,040,000) Principal payments on long-term debt (19,231) Payment of notes payable to employee (1,154,805) Proceeds from exercised stock options 42,462 234,008 Purchases of treasury stock (5,622,131) Dividends paid (628,733) (572,010) Net cash (used in) financing activities (2,781,076) (2,959,364) Increase (decrease) in cash and cash equivalents 47,589 (206,753) Cash and cash equivalents at beginning of year 115,828 267,061 Cash and cash equivalents at end of period $ 163,417 $ 60,308 See accompanying notes to condensed consolidated financial statements
- -5- Synalloy Corporation Notes To Condensed Consolidated Financial Statements (Unaudited) March 29, 1997 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 March 29, 1997, are not necessarily indicative of the results that may be expected for the year ending January 3, 1998. For comparative purposes, certain amounts in the 1996 financial statements have been reclassified to conform with the 1997 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 28, 1996. 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. Stock options in the aggregate reduce earnings per share by less than three percent in all years presented; therefore, diluted per share amounts are not disclosed. - - 6 - 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 March 29, 1997. Consolidated sales and net income were $30,903,000 and $1,011,000, respectively, for the quarter. Net income declined 65 percent on a sales decline of 16 percent compared to the first quarter of 1996. On a sequential basis, however, sales for the quarter increased 6 percent over the fourth quarter of 1996, and removing the effect on net income of an after tax gain on the sale of an investment of $431,000 in the fourth quarter of 1996, net income in the first quarter increased 4 percent. The Company continues to experience the effects of the unusual condition of cyclical weakness that has been occurring at the same time in both the Metals and Chemicals Segments since the second quarter of 1996. Chemicals Segment sales were $14,355,000 for the quarter reflecting a 29 percent increase compared to the same period one year ago. Operating income increased 27 percent to $1,477,000 for the quarter compared to the same period one year ago. Improvement in sales and operating income in the quarter compared to the same quarter last year essentially resulted from the acquisition of Manufacturers Chemicals in the last quarter of 1996. Excluding the acquisition, sales were off slightly and operating income was up 4 percent. Textile dye and pigment demand continues to be weak and conditions in the market are intensely competitive. Weak denim markets and continued softness in pigment demand from textile printers more than offset increased sales of other dyes. Chemical specialties, bolstered by the acquisition, contributed 47 percent of sales and a substantially greater percent of operating income. The Company is positioned to benefit from any recovery in the textile dye and pigment demand. It will also continue its focus on growing non-dye specialties. Metals Segment sales were $16,548,000 for the quarter reflecting a 35 percent decline over the same period one year ago. Operating income decreased 86 percent to $589,000 for the quarter over the same period one year ago. The sales decline compared to the first quarter of 1996 was primarily the result of 28 percent lower selling prices for stainless steel pipe. Market dynamics were completely different during these periods. Prices to date in 1997 appear to be at a cyclical low, while last year's first quarter benefited from prices only moderately below the cyclical peaks reached in the last half of 1995. Unit volume of loose pipe was up moderately, but overall unit volume was down 6 percent due to decreases in piping systems and process equipment. The decrease in operating income reflects the cyclically depressed condition of the pipe market and the modest loss incurred from piping systems and process equipment. After rescinding a November 11, 1996 price increase because of lack of support from other pipe producers, the Company announced an 8 percent price increase on April 7, 1997. Poor operating results throughout the industry should motivate other producers to support this increase. If this price increase holds in the marketplace, sales and operating income from stainless pipe should show better results on a sequential basis in the second quarter. The backlog for piping systems is at a good level. However, the first quarter was negatively impacted by customer delays in providing drawings - -7- Synalloy Corporation Management's Discussion And Analysis Of The Financial Condition And Results Of Operations - Continued necessary for the fabrication of pipe spool pieces. The Company currently expects the volume of drawings received to increase beginning in April which should lead to an increased level of sales and income from these products. Selling and administrative expense for the quarter was down approximately four percent from the same quarter last year, but totaled eight percent of consolidated sales compared to last year's seven percent. The increase reflects adding selling and administrative costs from Manufacturers Chemical, offset by lower profit-based incentives. Cash flows from operations totaled $3,564,000 during the first quarter compared to $4,506,000 generated during the same period one year ago. The decrease reflects the reduction of net income experienced in the first quarter of 1997 compared to the same period in 1996. 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. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 The statements contained in this management discussion and analysis that are not historical facts may be 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, which speak only as of their dates. 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, customer delays or difficulties in the production of products, and other risks detailed from time to time in Synalloy's Securities and Exchange Commission filings. Synalloy Corporation assumes no obligation to update the information included herein. - - 8 - PART II: OTHER INFORMATION Synalloy Corporation Item 1. Legal Proceedings None 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 March 29, 1997 - - 9 - 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 7, 1997 /s/ James G. Lane, Jr. James G. Lane, Jr., Chairman and Chief Executive Officer Date: May 7, 1997 /s/ Gregory M. Bowie Gregory M. Bowie Vice President, Finance - - 10 -