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 4, 1998 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 April 4, 1998 Common Stock, $1.00 Par Value 6,785,929 - - 1 - Synalloy Corporation Index PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets - April 4, 1998 and January 3, 1998 Condensed consolidated statements of income - Three months ended April 4, 1998 and March 29, 1997 Condensed consolidated statements of cash flows - Three months ended April 4, 1998 and March 29, 1997 Notes to condensed consolidated financial statements - April 4, 1998 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 Apr 4, 1998 Jan 3, 1998 (Unaudited) (Note) ----------- ----------- Assets Current assets Cash and cash equivalents $ 880,297 $ 1,602,543 Accounts receivable, less allowance for doubtful accounts 17,345,226 15,201,783 Inventories Raw materials 8,970,022 7,368,212 Work-in-process 3,918,354 4,791,379 Finished goods 13,511,249 15,287,431 ---------- ---------- Total inventories 26,399,625 27,447,022 Deferred income taxes 177,000 177,000 Prepaid expenses and other current assets 640,692 633,709 ---------- ---------- Total current assets 45,442,840 45,062,057 Cash value of life insurance 1,862,274 1,842,384 Investment 329,117 329,117 Property, plant & equipment, net of accumulated depreciation of $28,651,000 and $27,788,000 22,904,456 23,112,324 Deferred charges and other assets 2,972,814 3,037,470 ---------- ---------- Total assets $73,511,501 $73,383,352 ========== ========== Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 7,290,177 $ 5,544,789 Income taxes 681,541 310,992 Accrued expenses 2,698,886 3,018,850 Current portion of environmental reserves 487,980 487,980 Current portion of long-term debt 200,000 200,000 ---------- ---------- Total current liabilities 11,358,584 9,562,611 Long-term debt, less current portion 10,200,000 10,200,000 Environmental reserves 690,961 782,700 Deferred compensation 1,322,968 1,323,388 Deferred income taxes 1,473,000 1,473,000 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 9,491 33,475 Retained earnings 52,252,356 52,339,857 Less cost of Common Stock in treasury (11,795,859) (10,331,679) ---------- ---------- Total shareholders' equity 48,465,988 50,041,653 ---------- ---------- Total liabilities and shareholders' equity $73,511,501 $73,383,352 ========== ========== Note: The balance sheet at January 3, 1998 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 Apr 4, 1998 Mar 29, 1997 ----------- ------------ Net sales $30,605,926 $30,903,356 Cost of sales 27,131,096 26,657,262 ---------- ---------- Gross profit 3,474,830 4,246,094 Selling, general and administrative expense 2,407,979 2,461,877 ---------- ---------- Operating income 1,066,851 1,784,217 Other (income) and expense Interest expense 166,515 213,127 Other, net (24,055) 6,738 ---------- ---------- Income before taxes 924,391 1,564,352 Provision for income taxes 327,000 553,000 ---------- ---------- Net income $ 597,391 $ 1,011,352 ========== ========== Net income per common share Basic $.09 $.14 Diluted $.09 $.14 Dividends paid per common share $.10 $.09 Average shares outstanding Basic 6,836,474 6,976,856 Diluted 6,868,700 7,023,250 See accompanying notes to condensed consolidated financial statements.
- - 4 - Synalloy Corporation Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended Apr 4, 1998 Mar 29, 1997 ----------- ------------ Operating activities Net income $ 597,391 $1,011,352 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 853,993 798,916 Amortization of deferred charges 64,656 62,816 Deferred compensation (420) (2,175) Provision for losses on accounts receivable 34,744 14,990 (Gain) loss on sale of property, plant and equipment (233) 13,157 Cash value of life insurance (19,890) (19,500) Environmental reserves (91,739) (114,179) Changes in operating assets and liabilities: Accounts receivable (2,178,187) (1,513,981) Inventories 1,047,397 3,263,962 Other assets (6,983) (645,124) Accounts payable and accrued expenses 1,425,424 232,004 Income taxes payable 370,549 462,020 ---------- ---------- Net cash provided by operating activities 2,096,702 3,564,258 Investing activities Purchases of property, plant and equipment (646,125) (739,603) Proceeds from sale of property, plant and equipment 233 2,200 Proceeds from notes receivable - 1,810 ---------- ---------- Net cash used in investing activities (645,892) (735,593) Financing activities Proceeds from revolving lines of credit 152,000 12,210,000 Payments on revolving lines of credit (152,000) (13,250,000) Payment of notes payable to employee - (1,154,805) Proceeds from exercised stock options 4,837 42,462 Purchases of treasury stock (1,493,000) - Dividends paid (684,893) (628,733) ---------- ---------- Net cash used in financing activities (2,173,056) (2,781,076) ---------- ---------- (Decrease) increase in cash and cash equivalents (722,246) 47,589 Cash and cash equivalents at beginning of year 1,602,543 115,828 ---------- ---------- Cash and cash equivalents at end of period $ 880,297 $ 163,417 ========== ========== See accompanying notes to condensed consolidated financial statements.
- - 5 - Synalloy Corporation Notes To Condensed Consolidated Financial Statements (Unaudited) April 4, 1998 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 4, 1998, are not necessarily indicative of the results that may be expected for the year ending January 2, 1999. 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 January 3, 1998. 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. In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options. Diluted earnings per share is very similar to the previously reported primary earnings per share. Earnings per share amounts for 1997 have been restated to conform to the Statement 128 requirements. - - 6 - Synalloy Corporation Management's Discussion And Analysis Of Financial Condition And Results Of Operations The following is management's discussion of certain significant factors that affected the Company during the quarter ended April 4, 1998. (Dollar amounts are in thousands except for per share data.) Three Months Ended Apr 4, 1998 Mar 27, 1997 ----------- ------------ Net sales Metals Segment $ 17,426 $ 16,548 Chemicals Segment 13,180 14,355 -------- -------- $ 30,606 $ 30,903 ======== ======== Operating income Metals Segment $ 750 $ 589 Chemicals Segment 551 1,477 -------- -------- 1,301 2,066 Unallocated expenses Corporate 235 282 Interest and debt expense, net of interest income 142 220 -------- -------- Income before income taxes $ 924 $ 1,564 ======== ========
Consolidated sales for the quarter were down slightly decreasing one percent compared to the same period one year ago. Consolidated net income declined 41 percent to $597 for the quarter, or $.09 per share, compared to the same period one year ago due to a decline in chemicals' profits. Chemicals Segment sales declined eight percent in the first quarter. The decline resulted from lower sales of specialty chemicals produced for other companies under processing contracts. The annual requirements of these products are normally produced during a few months of a year, as scheduled by the customers. Accordingly, sales of these products can fluctuate greatly between quarters. Based on management's present expectations, the first quarter should represent the lowest level of quarterly sales from these products during 1998. Sales of dyes and pigments were essentially the same as a year earlier. Lower profit margins from fiber reactive dyes led to part of the decline in operating income. However, most of the decline resulted from the lower sales of specialty chemicals outlined above. The Company is pursuing several new product initiatives in both textile dyes and specialty chemicals. Management is confident that they will provide sales and profit momentum for the future. Metals Segment sales increased five percent in the first quarter while operating income improved 27 percent from the depressed levels of a year ago. The higher sales came from a change in product mix since overall unit volume was down two percent. In addition, the average selling price of the Company's principal product, stainless steel pipe, was four percent lower than it was a year earlier. The decrease in price and unit volume was offset by a shift in product mix to increased sales of higher priced piping systems and decreased sales of lower priced stainless pipe. The increase in operating income resulted from improvement in piping systems results. Pipe profits were about the same as the prior year. - -7- Synalloy Corporation Management's Discussion And Analysis Of Financial Condition And Results Of Operations - Continued The very low backlog of piping systems will lead to reduced sales from these products in the second quarter. However, the Company has outstanding quotes on an unusually high level of projects which makes management optimistic about the prospects for future business. A flood of stainless steel imports has led to the paradox of prices being driven to a 25-year low while domestic demand is strong. Stainless steel pipe prices have moved down in tandem with the cost of stainless steel. Unfair trade cases have recently been filed that cover certain stainless products and industry sources indicate that cases covering additional stainless products are likely to be filed. This, coupled with the poor financial performance of the principal producers of stainless steel used to make pipe, makes management optimistic that prices will recover from the current 25-year low, although when this might happen is uncertain. Selling and administrative expense for the quarter was down two percent from the same period last year, and totaled eight percent of consolidated sales equaling last year's eight percent. Cash flows from operations totaled $2,097 during the first three months of 1998 compared to $3,564 generated during the same period one year ago. Although inventories declined $1,047 during the quarter, they declined $3,264 during the first quarter of 1997. This difference, along with the decline in net income compared to the first quarter of 1997, caused the reduction in cash flows. The Company used part of the cash flows generated in 1998 to purchase 103,000 shares of the Company's common stock for $1,493. 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 April 4, 1998 - -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 9, 1998 /s/ James G. Lane, Jr. James G. Lane, Jr., Chairman and Chief Executive Officer Date: May 9, 1998 /s/ Gregory M. Bowie Gregory M. Bowie Vice President, Finance - - 10 -