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 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 July 4, 1998
Common Stock, $1.00 Par Value 6,785,929
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Synalloy Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - July 4, 1998 and
January 3, 1998
Condensed consolidated statements of income - Three and
six months ended July 4, 1998 and June 28, 1997
Condensed consolidated statements of cash flows - six months
ended July 4, 1998 and June 28, 1997
Notes to condensed consolidated financial statements -
July 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
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PART 1. FINANCIAL STATEMENTS
Synalloy Corporation
Condensed Consolidated Balance Sheets
Jul 4, 1998 Jan 3, 1998
(Unaudited) (Note)
Assets
Current assets
Cash and cash equivalents $ 4,662,666 $ 1,602,543
Accounts receivable, less allowance
for doubtful accounts 13,126,309 15,201,783
Inventories
Raw materials 8,594,012 7,368,212
Work-in-process 4,149,745 4,791,379
Finished goods 13,143,611 15,287,431
---------- ----------
Total inventories 25,887,368 27,447,022
Deferred income taxes 177,000 177,000
Prepaid expenses and other current assets 586,932 633,709
---------- ----------
Total current assets 44,440,275 45,062,057
Cash value of life insurance 1,882,164 1,842,384
Investment 329,117 329,117
Property, plant & equipment, net of accumulated
depreciation of $29,398,000 and $27,788,000 22,520,050 23,112,324
Deferred charges and other assets 3,006,193 3,037,470
---------- ----------
Total assets $72,177,799 $73,383,352
========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 7,267,745 $ 5,544,789
Income taxes 91,341 310,992
Accrued expenses 2,609,613 3,018,850
Current portion of environmental reserves 487,899 487,980
Current portion of long-term debt 200,000 200,000
---------- ----------
Total current liabilities 10,656,598 9,562,611
Long-term debt, less current portion 10,200,000 10,200,000
Environmental reserves 615,621 782,700
Deferred compensation 1,336,056 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 51,682,892 52,339,857
Less cost of Common Stock in treasury (11,795,859) (10,331,679)
---------- ----------
Total shareholders' equity 47,896,524 50,041,653
---------- ----------
Total liabilities and shareholders' equity $72,177,799 $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.
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Synalloy Corporation
Condensed Consolidated Statements of Income
(Unaudited) Three Months Ended Six Months Ended
Jul 4, 1998 Jun 28, 1997 Jul 4, 1998 Jun 28, 1997
Net sales $25,812,612 $31,204,944 $56,418,538 $62,108,300
Cost of sales 22,885,753 26,372,631 50,016,849 53,029,893
---------- ---------- ---------- ----------
Gross profit 2,926,859 4,832,313 6,401,689 9,078,407
Selling, general and
administrative expense 2,657,870 2,487,610 5,065,849 4,949,487
---------- ---------- ---------- ----------
Operating income 268,989 2,344,703 1,335,840 4,128,920
Other (income) and
expense
Interest expense 163,170 199,900 329,685 413,027
Other, net (62,811) 3,074 (86,866) 9,812
---------- ---------- ---------- ----------
Income before taxes 168,630 2,141,729 1,093,021 3,706,081
Provision for income tax 59,000 756,000 386,000 1,309,000
---------- ---------- ---------- ----------
Net income $ 109,630 $ 1,385,729 $ 707,021 $ 2,397,081
========== ========== ========== ==========
Net income per
common share
Basic $.02 $.20 $.10 $.34
==== ==== ==== ====
Diluted $.02 $.20 $.10 $.34
==== ==== ==== ====
Dividends paid per
common share $.10 $.09 $.19 $.18
==== ==== ==== ====
Average shares
outstanding
Basic 6,785,929 6,977,642 6,811,202 6,978,992
Diluted 6,809,722 7,023,362 6,839,491 7,025,952
See accompanying notes to condensed consolidated financial statements.
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Synalloy Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited) Six Months Ended
Jul 4, 1998 Jun 28, 1997
Operating activities
Net income $ 707,021 $ 2,397,081
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 1,678,438 1,593,832
Amortization of deferred charges 129,785 125,855
Deferred compensation 12,668 7,777
Deferred income taxes - -
Provision for losses on accounts
receivables 99,044 33,443
(Gain) loss on sale of property, plant
and equipment (233) 95,015
Cash value of life insurance (39,780) (39,000)
Environmental reserves (167,160) (213,097)
Changes in operating assets and
liabilities:
Accounts receivable 1,976,430 (1,020,529)
Inventories 1,559,654 2,983,233
Other assets (51,731) (585,522)
Accounts payable and accrued expenses 1,313,719 999,528
Income taxes payable (219,651) (152,557)
---------- ----------
Net cash provided by operating activities 6,998,204 6,225,059
Investing activities
Purchases of property, plant and equipment (1,086,164) (1,379,577)
Proceeds from sale of property, plant and
Equipment 233 9,450
Proceeds from notes receivable - 3,665
---------- ----------
Net cash used in investing activities (1,085,931) (1,366,462)
Financing activities
Proceeds from revolving lines of credit 152,000 13,160,000
Payments on revolving lines of credit (152,000) (13,310,000)
Principal payments on long-term debt - (2,000,000)
Payment of notes payable to employee - (1,154,805)
Proceeds from exercised stock options 4,837 42,458
Purchases of treasury stock (1,493,000) (342,875)
Dividends paid (1,363,987) (1,255,395)
---------- ----------
Net cash used in financing activities (2,852,150) (4,860,617)
---------- ----------
(Decrease) increase in cash and cash
equivalents 3,060,123 (2,020)
Cash and cash equivalents at beginning of year 1,602,543 115,828
---------- ----------
Cash and cash equivalents at end of period $ 4,662,666 $ 113,808
========== ==========
See accompanying notes to condensed consolidated financial statements.
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Synalloy Corporation
Notes To Condensed Consolidated Financial Statements
(Unaudited)
July 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 and
six-month periods ended July 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.
NOTE 5-- OTHER MATTERS
On June 24, 1998, the Company entered into a letter of intent to acquire
Organic-Pigments Corporation located in Greensboro, N. C. They manufacture
aqueous pigment dispersions sold to the textile industry and used in printing
inks for use on paper. The Company's available cash and existing lines of
credit will fund the acquisition that is expected to close in the third
quarter.
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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 July 4, 1998. (Dollar amounts
are in thousands except for per share data.)
Three Months Ended Six Months Ended
Jul 4, 1998 Jun 28, 1997 Jul 4, 1998 Jun 28, 1997
Net sales
Metals Segment $13,673 $17,049 $31,099 $33,597
Chemicals Segment 12,140 14,156 25,320 28,511
------- ------- ------- -------
25,813 31,205 56,419 62,108
Operating income
Metals Segment 290 1,593 1,040 2,182
Chemicals Segment 201 1,066 752 2,543
--- ----- ----- -----
491 2,659 1,792 4,725
Unallocated expenses
Corporate 221 315 456 597
Interest and debt expense,
net of interest income 101 202 243 422
------- ------- ------- -------
Income before income taxes $ 169 $ 2,142 $ 1,093 $ 3,706
======= ======= ======= =======
Consolidated sales for the quarter and year to date decreased 17 and nine
percent, respectively, compared to the same periods one year ago.
Consolidated net income declined 92 and 71 percent to $110 and $707 for the
quarter and year to date, or $.02 and $.10 per share, respectively, compared
to the same periods one year ago. Weaknesses in both of the Company's
business segments led to lower sales and profits.
Chemicals Segment sales declined 14 and 11 percent in the quarter and year to
date, respectively. After four quarters of higher textile dye and pigment
sales on a year over year basis, the trend reversed in the second quarter when
sales of these products were down 19 percent. This decline resulted from a
marked slowdown in the domestic textile industry during the quarter. Non-dye
specialties performed better with sales down 4 percent. The decline in
operating income resulted primarily from the lower sales and an extremely
competitive market for textile dyes. Also contributing to the decline was a
$175 pre-tax expense for engineering and architectural fees related to
design of a building, construction of which the Company has postponed
indefinitely. The planned acquisition of Organic Pigments Corporation as well
as other factors led to the change in plans. In spite of the poor second
quarter results, management is optimistic about the long-term prospects. The
Company recently entered a processing contract for the production of an
agricultural chemical that has the potential of being the Company's biggest
toll product. If the acquisition of Organic Pigments Corporation is completed
as planned, it should strengthen the Company's pigment position and eliminate
the negative volume variances for this product.
Metals Segment sales declined 20 and seven percent in the quarter and year to
date, respectively. The sales decrease for the quarter resulted from an even
larger percentage decline in unit volume of stainless pipe, partially offset
by a shift in product mix to a larger proportion of higher-priced items.
After four years of strong unit volume demand for stainless pipe, inquiries
during the second quarter unexpectedly weakened dramatically. This appears to
be an industry-wide phenomenon, the duration of which management cannot
predict. Second quarter sales prices of four-inch and smaller pipe, the sizes
most impacted by imports, were 14 percent below a year earlier. Prices of
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Synalloy Corporation
Management's Discussion and Analysis of Financial Condition
And Results of Operations - Continued
larger sizes were down more modestly. In spite of these extremely adverse
conditions, the Company achieved operating profit margins of about six percent
on stainless pipe sales. Piping systems and process equipment produced higher
unit volumes in the second quarter although they were well below desirable
levels. These combined operations suffered losses that offset much of the
profit from stainless pipe. The backlog for these products at the end of the
second quarter was far below normal. However, specific orders that the
Company expects to receive shortly would reinstate the backlog to a more than
adequate level.
Certain domestic producers of stainless steel have filed trade cases against
eight companies in foreign countries. Preliminary findings on hot rolled
strip, the principal raw material for stainless pipe, are due shortly. If
duties are imposed as expected, domestic prices of these products should start
to recover from their present 25-year lows. This would be a positive
development for the Company's pipe business.
Selling and administrative expense for the quarter and year to date increased
to 10 and nine percent of consolidated sales, respectively, compared to last
year's eight percent. The increase is due to the $175 engineering expense
referred to above along with the lower sales experienced in 1998. Removing
the engineering expense, selling and administrative expense would be
approximately equal to last year's totals for the second quarter and year to
date.
Cash flows from operations totaled $6,998 during the first six months of 1998
compared to $6,225 generated during the same period one year ago. The increase
in cash flows came from the favorable changes in accounts receivable,
inventories and accounts payable totaling $4,850 in 1998, compared to the
$2,962 favorable change in 1997. The increase was offset by the $1,690
decline in net income for the first six months compared to 1997. The Company
used part of the cash flows generated in 1998 to purchase in the first quarter
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.
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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:
A. The Annual Meeting of Shareholders was held April 30, 1998 at
the offices of the Company.
B. The following individuals were elected as directors at the
Annual Meeting:
Votes For Votes Withheld
James G. Lane, Jr. 5,574,890 55,788
Sibyl N. Fishburn 5,506,732 123,946
Richard E. Ingram 5,518,196 112,482
Glenn R. Oxner 5,516,451 114,227
Carroll D. Vinson 5,517,358 113,320
C. Ernst & Young LLP, independent certified accountants, were
selected as independent auditors for the fiscal year ending
January 2 1999 by a vote of 5,582,726 for, 25,535 against and
22,417 abstentions.
D. The proposal to adopt the 1998 Long-Term Incentive Stock Plan
was approved by a vote of 3,813,787 for, 326,311 against and
377,296 abstentions.
E. Shareholders voted to amend the 1994 Non-Employees Directors
Stock Option Plan by a vote of 3,841,771 for, 343,110 against
and 380,270 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 4, 1998
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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 7, 1998 /s/ James G. Lane, Jr.
James G. Lane, Jr., Chairman and
Chief Executive Officer
Date: August 7, 1998 /s/ Gregory M. Bowie
Gregory M. Bowie
Vice President, Finance
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