UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K[x]
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 1995
or[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 Identification No.)
incorporation or organization)
Croft Industrial Park, P.O. Box 5627, Spartanburg, South Carolina 29304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 585-3605
Securities registered pursuant to Name of each exchange on
Section 12(b) of the Act: which registered:
None Nasdaq National Market System
Title of Class
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports re-
quired 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 periods 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information state-
ments incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [ ]
Based on the closing price of February 26, 1996, the aggregate market value
of common stock held by non-affiliates of the registrant was $129.7 million.
The number of common shares outstanding of the registrant's Common Stock as
of February 26, 1996 was 7,013,125.
Documents Incorporated By Reference: Portions of the proxy statement for the
annual shareholders' meeting are incorporated by reference into Part III.
<PAGE>
PART 1.
Item 1 Business
Synalloy Corporation, a Delaware Corporation ("the Company"), was incorporated
in 1958 as the successor to a chemical manufacturing business founded in 1945.
Its charter is perpetual. The name was changed on July 31, 1967 from Blackman
Uhler Industries, Inc. On June 3, 1988, the state of incorporation was changed
from South Carolina to Delaware. The Company's executive offices are located
at Croft Industrial Park, Spartanburg, South Carolina.
General
Metals Segment--This segment is comprised of two wholly-owned subsidiaries,
Bristol Metals, Inc., located in Bristol, Tennessee, and Whiting Metals, Inc.,
located in Camden, South Carolina.
Bristol manufactures welded pipe, primarily from stainless steel, but also
from other corrosion-resistant metals. Pipe is produced in sizes from one-half
inch to 60 inches in diameter and wall thickness up to three-quarters inch.
Eight-inch and smaller pipe is made on equipment that forms and welds the pipe
in a continuous process. Pipe larger than eight inches is formed on presses
or rolls and welded on batch welding equipment. Pipe is normally produced in
standard 20-foot lengths. However, Bristol has unusual capabilities in the
production of long length pipe without circumferential welds. This can reduce
installation cost for the customer. Lengths up to 60 feet can be produced in
sizes up to eight inches in diameter. In larger sizes Bristol has a unique
ability among domestic producers to make 48-foot lengths in sizes up to 30
inches.
A significant amount of the pipe produced is further processed into piping
systems that conform to engineered drawings furnished by the customers. This
allows the customer to take advantage of the high quality and efficiency of
Bristol's fabrication shops instead of performing all of the welding on the
construction site. The pipe fabricating shops can make one and one-half dia-
meter cold bends on one-half inch through eight-inch stainless pipe with thick-
nesses up through schedule 40. No company with which Bristol competes has this
capability.Most of the piping systems are produced from pipe manufactured by
Bristol.
Whiting manufactures Underwriters Laboratories (UL) labeled storage tanks,
ASME coded pressure vessels and reactors, and other process equipment. They
have unusual expertise in the manufacture and installation of dimple and spiral
wound pipe type jackets for heating and cooling of process equipment. The wide
variety of products made by Whiting are all custom designed for the end-user.
Like Bristol, the principal raw material is stainless steel.
In order to establish stronger business relationships, only a few raw material
suppliers are used. Two suppliers furnish more than one-half of total dollar
purchases of raw materials. However, raw materials are readily available from
a number of different sources and the Company anticipates no difficulties in
obtaining its requirements.
This segment's products are used principally by customers requiring materials
that are corrosion-resistant or suitable for high-purity processes. The lar-
gest users are the chemical, petrochemical and pulp and paper industries with
some other important industry users being mining, power generation, waste
water treatment, brewery, food processing, petroleum and pharmaceutical.
Chemical Segment--This segment operates under the Blackman Uhler Chemical Com-
pany (BU) business name and has two plants, one in Augusta, Georgia and one in
Spartanburg, South Carolina. Both locations are fully licensed for chemical
manufacture and each maintains a permitted waste treatment system. This seg-
ment's principal business is the manufacture and sale to the textile industry of
dyes, pigments and auxiliaries used in dying and printing.
Dyes are produced in both liquid and powder form, and pigments primarily as
a specially formulated paste. Dyes fix themselves to textile yarns by a particu-
lar reaction or penetration into the yarn fiber, whereas pigments are normally
applied as a surface coating during a printing operation. Dyeing of textile
fabrics in solid colors is primarily accomplished by the use of dyes. Pigment
colors are uniquely suitable for printing of multi-colored patterns. Raw
materials used to manufacture dyes and pigments consist chiefly of organic
intermediates and inorganic chemicals which are purchased from manufacturers in
the United States, Europe and Asia. An inventory of raw materials is normally
kept on hand for approximately three months' production. Currently, raw
materials are readily available and management does not anticipate any
difficulty in obtaining adequate supplies.
In the mid 1980s management decided to better utilize its excellent reputation
for sales and service by expanding its efforts to sell reactive dyes. These
dyes are used for coloring cotton and rayon. The Company purchases finished
and crude products that are either sold as is, or converted to liquid form
for the convenience of customers. These dyes have produced outstanding growth
and now represent over one-third of the chemical segment's sales. The Company
has a three-year distributorship agreement expiring December 31, 1996 with
the company supplying about 90 percent of these products. The supplier has
been the principal source of these products since 1985. Although the Company
believes that this supplier will continue to be a source of these products
in the future, there is no assurance of this. Loss of this supplier would have
a materially adverse short-term effect on the Company's sales and net income.
However, management believes that if the agreement with this supplier is not
continued in the future, other suppliers could be found to replace most of
the products.
In May 1994, Blackman Uhler acquired the sulphur dye business of Southern Dye
and Chemical Company, a manufacturer of sulphur dyes utilizing an environmental-
ly friendly chemical system. This process results in reduced environmental
costs and shorter processing cycles. Sulphur dyes are used to dye denim, fleece
garments, knits, work clothes, men's casual wear, and a variety of cotton and
cotton-polyester blends. The sales staff is already experienced in the applica-
tion of these dyes which should enhance their growth potential for the Company.
For many years Blackman Uhler has been producing specialty chemicals for other
chemical, pharmaceutical and petroleum companies. In 1987 a plan was imple-
mented to focus on specialties as a primary growth area. Since then facilities
and equipment have been added at Spartanburg to produce several new specialty
products.
At the Augusta plant, a major investment was made in equipment to make hydro-
genated products. This process, a catalytic reduction using hydrogen, put
Blackman Uhler in a new family of chemicals used in a wide array of products
including sun screens, skin lotions, absorbers for gaseous pollutants and inter-
mediates for dyes and pigments. These specialty products made an important con-
tribution to sales and profits in 1995 and should continue to provide future
growth.
Blackman Uhler maintains five laboratories for applied research and quality
control which are staffed by approximately 25 employees.
Sales and Distribution
Metals Segment--The metals segment utilizes separate sales organizations for
its different product groups. Stainless steel pipe is sold nationwide under
the Brismet trade name through authorized stocking distributors with over 200
warehouse locations throughout the country. In addition, large quantity orders
are shipped directly from Bristol's plant to end-user customers. Producing
sales and providing service to the distributors and end-user customers are
two outside sales employees, six independent manufacturers' representatives,
the Manager of Inside Sales and five inside sales employees. The President
also spends about 50 percent of his time in sales related matters.
Piping systems are sold nationwide under the Bristol Piping Systems trade name
by three outside sales employees and a part-time consultant who is a Bristol
retiree. They are under the direction of the Vice President in charge of piping
systems who spends over half of his time in sales and service to customers.
Specialty process equipment manufactured by Whiting Metals is sold by one out-
side sales employee and two manufacturers' representatives under the direction
of Whiting's President who devotes significant time to sales. Piping systems
and process equipment are marketed to engineering firms and construction com-
panies or directly to project owners. Orders are normally received as a result
of competitive bids submitted in response to inquiries and bid proposals.
Chemical Segment--Eight full-time outside sales employees and four manufac-
turers' representatives market dyes and pigments to the textile industry nation-
wide.
In addition, both the President and Executive Vice President of this segment
devote a substantial part of their time to sales. Specialty chemicals are sold
by a part-time consultant and two employees who devote part of their time to
sales. These products are marketed directly to chemical, pharmaceutical and
petroleum companies.
Competition
Metals Segment--Welded stainless steel pipe is the largest sales volume product
of the metals segment. Although information is not publicly available regard-
ing the sales of most other producers of this product, management believes that
the Company is the largest domestic producer of such pipe. This commodity pro-
duct is highly competitive with eight known domestic producers and imports from
many different countries. The largest sales volume among the specialized pro-
ducts comes from fabricating light wall stainless piping systems. Management
believes the Company is the largest producer of such systems. With respect to
specialty stainless process equipment, the Company has an insignificant market
share on a national basis and has numerous competitors some of which may have
substantially more resources than does the Company.
Chemical Segment--About seven percent of the dye and pigment sales represent
niche products for which the Company is the only producer. Another approxima-
tely 23 percent of these sales represent products of which the Company is an
important producer with an estimated 10 to 20 percent market share. The Company
has five percent or less of the market for the remainder of its dye products.
The Company is the sole producer of certain specialty chemicals manufactured for
other companies under processing agreements. However, the Company's sales of
specialty products are insignificant compared to the overall market for special-
ty chemicals. The market for most of the products is highly competitive and many
competitors have substantially greater resources than does the Company.
Environmental Matters
Environmental expenditures that relate to an existing condition caused by past
operations and that do not contribute to future revenue generation are ex-
pensed.
Liabilities are recorded when environmental assessments and/or cleanups are
probable and the costs of these assessments and/or cleanups can be reasonably
estimated. See Note H to Consolidated Financial Statements for further dis-
cussion.
Research and Development Activities
The Company spent approximately $743,000 in 1995, $694,000 in 1994 and $638,000
in 1993 on research and development programs in its chemical segment. Eleven
individuals, eight of whom are graduate chemists, are engaged primarily in
research and development of new products and processes, the improvement of
existing products and processes, and the development of new applications for
existing products.
Seasonal Nature of The Business
Many textile plants shut down for vacations in the first or second week of
July. This contributes to a seasonal pattern that normally results in lower
third quarter sales of dyes, pigments and auxiliaries when compared to the
other quarters. One of the larger specialty products, a herbicide, normally
produces higher sales in the first quarter than in other quarters. Otherwise,
there is no consistent seasonal pattern, and sales and net income in any given
quarter may not be representative of other quarters.
Backlogs
The chemical segment operates primarily on the basis of delivering products
soon after orders are received. Accordingly, backlogs are not a factor in this
business. The same applies to commodity pipe sales in the metals segment. How-
ever, backlogs are important in the piping systems and process equipment pro-
ducts because they are produced only after orders are received, generally as
the result of competitive bidding. Order backlogs for these products were
$10,400,000, $13,600,000 and $14,400,000 at the 1995, 1994 and 1993 respective
year ends.
Employee Relations
As of December 30, 1995, the Company had 568 employees. The Company considers
relations with employees to be satisfactory. The number of employees of the
Company represented by unions at the Bristol, Tennessee facility is 259. They
are represented by two locals affiliated with the AFL-CIO and one local affili-
ated with the Teamsters. Contracts will expire in February 1999, December 1999
and March 2000.
Item 2 Properties
The Company operates the major plants and facilities described below, all of
which are well maintained and in good condition. All facilities throughout
the Company are properly insured. The buildings are of various types of con-
struction including brick, steel, concrete, concrete block and sheet metal.
All have adequate transportation facilities for both raw materials and finished
products. The Company owns all of these plants and facilities.
<TABLE>
<CAPTION>
Location Principal Buildings Land
Operations Square Feet Acres
- -------------- ----------- ------------ ------
<S> <C> <C> <C>
Spartanburg, SC Corporate headquarters; 211,000 60.90
Chemical manufacturing and
warehouse facilities
Augusta, GA Chemical manufacturing 52,500 46.00
Bristol, TN Manufacturing of stainless
steel pipe and piping
systems 218,000 73.08
Camden, SC Manufacturing of stainless
steel vessels 16,300 12.26
</TABLE>
Item 3 Legal Proceedings
For a discussion of legal proceedings, see Note N to Consolidated Financial
Statements.
Item 4 Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders through the solicitation of
proxies or otherwise.
Part II
Item 1 Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company had 1,666 common shareholders of record at December 30, 1995. The
Company's Common Stock trades on The Nasdaq Stock Market under the symbol SYNC.
Future dividend payments are dependent on earnings, capital requirements and
financial conditions. In addition, dividend payment levels are subject to cer-
tain loan agreement limitations (See Note G to Consolidated Financial
Statements). The prices shown below are the last reported sales prices on The
Nasdaq National Market System.
<TABLE>
<CAPTION>
---------1995---------------- -----------1994---------------
Quarter High Low Dividends Paid High Low Dividends Paid
<S> <C> <C> <C> <C> <C> <C>
1 15 7/8 11 7/8 $.07 13 3/8 9 3/8 $.06
2 19 3/8 14 7/8 .07 12 5/8 11 .06
3 26 1/4 18 5/8 .08 13 1/2 11 .07
4 24 1/2 18 .08 13 1/2 11 5/8 .07
</TABLE>
<TABLE>
Item 2 Selected Financial Data
<CAPTION>
(Dollars in thousands except for per share data)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Operations
Net sales $147,298 $114,519 $103,409 $101,810 $90,298
Gross profit 35,323 20,056 16,043 17,371 13,967
Selling, general and
administrative
expense 11,089 8,337 7,556 7,701 6,871
Environmental
remediation costs 2,351 291 170 110
Operating income 24,234 9,368 8,196 9,500 6,986
Net income 14,521 5,718 4,825 5,609 4,011
Financial Position
Total assets $80,226 $62,432 $55,771 $50,077 $45,646
Working capital 41,098 28,919 26,279 22,619 16,161
Long-term debt,
less current portion 12,619 7,911 8,226 5,768 2,346
Shareholders' equity 48,363 36,889 32,815 29,426 25,197
Per Share Data
Net income $1.98 $.78 $.66 $.77 $.54
Dividends declared
and paid .29 .25 .23 .21 .19
</TABLE>
Item 3 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The current ratio at 1995 year end was a strong 3.6:1, up from the two previous
year end ratios of 3.0:1. Working capital increased $12,179,000 to
$41,098,000.
Substantially all of this increase came from an intentional $11,654,000
increase in the metals segment's inventories that resulted from several factors
including responding to the strong market conditions that existed throughout
1995, purchasing raw materials in advance of anticipated price increases, and
providing for the potentially negative impact that could have occurred from
lost production if the December 1995 agreement with one of the unions had not
transpired.
In July 1995, the Company entered into a new borrowing agreement with its bank
consolidating two working capital lines totaling $9,000,000 with the bank and
one other bank, into a single $9,000,000 line. In addition, the Company
refinanced its long-term note payable and borrowed an additional $5,000,000
which was used to cover capital expenditures and acquire $1,344,000 of common
stock for the treasury. Cash flows from operations totaled $5,028,000 which
was used along with borrowings, for capital expenditures and dividends
of $6,455,000 and $2,120,000, respectively. The Company expects that cash
flows from 1996 operations, planned inventory reductions, and available
borrowings will be sufficient for estimated capital expenditures of $4,700,000,
make dividend payments, purchase $5,000,000 of common stock for the treasury
as approved by the Board of Directors in February 1996, and fund normal
operating requirements.
Results of Operations
<TABLE>
Metals Segment--The following table summarizes operating results and backlogs
for the three years indicated. Reference should be made to Note P.
<CAPTION>
1995 1994 1993
(Amounts in thousands) Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Net sales $99,455 100.0 $64,130 100.0 $57,971 100.0
Cost of goods sold 73,032 73.5 53,249 83.0 49,456 85.3
------ ----- ------- ----- ------- -----
Gross profit 26,423 26.5 10,881 17.0 8,515 14.7
Selling and administrative
expense 6,004 6.0 4,170 6.5 4,079 7.0
Environmental expense 108 .2 279 .5
-------- ----- ------- ----- ------ -----
Operating income $20,419 20.5 $6,603 10.3 $4,157 7.2
======= ==== ====== ==== ====== ====
Year-end backlogs
Piping systems and
process equipment $10,400 $13,600 $14,400
======= ======= ========
</TABLE>
Comparison of 1995 and 1994
Sales and operating income achieved record levels in 1995 increasing 55 and
209 percent, respectively. After five consecutive years of lower prices, 1995
average sales prices increased 37 percent over 1994, and tonnage sold increased
13 percent. The increase in sales reflect the Company's success over the past
several years in increasing market share in industries other than the pulp
and paper industry where the Company had historically generated almost one-half
of its sales, and its ability to pass along the increased cost of stainless
steel raw material experienced in 1995. The significant increases in gross
profits resulted from strong stainless pipe markets that led to higher
profitability industry wide, increased volume which produced lower unit
production cost, and rising prices that generated profits from a large
inventory.
Higher profit-based incentives and sales commissions accounted for the increase
in selling and administrative expenses. However, these expenses actually
declined as a percent of sales.
Comparison of 1994 and 1993
Average sales prices were down seven percent in 1994, but dollar sales were
up 11 percent because of a 20 percent increase in tonnage sold. The Company
believes that its unit volume increase was about double that of the overall
market. After a five-year decline, prices for stainless pipe bottomed in May
1994 and remained essentially unchanged through September. Prices showed a
modest uptrend during the fourth quarter. After a significant increase in sales
of piping systems in the first half of 1994, the last six months declined to
levels more consistent with the weak cyclical demand for these products.
Operating income, 59 percent above last year, increased in every quarter with
the fourth quarter producing $2,413,000 of the total. Major factors
contributing to the
significant increase in gross profit and operating income were efficiencies
resulting from increased unit volume and the ability to capitalize on lower
raw material cost.
Higher profit-based incentives more than accounted for the increase in selling
and administrative expenses. However, these expenses actually declined as a
percent of sales as the Company continued its cost control efforts.
For information relative to environmental matters, see Note H to Consolidated
Financial Statements.
<TABLE>
Chemical Segment--The following table summarizes operating results for the
three years indicated. Reference should be made to Note P.
<CAPTION>
1995 1994 1993
(Amounts in thousands) Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Net sales $47,843 100.0 $50,389 100.0 $45,438 100.0
Cost of goods sold 38,943 81.4 41,214 81.8 37,910 83.4
------ ---- ------- ---- ------- ----
Gross profit 8,900 18.6 9,175 18.2 7,528 16.6
Selling and administrative 3,218 6.7 3,055 6.1 2,600 5.8
expense
Environmental expense 2,243 4.4 12
------ ----- ------ --- ------ ---
Operating income $5,682 11.9 $3,877 7.7 $4,916 10.8
====== ==== ====== ==== ====== ====
</TABLE>
Comparison of 1995 and 1994
Sales declined five percent in 1995 as the Company was impacted by very poor
demand for textile dyestuffs. Dyestuff sales declined nine percent as weak
demand for apparel continued a decline that began in 1993, and competitive
pressure drove down prices throughout the year. However, non-textile special-
ties increased its contribution to sales as specialties sales increased 18
percent.
Operating income declined 7 percent from last year before deducting the 1994
special environmental charge. This decline came entirely from dyestuffs as
competitive pricing impacted profits in the dyestuff industry, and overhead
costs deteriorated profitability due to lower volumes. Non-textile specialties
contributed favorably to income making up 36 percent of the total compared
to 28 percent in 1994.
Selling and administrative expenses increased slightly primarily from including
the sulphur dye operations, acquired in May 1994, for the full year in 1995.
Comparison of 1994 and 1993
The Company introduced new products and expanded its non-textile specialty
products during the year which offset very weak demand for textile dyestuffs
and severe price cutting in the largest product line, reactive dyes. As a
result, total sales increased 11 percent. Sales of non-textile specialties
increased 37 percent over 1993 and dyestuff sales increased eight percent
primarily as the result of the acquisition in May 1994 of a small sulphur dye
business.
While operating income declined 21 percent for the year, without a $2,243,000
special charge for environmental remediation costs in the fourth quarter,
operating
income would have increased 24 percent to $6,120,000. Non-textile specialties
made a strong contribution to profits making up 28 percent of the total in
1994. Profits for dyestuffs were up slightly mainly from the new sulphur dye
products.
Selling and administrative expenses increased 18 percent primarily as a result
of the sulphur dye acquisition and profit-based incentives.
For information relative to environmental matters, see Note H to Consolidated
Financial Statements.
Unallocated Income and Expense
Reference should be made to the Segment Information for the schedule of these
items.
Comparison of 1995 and 1994
The increase in corporate expenses resulted from higher profit-based incen-
tives. Although the Company executed a new debt agreement that reduced interest
rates, the higher level of borrowings caused interest expense to increase.
Comparison of 1994 and 1993
The increase in corporate expenses resulted from higher profit-based incen-
tives. Interest expense was higher due to the increase in bank lending rates
and increased line of credit borrowings during the year.
Current Conditions and Outlook
Material costs and selling prices of our metal products declined modestly in
the fourth quarter ending the inventory profits that favorably impacted the
first three quarters of 1995. As a result, operating income for the fourth
quarter, although double the prior year's amount, declined 17 percent from
the third quarter's record level. However, demand continues to be strong from
most of the industries using these products. While we expect a modest increase
in tonnage sold for 1996, it is unlikely that the trend of increasing material
costs and selling prices experienced in 1995 will recur. Accordingly, the
inventory profits realized in 1995 will probably not be repeated. As a result,
we expect operating income in 1996 to at best be equal to, or more likely,
down from 1995.
The market for textile dyestuffs was at its weakest level in the fourth quarter
of 1995. In the first two months of 1996, we have not seen any significant
changes in this condition. However, we expect to increase sales in 1996 by
continuing to grow non-textile specialty sales and expanding dyestuff sales
with new products in our existing family of dyes. We also plan to enter the
market for additional classes of dyes. We are hopeful that this will produce
an increase in sales and operating income for 1996. However, since the demand
for dyes has recently been at its weakest level, the outlook for these products
remains uncertain.
Item 4 Financial Statements and Supplementary Data
The Company's consolidated financial statements, related notes, report of
management and report of the independent auditors follow on subsequent pages
of this report.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(December 30, 1995, December 31, 1994 and January 1,1994)
1995 1994 1993
<S> <C> <C> <C>
Net sales $147,298,348 $114,519,010 $103,409,005
Cost of sales 111,975,698 94,462,625 87,366,120
Gross profit 35,322,650 20,056,385 16,042,885
Selling, general and administrative expense 11,088,914 8,337,388 7,555,827
Environmental remediation costs 2,350,645 290,697
Operating income 24,233,736 9,368,352 8,196,361
Other (income) and expense
Interest expense 911,555 575,645 535,859
Other, net 27,660 (4,183) 1,402
Income before taxes 23,294,521 8,796,890 7,659,100
Provision for income taxes 8,774,000 3,079,000 2,834,000
Net income $ 14,520,521 $ 5,717,890 $ 4,825,100
Net income per common share $1.98 $.78 $.66
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(December 30, 1995, December 31, 1994 and January 1,1994)
1995 1994 1993
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 267,061 $ 20,770 $ 451,471
Accounts receivable, less allowance for
doubtful accounts of $356,000, $181,000
and $83,000, respectively 17,616,246 14,758,847 13,806,368
Inventories
Raw materials 10,574,040 10,252,207 5,804,689
Work-in-process 6,095,136 3,765,329 3,184,677
Finished goods 21,860,833 13,958,918 15,261,172
Total inventories 38,530,009 27,976,454 24,250,538
Deferred income taxes (Note L) 218,000 514,000 702,000
Prepaid expenses and other current assets 119,592 167,791 144,670
Total current assets 56,750,908 43,437,862 39,355,047
Cash value of life insurance 1,632,029 1,535,131 1,444,666
Investment (Note B) 543,100 543,100 543,100
Property, plant & equipment, net (Notes C and G) 20,341,645 16,239,584 14,021,579
Deferred charges (Note D) 944,543 657,242 380,072
Other assets 13,348 19,506 26,397
Total assets $ 80,225,573 $ 62,432,425 $ 55,770,861
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable (Note E) $ 4,740,000 $ 4,450,000 $ 2,800,000
Accounts payable 4,833,405 5,900,018 6,639,702
Income taxes 233,977 448,367 487,298
Accrued expenses (Note F) 5,082,212 3,024,370 1,967,494
Current portion of environmental reserves (Note H) 486,521 356,800 619,910
Current portion of long-term debt (Note G) 276,923 334,615 561,538
Total current liabilities 15,653,038 14,519,170 13,075,942
Long-term debt, less current portion (Note G) 12,619,231 7,910,577 8,225,961
Environmental reserves (Note H) 1,702,800 2,182,200 25,492
Deferred compensation (Note I) 1,267,353 554,236 556,087
Deferred income taxes (Note L) 620,000 377,000 1,072,000
Contingencies (Notes H and N)
Shareholders' equity (Notes G,J,K and O)
Common stock, par value $1 per share -
authorized 8,000,000 shares; issued 8,000,000
shares in 1995 and 6,000,000 shares in
1994 and 1993 8,000,000 6,000,000 6,000,000
Capital in excess of par value 417,030 6,931,064 6,918,721
Retained earnings 43,774,332 31,373,461 27,480,017
52,191,362 44,304,525 40,398,738
Less cost of Common Stock in treasury: 789,749,
1,193,371 and 1,222,345 shares, respectively (3,828,211) (7,415,283) (7,583,359)
Total shareholders' equity 48,363,151 36,889,242 32,815,379
Total liabilities and shareholders' equity $ 80,225,573 $ 62,432,425 $ 55,770,861
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(December 30, 1995, December 31, 1994 and January 1,1994)
<S> <C> <C> <C>
Operating activities
Net income $ 14,520,521 $ 5,717,890 $ 4,825,100
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,315,970 1,969,210 1,736,711
Deferred compensation 713,117 (1,851) 8,966
Deferred income taxes 539,000 (507,000) 130,000
Provision for losses on accounts receivable 175,239 122,184 (72,618)
Loss on sale of property, plant and equipment 23,245 48,595 22,053
Cash surrender value of life insurance (96,898) (90,465) (85,836)
Environmental compliance costs (349,679) 1,893,598 (291,607)
Changes in operating assets and liabilities:
Accounts receivable (3,032,638) (1,074,663) (2,211,738)
Inventories (10,553,555) (3,725,916) (610,674)
Other assets (334,874) (15,144) 217,292
Accounts payable and accrued expenses 1,323,372 317,192 992,954
Income taxes payable (214,390) (38,931) (306,292)
Net cash provided by operating activities 5,028,430 4,614,699 4,354,311
Investing activities
Purchases of property, plant and equipment (6,454,565) (4,214,145) (3,261,841)
Proceeds from sale of property, plant and equipment 109,061 44,504 92,107
Proceeds from notes receivable 6,158 5,575 284,335
Intangibles arising from acquisition (350,000)
Net cash (used in) investing activities (6,339,346) (4,514,066) (2,885,399)
Financing activities
Proceeds from revolving lines of credit 69,255,231 33,130,000 10,400,000
Payments on revolving lines of credit (68,970,231) (31,475,000) (11,400,000)
Addition to long-term debt 5,000,000 3,000,000
Principal payments on long-term debt (349,038) (542,307) (552,609)
Proceeds from exercising stock options 113,457 80,852 131,229
Purchases of treasury stock (1,372,562) (18,007) (26,992)
Dividends paid (2,119,650) (1,824,446) (1,620,722)
Capital contribution (Note O) 117,574
Payments on life insurance loans (1,015,477)
Net cash provided by (used in) financing activities 1,557,207 (531,334) (1,084,571)
Increase (Decrease) in cash and cash equivalents 246,291 (430,701) 384,341
Cash and cash equivalents at beginning of year 20,770 451,471 67,130
Cash and cash equivalents at end of period $ 267,061 $ 20,770 $ 451,471
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION> Cost of
Capital in Common
Common Excess o Retained Stock in
Stock Par Value Earnings Treasury Total
<S> <C> <C> <C> <C> <C>
Balance at January 2, 1993 $ 6,000,000 $ 6,986,277 $ 24,275,639 $ (7,835,464) $ 29,426,452
Net income 4,825,100 4,825,100
Stock options exercised (128,738) 259,967 131,229
Contributions to 401(k)/ESOP 61,182 19,130 80,312
Purchase of Common Stock
for treasury (26,992) (26,992)
Cash dividends - $.22 per share (1,620,722) (1,620,722)
Balance at January 1, 1994 6,000,000 6,918,721 27,480,017 (7,583,359) 32,815,379
Net income 5,717,890 5,717,890
Stock options exercised (105,231) 186,083 80,852
Purchase of Common Stock
for treasury (18,007) (18,007)
Capital contribution (Note O) 117,574 117,574
Cash dividends - $.26 per share (1,824,446) (1,824,446)
Balance at December 31, 1994 6,000,000 6,931,064 31,373,461 (7,415,283) 36,889,242
Net income 14,520,521 14,520,521
Retirement of treasury shares (666,667) (3,893,016) 4,559,683
Three-for-two stock split 2,666,667 (2,666,667)
Stock options exercised (183,264) 296,721 113,457
Contributions to 401(k)/ESOP 228,913 103,230 332,143
Purchase of Common Stock
for treasury (1,372,562 (1,372,562)
Cash dividends - $.30 per share (2,119,650) (2,119,650)
Balance at December 30, 1995 8,000,000 417,030 43,774,332 (3,828,211) 48,363,151
See accompanying notes to consolidated financial statements
</TABLE>
Note A: Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly-
owned. All significant intercompany transactions have been eliminated.
Use of Estimates. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassification. For comparative purposes, certain amounts in the 1994 and
1993 financial statements have been reclassified to conform with the 1995
presentation.
Accounting Period. The Company's fiscal year is the 52- or 53-week period
ending the Saturday nearest to December 31. Fiscal years 1995, 1994 and 1993
ended on December 30, 1995, December 31, 1994 and January 1, 1994,
respectively. Fiscal years 1995, 1994 and 1993 each included 52 weeks.
Stock Split. 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 50 percent stock dividend on June 12, 1995 to shareholders of record as
of 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 value to Common Stock.
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Depreciation is provided on the straight-line method over the estimated
useful life of the assets.
Deferred Charges. Intangibles arising from acquisitions represent the excess
of cost over fair value of net assets of businesses acquired. The excess cost
is being amortized using the straight-line method over periods of 20 to 40
years. The costs of software licenses are amortized over their expected useful
lives using the straight-line method. Debt expenses are amortized over the
periods of the underlying debt agreements using the straight-line method.
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.
Cash Equivalents. The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Concentrations of Credit Risk. Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally
of trade accounts receivables and cash surrender value of life insurance.
Substantially all of the Company's accounts receivable are due from companies
located throughout the United States. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral. Receivables are generally due within 30 to 45 days.
The cash surrender value of life insurance is maintained with one insurance
company. The Company performs a periodic evaluation of the relative credit
standing of this company as it relates to the insurance industry.
Research and Development Expense. The Company incurred research and development
expense of approximately $743,000, $694,000 and $638,000 in the 1995, 1994
and 1993 fiscal years, respectively.
Fair Value of Financial Instruments. The carrying amounts reported in the
balance sheet for cash and cash equivalents, cash surrender value of life
insurance and borrowings under the Company's short-term line of credit and long-
term debt approximate their fair values. It was not practicable to estimate
the fair value of the investment described in Note because of the lack of a
quoted market price and the inability to estimate fair value without incurring
excessive costs.
Stock Options. The Company accounts for and will continue to account for stock
options under Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees."
Impact of Recently Issued Accounting Standards. In March 1995, the Financial
Accounting Standards Board issued Statement No. 121, "Accounting for the Impair-
ment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("FAS
121"), which is effective beginning in fiscal 1996. The Statement requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
FAS 121 also addresses the accounting for long-lived assets that are expected
to be disposed. The Company will adopt FAS 121 in January 1996, and the effect
of adoption is not expected to be material as the Company's current accounting
policies provide for similar account treatment.
Note B. Investment in Ta Chen Stainless Pipe Company
The Company has a 4.1 percent ownership interest in Ta Chen, a stainless steel
pipe manufacturing company incorporated in the Republic of China on October
31, 1986. Ta Chen commenced operations in July 1987. The Company's investment
in Ta Chen is being reflected on the cost method of accounting.
<TABLE>
Note C. Property, Plant and Equipment
Property, plant and equipment consist of the following:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Land $ 246,544 $ 246,544 $ 246,544
Land improvements 689,228 551,967 370,804
Buildings 7,770,891 7,672,731 6,357,737
Machinery, fixtures
and equipment 29,138,132 27,344,620 25,132,786
Construction-in-
progress 4,446,919 579,997 1,823,329
------------ ---------- ----------
42,291,714 36,395,859 33,931,200
Less accumulated
depreciation 21,950,069 20,156,275 19,909,621
---------- ---------- ----------
$20,341,645 $16,239,584 $14,021,579
=========== =========== ===========
</TABLE>
<TABLE>
Note D. Deferred Charges
Deferred charges consist of the following:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Intangibles arising
from acquisitions $ 793,406 $ 793,773 $ 461,825
Software license agreements 642,716 389,477 385,733
Debt expense 153,808 166,981 166,981
---------- ---------- ----------
1,589,930 1,350,231 1,014,539
Less accumulated
amortization 645,387 692,989 634,467
---------- --------- ----------
$ 944,543 $ 657,242 $ 380,072
=========== ========= ==========
</TABLE>
Note E. Notes Payable
The Company has available a line of credit totaling $9,000,000, of which
$4,740,000 was outstanding at year end. The line expires on July 1, 1996 and
bears interest at the bank's overnight cost of funds plus .75 percent (6.63
percent at December 30, 1995). The line has no compensating balance require-
ment. Borrowings under the line of credit are subject to the deed of trust and
security agreement outlined in Note . Average short-term borrowings out-
standing during fiscal 1995, 1994 and 1993 were $3,900,000, $7,510,000 and
$7,336,000 with weighted average interest rates of 7.14 percent, 7.14 percent
and 5.99 percent, respectively.
<TABLE>
Note F. Accrued Expenses
Accrued expenses consist of the following:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Salaries, wages and commissions $3,692,824 $1,864,096 $ 955,750
Taxes, other than income taxes 220,926 153,458 92,642
Insurance 536,730 537,658 625,527
Pension 193,747 284,446 80,000
Customer advances 195,950
Other accrued items 242,035 184,712 213,575
---------- ---------- -----------
$5,082,212 $3,024,370 $1,967,494
========== ========= ==========
</TABLE>
<TABLE>
Note G. Long-Term Debt
Long-term debt consists of the following:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Variable percentage (78% of prime rate $ 96,154 $ 173,077 $ 250,000
adjusted monthly) Industrial Revenue Note
payable in 52 quarterly installments of $19,231,
plus interest, through January 1, 1997.
Variable percentage (weekly tax exempt interest 800,000 1,000,000 1,200,000
rate) Economic Development Revenue Bond payable
in annual installments of $200,000 through
November 1, 1999. Interest is paid quarterly.
Unsecured commercial note payable with interest 12,000,000 7,000,000 7,000,000
payable on the dates and at rates provided by
credit agreement.
11.00% Industrial Revenue Note payable in equal 72,115 129,807
quarterly installments of $14,423, plus interest.
9.16% Industrial Revenue Note payable in equal 207,692
quarterly installments of $51,923, plus interest. ---------- ---------- -----------
12,896,154 8,245,192 8,787,499
Less current portion 276,923 334,615 561,538
----------- --------- ----------
$12,619,231 $7,910,577 $8,225,961
=========== ========== ==========
</TABLE>
The Industrial Revenue Notes were issued by The Industrial Development Board
of the City of Bristol, Tennessee. In connection with the issuance, the City
pledged and assigned the notes to a bank. The bank holds a deed of trust and
a security agreement on certain property, plant and equipment of a subsidiary
company, including any additions to the buildings which may be made thereto
during the term of the notes. Property, plant and equipment with a net book
amount of $316,000 at December 30, 1995 was subject to the deed of trust and
security agreement.
On November 16, 1989, $2,000,000 of South Carolina Jobs-Economic Development
Authority Adjustable Mode Industrial Development Revenue Bonds were issued
in connection with a project by the Company. Under the terms of issuance, the
bank provided a letter of credit to support the payment of the bonds.
On July 1, 1995, the Company refinanced the commercial note payable borrowing
an additional $5,000,000 under a Revolving Credit/Term Loan Agreement with
a due date of May 31, 2002. The revolve period expires on May 31, 1997, but
can be extended at the discretion of the bank. At the end of the revolve
period, the outstanding balance shall be repayable in equal quarterly payments
over the remaining term of the agreement. Interest is payable quarterly on the
unpaid principal amount at the lower of the bank's prime rate less .25
percent or LIBOR plus .75 percent. The rate at December 30, 1995 was 6.66
percent.
Borrowings are subject to the maintenance of certain financial ratios and
certain other restrictive covenants including limiting the paying of cash
dividends to 50 percent of the net profits of the next preceding year. The
Company made interest payments of $988,000 in 1995, $594,000 in 1994 and
$480,000 in 1993. Interest expense of approximately $125,000 and $45,000 was
capitalized in 1995 and 1994, respectively. The approximate aggregate amount of
all long-term debt maturities for the next five years is as follows: 1996 -
$277,000; 1997 - $1,419,000; 1998 - $2,600,000; and 1999 - $2,600,000; and
2000 - $2,400,000.
Note H. Environmental Compliance Costs
At December 30, 1995, the Company has accrued $2,189,000 in remediation costs
which, in management's best estimate, will satisfy anticipated costs of known
remediation requirements as outlined below. Expenditures related to costs
currently accrued are expected to be made over the next seven to nine years.
As a result of the evolving nature of the environmental regulations, the
difficulty in estimating the extent and remedy of environmental contamination,
and the availability and application of technology, the estimated costs for
future environmental compliance and remediation are subject to uncertainties
and it is not possible to predict the amount or timing of future costs of
environmental matters which may subsequently be determined. Subject to the
difficulty in estimating future environmental costs, the Company believes that
the likelihood of material losses in excess of the amounts recorded is remote.
Prior to 1987, the Company treated hazardous waste at its chemical facilities.
Testing of the groundwater in the areas of the treatment impoundments at these
facilities disclosed the presence of certain contaminants. In addition,
several solid waste management units ("SWMUs") at the plant sites have been
identified. During the latter part of 1994, the Company completed a reevaluation
of its remediation plans including RCRA Facility Investigations which have
been submitted for regulatory approval. As a result, the Company recorded a
special charge of $2,243,000 in the fourth quarter of 1994 to accrue for
estimated future remedial, cleanup and monitoring costs of which $2,000,000
remains accrued at December 30, 1995.
The Company has identified and evaluated two SWMUs at its plant in Bristol,
Tennessee that revealed residual groundwater contamination. At January 1,
1994, $253,000 was accrued to cover the estimated costs of completing these
evaluations. In 1994 the Company submitted a Permit Application for Post
Closure Care to the TDEC outlining a plan to address the areas identified, and
received the Permit in the fourth quarter of 1994. Additional costs of $63,000
were accrued in the fourth quarter of 1994 and $189,000 remains accrued at
December 30, 1995 to provide for estimated future remedial, cleanup and
monitoring costs as required by the Permit.
The Company has been designated, along with others, as a potentially
responsible party under the Comprehensive Environmental Response, Compensation,
and Liability Act, or comparable state statutes, at three waste disposal sites.
It is impossible to determine the ultimate costs related to these sites due to
several factors such as the unknown magnitude of possible contamination, the
unknown timing and extent of the corrective actions which may be required, and
the determination of the Company's liability in proportion to other responsible
parties. However, in management's opinion, these environmental matters should
not have a material adverse effect upon the consolidated results of operations
or financial position of the Company.
The Company does not anticipate any insurance recoveries to offset the
environmental remediation costs it has incurred. Due to the uncertainty
regarding court and regulatory decisions, and possible future legislation or
rulings regarding the environment, many insurers will not cover environmental
impairment risks, particularly in the chemical industry. Hence, the Company
has been unable to obtain this coverage at an affordable price.
Note I. Deferred Compensation
In 1995 the Company entered into a deferred compensation agreement with an
officer which allows the officer to defer all or a portion of any annual incen-
tive payable to the officer. Amounts deferred are payable upon certain events
including retirement, death or termination of the officer, or a change in
control of the Company. Interest will accrue on amounts deferred, net of
estimated income tax benefits deferred by the Company until payments are made,
at rates consistent with other invested retirement funds held by the Company
in accordance with the agreement. At December 30, 1995, the amounts deferred
totaled $715,000.
The Company has deferred compensation agreements with one officer and certain
former officers providing for payments for ten years in the event of pre-
retirement death or the longer of ten years or life beginning at age 65. The
present value of such vested future payments, $552,000 at December 30, 1995,
has been accrued.
Note J. Shareholders' Rights
On March 24, 1989, the Board of Directors declared a dividend distribution
of one right for each outstanding share to holders of record at the close of
business on April 14, 1989. Each right entitles the registered holder thereof
to purchase from the Company, under certain circumstances, 4/10 of a share
of the Company's Common Stock at an initial exercise price of $6.67 per share.
The total number of shares available under these rights is 2,884,100. The
exercise price will be adjusted under certain circumstances. The rights will
expire on March 26, 1999. The rights are not currently exercisable and trade
together with the shares associated therewith. These rights, which may have a
potentially dilutive effect, have also been excluded from the earnings per
share computation as preconditions to the exercisability of such rights have
not been satisfied.
<TABLE>
Note K. Stock Options
A summary of activity in the Company's stock option plans is as follows:
<CAPTION>
Option Price Outstanding Available
<S> <C> <C> <C>
At January 1, 1994 $2.33 to 14.625 195,680 111,000
Authorized 25,000
Granted $17.75 to 18.25 24,000 (24,000)
Exercised $2.33 to 4.29 (29,975)
---------------- ------- -------
At December 31, 1994 $2.33 to 18.25 189,705 112,000
Granted $22.25 4,000 (4,000)
Exercised $2.33 to 3.54 (48,500)
Effect of three for $1.56 to 14.83 76,678 54,000
two stock split -------------- -------- -------
At December 30, 1995 $1.56 to 14.83 221,883 162,000
=============== ======= =======
</TABLE>
The Company grants to non-employed directors, officers and key employees
options to purchase Common Stock of the Company under three Plans adopted in
1983, 1988 and 1994. Options were granted through October 1, 1988 under the
1983 Plan and may be granted through January 28, 1998 under the 1988 Plan and
April 29, 2004 under the 1994 Plan at a price not less than the fair value on
the date of grant. Under the 1983 Plan, all options are presently 100 percent
vested and must be exercised within ten years from the date of the grant.
Under the 1988 Plan, options may be exercised beginning one year after date of
grant at a rate of 20 percent annually on a cumulative basis. Under the 1994
Non-Employee Directors' Plan, options may be exercised at the date of grant.
At December 30, 1995, 143,883 shares of the options outstanding were fully
exercisable.
Note L. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows at the
respective year ends:
<TABLE>
<CAPTION>
(Amounts in thousands) 1995 1994 1993
<S> <C> <C> <C>
Deferred tax assets
Allowance for doubtful accounts $ 140 $ 73 $ 39
Deferred compensation 465 204 207
Inventory capitalization 248 256 226
Accrued group insurance 110 141 167
Environmental reserves 803 934 241
Other 51
------ ------ ------
Total deferred tax assets 1,766 1,608 931
------ ------ ------
Deferred tax liabilities:
Tax over book depreciation 1,710 1,384 1,279
Prepaid expenses 441 54
Other 17 33 22
------ ------ ------
Total deferred tax liabilities 2,168 1,471 1,308
------ ------ ------
Net deferred tax (liabilities $ (402) $ 137 $ (370)
======== ====== =======
</TABLE>
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
(Amount in thousands) 1995 1994 1993
<S> <C> <C> <C>
Current
Federal $7,337 $3,152 $2,342
State 898 434 362
------ ------ ------
Total current 8,235 3,586 2,704
Deferred:
Federal 480 (442) 112
State 59 (65) 18
------ ------ ------
Total deferred 539 (507) 130
------ ------ ------
Total $8,774 $3,079 $2,834
====== ====== ======
</TABLE>
The reconciliation of income tax attributable to continuing operations
computed at the U. S. federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
1995 1994 1993
(Amounts in thousands) Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S.
Statutory rates $8,153 35.0% $2,991 34.0% $2,604 34.0%
State income taxes, net
of federal tax benefit 629 2.7% 246 2.8% 227 3.0%
Other, net (8) (158) (1.8)% 3
------ ---- ------ ------ ------ ----
Total $8,774 37.7% $3,079 35.0% $2,834 37.0%
====== ===== ====== ===== ====== =====
</TABLE>
Income tax payments of approximately $8,449,000, $3,625,000 and $3,017,000
were made in 1995, 1994 and 1993, respectively.
Note M. Benefit Plans
The Company has a 401(k) Employee Stock Ownership Plan. Employees may contri-
bute to the Plan up to 20 percent of their salary with a maximum of $9,240 for
1995. Contributions by the employees are invested in one or more funds at the
direction of the employee; however, employee contributions cannot be invested
in Company stock.
Contributions by the Company are made primarily in Synalloy stock. The Company
contributes on behalf of each participant who is eligible a matching contribu-
tion equal to a percentage which is determined each year by the Board of
Directors.
For 1995 the maximum was three percent. The matching contribution is allocated
on June 30 and December 31 of each Plan year. The Company has accrued a
matching contribution of approximately $99,000 at December 30, 1995. Matching
contributions of approximately $130,000 were made in July 1995 and $203,000
and $195,000 were made in 1994 and 1993, respectively. The Company may also
make a discretionary contribution, which shall be distributed to all eligible
participants regardless of whether they contribute to the Plan. No discretionary
contributions have been made to the Plan for 1995, 1994 or 1993.
The Company also contributes to union-sponsored pension plans. Contributions
relating to the union-sponsored pension plans were approximately $359,000,
$259,000 and $249,000 for the years ended December 30, 1995, December 31, 1994
and January 1, 1994, respectively.
Note N. Contingencies
In late summer 1983, the Company, together with co-defendants Allied Corpora-
tion 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 1972. 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.
Management and counsel of the Company do not believe that it is 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 condi-
tion 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 settle-
ment are subject to a confidentiality agreement; however, the Company's contri-
bution 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 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 O. Shareholders' Equity
On February 1, 1996, the Board of Directors approved a stock buyback plan
authorizing management to purchase up to $5,000,000 of the Company's common
stock for the treasury depending upon the common stock's price and
availability.
Capital in excess of par value at December 31, 1994 reflects a contribution
of $117,574 received during 1994 pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended. The amount represents profits realized from
the purchase and sale of common stock of the Company by a former director of
the Company within a period of less than six months. The Securities and
Exchange Commission requires that such profits be returned to the issuer of
the securities in question.
Note P. Industry Segments
Synalloy Corporation operates in two principal industry segments: metals and
chemical. The chemical segment manufactures dyes, pigments and auxiliaries
for the textile industry and a wide variety of specialty chemicals for the
chemical, petroleum and pharmaceutical industries. The metals segment
manufactures welded stainless steel pipe and highly specialized products, most
of which are custom-produced to individual orders, required for corrosive and
high-purity processes used principally by the chemical, petrochemical and pulp
and paper industries. Products include piping systems, fittings, tanks, pressure
vessels and a variety of other components.
Operating profit is total revenue less operating expenses, excluding interest
expense and income taxes. Identifiable assets (all of which are in the United
States) are those assets used in operations by each segment. Centralized data
processing and accounting expenses are allocated to the metals segment and
chemical segment based upon estimates of their percentage of usage. Corporate
assets consist principally of cash, certain investments, and property and
equipment. No single customer or agency (domestic or foreign) accounted for
more than ten percent of revenues in 1995, 1994 or 1993.
The Company has a three-year distributorship agreement expiring December 31,
1996 with the company supplying about 90 percent of the products that produced
over one-third of the chemical segment's sales in 1995. The supplier has been
the principal source of these products since 1985. Although the Company
believes that this supplier will continue to be a source of these products in
the future, there is no assurance of this. Loss of this supplier would have a
materially adverse short-term effect on the Company's sales and net income.
However, management believes that if the agreement with this supplier is not
continued in the future, other suppliers could be found to replace most of the
products.
<TABLE>
Segment information:
<CAPTION>
(Amounts in thousands) 1995 1994 1993
<S> <C> <C> <C>
Net sales
Metals $ 99,455 $ 64,130 $ 57,971
Chemicals 47,843 50,389 45,438
-------- -------- ---------
Total net sales $147,298 $114,519 $103,409
========= ======== ========
Operating income
Metals $20,419 $6,603 $4,157
Chemicals 5,682 3,877 4,916
-------- -------- --------
26,101 10,480 9,073
Less unallocated corporation expense 1,867 1,112 877
-------- -------- --------
Operating income 24,234 9,368 8,196
Other expense, net 939 571 537
-------- -------- ---------
Income before taxes $23,295 $8,797 $7,659
========== ========== ==========
Identifiable assets
Metals $51,160 $33,953 $29,751
Chemicals 25,563 25,348 22,007
Corporate 3,503 3,131 4,013
-------- -------- ---------
$80,226 $62,432 $55,771
======== ======== =========
Depreciation and amortization
Metals $1,131 $966 $882
Chemicals 1,039 908 770
Corporate 146 95 85
-------- -------- --------
$2,316 $1,969 $1,737
======== ========= =========
Capital expenditures
Metals $3,621 $2,438 $1,205
Chemicals 2,651 1,625 1,548
Corporate 183 151 509
-------- --------- ---------
$6,455 $4,214 $3,262
======== ========= =========
</TABLE>
Note Q. Quarterly Results (unaudited)
The following is a summary of quarterly operations for the years ended December
30, 1995 and December 31, 1994.
<TABLE>
<CAPTION>
(Thousands except
per share data) Net Gross Net Net per
sales Profit Income Common Share
<S> <C> <C> <C> <C>
1995
First Quarter $34,576 $ 7,175 $2,762 $.38
Second Quarter 41,381 10,799 4,613 .63
Third Quarter 37,858 9,464 3,915 .53
Fourth Quarter 33,483 7,885 3,231 .44
1994
First Quarter $27,332 $4,192 $1,331 $.18
Second Quarter 30,217 5,181 1,899 .26
Third Quarter 29,872 5,069 1,826 .25
Fourth Quarter 27,098 5,614 662 .09
</TABLE>
The Company recorded a special charge of $2,306,000 for environmental remedia-
tion costs in the fourth quarter of 1994 which reduced net income by $1,499,000
or $.21 per share. Remediation costs incurred in the other quarters of 1994
did not materially affect net income. See Note H for further discussion.
Report of Management
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and have been audited by Ernst & Young
LLP, Independent Auditors. Management of the Company assumes responsibility
for the accuracy and reliability of the financial statements. In discharging
such responsibility, management has established certain standards which are
subject to continuous review and are monitored through the Company's financial
management. The Board of Directors pursues its oversight role for the financial
statements through its Audit Committee which consists of outside directors.
The Audit Committee meets on a regular basis with representatives of management
and Ernst & Young LLP.
Report Of Independent Auditors
Shareholders and Board of Directors
Synalloy Corporation
We have audited the accompanying consolidated balance sheets of Synalloy Corpor-
ation as of December 30, 1995, December 31, 1994 and January 1, 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 30, 1995. Our audits
also included the financial statement schedules listed in the Index at Item
14(a). These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Synalloy Corporation at December 30, 1995, December 31, 1994 and January 1,
1994 and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 30, 1995, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic finan-
cial statements taken as a whole, present fairly in all material respects the
information set forth therein.
Greenville, South Carolina
February 2, 1996
Item 9 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
A definitive proxy statement, which will be filed with the Securities and
Exchange Commission pursuant to regulation 14A of the Securities Exchange Act of
1934 within 120 days of the end of the registrant's fiscal year ended December
30, 1995, is incorporated herein by reference.
Item 10 Directors and Executive Officers of the Registrant
Such information as required by the Securities and Exchange Commission in Regu-
lation S-K is contained in the Company's definitive Proxy Statement in
connection with its Annual Meeting to be held April 30, 1996.
Item 11 Executive Compensation
The information with respect to executive compensation and transactions is
hereby incorporated by reference from the Company's definitive proxy statement
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A of the Securities Exchange Act of 1934.
Item 12 Security Ownership of Certain Beneficial Owners and Management
The information with respect to security ownership of certain beneficial owners
and management is hereby incorporated by reference from the Company's defini-
tive proxy statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A of the Securities Exchange Act of 1934.
Item 13 Certain Relationships and Related Transactions
None
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements: The following consolidated
financial statements of Synalloy Corporation are
included in Item 8:
Consolidated Statements of Income for the years
ended December 30, 1995, December 31, 1994
and January 1, 1994
Consolidated Balance Sheets at December 30, 1995,
December 31, 1994 and January 1, 1994
Consolidated Statements of Cash Flows for the years
ended December 30, 1995, December 31, 1994
and January 1, 1994
Consolidated Statements of Shareholders'
Equity for the years ended December 30, 1995,
December 31, 1994 and January 1, 1994
Notes to Consolidated Financial Statements
2. Financial Statements Schedules: The following
consolidated financial statements schedule of
Synalloy Corporation are included in Item 14(d).
Schedule VIII - Valuation and Qualifying Accounts
for the years ended December 30, 1995,
December 31, 1994 and January 1, 1994
All schedules for which provision is made in
the applicable accounting regulations of the
Securities and Exchange Commission are not required
under the related instructions or are inapplicable,
and therefore have been omitted.
3. Listing of Exhibits:
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Exhibit 22 - Subsidiaries of the Registrant
(b) Reports on Form 8-K: There were no reports on
Form 8-K filed during the fourth quarter of
the 1995 fiscal year.
(c) Exhibits: The response to this portion of Item 14 is
submitted in a separate section of this report.
(d) Financial Statements Schedules: The response to
this portion of Item 14 is submitted as a separate
section of this report.
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Cheryl C. Carter March 27, 1996
Cheryl C. Carter Date
Corporate Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
By /s/ James G. Lane, Jr. March 27, 1996
James G. Lane, Jr. Date
Chief Executive Officer and
Chairman of the Board
By /s/ Gregory M. Bowie March 27, 1996
Gregory M. Bowie Date
Vice President, Finance
By /s/ Glenn R. Oxner March 27, 1996
Glenn R. Oxner Date
Director
By /s/ Sibyl N. Fishburn March 27, 1996
Sibyl N. Fishburn Date
Director
By /s/ Carroll D. Vinson March 27, 1996
Carroll D. Vinson Date
Director
By /s/ Richard E. Ingram March 27, 1996
Richard E. Ingram Date
Director
<TABLE>
Schedule VIII Valuation and Qualifying Accounts
<CAPTION>
Column A Column B Column C Column D Column E
Description Balance at Charged to Balance
Beginning Cost and Deductions at End
of Period Expenses Describe of Period
<S> <C> <C> <C>
Year ended December 30, 1995
Deducted from asset account:
Allowance for doubtful accounts $181,000 $1,014,000 $839,000(1) $356,000
Year ended December 31, 1994
Deducted from asset account:
Allowance for doubtful accounts 83,000 $192,000 $94,000(1) $181,000
Year ended January 1, 1994
Deducted from asset account:
Allowance for doubtful accounts $178,000 $1,000 $96,000(1) $83,000
(1) Allowances, uncollected accounts and credit balances written off against
reserve, net of recoveries.
</TABLE>
<TABLE>
Exhibit 11 Computation of Per Share Earnings
<CAPTION>
(December 30, 1995, December 31, 1994
and January 1, 1994) 1995 1994 1993
<S> <C> <C> <C>
Primary
Average shares outstanding 7,215,947 7,200,035 7,148,043
Net effect of dilutive stock options
- based on the treasury stock
method using the average market price 135,991 153,734 197,537
----------- ----------- -----------
Total 7,351,938 7,353,769 7,345,580
Net income $14,520,521 $5,717,890 $4,825,100
Per share amount $1.98 $.78 $.66
=========== =========== ===========
Diluted
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.
</TABLE>
Exhibit 22 Subsidiaries of the Registrant
The Company has three wholly-owned subsidiaries. All subsidiaries are included
in the Company's consolidated financial statements. The subsidiaries are as
follows:
1. Bristol Metals, Inc., a Tennessee corporation
2. Whiting Metals, Inc., a South Carolina corporation
3. Synco International, Inc., a Virgin Islands corporation
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000095953
<NAME> SYNALLOY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 267
<SECURITIES> 0
<RECEIVABLES> 17616
<ALLOWANCES> 0
<INVENTORY> 38530
<CURRENT-ASSETS> 56751
<PP&E> 42292
<DEPRECIATION> 21950
<TOTAL-ASSETS> 80226
<CURRENT-LIABILITIES> 15653
<BONDS> 0
<COMMON> 8000
0
0
<OTHER-SE> 40363
<TOTAL-LIABILITY-AND-EQUITY> 80226
<SALES> 147298
<TOTAL-REVENUES> 147298
<CGS> 111976
<TOTAL-COSTS> 111976
<OTHER-EXPENSES> 11089
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 912
<INCOME-PRETAX> 23295
<INCOME-TAX> 8774
<INCOME-CONTINUING> 14521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14521
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.98
</TABLE>
