FORM 10-Q
Securities and Exchange Commission
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
_____X____ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 27, 1997
OR
__________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 0-19687
SYNALLOY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 57-0426694
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Post Office Box 5627
Croft Industrial Park
Spartanburg, South Carolina 29304
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (864) 585-3605
Not Applicable
(Former name, former address and former fiscal year,
if changed since last year.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No________
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practical date.
Number of Shares Outstanding
Title of Class As of September 27, 1997
Common Stock, $1.00 Par Value 6,971,834
- - 1 -
Synalloy Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - September 27, 1997 and
December 28, 1996
Condensed consolidated statements of income - Three and nine
months ended September 27, 1997 and September 28, 1996
Condensed consolidated statements of cash flows - Nine months
ended September 27, 1997 and September 28, 1996
Notes to condensed consolidated financial statements -
September 27, 1997
Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
- - 2 -
PART 1. FINANCIAL STATEMENTS
<TABLE>
Synalloy Corporation
Condensed Consolidated Balance Sheets
<S> <C> <C>
Mar 29, 1997 Dec 28, 1996
(Unaudited) (Note)
Assets
Current assets
Cash and cash equivalents $ 83,905 $ 115,828
Accounts receivable, less allowance
for doubtful accounts 18,562,794 17,253,534
Inventories
Raw materials 8,952,402 8,357,884
Work-in-process 5,479,696 5,112,695
Finished goods 13,454,378 16,384,891
Total inventories 27,886,476 29,855,470
Deferred income taxes 130,000 130,000
Prepaid expenses and other current assets 630,760 278,276
Total current assets 47,293,935 47,633,108
Cash value of life insurance 1,792,301 1,733,801
Investment 329,117 329,117
Property, plant & equipment, net of accumulated
depreciation of $27,440,000 and $26,128,000 23,303,521 23,627,889
Deferred charges and other assets 3,077,402 3,265,211
Total assets $75,796,276 $76,589,126
Liabilities and Shareholders' Equity
Current liabilities
Notes payable $ 420,000 $ 1,500,000
Accounts payable 8,464,653 6,252,449
Income taxes 572,300 332,507
Accrued expenses 2,103,466 2,492,660
Current portion of environmental reserves 359,294 359,294
Current portion of long-term debt 200,000 1,400,000
Notes payable to an employee 1,154,805
Total current liabilities 12,119,713 13,491,715
Long-term debt, less current portion 10,400,000 11,200,000
Environmental reserves 992,876 1,300,100
Deferred compensation 1,304,778 1,299,176
Deferred income taxes 1,024,000 1,024,000
Contingencies
Shareholders' equity
Common stock, par value $1 per share -
authorized and issued 8,000,000 shares 8,000,000 8,000,000
Capital in excess of par value 31,616 81,746
Retained earnings 51,133,100 49,074,919
Less cost of Common Stock in treasury (9,209,807) (8,882,530)
Total shareholders' equity 49,954,909 48,274,135
Total liabilities and shareholders' equity $75,796,276 $76,589,126
Note: The balance sheet at December 28, 1996 has been derived from
the audited financial statements at that date. See accompanying
notes to condensed consolidated financial statements
</TABLE>
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<TABLE>
Synalloy Corporation
Condensed Consolidated Statements of Income
<S> <C> <C> <C> <C>
(Unaudited) Three Months Ended Nine Months Ended
Sep 27,1997 Sep 28,1996 Sep 27,1997 Sep 28,1996
Net sales $31,370,635 $29,404,951 $93,478,935 $97,800,372
Cost of sales 26,495,268 25,346,054 79,525,161 80,484,383
Gross profit 4,875,367 4,058,897 13,953,774 17,315,989
Selling, general and
administrative expense 2,335,679 2,059,383 7,285,166 6,954,749
Operating income 2,539,688 1,999,514 6,668,608 10,361,240
Other (income) and
expense
Interest expense 169,102 217,021 582,129 629,416
Other, net (16,655) 6,409 (6,843) 16,921
Income before taxes 2,387,241 1,776,084 6,093,322 9,714,903
Provision for income tax 844,000 533,000 2,153,000 3,431,000
Net income $ 1,543,241 $ 1,243,084 $ 3,940,322 $ 6,283,903
Net income
per common share $.22 $.18 $.56 $.89
Dividends paid
per common share $.09 $.09 $.27 $.25
Average shares
outstanding 7,029,464 7,015,948 7,026,335 7,068,940
See accompanying notes to condensed consolidated financial statements
</TABLE>
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<TABLE>
Synalloy Corporation
Condensed Consolidated Statements of Cash Flows
<S> <C> <C>
(Unaudited) Nine Months Ended
Sep 27, 1997 Sep 28, 1996
Operating activities
Net income $ 3,940,322 $ 6,283,903
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 2,372,488 2,023,587
Amortization of deferred charges 188,303 90,326
Deferred compensation 5,602 248
Deferred income taxes 0 0
Provision for losses on accounts receivable (162) (168,600)
Loss on sale of property, plant and equipment 114,215 37,063
Cash value of life insurance (58,500) (56,550)
Environmental reserves (307,224) (362,605)
Changes in operating assets and liabilities:
Accounts receivable (1,309,098) 3,637,001
Inventories 1,968,994 4,935,379
Other assets (357,905) (1,092,343)
Accounts payable and accrued expenses 1,823,010 (449,175)
Income taxes payable 239,793 (86,769)
Net cash provided by operating activities 8,619,838 14,791,465
Investing activities
Purchases of property, plant and equipment (2,171,785) (3,164,964)
Proceeds from sale of property, plant
and equipment 9,450 56,071
Proceeds from notes receivable 4,927 4,460
Net cash (used in) investing activities (2,157,408) (3,104,433)
Financing activities
Proceeds from revolving lines of credit 13,330,000 40,526,000
Payments on revolving lines of credit (14,410,000) (45,206,000)
Principal payments on long-term debt (2,000,000) (57,692)
Payment of notes payable to employee (1,154,805)
Proceeds from exercised stock options 61,956 234,008
Purchases of treasury stock (439,364) (5,623,609)
Dividends paid (1,882,140) (1,757,763)
Net cash (used in) financing activities (6,494,353) (11,885,056)
(Decrease) in cash and cash equivalents (31,923) (198,024)
Cash and cash equivalents at beginning of year 115,828 267,061
Cash and cash equivalents at end of period $ 83,905 $ 69,037
See accompanying notes to condensed consolidated financial statements
</TABLE>
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Synalloy Corporation
Notes To Condensed Consolidated Financial Statements - (Unaudited)
September 27, 1997
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
nine-month periods ended September 27, 1997, are not necessarily indicative of
the results that may be expected for the year ending January 3, 1998. For
comparative purposes, certain amounts in the 1996 financial statements have
been reclassified to conform with the 1997 presentation. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the period
ended December 28, 1996.
NOTE 2--INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
NOTE 3--LEGAL MATTERS
The Company is from time to time subject to various claims, other possible
legal actions for product liability and other damages, and other matters
arising out of the normal conduct of the Company's business. Management
believes that based on present information, it is unlikely that liability, if
any, exists that would have a materially adverse effect on the consolidated
operating results or financial position of the Company.
NOTE 4--NET INCOME PER COMMON SHARE
Income per share is computed using the weighted average shares of common stock
and dilutive Common Stock equivalents (options) outstanding during the
respective periods. Stock options in the aggregate reduce earnings per share
by less than three percent in all periods presented; therefore, diluted per
share amounts are not disclosed.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculations of earnings per share and fully diluted earnings per
share is not expected to be material.
NOTE 5--LONG-TERM DEBT
In June 1997, the Company entered into an agreement to amend its Revolving
Credit/Term Loan Agreement and prepaid $800,000 reducing the balance owed to
$10,000,000. The amendment converts the debt from a five year term loan,
payable in equal quarterly installments, to a $10,000,000 revolving line of
credit expiring five years from the date of the Agreement. Interest is
payable quarterly on the outstanding balance at the lower of the bank's prime
rate less .25 percent or LIBOR plus .60 percent.
- 6 -
Synalloy Corporation
Management's Discussion And Analysis Of The Financial
Condition And Results Of Operations
The following is management's discussion of certain significant factors that
affected the Company during the quarter ended September 27, 1997.
Consolidated sales were $31,371,000 for the quarter and $93,479,000 year-to-
date reflecting a seven percent increase and four percent decrease,
respectively, compared to the same periods one year ago. Consolidated net
income increased 24 percent to $1,543,000 for the quarter, or $.22 per share,
and decreased 37 percent to $3,940,000 year-to-date, or $.56 per share,
compared to the same periods one year ago. The gains for the quarter came
from the Chemicals Segment, which showed significant improvement, while the
Metals Segment had lower results. Improvement was also shown sequentially
with sales up modestly and net income up 11 percent compared to the previous
quarter.
Chemicals Segment sales were $12,790,000 for the quarter and $41,301,000 year-
to-date reflecting 41 and 36 percent increases, respectively, compared to the
same periods one year ago. Operating income increased 172 percent to $888,000
for the quarter and increased 45 percent to $3,431,000 year-to-date, compared
to the same periods one year ago. Much of the improvement resulted from
Manufacturers Chemicals, L.P., which was acquired in October 1996. However,
excluding the acquired business, sales were up six and four percent and
operating income was up 106 and 13 percent for the quarter and year-to-date,
respectively, because of better performance from textile dyes. Textile dye
markets improved from the extremely weak conditions of a year earlier. Profit
margins benefited from the increased demand and cost cutting initiatives
including overseas sourcing of certain dyes formerly manufactured at higher
costs. Chemical specialties, bolstered by the acquisition, contributed 40 and
42 percent of sales for the quarter and year-to-date, respectively, and an
even greater percentage of operating income. The Company believes these
products provide good opportunity for future growth.
Metals Segment sales were $18,581,000 for the quarter and $52,178,000 year-to-
date reflecting nine and 23 percent decreases, respectively, compared to the
same periods one year ago. Operating income decreased five percent to
$1,884,000 for the quarter and 55 percent to $4,066,000 year-to-date, compared
to the same periods one year ago. Dollar sales were down because of lower
sales prices. However, unit volume growth actually increased two percent in
the third quarter compared to the third quarter of 1996. Operating income
declined by a smaller percentage benefiting from higher profit margins from
stainless pipe partially offset by lower margins in piping systems.
Operations showed good improvement on a sequential basis with third quarter
sales up nine percent and operating income up 18 percent compared to the
previous quarter. Prices for the Metals Segment's principal product,
stainless steel pipe, continue to be intensely competitive. The Company
announced an eight percent price increase in April of this year, about half of
which held in the market for a while. However, prices have now eroded back to
the lowest levels that existed before that attempted increase. Sales to
distributors weakened in September, probably because of the price erosion,
although end use demand seems to be holding up well.
-7-
Synalloy Corporation
Management's Discussion And Analysis Of The Financial
Condition And Results Of Operations - Continued
Selling and administrative expense for the quarter and year to date were up 13
and five percent from the same periods last year, and totaled eight percent of
consolidated sales compared to last year's seven percent for both the quarter
and year to date. The increases reflect adding selling and administrative
costs from Manufacturers Chemical, offset by lower profit-based incentives.
Cash flows from operations totaled $8,620,000 during the first nine months
compared to $14,791,000 generated during the same period one year ago. The
decrease reflects the planned reduction of inventories that occurred in the
third quarter of 1996 and the decrease in net income experienced in the first
nine months of 1997 compared to the same period in 1996. The Company used
part of the cash flows generated in 1997 to pay $2,000,000 of long-term debt
and $1,155,000 of notes payable to an employee related to the acquisition of
Manufacturers Chemicals. The Company expects that available cash and existing
lines of credit will be sufficient to meet normal operating requirements,
including capital expenditures and payment of dividends over the near term.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995
The statements contained in this management discussion and analysis that are
not historical facts may be forward looking statements. The forward looking
statements are subject to certain risks and uncertainties, including without
limitation those identified below, which could cause actual results to differ
materially from historical results or those anticipated. Readers are
cautioned not to place undue reliance on these forward looking statements,
which speak only as of their dates. The following factors could cause actual
results to differ materially from historical results or those anticipated:
adverse economic conditions, the impact of competitive products and pricing,
product demand and acceptance risks, raw material and other increased costs,
customer delays or difficulties in the production of products, and other risks
detailed from time to time in Synalloy's Securities and Exchange Commission
filings. Synalloy Corporation assumes no obligation to update the information
included herein.
-8-
PART II: OTHER INFORMATION
Synalloy Corporation
Item 1. Legal Proceedings
None
Item 2. Change In Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission Of Matters To A Vote Of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits And Reports On Form 8-K
The following exhibits are included herein:
None
The Company did not file any reports on Form 8-K during the
three months ended September 27, 1997
- - 9 -
Synalloy Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNALLOY CORPORATION
(Registrant)
Date: November 7, 1997 /s/ James G. Lane, Jr.
James G. Lane, Jr., Chairman and
Chief Executive Officer
Date: November 7, 1997 /s/ Gregory M. Bowie
Gregory M. Bowie
Vice President, Finance
- - 10 -
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