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 June 28, 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 June 28, 1997
Common Stock, $1.00 Par Value 6,975,917
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Synalloy Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - June 28, 1997 and December
28, 1996
Condensed consolidated statements of income - Three and six months
ended June 28, 1997 and June 29, 1996
Condensed consolidated statements of cash flows - Three and six
months ended June 28, 1997 and June 29, 1996
Notes to condensed consolidated financial statements - June 28,
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
<PAGE>
PART 1. FINANCIAL STATEMENTS
<TABLE>
Synalloy Corporation
Condensed Consolidated Balance Sheets
Jun 28, 1997 Dec 28, 1996
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 113,808 $ 115,828
Accounts receivable, less allowance
for doubtful accounts 18,240,620 17,253,534
Inventories
Raw materials 9,833,401 8,357,884
Work-in-process 4,775,550 5,112,695
Finished goods 12,263,286 16,384,891
Total inventories 26,872,237 29,855,470
Deferred income taxes 130,000 130,000
Prepaid expenses and other current assets 859,639 278,276
Total current assets 46,216,304 47,633,108
Cash value of life insurance 1,772,801 1,733,801
Investment 329,117 329,117
Property, plant & equipment, net of accumulated
depreciation of $26,933,000 and $26,128,000 23,309,169 23,627,889
Deferred charges and other assets 3,139,850 3,265,211
Total assets 74,767,241 76,589,126
Liabilities and Shareholders' Equity
Current liabilities
Notes payable 1,350,000 1,500,000
Accounts payable 7,558,833 6,252,449
Income taxes 179,950 332,507
Accrued expenses 2,185,804 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 11,833,881 13,491,715
Long-term debt, less current portion 10,400,000 11,200,000
Environmental reserves 1,087,003 1,300,100
Deferred compensation 1,306,953 1,299,176
Deferred income taxes 1,024,000 1,024,000
Contingencies
Shareholders' equity
Common stock, par value $1 per share -
authorized and issued 8,000,000 shares 8,000,000 8,000,000
Capital in excess of par value 29,745 81,746
Retained earnings 50,216,604 49,074,919
Less cost of Common Stock in treasury (9,130,945) (8,882,530)
Total shareholders' equity 49,115,404 48,274,135
Total liabilities and shareholders' equity $74,767,241 $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
(Unaudited) Three Months Ended Six Months Ended
Jun 28,1997 Jun 29,1996 Jun 28,1997 Jun 29,1996
<S> <C> <C> <C> <C>
Net sales $31,204,944 $31,736,916 $62,108,300 $68,395,421
Cost of sales 26,372,631 25,909,347 53,029,893 55,138,329
Gross profit 4,832,313 5,827,569 9,078,407 13,257,092
Selling, general and
administrative expense 2,487,610 2,335,056 4,949,487 4,895,366
Operating income 2,344,703 3,492,513 4,128,920 8,361,726
Other (income) & expense
Interest expense 199,900 152,668 413,027 412,395
Other, net 3,074 3,056 9,812 10,512
Income before taxes 2,141,729 3,336,789 3,706,081 7,938,819
Provision for income tax 756,000 1,218,000 1,309,000 2,898,000
Net income $ 1,385,729 $ 2,118,789 $ 2,397,081 $ 5,040,819
Net income
per common share $.20 $.30 $.34 $.71
Dividends paid
per common share $.09 $.08 $.18 $.16
Average shares
outstanding 7,023,362 7,037,144 7,025,952 7,094,012
See accompanying notes to condensed consolidated financial statements
</TABLE>
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<TABLE>
Synalloy Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited) Six Months Ended
Jun 28, 1997 Jun 29, 1996
<S> <C> <C>
Operating activities
Net income $ 2,397,081 $ 5,040,819
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 1,593,832 1,395,949
Amortization of deferred charges 125,855 59,884
Deferred compensation 7,777 4,399
Deferred income taxes 0 0
Provision for losses on accounts receivable 33,443 (147,206)
Loss on sale of property, plant and equipment 95,015 23,271
Cash value of life insurance (39,000) (37,700)
Environmental reserves (213,097) (225,662)
Changes in operating assets and liabilities:
Accounts receivable (1,020,529) 1,694,564
Inventories 2,983,233 964,042
Other assets (585,522) (965,463)
Accounts payable and accrued expenses 999,528 119,553
Income taxes payable (152,557) (233,977)
Net cash provided by operating activities 6,225,059 7,692,473
Investing activities
Purchases of property, plant and equipment (1,379,577) (2,345,568)
Proceeds from sale of property, plant and equipment 9,450 27,005
Proceeds from notes receivable 3,665 3,318
Net cash (used in) investing activities (1,366,462) (2,315,245)
Financing activities
Proceeds from revolving lines of credit 13,160,000 30,800,000
Payments on revolving lines of credit (13,310,000) (29,806,000)
Principal payments on long-term debt (2,000,000) (38,462)
Payment of notes payable to employee (1,154,805)
Proceeds from exercised stock options 42,458 234,008
Purchases of treasury stock (342,875) (5,623,611)
Dividends paid (1,255,395) (1,130,011)
Net cash (used in) financing activities (4,860,617) (5,564,076)
(Decrease) in cash and cash equivalents (2,020) (186,848)
Cash and cash equivalents at beginning of year 115,828 267,061
Cash and cash equivalents at end of period $ 113,808 $ 80,213
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
Synalloy Corporation
Notes To Condensed Consolidated Financial Statements
(Unaudited)
June 28, 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
six-month periods ended June 28, 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.
<PAGE>
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 June 28, 1997.
Consolidated sales were $31,205,000 for the quarter and $62,108,000 year-to-
date reflecting 2 and 9 percent decreases, respectively, compared to the same
periods one year ago. Consolidated net income decreased 35 percent to
$1,386,000 for the quarter, or $.20 per share, and decreased 52 percent to
$2,397,000 year-to-date, or $.34 per share, compared to the same periods one
year ago. The declines resulted primarily from Metals Segment's piping
systems and process equipment, which produced $.14 and $.24 per share less net
income for the quarter and year-to-date, respectively. However, net income
for the quarter was up 37 percent on a one percent increase in sales compared
to the previous quarter. Management considers this sequential improvement as
an important indication that earnings are back in an uptrend after the
depressed results experienced in recent quarters.
Chemicals Segment sales were $14,156,000 for the quarter and $28,511,000 year-
to-date reflecting 40 and 34 percent increases, respectively, compared to the
same periods one year ago. Operating income increased 21 percent to $1,066,000
for the quarter and increased 24 percent to $2,543,000 year-to-date, compared
to the same periods one year ago. The improvement resulted primarily from
Manufacturers Chemicals, L.P. which was acquired in October 1996. Excluding
the acquired business, sales were up six and three percent and operating
income was essentially unchanged for the quarter and year-to-date,
respectively, before an $82,000 write-off in the quarter of abandoned
equipment. Chemical specialties, bolstered by the acquisition, contributed 40
and 43 percent of sales for the quarter and year-to date, respectively, and a
substantially greater percent of operating income. Textile dyes continued to
be a very difficult business and are likely to remain so for the foreseeable
future. On the other hand, specialties continue to perform well and afford the
opportunity for long-term growth.
Metals Segment sales were $17,049,000 for the quarter and $33,597,000 year-to-
date reflecting 21 and 29 percent decreases, respectively, compared to the
same periods one year ago. Operating income decreased 46 percent to $1,593,000
for the quarter and 69 percent to $2,182,000 year-to-date, compared to the
same periods one year ago. The second quarter produced strong unit volume
growth, up 16 percent compared to the second quarter of 1996. Pipe unit volume
was especially strong, up 34 percent while piping systems and process
equipment were only about half of their year earlier levels. Dollar sales were
down because of lower sales prices and the shift in product mix. The
disappointing results from piping systems and process equipment were
exacerbated by customer delays in certain production schedules and $115,000
expensed for the start-up costs of a carbon pipe fabrication shop. These
products should produce much better results in the second half since backlog
is at a good level, up 84 percent from a year earlier.
Many chemical companies and other process industry businesses will only let
suppliers that produce both stainless and carbon piping systems quote on their
requirements. By opening a carbon piping shop, the Company expects to
significantly expand its customer base for its traditional line of stainless
steel piping systems as well as generate profit from the new carbon piping
products.
<PAGE>
Selling and administrative expense for the quarter was up approximately six
percent from the same quarter last year, and totaled eight percent of
consolidated sales compared to last year's seven percent. The increase
reflects adding selling and administrative costs from Manufacturers Chemical,
offset by lower profit-based incentives.
Cash flows from operations totaled $6,225,000 during the first six months
compared to $7,692,000 generated during the same period one year ago. The
decrease reflects the reduction of net income experienced in the first six
months of 1997 compared to the same period in 1996. The Company used part of
the cash flows 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.
<PAGE>
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, 1997 at
the offices of the Company.
B. The following individuals were elected as directors at the
Annual Meeting:
Votes For Votes Withheld
1. James G. Lane, Jr. 6,147,330 30,597
2. Sibyl N. Fishburn 6,139,536 38,391
3. Richard E. Ingram 6,141,880 36,047
4. Glenn R. Oxner 6,146,880 31,047
5. Carroll D. Vinson 6,146,880 31,047
C. Ernst & Young LLP, independent certified accountants, were
selected as independent auditors for the fiscal year ending
January 3, 1998 by a vote of 6,138,627 for, 11,779 against and
27,521 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 June 28, 1997.
<PAGE>
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 8, 1997 /s/ James G. Lane, Jr.
James G. Lane, Jr., Chairman and
Chief Executive Officer
Date: August 8, 1997 /s/ Gregory M. Bowie
Gregory M. Bowie
Vice President, Finance
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