FORM 10-Q
Securities and Exchange Commission
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended April 4, 1998
OR
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-19687
SYNALLOY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 57-0426694
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Post Office Box 5627
Croft Industrial Park
Spartanburg, South Carolina 29304
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (864) 585-3605
Not Applicable
(Former name, former address and former fiscal year, if changed since last
year.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No____
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practical date.
Number of Shares Outstanding
Title of Class As of April 4, 1998
Common Stock, $1.00 Par Value 6,785,929
- - 1 -
Synalloy Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - April 4, 1998 and
January 3, 1998
Condensed consolidated statements of income - Three months ended
April 4, 1998 and March 29, 1997
Condensed consolidated statements of cash flows - Three months
ended April 4, 1998 and March 29, 1997
Notes to condensed consolidated financial statements -
April 4, 1998
Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
- - 2 -
PART 1. FINANCIAL STATEMENTS
<TABLE>
Synalloy Corporation
Condensed Consolidated Balance Sheets
Apr 4, 1998 Jan 3, 1998
(Unaudited) (Note)
----------- -----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 880,297 $ 1,602,543
Accounts receivable, less allowance
for doubtful accounts 17,345,226 15,201,783
Inventories
Raw materials 8,970,022 7,368,212
Work-in-process 3,918,354 4,791,379
Finished goods 13,511,249 15,287,431
---------- ----------
Total inventories 26,399,625 27,447,022
Deferred income taxes 177,000 177,000
Prepaid expenses and other current assets 640,692 633,709
---------- ----------
Total current assets 45,442,840 45,062,057
Cash value of life insurance 1,862,274 1,842,384
Investment 329,117 329,117
Property, plant & equipment, net of accumulated
depreciation of $28,651,000 and $27,788,000 22,904,456 23,112,324
Deferred charges and other assets 2,972,814 3,037,470
---------- ----------
Total assets $73,511,501 $73,383,352
========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 7,290,177 $ 5,544,789
Income taxes 681,541 310,992
Accrued expenses 2,698,886 3,018,850
Current portion of environmental reserves 487,980 487,980
Current portion of long-term debt 200,000 200,000
---------- ----------
Total current liabilities 11,358,584 9,562,611
Long-term debt, less current portion 10,200,000 10,200,000
Environmental reserves 690,961 782,700
Deferred compensation 1,322,968 1,323,388
Deferred income taxes 1,473,000 1,473,000
Contingencies
Shareholders' equity
Common stock, par value $1 per share -
authorized and issued 8,000,000 shares 8,000,000 8,000,000
Capital in excess of par value 9,491 33,475
Retained earnings 52,252,356 52,339,857
Less cost of Common Stock in treasury (11,795,859) (10,331,679)
---------- ----------
Total shareholders' equity 48,465,988 50,041,653
---------- ----------
Total liabilities and shareholders' equity $73,511,501 $73,383,352
========== ==========
Note: The balance sheet at January 3, 1998 has been derived from
the audited financial statements at that date. See accompanying
notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
Synalloy Corporation
Condensed Consolidated Statements of Income
(Unaudited) Three Months Ended
Apr 4, 1998 Mar 29, 1997
----------- ------------
<S> <C> <C>
Net sales $30,605,926 $30,903,356
Cost of sales 27,131,096 26,657,262
---------- ----------
Gross profit 3,474,830 4,246,094
Selling, general and administrative expense 2,407,979 2,461,877
---------- ----------
Operating income 1,066,851 1,784,217
Other (income) and expense
Interest expense 166,515 213,127
Other, net (24,055) 6,738
---------- ----------
Income before taxes 924,391 1,564,352
Provision for income taxes 327,000 553,000
---------- ----------
Net income $ 597,391 $ 1,011,352
========== ==========
Net income per common share
Basic $.09 $.14
Diluted $.09 $.14
Dividends paid per common share $.10 $.09
Average shares outstanding
Basic 6,836,474 6,976,856
Diluted 6,868,700 7,023,250
See accompanying notes to condensed consolidated financial statements.
</TABLE>
- - 4 -
<TABLE>
Synalloy Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited) Three Months Ended
Apr 4, 1998 Mar 29, 1997
----------- ------------
<S> <C> <C>
Operating activities
Net income $ 597,391 $1,011,352
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 853,993 798,916
Amortization of deferred charges 64,656 62,816
Deferred compensation (420) (2,175)
Provision for losses on accounts receivable 34,744 14,990
(Gain) loss on sale of property, plant
and equipment (233) 13,157
Cash value of life insurance (19,890) (19,500)
Environmental reserves (91,739) (114,179)
Changes in operating assets and liabilities:
Accounts receivable (2,178,187) (1,513,981)
Inventories 1,047,397 3,263,962
Other assets (6,983) (645,124)
Accounts payable and accrued expenses 1,425,424 232,004
Income taxes payable 370,549 462,020
---------- ----------
Net cash provided by operating activities 2,096,702 3,564,258
Investing activities
Purchases of property, plant and equipment (646,125) (739,603)
Proceeds from sale of property, plant
and equipment 233 2,200
Proceeds from notes receivable - 1,810
---------- ----------
Net cash used in investing activities (645,892) (735,593)
Financing activities
Proceeds from revolving lines of credit 152,000 12,210,000
Payments on revolving lines of credit (152,000) (13,250,000)
Payment of notes payable to employee - (1,154,805)
Proceeds from exercised stock options 4,837 42,462
Purchases of treasury stock (1,493,000) -
Dividends paid (684,893) (628,733)
---------- ----------
Net cash used in financing activities (2,173,056) (2,781,076)
---------- ----------
(Decrease) increase in cash and cash equivalents (722,246) 47,589
Cash and cash equivalents at beginning of year 1,602,543 115,828
---------- ----------
Cash and cash equivalents at end of period $ 880,297 $ 163,417
========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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Synalloy Corporation
Notes To Condensed Consolidated Financial Statements
(Unaudited)
April 4, 1998
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
period ended April 4, 1998, are not necessarily indicative of the results that
may be expected for the year ending January 2, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the period ended January 3,
1998.
NOTE 2--INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
NOTE 3--LEGAL MATTERS
The Company is from time to time subject to various claims, other possible
legal actions for product liability and other damages, and other matters
arising out of the normal conduct of the Company's business. Management
believes that based on present information, it is unlikely that liability, if
any, exists that would have a materially adverse effect on the consolidated
operating results or financial position of the Company.
NOTE 4--NET INCOME PER COMMON SHARE
Income per share is computed using the weighted average shares of common stock
and dilutive Common Stock equivalents (options) outstanding during the
respective periods. In 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. Statement 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options. Diluted earnings per share is
very similar to the previously reported primary earnings per share. Earnings
per share amounts for 1997 have been restated to conform to the Statement 128
requirements.
- - 6 -
Synalloy Corporation
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
The following is management's discussion of certain significant factors that
affected the Company during the quarter ended April 4, 1998. (Dollar amounts
are in thousands except for per share data.)
<TABLE>
Three Months Ended
Apr 4, 1998 Mar 27, 1997
----------- ------------
<S> <C> <C>
Net sales
Metals Segment $ 17,426 $ 16,548
Chemicals Segment 13,180 14,355
-------- --------
$ 30,606 $ 30,903
======== ========
Operating income
Metals Segment $ 750 $ 589
Chemicals Segment 551 1,477
-------- --------
1,301 2,066
Unallocated expenses
Corporate 235 282
Interest and debt expense,
net of interest income 142 220
-------- --------
Income before income taxes $ 924 $ 1,564
======== ========
</TABLE>
Consolidated sales for the quarter were down slightly decreasing one percent
compared to the same period one year ago. Consolidated net income declined 41
percent to $597 for the quarter, or $.09 per share, compared to the same
period one year ago due to a decline in chemicals' profits.
Chemicals Segment sales declined eight percent in the first quarter. The
decline resulted from lower sales of specialty chemicals produced for other
companies under processing contracts. The annual requirements of these
products are normally produced during a few months of a year, as scheduled by
the customers. Accordingly, sales of these products can fluctuate greatly
between quarters. Based on management's present expectations, the first
quarter should represent the lowest level of quarterly sales from these
products during 1998. Sales of dyes and pigments were essentially the same as
a year earlier. Lower profit margins from fiber reactive dyes led to part of
the decline in operating income. However, most of the decline resulted from
the lower sales of specialty chemicals outlined above.
The Company is pursuing several new product initiatives in both textile dyes
and specialty chemicals. Management is confident that they will provide sales
and profit momentum for the future.
Metals Segment sales increased five percent in the first quarter while
operating income improved 27 percent from the depressed levels of a year ago.
The higher sales came from a change in product mix since overall unit volume
was down two percent. In addition, the average selling price of the Company's
principal product, stainless steel pipe, was four percent lower than it was a
year earlier. The decrease in price and unit volume was offset by a shift in
product mix to increased sales of higher priced piping systems and decreased
sales of lower priced stainless pipe. The increase in operating income
resulted from improvement in piping systems results. Pipe profits were about
the same as the prior year.
- -7-
Synalloy Corporation
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations - Continued
The very low backlog of piping systems will lead to reduced sales from these
products in the second quarter. However, the Company has outstanding quotes
on an unusually high level of projects which makes management optimistic about
the prospects for future business.
A flood of stainless steel imports has led to the paradox of prices being
driven to a 25-year low while domestic demand is strong. Stainless steel pipe
prices have moved down in tandem with the cost of stainless steel. Unfair
trade cases have recently been filed that cover certain stainless products and
industry sources indicate that cases covering additional stainless products
are likely to be filed. This, coupled with the poor financial performance of
the principal producers of stainless steel used to make pipe, makes management
optimistic that prices will recover from the current 25-year low, although
when this might happen is uncertain.
Selling and administrative expense for the quarter was down two percent from
the same period last year, and totaled eight percent of consolidated sales
equaling last year's eight percent.
Cash flows from operations totaled $2,097 during the first three months of
1998 compared to $3,564 generated during the same period one year ago.
Although inventories declined $1,047 during the quarter, they declined $3,264
during the first quarter of 1997. This difference, along with the decline in
net income compared to the first quarter of 1997, caused the reduction in cash
flows. The Company used part of the cash flows generated in 1998 to purchase
103,000 shares of the Company's common stock for $1,493. The Company expects
that available cash and existing lines of credit will be sufficient to meet
normal operating requirements, including capital expenditures and payment of
dividends over the near term.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995
The statements contained in this management discussion and analysis that are
not historical facts may be forward looking statements. The forward looking
statements are subject to certain risks and uncertainties, including without
limitation those identified below, which could cause actual results to differ
materially from historical results or those anticipated. Readers are
cautioned not to place undue reliance on these forward looking statements,
which speak only as of their dates. The following factors could cause actual
results to differ materially from historical results or those anticipated:
adverse economic conditions, the impact of competitive products and pricing,
product demand and acceptance risks, raw material and other increased costs,
customer delays or difficulties in the production of products, and other risks
detailed from time to time in Synalloy's Securities and Exchange Commission
filings. Synalloy Corporation assumes no obligation to update the information
included herein.
- - 8 -
PART II: OTHER INFORMATION
Synalloy Corporation
Item 1. Legal Proceedings
None
Item 2. Change In Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission Of Matters To A Vote Of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits And Reports On Form 8-K
The following exhibits are included herein:
None
The Company did not file any reports on Form 8-K during the
three months ended April 4, 1998
- -9 -
Synalloy Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNALLOY CORPORATION
(Registrant)
Date: May 9, 1998 /s/ James G. Lane, Jr.
James G. Lane, Jr., Chairman and
Chief Executive Officer
Date: May 9, 1998 /s/ Gregory M. Bowie
Gregory M. Bowie
Vice President, Finance
- - 10 -
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</TABLE>
