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 October 3, 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 October 3, 1998
Common Stock, $1.00 Par Value 6,725,629
- 1 -
Synalloy Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - October 3, 1998 and
January 3, 1998
Condensed consolidated statements of income - Three and nine
months ended October 3, 1998 and September 27, 1997
Condensed consolidated statements of cash flows - Nine months
ended October 3, 1998 and September 27, 1997
Notes to condensed consolidated financial statements -
October 3, 1998
Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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PART 1. FINANCIAL STATEMENTS
<TABLE>
Synalloy Corporation
Condensed Consolidated Balance Sheets
Oct 3, 1998 Jan 3, 1998
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents 216,382 1,602,543
Accounts receivable, less allowance
for doubtful accounts 15,780,694 15,201,783
Inventories
Raw materials 9,148,227 7,368,212
Work-in-process 4,351,179 4,791,379
Finished goods 13,909,878 15,287,431
Total inventories 27,409,284 27,447,022
Deferred income taxes 177,000 177,000
Prepaid expenses and other current assets 384,228 633,709
Total current assets 43,967,588 45,062,057
Cash value of life insurance 1,970,420 1,842,384
Investment 329,117 329,117
Property, plant & equipment, net of accumulated
depreciation of $32,107,000 and $27,788,000 24,288,120 23,112,324
Deferred charges and other assets 3,020,088 3,037,470
Total assets 73,575,333 73,383,352
Liabilities and Shareholders' Equity
Current liabilities
Notes payable 535,000 0
Accounts payable 8,909,811 5,544,789
Income taxes 524,914 310,992
Accrued expenses 2,191,342 3,018,850
Current portion of environmental reserves 487,899 487,980
Current portion of long-term debt 200,000 200,000
Total current liabilities 12,848,966 9,562,611
Long-term debt, less current portion 10,200,000 10,200,000
Environmental reserves 543,759 782,700
Deferred compensation 1,342,501 1,323,388
Deferred income taxes 1,473,000 1,473,000
Contingencies
Shareholders' equity
Common stock, par value $1 per share -
authorized and issued 8,000,000 shares 8,000,000 8,000,000
Capital in excess of par value 9,491 33,475
Retained earnings 51,459,694 52,339,857
Less cost of Common Stock in treasury (12,302,078) (10,331,679)
Total shareholders' equity 47,167,107 50,041,653
Total liabilities and shareholders' equity 73,575,333 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 Nine Months Ended
Oct 3,1998 Sep 27,1997 Oct 3,1998 Sep 27,1997
<S> <C> <C> <C> <C>
Net sales 28,039,905 31,370,635 84,458,443 93,478,935
Cost of sales 24,572,533 26,495,268 74,589,382 79,525,161
Gross profit 3,467,372 4,875,367 9,869,061 13,953,774
Selling, general and
administrative expense 2,601,482 2,335,679 7,667,331 7,285,166
Operating income 865,890 2,539,688 2,201,730 6,668,608
Other (income) and expense
Interest expense 181,207 169,102 510,892 582,129
Other, net (19,711) (16,655) (106,577) (6,843)
Income before taxes 704,394 2,387,241 1,797,415 6,093,322
Provision for income tax 249,000 844,000 635,000 2,153,000
Net income 455,394 1,543,241 1,162,415 3,940,322
Net income
Basic $.07 $.22 $.17 $.56
Diluted $.07 $.22 $.17 $.56
Dividends paid per common share $.10 $.09 $.30 $.27
Average shares outstanding
Basic 6,769,363 6,974,705 6,797,255 6,977,563
Diluted 6,776,879 7,029,464 6,818,881 7,026,335
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
Synalloy Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited) Three Months Ended
Oct 3, 1998 Sep 27, 1997
<S> <C> <C>
Operating activities
Net income 1,162,415 3,940,322
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 2,587,821 2,372,488
Amortization of deferred charges 195,593 188,303
Deferred compensation 19,113 5,602
Provision for losses on accounts receivable 206,538 (162)
Loss on sale of property, plant and equipment 10,401 114,215
Cash value of life insurance (64,926) (58,500)
Environmental reserves (239,022) (307,224)
Changes in operating assets and liabilities:
Accounts receivable 159,172 (1,309,098)
Inventories 1,074,255 1,968,994
Other assets 305,262 (357,905)
Accounts payable and accrued expenses 1,952,273 1,823,010
Income taxes payable (39,400) 239,793
Net cash provided by operating activities 7,329,495 8,619,838
Investing activities
Purchases of property, plant and equipment (1,766,714) (2,171,785)
Proceeds from sale of property, plant and equipment 9,818 9,450
Acquisition, net of cash (3,456,799) 0
Proceeds from notes receivable 0 4,927
Net cash used in investing activities (5,213,695) (2,157,408)
Financing activities
Proceeds from revolving lines of credit 852,000 13,330,000
Payments on revolving lines of credit (317,000) (14,410,000)
Payment of notes payable to employee 0 (2,000,000)
Principal payments on long-term debt 0 (1,154,805)
Proceeds from exercised stock options 4,838 61,956
Purchases of treasury stock (1,999,219) (439,364)
Dividends paid (2,042,580) (1,882,140)
Net cash used in financing activities (3,501,961) (6,494,353)
(Decrease) increase in cash and cash equivalents (1,386,161) (31,923)
Cash and cash equivalents at beginning of year 1,602,543 115,828
Cash and cash equivalents at end of period 216,382 83,905
See accompanying notes to condensed consolidated financial statements
</TABLE>
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Synalloy Corporation
Notes To Condensed Consolidated Financial Statements
(Unaudited)
October 3, 1998
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
nine- month periods ended October 3, 1998, are not necessarily indicative of
the results that may be expected for the year ending January 2, 1999. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
period ended January 3, 1998.
NOTE 2--INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
NOTE 3--LEGAL MATTERS
The Company is from time to time subject to various claims, other possible
legal actions for product liability and other damages, and other matters
arising out of the normal conduct of the Company's business. Management
believes that based on present information, it is unlikely that liability, if
any, exists that would have a materially adverse effect on the consolidated
operating results or financial position of the Company.
NOTE 4--NET INCOME PER COMMON SHARE
Income per share is computed using the weighted average shares of common stock
and dilutive Common Stock equivalents (options) outstanding during the
respective periods. In 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. Statement 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options. Diluted earnings per share is
very similar to the previously reported primary earnings per share. Earnings
per share amounts for 1997 have been restated to conform to the Statement 128
requirements.
NOTE 5--ACQUISITIONS
On August 21,1998, the Company purchased the common stock of Organic-Pigments
Corporation with an effective date of July 1, 1998. Organic, located in
Greensboro, N. C., manufactures aqueous pigment dispersions sold to the
textile industry and used in printing inks for use on paper. Total cost of
the acquisition was $3,470,000 including the retirement of $1,095,000 in bank
debt and certain acquisition costs related to the transaction. The Company
funded the acquisition with available cash. The acquisition was accounted for
by the purchase method of accounting with the purchase price allocated to the
underlying assets based on their respective fair values at the date of
acquisition. Such allocation has been based on preliminary estimates, which
will be revised at a later date. Since the purchase price was approximately
equal to the fair value of the net assets acquired, no goodwill was recorded.
The Company's consolidated financial statements include the results of Organic
from the July 1 effective date. The acquisition did not have a material
impact on 1998 operations; therefore, no pro forma data has been presented.
- 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 October 3, 1998. (Dollar
amounts are in thousands except for per share data.)
<TABLE>
Three Months Ended Nine Months Ended
Oct 3,1998 Sep 27,1997 Oct 3,1998 Sep 27,1997
<S> <C> <C> <C> <C>
Net sales
Metals Segment 13,328 18,581 44,427 52,178
Chemicals Segment 14,712 12,790 40,031 41,301
28,040 31,371 84,458 93,479
Operating income
Metals Segment 191 1,884 1,231 4,066
Chemicals Segment 865 888 1,617 3,431
1,056 2,772 2,848 7,497
Unallocated expenses
Corporate 190 232 646 829
Interest and debt expense,
net of interest income 162 153 405 575
Income before income taxes 704 2,387 1,797 6,093
</TABLE>
Consolidated sales for the quarter and year to date decreased 11 and 10
percent, respectively, compared to the same periods one year ago.
Consolidated net income declined 71 percent to $455 and $1,162 for the quarter
and year to date, or $.07 and $.17 per share, respectively, compared to the
same periods one year ago. Weak demand together with lower prices in the
Metals Segment led to substantially lower sales and profits in the third
quarter compared to a year earlier.
Chemicals Segment sales increased 15 percent and declined three percent in the
quarter and year to date, respectively, compared to the same periods one year
ago. The third quarter sales increase resulted from the acquisition of
Organic Pigments effective July 1, 1998. Excluding Organic Pigments, sales
were about the same as a year earlier. Lower sales of textile dyestuffs were
offset by an increase in specialty chemical sales. Operating income declined
three and 53 percent in the quarter and year to date, respectively. The
decline in operating income for the quarter resulted from lower profits from
dyestuffs that was mostly offset by higher profits from specialty chemicals.
The decline in sales and operating income year to date, reflects the extremely
competitive market that has existed for textile dyes throughout the year.
Management is pleased with the 330 percent improvement in operating income on
a sequential basis compared to the second quarter's depressed level of
$201,000. A large new agricultural chemical project scheduled to begin
production in January 1999, the acquisition of Organic Pigments and several
other initiatives make management optimistic about future growth in sales and
income from the chemicals segment.
Metals Segment sales declined 28 and 15 percent in the quarter and year to
date, respectively, compared to the same periods one year ago. Third quarter
demand for the segment's principal product, stainless steel pipe, continued to
reflect the weakness that began in the second quarter. Unit volume was down
30 percent
- 7 -
Synalloy Corporation
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations - Continued
from a year earlier while selling prices for the commodity grades 304 and 316
were 11 percent lower than a year earlier. This weakness was partially the
result of the well-publicized problems in Asia and the Pacific Rim countries
which led to a collapse in exports to these areas, coupled with a surge in
cheap imports. Partially offsetting these negative factors was an increase in
sales of non-commodity pipe made from specialty alloys. These specialties
produced 21 percent of dollar pipe sales this year versus seven percent during
last year's third quarter. Piping systems and process equipment had weak
sales in the third quarter that led to a modest operating loss from these
products. On the other hand, bookings during the quarter were excellent,
leading to an increase in backlog from $5,500,000 at the start of the quarter
to $18,400,000 at quarter's end. This should assure improved results from
these products over the next several quarters.
Selling and administrative expense for the quarter and year to date increased
to nine percent of consolidated sales, respectively, compared to last year's
seven percent. The increase is due to the addition of the selling and
administrative expenses of Organic Pigments and the lower sales experienced in
1998.
Cash flows from operations totaled $7,329 during the first nine months of 1998
compared to $8,620 generated during the same period one year ago. The decrease
in cash flows came primarily from the decline in net income for the first nine
months compared to 1997. The Company used part of the cash flows generated in
1998 to purchase 163,300 shares of the Company's common stock for $1,999,
including 60,300 shares purchased for $506 in the third quarter. The purchase
of Organic pigments for $3,470 was also funded out of cash flows. 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 October 3, 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: November 6, 1998 /s/ James G. Lane, Jr.
James G. Lane, Jr., Chairman and
Chief Executive Officer
Date: November 6, 1998 /s/ Gregory M. Bowie
Gregory M. Bowie
Vice President, Finance
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> OCT-03-1998
<CASH> 216
<SECURITIES> 0
<RECEIVABLES> 15781
<ALLOWANCES> 0
<INVENTORY> 27409
<CURRENT-ASSETS> 43968
<PP&E> 56395
<DEPRECIATION> 32107
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<CURRENT-LIABILITIES> 12849
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0
0
<COMMON> 8000
<OTHER-SE> 39167
<TOTAL-LIABILITY-AND-EQUITY> 73575
<SALES> 84458
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<CGS> 74589
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<OTHER-EXPENSES> 7667
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<EPS-PRIMARY> .17
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</TABLE>
