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 2, 1999
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 2, 1999
Common Stock, $1.00 Par Value 6,558,088
- 1 -
Synalloy Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - October 2, 1999 and
January 2, 1999
Condensed consolidated statements of income - Three and nine
months ended October 2, 1999 and October 3, 1998
Condensed consolidated statements of cash flows - Nine months
ended October 2, 1999 and October 3, 1998
Notes to condensed consolidated financial statements - October 2,
1999
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
Oct 2, 1999 Jan 2, 1999
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 4,955 $ 117,658
Accounts receivable, less allowance
for doubtful accounts 18,504,786 12,596,592
Inventories
Raw materials 8,977,648 7,502,972
Work-in-process 6,297,682 3,755,147
Finished goods 12,621,067 14,842,842
Total inventories 27,896,397 26,100,961
Deferred income taxes 192,000 192,000
Prepaid expenses and other current assets 304,157 646,342
Total current assets 46,902,295 39,653,553
Cash value of life insurance 2,054,053 2,025,984
Investment 1,132,117 1,026,117
Property, plant & equipment, net of accumulated
depreciation of $35,128,000 and $32,498,000 25,220,095 25,495,020
Deferred charges and other assets 3,296,079 3,173,788
Total assets $78,604,639 $71,374,462
Liabilities and Shareholders' Equity
Current liabilities
Notes payable $ 2,346,000 $ 665,000
Accounts payable 11,910,445 7,882,778
Income taxes 926,238 -
Accrued expenses 2,834,794 1,383,740
Current portion of environmental reserves 575,650 575,650
Current portion of long-term debt 200,000 200,000
Total current liabilities 18,793,127 10,707,168
Long-term debt, less current portion 10,000,000 10,000,000
Environmental reserves 1,524,490 1,846,550
Deferred compensation 1,360,839 1,349,940
Deferred income taxes 1,660,000 1,623,000
Contingencies
Shareholders' equity
Common stock, par value $1 per share - authorized
12,000,000 at October 2,1999 and 8,000,000 shares
at January 2, 1999; issued 8,000,000 shares 8,000,000 8,000,000
Capital in excess of par value 9,491 9,491
Retained earnings 50,186,334 49,687,391
Accumulated other comprehensive income 522,000 453,000
Less cost of Common Stock in treasury (13,451,642) (12,302,078)
Total shareholders' equity 45,266,183 45,847,804
Total liabilities and shareholders' equity $78,604,639 $71,374,462
Note: The balance sheet at January 2, 1999 has been derived from
the audited financial statements at that date. See accompanying
notes to condensed consolidated financial statements
</TABLE>
- 3 -
<TABLE>
Synalloy Corporation
Condensed Consolidated Statements of Income
(Unaudited) Three Months Ended Nine Months Ended
Oct 2, 1999 Oct 3, 1998 Oct 2, 1999 Oct 3, 1998
<S> <C> <C> <C> <C>
Net sales $31,024,054 $28,039,905 $86,961,126 $84,458,443
Cost of sales 26,424,178 24,572,533 75,658,723 74,589,382
Gross profit 4,599,876 3,467,372 11,302,403 9,869,061
Selling, general and
administrative expense 3,159,168 2,601,482 8,567,623 7,667,331
Operating income 1,440,708 865,890 2,734,780 2,201,730
Other (income) and expense
Interest expense 179,836 181,207 535,617 510,892
Other, net (19,661) (19,711) (102,731) (106,577)
Income before taxes 1,280,533 704,394 2,301,894 1,797,415
Provision for income tax 450,000 249,000 809,000 635,000
Net income $ 830,533 $ 455,394 $ 1,492,894 $ 1,162,415
Net income per common share
Basic $.13 $.07 $.23 $.17
Diluted $.13 $.07 $.23 $.17
Dividends paid per
Common share $.05 $.10 $.15 $.30
Average shares outstanding
Basic 6,576,279 6,769,363 6,627,686 6,797,255
Diluted 6,576,279 6,776,879 6,629,974 6,818,881
See accompanying notes to condensed consolidated financial statements.
</TABLE>
- 4 -
<TABLE>
Synalloy Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited) Nine Months Ended
Oct 2, 1999 Oct 3, 1998
<S> <C> <C>
Operating activities
Net income $ 1,492,894 $ 1,162,415
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 2,921,634 2,587,821
Amortization of deferred charges 195,939 195,593
Deferred compensation 10,899 19,113
Provision for losses on accounts receivable 594,107 206,538
Loss on sale of property, plant and equipment 5,864 10,401
Cash value of life insurance (28,069) (64,926)
Environmental reserves (322,060) (239,022)
Changes in operating assets and liabilities:
Accounts receivable (6,502,301) 159,172
Inventories (1,795,436) 1,074,255
Other assets 223,955 305,262
Accounts payable and accrued expenses 5,460,640 1,952,273
Income taxes payable 981,319 (39,400)
Net cash provided by operating activities 3,239,385 7,329,495
Investing activities
Purchases of property, plant and equipment (2,675,197) (1,766,714)
Proceeds from sale of property,
plant and equipment 22,624 9,818
Acquisitions, net of cash - (3,456,799)
Increase in note receivables (237,000) -
Net cash used in investing activities (2,889,573) (5,213,695)
Financing activities
Proceeds from revolving lines of credit 25,357,000 852,000
Payments on revolving lines of credit (23,676,000) (317,000)
Proceeds from exercised stock options - 4,838
Purchases of treasury stock (1,149,565) (1,999,219)
Dividends paid (993,950) (2,042,580)
Net cash used in financing activities (462,515) (3,501,961)
(Decrease) increase in cash and cash equivalents (112,703) (1,386,161)
Cash and cash equivalents at beginning of year 117,658 1,602,543
Cash and cash equivalents at end of period $ 4,955 $ 216,382
See accompanying notes to condensed consolidated financial statements.
</TABLE>
- 5 -
Synalloy Corporation
Notes To Condensed Consolidated Financial Statements
(Unaudited)
October 2, 1999
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 2, 1999, are not necessarily indicative of
the results that may be expected for the year ending January 1, 2000. 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 2, 1999.
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--COMPREHENSIVE INCOME
Comprehensive income was $981,000 and $1,562,000 for the three and nine months
ended October 2, 1999, respectively. Comprehensive income consists of net
income plus unrealized gains on the Company's foreign equity investment, of
$150,000 and $69,000, net of deferred income taxes of $80,000 and $37,000 for
the three and nine months ended October 2, 1999, respectively, and is recorded
in Shareholders' Equity.
NOTE 5--SEGMENT INFORMATION
<TABLE>
(Dollar amounts are in thousands.)
Three Months Ended Nine Months Ended
Oct 2, 1999 Oct 3, 1998 Oct 2, 1999 Oct 3, 1998
<S> <C> <C> <C> <C>
Net sales
Metals Segment $ 17,984 $ 13,328 $ 46,747 $ 44,427
Chemicals Segment 13,040 14,712 40,214 40,031
$ 31,024 $ 28,040 $ 86,961 $ 84,458
Operating income
Metals Segment $ 1,575 $ 191 $ 2,717 $ 1,231
Chemicals Segment 86 865 716 1,617
1,661 1,056 3,433 2,848
Unallocated expenses
Corporate 200 190 703 646
Interest and debt
expense, net of
interest income 180 162 428 405
Income before
income taxes $ 1,281 $ 704 $ 2,302 $ 1,797
</TABLE>
-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 2, 1999. (Dollar
amounts are in thousands except for per share data.)
Consolidated sales for the quarter increased 11 and three percent year to date
compared to the same periods one year ago as improving conditions in the
Metals Segment more than offset continued deterioration in the textile color
business during the third quarter. Consolidated net income increased 82 and
28 percent for the quarter and year to date, respectively, compared to the
same periods one year ago.
Metals Segment sales increased 35 and five percent in the quarter and year to
date, respectively. Operating income increased 723 and 121 percent in the
quarter and year to date, respectively. A strong 34 percent increase in unit
volumes in the third quarter was largely responsible for the increase in
dollar sales. After four years of unrelenting declines that brought stainless
pipe prices down to about one-half of the high reached during 1995, the third
quarter ended with prices about 15 percent above their 1999 lows. If this
trend toward higher prices is supported in the market place, sales and profits
from stainless pipe should continue to improve.
The piping systems business has improved dramatically from a year ago. The
backlog for these products, $23,900 at October 2, 1999, is at a healthy level
that should produce good operating results through the end of next year.
Chemicals Segment sales decreased 11 percent in the quarter compared to the
same quarter last year, and year to date sales were slightly above last year's
total. Operating income declined 90 and 56 percent in the quarter and year to
date, respectively. Reduced demand coupled with lower prices for textile
colors led to the declines. As foreign sourcing of dyes for the domestic
textile industry has become more pervasive, sales prices have plummeted to
levels that in many cases defy economic logic. Under these adverse
conditions, the company is focusing its efforts on the products and customers
where it can best compete effectively. Management's strategy of developing
specialty chemical sales to reduce the segment's dependence on textile colors
has continued to show progress. Non textile color products now represent
almost one-half of sales and are expected to grow substantially next year.
Selling and administrative expenses for the quarter and year to date were 10
percent of consolidated sales compared to last year's quarter and year to date
totals of nine percent. The increase in expense came from increases in
profit-based incentives and the allowance for doubtful accounts to establish
reserves against several potentially uncollectible receivable accounts.
- 7 -
Synalloy Corporation
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations - Continued
Cash flows from operations totaled $3,239 during the first nine months of 1999
compared to $7,329 generated during the same period one year ago. The decrease
in cash flows came primarily from increases in accounts receivable and
inventories, offset by an increase in accounts payable totaling $2,837 in
1999, compared to a $3,186 decrease from the same accounts in 1998. The
decrease was offset by the $1,020 increase in income taxes payable from 1998
to 1999. The Company used part of the cash flows generated in 1999 to
purchase in 167,525 shares of the Company's common stock for $1,149. 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.
On October 22, 1999, the Company purchased 260,000 shares of its common stock
at $6.25 per share, for a total purchase price of $1,625. The purchase
completes the previously announced stock repurchase program and represents
about four percent of the outstanding shares.
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 2, 1999
-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 5, 1999 /s/ James G. Lane, Jr.
James G. Lane, Jr., Chairman and
Chief Executive Officer
Date: November 5, 1999 /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-1-2000
<PERIOD-END> OCT-2-1999
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 18505
<ALLOWANCES> 0
<INVENTORY> 27896
<CURRENT-ASSETS> 46902
<PP&E> 60348
<DEPRECIATION> 35128
<TOTAL-ASSETS> 78605
<CURRENT-LIABILITIES> 18793
<BONDS> 0
0
0
<COMMON> 8000
<OTHER-SE> 37266
<TOTAL-LIABILITY-AND-EQUITY> 78605
<SALES> 86961
<TOTAL-REVENUES> 86961
<CGS> 75659
<TOTAL-COSTS> 75659
<OTHER-EXPENSES> 8568
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 536
<INCOME-PRETAX> 2302
<INCOME-TAX> 809
<INCOME-CONTINUING> 1493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1493
<EPS-BASIC> .23
<EPS-DILUTED> .23
</TABLE>
