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 July 3, 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 July 3, 1999
Common Stock, $1.00 Par Value 6,576,688
- 1 -
Synalloy Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - July 3, 1999 and
January 2, 1999
Condensed consolidated statements of income - Three and six
months ended July 3, 1999 and July 4, 1998
Condensed consolidated statements of cash flows - Six months
ended July 3, 1999 and July 4, 1998
Notes to condensed consolidated financial statements - July 3,
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
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PART 1. FINANCIAL STATEMENTS
<TABLE>
Synalloy Corporation
Condensed Consolidated Balance Sheets
Jul 3, 1999 Jan 2, 1999
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 5,307 $ 117,658
Accounts receivable, less allowance
for doubtful accounts 14,522,316 12,596,592
Inventories
Raw materials 8,439,568 7,502,972
Work-in-process 4,482,184 3,755,147
Finished goods 13,661,307 14,842,842
Total inventories 26,583,059 26,100,961
Deferred income taxes 192,000 192,000
Prepaid expenses and other current assets 569,182 646,342
Total current assets 41,871,864 39,653,553
Cash value of life insurance 2,029,840 2,025,984
Investment 902,117 1,026,117
Property, plant & equipment, net of accumulated
depreciation of $34,183,000 and $32,498,000 25,409,426 25,495,020
Deferred charges and other assets 3,370,151 3,173,788
Total assets $73,583,398 $71,374,462
Liabilities and Shareholders' Equity
Current liabilities
Notes payable $ - $ 665,000
Accounts payable 10,868,640 7,882,778
Income taxes 597,709 -
Accrued expenses 2,040,185 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 14,282,184 10,707,168
Long-term debt, less current portion 10,000,000 10,000,000
Environmental reserves 1,619,468 1,846,550
Deferred compensation 1,361,259 1,349,940
Deferred income taxes 1,580,000 1,623,000
Contingencies
Shareholders' equity
Common stock, par value $1 per share - authorized
12,000,000 at July 3,1999 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 49,684,637 49,687,391
Accumulated other comprehensive income 372,000 453,000
Less cost of Common Stock in treasury (13,325,641) (12,302,078)
Total shareholders' equity 44,740,487 45,847,804
Total liabilities and shareholders' equity $73,583,398 $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>
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<TABLE>
Synalloy Corporation
Condensed Consolidated Statements of Income
(Unaudited) Three Months Ended Six Months Ended
Jul 3, 1999 Jul 4, 1998 Jul 3, 1999 Jul 4, 1998
<S> <C> <C> <C> <C>
Net sales $28,291,775 $25,812,612 $55,937,072 $56,418,538
Cost of sales 24,960,327 22,885,753 49,234,545 50,016,849
Gross profit 3,331,448 2,926,859 6,702,527 6,401,689
Selling, general and
administrative expense 2,718,925 2,657,870 5,408,455 5,065,849
Operating income 612,523 268,989 1,294,072 1,335,840
Other (income) and expense
Interest expense 196,028 163,170 355,781 329,685
Other, net (86,241) (62,811) (83,070) (86,866)
Income before taxes 502,736 168,630 1,021,361 1,093,021
Provision for income tax 177,000 59,000 359,000 386,000
Net income $ 325,736 $ 109,630 $ 662,361 $ 707,021
Net income per common share
Basic $.05 $.02 $.10 $.10
Diluted $.05 $.02 $.10 $.10
Dividends paid per common $.05 $.10 $.10 $.19
Average shares outstanding
Basic 6,584,311 6,785,929 6,653,390 6,811,202
Diluted 6,589,950 6,809,722 6,662,217 6,839,491
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
Jul 3, 1999 Jul 4, 1998
<S> <C> <C>
Operating activities
Net income $ 662,361 $ 707,021
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 1,954,095 1,678,438
Amortization of deferred charges 136,301 129,785
Deferred compensation 11,319 12,668
Provision for losses on accounts receivable 291,885 99,044
Loss (gain) on sale of property, plant and
equipment 5,864 (233)
Cash value of life insurance (3,856) (39,780)
Environmental reserves (227,082) (167,160)
Changes in operating assets and liabilities:
Accounts receivable (2,217,609) 1,976,430
Inventories (482,098) 1,559,654
Other assets 59,496 (51,731)
Accounts payable and accrued expenses 3,544,226 1,313,719
Income taxes payable 652,790 (219,651)
Net cash provided by operating activities 4,387,692 6,998,204
Investing activities
Purchases of property, plant and equipment (1,896,989) (1,086,164)
Proceeds from sale of property, plant and
equipment 22,624 233
(Increase) decrease in notes receivable (272,000) -
Net cash used in investing activities (2,146,365) (1,085,931)
Financing activities
Proceeds from revolving lines of credit 15,949,000 152,000
Payments on revolving lines of credit (16,614,000) (152,000)
Proceeds from exercised stock options - 4,837
Purchases of treasury stock (1,023,562) (1,493,000)
Dividends paid (665,116) (1,363,987)
Net cash used in financing activities (2,353,678) (2,852,150)
(Decrease) increase in cash and cash equivalents (112,351) 3,060,123
Cash and cash equivalents at beginning of year 117,658 1,602,543
Cash and cash equivalents at end of period $ 5,307 $4,662,666
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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Synalloy Corporation
Notes To Condensed Consolidated Financial Statements
(Unaudited)
July 3, 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
six month periods ended July 3, 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 $202,000 and $581,000 for the three and six months
ended July 3, 1999, respectively. Comprehensive income consists of net income
plus unrealized losses on the Company's foreign equity investment, of $124,000
and $81,000, net of deferred income taxes of $66,000 and $43,000 for the three
and six months ended July 3, 1999, respectively, and is recorded in
Shareholders' Equity.
<TABLE>
NOTE 5--SEGMENT INFORMATION
(Dollar amounts are in thousands)
Three Months Ended Six Months Ended
Jul 3, 1999 Jul 4, 1998 Jul 3, 1999 Jul 4, 1998
<S> <C> <C> <C> <C>
Net sales
Metals Segment $ 15,162 $ 13,673 $ 28,763 $ 31,099
Chemicals Segment 13,130 12,140 27,174 25,320
$ 28,292 $ 25,813 $ 55,937 $ 56,419
Operating income
Metals Segment $ 735 $ 290 $ 1,142 $ 1,040
Chemicals Segment 130 201 630 752
865 491 1,772 1,792
Unallocated expenses
Corporate 278 221 503 456
Interest and debt
expense, net of
interest income 85 101 248 243
Income before
income taxes $ 502 $ 169 $ 1,021 $ 1,093
</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 July 3, 1999. (Dollar amounts
are in thousands except for per share data.)
Consolidated sales for the quarter increased 10 percent and decreased one
percent year to date compared to the same periods one year ago. Consolidated
net income increased to $326 from $110 for the quarter and declined six
percent to $662 from $707 year to date, respectively, compared to the same
periods one year ago.
Metals Segment sales increased 11 percent and declined eight percent in the
quarter and year to date, respectively. In spite of a 12 percent decline in
average selling prices compared to last year's second quarter, a strong 26
percent increase in unit volumes produced the improvement in dollar sales.
The average price decline was driven by lower stainless steel costs and
competitive pressure from cheap imports of stainless pipe. Operating income
was up 153 percent because of improved results from piping systems and process
equipment which more than offset a profit decline from stainless pipe.
On July 7, 1999, the International Trade Commission voted to impose
antidumping and countervailing duties ranging up to 59 percent on imports of
stainless steel sheet and strip in coils from eight countries. This triggered
an announcement of a seven percent price increase effective July 19, 1999 by
most U.S. stainless producers. The Company is in the process of preparing a
new price sheet that will raise pipe prices about seven percent. Management
believes this signals a reversal of the relentless decline that has driven
stainless pipe prices down 50 percent since 1995. However, only time will
tell if these price increases will hold up in the market place.
The $22,700,000 backlog of piping systems and process equipment at July 3,
1999 is over four times the level of a year earlier. This backlog is expected
to be completed over the next six quarters and provides a foundation for good
operating results from these products over that time period.
Chemicals Segment sales increased eight and seven percent in the quarter and
year to date, respectively. The acquisition of Organic Pigments effective
July 1, 1998 led to the increase in second quarter sales. Excluding the
acquisition, sales were down nine percent. Operating income declined 35 and
16 percent in the quarter and year to date, respectively. The declines in
operating income reflect the poor results from textile colors that continue to
mirror the negative conditions in the domestic textile industry. Specialty
chemicals results were about the same as a year earlier.
The startup of a sizeable agricultural product toll agreement has been delayed
due to problems encountered in the transition from pilot to plant equipment.
Management believes that corrective actions now being taken will result in the
successful production of this product before year end. The Company has
recently reached an agreement with an international chemical company that
should lead to the largest contract processing project ever obtained by the
Company. Production is scheduled to begin late this year. These two
activities will have little effect on 1999 but are expected to contribute
significantly to sales and profits thereafter. In spite of the dismal state
of the domestic color business, the Company is pursuing several initiatives it
believes will enhance future financial performance from these products.
- 7 -
Synalloy Corporation
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations - Continued
Selling and administrative expense for the quarter and year to date were 10
percent of consolidated sales, respectively, compared to last year's 10 and
nine percent.
Cash flows from operations totaled $4,388 during the first six months of 1999
compared to $6,998 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 $845 in 1999,
compared to a $4,850 change from the same accounts in 1998. The decrease was
offset by the $872 increase in income taxes payable form 1998 to 1999. The
Company used part of the cash flows generated in 1999 to purchase in 148,925
shares of the Company's common stock for $1,024. 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:
A. The Annual Meeting of Shareholders was held April 29, 1999
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. 5,965,632 50,295
2.Sibyl N. Fishburn 5,915,438 100,489
3.Richard E. Ingram 5,965,193 50,734
4.Glenn R. Oxner 5,915,654 100,273
5.Carroll D. Vinson 5,915,654 100,273
C. The proposal to amend Article IV of the Certificate of
Incorporation to increase authorized shares from 8,000,000
to 12,000,000, par value $1.00 was approved by a vote of
5,892,864 for, 86,988 against and 36,075 abstentions.
D. Ernst & Young LLP, independent certified accountants, were
selected as independent auditors for the fiscal year ending
January 1, 2000 by a vote of 5,977,562 for, 8,338 against
and 30,027 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 July 3, 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: August 6, 1999 /s/ James G. Lane, Jr.
James G. Lane, Jr., Chairman and
Chief Executive Officer
Date: August 6, 1999 /s/ Gregory M. Bowie
Gregory M. Bowie
Vice President, Finance
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-END> JUL-3-1999
<CASH> 5
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<RECEIVABLES> 14522
<ALLOWANCES> 0
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<CURRENT-ASSETS> 41872
<PP&E> 59592
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<TOTAL-ASSETS> 73583
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0
0
<COMMON> 8000
<OTHER-SE> 36740
<TOTAL-LIABILITY-AND-EQUITY> 73583
<SALES> 55937
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<CGS> 49235
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<OTHER-EXPENSES> 5408
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</TABLE>
