UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2001
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From _____ to ____
Commission file number0-19687
SYNALLOY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 57-0426694 | |
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P.O. Box 5627 |
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(864) 585-3605
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
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 .
The number of shares outstanding of the registrant's common stock as of June 30, 2001 was 5,964,345.
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Synalloy Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
Condensed consolidated balance sheets - June 30, 2001 and December 30, 2000
Condensed consolidated statements of income - Three and six months ended June 30, 2001 and July 1, 2000
Condensed consolidated statements of cash flows - Three and six months ended June 30, 2001 and July 1, 2000
Notes to condensed consolidated financial statements - June 30, 2001
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 | ||||||||
Synalloy Corporation | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
Jun 30, 2001 | Dec 30, 2000 | |||||||
(Unaudited) | (Note) | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 90,882 | $ | 467 | ||||
Accounts receivable, less allowance | ||||||||
for doubtful accounts | 12,454,881 | 13,260,204 | ||||||
Inventories | ||||||||
Raw materials | 6,239,020 | 7,017,023 | ||||||
Work-in-process | 4,619,633 | 5,727,177 | ||||||
Finished goods | 13,178,783 | 16,115,875 | ||||||
Total inventories | 24,037,436 | 28,860,075 | ||||||
Deferred income taxes | 597,000 | 597,000 | ||||||
Prepaid expenses and other current assets | 1,078,512 | 1,282,750 | ||||||
Total current assets | 38,258,711 | 44,000,496 | ||||||
Cash value of life insurance | 2,279,709 | 2,244,739 | ||||||
Investments | 1,109,224 | 1,077,599 | ||||||
Property, plant & equipment, net of accumulated | ||||||||
depreciation of $35,081,000 and $33,583,000 | 22,345,883 | 22,232,822 | ||||||
Deferred charges and other assets | 3,570,591 | 3,512,424 | ||||||
Total assets | $ | 67,564,118 | $ | 73,068,080 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities | ||||||||
Notes payable | $ | 1,973,000 | $ | 8,230,000 | ||||
Accounts payable | 7,501,295 | 6,113,110 | ||||||
Income taxes | 781,518 | - | ||||||
Accrued expenses | 1,918,566 | 2,721,197 | ||||||
Current portion of environmental reserves | 1,452,665 | 1,452,700 | ||||||
Total current liabilities | 13,627,044 | 18,517,007 | ||||||
Long-term debt, less current portion | 10,000,000 | 10,000,000 | ||||||
Environmental reserves | 1,677,673 | 1,859,000 | ||||||
Deferred compensation | 1,056,799 | 1,353,244 | ||||||
Deferred income taxes | 1,177,000 | 1,166,000 | ||||||
Contingencies | ||||||||
Shareholders' equity | ||||||||
Common stock, par value $1 per share - authorized | ||||||||
12,000,000 shares; issued 8,000,000 shares | 8,000,000 | 8,000,000 | ||||||
Capital in excess of par value | 9,491 | 9,491 | ||||||
Retained earnings | 48,843,798 | 49,008,090 | ||||||
Accumulated other comprehensive income | 259,434 | 242,251 | ||||||
Less cost of Common Stock in treasury | (17,087,121 | ) | (17,087,003 | ) | ||||
Total shareholders' equity | 40,025,602 | 40,172,829 | ||||||
Total liabilities and shareholders' equity | $ | 67,564,118 | $ | 73,068,080 | ||||
Note: The balance sheet at December 30, 2000 has been derived from the audited financial statements at that date. | ||||||||
See accompanying notes to condensed consolidated financial statements. | ||||||||
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Synalloy Corporation | |||||||||||||
Condensed Consolidated Statements of Operations | |||||||||||||
(Unaudited) | Three Months Ended | Six Months Ended | |||||||||||
Jun 30, 2001 | Jul 1, 2000 | Jun 30, 2001 | Jul 1, 2000 | ||||||||||
Net sales | $ | 22,604,723 | $ | 31,891,371 | $ | 47,707,486 | $ | 64,162,371 | |||||
Cost of sales | 19,987,989 | 26,956,152 | 41,490,727 | 54,029,440 | |||||||||
Gross profit | 2,616,734 | 4,935,219 | 6,216,759 | 10,132,931 | |||||||||
Selling, general and | |||||||||||||
administrative expense | 2,467,377 | 2,797,533 | 5,031,375 | 6,082,108 | |||||||||
Operating income | 149,357 | 2,137,686 | 1,185,384 | 4,050,823 | |||||||||
Other (income) and expense | |||||||||||||
Interest expense | 229,812 | 273,268 | 511,089 | 512,078 | |||||||||
Other, net | 3,575 | 4,360 | 7,150 | 11,663 | |||||||||
(Loss) income before taxes | (84,030 | ) | 1,860,058 | 667,145 | 3,527,082 | ||||||||
Provision for income taxes | 30,000 | ) | 663,000 | 235,000 | 1,256,000 | ||||||||
(Loss) net income | $ | (54,030 | ) | $ | 1,197,058 | $ | 432,145 | $ | 2,271,082 | ||||
(Loss) net income per common share | |||||||||||||
Basic | ($.01 | ) | $.19 | $.07 | $.36 | ||||||||
Diluted | ($.01 | ) | $.19 | $.07 | $.36 | ||||||||
Dividends paid per | |||||||||||||
common share | $.05 | $.05 | $.10 | $.10 | |||||||||
Average shares outstanding | |||||||||||||
Basic | 5,964,348 | 6,254,721 | 5,964,358 | 6,272,891 | |||||||||
Diluted | 5,965,594 | 6,254,919 | 5,964,759 | 6,273,603 | |||||||||
See accompanying notes to condensed consolidated financial statements | |||||||||||||
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Synalloy Corporation | ||||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||||
(Unaudited) | Six Months Ended | |||||||||
Jun 30, 2001 | Jul 1, 2000 | |||||||||
Operating activities | ||||||||||
Net income | $ | 432,145 | $ | 2,271,082 | ||||||
Adjustments to reconcile net income to net cash | ||||||||||
provided by operating activities: | ||||||||||
Depreciation expense | 1,498,747 | 1,974,141 | ||||||||
Amortization of deferred charges | 168,218 | 162,700 | ||||||||
Deferred compensation | (296,445 | ) | 18,425 | |||||||
Provision for losses on accounts receivable | 121,680 | (9,091 | ) | |||||||
Gain on sale of property, plant and equipment | (17,900 | ) | (5,426 | ) | ||||||
Cash value of life insurance | (34,970 | ) | (36,400 | ) | ||||||
Environmental reserves | (181,362 | ) | (164,851 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | 683,643 | (1,188,321 | ) | |||||||
Inventories | 4,822,639 | (992,198 | ) | |||||||
Other assets | 212,744 | (239,598 | ) | |||||||
Accounts payable and accrued expenses | 320,372 | 249,263 | ||||||||
Income taxes payable | 1,057,700 | (13,242 | ) | |||||||
Net cash provided by operating activities | 8,787,211 | 2,026,484 | ||||||||
Investing activities | ||||||||||
Purchases of property, plant and equipment | (2,082,326 | ) | (2,164,374 | ) | ||||||
Proceeds from sale of property, plant and equipment | 488,418 | 5,426 | ||||||||
Increase in note receivables | (249,333 | ) | (292,000 | ) | ||||||
Net cash used in investing activities | (1,843,241 | ) | (2,450,948 | ) | ||||||
Financing activities | ||||||||||
Proceeds from revolving lines of credit | 11,758,000 | 23,684,000 | ||||||||
Payments on revolving lines of credit | (18,015,000 | ) | (21,737,000 | ) | ||||||
Purchases of treasury stock | (119 | ) | (971,951 | ) | ||||||
Dividends paid | (596,436 | ) | (628,356 | ) | ||||||
Net cash (used in) provided by financing activities | (6,853,555 | ) | 346,693 | |||||||
Increase in cash and cash equivalents | 90,415 | (77,771 | ) | |||||||
Cash and cash equivalents at beginning of year | 467 | 120,549 | ||||||||
Cash and cash equivalents at end of period | $ | 90,882 | $ | 42,778 | ||||||
See accompanying notes to condensed consolidated financial statements. | ||||||||||
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Synalloy Corporation
Notes To Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2001
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 six-month period ended June 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 29, 2001. 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 30, 2000.
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 (loss) and income was ($45,000) and $449,000 for the three and six months ended June 30, 2001, respectively. Comprehensive income consists of net income less unrealized losses on the Company's foreign equity investment, of $9,000 and $17,000, net of deferred income taxes of $6,000 and $11,000 for the three and six months ended June 30, 2001, respectively, and is recorded in Shareholders' Equity.
NOTE 5--LONG-TERM DEBT
The Company amended the Credit Agreement with its bank to extend the maturity date of the $10,000,000 unsecured commercial note payable by one year to May 1, 2003, modify the existing financial covenants, and increase the interest rate from LIBOR plus .80 percent to LIBOR plus 1.65 percent.
NOTE 6--ASSET ACQUISITION
On July 16, 2001, the Company acquired the assets of Global Chemical Solutions, Inc., a division of Rite Industries for approximately $2,500,000. The assets were purchased at the lower of market or net book value so no goodwill will be recorded. The business will operate as the Dalton Group of Manufacturers Chemicals, L.P., under the Specialty Chemicals Segment, marketing specialty dyes to the carpet and rug industry and also distributing industrial chemicals to a wide variety of industries.
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Synalloy Corporation
Notes To Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2001
NOTE 7--SEGMENT INFORMATION
Three Months Ended | Six Months Ended | ||||||||||||
(Dollar amounts in thousands) | Jun 30, 2001 | Jul 1, 2000 | Jun 30, 2001 | Jul 1, 2000 | |||||||||
Net sales | |||||||||||||
Colors Group | $ | 6,458 | $ | 7,341 | $ | 12,485 | $ | 13,950 | |||||
Specialty Chemicals Group | 5,211 | 5,059 | 10,802 | 11,184 | |||||||||
Chemicals Segment | 11,669 | 12,400 | 23,287 | 25,134 | |||||||||
Metals Segment | 10,936 | 19,491 | 24,420 | 39,028 | |||||||||
$ | 22,605 | $ | 31,891 | $ | 47,707 | $ | 64,162 | ||||||
Operating income | |||||||||||||
Colors Group | 9 | 90 | (53 | ) | 130 | ||||||||
Specialty Chemicals Group | 57 | (596 | ) | 305 | (472 | ) | |||||||
Chemicals Segment | 66 | (506 | ) | 252 | (342 | ) | |||||||
Metals Segment | 340 | 2,948 | 1,439 | 5,131 | |||||||||
406 | 2,442 | 1,691 | 4,789 | ||||||||||
Unallocated expenses | |||||||||||||
Corporate | 257 | 304 | 506 | 738 | |||||||||
Interest and debt expense, | |||||||||||||
net of interest income | 233 | 278 | 518 | 524 | |||||||||
(Loss) income | |||||||||||||
before income taxes | $ | (84 | ) | $ | 1,860 | $ | 667 | $ | 3,527 | ||||
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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 June 30, 2001.
Consolidated sales for the quarter and year to date were down, decreasing 29 and 26 percent, respectively, compared to the same periods one year ago. The Company experienced a $54,000 consolidated net loss for the quarter, or ($.01) per share, compared to net income of $1,197,000, or $.19 per share, reported the same period one year ago. Consolidated net income year to date totaled $432,000, or $.07 per share, compared to net income of $2,271,000 or $.36 per share, one year ago.
Sales in the Colors Group were down twelve and eleven percent for the quarter and year to date, respectively, from a year earlier. Operating income was down 90 percent for the quarter from a year earlier. Year to date, the Group had an operating loss of $53,000 compared to the prior year's income of $130,000. The decline in sales compared to a year earlier resulted from the continued downsizing of the domestic textile industry. The quarter was barely profitable because of the low level of sales. On a sequential basis, sales were up 7 percent from the first quarter and the modest profit was an improvement over the operating losses suffered in the prior three quarters. Management believes that steps taken over the previous nine months, including a reduction in head count and improved efficiency of plant operations, has positioned the Company to compete effectively in this extremely difficult business.
The Specialty Chemicals Group sales were up three percent in the second quarter while operating income of $57,000 showed a significant improvement over the substantial loss suffered in last year's comparable quarter. Sales year to date fell three percent, but operating income was up substantially over the losses incurred for the same period last year. Although chemical markets are currently weak, consolidation of the Company's operations by closing the Augusta plant has positioned this Group to operate profitably in a poor market environment. The pending acquisition of Global Chemical is expected to increase sales of this Group by 25 to 30 percent on an annualized basis from the current level. This, together with the start-up of a new toll product, is expected to lead to better operating results in the second half.
The Global Chemical acquisition will operate as the Dalton Group of Manufacturers Chemicals, L.P., in Cleveland, Tennessee. The Dalton Group will continue to market specialty dyes to the carpet and rug industry and will also continue to distribute industrial chemicals to a wide variety of industries. In addition to the existing specialty chemicals that have been offered by Global, this line will be expanded to include the full range of specialty industrial chemicals produced by Manufacturers Chemicals and certain textile specialty chemicals manufactured by Blackman Uhler Chemical Company in Spartanburg, South Carolina. The new combined capabilities will significantly improve the ability of the company to service the important carpet industry and will also permit diversification into other areas such as enhancement of the Company's metal working chemical product line, additives to surface coating and janitorial compounding. The Company believes that the Dalton presence will significantly i mprove its capabilities of servicing this important market.
Sales in the Metals Segment were down 44 and 37 percent for the quarter and year to date, respectively, from a year earlier. Operating income was also down 89 and 72 percent for the quarter and year to date, respectively, from a year earlier. A 38 percent decline in unit volumes coupled with nine percent lower prices led to the decrease in dollar sales in the second quarter compared to a year earlier. Unit volumes have declined 40 percent for the first six months compared to the first six months of last year. The unit volume
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Synalloy Corporation
Management's Discussion and Analysis of Financial Condition
And Results Of Operations - Continued
decline is the result of the slow economy's effect on capital spending, inventory liquidation and increased imports. The decline in operating income was caused by the big decrease in sales together with inventory losses that accompany lower prices. Several things make the Company optimistic that the negative factors affecting the business will diminish in the future. Recent industry-wide price increases in stainless steel make the Company hopeful that prices have bottomed for this cycle and will trend upward. Management believes that inventory liquidation is substantially completed. Action by the Bush administration to initiate an investigation into steel imports under Section 201 of the Trade Act of 1974 holds promise to alleviate the dumping of steel products into our market. Although it is not possible to know when, the cyclically weak end-use demand will inevitably improve.
Management has determined that the large number of power generation plants expected to be built over the next few years has significant potential for the Company's piping systems business. Management is encouraged by its recent efforts to generate opportunities to participate in this business. Piping systems for two power projects have been delivered and orders for two more projects have been received. The Company will soon install equipment that will expand its capabilities to handle this type of fabrication, and is focused on putting every effort into generating revenue from this source.
Selling and administrative expense for the quarter declined $315,000, or eleven percent, and $1,036,000, or 17 percent year to date, compared to the same periods last year. Incentive bonuses and sales commissions declined in the quarter and year to date compared to last year's amounts. In addition, in the first quarter of last year, selling and administrative expense included $215,000 from the Whiting Metals plant, which was closed at the end of the first quarter last year, and a $158,000 special charge for an unanticipated payment made under a contract related to a pre 1973 employment matter.
Cash flows from operations totaled $8,787,000 during the first six months of 2001 compared to $2,026,000 generated during the same period one year ago. The increase came primarily from a $4,822,000 reduction in inventories. Increases in income taxes payable of $1,057,000 and net income before depreciation and amortization of $2,100,000 also contributed to the increase. The Company expects that available cash and existing lines of credit will be sufficient to meet normal operating requirements, including capital expenditures 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.
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Synalloy Corporation
PART II: OTHER INFORMATION
Item 1.Legal Proceedings
None
Item 2.Changes 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
- The Annual Meeting of Shareholders was held April 26, 2001 at the offices of the Company.
- The following individuals were elected as directors at the Annual Meeting:
Name | Votes For | Votes Withheld |
James G. Lane, Jr. | 5,384,165 | 315,129 |
Sibyl N. Fishburn | 5,385,409 | 313,885 |
Glenn R. Oxner | 5,385,391 | 313,903 |
Carroll D. Vinson | 5,385,391 | 313,903 |
Murray H. Wright | 5,385,409 | 313,885 |
C. Ernst & Young, LLP, independent certified accountants, were selected as independent auditors for the fiscal year ending December 29, 2001 by at vote of 5,605,420 for, 28,446 against, and 65,428 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. |
|
10.5 | Employment Agreement, dated June 25, 2001, between Registrant and Ralph Matera |
The Company did not file any reports on Form 8-K during the three months ended June 29, 2001.
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Synalloy Corporation
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 10, 2001 | By: | /s/ James G. Lane, Jr. |
James G. Lane, Jr. | ||
President and Chief Executive Officer | ||
Date: August 10, 2001 | By: | /s/ Gregory M. Bowie |
Gregory M. Bowie | ||
Vice President Finance | ||
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Exhibit Index
Exhibit No. |
|
10.5 | Employment Agreement, dated June 25, 2001, between Registrant and Ralph Matera |
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