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 September 30, 2000
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 September 30, 2000
Common Stock, $1.00 Par Value 6,093,034
- 1 -
Synalloy Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - September 30, 2000
and January 1, 2000
Condensed consolidated statements of income - Three and nine
months ended September 30, 2000 and October 2, 1999
Condensed consolidated statements of cash flows - Nine months
ended September 30, 2000 and October 2, 1999
Notes to condensed consolidated financial statements - September
30, 2000
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
Synalloy Corporation
Condensed Consolidated Balance Sheets
Sept 30, 2000 Jan 1, 2000
(Unaudited) (Note)
Assets
Current assets
Cash and cash equivalents $ 18,545 $ 120,549
Accounts receivable, less allowance
for doubtful accounts 15,093,438 16,354,165
Inventories
Raw materials 11,387,836 9,378,087
Work-in-process 5,485,991 6,033,389
Finished goods 16,116,083 13,407,243
Total inventories 32,989,910 28,818,719
Deferred income taxes 406,000 406,000
Prepaid expenses and other current assets 370,129 794,232
Total current assets 48,878,022 46,493,665
Cash value of life insurance 2,167,011 2,112,411
Investment 638,117 1,039,117
Property, plant & equipment, net of accumulated
depreciation of $37,608,000 and $34,887,000 25,803,195 25,985,725
Deferred charges and other assets 2,879,134 2,421,655
Total assets $80,365,479 $78,052,573
Liabilities and Shareholders' Equity
Current liabilities
Notes payable $ 8,063,000 $ 3,084,000
Accounts payable 9,372,212 10,867,711
Income taxes 684,337 1,209,874
Accrued expenses 3,226,262 2,957,728
Current portion of environmental reserves 373,500 373,500
Total current liabilities 21,719,311 18,492,813
Long-term debt, less current portion 10,000,000 10,000,000
Environmental reserves 1,319,097 1,661,663
Deferred compensation 1,402,885 1,374,210
Deferred income taxes 1,823,000 1,864,000
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 52,333,863 51,325,183
Accumulated other comprehensive income 201,000 461,000
Less cost of Common Stock in treasury (16,443,168) (15,135,787)
Total shareholders' equity 44,101,186 44,659,887
Total liabilities and shareholders' equity $80,365,479 $78,052,573
Note: The balance sheet at January 1, 2000 has been derived from
the audited financial statements at that date. See accompanying
notes to condensed consolidated financial statements
- 3 -
Synalloy Corporation
Condensed Consolidated Statements of Income
(Unaudited) Three Months Ended Nine Months Ended
Sep 30, 2000 Oct 2, 1999 Sep 30, 2000 Oct 2, 1999
Net sales $24,963,661 $31,024,054 $89,126,032 $86,961,126
Cost of sales 22,733,500 26,424,178 76,762,940 75,658,723
Gross profit 2,230,161 4,599,876 12,363,092 11,302,403
Selling, general and
administrative expense 2,484,258 3,159,168 8,566,366 8,567,623
Operating (loss) income (254,097) 1,440,708 3,796,726 2,734,780
Other (income) and expense
Interest expense 303,085 179,836 815,163 535,617
Other, net (28,162) (19,661) (16,499) (102,731)
(Loss)income before taxes (529,020) 1,280,533 2,998,062 2,301,894
Provision for income tax (201,000) 450,000 1,055,000 809,000
Net (loss) income $ (328,020) $ 830,533 $ 1,943,062 $ 1,492,894
Net (loss) income per
common share
Basic ($.05) $.13 $.31 $.23
Diluted ($.05) $.13 $.31 $.23
Dividends paid per
Common share $.05 $.05 $.15 $.15
Average shares outstanding
Basic 6,120,511 6,576,279 6,222,098 6,627,686
Diluted 6,120,541 6,576,279 6,222,306 6,629,974
See accompanying notes to condensed consolidated financial statements.
- 4 -
Synalloy Corporation
Condensed Consolidated Statements of Cash Flows
Nine Months Ended
Sep 30, 2000 Oct 2, 1999
Operating activities
Net income $ 1,943,062 $ 1,492,894
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation expense 2,966,624 2,921,634
Amortization of deferred charges 243,956 195,939
Deferred compensation 28,675 10,899
Deferred income taxes 100,000 -
Provision for losses on
accounts receivable 103,986 594,107
(Gain) loss on sale of property,
plant and equipment (5,426) 5,864
Cash value of life insurance (54,600) (28,069)
Environmental reserves (342,566) (322,060)
Changes in operating assets and liabilities:
Accounts receivable 1,156,741 (6,502,301)
Inventories (4,171,191) (1,795,436)
Other assets 155,668 223,955
Accounts payable and accrued expenses (1,367,965) 5,460,640
Income taxes payable (525,537) 981,319
Net cash provided by operating activities 231,427 3,239,385
Investing activities
Purchases of property, plant and equipment (2,793,858) (2,675,197)
Proceeds from sale of property,
plant and equipment 15,190 22,624
Acquisitions, net of cash - -
Increase in note receivables (292,000) (237,000)
Net cash used in investing activities (3,070,668) (2,889,573)
Financing activities
Proceeds from revolving lines of credit 34,375,000 25,357,000
Payments on revolving lines of credit (29,396,000) (23,676,000)
Principal payments on long-term debt - -
Payment of notes payable to employee - -
Proceeds from exercised stock options - -
Purchases of treasury stock (1,307,380) (1,149,565)
Dividends paid (934,383) (993,950)
Net cash provided by
(used in) financing activities 2,737,237 (462,515)
Decrease in cash and cash equivalents (102,004) (112,703)
Cash and cash equivalents at beginning of year 120,549 117,658
Cash and cash equivalents at end of period $ 18,545 $ 4,955
See accompanying notes to condensed consolidated financial statements.
- 5 -
Synalloy Corporation
Notes To Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2000
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 September 30, 2000 are not necessarily indicative of
the results that may be expected for the year ending December 30, 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 1, 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 ($515,000) and $1,683,000 for the three
and nine months ended September 30, 2000, respectively. Comprehensive income
consists of net income less unrealized losses on the Company's foreign equity
investment, of $187,000 and $260,000, net of deferred income taxes of $101,000
and $141,000 for the three and nine months ended September 30, 2000,
respectively, and is recorded in Shareholders' Equity.
NOTE 5--ACCOUNTING FOR DERIVITIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company does not have any material derivative instruments nor does it
participate in hedging activities, therefore management believes the adoption
of Financial Accounting Statements 133, 137 and 138 will not have a material
impact of the financial statements of the Company.
NOTE 6--SEGMENT INFORMATION
During the first quarter of 2000, the Company completed the reorganization of
its Chemicals Segment changing the Segment into two separately managed product
groups - Colors and Specialty Chemicals. Previously, the Segment had been
managed by geographic location. The amounts presented for the third quarter
and nine months of 1999 have been restated to reflect the reorganization.
- 6 -
Synalloy Corporation
Notes To Condensed Consolidated Financial Statements - Continued
(Unaudited)
September 30, 2000
NOTE 6--SEGMENT INFORMATION (Continued)
(Dollar amounts are in thousands.)
Three Months Ended Nine Months Ended
Sep 30, 2000 Oct 2, 1999 Sep 30, 2000 Oct 2, 1999
Net sales
Colors Group $ 6,384 $ 7,331 $20,334 $22,895
Specialty Chemicals Group 5,240 5,709 16,424 17,319
Chemicals Segment 11,624 13,040 36,758 40,214
Metals Segment 13,340 17,984 52,368 46,747
$24,964 $31,024 $89,126 $86,961
Operating (loss) income
Colors Group $ (353) $ 37 $ (223) $ 337
Specialty Chemicals Group (773) 69 (1,245) 374
Chemicals Segment (1,126) 106 (1,468) 711
Metals Segment 1,043 1,575 6,174 2,718
(83) 1,681 4,706 3,429
Unallocated expenses
Corporate 171 200 909 703
Interest and debt expense,
net of interest inc 275 201 799 424
(Loss) income
before income taxes $ (529) $ 1,280 $ 2,998 $ 2,302
- 7 -
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 September 30, 2000. (Dollar
amounts are in thousands except for per share data.)
Consolidated sales decreased 20 percent and increased three percent,
respectively, for the quarter and year-to-date compared to the same periods
one year ago. The Company had a consolidated net loss for the quarter of $328
compared to net income of $830 for the third quarter of 1999. However,
consolidated net income year to date was up 30 percent to $1,943 compared to
$1,493 compared to the same period one year ago.
Metals Segment sales decreased 26 percent and operating income declined 34
percent for the quarter. Sales year-to-date increased 12 percent and operating
income increased over twice the level of the prior year. The decline in dollar
sales in the quarter resulted from 42 percent lower unit volumes that were
partially offset by a 27 percent increase in average selling prices. Unit
volumes were also down the same 42 percent on a sequential quarterly basis.
This is the steepest quarterly decline in unit volumes in management's memory.
The decline appears to be caused by inventory liquidation resulting from lower
prices for flat-rolled stainless steel and stainless pipe because of surcharge
reductions that began in August. The surcharges reflect changes in the cost
of certain raw materials, primarily nickel, that are added to the base price
by the flat-rolled producers. The surcharge to be effective at the beginning
of each month is announced in advance. This results in monthly price
volatility that motivates distributors to add to inventories ahead of
surcharge increases and reduce inventories ahead of surcharge decreases. If
the decline in unit volume is not due to lower-end use demand but is the
result of destocking, as industry sources believe, sales should recover
quickly when distributor inventories are depleted.
Chemicals Segment sales decreased 11 and nine percent in the quarter and year-
to-date, respectively, with both Colors and Specialty Chemicals contributing
to the decline. The third quarter is traditionally the worst for the Textile
Colors Group but management is nonetheless disappointed with the 13 percent
decline in sales from a year earlier and the significant operating loss
experienced during the quarter. The domestic textile color business can only
be described as brutally competitive. Both unit volume demand and sales prices
can't seem to find a bottom. An unavoidable consequence of price declines is
inventory losses that lead to lower profit margins. This business will
continue to be under pressure as long as the domestic textile industry
continues to shrink because of imports from low wage countries. Management's
focus is to consider all alternatives to generate a reasonable return on the
capital utilized in this business.
The Augusta plant suffered a $539 operating loss in the quarter and has
incurred $1,434 in losses for the first nine months of this year, which
represents most of the loss of the Specialty Chemicals Group. Site preparation
is underway in Spartanburg for the move of equipment from Augusta. The move
should be completed by year-end after which the Augusta plant losses will be
eliminated and profits in Spartanburg should be enhanced by improved
utilization. However, the Company expects to take a restructuring charge in
the fourth quarter, which has not been quantified. The Spartanburg plant also
had a loss for the quarter as a result of lower than expected production.
Management plans to bring expenses in line with production volume by year-end.
- 8 -
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 ten
percent of consolidated sales, respectively, compared to last year's ten
percent.
Cash flows from operations totaled $231 during the first nine months of 2000
compared to $3,239 generated during the same period one year ago. The decrease
in cash flows came primarily from an increase in inventories and a decrease in
accounts payable, offset by a decrease in accounts receivable totaling $4,382
in 2000, compared to a net decrease of $2,837 from the same accounts in 1999.
In addition, a decline in income taxes payable in 2000 of $526 compared to an
increase of $981 in 1999 contributed to the decline. The Company used part of
the cash flows generated in 2000 and short term borrowings to purchase 52,700
shares of the Company's common stock for $1,307. 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.
- 9 -
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:
Financial Data Schedule
- 10 -
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 10, 2000 /s/ James G. Lane, Jr.
James G. Lane, Jr., Chairman and
Chief Executive Officer
Date: November 10, 2000 /s/ Gregory M. Bowie
Gregory M. Bowie
Vice President, Finance
- 11 -