UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 Identification No.)
incorporation or organization)
Croft Industrial Park, P.O. Box 5627 Spartanburg, South Carolina 29304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 585-3605
Securities registered pursuant Name of each exchange on which
To Section 12(b) of the Act registered:
None Nasdaq National Market System
Title of Class
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
(Title of Class)
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 periods 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Based on the closing price of March 1, 2001, the aggregate market value of
common stock held by non-affiliates of the registrant was $32.1 million.
The number of common shares outstanding of the registrant's common stock as
of March 1, 2001 was 5,964,368.
Documents Incorporated By Reference
Portions of the proxy statement for the annual shareholders' meeting are
incorporated by reference into Part III.
PART I
Item 1: Business
Synalloy Corporation, a Delaware Corporation ("the Company"), was
incorporated in 1958 as the successor to a chemical manufacturing business
founded in 1945. Its charter is perpetual. The name was changed on July 31,
1967 from Blackman Uhler Industries, Inc. On June 3, 1988, the state of
incorporation was changed from South Carolina to Delaware. The Company's
executive offices are located at Croft Industrial Park, Spartanburg, South
Carolina.
General
Metals Segment-This segment is comprised of a wholly-owned company, Bristol
Metals, L.P., located in Bristol, Tennessee.
Bristol manufactures welded pipe, primarily from stainless steel, but also
from other corrosion-resistant metals. Pipe is produced in sizes from one-
half inch to 60 inches in diameter and wall thickness up to three-quarters
inch. Sixteen-inch and smaller pipe is made on equipment that forms and
welds the pipe in a continuous process. Pipe larger than sixteen inches is
formed on presses or rolls and welded on batch welding equipment. Pipe is
normally produced in standard 20-foot lengths. However, Bristol has unusual
capabilities in the production of long length pipe without circumferential
welds. This can reduce installation cost for the customer. Lengths up to 60
feet can be produced in sizes up to sixteen inches in diameter. In larger
sizes Bristol has a unique ability among domestic producers to make 48-foot
lengths in sizes up to 30 inches.
A significant amount of the pipe produced is further processed into piping
systems that conform to engineered drawings furnished by the customers.
This allows the customer to take advantage of the high quality and
efficiency of Bristol's fabrication shop instead of performing all of the
welding on the construction site. The pipe fabricating shop can make one
and one-half diameter cold bends on one-half inch through eight-inch
stainless pipe with thicknesses up through schedule 40. Most of the piping
systems are produced from pipe manufactured by Bristol.
Bristol also has the capability of producing carbon piping systems from
pipe purchased from outside suppliers since Bristol does not manufacture
carbon pipe. Carbon pipe fabrication enhances the stainless fabrication
business by allowing Bristol to quote inquiries that require both types of
piping systems.
In order to establish stronger business relationships, only a few raw
material suppliers are used. Three suppliers furnish more than two-thirds
of total dollar purchases of raw materials. However, raw materials are
readily available from a number of different sources and the Company
anticipates no difficulties in obtaining its requirements.
This segment's products are used principally by customers requiring
materials that are corrosion-resistant or suitable for high-purity
processes. The largest users are the chemical, petrochemical and pulp and
paper industries with some other important industry users being mining,
power generation, waste water treatment, brewery, food processing,
petroleum and pharmaceutical.
In the first half of 2000, management closed the Whiting Metals facility
which produced pressure vessels and reactors, tanks and other processing
equipment. Most of the equipment was transferred to Bristol giving it the
ability to manufacture similar products.
Chemicals Segment-This segment is comprised of three operating companies:
Blackman Uhler Chemical Company (BU), a division of the Company;
Manufacturers Chemicals, L.P. (MC) and Organic Pigments Corporation (OP),
wholly-owned by the Company. BU has a plant in Spartanburg, South Carolina
which is fully licensed for chemical manufacture and maintains a permitted
waste treatment system. MC is located in Cleveland, Tennessee and is fully
licensed for chemical manufacture. OP is located in Greensboro, North
Carolina. This segment's principal businesses are the manufacture and sale
of dyes and pigments ("colors") to the textile industry, and specialty
chemical products to the textile, chemical, paper and metals industries. At
the end of 1999, the Chemicals Segment was reorganized into two product
groups to generate benefits from the natural synergy between the different
plants within the product groups. The Colors Group includes BU dyes and
pigment press cakes produced at the Spartanburg plant and pigments produced
at OP in Greensboro. The Specialty Chemicals Group includes MC in
Cleveland, Tennessee and the specialty chemicals produced in the
Spartanburg plant.
The Colors Group produces dyes in both liquid and powder form, and pigments
primarily as a specially formulated paste. Dyes fix themselves to textile
fibers by a particular reaction or penetration into the yarn fiber, whereas
pigments are normally applied as a surface coating during a printing
operation. Dyeing of textile fabrics in solid colors is primarily
accomplished by the use of dyes. Pigment colors are uniquely suitable for
printing of multi-colored patterns. Raw materials used to manufacture
colors consist chiefly of organic intermediates and inorganic chemicals
which are purchased from manufacturers in the United States, Europe and
Asia. Currently, raw materials are readily available and management does
not anticipate any difficulty in obtaining adequate supplies.
In the mid 1980s, management decided to better utilize its excellent
reputation for sales and technical service by expanding its efforts to sell
reactive dyes. These dyes are used for coloring cotton and rayon. The
Company purchases finished and crude products that are either sold as is,
or converted to liquid form for the convenience of customers. These dyes
represented about 27 percent of the Colors Group's sales in 2000. The
Company has a distributorship agreement with a company supplying about 92
percent of these products. The supplier has been the principal source of
these products since 1985. Although the Company believes that this supplier
will continue to be a source of these products in the future, there is no
assurance of this. Loss of this supplier would have a materially adverse
short-term effect on the Company's sales and net income. However,
management believes that if the agreement with this supplier is not
continued in the future, other suppliers could be found to replace most of
the products.
In 1994, BU acquired a sulphur dye business and began the manufacture of
sulphur dyes. These dyes are used to dye denim, fleece garments, knits,
work clothes, men's casual wear, and a variety of cotton and cotton-
polyester blends.
In 1999 the Colors Group started to develop an additional product line for
the dyeing of cotton - vat dyes. During 2000, the vat dyes were
successfully introduced and the product line has been expanded. Vat dyes
are used for industrial uniform fabrics (work wear) as well as other
apparel fabrics and industrial fabrics that require excellent wash
fastness. The addition of vat dyes gives BU product lines for the dyeing of
cotton as broad as any other dyestuff supplier. BU now supplies azoic dyes
(napthols, salts, bases, and rapidogen dyes for printing), reactive dyes,
sulfur dyes and vat dyes for cotton and other cellulosic fibers.
In, 1998, the Company purchased the common stock of OP. OP manufactures
aqueous pigment dispersions sold to the textile industry and used in
printing inks for use on paper and in paints for the industrial coatings
industry. The combination of OP's and BU's pigment operations makes the
Company one of the largest suppliers of pigments to the domestic textile
market. The addition of OP also provides the ability to produce higher
solid and finer particle size dispersions allowing the Colors Group to
diversify into non-textile applications.
The Specialty Chemicals Group is a producer of specialty chemicals for the
chemical, photographic, pharmaceutical, agricultural and fiber industries
at its BU plant. The Company has been focusing on specialty chemicals as a
primary growth area over the past several years. Facilities and equipment
at the plant provide toll and custom manufacturing of organic chemicals
using reactions that include nitrations, hydrogenation, diazotizations,
methylation and custom drying. These chemicals are used in a wide array of
products including sun screens, UV absorbers for plastics, Cetane improver
for diesel fuel, absorbers for gaseous pollutants, herbicides and
intermediates for colors.
In 1996, the Company purchased MC which produces defoamers, surfactants,
dye assists, softening agents, polymers and specialty lubricants for the
textile, paper, chemical and metals industries. The Company also
manufactures chelating agents and water treatment chemicals. Manufacturing
capabilities include a wide range of chemical reactions and mixing and
blending applications. MC's products are sold to direct users in a variety
of manufacturing areas, directly to other chemical companies in the form of
intermediates or as finished products for resale, and as contract
manufacturing where the customer provides formula specifications and, in
some cases, raw materials. The addition of MC complements the existing
specialty chemicals area expanding its capacity and capabilities.
In June 2000, MC acquired the assets of a manufacturer of sulfated fats and
oils. The manufacturing equipment for these products was moved to the
Cleveland, Tennessee plant where both capacity and chilling capabilities
were increased. These products are used as lubricants, wetting agents,
detergents and emulsifiers in a variety of chemical formulations. The
addition of these capabilities and processes broadens the range of sulfated
products already manufactured at MC.
The Chemicals Segment maintains seven laboratories for applied research and
quality control which are staffed by approximately 33 employees.
In 2000, management made the decision to close the Augusta, Georgia plant.
Most of the products produced in Augusta are being transferred to the
Spartanburg facility. Management expects the closure to reduce negative
operating variances and, accordingly, enhance future earnings. In the third
quarter of 2001, the Company expects to complete the installation of
hydrogenation and distillation equipment at its Spartanburg plant which
will complete the transfer of products produced in Augusta to Spartanburg.
Sales and Distribution
Metals Segment-The Metals Segment utilizes separate sales organizations for
its different product groups. Stainless steel pipe is sold nationwide under
the Brismet trade name through authorized stocking distributors with over
200 warehouse locations throughout the country. In addition, large quantity
orders are shipped directly from Bristol's plant to end-user customers.
Producing sales and providing service to the distributors and end-user
customers are three outside sales employees, four independent
manufacturers' representatives, the manager of inside sales and five inside
sales employees. The President also spends about 50 percent of his time in
sales related matters.
Piping systems are sold nationwide under the Bristol Piping Systems trade
name by three outside sales employees. They are under the direction of the
Vice President in charge of piping systems who spends over half of his time
in sales and service to customers. Piping systems are marketed to
engineering firms and construction companies or directly to project owners.
Orders are normally received as a result of competitive bids submitted in
response to inquiries and bid proposals.
Chemicals Segment-Eight full-time outside sales employees and five
manufacturers' representatives market colors to the textile industry
nationwide. In addition, both the Presidents of BU and OP and the market
development manager of BU devote a substantial part of their time to sales.
Specialty chemicals are sold directly to various industries nationwide by
seven full-time outside sales employees and five manufacturers'
representatives. In addition, the President, market development manager and
another employee of MC and BU's Vice President of Research and Development
devote a substantial part of their time to sales.
Competition
Metals Segment-Welded stainless steel pipe is the largest sales volume
product of the Metals Segment. Although information is not publicly
available regarding the sales of most other producers of this product,
management believes that the Company is the largest domestic producer of
such pipe. This commodity product is highly competitive with ten known
domestic producers and imports from many different countries. The largest
sales volume among the specialized products comes from fabricating light-
wall stainless piping systems. Management believes the Company is the
largest producer of such systems.
Chemicals Segment-About five percent of the colors sales represent niche
products for which the Company is the only producer. Another approximately
34 percent of these sales represent products of which the Company is an
important producer with an estimated 20 to 30 percent market share. The
Company has five percent or less of the market for the remainder of its dye
products. The Company is the sole producer of certain specialty chemicals
manufactured for other companies under processing agreements. However, the
Company's sales of specialty products are insignificant compared to the
overall market for specialty chemicals. The market for most of the products
is highly competitive and many competitors have substantially greater
resources than does the Company.
Environmental Matters
Environmental expenditures that relate to an existing condition caused by
past operations and that do not contribute to future revenue generation are
expensed. Liabilities are recorded when environmental assessments and/ or
cleanups are probable and the costs of these assessments and/or cleanups
can be reasonably estimated. See Note I for further discussion.
Research and Development Activities
The Company spent approximately $840,000 in 2000, $798,000 in 1999 and
$882,000 in 1998 on research and development programs in its Chemicals
Segment. Fifteen individuals, 13 of whom are graduate chemists, are engaged
primarily in research and development of new products and processes, the
improvement of existing products and processes, and the development of new
applications for existing products.
Seasonal Nature of The Business
The annual requirements of certain specialty chemicals are produced over a
period of a few months as requested by the customers. Accordingly, the
sales of these products may vary significantly from one quarter to another.
The addition of MC has made quarterly sales of specialties more consistent.
However, in total, sales and net income in any given quarter may not be
representative of other quarters.
Backlogs
The Chemicals Segment operates primarily on the basis of delivering
products soon after orders are received. Accordingly, backlogs are not a
factor in this business. The same applies to commodity pipe sales in the
Metals Segment. However, backlogs are important in the piping systems
products because they are produced only after orders are received,
generally as the result of competitive bidding. Order backlogs for these
products were $9,200,000, $15,900,000 and $19,200,000 at the 2000, 1999 and
1998 respective year ends.
Employee Relations
As of December 30, 2000, the Company had 510 employees. The Company
considers relations with employees to be satisfactory. The number of
employees of the Company represented by unions at the Bristol, Tennessee
facility is 195. They are represented by two locals affiliated with the
AFL-CIO and one local affiliated with the Teamsters. Contracts will expire
in February 2004, December 2004 and March 2005.
Item 2: Properties
The Company operates the major plants and facilities described herein, all
of which are well maintained and in good condition. All facilities
throughout the Company are adequately insured. The buildings are of various
types of construction including brick, steel, concrete, concrete block and
sheet metal. All have adequate transportation facilities for both raw
materials and finished products. The Company owns all of these plants and
facilities.
Building
Square Land
Location Principal Operations Feet Acres
- -------- -------------------- -------- -----
Spartanburg, SC Corporate headquarters; Chemical
manufacturing and warehouse facilities 211,000 60.90
Cleveland, TN Chemical manufacturing 90,000 7.50
Greensboro, NC Chemical manufacturing 57,000 3.70
Bristol, TN Manufacturing of stainless steel pipe
and stainless steel and carbon piping
systems 218,000 73.08
Augusta, GA Chemical manufacturing (1) 52,500 46.00
Camden, SC Manufacturing of stainless steel
vessels (2) 16,300 12.26
(1) Plant closing in 2001.
(2) Plant closed in 2000.
Item 3: Legal Proceedings
For a discussion of legal proceedings, see Note O to Consolidated
Financial Statements.
Item 4: Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders through
the solicitation of proxies or otherwise.
PART II
Item 5: Market for the Registrant's Common Stock and Related Security
Holder Matters
The Company had 1,154 common shareholders of record at December 30,
2000. The Company's common stock trades on the Nasdaq National
Market tier of The Nasdaq Stock Market under the symbol SYNC. Future
dividend payments are dependent on earnings, capital requirements
and financial conditions. The prices shown below are the last
reported sales prices on The Nasdaq National Market System.
2000 1999
Dividends Dividends
Quarter High Low Paid High Low Paid
1 9 1/8 7 $ 0.05 10 3/4 6 5/8 $ 0.05
2 8 1/16 6 3/8 0.05 8 5/8 6 3/4 0.05
3 7 1/2 5 3/4 0.05 8 3/4 6 1/2 0.05
4 6 1/4 4 1/2 0.05 8 6 1/4 0.05
Item 6: Selected Financial Data
(Dollars in thousands except for
per share data) 2000 1999 1998 1997 1996
Operations
Net sales $ 113,952 $ 116,884 $ 107,257 $ 126,741 $ 126,844
Gross profit before special and
environmental charges 16,310 16,574 12,203 19,715 21,108
Gross profit 12,404 16,574 12,203 19,715 21,108
Selling, general and
administrative expense 11,182 11,335 10,135 9,972 9,086
Environmental remediation costs 1,765 - 1,439 - -
Operating income before special
and environmental charges 5,285 5,239 2,068 9,744 12,022
Operating (loss) income (543) 5,239 629 9,744 12,022
Net income before special and
environmental charges 2,694 2,947 994 5,841 7,686
Net (loss) income (1,083) 2,947 63 5,841 7,686
Financial Position
Total assets 73,068 78,053 71,374 73,383 76,589
Working capital 25,483 28,001 28,946 35,499 34,141
Long-term debt
less current portion 10,000 10,000 10,000 10,200 11,200
Shareholders' equity 40,173 44,660 45,848 50,042 48,274
Financial Ratios
Current ratio 2.4:1 2.5:1 3.7:1 4.7:1 3.5:1
Gross profit to net sales
before special and
environmental charges 14% 14% 11% 16% 17%
Gross profit to net sales 11% 14% 11% 16% 17%
Long-term debt to capital 20% 18% 18% 17% 19%
Return on average assets (1) 4% 4% 1% 8% 10%
Return on average equity (1) 6% 7% 2% 12% 16%
Per Share Data
Net income before special and
environmental charges - diluted $ 0.44 $ 0.45 $ 0.15 $ 0.83 $ 1.09
Net (loss) income - diluted (0.18) 0.45 0.01 0.83 1.09
Dividends declared and paid 0.20 0.20 0.40 0.37 0.34
Book value 6.74 7.10 6.82 7.27 6.92
Other Data
Depreciation and amortization 4,069 3,732 3,513 3,485 2,700
Capital expenditures 3,383 4,214 3,686 2,854 3,833
Employees at year end 510 622 564 663 585
Shareholders of record
at year end 1,154 1,226 1,431 1,491 1,581
Average shares outstanding
- diluted 6,166 6,559 6,794 7,007 7,058
Stock Price
Price range of Common Stock
High 9 1/8 10 3/4 16 1/2 18 3/4 21 1/4
Low 4 1/2 6 1/4 6 13 3/4 12
Close 4 3/4 7 1/2 8 3/4 15 3/16 16 1/4
(1) Return is calculated using net income before special and environmental charges.
See Note B to Consolidated Financial Statements.
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The current ratio at 2000 year end was 2.4:1 down from the previous
year end ratios of 2.5:1 and 3.7:1 in 1999 and 1998, respectively.
Working capital decreased $2,518,000 to $25,483,000. Cash flows from
operations totaling $1,569,000, were derived primarily from earnings
totaling $5,333,000 before depreciation and amortization expense of
$4,069,000 and loss from the write-off and sale of equipment of
$2,348,000. Cash flows were negatively impacted by decreases in
accounts payable and accrued expenses of $4,834,000 and income taxes
payable of $1,486,000, offset by a decrease in accounts receivable
of $3,114,000. The decrease in accounts receivables and payables
resulted from the decline in sales experienced in the fourth quarter
of 2000 compared to the same quarter of 1999. Cash flows were used
along with $5,146,000 net proceeds from short-term borrowings to
fund capital expenditures of $3,382,000, purchase 326,693 shares of
the Company's Common Stock for $1,951,000, and pay dividends of
$1,234,000. The Company expects that cash flows from 2001 operations
and available borrowings will be sufficient to make debt payments,
and fund estimated capital expenditures of $5,500,000 and normal
operating requirements.
Results of Operations
Metals Segment - The following table summarizes operating results and
backlogs for the three years indicated. Reference should be made to
Note R to Consolidated Financial Statements.
Metals Segment
Special 2000
2000 Charges Adjusted 1999 1998
(Amounts in Amount % Amount Amount % Amount % Amount %
thousands)
Net sales $ 66,771 100.0 $ - $ 66,771 100.0 $ 66,055 100.0 $ 55,368 100.0
Cost of goods
sold 53,810 80.6 (352) 53,458 80.1 56,042 84.8 50,065 90.4
------ ----- ----- ------- ----- ------- ----- ------- ------
Gross profit 12,961 19.4 352 13,313 19.9 10,013 15.2 5,303 9.6
Selling and
administrative
expense 4,484 6.7 4,484 6.7 4,595 7.0 3,833 6.9
------ ----- ----- ------- ----- ------- ----- ------- ------
Operating income
before
environmental
remediation
costs 8,477 12.7 8,829 13.2 5,418 8.2 1,470 2.7
Environmental
remediation
costs 57 0.1 57 0.1 - - 61 0.2
------ ----- ----- ------- ----- ------- ----- ------- ------
Operating income $ 8,420 12.6 $ 352 $ 8,772 13.1 $ 5,418 8.2 $ 1,409 2.5
====== ===== ===== ====== ===== ====== ===== ====== =====
Year-end backlog
Piping systems $ 9,200 $15,900 $ 19,200
Comparison of 2000 to 1999
While sales for the Metals Segment increased only one percent for
the year, operating income before special and environmental charges
was up a more robust 63 percent. Unit volumes were down 12 percent
so the dollar sales increase came from a 15 percent increase in
average sales prices. The big improvement in gross profits resulted
from the higher prices and strong markets for stainless pipe in the
first half of the year when our distributors were building
inventories ahead of anticipated price increases. The last half of
2000 suffered from a reversal to a mode of inventory liquidation
among our distributors as prices began to trend downward. Selling
and administrative expenses declined $111,000, or two percent, and
improved slightly as a percent of sales compared with last year
primarily from the elimination of administration costs incurred at
the Camden facility, which was closed in the first half of 2000. See
Note B to Consolidated Financial Statements.
The special charge was recorded in the first quarter for the costs
of closing the process equipment plant in Camden, South Carolina. In
addition, $57,000 was added to the reserve for environmental
remediation in the fourth quarter. For information related to
environmental matters, see Note I to Consolidated Financial
Statements.
Comparison of 1999 to 1998
Sales increased 19 percent producing the $4,009,000 increase in
operating income to $5,418,000. After six consecutive quarters of
declines in unit volume growth compared to the same quarter the
previous year, the final three quarters of 1999 experienced
significant increases resulting in a 22 percent increase in unit
volumes over 1998. The unit volume increase came primarily from
commodity stainless pipe sales resulting from improved demand in the
United States coupled with an increase in demand world-wide and a
reduction of imports following anti-dumping judgments on stainless
steel. The most important development in the metals segment during
1999 was the reversal of the relentless downtrend in stainless
commodity pipe prices that had been evident since late 1995. When
prices bottomed in the second quarter, they were barely half of the
level reached in 1995. Average prices gained eight percent in the
fourth quarter ending the year with a nine percent decline for the
year compared to last year. The fourth quarter increase came from
the Company's ability to pass along price increases incurred from
its stainless steel suppliers. Piping systems and process equipment
sales also improved significantly as unit volumes increased nine
percent in 1999 over the prior year. Gross profits in 1999 almost
doubled to $10,013,000 compared to 1998 as a result of the increase
in unit volume offset somewhat by the selling price decline.
Selling and administrative expenses were seven percent of sales,
consistent with last year. Higher sales commissions, profit-based
incentives and an increase in reserves for uncollectible accounts
accounted for the 20 percent increase over the prior year.
For information related to environmental matters, see Note I to
Consolidated Financial Statements.
Chemicals Segment-The following tables summarize operating results
for the three years indicated. Reference should be made to Note R to
Consolidated Financial Statements.
Chemicals Segment
Special 2000
2000 Charges Adjusted 1999 1998
(Amounts in Amount % Amount Amount % Amount % Amount %
thousands)
Net sales $ 47,181 100.0 $ - $ 47,181 100.0 $ 50,829 100.0 $ 51,889 100.0
Cost of goods sold 47,738 101.2 (3,554) 44,184 93.6 44,268 87.1 44,989 86.7
------ ----- ------ ------ ----- ------ ----- ------ -----
Gross profit (557) (1.2) 3,554 2,997 6.4 6,561 12.9 6,900 13.3
Selling and
administrative
expense 5,538 11.7 - 5,538 11.7 5,835 11.5 5,498 10.6
------ ----- ------ ------ ----- ------ ----- ------ -----
Operating (loss)
income
before
environmental
remediation
costs (6,095) (12.9) 3,554 (2,541) (5.4) 726 1.4 1,402 2.7
Environmental
remediation
costs 1,708 3.6 - 1,708 3.6 - 0.0 1,378 2.7
------ ----- ------ ------ ----- ----- ----- ------ -----
Operating
(loss) income $ (7,803) (16.5)$ 3,554 $ (4,249) (9.0)$ 726 1.4 $ 24 0.0
====== ===== ====== ====== ==== ====== ==== ====== =====
Colors Group
Special 2000
2000 Charges Adjusted 1999 1998
(Amounts in Amount % Amount Amount % Amount % Amount %
thousands)
Net sales $ 25,960 100.0 $ - $ 25,960 100.0 $ 28,411 100.0 $ 30,454 100.0
Cost of goods sold 24,013 92.5 (555) 23,458 90.4 24,404 85.9 25,863 84.9
------ ----- ---- ------ ----- ------ ----- ------ -----
Gross profit 1,947 7.5 555 2,502 9.6 4,007 14.1 4,591 15.1
Selling and
administrative
expense 3,297 12.7 - 3,297 12.7 3,689 13.0 3,568 11.7
------ ----- ---- ------ ----- ------ ----- ------ -----
Operating (loss)
income before
before
environmental
remediation
costs (1,350) (5.2) 555 (795) (3.1) 318 1.1 1,023 3.4
Environmental
remediation
costs 1,708 6.6 - 1,708 6.6 - 0.0 1,378 4.5
------ ----- ---- ------ ----- ------ ----- ------ -----
Operating
(loss) income $ (3,058) (11.8) $ 555 $ (2,503) (9.6) $ 318 1.1 $ (355) (1.2)
====== ===== ===== ====== ===== ====== ===== ====== =====
Specialty
Chemicals Group
Special 2000
2000 Charges Adjusted 1999 1998
(Amounts in Amount % Amount Amount % Amount % Amount %
thousands)
Net sales $ 21,221 100.0 $ - $ 21,221 100.0 $ 22,418 100.0 $ 21,435 100.0
Cost of goods sold 23,725 111.8 (2,999) 20,726 97.7 19,864 88.6 19,126 89.2
------ ------ ------ ------ ----- ------ ----- ------- -----
Gross profit (2,504) (11.8) 2,999 495 2.3 2,554 11.4 2,309 10.8
Selling and
administrative
expense 2,241 10.6 - 2,241 10.5 2,146 9.6 1,930 9.0
------ ----- ------ ------ ----- ------ ----- ------ -----
Operating
(loss) income $ (4,745) (22.4) $ 2,999 $ (1,746) (8.2) $ 408 1.8 379 1.8
Augusta
operating losses 2,105 9.9 1,641 7.3 627 2.9
------ ----- ----- ----- ------ -----
Operating
(loss) income
excluding
Augusta losses $ 359 1.7 $ 2,049 9.1 $ 1,006 4.7
====== ===== ====== ===== ======= =====
Comparison of 2000 to 1999
The Chemicals Segment experienced a sales decline of seven percent
for the year and an operating loss of $2,541,000 before deducting
special charges totaling $3,554,000 and $1,708,000 in environmental
remediation costs.
Sales were down nine percent in the Colors Group. The decline in
sales resulted from a continuation of the trends that have been
evident since 1995 of reduced unit volume demand and lower sales
prices. Lower unit volume is the result of the downsizing in the
domestic textile industry in response to cheap imports that have
continued to capture a larger share of the market. Lower dye prices
are primarily the result of increasing amounts of cheap imports from
China and India and the intensely competitive market conditions. The
lower gross profit margins were due to the same factors that
affected sales plus expected losses on our new line of vat dyes
during the initial year of introduction. The losses suffered from
the development of our new line of vat dyes was an expected result
of our strategy to provide all of the major dyes for coloring cotton
which is the number one fiber used by the domestic textile industry.
Although selling and administrative expense declined $392,000,
consistent with the decline in sales, the poor gross profit
performance resulted in the Colors Group having a $795,000 operating
loss before the special and environmental charges. The special
charge was an inventory charge recorded to cover price decreases and
off-standard raw materials. The environmental charges resulted from
a revised estimate of the ultimate cost of sites remediation
primarily at the Augusta plant that is scheduled for closing in
2001. For information related to environmental matters, see Note I
to Consolidated Financial Statements.
The Specialty Chemicals Group sales were down five percent for the
year. The operating loss before special charges of $1,746,000 for
the year was caused by losses at the Augusta plant of $2,105,000.
Excluding Augusta, operating income before the special charges was
$359,000 for the year, which represents a decrease from the prior
period of $1,690,000. The significant decrease was primarily the
result of higher raw material and utility costs, resulting from
higher oil prices, which could not be passed on to our customers
because of competitive conditions. Also contributing to the
decreased profitability were modestly higher labor and overhead
costs and a less favorable product mix.
The special charges include a $2,324,000 write-off of fixed assets
largely related to the discontinuance of a contract processing
agreement covering a herbicide intermediate. The write-off amount
was recorded net of a note receivable totaling $1,029,000 which will
reimburse the Company for part of the capital cost, and will be
received in equal payments through June 2003. Most of the equipment
was at the Augusta plant and management had originally planned to
move it to the Spartanburg plant. However, in December 2000, an
agreement was reached to cancel the project. During the second
quarter of 2001 we expect to discontinue production at the Augusta
plant after completing our product supply obligations. A $610,000
provision has been recorded to cover the costs related to the shut-
down. During the first quarter of 2000, the Company recorded a
charge of $65,000 for cleaning up a chemical spill. Closing the
Augusta plant positions the Company to better utilize its remaining
facilities, which is expected to enhance future profitability. See
Note B to Consolidated Financial Statements.
Selling and administrative expense increased $95,000, or four
percent, and one percent of sales compared to 1999 primarily from
increases in salary expense and corporate cost allocations.
Comparison of 1999 to 1998
The Chemicals Segment experienced a sales decline of two percent for
the year and operating income fell significantly to $726,000 from
1998's total of $1,402,000 before deducting a $1,378,000 special
charge for environmental remediation costs. Colors sales were down
six percent. Without the acquisition of Organic Pigments on July 1,
1998, total Chemicals Segment sales would have declined 11 percent
and colors sales would have been down 22 percent. The decline
resulted from the continued downsizing of the domestic textile
industry, weak domestic demand and lower selling prices. Sales of
specialty chemicals improved three percent because of higher demand
from several toll projects during 1999 compared to 1998. This modest
increase is well below the growth rate that the Company expects from
these products. Unprecedented problems with the start up of a
herbicide intermediate under a processing agreement led to a
significant commitment of time and resources in 1999 with negligible
related revenues. The combination of weaker pricing and demand for
color products, low level of capacity utilization in both colors and
specialty chemicals, and to a lesser extent, the startup problems
mentioned above contributed to the decline in gross profits.
Selling and administrative expenses increased six percent over the
prior year because of having a full year of expense from the Organic
acquisition compared to six months last year, and an increase in
reserves for uncollectible accounts.
For information related to environmental matters, see Note I to
Consolidated Financial Statements.
Unallocated Income and Expense
Reference should be made to Note R to Consolidated Financial
Statements for the schedule of these items.
Comparison of 2000 to 1999
The $255,000 increase, or 28 percent increase in corporate expenses
resulted primarily from two factors. Included in the special charges
is an unexpected $158,000 payment made under a contract related to a
pre 1973 employment matter recorded in the first quarter of 2000. In
addition, $103,000 in outside consulting costs was amortized during
2000 related to the installation of a new data processing system
currently being installed. Other expense, net increased $468,000 as
interest expense increased $411,000 from increases in borrowings and
interest rates under the lines of credit with a bank. Interest
income also declined $67,000 due to the Company having lower amounts
of funds invested in 2000 compared to 1999.
Comparison of 1999 to 1998
The 13 percent increase in corporate expenses resulted from salary
increases and higher profit-based incentives. Interest expense
offset by interest income was higher in 1999, as borrowings
increased under the line of credit with a bank, and interest income
declined. The Company had borrowings under the line of credit
throughout 1999 compared to having cash invested most of 1998.
Current Conditions and Outlook
The Metals Segment sales in the fourth quarter were down 25 percent
from a year earlier to $14,403,000 with unit volumes down 32 percent
while sales prices were up nine percent. Operating income before the
environmental charge totaled $2,303,000 showing a smaller 15 percent
decline. On a sequential basis, the fourth quarter showed good
improvement with sales up eight percent and operating income more
than double the third quarter level when inventory destocking was
most intense. Because the backlog of $9,200,000 is down 42 percent
from a year earlier, the piping systems division will have to book a
sufficient amount of new business in order for the division to
achieve the same level of sales and profits from these products in
2001 as it did in 2000. Domestic economic conditions have a direct
impact on the demand for commodity pipe and piping systems.
Currently, there are indications that the domestic economy may be
deteriorating which could negatively impact demand and the segment's
results in 2001. However, we believe our 2000 performance was
significantly better than any domestic competitor and that we are
positioned to remain the largest and most profitable domestic
stainless pipe producer.
Sales were up two percent in the Colors Group to $5,626,000 in the
fourth quarter from a year earlier. However, Colors suffered an
operating loss before the special charges of $572,000 for the
quarter compared to a $23,000 loss in the same quarter last year.
The continued profit decline was the result of the conditions
outlined in the Chemicals Segment discussions. As stated previously,
the losses suffered from the development of our new line of vat dyes
was an expected result of our strategy to provide all of the major
dyes for coloring cotton which is the number one fiber used by the
domestic textile industry. We now supply our customers with vat,
sulfur, reactive and azoic dyes as well as pigments. No competitor
furnishes such a complete range of products for coloring cotton
fibers. We augment these products with a line of disperse dyes used
to color polyester, the second largest fiber used by the domestic
textile industry. This positions us well to maximize the volume we
can generate from the shrinking number of domestic textile
producers.
The Specialty Chemicals Group sales were down six percent for the
fourth quarter because of the general slowdown in the chemical
industry. The operating loss before the special charges of $565,000
for the fourth quarter was caused by losses at the Augusta plant of
$736,000. Excluding Augusta, operating income before charges was
$171,000 in the fourth quarter, which represents a $434,000 decrease
from the fourth quarter of 1999. The causes of the declines in sales
and profits are consistent with those outlined previously. Most of
the products produced at the Augusta plant are being transferred to
the Spartanburg facility. Management expects the closure to reduce
operating variances and, accordingly, enhance future earnings. In
the third quarter of 2001, the Company expects to complete the
installation of hydrogenation and distillation equipment at its
Spartanburg plant which will complete the transfer of products
produced in Augusta to Spartanburg.
During the last half of 2000, management reviewed all of our
businesses with the goal of eliminating any positions not essential
to current activities. At February 28, 2001 our employee count had
been reduced to 470, which was down 24 percent from the January 2000
level of 622. Closing of the Augusta plant will soon result in
further reductions. Management currently has an increased emphasis
on reducing the capital utilized by each of the business units. We
expect to generate substantial cash flow from these efforts during
the first half of 2001, primarily from inventory reductions. We
recognize that any business that cannot produce profits at least
equal to the cost of capital should be rationalized in some manner.
The Company looked at several acquisition opportunities in 2000 but
was unable to find a related business at an acceptable price. We
will continue examining acquisition opportunities as well as
considering any transaction that is deemed advantageous to the long-
term interest of our shareholders.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995
The statements contained in this Annual Report on Form 10-K 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
in this Annual Report on Form 10-K.
Item 7a: Quantitative and Qualitative Disclosures About Market Risks
The Company is exposed to market risks from adverse changes in
interest rates. In this regard, changes in U. S. interest rates
affect the interest earned on the Company's cash and cash
equivalents as well as interest paid on its indebtedness. As a
policy, the Company does not engage in speculative or leveraged
transactions, nor does it hold or issue financial instruments for
trading purposes. The Company is exposed to changes in interest
rates primarily as a result of its borrowing activities used to
maintain liquidity and fund business operations. There have been no
significant changes in the Company's risk exposures from the prior
year.
Fair value of the Company's debt obligation, which approximated the
recorded value, consisted of:
At December 30, 2000
$8,230,000 notes payable under a $9,000,000 line of credit expiring
on July 1, 2001 with an average variable interest rate of 7.52
percent.
$10,000,000 variable rate debt due May 1, 2002 with an average
variable interest rate of 7.44 percent.
At January 1, 2000
$3,084,000 notes payable under a $9,000,000 line of credit expiring
on July 29, 2000 with an average variable interest rate of 6.23
percent.
$10,000,000 variable rate debt due July 31, 2002 with an average
variable interest rate of 6.17 percent.
In addition, the Company's investments in equity securities, which
are recorded at their fair value of $1,078,000 in 2000 and
$1,039,000 in 1999, are subject to market risk related to equity
pricing changes. Management believes that substantial fluctuations
in equity prices and the resulting changes in the Company's
investment would not have a material adverse impact on the Company.
Item 8: Financial Statements and Supplementary Data
The Company's consolidated financial statements, related notes,
report of management and report of the independent auditors follow
on subsequent pages of this report.
Consolidated Balance Sheets
Years ended December 30, 2000, January 1, 2000 and January 2, 1999
2000 1999 1998
------ ------ ------
Assets
Current assets
Cash and cash equivalents $ 467 $ 120,549 $ 117,658
Accounts receivable, less allowance
for doubtful accounts of $1,056,000,
$1,075,000 and $362,000, respectively 13,260,204 16,354,165 12,596,592
Inventories
Raw materials 7,017,023 9,378,087 7,502,972
Work-in-process 5,727,177 6,033,389 3,755,147
Finished goods 16,115,875 13,407,243 14,842,842
---------- ---------- ----------
Total inventories 28,860,075 28,818,719 26,100,961
Deferred income taxes (Note M) 597,000 406,000 192,000
Prepaid expenses and
other current assets 1,282,750 794,232 646,342
---------- ---------- ----------
Total current assets 44,000,496 46,493,665 39,653,553
Cash value of life insurance 2,244,739 2,112,411 2,025,984
Investments (Note C) 1,077,599 1,039,117 1,026,117
Property, plant and
equipment, net (Note D) 22,232,822 25,985,725 25,495,020
Deferred charges, net
and other assets (Note E) 3,512,424 2,421,655 3,173,788
---------- ---------- ----------
Total assets $73,068,080 $78,052,573 $71,374,462
========== ========== ==========
Years ended December 30, 2000, January 1, 2000 and January 2, 1999
Liabilities and Shareholders' Equity
2000 1999 1998
------ ------ ------
Current liabilities
Notes payable (Note F) $ 8,230,000 $ 3,084,000 $ 665,000
Accounts payable 6,113,110 10,867,711 7,882,778
Income taxes - 1,209,874 -
Accrued expenses (Note G) 2,721,197 2,957,728 1,383,740
Current portion of environmental
Reserves (Note I) 1,452,700 373,500 575,650
Current portion of
long-term debt (Note H) - - 200,000
---------- ---------- ----------
Total current liabilities 18,517,007 18,492,813 10,707,168
Long-term debt,
less current portion (Note H) 10,000,000 10,000,000 10,000,000
Environmental reserves (Note I) 1,859,000 1,661,663 1,846,550
Deferred compensation (Note J) 1,353,244 1,374,210 1,349,940
Deferred income taxes (Note M) 1,166,000 1,864,000 1,623,000
Contingencies (Notes I and O)
Shareholders' equity (Notes H, K, and L)
Common stock, par value $1 per share -
authorized 12,000,000 in 2000 and
1999 and 8,000,000 shares in 1998;
issued 8,000,000 shares 8,000,000 8,000,000 8,000,000
Capital in excess of par value 9,491 9,491 9,491
Retained earnings 49,008,090 51,325,183 49,687,391
Accumulated other comprehensive income 242,251 461,000 453,000
---------- ---------- ----------
57,259,832 59,795,674 58,149,882
Less cost of Common Stock in
treasury: 2,035,632, 1,708,939 and
1,274,371 shares, respectively 17,087,003 15,135,787 12,302,078
---------- ---------- ----------
Total shareholders' equity 40,172,829 44,659,887 45,847,804
---------- ---------- ----------
Total liabilities and
shareholders' equity $73,068,080 $78,052,573 $71,374,462
========== ========== ==========
See accompanying notes to financial statements.
Consolidated Statements of Operations
Years ended December 30, 2000, January 1, 2000 and January 2, 1999
2000 1999 1998
------ ------ ------
Net sales $113,951,864 $116,883,845 $107,257,319
Cost of sales 101,548,225 100,310,001 95,054,533
----------- ----------- -----------
Gross profit 12,403,639 16,573,844 12,202,786
Selling, general and
Administrative expense 11,182,420 11,335,284 10,134,530
Environmental remediation costs 1,764,646 - 1,439,070
----------- ----------- -----------
Operating (loss) income (543,427) 5,238,560 629,186
Other (income) and expense
Interest expense 1,184,208 773,499 673,932
Other, net (56,301) (113,588) (141,423)
----------- ----------- -----------
(Loss) income before taxes (1,671,334) 4,578,649 96,677
Provision for income taxes (588,000) 1,632,000 34,000
----------- ----------- -----------
Net (loss) income $ (1,083,334) $ 2,946,649 $ 62,677
=========== =========== ===========
Net (loss) income per common share:
Basic $(0.18) $ 0.45 $ 0.01
===== ===== =====
Diluted $(0.18) $ 0.45 $ 0.01
===== ===== =====
See accompanying notes to financial statements.
Consolidated Statements of Shareholders' Equity
Accumulated Cost of
Capital in Other Common
Excess of Par Retained Comprehensive Stock in
Common Stock Value Earnings Income Treasury Total
------------------------------------------------------------------------
Balance at
January 3, 1998 $8,000,000 $ 33,475 $52,339,857 $ - $(10,331,679) $50,041,653
Cumulative effect of
Change in accounting
method, net of tax
(Notes A and C) 473,000 473,000
Comprehensive income:
Net income 62,677 62,677
Other comprehensive
income, net of tax
(Notes A and C) (20,000) (20,000)
------
Comprehensive income 42,677
Stock options exercised (23,984) 28,820 4,836
Purchase of common
stock for treasury (1,999,219) (1,999,219)
Cash dividends -
$.40 per share (2,715,143) (2,715,143)
--------- ------- ---------- ------- ---------- ----------
Balance at
January 2, 1999 8,000,000 9,491 49,687,391 453,000 (12,302,078) 45,847,804
Comprehensive income:
Net income 2,946,649 2,946,649
Other comprehensive
income, net of tax
(Notes A and C) 8,000 8,000
---------
Comprehensive income 2,954,649
Purchase of common
stock for treasury (2,833,709) (2,833,709)
Cash dividends -
$.20 per share (1,308,857) (1,308,857)
---------- -------- ----------- -------- ----------- -----------
Balance at
January 1, 2000 8,000,000 9,491 51,325,183 461,000 (15,135,787) 44,659,887
Comprehensive income:
Net (loss) (1,083,334) (1,083,334)
Other comprehensive
(loss), net of tax
(Notes A and C) (218,749) (218,749)
---------
Comprehensive income (1,302,083)
Purchase of common
stock for treasury (1,951,216) (1,951,216)
Cash dividends -
$.20 per share (1,233,759) (1,233,759)
--------- -------- ---------- ------- ----------- ----------
Balance at
January 1, 2000 $8,000,000 $ 9,491 $49,008,090 $242,251 $(17,087,003) $40,172,829
========= ======== ========== ======= =========== ==========
See accompanying notes to financial statements.
Consolidated Statements of Cash Flows
December 30, 2000, January 1, 2000 and January 2, 1999
2000 1999 1998
------ ------ ------
Operating activities
Net (loss) income $(1,083,334) $ 2,946,649 $ 62,677
Adjustments to reconcile net
(loss) income to net cash pro-
vided by operating activities:
Depreciation expense 3,734,155 3,473,352 3,258,075
Amortization of deferred charges 334,782 258,681 254,925
Deferred compensation (20,966) 24,270 26,552
Deferred income taxes (770,000) 22,000 (250,000)
Provision for losses on
Accounts receivable (19,690) 713,214 142,706
Disposition of property,
Plant and equipment 2,347,559 180,394 25,162
Cash value of life insurance (132,328) (86,427) (120,490)
Environmental reserves 1,276,537 (387,037) 1,151,520
Changes in operating assets
and liabilities:
Accounts receivable 3,113,651 (4,470,787) 3,407,106
Inventories (41,356) (2,717,758) 2,382,578
Other assets (474,151) 322,562 105,116
Accounts payable and
Accrued expenses (4,833,950) 4,508,840 172,719
Income taxes payable (1,486,056) 1,264,955 (478,395)
--------- --------- ---------
Net cash provided by
operating activities 1,944,853 6,052,908 10,140,251
Investing activities
Purchases of property,
plant and equipment (3,382,523) (4,214,025) (3,685,847)
Proceeds from sale of property,
Plant and equipment 24,794 69,574 37,036
Decrease (Increase) in
notes receivable (292,000) 18,000 (275,000)
Purchase of investment (376,231) - -
Acquisition, net of cash (Note Q) - - (3,456,799)
--------- --------- ---------
Net cash used in
investing activities (4,025,960) (4,126,451) (7,380,610)
Financing activities
Proceeds from revolving
lines of credit 42,362,000 40,093,000 3,613,000
Payments on revolving
lines of credit (37,216,000) (37,674,000) (2,948,000)
Principal payments on
long-term debt - (200,000) (200,000)
Purchases of treasury stock (1,951,216) (2,833,709) (1,999,219)
Dividends paid (1,233,759) (1,308,857) (2,715,143)
Proceeds from exercised
stock options - - 4,836
--------- --------- ---------
Net cash provided by
(used in) financing activities 1,961,025 (1,923,566) (4,244,526)
--------- --------- ---------
(Decrease) increase in
cash and cash equivalents (120,082) 2,891 (1,484,885)
Cash and cash equivalents at
Beginning of year 120,549 117,658 1,602,543
--------- --------- ---------
Cash and cash equivalents at
end of year $ 467 $ 120,549 $ 117,658
========= ========= =========
See accompanying notes to financial statements.
Note A: Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly-
owned. All significant intercompany transactions have been eliminated.
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Accounting Period: The Company's fiscal year is the 52- or 53-week period
ending the Saturday nearest to December 31. Fiscal year 2000 ended on
December 30, 2000, 1999 ended on January 1, 2000 and fiscal year 1998 ended
on January 2, 1999. All three fiscal years included 52 weeks.
Revenue Recognition: Revenue from product sales is recognized at the time
ownership of goods transfers to the customer and the earnings process is
complete. Shipping costs of approximately $2,099,000, 2,184,000 and
2,039,000 in 2000, 1999 and 1998, respectively, are recorded as a reduction
of sales.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
Long-Lived Assets: Property, plant and equipment are stated at cost.
Depreciation is provided on the straight-line method over the estimated
useful life of the assets.
Intangibles arising from acquisitions represent the excess of cost over
fair value of net assets of businesses acquired. The excess cost is
amortized using the straight-line method over periods of 15 to 40 years.
The costs of software licenses are amortized over their expected useful
lives using the straight-line method. Debt expenses are amortized over the
periods of the underlying debt agreements using the straight-line method.
The Company continually reviews the recoverability of the carrying value of
long-lived assets. The Company also reviews long-lived assets for
impairment whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. When the future
undiscounted cash flows of the operation to which the assets relate do not
exceed the carrying value of the asset, the assets are written down to fair
value.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Concentrations of Credit Risk: Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of trade accounts receivables and cash surrender value of life
insurance.
Substantially all of the Company's accounts receivable are due from
companies located throughout the United States. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Receivables are generally due within
30 to 45 days.
The cash surrender value of life insurance is maintained with one insurance
company. The Company performs a periodic evaluation of the relative credit
standing of this company as it relates to the insurance industry.
Research and Development Expense: The Company incurred research and
development expense of approximately $840,000, $798,000 and $882,000 in the
2000, 1999 and 1998, respectively.
Fair Value of Financial Instruments: The carrying amounts reported in the
balance sheet for cash and cash equivalents, cash surrender value of life
insurance, investments and borrowings under the Company's short-term line
of credit and long-term debt approximate their fair values.
Stock Options: The Company accounts for and will continue to account for
stock options under Accounting Principles Board Opinion 25, "Accounting
for Stock Issued to Employees." See Note L.
Comprehensive Income. Comprehensive income is comprised of net income plus
other comprehensive income which, under existing accounting standards,
consists of unrealized gains and losses on certain investments in equity
securities. Comprehensive income is reported by the Company in the
Consolidated Statements of Shareholders' Equity.
Derivatives: In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after June
15, 2000. Because the Company does not currently engage in any derivative
or hedging activities, the adoption of the new statement will have no
effect on earnings or the financial position of the Company.
Note B: Special Charges
In 2000, the Company recognized pretax charges of $5,829,000 for the costs
of actions designed primarily to reposition the Company for improved
productivity and future profitability. Pretax charges of $5,253,000 were
recorded in the fourth quarter and $576,000 in the first quarter, reducing
net income by $3,778,000, or $.62 per share for the year. The Company
closed its Whiting Metals fabrication plant in Camden, South Carolina, in
the first quarter of 2000, and is in the process of closing its Augusta,
Georgia chemicals processing plant estimated to be completed in the second
quarter of 2001. The rationalization of manufacturing capacity and
elimination and consolidation of certain product lines should position the
Company to get improved utilization of its remaining facilities. During the
last half of 2000, management reviewed all of the Company's businesses with
the goal of eliminating any positions not essential to current activities.
At December 30, 2000, the employee count has been reduced to 510, which was
down 18 percent from the January 2000 level of 622. Closing of the Augusta
plant will result in further reductions.
In the Specialty Chemicals Group, a pretax charge of $2,324,000 was
recorded to write-off fixed assets largely related to the discontinuance of
a contract processing agreement covering a herbicide intermediate. The
write-off amount was recorded net of a note receivable totaling $1,029,000
which will reimburse the Company for part of the capital cost, and will be
received in equal payments through June 2003. Most of the equipment was at
the Augusta plant and management had originally planned to move it to the
Spartanburg, South Carolina plant. However, in December 2000, an agreement
was reached to cancel the project. During the second quarter of 2001 the
Company expects to discontinue production at the Augusta plant after
completing its product supply obligations. Most of the remaining products
produced at the Augusta plant are being transferred to the Spartanburg
facility. A $610,000 provision has been recorded to cover the costs related
to the closure of the Augusta plant.
The Colors Group recorded an inventory charge of $555,000 in the fourth
quarter to cover price decreases and off-standard raw materials. During the
first quarter, the Specialties Chemical Group recorded a charge of $65,000
for cleaning up a chemical spill. In the Metals Segment, a pretax charge of
$352,000 was recorded in the first quarter for the costs of closing the
Whiting plant. Certain equipment was moved to the Bristol, Tennessee plant
giving the Bristol plant similar capabilities in the manufacture of process
equipment.
The Colors Group and Metals Segment recorded pretax charges of $1,708,000
and $57,000, respectively, for environmental remediation costs in the
fourth quarter including $1,148,000 at the Augusta plant, which is being
closed. See Note I for further discussions of the environmental charges.
All of the pretax charges were recorded in cost of goods sold except for a
one-time unexpected $158,000 payment made by the Company under a contract
related to a pre 1973 employment matter which was recorded in corporate
administrative costs in the first quarter of 2000.
The following table summarizes the impact of the items detailed above on
the Company's statement of operations:
(Amounts in thousands) 2000 1999 1998
Net sales $113,952 $116,884 $107,257
Augusta and Whiting net sales (1,919) (4,919) (5,662)
------- ------- -------
Adjusted net sales $112,033 $111,965 $101,595
======= ======= =======
Operating (loss) income
Operating (loss) income before adjustments $ (543) $ 5,239 $ 629
Augusta and Whiting operating losses 2,232 2,114 461
Special charges recorded as pretax charges 4,064 -
Environmental remediation costs 1,765 - 1,439
------- ------- -------
Adjusted operating income $ 7,518 $ 7,353 $ 2,529
======= ======= =======
Net (loss) income per share $ (0.18) $ 0.45 $ 0.01
Augusta and Whiting operating losses 0.23 0.21 0.04
Special charges and environmental
remediation costs recorded as pretax charges 0.62 - 0.14
------- ------- -------
Adjusted net income per share $ 0.67 $ 0.66 $ 0.19
======= ======= =======
Note C: Investments in Equity Securities
At December 30, 2000, investments in equity securities consist of the
following:
Other
Fair Value of Unrealized Comprehensive Deferred
Investment Appreciation Income, Net Income Taxes
Ta Chen $ 637,117 $ 308,000 $ 200,000 $ 108,000
Span America 440,482 64,251 42,251 22,000
--------- -------- -------- --------
$1,077,599 $ 372,251 $ 242,251 $ 130,000
========== ========= ========= =========
The unrealized appreciation of the investments are recorded as other
comprehensive income included in shareholders' equity, net of deferred
income taxes.
All the Company's investments are classified as available for sale.
Note D: Property, Plant and Equipment
Property, plant and equipment consist of the following:
2000 1999 1998
Land $ 458,720 $ 431,736 $ 431,736
Land improvements 945,235 1,000,217 989,814
Buildings 13,447,206 13,813,142 13,970,501
Machinery, fixtures
and equipment 39,783,054 44,018,394 40,570,435
Construction-in-
progress 1,181,273 1,609,468 2,030,584
---------- ---------- ----------
58,815,488 60,872,957 57,993,070
Less accumulated
depreciation 33,582,666 34,887,232 32,498,050
---------- ---------- ----------
$ 22,232,822 $ 25,985,725 $ 25,495,020
=========== =========== ===========
Note E: Deferred Charges
Deferred charges consist of the following:
2000 1999 1998
Intangibles arising
from acquisitions $ 2,843,965 $ 2,843,965 $ 2,843,965
Software license
agreements 775,134 465,495 477,289
Debt expense 37,500 46,500 104,316
----------- ---------- ----------
3,656,599 3,355,960 3,425,570
Less accumulated
amortization 1,385,368 1,216,988 1,042,317
---------- ---------- ----------
$ 2,271,231 $ 2,138,972 $ 2,383,253
============ =========== ==========
Note F: Notes Payable
The Company has available a line of credit totaling $9,000,000, of which
$8,230,000 was outstanding at year end. The line expires on July 29, 2001
and bears interest at the bank's overnight cost of funds plus .75 percent
(7.52 percent at December 30, 2000). The line has no compensating balance
requirement. Borrowings under the line of credit are subject to the deed of
trust and security agreement outlined in Note H. Average short-term
borrowings outstanding during fiscal 2000, 1999 and 1998 were $6,029,000,
2,546,000 and $61,000 with weighted average interest rates of 7.24 percent,
6.23 percent and 5.56 percent, respectively.
Note G: Accrued Expenses
Accrued expenses consist of the following:
2000 1999 1998
Salaries, wages
and commissions $ 1,373,286 $ 884,910 $ 299,155
Taxes, other than
income taxes 223,638 627,325 257,203
Insurance 237,582 355,411 276,894
Pension 112,070 110,771 134,977
Customer advances 57,168 388,388 88,028
Plant closing costs,
Note B 610,000 - -
Other accrued items 107,453 590,923 327,483
--------- --------- ---------
$ 2,721,197 $ 2,957,728 $ 1,383,740
========= ========= =========
Note H: Long-Term Debt
Long-term debt consists of the following:
2000 1999 1998
Unsecured commercial
note payable with
interest payable on
the dates and at
rates provided by
credit agreement,
as amended $ 10,000,000 $ 10,000,000 $ 10,000,000
Other - - 200,000
---------- ---------- ----------
10,000,000 10,000,000 10,200,000
Less current portion - - 200,000
---------- ---------- ----------
$ 10,000,000 $ 10,000,000 $ 10,000,000
========== ========== ==========
The Company has a $10,000,000 revolving line of credit expiring July 31,
2002. Interest is payable quarterly on the outstanding balance at the lower
of the bank's prime rate less .25 percent or LIBOR plus .80 percent. The
rate at December 30, 2000 was 7.44 percent. Borrowings are subject to the
maintenance of certain financial ratios and certain other restrictive
covenants. At December 30, 2000, the Company was not in compliance with its
covenants for which the Company received a waiver.
The Company made interest payments of $1,235,000 in 2000, $678,000 in 1999
and $664,000 in 1998. Interest expense of approximately $27,000, was
capitalized in 1999. The approximate aggregate amount of all long-term debt
maturities for the next five years is as follows: 2002 - $10,000,000.
Note I: Environmental Compliance Costs
At December 30, 2000, the Company has accrued $3,312,000 in remediation
costs which, in management's best estimate, will satisfy anticipated costs
of known remediation requirements as outlined below. Expenditures related
to costs currently accrued are not discounted to their present values and
are expected to be made over the next seven to ten years. As a result of
the evolving nature of the environmental regulations, the difficulty in
estimating the extent and remedy of environmental contamination, and the
availability and application of technology, the estimated costs for future
environmental compliance and remediation are subject to uncertainties and
it is not possible to predict the amount or timing of future costs of
environmental matters which may subsequently be determined. Subject to the
difficulty in estimating future environmental costs, the Company believes
that the likelihood of material losses in excess of the amounts recorded is
remote.
Prior to 1987, the Company utilized certain products at its chemical
facilities that are currently classified as hazardous waste. Testing of the
groundwater in the areas of the treatment impoundments at these facilities
disclosed the presence of certain contaminants. In addition, several solid
waste management units ("SWMUs") at the plant sites have been identified.
During 1994, the Company completed a reevaluation of its remediation plans
including RCRA Facility Investigations which have been submitted for
regulatory approval. In 1998 the Company completed an RCRA Facility
Investigation at its Spartanburg plant site, and based on the results,
completed a Corrective Measures Study in 2000. A Corrective Measures Plan
specifying remediation procedures to be performed has been submitted in
2000 for regulatory approval. The Company recorded a special charge of
$560,000 and has $1,468,000 accrued at December 30, 2000, to accrue for
additional estimated future remedial, cleanup and monitoring costs.
At the Augusta plant site, the Company submitted in 2000 results of a Phase
II Monitoring Plan for regulatory approval. Upon receiving approval, a Risk
Assessment and Corrective Measures Plan will be developed and submitted for
regulatory approval. A Closure and Post-Closure Care Plan was submitted in
2000 for the closure of the surface impoundment. Based on the anticipated
results of the studies performed at the site, the Company recorded a
special charge of $1,148,000 in the fourth quarter of 2000 and has
$1,742,000 accrued at December 30, 2000 for additional estimated future
remedial, cleanup and monitoring costs.
The Company has identified and evaluated two SWMUs at its plant in Bristol,
Tennessee that revealed residual groundwater contamination. An Interim
Corrective Measures Plan was submitted for regulatory approval in December
2000 to address the final area of contamination identified. The Company
accrued $61,000 in the fourth quarter of 1998 and an additional $57,000 in
the fourth quarter of 2000, of which $102,000 remains accrued at December
30, 2000, to provide for estimated future remedial and cleanup costs.
The Company has been designated, along with others, as a potentially
responsible party under the Comprehensive Environmental Response,
Compensation, and Liability Act, or comparable state statutes, at three
waste disposal sites. It is impossible to determine the ultimate costs
related to these sites due to several factors such as the unknown magnitude
of possible contamination, the unknown timing and extent of the corrective
actions which may be required, and the determination of the Company's
liability in proportion to other responsible parties. However, in
management's opinion, these environmental matters should not have a
material adverse effect upon the consolidated results of operations or
financial position of the Company.
The Company does not anticipate any insurance recoveries to offset the
environmental remediation costs it has incurred. Due to the uncertainty
regarding court and regulatory decisions, and possible future legislation
or rulings regarding the environment, many insurers will not cover
environmental impairment risks, particularly in the chemical industry.
Hence, the Company has been unable to obtain this coverage at an affordable
price.
Note J: Deferred Compensation
The Company has a deferred compensation agreement with an officer which
allows the officer to defer all or a portion of any annual incentive
payable to the officer. Amounts deferred are payable upon certain events
including retirement, death or termination of the officer, or a change in
control of the Company. Interest accrues on amounts deferred, net of
estimated income tax benefits deferred by the Company until payments are
made, at rates consistent with other invested retirement funds held by the
Company in accordance with the agreement. No incentive was deferred in
2000, 1999 and 1998. At December 30, 2000, the amounts deferred totaled
$809,000, including accrued interest earned in 2000 of $42,000.
The Company has deferred compensation agreements with certain former
officers providing for payments for ten years in the event of pre-
retirement death or the longer of ten years or life beginning at age 65.
The present value of such vested future payments, $544,000 at December 30,
2000, has been accrued.
Note K: Shareholders' Rights
On February 4, 1999, the Board of Directors adopted a new Shareholders'
Rights Plan (the "Plan") to succeed the Shareholders' Rights Plan which
expired on March 26, 1999. Under the terms of the Plan, which expires in
March 2009, the Company declared a dividend distribution of one right for
each outstanding share to holders of record at the close of business on
March 26, 1999. Each Right entitles holders to purchase 2/10 of one share
of Common Stock at a price of $25.00 per share. Initially, the Rights are
not exercisable and will automatically trade with the Common Stock. Each
right only becomes exercisable after a person or group acquires more than
15 percent of the Company's Common Stock, or announces a tender or exchange
offer for more than 15 percent of the stock. At that time, each right
holder, other than the acquiring person or group, may use the Right to
purchase $25.00 worth of the Company's Common Stock at one-half of the then
market price.
Note L: Stock Options
A summary of activity in the Company's stock option plans is as follows:
Weighted
Average
Option
Price Outstanding Available
At January 3, 1998 $ 13.20 238,608 40,500
Authorized 380,000
Expired (27,000)
Granted $ 11.81 16,000 (16,000)
Exercised $ 1.56 (3,108)
------ ------ -------
At January 2, 1999 $ 13.25 251,500 377,500
Granted $ 7.69 150,500 (150,500)
Exercised -
------ ------- -------
At January 1, 2000 $ 11.17 402,000 227,000
Expired (11,750) 3,750
Granted $ 6.75 6,000 (6,000)
Exercised - -
------ ------- -------
At December 30, 2000 $ 11.13 396,250 224,750
====== ======= =======
The following table summarizes information about stock options outstanding
at December 30, 2000:
Exercisable
Outstanding Stock Options Stock Options
Weighted Average
Weighted
Remaining Average
Range of Exercise Contractual Exercise
Exercise Prices Shares Price Life in Years Shares Price
$9.75 66,500 $ 9.75 2.84 66,500 $ 9.75
$11.88 to $14.83 42,000 $12.51 3.50 42,000 $12.51
$18.88 21,000 $18.88 5.33 18,000 $18.88
$15.13 98,000 $15.13 6.33 61,200 $15.13
$10.72 to $13.63 16,000 $11.81 7.52 10,000 $12.46
$7.28 to $7.75 146,750 $ 7.69 8.41 34,150 $ 7.70
$6.75 6,000 $ 6.75 9.38 6,000 $ 6.75
The Company grants to non-employee directors, officers and key employees
options to purchase common stock of the Company under three Plans adopted
in 1988, 1994 and 1998. Options were granted through January 28, 1998 under
the 1988 Plan. Under the 1994 Plan options may be granted through April 29,
2004, and through April 30, 2008 under the 1998 Plan at a price not less
than the fair value on the date of grant. Under the 1988 and 1998 Plans,
options may be exercised beginning one year after date of grant at a rate
of 20 percent annually on a cumulative basis. Under the 1994 Non-Employee
Directors' Plan, options may be exercised at the date of grant. At the
2000, 1999 and 1998 respective year ends, 237,850, 186,800 and 150,900
shares of the options outstanding were fully exercisable.
The Company has elected to apply the provisions of Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees," (APB No.
25) in the computation of compensation expense. Under APB No. 25's
intrinsic value method, compensation expense is determined by computing the
excess of the market price of the shares over the exercise price on the
measurement date. For the Company's options, the intrinsic value on the
measurement date (or grant date) is zero, and no compensation expense is
recognized. FASB Statement No. 123 requires the Company to disclose pro
forma net income and income per share as if a fair value based accounting
method had been used in the computation of compensation expense. The fair
value of the options computed under Statement 123 would be recognized over
the vesting period of the options. The fair value for the Company's options
granted subsequent to December 31, 1994 was estimated at the time the
options were granted using the Black-Scholes option pricing model with the
following weighted-average assumptions for 2000, 1999 and 1998,
respectively: risk-free interest rate of five percent; dividend yield of
two percent; volatility factors of the expected market price of the
Company's Common Shares of .703, .728 and .747; and an expected life of the
option of seven years. The weighted average fair values on the date of
grant were $4.25, $4.65 and $7.26 in 2000, 1999 and 1998, respectively. The
Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's options have characteristics
significantly different from those of traded options, and because changes
in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its options. The
effects of applying Statement 123 may not be representative of the effects
on reported net income in future years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
following is the pro forma information for 2000, 1999 and 1998:
2000 1999 1998
Pro forma net (loss) income $ (1,307,000) $ 2,757,000 $ (65,000)
Pro forma diluted (loss)
earnings per share $ (0.21) $ 0.42 $ (0.01)
Note M: Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows at the respective year ends:
(Amount in thousands) 2000 1999 1998
Deferred tax assets:
Allowance for doubtful account $ 343 $ 390 $ 128
Deferred compensation 491 498 476
Inventory capitalization 340 231 203
Accrued group insurance 75 120 93
Environmental reserves 675 590 652
Other 226 55 147
----- ----- -----
Total deferred tax assets 2,150 1,884 1,699
Deferred tax liabilities:
Tax over book depreciation 2,202 2,703 2,507
Prepaid expenses 387 390 379
Unrealized gain on investment 130 249 244
----- ----- -----
Total deferred tax liabilities 2,719 3,342 3,130
----- ----- -----
Net deferred tax liabilities $ (569) $(1,458) $ (1,431)
===== ===== =====
Significant components of the provision for income taxes are as follows:
Amount in thousands 2000 1999 1998
Current:
Federal $ 174 $ 1,452 $ 271
State 8 158 13
---- ----- ----
Total current 182 1,610 284
Deferred:
Federal (698) 21 (236)
State (72) 1 (14)
---- ----- ----
Total deferred (770) 22 (250)
---- ----- ----
Total $(588) $ 1,632 $ 34
==== ===== ====
The reconciliation of income tax computed at the U. S. federal statutory
tax rates to income tax expense is:
(Amount in thousands) 2000 1999 1998
Amount % Amount % Amount %
Tax at U.S. Statutory rates $ (568) (34.0) $ 1,557 34.0 $ 33 34.0
State income taxes, net of
federal tax benefit (39) (2.3) 106 2.3 1 1.2
Other, net 19 1.1 (31) (0.7) -
---- ---- ----- ---- --- ----
Total $ (588) (35.2) $ 1,632 35.6 $ 34 35.2
==== ==== ===== ==== === ====
Income tax payments of approximately $1,728,000, $1,011,000 and $729,000
were made in 2000, 1999 and 1998, respectively.
Note N: Benefit Plans
The Company has a 401(k) Employee Stock Ownership Plan covering all non-
union employees. Employees may contribute to the Plan up to 20 percent of
their salary with a maximum of $10,500 for 2000. Contributions by the
employees are invested in one or more funds at the direction of the
employee; however, employee contributions cannot be invested in Company
stock.
Contributions by the Company are made primarily in Synalloy stock. The
Company contributes on behalf of each participant who is eligible a
matching contribution equal to a percentage which is determined each year
by the Board of Directors. For 2000 the maximum was four percent. The
matching contribution is allocated monthly. Matching contributions of
approximately $360,000, $357,000 and $354,000 were made for 2000, 1999 and
1998, respectively. The Company may also make a discretionary contribution,
which shall be distributed to all eligible participants regardless of
whether they contribute to the Plan. No discretionary contributions were
made to the Plan in 2000, 1999 and 1998.
The Company also contributes to union-sponsored defined contribution
retirement plans. Contributions relating to these plans were approximately
$433,000, $512,000 and $484,000 for 2000, 1999 and 1998, respectively.
Note O: Contingencies
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 P: Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
2000 1999 1998
Numerator:
Net (loss) income $(1,083,334) $ 2,946,649 $ 62,677
Denominator:
Denominator for basic earnings
per share-weighted average
shares 6,165,568 6,558,705 6,779,349
Effect of dilutive securities:
Employee stock options - 396 14,528
--------- --------- ---------
Denominator for diluted
earnings per share 6,165,568 6,559,101 6,793,877
Basic (loss) earnings per share $ (0.18) $ 0.45 $ 0.01
Diluted (loss) earnings per share $ (0.18) $ 0.45 $ 0.01
========= ========= =========
Note Q: 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, North Carolina, manufactures aqueous pigment
dispersions sold to the textile industry and used in printing inks for use
on paper. Total cost of the acquisition was $3,472,000 including 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. 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.
The purchase agreement includes a contingent payment provision that
provides for additional payments to be made to Organic's shareholders over
a three-year period. The provision calls for payments to Organic's
shareholders up to $875,000, payable one-third per year for three years,
for a joint venture investment in a manufacturing plant in the Republic of
China based on the equity value of the investment after the three-year
period. Each payment is calculated for a one year period ending June 30 and
payable August 30 for each of the next three years.The Company has made two
payments of $292,000 each in August of 2000 and 1999, respectively.
Note R: Industry Segments
Synalloy Corporation operates in two principal industry segments: metals
and chemicals. The Company identifies such segments based on products and
services. The Metals Segment consists of Bristol Metals, a wholly-owned
subsidiary. The Chemicals Segment consists of Blackman Uhler Chemical
Company, a division of the Company, Manufacturers Chemicals and Organic
Pigments Corporation, wholly-owned subsidiaries.
During the first quarter of 2000, the Company completed the reorganization
of its Chemicals Segment, changing the Segment into two separately managed
operating groups - Colors and Specialty Chemicals. Previously, the Segment
had been managed by geographic location. The amounts presented for 1999 and
1998 have been restated to reflect the reorganization. The Colors Group
manufactures dyes, pigments and auxiliaries primarily for the textile
industry. The Specialty Chemicals Group manufacturers a wide variety of
specialty chemicals for the textile, chemical, paper, metals, petroleum and
pharmaceutical industries. The Metals Segment manufactures welded stainless
steel pipe and highly specialized products, most of which are custom-
produced to individual orders, required for corrosive and high-purity
processes used principally by the chemical, petrochemical and pulp and
paper industries. Products include piping systems, fittings, tanks,
pressure vessels and a variety of other components.
Operating profit is total revenue less operating expenses, excluding
interest expense and income taxes. Identifiable assets (all of which are in
the United States) are those assets used in operations by each segment.
Centralized data processing and accounting expenses are allocated to the
Metals Segment and Chemicals Segment based upon estimates of their
percentage of usage. Corporate assets consist principally of cash, certain
investments, and property and equipment. No single customer or agency
(domestic or foreign) accounted for more than ten percent of revenues in
2000, 1999 and 1998.
The Company has a distributorship agreement with a company supplying about
92 percent of the products that produced about 27 percent of the Colors
Group's sales in 2000. The supplier has been the principal source of these
products since 1985. Although the Company believes that this supplier will
continue to be a source of these products in the future, there is no
assurance of this. Loss of this supplier would have a materially adverse
short-term effect on the Company's sales and net income. However,
management believes that if the agreement with this supplier is not
continued in the future, other suppliers could be found to replace most of
the products.
Segment information
(Amounts in thousands) 2000 1999 1998
Net sales
Colors Group $ 25,960 $ 28,411 $ 30,454
Specialty Chemicals Group 21,221 22,418 21,435
------- ------- -------
Chemicals 47,181 50,829 51,889
Metals 66,771 66,055 55,368
------- ------- -------
Total net sales $ 113,952 $ 116,884 $ 107,257
======= ======= =======
Operating (loss) income
Colors Group $ (3,058) $ 318 $ (355)
Specialty Chemicals Group (4,745) 408 379
------- ------ ------
Chemicals (7,803) 726 24
Metals 8,420 5,418 1,409
------- ------ ------
617 6,144 1,433
Less unallocated corporate expense 1,160 905 804
------ ------ ------
Operating (loss) income (543) 5,239 629
Other expense, net 1,128 660 532
------ ------ ------
(Loss) income before taxes $ (1,671) $ 4,579 $ 97
====== ====== ======
Identifiable assets
Colors Group $ 20,505 $ 21,152 $ 20,114
Specialty Chemicals Group 12,743 14,988 14,888
---------- ---------- ----------
Chemicals 33,248 36,140 35,002
Metals 34,670 37,295 32,275
Corporate 5,150 4,618 4,097
------- ------- -------
$ 73,068 $ 78,053 $ 71,374
======= ======= =======
Depreciation and amortization
Colors Group $ 675 $ 703 $ 626
Specialty Chemicals Group 1,784 1,409 1,217
------- ------- -------
Chemicals 2,459 2,112 1,843
Metals 1,403 1,469 1,515
Corporate 207 151 155
------ ------ ------
$ 4,069 $ 3,732 $ 3,513
====== ====== ======
Capital expenditures
Colors Group $ 1,000 $ 1,114 $ 366
Specialty Chemicals Group 1,477 1,619 2,295
------ ------ ------
Chemicals 2,477 2,733 2,661
Metals 870 914 956
Corporate 36 567 69
------ ------ ------
$ 3,383 $ 4,214 $ 3,686
====== ====== ======
Geographic sales
United States $111,029 $113,443 $101,776
Elsewhere 2,923 3,441 5,481
------- ------- -------
$113,952 $116,884 $107,257
======= ======= =======
Note S: Quarterly Results (unaudited)
The following is a summary of quarterly operations for 2000,
1999 and 1998:
Net Net (Loss)
Net Gross Income Income Per
(Thousands, except Sales Profit (Loss) Common Share
per share data)
2000
First Quarter $ 32,271 $ 5,198 $ 1,074 $ 0.17
Second Quarter 31,891 4,935 1,197 0.19
Third Quarter 24,964 2,230 (328) (0.05)
Fourth Quarter 24,826 41 (3,026) (0.50)
1999
First Quarter $ 27,645 $ 3,371 $ 337 $ 0.05
Second Quarter 28,292 3,331 326 0.05
Third Quarter 31,024 4,600 831 0.13
Fourth Quarter 29,923 5,272 1,454 0.23
1998
First Quarter $ 30,606 $ 3,475 $ 597 $ 0.09
Second Quarter 25,813 2,927 110 0.02
Third Quarter 28,040 3,467 455 0.07
Fourth Quarter 22,798 2,334 (1,100) (0.16)
The Company recorded special charges of $5,829,000 ($5,253,000 in the
fourth quarter) in 2000 which reduced net income by $3,778,000 or $.62 per
share ($3,405,000 or $.56 per share in the fourth quarter). See Notes B and
I for further discussion.
The Company recorded a special charge of $1,439,000 for environmental
remediation costs in the fourth quarter of 1998 which reduced net income by
$931,000 or $.14 per share. See Note I for further discussion.
Report of Management
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and have been audited by Ernst &
Young LLP, Independent Auditors. Management of the Company assumes
responsibility for the accuracy and reliability of the financial
statements. In discharging such responsibility, management has established
certain standards which are subject to continuous review and are monitored
through the Company's financial management. The Board of Directors pursues
its oversight role for the financial statements through its Audit Committee
which consists of outside directors. The Audit Committee meets on a regular
basis with representatives of management and Ernst & Young LLP.
Report Of Independent Auditors
Shareholders and Board of Directors
Synalloy Corporation
We have audited the accompanying consolidated balance sheets of Synalloy
Corporation and subsidiaries as of December 30, 2000, January 1, 2000 and
January 2, 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the
period ended December 30, 2000. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Synalloy Corporation at December 30, 2000, January 1, 2000 and
January 2, 1999 and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 30, 2000, in
conformity with generally accepted accounting principles in the United
States. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Greenville, South Carolina
February 9, 2001
PART II
Item 9: Changes in and Disagreements With Accountants on Accounting
Financial Disclosure
None
PART III
A definitive proxy statement, which will be filed with the Securities and
Exchange Commission pursuant to regulation 14A of the Securities Exchange
Act of 1934 within 120 days of the end of the registrant's fiscal year
ended December 30, 2000, is incorporated herein by reference.
Item 10: Directors and Executive Officers of the Registrant
Such information as required by the Securities and Exchange Commission in
Regulation S-K is contained in the Company's definitive Proxy Statement in
connection with its Annual Meeting to be held April 26, 2001.
Item 11: Executive Compensation
The information with respect to executive compensation and transactions is
hereby incorporated by reference from the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A of the Securities Exchange Act of 1934.
Item 12: Security Ownership of Certain Beneficial Owners and
Management
The information with respect to security ownership of certain beneficial
owners and management is hereby incorporated by reference from the
Company's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange
Act of 1934.
Item 13: Certain Relationships and Related Transactions
None
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on
Form 8-K
a. The following documents are filed as a part of this report:
1. Financial Statements: The following consolidated financial
statements of Synalloy Corporation are included in Item 8:
Consolidated Statements of Operations for the years ended
December 30, 2000, January 1, 2000 and January 2, 1999
Consolidated Balance Sheets at December 30, 2000
January 1, 2000 and January 2, 1999
Consolidated Statements of Shareholders' Equity for the years
ended December 30, 2000, January 1, 2000 and January 2, 1999
Consolidated Statements of Cash Flows for the years ended
December 30, 2000, January 1, 2000 and January 2, 1999
Notes to Consolidated Financial Statements
2. Financial Statements Schedules: The following consolidated
financial statements schedule of Synalloy Corporation is included
in Item 14(d).
Schedule II - Valuation and Qualifying Accounts for the years
ended December 30, 2000, January 1, 2000 and January 2, 1999
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
3. Listing of Exhibits:
Exhibit 22 - Subsidiaries of the Registrant
b. Reports on Form 8-K: There were no reports on Form 8-K filed during the
fourth quarter of the 2000 fiscal year.
c. Exhibits: The response to this portion of Item 14 is submitted in a
separate section of this report.
d. Financial Statements Schedules: The response to this portion of Item 14
is submitted as a separate section of this report.
Schedule II Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E
Balance at Charged to Deductions Balance
Beginning Cost and Describe at End of
Description of Period Expenses (1) Period
Year ended December 30, 2000
Deducted from asset account:
Allowance for doubtful accounts $1,075,000 $391,000 $410,000 $1,056,000
Year ended January 1, 2000
Deducted from asset account:
Allowance for doubtful accounts $ 362,000 $820,000 $107,000 $1,075,000
Year ended January 2, 1999
Deducted from asset account:
Allowance for doubtful accounts $ 219,000 $349,000(2) $206,000 $ 362,000
(1) Allowances, uncollected accounts and credit balances written off
against reserve, net of recoveries.
(2) Includes a $25,000 allowance from the acquisition of Organic Pigments
Corporation in 1998.
Exhibit 21 Subsidiaries of the Registrant
The Company has six wholly-owned subsidiaries. All subsidiaries are
included in the Company's consolidated financial statements. The
subsidiaries are as follows:
Synalloy Metals, Inc., formerly Bristol Metals, Inc., a Tennessee
corporation
Whiting Metals, Inc., a South Carolina corporation
Manufacturers Soap and Chemical Company, a Tennessee corporation
Organic Pigments Corporation, a North Carolina corporation
Metchem, Inc., a Delaware corporation
Synco International, Inc., a Virgin Islands corporation
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
By /s/ Cheryl C. Carter March 27,2001
Cheryl C. Carter Date
Corporate Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
By /s/ James G. Lane, Jr. March 27, 2001
James G. Lane, Jr. Date
Chief Executive Officer and
Chairman of the Board
By /s/ Gregory M. Bowie March 27, 2001
Gregory M. Bowie Date
Vice President, Finance
By /s/ Glenn R. Oxner March 27, 2001
Glenn R. Oxner Date
Director
By /s/ Sibyl N. Fishburn March 27, 2001
Sibyl N. Fishburn Date
Director
By /s/ Carroll D. Vinson March 27, 2001
Carroll D. Vinson Date
Director