FORM 10-Q
Securities and Exchange Commission
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 29, 1996
OR
________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-19687
SYNALLOY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 57-0426694
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Post Office Box 5627
Croft Industrial Park
Spartanburg, South Carolina 29304
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (864) 585-3605
Not Applicable
Former name, former address and former
fiscal year, if changed since last year.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No________
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practical date.
Number of Shares Outstanding
Title of Class As of June 29, 1996
Common Stock, $1.00 Par Value 6,975,017
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Synalloy Corporation
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - June 29, 1996 and
December 30,1995
Condensed consolidated statements of income - Three and six months
ended June 29, 1996 and July 1, 1995
Condensed consolidated statements of cash flows - Three and six
months ended June 29, 1996 and July 1, 1995
Notes to condensed consolidated financial statements - June 29,
1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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PART 1. FINANCIAL STATEMENTS
Synalloy Corporation
Condensed Consolidated Balance Sheets
June 29, 1996 December 30,1995
(Unaudited) (Note)
Assets
Current assets
Cash and cash equivalents 80,213 267,061
Accounts receivable, less allowance for
doubtful accounts 16,068,888 17,616,246
Inventories:
Raw materials 13,483,332 10,574,040
Work-in-process 5,781,874 6,095,136
Finished goods 18,300,761 21,860,833
Total inventories 37,565,967 38,530,009
Deferred income taxes 218,000 218,000
Prepaid expenses and other current assets 790,064 119,592
Total current assets 54,723,132 56,750,908
Cash value of life insurance 1,669,729 1,632,029
Investment 843,100 543,100
Property, plant & equipment, net of accumulated
depreciation of $23,326,655 and $21,950,069 21,240,988 20,341,645
Deferred charges and other assets 893,480 957,891
Total assets 79,370,429 80,225,573
Liabilities and Shareholders' Equity
Current liabilities
Notes payable 5,734,000 4,740,000
Accounts payable 7,195,288 4,833,405
Income taxes 233,977
Accrued expenses 2,839,882 5,082,212
Current portion of environmental reserves 260,859 486,521
Current portion of long-term debt 276,923 276,923
Total current liabilities 16,306,952 15,653,038
Long-term debt, less current portion 12,580,769 12,619,231
Environmental reserves 1,702,800 1,702,800
Deferred compensation 1,271,752 1,267,353
Deferred income taxes 623,800 620,000
Contingencies
Shareholders' equity
Common stock, par value $1 per share-authorized
and issued 8,000,000 shares 8,000,000 8,000,000
Capital in excess of par value 81,746 417,030
Retained earnings 47,685,140 43,774,332
Less Common Stock in treasury (8,882,530) (3,828,211)
Total shareholders' equity 46,884,356 48,363,151
Total liabilities and shareholders' equity 79,370,429 80,225,573
Note: The balance sheet at December 30, 1995 has been derived from the audited financial
statements at that date. See accompanying notes to condensed consolidated financial
statements
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Synalloy Corporation
Condensed Consolidated Statements of Income
(Unaudited) Three Months Ended Six Months Ended
June 29,1996 July 1,1995 June 29,1996 July 1,1995
Net sales 31,736,916 41,380,776 68,395,421 75,956,743
Cost of sales 25,909,347 30,581,922 55,138,329 57,983,113
Gross profit 5,827,569 10,798,854 13,257,092 17,973,630
Selling, general and
administrative expense 2,335,056 3,101,255 4,895,366 5,687,572
Operating income 3,492,513 7,697,599 8,361,726 12,286,058
Other (income) and expense
Interest expense 152,668 297,245 412,395 533,000
Other, net 3,056 4,933 10,512 8,880
Income before taxes 3,336,789 7,395,421 7,938,819 11,744,178
Provision for income taxes 1,218,000 2,782,000 2,898,000 4,369,000
Net income 2,118,789 4,613,421 5,040,819 7,375,178
Net income per
common share .30 .63 .71 1.01
Dividends paid per
common share .08 .06 .16 .13
Average shares outstanding 7,037,144 7,337,996 7,094,012 7,337,139
See accompanying notes to condensed consolidated financial statements
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Synalloy Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited) Six Months Ended
June 29, 1996 July 1, 1995
Operating activities
Net income 5,040,819 7,375,178
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,455,833 1,237,463
Deferred compensation 4,399 (490)
Provision for losses on accounts receivable (147,206) 347,210
Loss (gain) on sale of property, plant and equipment 23,271 (17,100)
Cash value of life insurance (37,700) (37,700)
Environmental reserves (225,662) (155,024)
Changes in operating assets and liabilities:
Accounts receivable 1,694,564 (7,640,546)
Inventories 964,042 (8,882,842)
Other assets (965,463) (504,948)
Accounts payable and accrued expenses 119,553 6,019,809
Income taxes payable (233,977) 268,334
Net cash provided by (used in) operating activities 7,692,473 (1,990,656)
Investing activities
Purchases of property, plant and equipment (2,345,568) (3,746,520)
Proceeds from sale of property, plant and equipment 27,005 17,100
Proceeds from notes receivable 3,318 3,002
Net cash (used in) investing activities (2,315,245) (3,726,418)
Financing activities
Proceeds from revolving lines of credit 30,800,000 39,821,231
Payments on revolving lines of credit (29,806,000) (37,057,231)
Additions to long-term debt 5,000,000
Principal payments on long-term debt (38,462) (110,577)
Proceeds from exercised stock options 234,008 100,441
Purchases of treasury stock (5,623,611) (1,078,718)
Dividends paid (1,130,011) (964,254)
Net cash (used in) provided by financing activities (5,564,076) 5,710,892
Decrease in cash and cash equivalents (186,848) (6,182)
Cash and cash equivalents at beginning of year 267,061 20,770
Cash and cash equivalents at end of period 80,213 14,588
See accompanying notes to condensed consolidated financial statements
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Synalloy Corporation
Notes To Condensed Consolidated Financial Statements
(Unaudited)
June 29, 1996
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
six-month periods ended June 29, 1996, are not necessarily indicative of the
results that may be expected for the year ending December 28, 1996. For
comparative purposes, certain amounts in the 1995 financial statements have
been reclassified to conform with the 1996 presentation. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 30, 1995.
NOTE 2--INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
NOTE 3--LEGAL MATTERS
The Company is from time to time subject to various claims, other possible
legal actions for product liability and other damages, and other matters
arising out of the normal conduct of the Company's business. Management
believes that based on present information, it is unlikely that liability, if
any, exists that would have a materially adverse effect on the consolidated
operating results or financial position of the Company.
NOTE 4--NET INCOME PER COMMON SHARE
Income per share is computed using the weighted average shares of common stock
and dilutive Common Stock equivalents (options) outstanding during the
respective periods. Stock options in the aggregate reduce earnings per share
by less than three percent in all years presented, therefore diluted per share
amounts are not disclosed.
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Synalloy Corporation
Management's Discussion And Analysis Of The Financial
Condition And Results Of Operations
The following is management's discussion of certain significant factors which
affected the Company during the quarter ended June 29, 1996.
Consolidated sales were $31,737,000 for the quarter and $68,395,000 year-to-
date reflecting 23 and 10 percent decreases, respectively, compared to the
same periods one year ago. Consolidated net income decreased 54 percent to
$2,119,000 for the quarter, or $.30 per share, and decreased 32 percent to
$5,041,000 year-to-date, or $.71 per share, compared to the same periods one
year ago.
Chemical Segment sales were $10,100,000 for the quarter and $21,267,000 year-
to-date reflecting 30 and 23 percent declines, respectively, compared to the
same periods one year ago. Operating income declined 64 percent to $880,000
for the quarter and decreased 46 percent to $2,047,000 year-to-date, compared
to the same periods one year ago. The decline in sales and operating income
for the quarter resulted from two factors. First, very weak markets for
textile dyes have been evident since the third quarter of 1995, as the markets
for textile dyes are the worst they have been in more than a decade. Second,
a significant decline occurred in operating income from non dye specialties,
entirely because of the timing of production of annual volume requirements.
Over half of 1995's profits from specialties were concentrated in the second
quarter. Conversely, because of more even scheduling throughout 1996, the
second quarter generated about a fourth of the year's anticipated profits from
specialties. The third quarter is normally the seasonally weakest period for
textile dyes. Accordingly, it is likely that the third quarter will be down
compared to the second quarter. However, we expect to see substantial
improvement in the fourth quarter.
Metals Segment sales were $21,637,000 for the quarter and $47,128,000 year-to-
date reflecting 20 and 3 percent decreases, respectively, compared to the same
periods one year ago. Operating income decreased 49 percent to $2,965,000 for
the quarter and 25 percent to $7,028,000 year-to-date, compared to the same
periods one year ago. About half of the sales decrease for the quarter was
from lower unit volume which management believes resulted mostly from the
destocking of distributors' inventories. Shipments to distributors were
extremely low during the quarter because they were motivated to reduce
inventories in an environment of declining pipe prices. Lower sales prices
also accounted for about half of the sales decline. The biggest impact on
operating income was the effect of price level changes on inventory. In the
second quarter of 1995 prices of stainless steel pipe were increasing rapidly.
This led to high profit margins as the lower cost inventory was sold. The
reverse occurred in 1996 when high cost inventory was sold in a market of
declining prices. Operating margins were also hurt by the allocation of fixed
costs over lower unit volumes and sales dollars, and somewhat more competitive
markets. It is difficult to accurately predict future results in a business
largely dependent on daily incoming orders. However, based on current
conditions, it is likely that the third quarter will be comparable to or
somewhat below the second quarter.
Selling and administrative expense for the quarter and year-to-date were
approximately seven percent of consolidated sales which is consistent with
prior years' amounts. Interest expense decreased significantly due to
decreased borrowings needed for working capital requirements.
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Synalloy Corporation
Management's Discussion And Analysis Of The Financial
Condition And Results Of Operations - Continued
Cash flows provided from operations totaled $7,692,000 during the first six
months of the year compared to a $1,991,000 use of cash flows during the same
period one year ago. The decline in activity in the Metals Segment during the
first six months of 1996 caused a reduction in inventories and accounts
receivable which favorably impacted cash flows. Cash flows were negatively
impacted during the first six months of 1995 by a significant increase in
activity in the Metals Segment causing an expected increase in accounts
receivable and inventories. During the first quarter, the Company purchased
324,000 shares of its common stock for the treasury for $5,622,000, including
$4,980,000 for 289,000 shares purchased under a previously announced
$5,000,000 buyback program. The Company expects that available cash and
existing lines of credit will be sufficient to meet normal operating
requirements, including capital expenditures and payment of dividends over the
near term.
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PART II: OTHER INFORMATION
Synalloy Corporation
Item 1. Legal Proceedings
None
Item 2. Change In Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission Of Matters To A Vote Of Security Holders
A. The Annual Meeting of Shareholders was held April 30, 1996 at
the offices of the Company.
B. The following individuals were elected as directors at the
Annual Meeting:
Votes For Votes Withheld
1. James G. Lane, Jr. 5,883,629 7,882
2. Sibyl N. Fishburn 5,882,012 9,499
3. Richard E. Ingram 5,882,991 8,520
4. Glenn R. Oxner 5,882,841 8,670
5. Carroll D. Vinson 5,882,991 8,520
C. By a vote of 5,773,199 for, 97,527 against and 20,785
abstaining, the shareholders voted to amend the Articles of
Incorporation to increase the authorized shares from 8,000,000
shares, par value $1.00 per share, to 12,000,000 shares, par
value $1.00 per share.
D. Ernst & Young LLP, independent certified accountants, were
selected as independent auditors for the fiscal year ending
December 28, 1996 by a vote of 5,867,842 for, 12,850 against
and 10,819 abstentions.
Item 5. Other Information
None
Item 6. Exhibits And Reports On Form 8-K
The following exhibits are included herein:
None
The Company did not file any reports on Form 8-K during the three
months ended June 29, 1996
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Synalloy Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNALLOY CORPORATION
(Registrant)
Date: August 7, 1996 /s/ James G. Lane, Jr.
James G. Lane, Jr., Chairman and
Chief Executive Officer
Date: August 7, 1996 /s/ Gregory M. Bowie
Gregory M. Bowie
Vice President, Finance
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