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 October 2, 1999 OR _______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File Number 0-19687 SYNALLOY CORPORATION (Exact name of registrant as specified in its charter) Delaware 57-0426694 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Post Office Box 5627 Croft Industrial Park Spartanburg, South Carolina 29304 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code (864) 585-3605 Not Applicable (Former name, former address and former fiscal year, if changed since last year.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No____ Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practical date. Number of Shares Outstanding Title of Class As of October 2, 1999 Common Stock, $1.00 Par Value 6,558,088 - 1 - Synalloy Corporation Index PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets - October 2, 1999 and January 2, 1999 Condensed consolidated statements of income - Three and nine months ended October 2, 1999 and October 3, 1998 Condensed consolidated statements of cash flows - Nine months ended October 2, 1999 and October 3, 1998 Notes to condensed consolidated financial statements - October 2, 1999 Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K - 2 - PART 1. FINANCIAL STATEMENTS Synalloy Corporation Condensed Consolidated Balance Sheets Oct 2, 1999 Jan 2, 1999 (Unaudited) (Note) Assets Current assets Cash and cash equivalents $ 4,955 $ 117,658 Accounts receivable, less allowance for doubtful accounts 18,504,786 12,596,592 Inventories Raw materials 8,977,648 7,502,972 Work-in-process 6,297,682 3,755,147 Finished goods 12,621,067 14,842,842 Total inventories 27,896,397 26,100,961 Deferred income taxes 192,000 192,000 Prepaid expenses and other current assets 304,157 646,342 Total current assets 46,902,295 39,653,553 Cash value of life insurance 2,054,053 2,025,984 Investment 1,132,117 1,026,117 Property, plant & equipment, net of accumulated depreciation of $35,128,000 and $32,498,000 25,220,095 25,495,020 Deferred charges and other assets 3,296,079 3,173,788 Total assets $78,604,639 $71,374,462 Liabilities and Shareholders' Equity Current liabilities Notes payable $ 2,346,000 $ 665,000 Accounts payable 11,910,445 7,882,778 Income taxes 926,238 - Accrued expenses 2,834,794 1,383,740 Current portion of environmental reserves 575,650 575,650 Current portion of long-term debt 200,000 200,000 Total current liabilities 18,793,127 10,707,168 Long-term debt, less current portion 10,000,000 10,000,000 Environmental reserves 1,524,490 1,846,550 Deferred compensation 1,360,839 1,349,940 Deferred income taxes 1,660,000 1,623,000 Contingencies Shareholders' equity Common stock, par value $1 per share - authorized 12,000,000 at October 2,1999 and 8,000,000 shares at January 2, 1999; issued 8,000,000 shares 8,000,000 8,000,000 Capital in excess of par value 9,491 9,491 Retained earnings 50,186,334 49,687,391 Accumulated other comprehensive income 522,000 453,000 Less cost of Common Stock in treasury (13,451,642) (12,302,078) Total shareholders' equity 45,266,183 45,847,804 Total liabilities and shareholders' equity $78,604,639 $71,374,462 Note: The balance sheet at January 2, 1999 has been derived from the audited financial statements at that date. See accompanying notes to condensed consolidated financial statements - 3 - Synalloy Corporation Condensed Consolidated Statements of Income (Unaudited) Three Months Ended Nine Months Ended Oct 2, 1999 Oct 3, 1998 Oct 2, 1999 Oct 3, 1998 Net sales $31,024,054 $28,039,905 $86,961,126 $84,458,443 Cost of sales 26,424,178 24,572,533 75,658,723 74,589,382 Gross profit 4,599,876 3,467,372 11,302,403 9,869,061 Selling, general and administrative expense 3,159,168 2,601,482 8,567,623 7,667,331 Operating income 1,440,708 865,890 2,734,780 2,201,730 Other (income) and expense Interest expense 179,836 181,207 535,617 510,892 Other, net (19,661) (19,711) (102,731) (106,577) Income before taxes 1,280,533 704,394 2,301,894 1,797,415 Provision for income tax 450,000 249,000 809,000 635,000 Net income $ 830,533 $ 455,394 $ 1,492,894 $ 1,162,415 Net income per common share Basic $.13 $.07 $.23 $.17 Diluted $.13 $.07 $.23 $.17 Dividends paid per Common share $.05 $.10 $.15 $.30 Average shares outstanding Basic 6,576,279 6,769,363 6,627,686 6,797,255 Diluted 6,576,279 6,776,879 6,629,974 6,818,881 See accompanying notes to condensed consolidated financial statements. - 4 - Synalloy Corporation Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended Oct 2, 1999 Oct 3, 1998 Operating activities Net income $ 1,492,894 $ 1,162,415 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 2,921,634 2,587,821 Amortization of deferred charges 195,939 195,593 Deferred compensation 10,899 19,113 Provision for losses on accounts receivable 594,107 206,538 Loss on sale of property, plant and equipment 5,864 10,401 Cash value of life insurance (28,069) (64,926) Environmental reserves (322,060) (239,022) Changes in operating assets and liabilities: Accounts receivable (6,502,301) 159,172 Inventories (1,795,436) 1,074,255 Other assets 223,955 305,262 Accounts payable and accrued expenses 5,460,640 1,952,273 Income taxes payable 981,319 (39,400) Net cash provided by operating activities 3,239,385 7,329,495 Investing activities Purchases of property, plant and equipment (2,675,197) (1,766,714) Proceeds from sale of property, plant and equipment 22,624 9,818 Acquisitions, net of cash - (3,456,799) Increase in note receivables (237,000) - Net cash used in investing activities (2,889,573) (5,213,695) Financing activities Proceeds from revolving lines of credit 25,357,000 852,000 Payments on revolving lines of credit (23,676,000) (317,000) Proceeds from exercised stock options - 4,838 Purchases of treasury stock (1,149,565) (1,999,219) Dividends paid (993,950) (2,042,580) Net cash used in financing activities (462,515) (3,501,961) (Decrease) increase in cash and cash equivalents (112,703) (1,386,161) Cash and cash equivalents at beginning of year 117,658 1,602,543 Cash and cash equivalents at end of period $ 4,955 $ 216,382 See accompanying notes to condensed consolidated financial statements. - 5 - Synalloy Corporation Notes To Condensed Consolidated Financial Statements (Unaudited) October 2, 1999 NOTE 1--BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended October 2, 1999, are not necessarily indicative of the results that may be expected for the year ending January 1, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the period ended January 2, 1999. NOTE 2--INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. NOTE 3--LEGAL MATTERS The Company is from time to time subject to various claims, other possible legal actions for product liability and other damages, and other matters arising out of the normal conduct of the Company's business. Management believes that based on present information, it is unlikely that liability, if any, exists that would have a materially adverse effect on the consolidated operating results or financial position of the Company. NOTE 4--COMPREHENSIVE INCOME Comprehensive income was $981,000 and $1,562,000 for the three and nine months ended October 2, 1999, respectively. Comprehensive income consists of net income plus unrealized gains on the Company's foreign equity investment, of $150,000 and $69,000, net of deferred income taxes of $80,000 and $37,000 for the three and nine months ended October 2, 1999, respectively, and is recorded in Shareholders' Equity. NOTE 5--SEGMENT INFORMATION (Dollar amounts are in thousands.) Three Months Ended Nine Months Ended Oct 2, 1999 Oct 3, 1998 Oct 2, 1999 Oct 3, 1998 Net sales Metals Segment $ 17,984 $ 13,328 $ 46,747 $ 44,427 Chemicals Segment 13,040 14,712 40,214 40,031 $ 31,024 $ 28,040 $ 86,961 $ 84,458 Operating income Metals Segment $ 1,575 $ 191 $ 2,717 $ 1,231 Chemicals Segment 86 865 716 1,617 1,661 1,056 3,433 2,848 Unallocated expenses Corporate 200 190 703 646 Interest and debt expense, net of interest income 180 162 428 405 Income before income taxes $ 1,281 $ 704 $ 2,302 $ 1,797 -6- Synalloy Corporation Management's Discussion And Analysis Of Financial Condition And Results Of Operations The following is management's discussion of certain significant factors that affected the Company during the quarter ended October 2, 1999. (Dollar amounts are in thousands except for per share data.) Consolidated sales for the quarter increased 11 and three percent year to date compared to the same periods one year ago as improving conditions in the Metals Segment more than offset continued deterioration in the textile color business during the third quarter. Consolidated net income increased 82 and 28 percent for the quarter and year to date, respectively, compared to the same periods one year ago. Metals Segment sales increased 35 and five percent in the quarter and year to date, respectively. Operating income increased 723 and 121 percent in the quarter and year to date, respectively. A strong 34 percent increase in unit volumes in the third quarter was largely responsible for the increase in dollar sales. After four years of unrelenting declines that brought stainless pipe prices down to about one-half of the high reached during 1995, the third quarter ended with prices about 15 percent above their 1999 lows. If this trend toward higher prices is supported in the market place, sales and profits from stainless pipe should continue to improve. The piping systems business has improved dramatically from a year ago. The backlog for these products, $23,900 at October 2, 1999, is at a healthy level that should produce good operating results through the end of next year. Chemicals Segment sales decreased 11 percent in the quarter compared to the same quarter last year, and year to date sales were slightly above last year's total. Operating income declined 90 and 56 percent in the quarter and year to date, respectively. Reduced demand coupled with lower prices for textile colors led to the declines. As foreign sourcing of dyes for the domestic textile industry has become more pervasive, sales prices have plummeted to levels that in many cases defy economic logic. Under these adverse conditions, the company is focusing its efforts on the products and customers where it can best compete effectively. Management's strategy of developing specialty chemical sales to reduce the segment's dependence on textile colors has continued to show progress. Non textile color products now represent almost one-half of sales and are expected to grow substantially next year. Selling and administrative expenses for the quarter and year to date were 10 percent of consolidated sales compared to last year's quarter and year to date totals of nine percent. The increase in expense came from increases in profit-based incentives and the allowance for doubtful accounts to establish reserves against several potentially uncollectible receivable accounts. - 7 - Synalloy Corporation Management's Discussion And Analysis Of Financial Condition And Results Of Operations - Continued Cash flows from operations totaled $3,239 during the first nine months of 1999 compared to $7,329 generated during the same period one year ago. The decrease in cash flows came primarily from increases in accounts receivable and inventories, offset by an increase in accounts payable totaling $2,837 in 1999, compared to a $3,186 decrease from the same accounts in 1998. The decrease was offset by the $1,020 increase in income taxes payable from 1998 to 1999. The Company used part of the cash flows generated in 1999 to purchase in 167,525 shares of the Company's common stock for $1,149. 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. On October 22, 1999, the Company purchased 260,000 shares of its common stock at $6.25 per share, for a total purchase price of $1,625. The purchase completes the previously announced stock repurchase program and represents about four percent of the outstanding shares. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 The statements contained in this management discussion and analysis that are not historical facts may be forward looking statements. The forward looking statements are subject to certain risks and uncertainties, including without limitation those identified below, which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of their dates. The following factors could cause actual results to differ materially from historical results or those anticipated: adverse economic conditions, the impact of competitive products and pricing, product demand and acceptance risks, raw material and other increased costs, customer delays or difficulties in the production of products, and other risks detailed from time to time in Synalloy's Securities and Exchange Commission filings. Synalloy Corporation assumes no obligation to update the information included herein. - 8 - PART II: OTHER INFORMATION Synalloy Corporation Item 1. Legal Proceedings None Item 2. Change In Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission Of Matters To A Vote Of Security Holders: None 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 October 2, 1999 -9 - Synalloy Corporation SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYNALLOY CORPORATION (Registrant) Date: November 5, 1999 /s/ James G. Lane, Jr. James G. Lane, Jr., Chairman and Chief Executive Officer Date: November 5, 1999 /s/ Gregory M. Bowie Gregory M. Bowie Vice President, Finance - 10 -