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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 29, 2002

[  ]

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
(State or other jurisdiction of
incorporation or organization)

  

57-0426694
(IRS Employer
Identification Number)

 

    

P.O. Box 5627
Croft Industrial Park
Spartanburg, South Carolina
(Address of principal executive offices)

  


29304
(Zip code)

(864) 585-3605
(Registrant's telephone number, including area code)

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   X     No       .

The number of shares outstanding of the registrant's common stock as of June 29, 2002 was 5,964,304.

 

 

 

 

- 1 -

Synalloy Corporation

Index

 

 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed consolidated balance sheets - June 29, 2002 and December 29, 2001

Condensed consolidated statements of income - Three and six months ended June 29, 2002 and June 30, 2001

Condensed consolidated statements of cash flows - Three and six months ended June 29, 2002 and June 30, 2001

Notes to condensed consolidated financial statements - June 29, 2002

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

Jun 29, 2002

Dec 29, 2001

(Unaudited)

(Note)

Assets

Current assets

Cash and cash equivalents

$

64,025

$

4,989

Accounts receivable, less allowance

for doubtful accounts

11,396,938

11,337,899

Inventories

Raw materials

6,822,376

7,101,443

Work-in-process

3,164,718

3,556,472

Finished goods

8,913,402

14,682,330

Total inventories

18,900,496

25,340,245

Deferred income taxes

325,000

325,000

Income tax receivable

2,525,645

86,831

Prepaid expenses and other current assets

1,214,443

981,268

Total current assets

34,426,547

38,076,232

Cash value of life insurance

2,326,771

2,344,139

Investment

386,996

885,194

Property, plant & equipment, net of accumulated

depreciation of $34,281,000 and $36,622,000

22,040,543

25,500,074

Deferred charges and other assets

2,557,648

2,953,348

Total assets

$

61,728,505

$

69,758,987

Liabilities and Shareholders' Equity

Current liabilities

Notes payable

$

4,198,000

$

7,186,000

Accounts payable

6,329,211

6,425,074

Accrued expenses

2,391,353

1,900,479

Current portion of environmental reserves

1,423,771

1,423,959

Total current liabilities

14,342,335

16,935,512

Long-term debt, less current portion

10,000,000

10,000,000

Environmental reserves

1,174,200

1,361,005

Deferred compensation

811,031

1,074,644

Deferred income taxes

1,413,000

1,439,000

Contingencies

Shareholders' equity

Common stock, par value $1 per share - authorized

12,000,000 shares; issued 8,000,000 shares

8,000,000

8,000,000

Capital in excess of par value

9,491

9,491

Retained earnings

42,892,809

47,795,305

Accumulated other comprehensive income

183,000

231,391

Less cost of Common Stock in treasury:

2,065,696 shares

(17,087,361)

(17,087,361)

Total shareholders' equity

33,997,939

38,948,826

Total liabilities and shareholders' equity

$

61,738,505

$

69,758,987

Note: The balance sheet at December 29, 2001 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 Operations

(Unaudited)

Three Months Ended

Six Months Ended

Jun 29, 2002

Jun 30, 2001

Jun 29, 2002

Jun 30, 2001

Net sales

$

22,013,073

$

22,604,723

$

42,435,764

$

47,707,486

Cost of sales

Before inventory write down

20,035,901

19,972,805

38,873,167

41,475,543

Inventory write down

2,470,565

-

2,470,565

-

Total cost of sales

22,506,466

19,972,805

41,343,732

41,475,543

Gross profit

(493,393)

2,631,918

1,092,032

6,231,943

Selling, general and

administrative expense

2,804,645

2,482,561

5,660,092

5,046,559

Cost of writing down

property and equipment

2,267,643

-

2,267,643

-

Operating (loss) income

(5,565,681)

149,357

(6,835,703)

1,185,384

Other (income) and expense

Gain on sale of investment

-

-

(89,016)

-

Interest expense

212,237

229,812

431,333

511,089

Other, net

1,238

3,575

25,001

7,150

(Loss) income before income taxes

(5,779,156)

(84,030)

(7,203,021)

667,145

(Benefit) provision for income taxes

(2,035,000)

(30,000)

(2,536,000)

235,000

(Loss) income before cumulative

effect of a change

in accounting principle

(3,744,156)

(54,030)

(4,667,021)

432,145

Cumulative effect of a change

in accounting principle

-

-

(235,473)

-

Net (loss) income

$

(3,744,156)

$

(54,030)

$

(4,902,494)

$

432,145

Net (loss) income per common share

Basic and diluted

Before cumulative effect of a

change in accounting principle

($.63)

($.01)

($.78)

$.07

Cumulative effect of a change

in accounting principle

-

-

($.04)

-

($.63)

($.01)

($.82)

$.07

Dividends paid per

common share

$.00

$.05

$.00

$.10

Average shares outstanding

Basic

5,964,304

5,964,348

5,964,304

5,964,358

Diluted

5,964,304

5,965,594

5,964,304

5,964,759

See accompanying notes to condensed consolidated financial statements

-4-

Synalloy Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended

Jun 29, 2002

Jun 30, 2001

Operating activities

Net income

$

(4,902,494)

$

432,145

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation expense

1,688,486

1,498,747

Amortization of deferred charges

71,721

168,218

Deferred compensation

(263,613)

(296,445)

Deferred income taxes

(26,000)

-

Provision for losses on accounts receivable

(10,798)

121,680

Provision for write down of inventories

2,470,565

-

Loss (gain) on sale of property, plant and equipment

73,148

(17,900)

Provision for write down of plant and equipment

2,267,643

-

Write-off of goodwill

362,473

-

Cash value of life insurance

17,368

(34,970)

Environmental reserves

(186,993)

(181,362)

Changes in operating assets and liabilities:

Accounts receivable

(48,241)

683,643

Inventories

3,969,184

4,822,639

Other assets

(419,707)

212,744

Accounts payable and accrued expenses

308,180

320,372

Income taxes payable

(2,438,814)

1,057,700

Net cash provided by operating activities

2,932,108

8,787,211

Investing activities

Purchases of property, plant and equipment

(1,068,260)

(2,082,326)

Proceeds from sale of property, plant and equipment

498,514

488,418

Proceeds from sale investments

434,674

-

Increase (decrease) in note receivables

250,000

(249,333)

Net cash used in investing activities

114,928

(1,843,241)

Financing activities

Proceeds from revolving lines of credit

12,392,000

11,758,000

Payments on revolving lines of credit

(15,380,000)

(18,015,000)

Proceeds from exercised stock options

-

(119)

Dividends paid

-

(596,436)

Net cash used in financing activities

(2,988,000)

(6,853,555)

Increase in cash and cash equivalents

59,036

90,415

Cash and cash equivalents at beginning of year

4,989

467

Cash and cash equivalents at end of period

$

64,025

$

90,882

See accompanying notes to condensed consolidated financial statements.

-5-

Synalloy Corporation

Notes To Condensed Consolidated Financial Statements

(Unaudited)

June 29, 2002

NOTE 1--BASIS OF PRESENTATION

BASIS OF PRESENTATION: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 29, 2002, are not necessarily indicative of the results that may be expected for the year ending December 28, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the period ended December 29, 2001.

CHANGE IN ACCOUNTNG PRINCIPLE: In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets ("Statements") effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company has applied the new standards on accounting for goodwill and other intangible assets during the first six months of 2002, which resulted in a one-time charge of $235,000, or $.04 per share, representing the cumulative effect of a change in accounting principle, recorded as a restatement in the first quarter and included in the year-to-date numbers. If the application of the non-amortization provisions of the Sta tements had been adopted as of the first quarter of 2001, net income and earnings per share would have increased by $28,000, or less than $.01 per share, and $55,000, or $.01 per share, for the three and six months ended June 30, 2001, respectively.

NOTE 2--INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or market. An inventory charge of $2,471,000 was recorded, $1,800,000 for the Colors Group and $671,000 for the Metals Segment. The Company has historically sold off excess inventory slowly to avoid distressed pricing that would be required to dispose of the excess inventory more quickly. With the price erosion that has occurred over the first six months of the year and weak business conditions that currently exist, excess inventories have not been reduced as much as planned. Therefore, excess inventories have been written down to reflect management's estimate of the values that can be realized under a plan to dispose of excess inventories as quickly as feasible.

NOTE 3--LEGAL MATTERS

The Company is from time to time subject to various claims, other possible legal actions for product liability and other damages, and other matters arising out of the normal conduct of the Company's business. Management believes that based on present information, it is unlikely that liability, if any, exists that would have a materially adverse effect on the consolidated operating results or financial position of the Company.

NOTE 4--COMPREHENSIVE INCOME

Comprehensive (loss) and income was ($3,744,000) and ($4,950,000) for the three and six months ended June 29, 2002, respectively, and ($45,000) and $449,000 for the three and six months ended June 30, 2001, respectively. Comprehensive income consists of net income less unrealized gains and (losses) on the Company's foreign equity investment, of $0 and ($48,000), net of deferred taxes of $0 and tax benefit of $26,000, for the three and six months ended June 29, 2002, respectively, and $9,000 and $17,000, net of deferred income taxes of $6,000 and $11,000 for the three and six months ended June 30, 2001, respectively, and is recorded in Shareholders' Equity.

-6-

Synalloy Corporation

Notes To Condensed Consolidated Financial Statements

(Unaudited)

June 29, 2002

NOTE 5--LONG-TERM DEBT

On July 26, 2002, the Company entered into a new Credit Agreement with a new bank to provide a $19,000,000 line of credit expiring on July 25, 2004, and refinanced the Company's notes payable and long term debt replacing the existing bank indebtedness. The Company anticipates reducing the amount owed under the line of credit to approximately $10,000,000 over the next twelve months and has therefore classified $10,000,000 as long term debt. Current interest rates are prime plus .25 percent or LIBOR plus 2.75 percent, and can vary based on EBITDA performance from prime to prime plus .75 percent and LIBOR plus 2.50 percent to LIBOR plus 3.25 percent. Borrowings under the Agreement are limited to a borrowing base calculation including eligible accounts receivable, inventories, and cash surrender value of the Company's life insurance as defined in the Agreement. As of July 27, 2002, the amount available for borrowing was $14,971,000 of which $13,590,000 was borrowed leaving $1,381,000 of av ailability. Covenants include, among others, maintaining certain EBITDA and tangible net worth amounts, and restrictions on the payment of dividends.

NOTE 6--ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

In August 2001, the FASB issued Statements of Financial Accounting Standards No. 144, Accounting for the Impairment or disposal of Long-Lived Assets, effective for fiscal years beginning after December 15, 2001. The Company completed an impairment assessment on the plant and equipment located at Spartanburg, S.C. This resulted in the recording of a $2,267,000 impairment loss on the plant and equipment, $1,786,000 related to the Colors Group and $481,000 to the Specialty Chemicals Group. The impairment loss was calculated based on the excess of the carrying amount of the long-lived assets over their fair value. Management utilized its best estimate to determine fair values including market conditions, experience in acquiring and disposing of similar plant and equipment, and estimates of future cash flows, to test for recoverability of the long-lived assets. After completing an analysis of the business at the site and exploring other options that were available, it became apparent that t he facility could not adequately recover the fixed costs related to the facility under current business conditions. Accordingly, a write-down of the plant and equipment was recorded.

-7-

Synalloy Corporation

Notes To Condensed Consolidated Financial Statements

(Unaudited)

June 29, 2002

 

NOTE 7--SEGMENT INFORMATION

Three Months Ended

Six Months Ended

(Dollar amounts in thousands)

Jun 29, 2002

Jun 30, 2001

Jun 29, 2002

Jun 30, 2001

Net sales

Colors Group

$

5,544

$

6,458

$

10,208

$

12,485

Specialty Chemicals Group

5,992

5,211

11,500

10,802

Chemicals Segment

11,536

11,669

21,708

23,287

Metals Segment

10,477

10,936

20,728

24,420

$

22,013

$

22,605

$

42,436

$

47,707

Operating (loss) income

Colors Group

(3,919)

9

(4,470)

(53)

Specialty Chemicals Group

(249)

57

(372)

305

Chemicals Segment

(4,168)

66

(4,842)

252

Metals Segment

(1,201)

340

(1,533)

1,439

(5,369)

406

(6,375)

1,691

Unallocated expenses

Corporate

197

257

395

506

Interest and debt expense,

net of interest income

213

233