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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 JANUARY 2, 1999
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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 to Name of each exchange on
Section 12(b) Act: which of the 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 February 26, 1999, the aggregate market value
of common stock held by non-affiliates of the registrant was $57.2 million.
The number of common shares outstanding of the registrant's common stock as
of February 26, 1999 was 6,725,629.
Documents Incorporated By Reference
Portions of the proxy statement for the annual shareholders' meeting are
incorporated by reference into Part III.
PART 1
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 two wholly-owned companies,
Bristol Metals, L.P., located in Bristol, Tennessee, and Whiting Metals,
Inc., located in Camden, South Carolina.
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 shops 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.
In 1997 Bristol began producing carbon piping systems from pipe purchased
outside since Bristol does not manufacture carbon pipe. The Company entered
the carbon pipe fabrication business in order to provide customers this
additional product and to enhance the stainless fabrication business by
quoting inquiries that require both types of piping systems.
Whiting manufactures Underwriters Laboratories (UL) labeled storage tanks,
ASME code pressure vessels and reactors, and other process equipment. They
have unusual expertise in the manufacture and installation of dimple and
spiral-wound pipe type jackets for heating and cooling of process
equipment. The wide variety of products made by Whiting are all custom
designed for the end-user. Like Bristol, the principal raw material is
stainless steel.
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.
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 two plants, one in Augusta, Georgia and
one in Spartanburg, South Carolina. Both locations are fully licensed for
chemical manufacture and each 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.
BU 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 24 percent of the Chemicals Segment's sales in 1998. The
Company has a distributorship agreement expiring December 31, 1999 with the
company supplying about 86 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 May 1994, BU acquired the sulphur dye business of Southern Dye and
Chemical Company, a manufacturer of sulphur dyes utilizing an environ-
mentally friendly chemical system. This process results in reduced
environmental costs and shorter processing cycles. Sulphur dyes are used to
dye denim, fleece garments, knits, work clothes, men's casual wear, and a
variety of cotton and cotton-polyester blends.
BU is a producer of specialty chemicals for the chemical, photographic,
pharmaceutical, agricultural and fiber industries. The Company has been
focusing on specialty chemicals as a primary growth area over the past
several years. Facilities and equipment have been added at both plants to
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.
On November 25, 1996, with an effective date of October 26, 1996, the
Company purchased Manufacturers Chemicals Corporation and a related
Company. On December 27, 1996, the Company merged and transferred all of
Manufacturers Chemicals' operations into a limited partnership. MC 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. The Company believes MC will help achieve its goal of
growing specialty chemicals making this area a larger contributor to sales
and profits of the Chemicals Segment.
On August 21, 1998, the Company purchased the common stock of Organic
Pigments Corporation ("OP") with an effective date of July 1, 1998. 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 Chemicals
Segment to diversify into non-textile applications.
The Chemicals Segment maintains nine laboratories for applied research and
quality control which are staffed by approximately 38 employees.
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 two outside sales employees, five independent manufacturers'
representatives, the manager of inside sales and five inside sales employ-
ees. 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. Specialty process equipment manufactured
by Whiting Metals is sold by one outside sales employee and one
manufacturers' representative under the direction of Whiting's President
who devotes significant time to sales. Piping systems and process equipment
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-Nine full-time outside sales employees and three
manufacturers' representatives market colors to the textile industry
nationwide. In addition, both the Presidents of BU and OP and the product
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, five manufacturers' representatives and one
part-time consultant. In addition, the President, product 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 avail-
able 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. With respect to specialty stainless
process equipment, the Company has an insignificant market share on a
national basis and has numerous competitors some of which may have
substantially more resources than does the Company.
Chemicals Segment-About six percent of the colors sales represent niche
products for which the Company is the only producer. Another approximately
28 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 for further discussion.
Research and Development Activities
The Company spent approximately $882,000 in 1998, $833,000 in 1997 and
$778,000 in 1996 on research and development programs in its Chemicals
Segment. Fifteen individuals, 14 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
Many textile plants shut down for vacations in the first or second week of
July. This contributes to a seasonal pattern that normally results in lower
third quarter sales of colors when compared to the first and second
quarters. In addition, for the past several years the fourth quarter has
produced less sales of these products than the third quarter. 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 and
process equipment products because they are produced only after orders are
received, generally as the result of competitive bidding. Order backlogs
for these products were $19,200,000, $10,600,000 and $13,100,000 at the
1998, 1997 and 1996 respective year ends.
Employee Relations
As of January 2, 1999, the Company had 564 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 198.
They are represented by two locals affiliated with the AFL-CIO and one
local affiliated with the Teamsters. Contracts will expire in December
1999, March 2000 and February 2004.
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 Land
Location Principal Operations Square Feet Acres
Spartanburg, SC Corporate headquarters; 211,000 60.90
Chemical manufacturing and
warehouse facilities
Augusta, GA Chemical manufacturing 52,500 46.00
Cleveland, TN Chemical manufacturing 90,000 7.50
Greensboro, NC Chemical manufacturing 57,000 3.7
Bristol, TN Manufacturing of stainless 218,000 73.08
steel pipe and stainless steel
and carbon piping systems
Camden, SC Manufacturing of stainless 16,300 12.26
steel vessels
Item 3 Legal Proceedings
For a discussion of legal proceedings, see "Note N" 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 1,431 common shareholders of record at January 2, 1999. 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.
1998 1997
Dividends Dividends
Quarter High Low Paid High Low Paid
1 16 1/2 13 3/4 0.10 18 3/4 15 1/4 0.09
2 14 7/8 12 0.10 18 3/8 13 3/4 0.09
3 13 1/4 7 3/4 0.10 18 3/4 14 3/4 0.09
4 12 3/4 6 0.10 17 1/2 14 3/8 0.10
Selected Financial Data
(Dollars in thousands except for
per share data) 1998 1997 1996 1995 1994
Operations
Net sales $ 107,257 $ 126,741 $ 126,844 $ 147,298 $ 114,519
Gross profit 12,203 19,715 21,108 35,323 20,056
Selling, general and
administrative expense 10,135 9,972 9,086 11,089 8,337
Environmental remediation costs 1,439 - - 2,351
Operating income 629 9,744 12,022 24,234 9,368
Net income 63 5,841 7,686 14,521 5,718
Financial Position
Total assets 71,374 73,383 76,589 80,226 62,432
Working capital 28,946 35,499 34,141 41,098 28,919
Long-term debt
less current portion 10,000 10,200 11,200 12,619 7,911
Shareholders' equity 45,848 50,042 48,274 48,363 36,889
Financial Ratios
Current ratio 3.7:1 4.7:1 3.5:1 3.6:1 3.0:1
Gross profit to net sales 11% 16% 17% 24% 18%
Long-term debt to capital 18% 17% 19% 21% 18%
Return on average assets ** 8% 10% 20% 10%
Return on average equity ** 12% 16% 34% 16%
Per Share Data
Net income - diluted $ 0.01 $ .83 $ 1.09 $ 1.98 $ 0.78
Dividends declared and paid .40 .37 .34 .29 .25
Book value 6.82 7.27 6.92 6.71 5.12
Other Data
Depreciation and amortization 3,513 3,485 2,700 2,316 1,969
Capital expenditures 3,686 2,854 3,833 6,455 4,214
Employees at year end 564 663 585 568 528
Shareholders of record
at year end 1,431 1,491 1,581 1,666 1,740
Average shares outstanding
- diluted 6,794 7,007 7,058 7,352 7,354
Stock Price
Price range of Common Stock
High 16 1/2 18 3/4 21 1/4 26 1/4 13 1/2
Low 6 13 3/4 12 11 7/8 9 3/8
Close 8 3/4 15 3/16 16 1/4 21 1/8 11 7/8
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The current ratio at 1998 year end was 3.7:1 down from the previous
year end ratio of 4.7:1 and up slightly from the ratio of 3.5:1 in 1996.
Working capital decreased $6,553,000 to $28,946,000. Cash flows from
operations totaling $10,140,000, were derived primarily from reductions of
$3,407,000 in accounts receivable and $2,383,000 in inventories, and
earnings totaling $5,015,000 before depreciation and amortization expense
of $3,513,000 and the special environmental remediation charge of
$1,439,000. The cash flows were used to fund the Organic Pigments
Corporation acquisition totaling $3,472,000, make capital expenditures of
$3,686,000, purchase 163,300 shares of the Company's Common Stock for
$1,999,000, and pay dividends of $2,715,000. The Company expects that cash
flows from 1999 operations and available borrowings will be sufficient to
make long-term debt and dividend payments, and fund estimated capital
expenditures of $4,500,000 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
Q" to Consolidated Financial Statements.
1998 1997 1996
(Amounts in thousands) Amount % Amount % Amount %
Net sales $ 55,368 100.0 $ 71,192 100.0 $ 85,027 100.0
Cost of goods sold 50,065 90.4 61,340 86.2 70,790 83.3
------- ------- ------- ------- ------- -------
Gross profit 5,303 9.6 9,852 13.8 14,237 16.7
Selling and administrative
expense 3,833 6.9 4,218 5.9 4,540 5.3
Environmental remediation
costs 61 0.2 0 0
------- ------- ------- ------- ------- -------
Operating income $ 1,409 2.5 $ 5,634 7.9 $ 9,697 11.4
Year-end backlogs
Piping systems and process
equipment $ 19,200 $ 10,600 $ 13,100
Comparison of 1998 to 1997
Sales declined 22 percent producing much lower operating income
of $1,409,000. After six years of noteworthy unit volume growth, 1998
showed a 21 percent decline because of lower demand and a surge in imports.
The unit volume decline came from lower commodity stainless pipe sales
resulting primarily from a surge in cheap imports coupled with
significantly low piping systems and process equipment sales. The Company
chose not to compete for business when pricing was driven solely by low-
priced imports, as average prices for commodity pipe declined eight percent
for the year compared to last year. Lower gross profits were caused by low
plant utilization rates, more competitive pricing for pipe, and a loss from
piping systems. Although the stainless steel fabrication shop about broke
even, a $418,000 loss was incurred in the carbon pipe fabrication shop
opened in 1997. Low demand in the pulp and paper industry resulting in
lower unit volumes caused the poor performance in piping systems.
Lower sales commissions and profit-based incentives accounted for the nine
percent decline in selling and administrative expenses.
For information related to environmental matters, see "Note H" to
Consolidated Financial Statements.
Comparison of 1997 to 1996
Sales and operating income declined 17 and 43 percent, respectively,
from 1996. These percentages as well as others in this report are after
giving effect to the extra production days from having 53 weeks included in
the 1997 fiscal year. The dollar decline in sales for 1997 was the result
of an 18 percent decrease in average selling prices verses 1996. Unit
volume was actually up slightly in 1997. After experiencing an
unprecedented surge in pipe prices during 1995, the trend reversed and
prices declined precipitously in 1996 back to levels existing before the
price increases. A primary factor contributing to the decline in prices was
the pricing trends of flat- rolled stainless steel, the raw material from
which pipe is made. Pipe prices are closely tied to the cost of flat-rolled
stainless steel, which experienced similar pricing fluctuations over the
past three years.
The bulk of the decrease in operating income occurred in the first quarter
of the year when market dynamics were completely different from the first
quarter of 1996. During the first quarter of 1996, the price declines in
stainless steel pipe prices had just begun and profits were still good. By
the first quarter of 1997, prices were down 28 percent from a year earlier
and profits were at extremely low levels. Exacerbating the big decline in
first quarter 1997 profits from stainless pipe was a loss from piping
systems and process equipment compared to good profitability in the first
quarter of 1996. The loss from these products was primarily due to low
production levels caused by customer stretch-outs in delivery dates.
Lower profit-based incentives accounted for the decline in selling and
administrative expenses.
Chemicals Segment-The following table summarizes operating results for the
three years indicated. Reference should be made to "Note Q" to Consolidated
Financial Statements.
1998 1997 1996
(Amounts in thousands) Amount % Amount % Amount %
Net sales $ 51,889 100.0 $ 55,549 100.0 $ 41,817 100.0
Cost of goods sold 44,989 86.7 45,686 82.2 34,946 83.6
------- ------- ------- ------- ------- -------
Gross profit 6,900 13.3 9,863 17.8 6,871 16.4
Selling and administrative
expense 5,498 10.6 4,643 8.4 3,183 7.6
Environmental remediation
costs 1,378 2.7 0 0
------- ------- ------- ------- ------- -------
Operating income $ 24 0.0 $ 5,220 9.4 $ 3,688 8.8
Comparison of 1998 to 1997
The Chemicals Segment experienced a sales decline of seven percent
for the year and operating income fell significantly to $24,000, $1,402,000
before the special charge for environmental remediation costs. Both colors
and specialty chemicals experienced a decline in sales from the prior year.
Colors sales were down two percent. Without the acquisition of Organic
Pigments on July 1, 1998, total Chemicals Segment sales would have declined
13 percent and colors sales would have been down 15 percent. The continued
downsizing of the domestic textile industry, because of low cost imports,
led to less unit volume demand for colors compared to a year earlier. Sales
prices were also lower continuing the deflationary trend that has been
evident for several years. Sales of specialty chemicals were down 12
percent because of lower demand for certain products and sales in 1997 from
a toll project that ended in December 1997. The combination of weaker
pricing for color products and low level of capacity utilization in both
colors and specialty chemicals contributed to the decline in gross profits.
Selling and administrative expenses increased 18 percent because of the
Organic acquisition and additions to the sales staff.
For information related to environmental matters, see "Note H" to
Consolidated Financial Statements.
Comparison of 1997 to 1996
Sales and operating income increased 31 and 40 percent, respectively,
aided by the acquisition of MC. The prolonged decline in textile colors
sales ended in the first quarter of 1997 with each of the subsequent
quarters showing improvement over the prior year quarter. The increased
sales in these three quarters of about 10 percent led to a five percent
increase for the year. The improvement resulted from increases in unit
volumes in several of the product groups offset somewhat by falling prices
from competitive pressure experienced throughout all of the textile colors
product lines. The acquisition of MC propelled specialty chemicals to 44
percent of total Chemicals Segment sales for 1997. Specialty chemicals
sales, without MC's sales for 1997, increased insignificantly over last
year.
Essentially all of the growth in the Chemicals Segment's operating income
was produced by specialty chemicals, as profits from textile colors experi-
enced only a moderate gain. The competitive pressure on selling prices
continued to impair profitability throughout 1997 in textile colors. The
significant increase in specialty chemicals profits came from increased
volume from projects, creating improved manufacturing variances that
resulted in better profit margins, and the addition of MC.
Selling and administrative expenses increased 44 percent from including
expenses of MC for a full year in 1997 versus two months in 1996, and from
additional selling expenses related to the addition of a BU product manager
in November of 1996.
Unallocated Income and Expense
Reference should be made to "Note Q" to Consolidated Financial Statements
for the schedule of these items.
Comparison of 1998 to 1997
The 28 percent decrease in corporate expenses resulted from lower profit-
based incentives and professional fees. The Company benefited from lower
interest expense on reduced borrowings under the line of credit with a
bank, and higher interest income earned on cash invested during the year.
Comparison of 1997 to 1996
The decrease in corporate expenses resulted from lower profit-based
incentives. Interest expense declined from reduced borrowings under the
line of credit with a bank and a $2,000,000 reduction in long-term debt
paid in June 1997.
Current Conditions and Outlook
The Metals Segment experienced a 25 percent decline in unit volume in the
fourth quarter together with average sales prices that were 23 percent
lower. This decline led to a 43 percent decrease in sales to $10,941,000
compared to a year earlier. A surge in cheap imports, producing lower
commodity stainless pipe sales, and historically low piping systems and
process equipment sales caused the unit volume decline. Average prices
suffered from a shift in product mix to a much lower percentage of higher-
priced products as well as 16 percent lower prices for commodity pipe.
Operating income in the fourth quarter fell 89 percent to $177,000 from the
prior year resulting from more competitive pricing for pipe, the shift in
product mix, a loss from piping systems, and the decline in unit volume,
which produced low plant utilization rates. The well-publicized economic
turmoil in Asia and the Pacific Rim countries is largely responsible for
the cheap import surge in stainless pipe. As long as the U. S. remains the
dumping ground for the world's excess capacity, the stainless pipe business
will remain uncertain. On the other hand, the 1999 outlook for piping
systems and process equipment is excellent. The year begins with a solid
backlog of $19,200,000, up 81 percent from a year earlier. Management
expects significant profits from these products in 1999 compared to the
losses suffered in 1998. The carbon shop was closed in December 1998 and a
smaller shop was opened adjacent to our stainless shop. Because of the
greatly reduced costs, management expects this carbon shop to operate
profitably in 1999.
The Chemicals Segment suffered an operating loss in the fourth
quarter of $1,592,000 after a $1,378,000 pretax environmental charge, on a
17 percent sales decline to $11,858,000. Colors sales were down two
percent. Without the acquisition of Organic, total Chemicals Segment sales
would have declined 29 percent and colors sales would have been down 26
percent. Factors causing the sales decline were identical to those
experienced throughout the year as discussed in the Chemicals Segment
analysis. The operating loss for the quarter came primarily from specialty
chemicals as sales for the quarter were down 31 percent. The sales decline
was caused by the timing of production under certain toll contracts, lower
demand for certain products, and sales in 1997 from a toll project that
ended in December 1997. The low level of capacity utilization led to
significantly lower gross profits. Management believes that initiatives
taken in 1998 will lead to better operating results in 1999 and beyond. The
acquisition of Organic makes the Company a leader in the domestic textile
pigments business with an unmatched ability to provide unique high quality
printing systems. Organic also gives the Company an entree into aqueous
dispersions used in printing inks for paper. The benefits from this
acquisition are expected to become evident in 1999. The Company devoted
much time and effort in 1998 perfecting the process and installing the
equipment needed to manufacture an agricultural chemical under a toll
agreement. Initial production has now begun and plans call for this to
become the Company's largest toll product as the year progresses. In mid
1998, the Company added a salesman to market color and chemical products to
the textile industry in Central America. Shipments were insignificant in
1998 but a meaningful amount is expected in 1999.
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.
Year 2000 Compliance
The Company has completed its assessment of all systems that could be
affected by the Year 2000. Based on the assessment, the Company completed
software reprogramming and replacement, testing and implementation during
1998. The work included both information and production systems. The work
was completed by Company employees and no significant costs were incurred
other than normal personnel costs. In addition, the Company has gathered
information about the Year 2000 compliance status of significant suppliers
and customers and continues to monitor their compliance. To date, the
Company is not aware of any Year 2000 issue that would materially impact
the Company's results of operations, liquidity, or capital resources.
However, the Company has no means of ensuring that a supplier or customer
will be Year 2000 ready. Management believes that it has an effective
program in place to resolve the Year 2000 issue. Since the Company has been
operating the revised software since the second quarter of 1998, and the
assessment of its suppliers did not reveal a material issue that would
prevent receiving necessary materials and supplies to continue normal
operations, the Company has no contingency plans in place.
Although all internal programming work has been completed, if an undetected
system failure should occur, or one of the Company's key suppliers does not
become Year 2000 ready, the Company may not be able to complete customer
orders. In addition, disruptions in the economy generally resulting from
Year 2000 issues could also affect the Company. If issues related to Year
2000 should arise, the amount of potential liability and lost revenue
cannot be reasonably estimated at this time.
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.
At January 2, 1999, fair value of the Company's debt obligation, which
approximated the recorded value consisted of:
$665,000 notes payable under a $9,000,000 line of credit expiring on July 1,
1999 with an average variable interest rate of 5.56 percent.
$10,000,000 variable rate debt due May 1, 2002 with an average variable
interest rate of 6.26 percent.
In addition, the Company's investment in Ta Chen Stainless Pipe Company, which
is recorded at its fair value of $1,026,000, is 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
January 2, 1999, January 3, 1998 and December 28, 1996
1998 1997 1996
------ ------ ------
Assets
Current assets
Cash and cash equivalents $ 117,658 $ 1,602,543 $ 115,828
Accounts receivable, less allowance
for doubtful accounts of $362,000,
$219,000 and $208,000, respectively 12,596,592 15,201,783 17,253,534
Inventories
Raw materials 7,502,972 7,368,212 8,357,884
Work-in-process 3,755,147 4,791,379 5,112,695
Finished goods 14,842,842 15,287,431 16,384,891
----------- ----------- -----------
Total inventories 26,100,961 27,447,022 29,855,470
Deferred income taxes (Note L) 192,000 177,000 130,000
Prepaid expenses and other
current assets 646,342 633,709 278,276
----------- ----------- -----------
Total current assets 39,653,553 45,062,057 47,633,108
Cash value of life insurance 2,025,984 1,842,384 1,733,801
Investment (Note B) 1,026,117 329,117 329,117
Property, plant and
equipment, net (Note C) 25,495,020 23,112,324 23,627,889
Deferred charges, net and
other assets (Note D) 3,173,788 3,037,470 3,265,211
----------- ----------- -----------
Total assets $71,374,462 $73,383,352 $76,589,126
=========== =========== ===========
January 3, 1998, December 28, 1996 and December 30, 1995
1998 1997 1996
------ ------ ------
Liabilities and Shareholders' Equity
Current liabilities
Notes payable (Note E) $ 665,000 $ - $ 1,500,000
Accounts payable 7,882,778 5,544,789 6,252,449
Income taxes - 310,992 332,507
Accrued expenses (Note F) 1,383,740 3,018,850 2,492,660
Current portion of environmental
reserves (Note H) 575,650 487,980 359,294
Current portion of long-term
debt (Note G) 200,000 200,000 1,400,000
Notes payable to an employee (Note P) - - 1,154,805
----------- ----------- -----------
Total current liabilities 10,707,168 9,562,611 13,491,715
Long-term debt, less current
portion (Note G) 10,000,000 10,200,000 11,200,000
Environmental reserves (Note H) 1,846,550 782,700 1,300,100
Deferred compensation (Note I) 1,349,940 1,323,388 1,299,176
Deferred income taxes (Note L) 1,623,000 1,473,000 1,024,000
Contingencies (Notes H and N)
Shareholders' equity (Notes G, J, and K)
Common stock, par value $1 per
share - authorized and
issued 8,000,000 shares 8,000,000 8,000,000 8,000,000
Capital in excess of par value 9,491 33,475 81,746
Retained earnings 49,687,391 52,339,857 49,074,919
Accumulated other
comprehensive income 453,000 - -
----------- ----------- -----------
58,149,882 60,373,332 57,156,665
Less cost of Common Stock in
treasury: 1,274,371, 1,114,179
and 1,024,983 shares, respectively 12,302,078 10,331,679 8,882,530
----------- ----------- -----------
Total shareholders' equity 45,847,804 50,041,653 48,274,135
----------- ----------- -----------
Total liabilities and
shareholders' equity $71,374,462 $73,383,352 $76,589,126
=========== =========== ===========
See accompanying notes to financial statements.
Consolidated Statements of Income
January 2, 1999, January 3, 1998 and December 28, 1996
1998 1997 1996
------ ------ ------
Net sales $107,257,319 $126,740,641 $126,843,835
Cost of sales 95,054,533 107,025,237 105,736,099
------------ ------------ ------------
Gross profit 12,202,786 19,715,404 21,107,736
Selling, general and
administrative expense 10,134,530 9,971,869 9,085,923
Environmental remediation costs 1,439,070 - -
------------ ------------ ------------
Operating income 629,186 9,743,535 12,021,813
Other (income) and expense
Gain on sale of investment - - (665,718)
Interest expense 673,932 741,340 838,963
Other, net (141,423) (28,565) (20,533)
------------ ------------ ------------
Income before taxes 96,677 9,030,760 11,869,101
Provision for income taxes 34,000 3,190,000 4,183,000
------------ ------------ ------------
Net income $ 62,677 $ 5,840,760 $ 7,686,101
============ ============ ============
Net income per common share:
Basic $.01 $.84 $1.10
==== ==== =====
Diluted $.01 $.83 $1.09
==== ==== =====
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
December 30, 1995 $8,000,000 $ 417,030 $43,774,332 $(3,828,211) $48,363,151
Net income 7,686,101 7,686,101
Stock options exercised (335,284) 569,292 234,008
Purchase of common
stock for treasury (5,623,611) (5,623,611)
Cash dividends -
$.34 per share (2,385,514) (2,385,514)
Balance at
December 28, 1996 8,000,000 81,746 49,074,919 (8,882,530) 48,274,135
---------- -------- ----------- ----------- ----------
Net income 5,840,760 5,840,760
Stock options exercised (48,271) 139,479 91,208
Purchase of common
stock for treasury (1,588,628) (1,588,628)
Cash dividends -
$.37 per share (2,575,822) (2,575,822)
---------- -------- ----------- ---------- ----------
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 B) 473,000 473,000
Comprehensive income:
Net income 62,677 62,677
Other comprehensive
income, net of tax
(Notes A and B) (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
========== ========= =========== ======== ============ ===========
See accompanying notes to financial statements.
Consolidated Statements of Cash Flows
January 2, 1999, January 3, 1998 and December 28, 1996
1998 1997 1996
------ ------ ------
Operating activities
Net income $ 62,677 $ 5,840,760 $ 7,686,101
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation expense 3,258,075 3,221,069 2,547,986
Amortization of deferred charges 254,925 263,791 151,615
Deferred compensation 26,552 24,212 31,823
Deferred income taxes (250,000) 402,000 492,000
Provision for losses on accounts
receivable 142,706 11,067 (197,920)
Loss on sale of property, plant
and equipment 25,162 117,586 146,022
Cash value of life insurance (120,490) (108,583) (101,772)
Environmental reserves 1,151,520 (388,714) (529,927)
Gain on sale of investment - - (665,718)
Changes in operating assets
and liabilities:
Accounts receivable 3,407,106 2,040,684 2,276,838
Inventories 2,382,578 2,408,448 9,923,875
Other assets (105,116) (398,998) (658,864)
Accounts payable and
accrued expenses 172,719 (181,470) (2,313,165)
Income taxes payable (478,395) (21,515) 91,338
----------- ----------- -----------
Net cash provided by
operating activities 10,140,251 13,230,337 18,880,232
Investing activities
Purchases of property, plant
and equipment (3,685,847) (2,853,799) (3,832,899)
Proceeds from sale of property,
plant and equipment 37,036 30,709 94,975
Proceeds from sale of investment - - 826,248
Acquisitions, net of cash and
note payable (Note P) (3,456,799) - (4,093,807)
(Increase)decrease in
notes receivable (275,000) 7,515 6,804
----------- ----------- -----------
Net cash (used in)
investing activities (7,380,610) (2,815,575) (6,998,679)
Financing activities
Proceeds from revolving lines
of credit 3,613,000 13,145,000 45,707,000
Payments on revolving lines
of credit (2,948,000) (14,645,000) (48,947,000)
Principal payments on
long-term debt (200,000) (2,200,000) (1,017,669)
Payment of notes payable to
an employee - (1,154,805) -
Proceeds from exercised
stock options 4,836 91,208 234,008
Purchases of treasury stock (1,999,219) (1,588,628) (5,623,611)
Dividends paid (2,715,143) (2,575,822) (2,385,514)
----------- ----------- -----------
Net cash (used in)
financing activities (4,244,526) (8,928,047) (12,032,786)
----------- ----------- -----------
(Decrease) Increase in cash
and cash equivalents (1,484,885) 1,486,715 (151,233)
Cash and cash equivalents at
beginning of year 1,602,543 115,828 267,061
----------- ----------- -----------
Cash and cash equivalents at
end of period $ 117,658 $ 1,602,543 $ 115,828
=========== =========== ===========
See accompanying notes to financial statements.
Notes to Consolidated Financial Statements
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 1998 ended on
January 2, 1999 and included 52 weeks. Fiscal year 1997 ended on January 3,
1998 and included 53 weeks. Fiscal year 1996 ended on December 28, 1996 and
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.
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Depreciation is provided on the straight-line method over the
estimated useful life of the assets.
Deferred Charges. 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.
Net Income Per Common Share. In 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards
("Statement") No. 128, "Earnings per Share." Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options. Diluted
earnings per share is very similar to the previously reported primary
earnings per share. All earnings per share amounts for all periods have
been presented, and where appropriate, restated to conform to the Statement
128 requirements.
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 $882,000, $833,000 and $778,000 in the
1998, 1997 and 1996 fiscal years, 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, investment 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 K.
Comprehensive Income. In June 1997, the FASB issued Statement No. 130,
"Reporting Comprehensive Income" which established standards for the
reporting and display of comprehensive income and its components in a full
set of comparative general-purpose financial statements. The statement
became effective for the Company as of January 4, 1998. Comprehensive
income is defined in this statement as 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 Changes
in Stockholders' Equity.
Investment In Equity Securities. In 1997 and 1996 the Company's investment
in Ta Chen (Note B) was accounted for on the cost method of accounting due
to restrictions on trading. In 1998 the restrictions expired and in
accordance with FASB Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," the investment has been recorded at fair
value.
Note B Investment in Ta Chen Stainless Pipe Company
The Company has an investment available for sale in a company incorporated
in the Republic of China. Ta Chen is a stainless steel pipe manufacturing
company that has been operating since 1987. In October 1996 the Company
sold 39.4 percent of its investment in Ta Chen for a pretax gain of
$665,718.
The Company continues to hold a 1.06 percent ownership interest.The
investment is recorded at fair value as quoted on the Taiwanese stock
exchange at January 2, 1999. The unrealized appreciation of the investment,
totalling $697,000, is recorded as other comprehensive income included in
shareholders' equity, net of deferred income taxes of $244,000.
Note C Property, Plant and Equipment
Property, plant and equipment consist of the following:
1998 1997 1996
Land $ 431,736 $ 299,043 $ 299,043
Land improvements 989,814 1,006,675 965,469
Buildings 13,970,501 12,103,534 11,613,857
Machinery, fixtures
and equipment 40,570,435 36,876,635 36,506,944
Construction-in-
progress 2,030,584 614,620 370,996
---------- ---------- ----------
57,993,070 50,900,507 49,756,309
Less accumulated
depreciation 32,498,050 27,788,183 26,128,420
---------- ---------- ----------
$ 25,495,020 $ 23,112,324 $ 23,627,889
Note D Deferred Charges
Deferred charges consist of the following:
1998 1997 1996
Intangibles arising
from acquisitions $ 2,843,965 $ 2,758,965 $ 2,758,965
Software license
agreements 477,289 448,935 448,935
Debt expense 104,316 117,116 132,645
--------- --------- ---------
3,425,570 3,325,016 3,340,545
Less accumulated
amortization 1,042,317 803,359 565,263
--------- --------- ---------
$ 2,383,253 $ 2,521,657 $ 2,775,282
Note E Notes Payable
The Company has available a line of credit totaling $9,000,000, of which
$665,000 was outstanding at year end. The line expires on July 1, 1999 and
bears interest at the bank's overnight cost of funds plus .75 percent (6.28
percent at January 2, 1999). 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 G. Average short-term
borrowings outstanding during fiscal 1998, 1997 and 1996 were $61,000,
$261,000 and $2,099,000 with weighted average interest rates of 5.56
percent, 6.11 percent and 6.11 percent, respectively.
Note F Accrued Expenses
Accrued expenses consist of the following:
1998 1997 1996
Salaries, wages
and commissions $ 299,155 $ 895,526 $ 1,477,986
Taxes, other than
income taxes 257,203 361,040 259,452
Insurance 276,894 213,465 273,792
Pension 134,977 158,063 198,272
Customer advances 88,028 887,498 20,144
Other accrued items 327,483 503,258 263,014
---------- ---------- ----------
$ 1,383,740 $ 3,018,850 $ 2,492,660
Note G Long-Term Debt
Long-term debt consists of the following:
1998 1997 1996
Variable percentage
(weekly tax exempt
interest rate)
Economic Development
Revenue Bond payable
in annual installments
of $200,000 through
November 1, 1999.
Interest is paid
quarterly. $ 200,000 $ 400,000 $ 600,000
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 12,000,000
----------- ----------- -----------
10,200,000 10,400,000 12,600,000
Less current portion 200,000 200,000 1,400,000
----------- ----------- -----------
$ 10,000,000 $ 10,200,000 $ 11,200,000
On November 16, 1989, $2,000,000 of South Carolina Jobs-Economic
Development Authority Adjustable Mode Industrial Development Revenue Bonds
were issued in connection with a project by the Company. Under the terms of
issuance, the bank provided a letter of credit to support the payment of
the bonds.
On July 31, 1997, the Company entered into an agreement to amend its 1995
Revolving Credit/ Term Loan Agreement and prepaid $800,000, reducing the
balance owed to $10,000,000. The amendment converted the debt from a five-
year term loan, payable in equal quarterly installments, to a $10,000,000
revolving line of credit expiring May 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 .60 percent. The rate at January 2, 1999 was
5.88 percent. Borrowings are subject to the maintenance of certain
financial ratios and certain other restrictive covenants. At January 2,
1999, the Company was not in compliance with one of its covenants for which
the Company received a waiver and amendment on March 5, 1999. The amendment
calls for an increase in the interest rate to LIBOR plus .80 percent, which
may be reduced to .70 percent based upon the achievement of a certain
financial ratio.
The Company made interest payments of $664,000 in 1998, $764,000 in 1997
and $958,000 in 1996. Interest expense of approximately $116,000, was
capitalized in 1996. The approximate aggregate amount of all long-term debt
maturities for the next five years is as follows: 1999 - $200,000; and 2002
- - $10,000,000.
Note H Environmental Compliance Costs
At January 2, 1999, the Company has accrued $2,422,000 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 five to seven 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 the latter part of 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 one of its plant sites and based on the results
is currently conducting a Corrective Measures Study to be completed in
1999. After completion of the Study, a Corrective Measures Plan specifying
remediation procedures to be performed will be submitted for regulatory
approval in 1999. At another plant site, the Company is awaiting approval
for a Phase II Monitoring Plan, which was completed in 1997. Upon receiving
approval, a Corrective Measures Plan will be developed and submitted for
regulatory approval. Based on the anticipated results of the studies being
performed at the two sites, the Company recorded a special charge of
$1,378,000 in the fourth quarter of 1998 to accrue for 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. In 1994 the
Company submitted a Permit Application for Post Closure Care to the TDEC
outlining a plan to address the areas identified, and received the Permit
in the fourth quarter of 1994. Additional costs of $61,000 were accrued in
the fourth quarter of 1998 and $153,000 remains accrued at January 2, 1999
to provide for estimated future remedial, cleanup and monitoring costs as
required by the Permit.
The Company has been designated, along with others, as a potentially
responsible party under the Comprehensive Environmental Response, Com-
pensation, 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 lia-
bility 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 I 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
1998,1997 and 1996. At January 2, 1999, the amounts deferred totaled
$801,000, including accrued interest earned in 1998 of $27,000.
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, $549,000 at January 2,
1999, has been accrued.
Note J Shareholders' Rights
On February 4, 1999, the Board of Directors adopted a new Shareholders'
Rights Plan (the "Plan") to succeed the Shareholders' Rights Plan expiring
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 22
percent of the Company's Common Stock, or announces a tender or exchange
offer for more than 22 percent of the stock. At that time, each right
holder, other than the acquiring person or group, may use the Right to pur-
chase $25.00 worth of the Company's Common Stock at one-half of the then
market price.
Note K Stock Options
A summary of activity in the Company's stock option plans is as follows:
Weighted Average
Exercise Price Outstanding Available
At December 30, 1995 $ 7.02 221,883 162,000
Granted $ 18.88 21,000 (21,000)
Exercised $ 2.63 (88,875)
---------- ---------- ----------
At December 28, 1996 $ 11.17 154,008 141,000
Granted $ 15.13 100,500 (100,500)
Exercised $ 5.74 (15,900)
------ ---------- ---------
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
The following table summarizes information about stock options outstanding
at January 2, 1999:
----Exercisable----
---Outstanding Stock Options--- ----Stock Options---
--Weighted Average--
Remaining Weighted
Contractual Average
Exercise Life in Exercise
Range of Prices Shares Price Years Shares Price
$9.75 72,000 $ 9.75 4.83 72,000 $ 9.75
$11.88 to $14.83 42,000 $12.51 5.49 36,000 $12.56
$18.88 21,000 $18.88 7.32 12,000 $18.88
$15.13 100,500 $15.13 8.32 24,900 $15.13
$10.72 to $13.63 16,000 $11.81 9.52 6,000 $13.63
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 January
2, 1999, 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 1998, 1997 and 1996,
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 .747, .487 and .507; and an expected life of the
option of seven years. The weighted average fair values on the date of
grant were $7.26, $6.99 and $8.97 in 1998, 1997 and 1996, 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 the years ended January 2, 1999,
January 3, 1998 and December 28, 1996:
1998 1997 1996
Pro forma net (loss) income $ (65,000) $ 5,750,000 $ 7,664,000
Pro forma diluted earnings
per share $ (0.01) $ 0.82 $ 1.09
Note L 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) 1998 1997 1996
Deferred tax assets:
Allowance for doubtful accounts $ 128 $ 77 $ 74
Deferred compensation 476 467 459
Inventory capitalization 203 194 198
Accrued group insurance 93 53 88
Environmental reserves 652 449 586
Other 147 98 89
------- ------- -------
Total deferred tax assets 1,699 1,338 1,494
Deferred tax liabilities:
Tax over book depreciation 2,507 2,216 1,942
Prepaid expenses 379 418 446
Unrealized gain on investment 244 - -
------- ------- -------
Total deferred tax liabilities 3,130 2,634 2,388
------- ------- -------
Net deferred tax liabilities $ (1,431) $ (1,296) $ (894)
Significant components of the provision for income taxes attributable
to continuing operations are as follows:
Amount in thousands 1998 1997 1996
Current:
Federal $ 271 $ 2632 $ 3483
State 13 156 208
------- ------- -------
Total current 284 2788 3691
Deferred:
Federal (236) 379 463
State (14) 23 29
------- ------- -------
Total deferred (250) 402 492
------- ------- -------
Total $ 34 $ 3,190 $ 4,183
The reconciliation of income tax attributable to continuing operations
computed at the U. S. federal statutory tax rates to income tax expense is:
(Amount in thousands) 1998 1997 1996
Amount % Amount % Amount %
Tax at U.S. Statutory rates $ 33 34.0 $ 3,070 34.0 $ 4,054 34.2
State income taxes, net of
federal tax benefit 1 1.2 119 1.3 156 1.3
Other, net - 1 (27) (0.3)
------- ----- ------- ---- -------
Total $ 34 35.2 $ 3,190 35.3 $ 4,183 35.2
Income tax payments of approximately $729,000, $2,756,000 and $3,683,000
were made in 1998, 1997 and 1996, respectively.
Note M 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 $10,000 for 1998. 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 1998 the maximum was four percent. The
matching contribution is allocated on June 30 and December 31 of each Plan
year. Matching contributions of approximately $354,000, $294,000 and
$233,000 were made for 1998, 1997 and 1996, 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 have been made to the Plan for 1998, 1997 or
1996.
The Company also contributes to union- sponsored defined contribution
retirement plans. Contributions relating to these plans were approximately
$484,000, $428,000 and $351,000 for the years ended 1999, 1998 and 1996,
respectively.
Note N 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 O Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
1998 1997 1996
Numerator:
Net income $ 62,677 $ 5,840,760 $ 7,686,101
Denominator:
Denominator for basic earnings
per share-weighted average
shares 6,779,349 6,959,628 7,004,249
Effect of dilutive securities:
Employee stock options 14,528 47,088 53,861
--------- --------- ---------
Denominator for diluted
earnings per share 6,793,877 7,006,716 7,058,110
Basic earnings per share $ 0.01 $ 0.84 $ 1.10
Diluted earnings per share $ 0.01 $ 0.83 $ 1.09
Note P 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 certain contingent payment provisions that
provide for additional payments to be made to Organic's shareholders over a
three-year period. The contingent payments are based on defined sales and
gross profit percentages applied to sales to be received from two potential
contracts with customers Organic was negotiating with at the date of the
acquisition. A third contingent payment provision would pay 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.
On November 25, 1996, the Company purchased the common stock of
Manufacturers Chemicals Corporation and a related company with an effective
date of October 26, 1996. Located in Cleveland, Tennessee, the company
produces and sells surfactants, defoamers, finishing agents and other
specialty chemicals for the textile, paper, chemical and metals industries.
Manufacturers Chemicals and the related company were acquired at a cost of
$4,811,625, including certain acquisition costs related to the transaction,
plus the assumption of a note to a former shareholder of $438,375, for a
total purchase price of $5,250,000. The $4,811,625 was funded by cash from
operations plus the issuance of a note payable to the former shareholder of
$716,430. The two notes to the former shareholder, who became an employee
of the Company at the acquisition date, bore interest at 6.25 percent and
were paid along with interest of $13,842 on January 3, 1997.
The acquisitions were 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. The excess of the
purchase price over the fair value of net assets acquired of approximately
$1,966,000 has been included in goodwill and is being amortized over 15
years. The Company's consolidated financial statements include the results
of the companies from the effective date, October 26, 1996. The
acquisitions did not have a material impact on 1996 operations; therefore,
no pro forma data has been presented.
Note Q 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 and Whiting Metals,
both wholly- owned subsidiaries. The Chemicals Segment consists of Blackman
Uhler Chemical Company, a division of the Company, Manufacturers Chemicals
and Organic Pigments Corporation, wholly-owned subsidiaries.
The Chemicals Segment manufactures dyes, pigments and auxiliaries for the
textile industry and 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
1998, 1997 or 1996.
The Company has a distributorship agreement expiring December 31, 1999 with
the company supplying about 86 percent of the products that produced about
24 percent of the Chemicals Segment's sales in 1998. 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 June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which the Company has
adopted in the current year. The adoption of Statement 131 did not affect
results of operations or financial position.
Segment information:
(Amounts in thousands) 1998 1997 1996
Net sales
Metals $ 55,368 $ 71,192 $ 85,027
Chemicals 51,889 55,549 41,817
---------- ---------- ---------
- -
Total net sales $ 107,257 $ 126,741 $ 126,844
Operating income
Metals $ 1,409 $ 5,634 $ 9,697
Chemicals 24 5,220 3,688
---------- ---------- ---------
1,433 10,854 13,385
Less unallocated corporate expense 804 1,110 1,363
---------- ---------- ---------
Operating income 629 9,744 12,022
Other expense, net 532 713 153
---------- ---------- ---------
Income before taxes $ 97 $ 9,031 $ 11,869
Identifiable assets
Metals $ 32,275 $ 37,838 $ 41,172
Chemicals 35,002 30,211 31,875
Corporate 4,097 5,334 3,542
---------- ---------- ---------
$ 71,374 $ 73,383 $ 76,589
Depreciation and amortization
Metals $ 1,515 $ 1,504 $ 1,331
Chemicals 1,843 1,807 1,188
Corporate 155 174 181
---------- ---------- ---------
$ 3,513 $ 3,485 $ 2,700
Capital expenditures
Metals $ 956 $ 1,163 $ 2,519
Chemicals 2,661 1,653 1,299
Corporate 69 38 15
---------- ---------- ---------
$ 3,686 $ 2,854 $ 3,833
Geographic sales
United States $ 101,776 $ 118,445 $ 117,852
Elsewhere 5,481 8,296 8,992
---------- ---------- ---------
$ 107,257 $ 126,741 $ 126,844
Note R Quarterly Results (unaudited)
The following is a summary of quarterly operations for the years ended
January 2, 1999, January 3, 1998 and December 28, 1996.
Net Net Income Per
Net Gross Income Common Share
(Thousands except Sales Profit (Loss) Diluted Basic
per share data)
1998
First Quarter $ 30,606 $ 3,475 $ 597 $ .09 $ .09
Second Quarter 25,813 2,927 110 .02 .02
Third Quarter 28,040 3,467 455 .07 .07
Fourth Quarter 22,798 2,334 (1,100) (0.16) (0.16)
1997
First Quarter $ 30,903 $ 4,246 $ 1,011 $ .14 $ .14
Second Quarter 31,205 4,832 1,386 .20 .20
Third Quarter 31,371 4,875 1,543 .22 .22
Fourth Quarter 33,262 5,762 1,901 .27 .28
1996
First Quarter $ 36,659 $ 7,429 $ 2,922 $ .41 $ .41
Second Quarter 31,737 5,828 2,119 .30 .30
Third Quarter 29,405 4,059 1,243 .18 .18
Fourth Quarter 29,043 3,792 1,402 .20 .20
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 H for further discussion.
Net income for the fourth quarter of 1996 includes a gain on the sale of an
investment of $431,000, or $.06 per share. See Note B.
Note S Subsequent Event
On March 18, 1999, the Company entered into a non binding letter of intent
to acquire from Rite Industries Incorporated for cash their southern dye
business related to the High Point, North Carolina facility for an estimated
purchase price of $13,000,000. Based on current sales, the business is
expected to generate annual sales of over $32,000,000.
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 as of January 2, 1999, January 3, 1998 and December
28, 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended
January 2, 1999. 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 and schedule based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 January 2, 1999, January 3, 1998 and
December 28, 1996 and the consolidated results of its operations and its
cash flows for each of the three years in the period ended January 2, 1999,
in conformity with generally accepted accounting principles. 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 5, 1999,
except for Note S, as to which the date is March 18, 1999.
Item 9 Changes in and Disagreements With Accountants on Accounting and
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 January 2, 1999, 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 29, 1999.
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 Com-
pany'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
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
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 Balance Sheets at January 2, 1999, January 3, 1998 and
December 28, 1996
Consolidated Statements of Income for the years ended January 2, 1999,
January 3, 1998 and December 28, 1996
Consolidated Statements of Shareholders' Equity for the years ended
January 2, 1999, January 3, 1998 and December 28, 1996
Consolidated Statements of Cash Flows for the years ended January 2, 1999,
January 3, 1998 and December 28, 1996
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
January 2, 1999, January 3, 1998 and December 28, 1996
All 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 1998 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 11 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 January 2, 1999
Deducted from asset account:
Allowance for doubtful accounts $219,000 $394,000 (2) $ 206,000 $362,000
Year ended January 3, 1998
Deducted from asset account:
Allowance for doubtful accounts $208,000 $279,000 $ 268,000 $219,000
Year ended December 28, 1996
Deducted from asset account:
Allowance for doubtful accounts $356,000 $237,000 (2) $ 385,000 $208,000
(1) Allowances, uncollected accounts and credit balances written off against
reserve, net of recoveries.
(2) Includes a $25,000 of allowance from the acquisition of Organic
Pigments Corporation in 1998 and $50,000 of allowance from the
acquisition of Manufacturers Chemicals Corporation.
Exhibit 22 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:
1. Synalloy Metals, Inc., formerly Bristol Metals, Inc., a Tennessee
corporation
2. Whiting Metals, Inc., a South Carolina corporation
3. Manufacturers Soap and Chemical Company, a Tennessee corporation
4. Organic Pigments Corporation, a North Carolina corporation
5. Metchem, Inc., a Delaware corporation
6. 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 26, 1999
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 26, 1999
James G. Lane, Jr. Date
Chief Executive Officer and
Chairman of the Board
By /s/ Gregory M. Bowie March 26, 1999
Gregory M. Bowie Date
Vice President, Finance
By /s/ Glenn R. Oxner March 26, 1999
Glenn R. Oxner Date
Director
By /s/ Sibyl N. Fishburn March 26, 1999
Sibyl N. Fishburn Date
Director
By /s/ Carroll D. Vinson March 26, 1998
Carroll D. Vinson Date
Director
By /s/ Richard E. Ingram March 26, 1999
Richard E. Ingram Date
Director