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Synalloy's Fourth Quarter Earnings Per Share Increase By 45% Excluding Palmer Acquisition Costs

The Company's cash balance increased during 2012 from $110,000 at the end of 2011 to $1,085,000 as of December 29, 2012.  On August 21, 2012, the Company acquired the stock of Palmer for $28,998,000. Net accounts receivable was relatively unchanged for the year, after reducing the 2012 amount by the initial Palmer accounts receivable balance. Net inventories, excluding the initial Palmer inventory, increased $2,046,000 during 2012 in support of projected sales increases for both segments. The Company also used cash during 2012 as accounts payable decreased $4,152,000 as of the end of 2012, excluding Palmer's initial accounts payable balance. During the fourth quarter of 2012, the Company declared and paid a $0.25 dividend which resulted in a cash outlay of $1,596,000. Capital expenditures for 2012 were $4,771,000 and the Company received life insurance proceeds of $734,000 for a former officer of the Company. Also, based upon the subsequent working capital and capital asset true-up provisions included in the Palmer Stock Purchase Agreement, the sellers owed the Company $1,500,000 at the end of 2012, which was paid in early January 2013. These items resulted in the Company having $39,867,000 of bank debt outstanding as of December 29, 2012.


Management believes the Company is entering 2013 on a positive note. The following chart summarizes certain items which were outside of our normal operating results in each respective historical period. The net effect on earnings per share of these adjustments is furnished below using non-GAAP financial measures. As such, the most directly comparable GAAP financial measure is also furnished below for comparison:
(Dollars Per Share) Three months ended Year ended
  Dec 29, 2012 Dec 31, 2011 Dec 29, 2012 Dec 31, 2011
Diluted EPS, as stated 0.15 0.16 0.66 0.91
Inventory losses 0.12 0.09 0.48 0.17
Palmer acquisition costs 0.03 -- 0.09 --
Change in tax rate -- (0.03) -- --
Adjusted EPS 0.3 0.22 1.23 1.08
Percent increase 36%   14%  

The following chart was prepared using the most directly comparable GAAP financial measure.
(Dollars Per Share) Three months ended Year ended
  Dec 29, 2012 Dec 31, 2011 Dec 29, 2012 Dec 31, 2011
Diluted EPS, as stated 0.15 0.16 0.66 0.91
Percent decrease (6%)   (27%)  

The Metals Segment's business is highly dependent on its customers' capital expenditures. We are seeing improvements in this area with many new projects starting and those projects that were previously put on hold are moving again. The Metals Segment is experiencing a strong level of inquiries, especially in the chemical and petro chemical areas. Even though excess capacity in the fabrication units continues, we are seeing project quote load improvements for both pipe and fabrication jobs. Profit margins on the new project activity are somewhat better than third and fourth quarter levels. Stainless steel surcharges, which affect our cost of raw materials, declined steadily from March to September 2012 (in the range of 26%). In the fourth quarter, they were basically steady. For January and February 2013 they have increased somewhat (in the range of 8%). Our inventory gains and losses are determined by a number of factors including sales mix and the holding period of particular products. As a consequence, there may not be a direct correlation between the direction of stainless steel surcharges and inventory profits or losses at a particular point in time. Our experience has been that over the course of a business cycle, this volatility has tended towards zero. We believe we are the largest and most capable domestic producer of non-commodity stainless steel pipe and an effective producer of commodity stainless steel pipe which should serve us well in the long run. Our market position remains strong in the commodity pipe market and we are experiencing an upswing in special alloy demand. We also continue to be optimistic about the fabrication business over the long term. Management anticipates continued strong sales of FRP and steel tanks as the oil drilling boom continues in the Permian Basin and Eagle Ford Shale areas of Texas. During 2013, we will be focusing on gaining production efficiencies at Palmer to increase tank production.

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