*****THIS IS A CONFIRMING COPY OF PAPER COPY FILED FEBRUARY 1994.*****
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1993
Commission File Number 33-11479
SYNTHETIC INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1049400
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
309 LaFayette Road, Chickamauga, Georgia 30707
(Address of principal executive offices) (Zip Code)
(706) 375-3121
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
State the aggregate market value of the voting stock held by non-affiliates
of the registrant at February 11, 1994.
Common Stock, $1.00 par value -- $0
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date:
Outstanding at
Class February 11, 1994
Common Stock, $1.00 par value 49.95 <PAGE>
Part I-FINANCIAL INFORMATION SYNTHETIC INDUSTRIES, INC.
Item 1. Financial Information AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS (Note 7A)
1993 1993
<S> <C> <C>
CURRENT ASSETS:
Cash $ 189 $ 253
Accounts receivable, less allowance for
doubtful accounts of $1,269 and $1,090 29,570 36,465
Inventory (Note 3) 27,838 25,265
Other current assets (Note 4) 11,538 11,949
TOTAL CURRENT ASSETS 69,135 73,932
PROPERTY, PLANT AND EQUIPMENT,
net (Note 5) 93,383 92,602
DEFERRED FINANCING AND ORGANIZATION COSTS,
net of accumulated amortization of
$4,236 and $4,049 8,197 8,252
EXCESS OF PURCHASE PRICE OVER NET
ASSETS ACQUIRED AND OTHER
INTANGIBLES (Note 6) 84,952 85,586
$255,667 $260,372
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $11,751 $ 13,411
Accrued expenses and other
current liabilities 5,569 6,411
Income taxes payable 841 -
Interest payable 1,569 6,023
Current maturities of long-term
debt (Note 7) 6,032 6,032
TOTAL CURRENT LIABILITIES 25,762 31,877
LONG-TERM DEBT LESS
CURRENT PORTION (Note 7) 164,269 164,723
DEFERRED INCOME TAXES (Note 8) 19,423 19,349
209,454 215,949
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par value:
Authorized, issued and
outstanding 49.95 shares - -
Additional paid-in capital 69,300 69,300
Cumulative translation adjustments 46 52
Deficit (23,133) (24,929)
TOTAL STOCKHOLDER'S EQUITY 46,213 44,423
$255,667 $260,372
</TABLE>
See notes to consolidated financial statements<PAGE>
<TABLE>
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars)
<CAPTION>
For Three Months Ended December 31,
<S> <C> <C>
1993 1992
Net sales $51,694 $44,336
Costs and expenses:
Cost of sales 33,807 32,335
Selling expenses 4,983 4,132
General and administrative expenses 3,725 4,159
Amortization of intangibles 634 654
43,149 41,280
Operating income 8,545 3,056
Other expenses:
Interest expense 5,079 4,851
Amortization of deferred financing
and organization costs 187 327
5,266 5,178
Income (loss) from continuing operations
before income tax provision 3,279 (2,122)
Income tax provision (Note 8) 1,483 (267)
Income (loss) from continuing operations 1,796 (1,855)
Extraordinary item - Loss from early
extinguishment of debt (net of
tax benefit of $4,950)(Note 7B) - (8,076)
Cumulative effect on prior years of change
in accounting for income taxes - (8,500)
NET INCOME (LOSS) $ 1,796 $(18,431)
</TABLE>
See notes to consolidated financial statements<PAGE>
<TABLE>
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<CAPTION>
Three Months Ended December 31,
1993 1992
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before
extraordinary item $1,796 $(1,855)
Depreciation 2,274 1,975
Amortization of deferred financing and
organization costs and intangibles 821 993
Provision for bad debts 181 12
Accrued interest on junior
subordinated debentures - 517
Deferred income taxes 173 (2,099)
Change in assets and liabilities:
Decrease in accounts receivable 6,682 4,672
Increase in inventory (2,580) (5,471)
Decrease in other current assets 312 1,672
Increase in deferred financing costs
and intangible assets (132) (4,558)
(Decrease) increase in accounts payable (1,618) 20
Decrease in accrued expenses and other
current liabilities (871) (1,176)
Increase (decrease) in income tax payable 841 (356)
(Decrease) increase in interest payable (4,423) 823
Cash provided (used in)
by operating activities 3,456 (4,831)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,061) (2,719)
Cash used in investing activities (3,061) (2,719)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan - 4,706
Repayments under term loan (1,500) (2,500)
Issuance of 12 1/2% Senior
subordinated debentures - 140,000
Redemption of 11 1/2% Senior
subordinated debentures - (115,621)
Repayment costs on early extinguishment of debt - (720)
Borrowings (Repayment) under
revolving credit line 1,052 (18,386)
Repayments of other long term obligations (8) (7)
Cash provided by financing activities (456) 7,472
Effect of exchange rate changes on cash (3) (6)
NET DECREASE IN CASH (64) (84)
CASH AT BEGINNING OF PERIOD 253 249
CASH AT END OF PERIOD $ 189 $ 165
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the quarter for:
Interest $ 9,533 $ 1,447
Income taxes 0 8
</TABLE>
See notes to consolidated financial statements<PAGE>
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
(Information as of December 31, 1993 and for the
periods ending December 31, 1993 and 1992 is unaudited)
1. ORGANIZATION
Synthetic Industries, Inc. (the "Company"), a
Delaware corporation and a wholly-owned subsidiary
of Synthetic Industries L.P., a Delaware limited
partnership (the "Partnership"), manufactures and
markets a wide range of polypropylene-based
industrial textile products. The Company's
principal product lines are carpet backing,
technical textiles and construction/civil
engineering products.
2. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of
December 31, 1993 and for the periods ended
December 31, 1993 and 1992 included herein have
been prepared, without audit, pursuant to the
rules and regulations of the Securities and
Exchange Commission. In the opinion of
management, all adjustments (consisting of normal
recurring accruals) necessary for a fair
presentation of the Company's financial position
at December 31, 1993 and 1992, and the results of
its operations for the three months then ended
have been made. Certain information and footnote
disclosures included in consolidated financial
statements prepared in accordance with generally
accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations,
although management believes that the disclosures
herein are adequate to make the information
presented not misleading. Certain
reclassifications have been made to previous
years' consolidated financial statements to
conform to current classifications. It is
suggested that these consolidated financial
statements be read in conjunction with
management's discussion and analysis of financial
condition and results of operations on pages 9 to
11 and the consolidated financial statements on
pages F-2 to F-21 of the Company's Form 10-K for
the fiscal year ended September 30, 1993.
Operating results for the three months ended
December 31, 1993 may not necessarily be
indicative of the results that may be expected for
the full year.
The accompanying interim financial information for
the three month period ended December 31, 1992 has
been restated to reflect the adoption of Statement
of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" as of October 1,
1992. The cumulative effect of adoption on prior
years was an $8,500 charge to income.
<PAGE>
<TABLE>
3. INVENTORY
<CAPTION>
December 31, September 30,
<S> <C> <C>
1993 1993
Finished goods $ 18,696 $ 15,856
Work in process 4,098 4,715
Raw materials 5,044 4,694
$ 27,838 $ 25,265
4. OTHER CURRENT ASSETS
December 31, September 30,
1993 1993
Prepaid supplies $ 5,007 $ 4,905
Income tax receivable 279 747
Deferred income tax benefits 5,015 5,114
Other 1,237 1,183
$ 11,538 $ 11,949
5. PROPERTY, PLANT AND EQUIPMENT
December 31, September 30,
1993 1993
Land $ 2,929 $ 2,929
Buildings and improvements 18,429 18,429
Machinery and equipment and
leasehold improvements 115,857 112,802
137,215 134,160
Accumulated depreciation 43,832 41,558
$ 93,383 $ 92,602
</TABLE>
<PAGE>
6. EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED AND OTHER INTANGIBLES
<TABLE>
<CAPTION>
December 31, September 30,
1993 1993
<S> <C> <C>
Excess of purchase price over
net assets acquired $99,818 $99,818
Intangible assets 4,525 4,525
104,343 104,343
Accumulated amortization 19,391 18,757
$ 84,952 $ 85,586
7. LONG-TERM DEBT
Long-term debt consists of the following:
December 31, September 30,
1993 1993
Secured revolving credit facility
Secured revolving credit portion $ 3,381 $ 2,327
Term loan portion 25,500 27,000
12 1/2% Senior subordinated debentures 140,000 140,000
Other 1,420 1,428
170,301 170,755
Less current portion 6,032 6,032
Total long-term portion $164,269 $164,723
</TABLE>
A. The Secured Revolving Credit
Facility
On March 15, 1993, the Company and
its lenders entered into a Second
Amended and Restated Revolving
Credit Agreement (as amended to
date, the "Amended Credit
Facility"). The term loan portion
of the Amended Credit Facility
provides for borrowings up to
$30,000, payable over a 60 month
period beginning April 1, 1993, in
equal installments of $500, plus
interest.
The revolving credit loan portion
of the Amended Credit Facility
provides for availability based on
a borrowing formula consisting of
85% of eligible accounts receivable
and 50% of eligible inventory,
subject to certain limitations.
The maximum amount available for
borrowing under the revolving
credit loan portion of the Amended
Credit Facility is $30,000 less any
amounts outstanding under the
letter of credit portion of the
Amended Credit Facility.
Interest on borrowings under the
Amended Credit Facility is
calculated at a rate equal to the
bank's base rate plus 1 1/2% (7 1/2% at
December 31, 1993).
The Company may, at its option, and
with certain restrictions, convert
a portion of its advances under the
term or revolving credit loan
portion of the Amended Credit
Facility, to borrowings in
Eurodollars. Interest on
Eurodollar borrowings is calculated
based on the Interbank Eurodollar
rate plus 3 1/4% and 3%, for term and
revolving credit advances,
respectively.
The Amended Credit Facility
provides for borrowings under
letters of credit for up to $3,000,
reducing amounts available under
the revolving credit loan. The
Company is required to pay a .375%
fee on the unused portion of the
commitment and an agency fee of
$150 per annum.
B. Senior Subordinated Debentures
On December 14, 1992, the Company
issued $140,000 of 12 1/2% Senior
Subordinated Debentures (the
"Debentures") due 2002, which
represent unsecured obligations of
the Company. The Debentures are
redeemable at the option of the
Company at any time on or after
December 1, 1997, initially at
106.375% of their principal amount
, together with accrued interest
thereon, with declining redemption
prices thereafter. Interest on the
Debentures is payable semiannually
on June 1 and December 1. Interest
payments on the Debentures
commenced on June 1, 1993.
On December 14, 1992, the Company's
11 1/2% Senior Subordinated
Debentures (the "Old Debentures"),
with a principal amount of $110
million, were called for redemption
on January 13, 1993, at 105.11% of
the called principal amount
thereof. The principal amount and
related unamortized Old Debenture
issuance costs were removed from
the balance sheet at December 31,
1992 in an in-substance defeasance
transaction, resulting in an
extraordinary loss of $8,076,
comprised of the following:
Call premium $5,621
Unamortized deferred financing costs 6,071
Unamortized discount 611
Interest on defeasance 723
Tax benefit (4,950)
Loss on early debt retirement $8,076
<PAGE>8. INCOME TAXES
The (benefit) provision for income taxes is
as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
December 31, December 31,
<S> <C> <C>
1993 1992
Current:
Federal $ 1,080 (2,200)
State 230 (450)
1,310 (2,650)
Deferred:
Federal 166 (2,212)
State 7 (355)
173 (2,567)
Total taxes on income $ 1,483 $(5,217)
</TABLE>
The federal income tax provision (benefit)
for the three months ended December 31, 1993
and 1992 reflect the non-deductibility of
certain expenses for income tax purposes
such as amortization of goodwill. Deferred
income taxes result from temporary
differences between tax basis of assets and
liabilities and their reported amounts in
the financial statements.
<PAGE>Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
(In thousands of dollars)
Liquidity and Capital Resources
At December 31, 1993, there was $24,935
available for borrowing under the Amended Credit
Facility. During the three months ended December
31, 1993, cash from operations was $3,456. The
Company has budgeted capital expenditures of
$21,000 during fiscal 1994 to be financed through
operations and the Credit Facility. Of this
amount, approximately $9,500 is for continued
expansion of carpet backing and approximately
$8,000 relates to the expansion of the nonwoven
manufacturing facility.
Management's plans indicate that current and
future operations will provide sufficient cash
flow to satisfy long-term debt obligations,
including the Amended Credit Facility, and lease
commitments.
Results of Operations for the First Quarter
Net sales for the three months ended
December 31, 1993 were $51,694 compared to $44,336
for the three months ended December 31, 1992, an
increase of 17%. The increase was principally due
to a 61% increase in construction/civil
engineering products.
Carpet backing sales were $27,317 for the
first quarter of fiscal 1994, an increase of
$2,736 or 11% from the first quarter of fiscal
1993. This is primarily due to increased sales
volumes which were partially offset by a decrease
in selling prices.
Technical textiles sales were $12,102 for
the first quarter of fiscal 1994 compared to
$12,121 for the same period of last year.
Construction/civil engineering products
sales increased to $12,275 for the first quarter
of fiscal 1994 from $7,634 for the same period in
fiscal 1993, an increase of $4,641 or 61%. The
increase is primarily attributable to the
introduction of nonwoven geotextiles as well as
increased sales of woven geotextiles.
Additionally, there was an 17% increase in
FibermeshTM sales during the first quarter of
fiscal 1994 compared to the same period in fiscal
1993.
Gross profit for the first quarter of fiscal
1994 increased to $17,887 from $12,001 or 49% from
the first quarter of fiscal 1993 primarily due to
lower raw material costs and increased sales
volumes. As a percent of sales, gross profit
increased to 35% from 27% primarily due to lower
raw material costs. Additionally, during the
first quarter of fiscal 1993, the Lumite operation
incurred relocation and startup expenses of $1,250
in relation to the expansion and a new nonwoven
manufacturing facility.
<PAGE>
Selling expenses of $4,983 in the first
quarter of fiscal 1994 increased $851 compared to
the first quarter of fiscal 1993. This increase
is due to increased sales volume coupled with
enhanced selling activities of the
construction/civil engineering products. General
and administrative expenses of $3,725 for the
first quarter of fiscal 1994 decreased $434 from
the first quarter
of fiscal 1993.
Operating income increased to $8,545 during
the first quarter of fiscal 1994 (17% of net
sales) from $3,056 during the third quarter of
fiscal 1993 (7% of net sales). This increase is
primarily due to lower cost of goods sold and
increased sales.
Total interest expense for the first quarter
of fiscal 1994 increased by $228 from the first
quarter of fiscal 1993 due to a higher interest
rate on the Debentures partially offset by lower
total debt outstanding.
Net income for the first quarter of fiscal
1994 was $1,796 compared to a net loss of $18,431
for the first quarter of fiscal 1993, primarily
due to the fiscal 1993 loss on early
extinguishment of debt of $8,076 and $8,500 charge
resulting from the adoption of Statement of
Financial Accounting Standards No. 109 ("SFAS
109"), Accounting for Income Taxes.
Accounting Changes
In the fourth quarter of fiscal 1993, the
Company adopted retroactive to October 1, 1992,
the provisions of SFAS 109. As a result, the
Company's operating results for the first three
quarters of fiscal years ended September 30, 1993
were restated. The accompanying interim financial
information for the three month period ended
December 31, 1992 has been restated to reflect the
adoption and the effect of the change on
previously reported financial data as shown on
page F-17 of the Company's Form 10-K for the
fiscal year ended September 30, 1993.
PART II-OTHER INFORMATION
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports of Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, the registrant
has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly
authorized.
SYNTHETIC INDUSTRIES, INC.
By:/s/ Leonard Chill
Leonard Chill
President
Dated: February 11, 1994
By:/s/ Jon P. Beckman
Jon P. Beckman
Chief Financial Officer
Dated: February 11, 1994
