*****THIS IS A CONFIRMING COPY OF REPORT FILED MAY 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 March 31, 1994
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 May 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 May 11, 1994
Common Stock, $1.00 par value 49.95
PART I-FINANCIAL INFORMATION SYNTHETIC INDUSTRIES, INC.
ITEM 1. FINANCIAL INFORMATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
MARCH 31, SEPTEMBER 30,
ASSETS (Note 6A) 1994 1993
CURRENT ASSETS:
Cash $ 599 $ 253
Accounts receivable, net of allowance for
doubtful accounts of $1,243 and $1,090 35,308 36,465
Inventory (Note 3) 30,003 25,265
Other current assets (Note 4) 11,649 11,949
TOTAL CURRENT ASSETS 77,559 73,932
PROPERTY, PLANT AND EQUIPMENT, net (Note 5) 104,284 92,602
DEFERRED FINANCING AND ORGANIZATION COSTS,
net of accumulated amortization
of $4,421 and $4,049 7,613 8,252
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
AND OTHER INTANGIBLES (Note 6) 84,297 85,586
$273,753 $260,372
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $15,659 $ 13,411
Accrued expenses and other current
liabilities 7,459 6,411
Income taxes payable 1,813 -
Interest payable 6,068 6,023
Current maturities of long-term
debt (Note 7) 6,032 6,032
TOTAL CURRENT LIABILITIES 37,031 31,877
LONG-TERM DEBT LESS CURRENT PORTION (Note 7) 169,028 164,723
DEFERRED INCOME TAXES (Note 8) 19,453 19,349
225,512 215,949
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 60 52
Deficit (21,119) (24,929)
TOTAL STOCKHOLDER'S EQUITY 48,241 44,423
$273,753 $260,372
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
19941993 1994 1993
Net sales $54,837 $47,821 $106,531 $ 92,157
Costs and expenses:
Cost of sales 35,644 34,846 69,451 67,181
Selling expenses 4,788 4,324 9,771 8,456
General and admin expenses 4,390 4,613 8,115 8,772
Amortization of intangibles 615 657 1,249 1,311
45,437 44,440 88,586 85,720
Operating income 9,400 3,381 17,945 6,437
Other expenses:
Interest expense 5,089 5,585 10,168 10,436
Amortization of deferred financing
and organization costs 185 227 372 554
5,274 5,812 10,540 10,990
Income from continuing operations
before income tax
provision (benefit) 4,126 (2,431) 7,405 (4,553)
Income tax provision (benefit)
(Note 8) 2,112 (540) 3,595 (807)
Income (loss) from continuing
operations 2,014 (1,891) 3,810 (3,746)
Discontinued operations
Reversal of disposal of
discontinued operations
(net of tax provision
of $800) - 1,420 - 1,420
Income (loss) before
extraordinary item 2,014 (471) 3,810 (2,326)
Extraordinary item - Loss from
early extinguishment of debt
[net of tax (benefit) of ($323)
and ($5,273), respectively]
(Note 7A and 7B) - (540) - (8,616)
Cumulative effect on prior years
of change in accounting principle
for income taxes - - - (8,500)
NET INCOME (LOSS) $ 2,014 $ (1,011) $ 3,810$ (19,442)
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
SIX MONTHS ENDED MARCH 31,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before extraordinary item $ 3,810 $ (2,326)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation 4,622 4,182
Amortization of deferred financing and
organization costs and intangibles 1,621 1,877
Provision for bad debts 40 381
Accrued interest on junior subordinated
debentures - 1,058
Deferred income taxes 1,183 (3,269)
Change in assets and liabilities:
Decrease in accounts receivable 1,117 2,006
Increase in inventory (4,738) (2,840)
(Increase) decrease in other current assets (779) 2,739
Decrease (increase) in deferred financing costs 267 (5,728)
Decrease in intangibles 40 -
Increase (decrease) in accounts payable 2,248 (6,633)
Increase in accrued expenses and other
current liabilities 1,048 633
Increase (decrease) in income taxes payable 1,813 (356)
Increase in interest payable 45 5,026
(Decrease) in net liabilities of
discontinued operations - (2,060)
Cash provided by (used in) by
operating activities 12,337 (5,310)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (16,304) (5,431)
Cash used in investing activities (16,304) (5,431)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan - 30,000
Repayments under term loan (3,000) (21,008)
Issuance of 12 3/4% Senior
subordinated debentures - 140,000
Redemption of 11 1/2% Senior
subordinated debentures - (115,621)
Repayment costs on early extinguishment of debt - (1,045)
Borrowings (repayment) under revolving
credit line 7,322 (20,918)
Repayments of other long term obligations (17) (15)
Cash provided by financing activities 4,305 11,393
Effect of exchange rate changes on cash 8 7
NET INCREASE IN CASH 346 659
CASH AT BEGINNING OF PERIOD 253 249
CASH AT END OF PERIOD $ 599 $ 908
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 10,123 $ 5,075
Income taxes 133 -
See notes to consolidated financial statementsYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
(INFORMATION AS OF MARCH 31, 1994 AND FOR THE
PERIODS ENDING MARCH 31, 1994 AND 1993 IS UNAUDITED)
1.ORGANIZATION
Synthetic Industries, Inc. (the "Company"), a Delaware corporation whose
outstanding capital stock is owned by 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 March 31, 1994 and for the periods
ended March 31, 1994 and 1993 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 financial position at March
31, 1994 and 1993, and the results of operations for the three and six months
then ended have been made on a consistent basis. 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 12 to 16 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 and six months ended March 31, 1994 may
not necessarily be indicative of the results that may be expected for the full
year.
The accompanying interim financial information for the year ended September 30,
1993 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.
3.INVENTORY
March 31, September 30,
1994 1993
Finished goods $20,315 $ 15,856
Work in process 4,291 4,715
Raw materials 5,397 4,694
$ 30,003 $ 25,265
4.OTHER CURRENT ASSETS
March 31,September 30,
1994 1993
Prepaid supplies $ 5,244 $ 4,905
Income tax receivable 279 747
Deferred income tax
benefits 4,035 5,114
Other 2,091 1,183
$ 11,649 $ 11,949
5.PROPERTY, PLANT AND EQUIPMENT
March 31, September 30,
1994 1993
Land $ 2,930 $ 2,929
Buildings and improvements 18,429 18,429
Machinery and equipment and
leasehold improvements 129,105 112,802
150,464 134,160
Accumulated depreciation 46,180 41,558
$104,284 $ 92,602
6.EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED AND OTHER
INTANGIBLES
March 31, September 30,
1994 1993
Excess of purchase price over
net assets acquired 99,818 99,818
Intangible assets 4,485 4,525
104,303 104,343
Accumulated amortization 20,006 18,757
$ 84,297 $ 85,586
7.LONG-TERM DEBT
March 31, September 30,
1994 1993
Secured revolving credit facility
Secured revolving credit portion 9,649 2,327
Term loan portion 24,000 27,000
12 3/4% Senior subordinated
debentures 140,000 140,000
Other 1,411 1,428
175,060 170,755
Less current portion 6,032 6,032
Total long term portion $169,028 $ 164,723
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 Company borrowed $30 million under the
term loan portion of the Amended Credit Facility. Such term loan
borrowing is payable over a 60-month period which began on 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
Amended Credit Facility is $30 million 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 of equal to the agent bank's rate plus 1 1/2% (7 3/4% at March 31,
1994).
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 into borrowings in Eurodollars. Interest on
Eurodollar borrowings is calculated based on the Interbank Eurodollar rate
plus 3 1/4% for term loan advances. The interest rate on Eurodollar
borrowings for revolving credit advances is one-quarter of a percent less
than the term loan advance rate.
The Amended Credit Facility provides for borrowings of up to $3 million
under letters of credit. Such borrowings reduce the amounts otherwise
available under the revolving credit loan portion of the Amended Credit
Facility. The Company is required to pay a .375% fee on the unused
portion of the commitment and an agency fee of $150 per annum.
In consideration for the Amended Credit Facility, costs of approximately
$550, consisting of bank and legal fees and other related expenses, have
been deferred. Deferred financing fees and prepayment costs associated
with the prior credit facility were written off during the quarter ended
March 31, 1993, resulting in an extraordinary loss on early extinguishment
of debt of approximately $540, comprised of the following:
Prepayment Costs $325
Unamortized deferred financing costs 538
Tax Benefit (323)
Loss on early debt retirement $540
B.SENIOR SUBORDINATED DEBENTURES
On December 14, 1992, the Company issued $140,000 of 12 3/4% 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, 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
8.INCOME TAXES
The provision (benefit) for income taxes is as follows:
Three Months Ended Six Months Ended
March 31, March 31,
1994 1993 1994 1993
Current:
Federal $ 772 $ (200) 1,852 (2,400)
State 330 (250) 560 (700)
1,102 (450) 2,412 (3,100)
Deferred:
Federal 1,028 172 1,194 (2,040)
State (18) 215 (11) (140)
1,010 387 1,183 (2,180)
Total taxes on income$ 2,112 $ (63) $ 3,595 $ (5,280)
The federal income tax provision (benefit) for the three months and six
months ended March 31, 1994 and 1993 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 bases of assets
and liabilities and their reported amounts in the financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1994, there was $18,830 available for borrowing under the Amended
Credit Facility. During the six months ended March 31, 1994, cash from
operations was $12,337. The Company has planned capital expenditures of $32
million during fiscal 1994 to be financed through operations and the Credit
Facility. Of this amount, approximately $19 million 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 the debt service requirements of the long-term
debt obligations, including the Amended Credit Facility and lease commitments.
RESULTS OF OPERATIONS FOR THE SECOND QUARTER
Net sales for the three months ended March 31, 1994 were $54,837 compared to
$47,821 for the three months ended March 31, 1993, an increase of 15%. The
increase was principally due to a 79% increase in sales of construction/civil
engineering products.
Carpet backing sales were $28,393 for the second quarter of fiscal 1994, an
increase of $2,863 or 11% from the second quarter of fiscal 1993. This increase
was primarily due to increased sales volumes partially offset by a decrease in
selling prices.
Technical textiles sales were $13,949 for the second quarter of fiscal 1994
compared to $15,299 for the same period of last year for a decrease of $1,350 or
9%. This was due to the phase out of various industrial product lines.
Construction/civil engineering product sales increased to $12,495 for the
second quarter of fiscal 1994 from $6,992 for the same period in fiscal 1993, an
increase of $5,503 or 79%. The increase is primarily attributable to the
introduction of nonwoven geotextiles, as well as increased sales of woven
geotextiles. Additionally, there was an 36% increase in Fibermesh sales during
the second quarter of fiscal 1994 compared to the same period in fiscal 1993.
Gross profit for the second quarter of fiscal 1994 increased to $19,193 from
$12,975 or 47% from the second quarter of fiscal 1993. As a percent of sales,
gross profit increased to 35% from 27% primarily due to lower raw material costs
and increased sales volumes.
Selling expenses of $4,788 in the second quarter of fiscal 1994 increased
$464, or 11%, compared to the second quarter of fiscal 1993. This increase is
due to increased sales volumes coupled with increased marketing efforts of the
construction/civil engineering products. General and administrative expenses of
$4,390 for the second quarter of fiscal 1994 decreased $223 over the second
quarter of fiscal 1993.
Operating income increased to $9,400 during the second quarter of fiscal 1994
(17% of net sales) from $3,381 during the second quarter of fiscal 1993 (7% of
net sales). This increase is primarily due to lower costs of goods sold and
increased sales.
Total interest expense for the second quarter of fiscal 1994 decreased by $496
from the second quarter of fiscal 1993 due to lower total debt outstanding.
Net income for the second quarter of fiscal 1994 was $2,014 compared to a net
loss of $1,011 for the second quarter of fiscal 1993 which included $540 due to
the early extinguishment of debt.
RESULTS OF OPERATIONS FOR THE FIRST SIX MONTHS
Net sales for the six months ended March 31, 1994 were $106,531 compared to
$92,157 for the first six months ended March 31, 1993, an increase of 16%. This
increase was primarily due to increased sales of construction/civil engineering
products.
Carpet backing sales were $55,710 for the six months of fiscal 1994, an
increase of $5,599 or 11% from the six months of fiscal 1993. This increase in
sales was the result of increased sales volumes of secondary backing.
Technical textiles sales were $26,051 for the six months of fiscal 1994
compared to $27,420 for the same period of fiscal 1993 for a decrease of $1,369
or 5%. This decrease was due to the phase out of various industrial products.
Construction/civil engineering product sales increased to $24,770 for the six
months of fiscal 1994 from $14,626 for the same period in fiscal 1993, an
increase of $10,144 or 69%. This was due to a 26% increase in Fibermesh sales
and a 208% increase in sales of geotextiles and erosion control fabrics during
the first six months of 1994 compared to the same period in 1993.
Gross profit for the first six months of fiscal 1994 increased to $37,080 from
$24,976 during the first six months of fiscal 1993. As a percentage of sales,
gross profit increased to 35% from 27%. This was primarily attributable to
lower raw material costs and increased sales volumes.
Selling expenses of $9,771 in the first six months of fiscal 1994 increased
$1,315 or 16%, compared to the first six months of fiscal 1993. This increase
was attributable to the enhanced selling activities of the construction/civil
engineering products and increased sales volumes. General and administrative
expenses of $8,115 for the first six months of fiscal 1994 decreased $657 or 8%
over the first six months of fiscal 1993.
Operating income increased to $17,945 during the first six months of fiscal
1994 (17% of net sales) from $6,437 during the first six months of fiscal 1993
(7% of net sales) due primarily to lower cost of goods sold and increased sales
volumes.
Total interest expense for the first six months of fiscal 1994 decreased by
$268 from the first six months of fiscal 1993 due primarily to decreased
borrowings.
Net income for the first six months of fiscal 1994 was $3,810 compared to a
net loss of $19,442, which includes $8,616 for the early extinguishment of debt
and $8,500 for cumulative effect of change in accounting principle for income
taxes.
ACCOUNTING CHANGES
In the fourth quarter of fiscal 1993, the Company adopted retroactive to
October 1, 1992, the provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes. As a result, the Company's operating
results were restated. The accompanying interim financial information for the
six month period ended March 31, 1993 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.
OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports of Form 8-K
None
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: May 11,1994
By:/s/ Jon P. Beckman
Jon P. Beckman
Chief Financial Officer
Dated: May 11, 1994
