*******THIS IS A CONFIRMING COPY OF REPORT FILED AUGUST 94******
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 June 30, 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 July 30, 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 August 8, 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)
<TABLE> <C> <C>
JUNE 30, SEPTEMBER 30,
ASSETS (Note 7A) 1994 1993
CURRENT ASSETS:
Cash $ 210 $ 253
Accounts receivable, net of allowance for
doubtful accounts of $1,252 and $1,090 40,073 36,465
Inventory (Note 3) 29,049 25,265
Other current assets (Note 4) 10,512 11,949
TOTAL CURRENT ASSETS 79,844 73,932
PROPERTY, PLANT AND EQUIPMENT, net (Note 5) 106,797 92,602
DEFERRED FINANCING AND ORGANIZATION COSTS,
net of accumulated amortization of
$4,605 and $4,049 7,429 8,252
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
AND OTHER INTANGIBLES (Note 6) 83,673 85,586
$277,743 $260,372
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $13,554 $ 13,411
Accrued expenses and other
current liabilities 8,264 6,411
Income taxes payable 2,199 -
Interest payable 1,781 6,023
Current maturities of long-term
debt (Note 7) 6,034 6,032
TOTAL CURRENT LIABILITIES 31,832 31,877
LONG-TERM DEBT LESS CURRENT PORTION (Note 7) 172,844 164,723
DEFERRED INCOME TAXES (Note 8) 19,982 19,349
224,658 215,949
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 79 52
Deficit (16,294) (24,929)
TOTAL STOCKHOLDER'S EQUITY 53,085 44,423
$277,743 $260,372
See notes to consolidated financial statements
</TABLE>
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE> <C> <C> <C> <C>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
1994 1993 1994 1993
Net sales $64,308 $58,637 $170,839 $150,794
Costs and expenses:
Cost of sales 39,749 37,973 109,200 105,154
Selling expenses 5,680 4,988 15,451 13,444
General and administrative
expenses 4,589 3,830 12,704 12,602
Amortization of intangibles 624 655 1,873 1,966
50,642 47,446 139,228 133,166
Operating income 13,666 11,191 31,611 17,628
Other expenses:
Interest expense 5,228 5,525 15,396 15,961
Amortization of deferred financing
and organization costs 184 187 556 741
5,412 5,712 15,952 16,702
Income from continuing operations
before income tax provision 8,254 5,479 15,659 926
Income tax provision
(Note 8) 3,429 2,184 7,024 1,377
Income (loss) from continuing
operations 4,825 3,295 8,635 (451)
Discontinued operations
Reversal of disposal of
discontinued operations
(net of tax provision
of $800) - - - 1,420
Income before extraordinary item 4,825 3,295 8,635 969
Extraordinary item - Loss from
early extinguishment of debt
[net of tax benefit of ($5,273)]
(Note 7A and 7B) - - - (8,616)
Cumulative effect on prior years of
change in accounting principle
for income taxes - - - (8,500)
NET INCOME (LOSS) $ 4,825 $ 3,295 $ 8,635 $ (16,147)
</TABLE>
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE> <C> <C>
NINE MONTHS ENDED JUNE 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before extraordinary item $ 8,635 $ 969
Adjustments to reconcile net income
to net cash provided by operations:
Reversal of loss on disposal of discontinued
operations (net of tax) - (1,420)
Depreciation 7,108 6,283
Amortization of deferred financing and
organization costs and intangibles 2,429 2,718
Provision for bad debts 44 597
Accrued interest on junior subordinated
debentures - 1,190
Deferred income taxes (benefits) 2,156 (2,378)
Change in assets and liabilities:
Increase in accounts receivable (3,652) (5,566)
Increase in inventory (3,784) (1,098)
(Increase) decrease in other current
assets (86) 5,363
Decrease (increase) in deferred
financing costs 267 (5,685)
Decrease in intangibles 40 -
Increase (decrease) in accounts payable 143 (3,288)
Increase in accrued expenses and other
current liabilities 1,853 1,703
Increase in income taxes payable 2,199 -
(Decrease) increase in interest payable (4,242) 1,388
Decrease in net liabilities of discontinued
operations - (640)
Cash provided by operating activities 13,110 136
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (21,303) (9,014)
Cash used in investing activities (21,303) (9,014)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan - 30,000
Repayments under term loan (4,500) (22,508)
Issuance of 12_% Senior subordinated debentures - 140,000
Redemption of 11 1/2% Senior subordinated debentures - (115,621)
Repayment costs on early extinguishment of debt - (720)
Repayment of Junior Subordinated Debenture - (17,093)
Repayment costs on early extinguishment of debt - (325)
Borrowings (repayment) under revolving
credit line 12,647 (4,947)
Repayments of other long term obligations (24) (23)
Cash provided by financing activities 8,123 8,763
Effect of exchange rate changes on cash 27 8
NET DECREASE IN CASH (43) (107)
CASH AT BEGINNING OF PERIOD 253 249
CASH AT END OF PERIOD $ 210 $ 142
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 19,638 $ 14,106
Income taxes 2,201 -
See notes to consolidated financial statementsYNTHETIC INDUSTRIES, INC.
</TABLE>
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
(INFORMATION AS OF JUNE 30, 1994 AND FOR THE
PERIODS ENDING JUNE 30, 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 June 30, 1994 and for the periods
ended June 30, 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 June
30, 1994 and 1993, and the results of operations for the three and nine 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 nine months ended June 30, 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.
<TABLE> <C> <C>
3.INVENTORY
June 30, September 30,
1994 1993
Finished goods $20,403 $ 15,856
Work in process 4,156 4,715
Raw materials 4,490 4,694
$29,049 $ 25,265
4.OTHER CURRENT ASSETS
June 30, September 30,
1994 1993
Prepaid supplies $ 5,320 $ 4,905
Income tax receivable 279 747
Deferred income tax benefits 3,591 5,114
Other 1,322 1,183
$ 10,512 $ 11,949
5.PROPERTY, PLANT AND EQUIPMENT
June 30, September 30,
1994 1993
Land $ 2,930 $ 2,929
Buildings and improvements 18,429 18,429
Machinery and equipment and
leasehold improvements 134,104 112,802
155,463 134,160
Accumulated depreciation 48,666 41,558
$106,797 $ 92,602
6.EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED AND OTHER
INTANGIBLES
June 30, 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 20,630 18,757
$83,673 $ 85,586
</TABLE>
Excess of purchase price over net assets acquired are assessed for
recoverability on a regular basis. In evaluating the value and future benefits
of goodwill, its carrying value would be reduced by the excess, if any, of the
balance over management's best estimate of undiscounted future operating income
before amortization of the related intangible assets over the remaining
amortization period.
7.LONG-TERM DEBT
<TABLE> <C> <C>
June 30, September 30,
1994 1993
Secured revolving credit facility
Secured revolving credit
portion 14,974 2,327
Term loan portion 22,500 27,000
12_% Senior subordinated
debentures 140,000 140,000
Other 1,404 1,428
178,878 170,755
Less current portion 6,034 6,032
Total long term portion $172,844 $ 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 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% (8% at June 30,
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 11/4% 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% 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:
<TABLE> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
June 30, June 30,
1994 1993 1994 1993
Current:
Federal $ 1,598 $ 1,700 3,450 (700)
State 390 350 950 (350)
1,988 2,050 4,400 (1,050)
Deferred:
Federal 1,001 130 2,195 (1,910)
State 440 4 429 (136)
1,441 134 2,624 (2,046)
Total taxes on
income $ 3,429 $ 2,184 $ 7,024 $ (3,096)
</TABLE>
The federal income tax provision (benefit) for the three months and nine
months ended June 30, 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 June 30, 1994, there was $13,186 available for borrowing under the Amended
Credit Facility. During the nine months ended June 30, 1994, cash from
operations was $13,110. 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 THIRD QUARTER
Net sales for the three months ended June 30, 1994 were $64,308 compared to
$58,637 for the three months ended June 30, 1993, an increase of 10%. The
increase was principally due to a 43% increase in sales of construction/civil
engineering products.
Carpet backing sales were $31,193 for the third quarter of fiscal 1994, an
increase of $2,711 or 10% from the third 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 $12,005 for the third quarter of fiscal 1994
compared to $15,425 for the same period of last year for a decrease of $3,420 or
22%. This was due to the phase out of several industrial product lines as the
equipment was redirected to the additional production of woven geotextiles. The
remainder is comparable to last year.
Construction/civil engineering product sales increased to $21,110 for the
third quarter of fiscal 1994 from $14,730 for the same period in fiscal 1993, an
increase of $6,380 or 43%. The increase is primarily attributable to the
introduction of nonwoven geotextiles, as well as increased sales of woven
geotextiles. Additionally, there was an 18% increase in Fibermesh sales during
the third quarter of fiscal 1994 compared to the same period in fiscal 1993.
Gross profit for the third quarter of fiscal 1994 increased to $24,559 from
$20,664 or 19% from the third quarter of fiscal 1993. As a percent of sales,
gross profit increased to 38% from 35% primarily due to lower raw material costs
and increased sales volumes.
Selling expenses of $5,680 in the third quarter of fiscal 1994 increased $692,
or 14%, compared to the third quarter of fiscal 1993. This increase is due to
higher sales volumes coupled with increased marketing efforts of the
construction/civil engineering products. General and administrative expenses of
$4,589 for the third quarter of fiscal 1994 increased $759 over the third
quarter of fiscal 1993 due to continued sales growth.
Operating income increased to $13,666 during the third quarter of fiscal 1994
(21% of net sales) from $11,191 during the third quarter of fiscal 1993 (19% of
net sales). This increase is primarily due to lower raw material costs and
increased sales volumes.
Total interest expense for the third quarter of fiscal 1994 decreased by $297
from the third quarter of fiscal 1993 due to average lower total debt
outstanding.
Net income for the third quarter of fiscal 1994 was $4,825 compared to a net
income of $3,295 for the third quarter of fiscal 1993.
RESULTS OF OPERATIONS FOR THE FIRST NINE MONTHS
Net sales for the nine months ended June 30, 1994 were $170,839 compared to
$150,794 for the first nine months ended June 30, 1993, an increase of 13%.
This increase was primarily due to increased sales of construction/civil
engineering products.
Carpet backing sales were $86,903 for the nine months of fiscal 1994, an
increase of $8,310 or 11% from the nine months of fiscal 1993. This increase in
sales was the result of increased sales volumes of secondary backing.
Technical textiles sales were $38,056 for the nine months of fiscal 1994
compared to $42,845 for the same period of fiscal 1993 for a decrease of $4,789
or 11%. This decrease was due to the phase out of several industrial product
lines as the equipment was redirected to the additional production of woven
geotextiles. The remainder is comparable to last year.
Construction/civil engineering product sales increased to $45,880 for the nine
months of fiscal 1994 from $29,356 for the same period in fiscal 1993, an
increase of $16,524 or 56%. This was due to a 22% increase in Fibermesh sales
and a 137% increase in sales of geotextiles and erosion control fabrics during
the first nine months of fiscal 1994 compared to the same period in fiscal 1993.
Gross profit for the first nine months of fiscal 1994 increased to $61,639
from $45,640 during the first nine months of fiscal 1993. As a percentage of
sales, gross profit increased to 36% from 30%. This was primarily attributable
to lower raw material costs and increased sales volumes.
Selling expenses of $15,451 in the first nine months of fiscal 1994 increased
$2,007 or 15%, compared to the first nine 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 $12,704 for the first nine months of fiscal 1994 increased $102 or
1% over the first nine months of fiscal 1993.
Operating income increased to $31,611 during the first nine months of fiscal
1994 (19% of net sales) from $17,628 during the first nine months of fiscal 1993
(12% of net sales) due primarily to lower cost of goods sold and increased sales
volumes.
Total interest expense for the first nine months of fiscal 1994 decreased by
$565 from the first nine months of fiscal 1993 due primarily to average lower
total debt outstanding.
Net income for the first nine months of fiscal 1994 was $8,635 compared to a
net loss of $16,147, 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
nine month period ended June 30, 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: August 8,1994
By: /s/ Jon P. Beckman
Jon P. Beckman
Chief Financial Officer
Dated: August 8, 1994
