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, 1995
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 10, 1995.
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 12, 1996
Common Stock, $1.00 par value 49.95
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE INFORMATION)
DECEMBER 31, SEPTEMBER 30,
ASSETS 1995 1995
CURRENT ASSETS:
Cash $ 529 $ 108
Accounts receivable, net of allowance for
doubtful accounts of $4,093 and $4,053 37,204 47,947
Inventory (Note 3) 41,330 45,597
Other current assets 15,510 14,708
------- --------
TOTAL CURRENT ASSETS 94,573 108,360
PROPERTY, PLANT AND EQUIPMENT, net (Note 4) 120,936 116,729
OTHER ASSETS 86,452 87,211
-------- --------
$301,961 $312,300
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,840 $ 24,021
Accrued expenses and other
current liabilities 5,609 7,378
Income taxes payable (Note 6) 664 1,455
Interest payable 2,236 6,427
Current maturities of long-term debt
(Note 5) 42 40
------- -------
TOTAL CURRENT LIABILITIES 29,391 39,321
LONG-TERM DEBT (Note 5) 193,204 192,048
DEFERRED INCOME TAXES (Note 6) 23,525 23,175
------- -------
246,120 254,544
------- -------
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 11 29
Deficit (13,470) (11,573)
------ ------
TOTAL STOCKHOLDER'S EQUITY 55,841 57,756
-------- --------
$301,961 $312,300
======== ========
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
FOR THREE MONTHS ENDED DECEMBER 31
1995 1994
Net sales $64,608 $58,012
Costs and expenses:
Cost of sales 49,917 42,027
Selling expenses 5,716 5,455
General and administrative expenses 4,971 4,608
Amortization of excess of purchase price over net
assets acquired and other intangibles 648 635
------ ------
61,252 52,725
------ ------
Operating income 3,356 5,287
------ ------
Other expenses:
Interest expense 5,680 5,418
Amortization of deferred financing
and organization costs 173 182
------ ------
5,853 5,600
------ ------
Loss before income tax benefit (2,497) (313)
Income tax benefit (Note 6) (600) (29)
------ ------
NET LOSS $ (1,897) $ (284)
====== ======
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED DECEMBER 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,897) $ (284)
Adjustments to reconcile net loss
to net cash provided by (used in) operations:
Depreciation 3,187 2,784
Amortization of deferred financing and organization
costs and intangibles 821 817
Provision for bad debts 42 (5)
Deferred income taxes (720) (70)
Change in assets and liabilities:
Decrease in accounts receivable 10,701 2,198
Decrease (increase) in inventory 4,267 (4,530)
Decrease (increase) in other current assets 268 (547)
Increase in deferred financing costs (62) -
Increase in intangibles - (21)
(Decrease) increase in accounts payable (3,181) 2,182
Decrease in accrued expenses and other
current liabilities (1,769) (2,542)
Decrease in income taxes payable (791) (482)
Decrease in interest payable (4,191) (4,506)
------- -------
Cash provided by (used in) by
operating activities 6,675 (5,006)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (7,394) (5,791)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under the term loan 19,500 -
Repayments under term loan (500) (1,500)
Net (repayments) borrowings under secured
revolving credit line (17,833) 12,252
Repayments of other long term obligations (9) (9)
------ ------
Cash provided by financing activities 1,158 10,743
Effect of exchange rate changes on cash (18) 53
------ ------
NET INCREASE (DECREASE) IN CASH 421 (1)
CASH AT BEGINNING OF PERIOD 108 117
-------- ------
CASH AT END OF PERIOD $ 529 $ 116
======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 9,871 $ 9,924
Income taxes 911 899
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE
PERIODS ENDING DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
1.ORGANIZATION
Synthetic Industries, Inc., a Delaware corporation (the "Company"), manufactures
and markets a wide range of polypropylene-based fabric and fiber products
designed for industrial applications. The Company's diverse mix of products are
marketed to the floor covering, construction and technical textile markets for
such end-use applications as carpet backing, geotextiles, erosion control,
concrete reinforcement and furniture construction fabrics.
2.INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of December 31, 1995 and for the
periods ended December 31, 1995 and 1994 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 December 31, 1995 and 1994, and the results of operations for the
three 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. 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 and the consolidated
financial statements of the Company's Form 10-K for the fiscal year ended
September 30, 1995. Operating results for the three months ended December 31,
1995 may not necessarily be indicative of the results that may be expected for
the full year.
3.INVENTORY
December 31, September 30,
1995 1995
Finished goods $24,614 $ 27,867
Work in process 5,436 5,541
Raw materials 11,280 12,189
------- --------
$41,330 $ 45,597
======= ========
4.PROPERTY, PLANT AND EQUIPMENT
December 31, September 30,
1995 1995
Land $ 3,511 $ 3,511
Buildings and improvements 23,457 23,457
Machinery and equipment and
leasehold improvements 159,315 151,921
------- -------
186,283 178,889
Accumulated depreciation 65,347 62,160
------- -------
$120,936 $116,729
======= =======
5.LONG-TERM DEBT
December 31, September 30,
1995 1995
Secured revolving credit facility:
Secured revolving credit portion 6,894 24,727
Term loan portion 45,000 26,000
12 3/4% Senior subordinated
debentures 140,000 140,000
Other 1,352 1,361
------- -------
193,246 192,088
Less current portion 42 40
------- -------
Total long term portion $193,204 $192,048
======= =======
On October 20, 1995, the Company and its lenders entered into the Fourth
Amended and Restated Revolving Credit Agreement (as amended to date, the
"Amended Credit Facility"). The Amended Credit Facility, with a
termination date of October 20, 2001, provides for term loan borrowings of
$45,000 of which $10,000 is payable in 1999 and $17,500 is payable in each
of 2000 and 2001.
The revolving credit loan portion of the Amended Credit Facility (the
"Revolver") provides for availability based on a borrowing formula
consisting of 85% of eligible accounts receivable and 50% of eligible
inventory, subject to certain limitations. Under the Amended Credit
Facility, the maximum amount available for borrowing under the Revolver
was increased to $40,000. At December 31, 1995, the Company had $31,974
available for borrowing under the Revolver.
6.INCOME TAXES
The (benefit) provision for income taxes is as follows:
Three Months Ended December 31,
1995 1994
Current:
Federal $ - 41
State - -
Foreign 120 -
----- -----
120 41
Deferred: ----- -----
Federal (600) 142
State (120) (212)
----- -----
(720) (70)
----- -----
Total benefit $ (600) $ (29)
====== =====
The federal income tax provision for the three months ended December 31, 1995
and 1994 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
During the three months ended December 31, 1995, cash from operating
activities was $6,675. This was comprised primarily of the net loss of $1,897,
inclusive of noncash charges of $3,330, and collections of accounts receivable
of $10,701 offset by a decrease in interest payable of $4,191. This cash from
operating activities coupled with net bank borrowings of $1,158 were used
primarily to finance capital expenditures of $7,394.
The Company has planned capital expenditures of $40,000 during fiscal 1996,
including a $35,000 loom expansion in Chickamauga, Georgia to be financed
through operations and bank borrowings. Of this amount, $7,394 has been
expended through December 31, 1995. At December 31, 1995, there was $31,974
available for borrowing under the Amended Credit 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 bank borrowings, Senior Subordinated Debentures and
lease commitments.
RESULTS OF OPERATIONS FOR THE FIRST QUARTER
FISCAL 1995 COMPARED TO FISCAL 1994
The following table sets forth certain financial data for the quarters ended
December 31, 1995 and 1994.
1995 1994
Net sales $64,608 $58,012
Gross profit 14,691 15,985
Gross profit margin 23% 28%
EBITDA1 7,191 8,706
Net sales increased 11% in fiscal 1996 from fiscal 1995 due primarily to unit
volume growth in most product lines. Carpet backing sales grew to $33,553 in
fiscal 1996, an increase of 8% over fiscal 1995 sales of $31,158.
Construction/civil engineering sales increased $3,930 or 25% to $19,400 in
fiscal 1996. Technical textiles sales increased 2% to $11,655 in fiscal 1996
from $11,384 in fiscal 1995.
The decrease in gross profit, gross profit margin and EBITDA was a direct
result of higher average polypropylene costs in the first quarter of fiscal 1996
as compared to the first quarter of fiscal 1995. While polypropylene costs
began to decrease late in fiscal 1995, average polypropylene costs were
approximately 40% higher in the fourth quarter of fiscal 1995 as compared to the
fourth quarter of fiscal 1994. These higher polypropylene costs were included
in ending inventory at September 30, 1995 and have been expensed, in cost of
sales, in the first quarter of fiscal 1996. Newly purchased polypropylene costs
continued to decline in the first quarter of fiscal 1996, decreasing
approximately 20% from year end levels. Management believes, although there can
be no assurance, that polypropylene costs will stabilize at or near the current
levels during the balance of fiscal 1996.
Polypropylene costs account for approximately 50% of the Company's cost of
goods sold. Accordingly, higher prices of polypropylene without offsetting
selling price increases could have a significant negative effect on the
Company's results of operations and financial condition. As a result of the
level of competition, the Company, to date, has been able to pass through only a
portion of the polypropylene cost increases through higher selling prices of
certain product lines. The Company has not experienced any shortage of supply
of polypropylene, however, continued increases in demand or major supply
disruptions without offsetting increases in manufacturing capacities could cause
the Company future supply shortages. Management anticipates that additional
polypropylene manufacturing facilities will be completed and commence production
during calendar years 1996 and 1997. Historically, the creation of additional
facilities has helped to relieve supply pressures.
Direct selling expenses increased $261 to $5,716 in fiscal 1996 from $5,455 in
fiscal 1995 decreasing as a percentage of sales from 9.4% to 8.8%. This
increase was due to activities associated with higher sales volumes. General
and administrative expenses, while remaining relatively constant at 8% of net
sales, increased to $4,971 from $4,608 in the first quarter of fiscal 1995.
Operating income decreased to $3,356 during the first quarter of fiscal 1996
from $5,287 during the first quarter of fiscal 1995. This decrease was
primarily due to the factors previously discussed.
Total interest expense for the first quarter of fiscal 1996 increased by $262
from the first quarter of fiscal 1995 due to average higher total debt
outstanding.
Net loss for fiscal 1996 was $1,897 compared to a net loss of $284 for fiscal
1995 primarily due to the effect of higher average resin prices offset by the
income tax benefit of $600 associated with the loss.
OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-Q
(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: February 12,1996
By: /s/ Joseph Sinicropi
Joseph Sinicropi
Chief Financial Officer
Dated: February 12, 1996
_______________________________
1 The Company believes that earnings before interest, taxes, depreciation and
amortization ("EBITDA") is helpful in understanding cash flow from operations
that is available for debt service, taxes and capital expenditures. EBITDA is
not a concept contained in Generally Accepted Accounting Principles and is not
a substitute for operating income, net income or cash flows from operating
activities.
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