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, 1996
Commission File Number 33-11479
SYNTHETIC INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1049400
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
309 LaFayette Road, Chickamauga, Georgia 30707
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(Address of principal executive (Zip Code)
(706) 375-3121
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(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 June 30, 1996.
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:
Oustanding at
Class August 1, 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)
June 30 September 30,
ASSETS 1996 1995
________ _________
CURRENT ASSETS:
Cash......................................... $ 165 $ 108
Accounts receivable, net of allowance for
doubtful accounts of $4,050 and $4,053..... 50,809 47,947
Inventory (Note 3)........................... 37,668 45,597
Other current assets......................... 14,812 14,708
------- -------
TOTAL CURRENT ASSETS..................... 103,454 108,360
PROPERTY, PLANT AND EQUIPMENT, net (Note 4).... 137,237 116,729
OTHER ASSETS................................... 84,841 87,211
------- -------
$325,532 $312,300
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable............................. $23,600 $ 24,021
Accrued expenses and other current liabilities 8,235 7,378
Income taxes payable (Note 6)................ 2,204 1,455
Interest payable............................. 2,555 6,427
Current maturities of long-term debt (Note 5) 60 40
------ ------
TOTAL CURRENT LIABILITIES................ 36,654 39,321
LONG-TERM DEBT (Note 5)........................ 204,145 192,048
DEFERRED INCOME TAXES (Note 6)................. 24,225 23,175
------- -------
265,024 254,544
------- -------
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........... (5) 29
Deficit...................................... (8,787) (11,573)
------ ------
TOTAL STOCKHOLDER'S EQUITY............... 60,508 57,756
-------- --------
$325,532 $312,300
======== ========
See notes to consolidated financial statements
F-2
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
Net sales................... $82,843 $72,767 $212,060 $194,349
Costs and expenses:
Cost of sales............. 55,134 50,867 151,221 136,950
Selling expenses.......... 7,307 6,627 19,259 17,591
General and administrative
expenses............... 5,233 4,943 16,024 14,453
Amortization of excess
purchase price over
net assets acquired
and other intangibles.. 648 648 1,944 1,918
------ ------ ------- --------
68,322 63,085 188,448 170,912
------ ------- ------- --------
Operating income..... 14,521 9,682 23,612 23,437
Other expenses:
Interest expense ....... 5,863 5,846 17,253 17,027
Amortization of deferred
financing costs........ 175 186 523 555
------ ----- ------ ------
Income before income
taxes................. 8,483 3,650 5,836 5,855
Provision for income
taxes (Note 6)........ 3,390 1,771 3,050 3,300
------ ----- ------ -----
NET INCOME................ $ 5,093 $ 1,879 $ 2,786 $ 2,555
======= ======= ======= =======
See notes to consolidated financial statements
F-3
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
Nine Months Ended June 30,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 2,786 $2,555
Adjustments to reconcile net income
to net cash provided by
(used in) operations:
Depreciation........................ 9,774 8,605
Amortization of intangibles and
deferred financing costs .......... 2,467 2,473
Provision for bad debts............. 23 580
Deferred income taxes............... 1,280 1,130
Change in assets and liabilities:
Increase in accounts receivable.... (2,885) (9,814)
Decrease (increase) in inventory... 7,929 (18,205)
Increase in other current assets... (334) (117)
(Decrease) increase in
accounts payable................. (421) 4,917
Increase (decrease) in accrued
expenses and other
current liabilities.............. 857 (194)
Increase in income taxes payable... 749 188
Decrease in interest payable....... (3,872) (4,052)
------- -------
Cash provided by (used in)
operating activities........ 18,353 (11,934)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property,
plant and equipment................. (25,439) (12,169)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan............ 19,500 11,000
Repayments under term loan............ (500) (4,500)
Net (repayments) borrowings under
revolving credit line............... (11,713) 17,800
Other assets.......................... (97) (201)
Repayments of other
long term obligations............... (13) (27)
-------- --------
Cash provided by
financing activities............. 7,177 24,072
Effect of exchange rate changes
on cash.......................... (34) 17
-------- -------
NET INCREASE (DECREASE) IN CASH......... 57 (14)
CASH AT BEGINNING OF PERIOD............. 108 117
------- ------
CASH AT END OF PERIOD................... 165 103
======= ======
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest ............................. $21,125 $21,079
Income taxes.......................... 1,387 1,832
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Capital lease obligations incurred
for purchase of equipment ............ $5,000 -
See notes to consolidated financial statements
F-4
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE
PERIODS ENDING JUNE 30, 1996 AND 1995 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. The Company is a
wholly-owned subsidiary of Synthetic Industries, L.P., a Delaware partnership.
2.INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of June 30, 1996 and for the periods
ended June 30, 1996 and 1995 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, 1996 and the results of operations for the three and nine months ended June
30, 1996 and 1995 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 and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995 or in the Company's registration statement
on Form S-1 dated August 1, 1996 (See Note 9). Operating results for the three
and nine months ended June 30, 1996 may not necessarily be indicative of the
results that may be expected for the full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3.INVENTORY
June 30, September 30,
1996 1995
------ ---------
Finished goods.................. $23,358 $27,867
Work in process................. 7,227 5,541
Raw materials................... 7,083 12,189
------- -------
$37,668 $ 45,597
======= ========
4.PROPERTY, PLANT AND EQUIPMENT
June 30, September 30,
1996 1995
-------- -----------
Land....................... $ 3,511 $ 3,511
Buildings and improvements. 28,650 23,457
Machinery and equipment and
leasehold improvements... 177,010 151,921
--------- ---------
209,171 178,889
Accumulated depreciation... 71,934 62,160
--------- ---------
$ 137,237 $ 116,729
========= =========
5.LONG-TERM DEBT
June 30, September 30,
1996 1995
---- ----
Secured revolving credit facility
Secured revolving credit portion........ 13,014 24,727
Term loan portion....................... 45,000 26,000
12 3/4% Senior subordinated
debentures............................ 140,000 140,000
Capitalized lease obligations.............. 4,843 -
Other...................................... 1,348 1,361
-------- ---------
204,205 192,088
Less current portion....................... 60 40
-------- ---------
Total long term portion.................... $ 204,145 $ 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 June 30, 1996, the Company had $25,691
available for borrowing under the Revolver.
6.INCOME TAXES
The provision (benefit) for income taxes is as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
Current:
Federal......... $ 1,320 $ 768 $ 1,320 $ 1,820
State........... 190 170 190 350
Foreign......... 110 - 260 -
-------- ------ ------- -------
1,620 938 1,770 2,170
-------- ------ ------- -------
Deferred:
Federal......... 1,640 805 1,180 1,308
State........... 130 28 100 (178)
-------- ------ ------ ------
1,770 833 1,280 1,130
-------- ------- ------ ------
Total taxes on income. $ 3,390 $ 1,771 $ 3,050 $ 3,300
======== ======= ======= =======
The federal income tax provisions for the three and nine months ended
June 30, 1996 and 1995 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. The Company's United
States Income tax returns for fiscal years 1992 and 1993 have been examined
and settled without material adjustment.
7. CONTINGENCY
In January 1995, an arbitration proceeding was initiated by Fibermesh
(Suisse) S.A. against the Company, in the United States, alleging a breach by
the Company of an exclusive distribution agreement of Fibermesh(c) in
Switzerland and claiming actual damages of 6,104,000 Swiss Francs ($4,900 at
June 30, 1996) and punitive damages of $20,000. The Company believes that it
has meritorious defenses to all claims in the action and that the ultimate
resolution will not have a materially adverse effect on the Company's
financial position or results of operations.
8. STOCK OPTIONS (AS ADJUSTED FOR THE STOCK SPLIT (NOTE 9))
ln December 1995, stock options for 174,716 shares of Common Stock were
granted to various employees under the 1994 Stock Option Plan at an exercise
price of $10.72 per share. The stock options vest and become exercisable at
a rate of 25% per year over a four year period and expire ten years from the
date of grant. As of June 30, 1996, options to purchase an aggregate of
491,413 shares of Common Stock had been granted under the 1994 Plan. As of
June 30 1996, 79,173 stock options were exercisable under the 1994 Plan.
In May 1996, the Company adopted a stock option plan (the "1996 Plan"),
which provides for the grant of incentive stock options and nonqualifed stock
options to any full time employee of the Company under terms substantially
the same as the 1994 Plan. The maximum number of shares of Common Stock that
may be issued under the 1996 Plan is 57,812 shares. As of June 30, 1996,
options to purchase an aggregate of 21,723 shares had been granted at an
exercise price of $10.72 per share. As of June 30, 1996, no options were
exercisable under the 1996 Plan.
9. SUBSEQUENT EVENTS
On July 31,1996, the Board of Directors approved an amendment to the
Company's Certificate of Incorporation to effect a recapitalization of the
Company's Common Stock, pursuant to which the number of authorized shares of
the Company's Common Stock will be increased to 25,000,000 shares (the
"Recapitalization"). As part of the Recapitalization, the Board of Directors
approved a 115,740.74-for-1 stock split of the issued and outstanding shares
of Common Stock. The Recapitalization, including the stock split, will be
effective immediately prior to a contemplated initial public offering.
In addition, on July 31, 1996, the Board of Directors authorized,
subject to consummation of an initial public offering, an increase to the
number of available shares of Common Stock that may be issued under the 1996
Plan by 231,250 to 289,062.
On August 1, 1996, the Company filed a Registration Statement on Form
S-1 for an initial public offering (the "Offering") of 7,500,500 shares of
Common Stock. Of these shares, the Company is selling 1,718,750 shares and
the Company's sole shareholder is selling 5,781,250 shares. The Company
intends to use the proceeds of the Offering to repay the Revolver borrowings
and a portion of the term loan borrowings outstanding under the Amended
Credit Facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE INFORMATION)
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by (used in) operating activities of $18,353 and ($11,934)
for the nine months ended June 30, 1996 and 1995 consists of net income of
$2,786 and $2,555, respectively, after deducting non-cash charges of $13,544 and
$12,788 and net working capital changes of $2,023 and ($27,277) for each
respective period. Working capital requirement changes included reduced
inventory and accounts payable balances in 1996 resulting primarily from lower
inventory quantities and lower polypropylene costs, as well as increased
collections on accounts receivable. Working capital amounted to $66,800 and
$70,452 at June 30, 1996 and 1995, respectively.
The Company has planned $37,000 of capital expenditures during fiscal 1996
primarily to increase woven manufacturing capacity at its largest facility. Of
this amount, $30,439 has been spent through June 30, 1996, including a capital
lease to finance $5,000 of equipment. The Company expects to incur
approximately $35,000 of additional capital expenditures in each of fiscal 1997
and 1998, primarily to expand capacity and to continue to reduce manufacturing
costs, subject in each case to prevailing market conditions.
Polypropylene, the basic raw material used in the manufacture of
substantially all of the Company's products, accounts for approximately 50% of
all the Company's costs of goods sold. Based upon normal Company inventory
levels, changes in polypropylene costs generally affect the Company's results of
operations two or three months after the change occurs. Accordingly, as a
result of polypropylene price decreases in the first quarter of fiscal 1996, the
Company's effective cost of polypropylene began to decline in the second quarter
of fiscal 1996. This decrease in polypropylene costs, in part, accounted for
increased operating income in the third quarter of fiscal 1996 to $14,521 as
compared to $9,682 for the comparable period of fiscal 1995.
Polypropylene prices at June 30, 1996 increased approximately 16% from
March 31, 1996 levels. These polypropylene price increases are expected to be
offset by the Company's recently effected price increases for a majority of its
products. While the Company believes that the selling prices of its products
adjusts over time to reflect changes in polypropylene costs, 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.
The Company has not experienced a shortage of supply of polypropylene to
date. According to a June 1996 report by Chemical Data, Inc. ("Chem Data"), a
monthly petrochemical and plastics analysis publication, current annual
polypropylene capacity in the North America is 12.4 billion pounds per year, up
from 11.4 billion pounds at December 31, 1995. Total average annual capacity
will rise to 12.6 billion pounds per year for 1997 and 14.0 billion pounds per
year for 1998. Historically, the creation of additional capacity has helped to
relieve supply pressures although there can be no assurance that this will
continue to be the case. Chem Data also projects that polypropylene prices will
peak in the third calendar quarter of 1996 before beginning to decline in the
last three months of calendar 1996.
At June 30, 1996, the Company's total outstanding indebtedness amounted to
$204,205. Such indebtedness consists primarily of borrowings under the Credit
Facility of $58,014, $140,000 aggregate principal amount of the Debentures and
an outstanding capital lease obligation of $4,843 dated as of May 28, 1996.
Cash interest paid during the nine months ended June 30, 1996 and 1995 was
$21,125 and $21,079, respectively.
Based on current levels of operations and anticipated growth, the
Company's management expects cash from operations to provide sufficient cash
flow to satisfy the debt service requirements of its long-term obligations,
including interest thereon, permit anticipated capital expenditures and fund the
Company's working capital requirements.
On August 1, the Company filed a Registration Statement on Form S-1 for an
initial public offering (the "Offering") of 7,500,000 shares of Common Stock.
Of these shares, the Company is selling 1,718,750 shares and the Company's sole
stockholder is selling 5,781,250 shares. The Company intends to use the net
proceeds of the Offering to repay the Revolver borrowings and a portion of the
term loan borrowings outstanding under the Amended Credit Facility.
RESULTS OF OPERATIONS FOR THE THIRD QUARTER
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for the three months ended June 30, 1996 were a record
$82,843 for a quarterly period compared to $72,767 for the same period of
fiscal 1995, an increase of $10,076, or 13.8%. This increase was primarily due
to increased sales of carpet backing and construction and civil engineering
products. Carpet backing sales for the three months ended June 30, 1996 were
$37,487 compared to $34,441 for the same period of fiscal 1995, an increase of
$3,046 or 8.8%. This increase was primarily the result of higher unit volume in
primary and secondary carpet backing partially offset by lower average selling
prices from the prior period. Construction and civil engineering product sales
for the three months ended June 30, 1996 were $30,525 compared to $23,780 for
the same period of fiscal 1995, an increase of $6,745, or 28.4%. This increase
was primarily due to a 5.5% increase in sales of Fibermesh and a 51.1% increase
in sales of geotextile and erosion control products during the third quartr of
fiscal 1996 as compared to the same period in fiscal 1995. Technical textiles
sales for the three months ended June 30, 1996 were $14,831 compared to $14,546
for the same period of fiscal 1995, an increase of $285, or 2.0%, resulting
primarily from sales gains in the furniture and bedding markets.
Gross profit for the three months ended June 30, 1996 was $27,709 compared
to $21,900 for the same period of fiscal 1995, an increase of $5,809, or 26.5%.
As a percentage of sales, gross profit increased to 33.4% from 30.1%. This
increase was primarily due to increased sales volumes as well as lower average
polypropylene costs.
Selling expenses for the three months ended June 30, 1996 increased $680,
or 10.3%, to $7,307 as compared to $6,627 for the same period of fiscal 1995,
reflecting increased expenditures associated with higher sales volume as well as
increased marketing expenses related to the Company's expectation of higher
sales resulting from the completion of its capacity expansion program later this
year. As a percentage of sales, selling expenses decreased from 9.1% to 8.8%,
principally due to the significant increase in sales without a corresponding
increase in selling costs.
General and administrative expenses for the three months ended June 30,
1996 were $5,233 compared to $4,943 for the same period of fiscal 1995, an
increase of $290, or 5.9%, principally due to expenditures related to continued
improvements in the Company's Management Information Systems. As a percentage of
sales, general and administrative expenses decreased from 6.8% to 6.3%,
principally due to the increase in sales without a corresponding increase in
general and administrative expenses.
Operating income for the three months ended June 30, 1996 was $14,521
compared to $9,682 for the same period of fiscal 1995, an increase of $4,839 or
50%. As a percentage of sales, operating income increased to 17.5% from 13.3%.
This increase was primarily due to the factors discussed above.
Total interest expense for the three months ended June 30, 1996 was $5,863
compared to $5,846 for the same period of fiscal 1995, principally due to higher
average borrowings under the Credit Facility partially offset by lower effective
interest rates.
The effective income tax rate for the three months ended June 30, 1996 was
40.0% compared to 48.5% for the same period of 1995, principally due to the
effect of higher nondeductible expenses, including the amortization of goodwill,
on lower taxable income in fiscal 1995.
Net income for the three months ended June 30, 1996 was a record $5,093 for
a quarterly period compared to $1,879 for the same period of fiscal 1995, an
increase of $3,214, or 171%. This increase was primarily due to higher sales
volumes and lower average polypropylene costs.
RESULTS OF OPERATIONS FOR THE FIRST NINE MONTHS
Net sales for the nine months ended June 30, 1996 were $212,060
compared to $194,349 for the same period of fiscal 1995, an increase of $17,711,
or 9.1%. This increase was primarily due to increased sales of carpet backing
and construction and civil engineering products. Carpet backing sales for the
nine months ended June 30,1996 were $106,376 compared to $98,748 for the same
period of fiscal 1995, an increase of $7,628, or 7.7%. This increase was the
result of higher unit volume in primary and secondary carpet backing, partially
offset by lower average selling prices. Construction and civil engineering
product sales for the nine months ended June 30, 1996 were $64,981 compared to
$54,134 for the same period of fiscal 1995, an increase of $ 10,847 or 20%. This
increase was due to an increase in sales of geotextile and erosion control
fabrics of $10,771, or 41.9%, resulting primarily from nonwoven sales in the
landfill and roadway and building site markets. Technical textiles sales for the
nine months ended June 30, 1996 were $40,703 compared to $41,467 for the same
period of fiscal 1995, a decrease of $764, or 1.8%. This decrease was primarily
due to an adverse condition in the agricultural market that the Company serves
as well as the discontinuance of several product lines which did not meet the
Company's strategic and profitability objectives, partially offset by sales
increases in the furniture and bedding markets.
Gross profit for the nine months ended June 30, 1996 was $60,839
compared to $57,399 for the same period of fiscal 1995, an increase of $3,440,
or 6.0%. As a percentage of sales, gross profit decreased from 29.5% to 28.7%.
These results were primarily due to lower average carpet backing selling prices
and increased manufacturing costs associated with plant shutdowns due to the
winter ice storms in 1996.
Selling expenses for the nine months ended June 30, 1996 were $19,259
compared to $17,591 for the same period of fiscal 1995, an increase of $1,668,
or 9.5%. This increase was primarily due to increased expenditures associated
with higher sales volume as well as increased marketing expenses related to the
Company's expectation of higher sales resulting from the completion of its
capacity expansion program later this year. As a percentage of sales, selling
expenses remained constant at 9.1% of sales.
General and administrative expenses for the nine months ended June 30,
1996 were $16,024 compared to $14,453 for the same period of fiscal 1995, an
increase of $1,571, or 10.9%. As a percentage of sales, general and
administrative expenses increased from 7.4% to 7.6%. This increase was primarily
due to the increased marketing expenses related to the Company's expectation of
higher sales resulting from the completion of its capacity expansion program
later this year as well as an increased investment in the Company's Management
Information Systems.
Operating income for the nine months ended June 30, 1996 was $23,612
compared to $23,437 for the same period of fiscal 1995, an increase of $175, or
0.7%. As a percentage of sales, operating income decreased to 11.1% from 12.1%.
These changes were primarily due to the factors discussed above.
Total interest expense for the nine months ended June 30, 1996 was
$17,253 compared to $17,027 for the same period of fiscal 1995, an increase of
$226, or 1.3%. This increase was primarily due to higher average total
borrowings outstanding under the Credit Facility, partially offset by lower
interest rates.
The effective income tax rate for the nine months ended June 30, 1996
was 52.3% as compared to 56.4% for the same period of 1995, principally due to
the timing of certain nondeductible expense charges in 1995. Nondeductible
expense charges include the amortization of goodwill.
Net income for the nine months ended June 30, 1996 was $2,786 compared
to $2,555 for the same period of fiscal 1995, an increase of $231, or 9.0%. This
increase was primarily due to higher sales volumes, partially offset by lower
average selling prices, higher manufacturing costs associated with plant
shutdowns as a result of the winter ice storms in 1996 and increased selling,
general and administrative expenses in expectation of future sales growth.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. SFAS No. 121 is effective for
financial statements for fiscal years beginning after December 15, 1995;
therefore, the Company will adopt SFAS No. 121 in the first quarter of fiscal
1997 and, based on current circumstances, does not believe the effect of
adoption will be material.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" which will be effective for the Company beginning October 1, 1996.
SFAS No. 123 establishes financial accounting and reporting standards for stock-
based employee compensation plans. The company will account for stock-based
compensation awards under the provisions of Accounting Principles Board Opinion
No. 25, as permitted by SFAS No. 123. In accordance with SFAS No. 123,
beginning in the fiscal year ended September 30, 1997, the Company will make pro
forma disclosures relative to stock-based compensation as part of the
accompanying footnotes to the consolidated financial statements.
PART II - OTHER INFORMATION
ITEM 1. LITIGATION
In January 1995, an arbitration proceeding was initiated by Fibermesh
(Suisse) S.A. against the Company, in the United States, alleging a breach by
the Company of an exclusive distribution agreement of Fibermesh(c) in
Switzerland and claiming actual damages of 6,104,000 Swiss Francs ($4,900 at
June 30, 1996) and punitive damages of $20,000. The Company believes that it
has meritorious defenses to all claims in the action and that the ultimate
resolution will not have a materially adverse effect on the Company's
financial position or results of operations.
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 1, 1996
By: /s/ Joseph Sinicropi
Joseph Sinicropi
Chief Financial Officer
Dated: August 1, 1996
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