<PAGE> 1
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, 1997
-----------------
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 the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, 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
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Outstanding at
Class May 9, 1997
- ----------------------------- ---------------
Common Stock, $1.00 par value 8,656,250
<PAGE> 2
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
ASSETS 1997 1996
---------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,190 $ 101
Accounts receivable, net of allowance for
doubtful accounts of $3,461 and $3,036 . . . . . . . . . . . . . . . . . . . 50,645 48,165
Inventory (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,006 39,142
Other current assets (Note 4) . . . . . . . . . . . . . . . . . . . . . . . 19,143 14,655
-------- --------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,984 102,063
PROPERTY, PLANT AND EQUIPMENT, net (Note 5) . . . . . . . . . . . . . . . . . 154,629 137,974
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,165 84,021
-------- --------
$370,778 $324,058
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,686 $ 20,227
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . 10,345 9,669
Income taxes payable (Note 7) . . . . . . . . . . . . . . . . . . . . . . . - 1,407
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,388 6,024
Current maturities of long-term debt (Note 6) . . . . . . . . . . . . . . . 688 659
-------- --------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 42,107 37,986
LONG-TERM DEBT (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,029 194,353
DEFERRED INCOME TAXES (Note 7) . . . . . . . . . . . . . . . . . . . . . . . 25,875 25,875
-------- --------
STOCKHOLDERS' EQUITY:
Common stock (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,656 5,781
Additional paid-in capital (Note 8) . . . . . . . . . . . . . . . . . . . . 94,325 63,519
Cumulative translation adjustments . . . . . . . . . . . . . . . . . . . . . 143 15
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,357) (3,471)
-------- --------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . 90,767 65,844
-------- --------
$370,778 $324,058
======== ========
</TABLE>
See notes to consolidated financial statements
F-1
<PAGE> 3
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
1997 1996 1997 1996
--------- -------- -------- --------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . $ 75,358 $ 64,609 $146,215 $129,217
--------- -------- -------- --------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . 51,123 46,170 101,166 96,087
Selling expenses . . . . . . . . . . . . . . . . . . . 7,246 6,236 14,184 11,952
General and administrative expenses . . . . . . . . . 7,010 5,820 12,891 10,791
Amortization of excess purchase price over net
assets acquired and other intangibles . . . . . . . 648 648 1,296 1,296
--------- -------- -------- --------
66,027 58,874 129,537 120,126
--------- -------- -------- --------
Operating income . . . . . . . . . . . . . . . . . . . 9,331 5,735 16,678 9,091
--------- -------- -------- --------
Other expenses:
Interest expense . . . . . . . . . . . . . . . . . . 5,365 5,710 10,775 11,390
Amortization of deferred financing costs . . . . . . . 163 175 339 348
--------- -------- -------- --------
5,528 5,885 11,114 11,738
--------- -------- -------- --------
Income (loss) before income tax provision (benefit)
and extraordinary item . . . . . . . . . . . . . . . . 3,803 (150) 5,564 (2,647)
Income tax provision (benefit)
(Note 7) . . . . . . . . . . . . . . . . . . . . . . . 1,643 260 2,500 (340)
--------- -------- -------- --------
Income (loss) before extraordinary item . . . . . . . . 2,160 (410) 3,064 (2,307)
Extraordinary item - Loss from early
extinguishment of debt (net of tax
benefit of $7,481) . . . . . . . . . . . . . . . . . . 11,950 - 11,950 -
--------- -------- -------- --------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . $ (9,790) $ (410) $ (8,886) $ (2,307)
========= ======== ======== ========
Net Income (loss) per share before
extraordinary item . . . . . . . . . . . . . . . . . . $ 0.24 $ (0.07) $ 0.36 $ (0.39)
Extraordinary loss per share . . . . . . . . . . . . . $ (1.33) $ - $ (1.42) $ -
--------- -------- -------- --------
Net loss per share . . . . . . . . . . . . . . . . . . $ (1.09) $ (0.07) $ (1.06) $ (0.39)
========= ======== ======== ========
Weighted average shares outstanding . . . . . . . . . . 8,957,155 5,930,502 8,413,922 5,930,502
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE> 4
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before extraordinary item . . . . . . . . . . . $ 3,064 $ (2,307)
Adjustments to reconcile net (loss) income
to net cash provided by (used in) operations:
Depreciation and amortization of deferred financing and
organization costs and intangibles . . . . . . . . . . . . . . . 9,027 8,031
Provision for bad debts . . . . . . . . . . . . . . . . . . . . . 141 109
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 3,110 (490)
Change in assets and liabilities, net of acquisition:
Decrease in accounts receivable . . . . . . . . . . . . . . . . . 58 4,697
(Increase) decrease in inventory . . . . . . . . . . . . . . . . . (20,501) 4,287
Decrease in other current assets . . . . . . . . . . . . . . . . . 577 900
Increase (decrease) in accounts payable . . . . . . . . . . . . . 8,459 (3,110)
Increase (decrease) in accrued expenses and other
current liabilities . . . . . . . . . . . . . . . . . . . . . . . 200 (397)
Decrease in income taxes payable . . . . . . . . . . . . . . . . . (1,407) (1,207)
Decrease in interest payable . . . . . . . . . . . . . . . . . . . (3,636) (375)
---------- ----------
Cash (used in) provided by operating activities . . . . . . . . . (908) 10,138
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment . . . . . . . . . . . . (18,909) (13,650)
Investment in business (Note 9) . . . . . . . . . . . . . . . . . (9,354) -
---------- ----------
Cash used in investing activities . . . . . . . . . . . . . . . . (28,263) (13,650)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan . . . . . . . . . . . . . . . . . . . . - 19,500
Repayments under term loan . . . . . . . . . . . . . . . . . . . . (20,000) (500)
Net borrowings (repayments) under revolving credit line . . . . . 625 (15,176)
Issuance of 9 1/4% Senior subordinated debentures . . . . . . . . 170,000 -
Redemption of 12 3/4% Senior subordinated debentures . . . . . . . (132,597) -
Repayment costs on early extinguishment of debt . . . . . . . . . (15,920) -
Proceeds from underwritten public offering . . . . . . . . . . . . 33,681 -
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . (5,290) (98)
Repayments of capital lease obligation and other long term debt . (323) (19)
---------- ----------
Cash provided by financing activities . . . . . . . . . . . . . . 30,176 3,707
Effect of exchange rate changes on cash . . . . . . . . . . . . . 84 (37)
---------- ----------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . 1,089 158
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 101 108
---------- ----------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 1,190 $ 266
========== ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,411 $ 11,765
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 797 1,387
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 5
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE
PERIODS ENDING MARCH 31, 1997 AND 1996 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
manufactures and sells more than 2,000 products in over 65 end-use markets
predominately in North America, Europe and the Far East. Prior to November 1,
1996, the Company was a wholly owned subsidiary of Synthetic Industries L.P. As
a result of the underwritten public offering (Note 8) on November 1, 1996,
Synthetic Industries L.P. owns approximately 67% of the Company's outstanding
common stock as of March 31, 1997.
2. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of March 31, 1997 and for the periods
ended March 31, 1997 and 1996 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, 1997 and 1996, 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. 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 Annual Report on Form 10-K for the fiscal year ended September
30, 1996. Operating results for the three and six months ended March 31, 1997
may not necessarily be indicative of the results that may be expected for the
full year.
1
<PAGE> 6
3. INVENTORY
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Finished goods . . . . . . . . . . . $35,381 $22,555
Work in process . . . . . . . . . . 9,854 7,937
Raw materials . . . . . . . . . . . 15,771 8,650
------- -------
$61,006 $39,142
======= =======
</TABLE>
4. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Prepaid supplies . . . . . . . . . . $ 9,288 $ 8,283
Deferred tax assets . . . . . . . . 9,136 4,765
Other . . . . . . . . . . . . . . . 719 1,607
------- -------
$19,143 $14,655
======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . $ 4,458 $ 4,458
Buildings and improvements . . . . . 29,298 29,298
Machinery and equipment and
leasehold improvements . . . . . . 203,433 179,386
-------- --------
237,189 213,142
Accumulated depreciation . . . . . . 82,560 75,168
-------- --------
$154,629 $137,974
======== ========
</TABLE>
2
<PAGE> 7
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
----------- -------------
<S> <C> <C>
Secured revolving credit facility
Secured revolving credit portion . . . $ 4,618 $ 3,993
Term loan portion . . . . . . . . . . . 25,000 45,000
9 1/4% Senior Subordinated
Notes, due 2007 . . . . . . . . . . . 170,000 -
12 3/4% Senior Subordinated
Debentures, due 2002 . . . . . . . . . 7,403 140,000
Capital lease obligation . . . . . . . . . 4,397 4,698
Other . . . . . . . . . . . . . . . . . . . 1,299 1,321
---------- -----
212,717 195,012
Less current portion . . . . . . . . . . . 688 659
---------- ----
Total long term portion . . . . . . . . . . $ 212,029 $ 194,353
========== ==========
</TABLE>
On February 11, 1997, the Company issued $170,000 in aggregate
principal amount of 9 1/4% Senior Subordinated Notes due 2007 (the
"Notes"), which represent unsecured obligations of the Company. The
Notes are redeemable at the option of the Company at any time on or
after February 15, 2002, initially at 104.625% of their amount,
together with accrued interest, with declining redemption prices
thereafter. Interest on the Notes is payable semi-annually on February
15 and August 15.
In connection with the issuance of the Notes, the Company redeemed
approximately $133,000 principal amount of its 12 3/4% Senior
Subordinated Debentures due 2002 (the "Debentures") at a redemption
price of 111.07% of the principal amount thereof. In addition, the
Company repaid $20,000 of its outstanding term loan borrowings as of
March 5, 1997. In connection with the early extinguishment of debt,
the Company recorded an extraordinary loss of $11,950 (representing
call premium and prepayment fees of $15,920 and write off of deferred
financing costs of $3,511, net of an income tax benefit of $7,481)
during the second quarter of fiscal 1997.
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 1, 2001, provided for potential
borrowing capacity of up to $85,000 being comprised of term loan
borrowings of $45,000 and a revolving credit loan portion (the
"Revolver") of $40,000. The term loan balance at March 31, 1997, was
$25,000, of which $10,000 is payable in 1999 and $15,000 is payable in
2000. 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 and reserves. These
reserves include outstanding letters of credit of $1,100 and the
remaining balance due under the Debentures of $7,400. Accordingly, at
March 31, 1997, availability under the Revolver is $19,051.
3
<PAGE> 8
7. INCOME TAXES
The provision for income taxes before extraordinary item in the
consolidated statements of operations reflects the effective tax rate of
43% and 45% for the three and six months ended March 31, 1997.
This provision reflects 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 consolidated statements of
operations.
8. UNDERWRITTEN PUBLIC OFFERING
On November 1, 1996, the Company sold 2,875,000 shares of Common Stock in
an underwritten public offering. The net proceeds to the Company from the
sale (after payment of underwriting discounts and expenses) were
approximately $34,000.
9. BUSINESS ACQUISITION
On February 27, 1997, the Company acquired certain assets of the Spartan
Technologies division of Spartan Mills for approximately $9,400. The assets
will be used primarily in the manufacturing of nonwoven fabrics used in the
geotextile and furniture and bedding markets. The acquisition has been
accounted for using the purchase method of accounting, and, accordingly,
the purchase price has been allocated to the net assets acquired (accounts
receivable, inventory, and property, plant and equipment) based upon the
fair market value (which approximates cost) at the date of acquisition. The
operating results of the acquired business have been included in the
consolidated statement of operations from the date of acquisition.
4
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
LIQUIDITY AND CAPITAL RESOURCES
To finance its capital expenditure program and fund its operational needs,
the Company has relied upon cash provided by operations, supplemented as
necessary by bank lines of credit and long-term indebtedness. Cash used in
operating activities for the six months ended March 31, 1997, was $908
primarily as a result of an increase in inventory of $20,501, due to seasonal
buildups, financed principally through income before extraordinary item of
$3,064 and noncash charges of $12,278, as well as an increase in accounts
payable of $8,459.
On November 1, 1996, the Company received net proceeds of approximately
$34,000 (after payment of underwriting discounts and commissions and expenses)
from the sale of 2,875,000 shares of Common Stock in an underwritten public
offering. These proceeds, together with the proceeds received from the February
11, 1997 issuance of $170,000 in aggregate principal amount of the Company's 9
1/4% Senior Subordinated Notes due February 15, 2007 (the "Notes"), were
utilized primarily to retire approximately $133,000 of the Company's 12 3/4%
Senior Subordinated Debentures due 2002 (the "Debentures"), pay the related
prepayment costs and fees associated with the refinancing of $15,920 and to
repay $20,000 of certain outstanding indebtedness under the Company's Fourth
Amended and Restated Revolving Credit and Security Agreement, dated as of
October 20, 1995, as subsequently amended, among the Company, the lenders party
thereto and The First National Bank of Boston, as agent (the "Amended Credit
Facility"). In connection therewith, the Company recorded an extraordinary loss
of $11,950 net of tax benefit of $7,481.
These net proceeds were also utilized to invest in capital expenditures of
$18,909 and to acquire certain assets of the Spartan Technologies division of
Spartan Mills for approximately $9,400. Additional capital expenditures planned
for fiscal 1997 are approximately $31,000, primarily to expand the capacity of
the Company's manufacturing facilities, subject to prevailing market
conditions.
The Amended Credit Facility, with a termination date of October 1, 2001,
provides for potential borrowing capacity of up to $85,000 being comprised of
term loan borrowings of $45,000 and a revolving credit loan portion (the
"Revolver") of $40,000. The term loan balance at March 31, 1997, was $25,000,
of which $10,000 is payable in 1999 and $15,000 is payable in 2000. 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 and reserves. These reserves include outstanding letters of
credit of $1,100 and the remaining balance due under the Debentures of $7,400.
Accordingly, at March 31, 1997, availability under the Revolver is $19,051. The
Company is currently in the process of renegotiating the Amended Credit
Facility, primarily to increase borrowing flexibility and extend the term which
is due to expire on October 1, 2001.
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 the Company's long-term debt
obligations, including the Amended Credit
5
<PAGE> 10
Facility and lease agreements, permit anticipated capital expenditures and fund
the Company's working capital requirements for the next twelve months.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships to net sales of
certain income statement items for the three and six months ended March 31,
1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . 100.0% 100.0% 100 .0% 100.0%
Cost of sales . . . . . . . . . . . . . 67.8 71.5 69.2 74.4
---- ---- ---- ----
Gross profit . . . . . . . . . . . . . 32.2 28.5 30.8 25.6
Selling expenses . . . . . . . . . . . 9.6 9.7 9.7 9.3
General and administrative
expenses . . . . . . . . . . . . . . . 9.3 9.0 8.8 8.4
Amortization of intangibles . . . . . . 0.9 1.0 0.9 1.0
--- --- ---- ---
Operating income . . . . . . . . . . . 12.4 8.8 11.4 6.9
Interest expense . . . . . . . . . . . 7.1 8.8 7.4 8.8
Amortization of deferred
financing costs . . . . . . . . . . . 0.2 0.3 0.2 0.3
--- --- ---- ---
Income (loss) before
provision for taxes and
extraordinary item . . . . . . . . . . 5.1 (0.3) 3.8 (2.2)
Provision (benefit) for
income taxes . . . . . . . . . . . . . 2.2 0.4 1.7 (0.3)
--- --- ---- -----
Income (loss) before
extraordinary item . . . . . . . . . . 2.9% (0.7%) 2.1% (1.9%)
==== ====== ===== ======
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31
Net sales for the quarter ended March 31, 1997 were $75,358 compared to
$64,609 for the same period of fiscal 1996, an increase of $10,749, or 16.6%.
Carpet backing sales for the quarter ended March 31, 1997 were $40,206 compared
to $35,336 for the same period of fiscal 1996, an increase of $4,870, or 13.8%.
Construction and civil engineering product sales for the quarter ended March
31, 1997 were $19,675 compared to $15,056 for the same period of fiscal 1996,
an increase of $4,619, or 30.7%. Technical textiles sales for the quarter ended
March 31, 1997 were $15,477 compared to $14,217 for fiscal 1996, an increase of
$1,260, or 8.9%.
Gross profit for the quarter ended March 31, 1997 was $24,235 compared to
$18,439 for the same period of fiscal 1996, an increase of $5,796, or 31.4%. As
a percentage of sales, gross profit increased to 32.2% from 28.5%. This
increase was primarily due to increased sales volume and lower average
polypropylene costs.
6
<PAGE> 11
Polypropylene is the basic raw material used in the manufacture of
substantially all of the Company's products, accounting for approximately 50%
of the Company's cost of goods sold. The Company believes that the selling
prices of its products have adjusted over time to reflect changes in
polypropylene prices. Higher prices of polypropylene, however, without
offsetting selling price increases could have a significant negative effect on
the Company's results of operations and financial condition. Due to the level
of competition, the Company, historically, 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, continuous increases in demand or major supply disruptions without
offsetting increases in manufacturing capacities could cause future supply
shortages.
Selling expenses for the quarter ended March 31, 1997 were $7,246 compared
to $6,236 for the same period of fiscal 1996, an increase of $1,010, or 16.2%.
This increase was primarily due to increased expenditures associated with
higher sales volume as well as increased marketing expenses. These expenses are
related to the Company's expectation of higher sales in fiscal 1997 resulting
from the completion of the fiscal 1996 capacity expansion program. As a
percentage of sales, selling expenses decreased from 9.7% to 9.6%.
General and administrative expenses for the quarter ended March 31, 1997
were $7,010 compared to $5,820 for the same period of fiscal 1996, an increase
of $1,190, or 20.4%. As a percentage of sales, general and administrative
expenses increased from 9.0% to 9.3%. The increase in general and
administrative expenses was primarily due to infrastructure expenditures, which
included an increased investment in the Company's Management Information
System, to support anticipated Company growth.
Operating income for the second quarter of fiscal 1997 was $9,331 as
compared to $5,735 for the same period of fiscal 1996, an increase of $3,596,
or 62.7%. As a percentage of sales, operating income increased to 12.4% in
fiscal 1997 from 8.8% in fiscal 1996. This increase was primarily due to higher
sales volumes and lower average raw material costs offset by slightly increased
general and administrative costs.
Interest expense for the second quarter of fiscal 1997 was $5,365 compared
to $5,710 for the same period of fiscal 1996, a decrease of $345, or 6.0%, due
to interest income of $223 as well as a lower interest rate on the outstanding
debt and the prepayment of the Credit Facility.
The effective income tax rate before the effect of extraordinary items for
the three months ended March 31, 1997 was 43%, due primarily to the effect of
nondeductible expenses, including the amortization of goodwill, on taxable
income in fiscal 1997.
Income before extraordinary loss for the second quarter of fiscal 1997 was
$2,160 compared to net loss of $410 for the second quarter of fiscal 1996, an
increase of $2,570. Earnings before interest, taxes, depreciation and
amortization ("EBITDA")(1) for the second quarter of fiscal 1997 were $13,715
compared to $9,584 for the second quarter of fiscal 1996, an increase of
$4,131, or 43.1%. The increase in net income, as well as EBITDA, was primarily
- --------------------
(1) The Company believes that EBITDA is helpful in understanding cash flow from
operations that is available for debt service, taxes and capital expenditures.
EBITDA is not a concept recognized with generally accepted accounting
principles and is not a substitute for operating income, net income or cash
flows from operating activities.
7
<PAGE> 12
due to higher sales volumes and lower average raw material costs offset by
slightly increased general and administrative costs.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31
Net sales for the six months ended March 31, 1997 were $146,215 compared to
$129,217 for the same period of fiscal 1996, an increase of $16,998, or 13.2%.
Carpet backing sales for the six months ended March 31, 1997 were $77,128
compared to $68,889 for the same period of fiscal 1996, an increase of $8,239,
or 12.0%. Construction and civil engineering product sales for the six months
ended March 31, 1997 were $40,747 compared to $34,456 for the same period of
fiscal 1996, an increase of $6,291, or 18.3%. Technical textiles sales for the
six months ended March 31, 1997 were $28,340 compared to $25,872 for fiscal
1996, an increase of $2,468, or 9.5%.
Gross profit for the six months ended March 31, 1997 was $45,049 compared
to $33,130 for the same period of fiscal 1996, an increase of $11,919, or
36.0%. As a percentage of sales, gross profit increased to 30.8% from 25.6%.
This increase was primarily due to increased sales volume and lower average
polypropylene costs.
Selling expenses for the six months ended March 31, 1997 were $14,184
compared to $11,952 for the same period of fiscal 1996, an increase of $2,232,
or 18.7%. This increase was primarily due to increased expenditures associated
with higher sales volume as well as increased marketing expenses. These
expenses are related to the Company's expectation of higher sales in fiscal
1997 resulting from the completion of the fiscal 1996 capacity expansion
program. As a percentage of sales, selling expenses increased from 9.3% to
9.7%.
General and administrative expenses for the six months ended March 31, 1997
were $12,891 compared to $10,791 for the same period of fiscal 1996, an
increase of $2,100, or 19.5%. As a percentage of sales, general and
administrative expenses increased from 8.4% to 8.8%. The increase in general
and administrative expenses was primarily due to infrastructure expenditures,
which included an increased investment in the Company's Management Information
System, to support anticipated Company growth.
Operating income for the first six months of fiscal 1997 was $16,678 as
compared to $9,091 for the same period of fiscal 1996, an increase of $7,587,
or 83.5%. As a percentage of sales, operating income increased to 11.4% in
fiscal 1997 from 6.9% in fiscal 1996. This was primarily due to higher sales
volumes and lower average raw material costs offset by slightly increased
selling and general and administrative costs.
Interest expense for the first six months of fiscal 1997 was $10,775
compared to $11,390 for the same period of fiscal 1996, a decrease of $615, or
5.4%, due to interest income of $395 as well as a lower interest rate on the
outstanding debt and the prepayment of the Credit Facility.
The effective income tax rate before the effect of the extraordinary item
for the six months ended March 31, 1997 was 45% due primarily to the effect of
nondeductible expenses, including the amortization of goodwill, on taxable
income in fiscal 1997.
8
<PAGE> 13
Income before extraordinary loss for the six months ended March 31, 1997,
was $3,064 compared to net loss of $2,307 for the same period of fiscal 1996,
an increase of $5,371. EBITDA for the first six months of fiscal 1997 were
$25,366 compared to $16,774 for the first six months of fiscal 1996, an
increase of $8,592, or 51.2%. The increase in net income, as well as EBITDA,
was primarily due to higher sales volumes and lower average raw material costs
offset by slightly increased selling and general and administrative costs.
RECENT ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" which is effective for the Company's fiscal year ending September
30, 1997. 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 APB Opinion No. 25, as
permitted by SFAS No. 123. In accordance with SFAS No. 123, beginning in the
fiscal year ending September 30, 1997, the Company will make pro forma
disclosures relative to stock-based compensation as part of the accompanying
footnotes to the consolidated statements of operations.
9
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(1) 2.1 Acquisition Agreement dated November 21, 1986 between
Synthetic Industries, Inc., Synthetic Industries Limited,
Polyweave Corporation, the shareholders of Synthetic
Industries, Inc., Synthetic Industries Limited and SI
Holding Inc. including exhibits thereto.
(1) 2.2 Plan and Agreement of Merger dated December 4, 1986.
(2) 2.3 Asset Purchase Agreement dated October 12, 1990
between Synthetic Industries, Inc. and Chicopee.
(10) 3.1 Certificate of Incorporation of Synthetic Industries,
Inc. (including all amendments to date) filed with the
Secretary of the State of Delaware.
(10) 3.2 Amended and Restated By-Laws of Synthetic Industries,
Inc. (including all amendments to date).
(4) 4.1 Form of Indenture between Synthetic Industries, Inc.
and United States Trust Company of New York, Trustee, in
respect to the 12-3/4% Senior Subordinated Debentures due
2002.
(9) 4.2 Supplemental Form of Indenture between Synthetic
Industries, Inc. and United States Trust Company of New
York, Trustee, in respect to the 12-3/4% Senior
Subordinated Debentures due 2002.
(9) 10.1 Fourth Amended and Restated Revolving Credit and
Security Agreement dated as of October 20, 1995 among
Synthetic Industries, Inc., The First National Bank of
Boston and other Lenders listed on Schedule I thereto, and
The First National Bank of Boston, as agent on behalf of
the Lenders.
(9) 10.2 Amendment No. 1 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
December 1, 1995
(11) 10.3 Amendment No. 2 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
December 1, 1995
(9) 10.4 Amendment No. 3 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
December 1, 1995
(2) 10.5 US Patent No. 4,867,614, Reinforced Soil and Method
(Exp. December 13, 2003).
(2) 10.6 US Patent No. 4,790,691, Fiber Reinforced Soil and
Method (Exp. December 13, 2003).
(2) 10.7 US Patent No. 5,007,766, Shaped Barrier for Erosion
Control and Sediment Collection (Exp. April 16, 2008).
10
<PAGE> 15
(1) 10.8 Lease agreement dated November 22, 1971 between
Murray Sobel and Synthetic Industries, Inc. (including
all amendments to date).
(1) 10.9 Lease agreement dated February 13, 1969, between
Murray Sobel and wife, Marcela S. Sobel, and Joseph F.
Decosimo, Frank M. Thompson and Murray Sobel, Trustees and
Synthetic Industries, Inc. (including all amendments to
date).
(2) 10.10 Lease agreement dated December 17, 1990 between
Chicopee and Synthetic Industries, Inc.
(2) 10.11 Lease agreement dated January 17, 1991 between
Herchel L. Webster and Allie Ree Webster and Synthetic
Industries, Inc. (the "Lumite Lease").
(6) 10.12 Amendment to the Lumite Lease dated October 1, 1992.
(2) 10.13 Consulting Agreement dated July 23, 1991 between
Texpro Limitada y Cia S.C.A. and Synthetic Industries,
Limited.
(7) 10.14 Supply Contract between Eastman Chemical Products,
Inc. and Synthetic Industries, Inc. dated December 13,
1991.
(13) 10.15 Agreement dated September 6, 1996 between Leonard
Chill and Synthetic Industries, Inc.
(13) 10.16 Agreement dated September 6, 1996 between W. Wayne
Freed and Synthetic Industries, Inc.
(13) 10.17 Agreement dated September 6, 1996 between Ralph A.
Kenner and Synthetic Industries, Inc.
(13) 10.18 Agreement dated September 6, 1996 between Gardner
Wright, Jr. and Synthetic Industries, Inc.
(13) 10.19 Agreement dated September 6, 1996 between John M.
Long and Synthetic Industries, Inc.
(13) 10.20 Agreement dated September 6, 1996 between Charles T.
Koerner and Synthetic Industries, Inc.
(2) 10.21 Agreement dated September 6, 1996 between Robert J.
Breyley, Sr. and Fibermesh Company.
(13) 10.22 Agreement dated September 6, 1996 between Joseph
Sinicropi and Synthetic Industries, Inc.
(13) 10.23 Agreement dated September 6, 1996 between W.O.
Falkenberry and Synthetic Industries, Inc.
(13) 10.24 Agreement dated September 6, 1996 between Bobby
Callahan and Synthetic Industries, Inc.
(8) 10.25 1994 Stock Option Plan for Non-Employee Directors
11
<PAGE> 16
(8) 10.26 1994 Stock Option Plan
(11) 10.27 1996 Stock Option Plan
(11) 10.28 Incentive Compensation Plan Fiscal Year 1994/1995
(11) 10.29 Incentive Compensation Plan Fiscal Year 1995/1996
(12) 10.30 Form of Registration Rights Agreement between
Synthetic Industries, L.P. and Synthetic Industries, Inc.
dated as of October 31, 1996.
(13) 10.31 Amendment No. 4 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
September 27, 1996.
(14) 10.32 Amendment No. 5 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
October 28, 1996.
(15) 10.33 Amendment No. 6 to the Fourth Amended and Restated
Revolving Credit and Security Agreement dated as of
January 29, 1997.
27. Financial Data Schedule
- --------------
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-1 (33-11479) as filed with the Securities and Exchange Commission
on January 23, 1987 and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form
S-1 (33-51206) as filed with the Securities and Exchange Commission
on August 24, 1992 and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993 and incorporated herein by
reference.
(4) Filed as an exhibit to the Company's Amendment No. 3 to the
Registration on Form S-1 (33-51206) as filed with the Securities and
Exchange Commission on December 4, 1992 and incorporated herein by
reference.
(5) Filed as an exhibit to the Partnership's Registration Statement on
Form 10 (0-21548) as filed with the Securities and Exchange
Commission on April 16, 1993 and incorporated herein by reference.
(6) Filed as an exhibit to the Partnership's Amendment No. 1 to the
Registration Statement on Form 10 (0-21548) as filed with the
Securities and Exchange Commission on August 10, 1993 and
incorporated herein by reference.
(7) Pursuant to an order dated October 19, 1992, the Securities and
Exchange Commission granted confidential treatment with respect to
certain portions of this exhibit under Rule 406 of the Securities
Act of 1933, as amended.
(8) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1994 and incorporated herein by
reference.
12
<PAGE> 17
(9) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1995 and incorporated herein by
reference.
(10) Filed as an exhibit to the Company's Registration Statement on Form
8-A (0-12357) as filed with the Securities and Exchange Commission
on October 24, 1996 and incorporated herein by reference.
(11) Filed as an exhibit to the Company's Registration Statement on Form
S-1 (333-09377) as filed with the Securities and Exchange Commission
on August 1, 1996 and incorporated herein by reference.
(12) Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (333-09377) as filed with the Securities and
Exchange Commission on September 13, 1996 and incorporated herein by
reference.
(13) Filed as an exhibit to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (333-09377) as filed with the Securities and
Exchange Commission on October 2, 1996 and incorporated herein by
reference.
(14) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996 and incorporated herein by
reference.
(15) Filed as an exhibit to the Company's Annual Report on Form 10-Q for
the quarter ended December 31, 1996 and incorporated herein by
reference.
(b) Reports of Form 8-K
The Company filed a Current Report of Form 8-K on January 14, 1997, reporting
the January 8, 1997 commencement of a tender offer to purchase for cash any and
all of its Debentures, and a solicitation of consents to amend the indenture
pursuant to which the Debentures were issued. The Company also filed a Current
Report on Form 8-K on February 13, 1997 reporting the February 11, 1997
issuance of $170,000 aggregate principal amount of the Notes pursuant to Rule
144A under the Securities Act of 1933, as amended.
13
<PAGE> 18
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 9, 1997
By: /s/ Joseph Sinicropi
---------------------------
Joseph Sinicropi
Chief Financial Officer
Dated: May 9, 1997
14
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,190
<SECURITIES> 0
<RECEIVABLES> 50,645
<ALLOWANCES> 3,461
<INVENTORY> 61,006
<CURRENT-ASSETS> 131,984
<PP&E> 237,189
<DEPRECIATION> 82,560
<TOTAL-ASSETS> 370,778
<CURRENT-LIABILITIES> 42,107
<BONDS> 212,029
0
0
<COMMON> 8,656
<OTHER-SE> 82,111
<TOTAL-LIABILITY-AND-EQUITY> 370,778
<SALES> 146,215
<TOTAL-REVENUES> 146,215
<CGS> 101,166
<TOTAL-COSTS> 129,537
<OTHER-EXPENSES> 11,114
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,775
<INCOME-PRETAX> 5,564
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 3,064
<DISCONTINUED> 0
<EXTRAORDINARY> 11,950
<CHANGES> 0
<NET-INCOME> (8,886)
<EPS-PRIMARY> 0
<EPS-DILUTED> (1.06)
</TABLE>
