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, 1997
Commission File Number 0-21548
SYNTHETIC INDUSTRIES L.P.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3397585
- -------------------------------- --------------------------- ------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
309 LaFayette Road, Chickamauga, Georgia 30707
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(Address of principal executive offices) (Zip Code)
(706) 375-3121
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(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____
<PAGE>
Part I-FINANCIAL INFORMATION SYNTHETIC INDUSTRIES L.P.
Item 1. Financial Information AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except unit information)
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1997 1996
---- -----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................................................$ 501 $ 103
Accounts receivable, net of allowance for
doubtful accounts of $3,478 and $3,036......................................... 57,254 47,861
Inventory (Note 3)............................................................... 58,470 39,142
Other current assets ............................................................ 13,386 14,655
------- -------
TOTAL CURRENT ASSETS......................................................... 129,611 101,761
PROPERTY, PLANT AND EQUIPMENT, net (Note 4)........................................ 167,111 137,974
OTHER ASSETS....................................................................... 83,617 84,021
------ -------
$380,339 $323,756
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable................................................................ $ 29,734 $ 20,227
Accrued expenses and other current liabilities................................... 10,851 10,026
Income taxes payable ............................................................ 15 1,407
Interest payable................................................................. 6,089 6,024
Current maturities of long-term debt (Note 5).................................... 703 659
-------- ---------
TOTAL CURRENT LIABILITIES..................................................... 47,392 38,343
LONG-TERM DEBT (Note 5)............................................................ 209,356 194,353
DEFERRED INCOME TAXES ............................................................. 25,875 25,875
MINORITY INTEREST IN SUBSIDIARY ................................................... 32,697 -
PARTNERS' CAPITAL:
General Partner's Equity......................................................... 988 649
Limited Partners' Equity, 800 Units issued and outstanding....................... 64,031 64,536
-------- -------
TOTAL PARTNERS' CAPITAL...................................................... 65,019 65,185
-------- --------
$380,339 $323,756
</TABLE>
See notes to consolidated financial statements
<PAGE>
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except limited partnership units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
1997 1996 1997 1996
------ ----- ---- -----
<S> <C> <C> <C> <C>
Net sales................................................... $ 99,112 $ 82,843 $245,327 $212,060
-------- -------- -------- --------
Costs and expenses:
Cost of sales............................................. 65,762 55,134 166,928 151,221
Selling expenses.......................................... 8,296 7,307 22,480 19,259
General and administrative expenses....................... 6,695 5,233 19,541 16,024
Amortization of excess purchase price over net
assets acquired and other intangibles................... 648 648 1,944 1,944
-------- ------- -------- --------
81,401 68,322 210,893 188,448
------- ------- --------- --------
Operating income...................................... 17,711 14,521 34,434 23,612
------- -------- -------- ---------
Other expenses:
Interest expense ......................................... 4,947 5,863 15,722 17,253
Amortization of deferred financing costs.................. 150 175 489 523
------- ------ -------- -------
............................................................ 5,097 6,038 16,211 17,776
------- ------- -------- -------
Income before income tax provision,
minority interest in subsidiary net (income) loss,
and extraordinary item.................................. 12,614 8,483 18,223 5,836
Income tax provision (Note 6)............................... 5,050 3,390 7,550 3,050
--------- -------- ----------- ---------
Income before minority interest in
subsidiary net (income) loss and extraordinary item.... 7,564 5,093 10,673 2,786
Minority interest in subsidiary
net (income) loss (note 10)............................ (2,549) - 581 -
--------- ----------- -------- -----------
Income before extraordinary item............................ 5,015 5,093 11,254 2,786
Extraordinary item - Loss from early extinguishment of
debt (net of tax benefit of $7,481).................... - - 11,950 -
------------ ----------- -------- ----------
NET INCOME (LOSS)........................................... $ 5,015 $ 5,093 $ (696) $ 2,786
========= ========== ========== ========
NET INCOME (LOSS) ATTRIBUTABLE TO:
General Partner........................................ $ 50 $ 51 $ (7)$ 28
Limited Partners....................................... 4,965 5,042 (689) 2,758
--------- -------- -------- --------
$ 5,015 $ 5,093 $ (696) $ 2,786
========== ======== ========== =========
NET INCOME (LOSS) PER
LIMITED PARTNERSHIP UNIT $ 6.21 $ 6.30 $ (.86) $ 3.45
========= ======= ========== ========
Limited partnership units outstanding ...................... 800 800 800 800
=== === === ===
</TABLE>
See notes to consolidated financial statements
<PAGE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ................................................... $ (696) $ 2,786
Adjustments to reconcile net income to net cash provided by operations:
Minority interest in subsidiary net income......................... (581)
Extraordinary loss on early extinguishment of debt................. 19,431 -
Depreciation and amortization...................................... 13,687 12,241
Provision for bad debts............................................ 473 23
Deferred income taxes.............................................. 597 1,280
Change in operating assets and liabilities, net of acquisition:
Accounts receivable............................................. (6,797) (2,885)
Inventories..................................................... (17,965) 7,929
Other current assets............................................ 705 (334)
Accounts payable................................................ 9,507 (421)
Accrued expenses and other current liabilities.................. 706 857
Income taxes payable............................................ (1,392) 749
Interest payable................................................ 65 (3,872)
----------- -------------
Net cash provided by operating activities......................... 17,740 18,353
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............................ (35,253) (25,439)
Acquisition of business (Note 8)..................................... (9,354) -
------- --------
Net cash used in investing activities ............................ (44,607) (25,439)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan............................................ - 19,500
Repayments under term loan............................................ (20,000) (500)
Repayments under revolving credit line................................ (1,867) (11,713)
Issuance of 9 1/4% Senior subordinated notes.......................... 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................................................... (5,540) (97)
Repayments of capital lease obligation and other long term debt....... (489) (13)
--------- ---------
Net cash provided by financing activities......................... 27,268 7,177
Effect of exchange rate changes on cash........................... (3) (34)
------------ ----------
NET INCREASE IN CASH ................................................... 398 57
CASH AT BEGINNING OF PERIOD............................................. 103 108
---------- --------
CASH AT END OF PERIOD................................................... $ 501 $ 165
========= ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid during the year for:
Interest ............................................................. $ 15,657 $ 21,125
Income taxes.......................................................... 876 1,387
</TABLE>
See notes to consolidated financial statements
<PAGE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
(Information as of June 30, 1997 and for the
periods ending June 30, 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 7) on November 1, 1996,
Synthetic Industries L.P. (the "Partnership") owns approximately 67% of the
Company's outstanding common stock as of June 30, 1997.
On June 9, 1997, the Company and the Partnership filed a Joint Proxy
Statement and Prospectus to approve a Plan of Withdrawal and Dissolution for the
Partnership. For further description, see Part II, Item 5. (Other Information)
which is incorporated herein by reference.
Since its organization in 1986 and subsequent admission of limited partners, the
Partnership has conducted no business except owning and voting the shares of the
Company. As a result of its public offering of Common Stock in November 1996,
the Company currently has 8,656,250 shares of Common Stock outstanding, of which
approximately 67% are owned by the Partnership. As the Partnership has no
independent operations or assets other than its investment in the Company, the
Partnership's financial statements are substantially identical to those of the
Company, with the exception of the minority interest and certain expenses
recognized by the Partnership associated with a withdrawn common stock offering.
As a result, the footnote information presented below relates to that of the
Company, except as disclosed. Accordingly, all references to fiscal year refer
to the Company's fiscal year which ends on September 30th.
2. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of June 30, 1997 and for the periods
ended June 30, 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 June
30, 1997 and 1996, 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. 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 nine months ended June 30, 1997 may
not necessarily be indicative of the results that may be expected for the full
year.
3. INVENTORY
June 30, September 30,
1997 1996
---- ----
Finished goods.......................... $33,200 $22,555
Work in process......................... 8,549 7,937
Raw materials........................... 16,721 8,650
------- ---------
$58,470 $39,142
======= =======
4. PROPERTY, PLANT AND EQUIPMENT
June 30, September 30,
1997 1996
---- ----
Land.................................... $ 4,458 $ 4,458
Buildings and improvements.............. 35,525 29,298
Machinery and equipment and
leasehold improvements................ 213,550 179,386
---------- --------
253,533 213,142
Accumulated depreciation................ 86,422 75,168
-------- --------
$167,111 $137,974
======== ========
5. LONG-TERM DEBT
June 30, September 30,
1997 1996
---- ----
Secured revolving credit facility
Secured revolving credit portion........... $ 2,126 $ 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........................ 4,242 4,698
Other........................................... 1,288 1,321
--------- ----------
210,059 195,012
Less current portion............................ 703 659
---------- ------------
Total long term portion....................... $209,356 $ 194,353
======== =========
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 comprised of term loan borrowings
of $45,000 and a revolving credit loan portion (the "Revolver") of
$40,000. The term loan balance at June 30, 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 the remaining balance due under the Debentures of $7,400. At
June 30, 1997, availability under the Revolver was $27,477.
The Company is currently in the process of renegotiating the Amended
Credit Facility, primarily to increase borrowing flexibility, reduce
interest costs and extend the term, which is due to expire on October
1, 2001. As part of the renegotiations, on June 30, 1997, the lenders
agreed to reduce the borrowing rate of the Amended Credit Facility for
the term loan and revolver advances from the Interbank Eurodollar rate
plus 2.75% or 2.50% to 2.00% or 1.75%, respectively.
6. INCOME TAXES
The provision for income taxes before extraordinary item in the
consolidated statements of operations reflects the effective tax rate of
40% and 41% for the three and nine months ended June 30, 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.
7. 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, commissions and expenses)
were approximately $34,000. The net proceeds to the Company were used to
repay certain outstanding indebtedness.
The Company's public offering resulted in the establishment of a minority
interest liability which represents the Company's minority shareholders'
interest in the shareholders' equity of the Company. The difference between
the offering price per share and the carrying amount per share has been
accounted for as a capital transaction in the Partnership's financial
statements.
8. BUSINESS ACQUISITION
On February 27, 1997, the Company acquired certain assets of the Spartan
Technologies division of Spartan Mills for approximately $9,400. 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.
9. STOCK OPTIONS
In May 1997, the Company issued an additional 130,500 options under the
1996 Stock Option Plan.
10. CLAIMS AND LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to litigation arising out of
their business operations. Most of such litigation involves claims for
personal injury, property damage, breach of contract and claims involving
employee relations and certain administrative proceedings. The Company
believes such claims are adequately covered by insurance or do not involve
a risk of material loss to the Company. In addition, the Partnership is
party to two class action lawsuits filed by a limited partner of the
Partnership on behalf of himself, the other limited partners and the
Partnership. For a further description, see Part II, Item 1.
(Legal Proceedings) which is incorporated herein by reference.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(In thousands of dollars)
Since its organization in 1986 and subsequent admission of limited
partners, the Partnership has conducted no business except owning and voting the
shares of the Company. As a result of its public offering of Common Stock in
November 1996, the Company currently has 8,656,250 shares of Common Stock
outstanding, of which approximately 67% are owned by the Partnership. As the
Partnership has no independent operations or assets other than its investment in
the Company, the Partnership's financial statements are substantially identical
to those of the Company, with the exception of the minority interest and certain
expenses recognized by the Partnership associated with a withdrawn common stock
offering. As a result, the discussion and analysis of financial condition and
results of operations presented below relates to the operations of the Company,
except as disclosed. Accordingly, all references to fiscal year refer to the
Company's fiscal year which ends on September 30.
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 provided by
operating activities was $17,740 and $18,353 for the nine months ended June 30,
1997 and 1996, respectively. Cash provided by operating activities of $17,740
for the nine months ended June 30, 1997 consisted primarily of $11,254 earnings
before extraordinary item and noncash charges of $14,176, as well as an increase
in accounts payable of $9,507, which financed increases in accounts receivable
and inventories of $24,762. The noncash charges for the Partnership include $581
of minority interest in subsidiary net loss.
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 principal amount of the
Company's 12 3/4% Senior Subordinated Debentures due 2002 (the "Debentures").
Additionally, the proceeds were used to pay the related call premium and
prepayment fees associated with the refinancing of $15,920, pay debt issuance
costs of $5,540, and repay approximately $21,900 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 (the "Lenders") and BankBoston, 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.
The net proceeds from financing and operating activities were also
utilized to fund capital expenditures of $35,253 and to acquire certain assets
of the Spartan Technologies division of Spartan Mills (the "Spartan
Acquisition") for approximately $9,400. Additional capital expenditures planned
for fiscal 1997 and 1998 are approximately $15,000 and $40,000, respectively,
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 comprised of term
loan borrowings of $45,000 and a revolving credit loan portion (the "Revolver")
of $40,000. The term loan balance at June 30, 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 the remaining balance due under
the Debentures of $7,400. At June 30, 1997, availability under the Revolver was
$27,477. The Company is currently in the process of renegotiating the Amended
Credit Facility, primarily to increase borrowing flexibility, reduce interest
costs and extend the term, which is due to expire on October 1, 2001. As part of
the renegotiations, on June 30, 1997, the Lenders agreed to reduce the borrowing
rate of the Amended Credit Facility for the term loan and revolver advances from
the Interbank Eurodollar rate plus 2.75% or 2.50% to 2.00% or 1.75%,
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 the Company's long-term debt
obligations, including the Amended Credit Facility and lease agreements, permit
anticipated capital expenditures and fund the Company's working capital
requirements for the next twelve months.
<PAGE>
Results of Operations
The following table sets forth the percentage relationships to net
sales of certain income statement items for the three and nine months ended June
30, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30,. June 30,
1997 1996 1997 1996
----- ----- ---- -----
<S> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 66.4 66.6 68.0 71.3
---- ---- ---- ----
Gross profit........................... 33.6 33.4 32.0 28.7
Selling expenses.......................... 8.4 8.8 9.2 9.1
General and administrative
expenses.......................... 6.6 6.3 7.9 7.6
Amortization of intangibles............... 0.6 0.8 0.8 0.9
--- --- --- ---
Operating income.......................... 18.0 17.5 14.1 11.1
Interest expense.......................... 5.0 7.1 6.4 8.1
Amortization of deferred
financing costs................... 0.2 0.2 0.2 0.3
--- --- --- ---
Income before provision
for taxes and
extraordinary item................ 12.8 10.2 7.5 2.7
Provision for income taxes................ 5.1 4.1 3.1 1.4
--- --- --- ---
Income before extraordinary item.......... 7.7% 6.1% 4.4% 1.3%
==== ==== ==== ====
</TABLE>
Results of Operations for the Three Months Ended June 30
Net sales for the quarter ended June 30, 1997 were $99,112 compared to
$82,843 for the same period of fiscal 1996, an increase of $16,269, or 19.6%.
Carpet backing sales for the quarter ended June 30, 1997 were $44,962 compared
to $37,487 for the same period of fiscal 1996, an increase of $7,475, or 19.9%.
Construction and civil engineering product sales for the quarter ended June 30,
1997 were $35,183 compared to $30,525 for the same period of fiscal 1996, an
increase of $4,658, or 15.3%. Technical textiles sales for the quarter ended
June 30, 1997 were $18,967 compared to $14,831 for fiscal 1996, an increase of
$4,136, or 27.9%, of which the Spartan Acquisition contributed approximately
$3,500.
Gross profit for the quarter ended June 30, 1997 was $33,350 compared to
$27,709 for the same period of fiscal 1996, an increase of $5,641, or 20.4%. As
a percentage of sales, gross profit increased to 33.6% from 33.4%. This increase
was primarily due to increased sales volume, slightly higher average selling
prices and continued growth of higher margin business, coupled with comparable
polypropylene costs to the prior period.
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 June 30, 1997 were $8,296 compared
to $7,307 for the same period of fiscal 1996, an increase of $989, or 13.5%.
This increase was primarily due to increased expenditures associated with higher
sales volume. As a percentage of sales, selling expenses decreased from 8.8% to
8.4%.
General and administrative expenses for the quarter ended June 30, 1997
were $6,583 compared to $5,233 for the same period of fiscal 1996, an increase
of $1,350, or 25.8%. As a percentage of sales, general and administrative
expenses increased from 6.3% to 6.6%. The increase in general and administrative
expenses was primarily due to infrastructure expenditures, which included an
increased investment in the Company's information technology department, to
support anticipated Company growth. Included in general and administrative
expenses for the Partnership is $112 for legal expenses, with such amount being
due to the Company.
Operating income for the third quarter of fiscal 1997 was $17,823 as
compared to $14,521 for the same period of fiscal 1996, an increase of $3,302,
or 22.7%. As a percentage of sales, operating income increased to 18.0% in
fiscal 1997 from 17.5% in fiscal 1996. This increase was primarily due to higher
sales volume as well as growth of higher margin business, partially offset by
slightly increased selling, general and administrative costs. Operating income
for the Partnership for the third quarter of fiscal 1997 was $17,711, which
includes the additional general and administrative expenses related to the
Partnership paid by the Company.
Interest expense for the third quarter of fiscal 1997 was $4,947 compared
to $5,863 for the same period of fiscal 1996, a decrease of $916, or 15.6%, due
to lower average interest rates on the outstanding debt. The effective income
tax rate for the three months ended June 30, 1997 and 1996 was approximately
40%.
Net income for the third quarter of fiscal 1997 was $7,676 compared to
$5,093 for the third quarter of fiscal 1996, an increase of $2,583, or 50.7%.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")1 for
the third quarter of fiscal 1997 were $22,331 compared to $18,576 for the third
quarter of fiscal 1996, an increase of $3,755, or 20.2%. The increase in net
income, as well as EBITDA, was primarily due to higher sales volumes and
continued growth of higher margin business , partially offset by slightly
increased selling, general and administrative costs. Net income for the third
quarter of fiscal 1997 for the Partnership was $5,015, which includes the
minority interest in subsidiary and the additional general and administrative
expenses related to the Partnership paid by the Company. Results of Operations
for the Nine Months Ended June 30
Net sales for the nine months ended June 30, 1997 were $245,327 compared to
$212,060 for the same period of fiscal 1996, an increase of $33,267, or 15.7%.
Carpet backing sales for the nine months ended June 30, 1997 were $122,090
compared to $106,376 for the same period of fiscal 1996, an increase of $15,714,
or 14.8%. Construction and civil engineering product sales for the nine months
ended June 30, 1997 were $75,930 compared to $64,981 for the same period of
fiscal 1996, an increase of $10,949, or 16.8%. Technical textiles sales for the
nine months ended June 30, 1997 were $47,307 compared to $40,703 for fiscal
1996, an increase of $6,604, or 16.2%, of which the Spartan Acquisition
contributed approximately $4,800.
Gross profit for the nine months ended June 30, 1997 was $78,399 compared
to $60,839 for the same period of fiscal 1996, an increase of $17,560, or 28.9%.
As a percentage of sales, gross profit increased to 32.0% from 28.7%. This
increase was primarily due to increased sales volume, slightly higher average
selling prices and growth of higher margin business, coupled with comparable
average polypropylene costs to the prior period.
Selling expenses for the nine months ended June 30, 1997 were $22,480
compared to $19,259 for the same period of fiscal 1996, an increase of $3,221,
or 16.7%. This increase was primarily due to increased expenditures associated
with higher sales volume as well as increased marketing expenses. As a
percentage of sales, selling expenses increased from 9.1% to 9.2%.
General and administrative expenses for the nine months ended June 30, 1997
were $19,474 compared to $16,024 for the same period of fiscal 1996, an increase
of $3,450, or 21.5%. As a percentage of sales, general and administrative
expenses increased from 7.6% to 7.9%. The increase in general and administrative
expenses was primarily due to infrastructure expenditures, which included an
increased investment in the Company's information technology department, to
support anticipated Company growth. Included in general and administrative
expenses for the Partnership is $67 for legal expenses with such amount being
due to the Company.
Operating income for the first nine months of fiscal 1997 was $34,501 as
compared to $23,612 for the same period of fiscal 1996, an increase of $10,889,
or 46.1%. As a percentage of sales, operating income increased to 14.1% in
fiscal 1997 from 11.1% in fiscal 1996. This increase was primarily due to higher
sales volumes as well as the growth of higher margin business, partially offset
by slightly increased selling, general and administrative costs. Operating
income for the first nine months of fiscal 1997 for the Partnership was $34,434
which includes additional general and administrative expenses related to the
Partnership paid by the Company.
Interest expense for the first nine months of fiscal 1997 was $15,722
compared to $17,253 for the same period of fiscal 1996, a decrease of $1,531, or
8.9%, due to lower average interest rates on the outstanding debt.
The effective income tax rate before the effect of the extraordinary item
for the nine months ended June 30, 1997 and 1996 was approximately 41% and 52%.
The higher rate for 1996 was due primarily to the effect of nondeductible
expenses, including the amortization of goodwill, on lower income in fiscal
1996.
Income before extraordinary item for the nine months ended June 30, 1997,
was $10,740 compared to $2,786 for the same period of fiscal 1996, an increase
of $7,954. EBITDA for the first nine months of fiscal 1997 were $47,694 compared
to $35,350 for the first nine months of fiscal 1996, an increase of $14,344, or
43.0%. The increase in income before extraordinary item, as well as EBITDA, was
primarily due to higher sales volumes and continued growth of higher margin
business, partially offset by slightly increased selling, general and
administrative costs. Income before extraordinary item for the nine months ended
June 30, 1997 for the Partnership was $11,254, which includes the minority
interest in subsidiary and the additional general and administrative expenses
related to the Partnership paid by the Company.
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.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share". This new
standard requires presentation of both basic and diluted earnings per share
("EPS") on the face of the statements of operations and requires a
reconciliation of the numerators and denominators of basic and diluted EPS
calculations. This statement will be effective for the Company's first quarter
1998 consolidated financial statements. The adoption of this statement is not
expected to have a material impact on the Company's consolidated financial
statements.
Forward Looking Statements
The discussion of the Company's business and operations in this report
includes several instances of forward-looking statements, which are based upon
management's good faith assumptions relating to the financial, market,
operating, and other relevant environments that will exist and affect the
Company's business and operations in the future. No assurance can be made that
the assumptions upon which management based its forward-looking statements will
prove to be correct, or that the Company's business and operations will not be
affected in any substantial manner by other factors not currently foreseeable by
management or beyond the Company's control. All forward-looking statements
involve risk and uncertainty, including those described in this report, and such
statements shall be deemed in the future to be modified in their entirety by the
Company's public pronouncement, including those contained in all future reports
and other documents filed by the company with the Securities and Exchange
Commission.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to litigation arising out of
their business operations. Most of such litigation involves claims for personal
injury, property damage, breach of contract and claims involving employee
relations and certain administrative proceedings. The Company believes such
claims are adequately covered by insurance or do not involve a risk of material
loss to the Company.
The General Partner of the Partnership, Synthetic Management G.P., Leonard
Chill, Jon P. Beckman, W. Wayne Freed, Ralph Kenner, W. Gardner Wright, Chill
Investments, Inc., Beckman Investments, Inc., Freed Investments, Inc., Kenner
Investments, Inc., and Wright Investments, Inc., as defendants, and the
Partnership, as a nominal defendant, have been named in two punitive class
action lawsuits filed by a limited partner of the Partnership on behalf of
himself, the other limited partners and the Partnership. In the first action,
filed on February 11, 1997 in the Delaware Court of Chancery and amended on June
11, 1997, the plaintiff has alleged, among other things, breach of the
defendants' fiduciary duty to achieve the highest possible value for the limited
partners in connection with the November 1, 1996 Common Stock Offering of the
Company and the proposed Agreement and Plan of Withdrawal and Dissolution (the
"Plan") by failing to explore alternative transactions that could potentially
threaten their positions with and control over the Company and the benefits
derived therefrom. The plaintiff seeks, among other things, removal of the
General Partner, dissolution of the Partnership, appointment of a receiver,
rescession of certain stock option grants and employment agreements and
compensatory damages in an undetermined amount. On June 25, 1997, the defendants
filed a motion to dismiss the amended complaint, which motion is currently being
briefed. The second lawsuit was filed in the U.S. District Court of the Northern
District of California on May 1, 1997. In connection with the letter sent by the
General Partner to the limited partners, the plaintiff alleged that the
defendants have violated federal securities laws by mailing a proxy solicitation
to the limited partners without first filing with the Securities and Exchange
Commission, mailing out the solicitation without filing or disseminating a proxy
statement and failing to disclose numerous material facts in the solicitation.
The complainant seeks an injunction to remedy the alleged violations of
securities regulations and a declaratory judgment stating that the defendants
violated securities regulations. On May 23, the Plaintiff filed a motion for a
preliminary injunction. On August 4, 1997, the plaintiff's motion was denied.
Item 5. Other Information
On June 9, 1997, the Company and the Partnership filed with the Securities
and Exchange Commission a preliminary joint proxy statement and prospectus in
connection with the adoption of the proposed Plan for the Partnership and the
distribution in several installments of common stock shares of the Company held
by the Partnership. Under the proposed Plan, the limited partners would be given
the opportunity to choose between selling some of all of their investment for
cash based upon a value determined by the public markets in an orderly
underwritten public offering or continuing to hold some or all of their
investment in the Company's business by means of freely tradeable shares of
common stock following the distribution.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 4.3 Supplemental Indenture dated as of February 11, 1997 between Synthetic
Industries, Inc. and United States Trust Company of New York, Trustee, with
respect to the 12-3/4% Senior Subordinated Debentures due 2002.
2 4.4 Indenture dated as of February 11, 1997 between Synthetic Industries,
Inc. and United States Trust Company of New York, Trustee, with respect to
the 9-1/4% Senior Subordinated Notes due 2007.
2 4.5 Registration Rights Agreement, dated as of February 11, 1997 between
Synthetic Industries, Inc. and Bear, Stearns & Co. Inc.
1 10.35 Amendment No. 8 to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated as of June 30, 1997.
27 Financial Data Schedule
- --------------
1 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference.
2 Filed as an exhibit to the Company's Registration Statement on Form S-4
(333-23167) as filed with the Securities and Exchange Commission on March
12, 1997 and incorporated herein by reference.
3 Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-4 (333-22817) as filed with the Securities and Exchange
Commission on August 8, 1997 and incorporated herein by reference.
(b) Reports of Form 8-K
None
<PAGE>
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 L.P.
By: SI MANAGEMENT L.P.
General Partner
By: SYNTHETIC MANAGEMENT G.P.
General Partner
By: CHILL INVESTMENTS, INC.
Managing General Partner
By: /s/ Leonard Chill
Leonard Chill
President
Dated: August 14,1997
- --------
0 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedile contains summary financial information extracted fron the
condensed consolidated balance sheet of Synthetic Industries L.P. as of June 30,
1997 and the related condensed consolidated statement of income and cash flows
for the nine months ended June 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 501
<SECURITIES> 0
<RECEIVABLES> 60,732
<ALLOWANCES> 3,478
<INVENTORY> 58,470
<CURRENT-ASSETS> 129,611
<PP&E> 253,533
<DEPRECIATION> 86,422
<TOTAL-ASSETS> 380,339
<CURRENT-LIABILITIES> 47,392
<BONDS> 177,403
0
0
<COMMON> 0
<OTHER-SE> 65,019
<TOTAL-LIABILITY-AND-EQUITY> 380,339
<SALES> 245,327
<TOTAL-REVENUES> 245,327
<CGS> 116,928
<TOTAL-COSTS> 116,928
<OTHER-EXPENSES> 42,021
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,722
<INCOME-PRETAX> 18,223
<INCOME-TAX> 7,550
<INCOME-CONTINUING> 11,254
<DISCONTINUED> 0
<EXTRAORDINARY> 11,950
<CHANGES> 0
<NET-INCOME> (696)
<EPS-PRIMARY> 0
<EPS-DILUTED> .86
</TABLE>
AMENDMENT NO. 8
to
Fourth Amended and Restated Revolving
Credit and Security Agreement
THIS AMENDMENT NO. 8 dated as of June 30, 1997 is made by and between
SYNTHETIC INDUSTRIES, INC., a Delaware corporation (the "Borrower"),
the Lenders parties from time to time to the Credit Agreement (as
hereinafter defined), and BANKBOSTON, N.A. (f/k/a The First National
Bank of Boston) ("BankBoston"), as the agent (the "Agent") for the
Lenders. Preliminary Statements
The Borrower, the Lenders and the Agent are parties to the Fourth
Amended and Restated Revolving Credit and Security Agreement dated as of October
20, 1995 (as amended and in effect, the "Credit Agreement"; terms defined
therein and not otherwise defined herein, being used herein as therein defined).
The Borrower has requested that the Applicable Margin applicable to each Advance
under the Credit Agreement be reduced and the Lenders and the Agent have agreed
to such reduction, upon and subject to the terms, conditions and provisions of
this Amendment.
Accordingly, in consideration of the Credit Agreement, the Loans
outstanding thereunder, the mutual promises therein and hereinafter set forth,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Amendment to Credit Agreement. From and after June 30, 1997,
subject only to receipt by the Agent of at least six counterparts of this
Amendment signed by the duly authorized representatives of each Lender and the
Borrower, the Credit Agreement is amended by amending Section 1.1 Definitions by
amending the definition "Applicable Margin" in its entirety to read as follows:
"Applicable Margin" means (a) as to the Base Rate, 0% as to
each Base Rate Advance made as part of a Borrowing under the Revolving
Credit Facility and 0.25% as to each Base Rate Advance made as part of
a Borrowing under the Term Loan Facility, and (b) as to the Eurodollar
Rate, 1.75% as to each Eurodollar Advance made as part of a Borrowing
under the Revolving Credit Facility and 2.00% as to each Eurodollar
Advance made as part of a Borrowing under the Term Loan Facility.
Section 2. Effect of Amendment. From and after the effectiveness of
this Amendment, all references in the Credit Agreement and in any other Loan
Document to "this Agreement," "the Credit Agreement," "hereunder," "hereof" and
words of like import referring to the Credit Agreement, shall mean and be
references to the Credit Agreement as amended by this Amendment. Except as
expressly amended hereby, the Credit Agreement and all terms, conditions and
provisions thereof remain in full force and effect and are hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
Section 3. Counterpart Execution; Governing Law.
(a) Execution in Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.
(b) Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Georgia.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
SYNTHETIC INDUSTRIES, INC.
[Corporate Seal] By:
Name:
ATTEST: Title:
- ------------------------------
[Assistant] Secretary
BANKBOSTON, N.A. (f/k/a The First
National Bank of Boston),
as the Agent and as a Lender
By: __/s/ Stephen Y. McGehee
Stephen Y. McGehee
Director
SANWA BUSINESS CREDIT
CORPORATION
By /s/Peter L. Skavla_
Name:
Title:
SOUTHTRUST BANK OF GEORGIA,
N.A.
By: /s/ Barbara Gewert_
Barbara Gewert
Vice President
