UNITED STATES
~SECURITIES~AND~EXCHANGE~COMMISSION~
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended September 30, 1996
Commission File Number 33-11479
SYNTHETIC INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1049400
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
309 LaFayette Road, Chickamauga, Georgia 30707
(Address of principal executive offices) (Zip Code)
(706) 375-3121
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
State the aggregate market value of the voting stock held by non-affiliates
of the registrant at December 5, 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:
Outstanding at
Class December 17, 1996
Common Stock, $1.00 par value 8,656,250
PART I
ITEM 1. BUSINESS
GENERAL
Synthetic Industries, Inc., a Delaware corporation (the "Company"), is one
of the world's leading producers of polypropylene fabrics and fibers for the
home furnishing, construction, environmental, recreational and agricultural
industries. The Company manufactures and sells more than 2,000 products in over
65 end-use markets. The Company's products are engineered to meet specific
customer criteria such as strength, flexibility, resistance to sunlight,
water/air permeability and resistance to bacteria.
The Company's products are sold along three principal product lines: carpet
backing, construction and civil engineering products, and technical textiles.
The Company has a worldwide presence in carpet backing, a woven fabric used in
all modern tufted carpets, and is one of the two leading manufacturers in the
U.S. that produce a broad range of primary and secondary carpet backing. The
Company's construction and civil engineering products include fiber additives
for concrete reinforcement and environmental and geotextile products used in
roadways, landfills and building sites to stabilize soils and control erosion.
The Company's technical textile products are comprised of specialty fabrics,
industrial yarns and fibers used in diverse applications such as filtration
(~e.g.~, wastewater treatment, air filtration and bauxite mining), agriculture
(~e.g.~, shade cloth and ground cover) and recreation (~e.g.~, swimming pool
covers and trampoline mats). The Company's products are principally sold
through direct sales to customers by the Company's sales force and through a
broad network of distributors located across North and South America, Europe and
the Pacific Rim.
HISTORY
The Company was founded in 1969 to produce polypropylene-based primary
carpet backing. Following the acquisition of the Company in 1976 by a group of
private investors, the Company diversified into the manufacture and sale of
polypropylene-based industrial fabrics and specialty yarns. Between 1981 and
1983, the Company entered the construction and civil engineering products
market, initially by manufacturing woven geotextiles and later through its
introduction of Fibermesh(r) fibers for concrete reinforcement. In 1985, the
Company added secondary carpet backing to its product offerings. In fiscal 1991,
the Company purchased a technical synthetic fabrics operation located in
Gainesville, Georgia, from Chicopee, a subsidiary of Johnson & Johnson (the
"Chicopee Acquisition"). In addition to broadening the Company's line of
geosynthetic products, the acquisition gave the Company access to new markets
for high performance geotextiles. As a result of improved fiber technology and
increased fiber manufacturing capabilities, the Company opened its sixth
facility, the nonwoven geotextile plant in Ringgold, Georgia, in 1992, enabling
the Company to offer a full line of geotextile products.
The Company was acquired by the Partnership in December 1986. Immediately
prior to the November 1, 1996 completion of the underwritten public offering ,
all of the issued and outstanding capital stock of the Company was owned by the
Partnership. SI Management L.P. (the "General Partner") is the sole general
partner of the Synthetic Industries, L.P. (the "Partnership"). Synthetic
Management G.P. is the sole general partner of SI Management L.P. By virtue of
these relationships, Synthetic Management G.P. controls the management and
affairs of the Partnership and, therefore, the Company. See "Security Ownership
of Certain Beneficial Owners and Management" and "Certain Relationships and
Related Transactions".
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 was increased to 25,000,000 shares (the
"Recapitalization"). As part of the Recapitalization, the Board approved a
115,740.74-for-1 stock split of the issued and outstanding shares of Common
Stock. The Recapitalization, including the stock split, became effective
immediately prior to the initial public offering.
On November 1, 1996, the Company sold 2,875,000 shares of common stock in
an initial public offering (the "Offering"). The net proceeds to the Company
from the sale (after payment of underwriting discounts and commissions and
expenses) were $34,020,000. Immediately following the Offering, the Partnership
owned 5,781,250 shares of Common Stock, or approximately 67% of the issued and
outstanding shares of Common Stock. Employees, officers and directors have been
granted options to purchase an additional 6.9% of the Common Stock on a fully
diluted basis.
The Company's principal executive offices are located at 309 LaFayette
Road, Chickamauga, Georgia 30707, and its telephone number is (706) 375-3121.
PRODUCTS
The Company develops, manufactures and sells a wide array of polypropylene-
based industrial fibers and fabrics along its three principal product lines:
carpet backing, construction and civil engineering, which comprises
environmental/geotextile products and concrete reinforcement products, and
technical textiles. The Company manufactures five basic yarn and fiber types,
from which approximately 2,000 products are manufactured to serve in excess of
65 end-use markets. The following table sets forth the Company's net sales
attributable to each product line, and the percentage of total net sales
represented by each, for the past five fiscal years:
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
CARPET BACKING
$146,491 48.9% $133,025 49.0% $117,791 50.1% $106,406 50.5% $108,005 55.2%
CONSTRUCTION/CIVIL ENGINEERING
97,043 32.4 82,933 30.6 68,706 29.3 47,899 22.8 34,950 17.8
TECHNICAL TEXTILES
55,998 18.7 55,469 20.4 48,480 20.6 56,211 26.7 52,784 27.0
NET SALES
$299,532 100.0% $271,427 100.0% $234,977 100.0% $210,516 100.0% $195,739 100.0%
~CARPET~BACKING
~ The Company's carpet backing product line consists of woven primary and
secondary fabrics in a variety of styles and widths that are manufactured from
polypropylene raw materials. Primary carpet backing is a tightly woven material
into which carpet yarn is tufted in the manufacture of broadloom floorcoverings.
Secondary carpet backing, which forms the base of the carpet, is the coarser
woven fabric that is laminated to the back of tufted broadloom to insure both
carpet integrity and dimensional stability. The Company produces a broad range
of primary and secondary backing.
~CONSTRUCTION/CIVIL~ENGINEERING
~The Company's construction and civil engineering product line consists
primarily of environmental and geotextile products and concrete reinforcement
fibers. Within this product line, geotextile products principally serve the
environmental market, with end uses such as landfill containment and
stabilization, erosion control and soil stabilization, separation and
reinforcement. The construction market includes subbase reinforcement and
stabilization for highway and commercial construction and reinforcement of
conventional and pre-cast concrete.
~Environmental/Geotextile~Products.~The Company's environmental/geotextile
product line consists of erosion control fabrics, geotextiles, and soil fibers.
These products control erosion and capture sediment; provide filtration,
separation and reinforcement of soils; improve engineering properties of native
soils; protect landfill liners; and extend pavement life. The specifications of
the Company's geosynthetic fabrics and fibers vary depending on specific site
conditions, including such factors as slope angles, water flow velocities,
climate, runoff, soil profile and ultimate land use. The Company's geosynthetic
products generally comply with state agency guidelines pertaining to
geosynthetic products issued to date.
The Company produces a variety of nonwoven geotextiles for use in landfill
construction, asphalt roadway construction and drainage systems. The Company's
woven geotextiles are typically used in road and building construction to form a
separation barrier between unstable soils and aggregate foundations. The
Company's LANDLOK(r) erosion control products are used in water runoff channels
and in areas of exposed soil and shoreline erosion. These products hold the soil
in place, while allowing and supporting vegetative growth. LANDLOK(r) products
are an environmentally friendly and aesthetically pleasing alternative to rock
or concrete erosion control methods.
~Concrete~Reinforcement.~The Company pioneered the concept of using
polypropylene fibers as a secondary reinforcement for concrete and developed and
introduced Fibermesh(r) to the concrete industry in 1983. The addition of
Fibermesh(r) polypropylene fibers to the concrete mixture gives the concrete
greater crack resistance and improved impact strength. Primary applications for
fiber reinforced concrete are commercial and residential slabs, precast pipe and
other products, shotcrete installations, and whitetopped highways. In 1994, the
Company started marketing Fibermesh(r) fibers containing an antibacterial
additive. This niche product is available for use in concrete where bacteria
growth is a concern. Primary targets are hospitals, clinics, food processing
facilities, and veterinary facilities. Fibermesh(r) provides a cost-effective
replacement for the nonstructural wire mesh traditionally used in concrete
construction and improves the concrete's durability. Fibermesh(r) complies with
construction guidelines and specifications issued by all of the national
building code associations. Of the three synthetic fiber types used in fiber
reinforced concrete, polypropylene is recognized for its superior properties
over nylon and polyester. Fibermesh(r) is sold in fibrillated, monofilament and
multi-denier designs, the latter of which is protected by a U.S. patent.
~~ Technical~Textiles
~~~
~~ Products.~Technical textiles produced by the Company are products and
systems that offer high performance solutions for niche markets. The Company's
technical textiles consist of specialty fabrics, industrial yarns and fibers.
The specialty fabrics are manufactured in a variety of widths, weights,
permeability ranges and dimensional configurations primarily from polypropylene
and, to a minor extent, other synthetic fibers. Customers use these fabrics to
manufacture products used in diverse applications such as filtration (~e.g.~,
bauxite mining, wastewater treatment, electrostatic air filters and chemical
separation), agriculture (~e.g.~, shade for foliage protection and environmental
screening), and recreation (~e.g.~, swimming pool covers and trampoline mats).
The Company also sells its industrial yarns and fibers directly to weavers,
knitters, and non-woven manufacturers who produce niche market products, such as
automobile upholstery, coat linings, geotextiles, air filters and water
filtration media.
MARKETING AND SALES
~ Carpet~Backing.~The Company sells its carpet backing products to 91
customers in the carpet industry, most of whom are carpet manufacturers located
in the United States. In fiscal 1996, the Company's ten largest carpet backing
customers accounted for approximately 78% of its total net sales to the carpet
industry. In fiscal 1996, sales to Shaw, the Company's largest customer,
accounted for approximately 36% of net carpet backing sales and approximately
18% of the Company's total net sales. Shaw is estimated to have 27% of the
United States carpet market.
The Company's carpet backing products are sold primarily through the
Company's sales force that is directed from a central sales office in Calhoun,
Georgia. All of the sales managers have significant industry experience and
monitor ongoing product requirements, styling changes and competitive trends
affecting their customers.
~Construction~and~Civil~Engineering~. The Company's geosynthetic products
are sold primarily in North America to regional and national distributors,
installers of landfill liners and various governmental transportation
departments, port authorities and waterway commissions. In fiscal 1996, the ten
largest geosynthetic product customers accounted for approximately 30% of the
Company's total net sales in this product line.
The Company's geosynthetic products are marketed by full-time salespeople
with expertise in civil engineering and agronomy who are directed from a central
office in Chattanooga, Tennessee. These salespeople, along with a technical
support staff at Company headquarters, provide design and field engineering
services to customers. They also are integral to the process of obtaining
required governmental permits for use of the products by end-users. In addition,
the Company has an ongoing marketing communications program to build awareness
of product capabilities and expand interest in and use of geotextiles.
Fibermesh(r) is sold through a direct sales force to ready-mix concrete
companies and precast concrete product manufacturers located primarily in the
United States and the United Kingdom. The Fibermesh(r) sales force operates out
of divisional offices in Austin, Texas, Denver, Colorado, Chattanooga, Tennessee
and Chesterfield, England. In addition, Fibermesh(r) is sold through a contract
with Master Builders, Inc., a construction industry product distributor. Other
construction industry product distributors market Fibermesh(r) in over 50
foreign countries. In fiscal 1996, the ten largest Fibermesh(r) customers
accounted for approximately 12% of the Company's total net sales of Fibermesh(r)
.
~Technical~Textiles.~The Company sells its specialty fabrics to a diverse
group of approximately 400 manufacturers located primarily in North and Central
America and the Pacific Rim countries. The Company sells its industrial yarns
and fibers to a diverse group of approximately 100 manufacturers located in
North America and Europe. In fiscal 1996, the Company's ten largest technical
textile customers accounted for approximately 26% of the Company's total net
sales of technical textiles. The Company's technical textiles are marketed by
salespersons through sales offices in Gainesville, Ringgold and Calhoun, Georgia
and Chesterfield, England.
COMPETITION
The markets for the Company's products are highly competitive. In the
manufacture and sale of carpet backing, the Company competes primarily with
Amoco, and, to a lesser extent, Wayn-Tex Inc. and certain other companies. Amoco
has the dominant position in the carpet backing market worldwide. In the United
States, only the Company and Amoco produce a broad range of primary and
secondary carpet backing in a variety of styles and widths. The Company competes
in the carpet backing market primarily on the basis of quality, availability,
service, price and product line variety, providing carpet manufacturers with a
reliable alternative source of supply to Amoco.
In the manufacture and sale of the Company's other products, the Company
generally competes with a number of other companies, some of which are
significantly larger and have substantially greater resources than the Company.
The Company's primary competitors in the construction and civil engineering
market are Amoco and Nicolon Corporation with respect to geotextiles, North
American Green, Inc. with respect to environmental and erosion control products,
and W.R. Grace & Co., which markets but does not manufacture concrete
reinforcement fibers, with respect to concrete reinforcement. The Company
competes in the concrete reinforcement fiber market primarily on the basis of
product design and technical service. In some applications, Fibermesh(r) also
competes with welded wire fabric on the basis of product performance and cost.
The Company competes in the construction and civil engineering market on the
basis of product line breadth and quality, price, and the custom design,
engineering and other services it provides to customers. With respect to
technical textiles, competitors vary depending upon the specific market niche.
The Company competes in each segment of the technical textiles market primarily
on the basis of service, quality, innovation and product line variety.
MANUFACTURING PROCESS
Polypropylene, a chemically inert plastic derived from petroleum, is the
basic raw material used in the manufacture of substantially all of the Company's
products.
Woven fabrics are produced by interlacing thousands of strands of extruded
yarn at right angles to one another. The manner in which the yarn is interlaced
determines the type of weave. Woven fabrics are characterized by strength and
dimensional stability. The Company's woven fabric products include primary and
secondary carpet backing, geotextiles, erosion control fabrics, and specialty
fabrics for the filtration, recreational, construction and agricultural markets.
Nonwoven fabrics are produced by first stacking several layers of webbed
short length fibers and then entangling the layers by punching barbed needles
through the layers. Nonwoven fabrics provide extensibility without rupture and
dimensionality. The Company's nonwoven fabric products include geotextiles,
erosion control fabrics, furniture and bedding construction fabrics, and spill
control fabrics.
The Company's three primary manufacturing processes are extrusion, weaving
and needlepunching.
~Extrusion.~Many of the product's specification properties are created by
engineering the polymeric raw materials during the extrusion process. In
addition to yarns and fibers for conventional end-uses, the Company has also
developed value-added products through the use of additives including those
which resist sunlight degradation or provide resistance to bacteria. The Company
owns and operates one of the world's largest polypropylene staple fiber lines.
Most of the Company's extruded products are consumed internally and become
value-added woven and nonwoven fabrics, but some are sold to weavers, knitters,
nonwovens producers and convertors.
~Weaving.~The yarns produced in the Company's extrusion and yarn spinning
operations are woven on looms to produce the wide variety of fabrics that the
Company sells through all of its marketing divisions. Fabric properties are
engineered to industry specifications by altering constituent yarns and weave
patterns. Looms are generally interchangeable to weave carpet backing,
geotextiles and certain agricultural fabrics.
~Needlepunching.~In fiscal 1993, the Company constructed a state-of-the-art
needlepunched nonwovens fabric facility. This modern plant produces a new
generation of engineered cost-effective fabrics for the geotextile, furniture
construction and chemical spill cleanup markets.
The Company maintains a complete rigorous quality control program centered
around statistical process control and customer key measures. Each stage of the
process from the raw material to the final product is monitored using standard
procedures and test methods which satisfy the quality control standards
established by the International Standards Organization ("ISO"). All of the
Company's manufacturing facilities have been granted ISO-9002 certification for
their systematic approach to quality in all areas of operation.
The Company's production equipment is capable of manufacturing a variety of
woven and nonwoven polypropylene products. This versatility enables the Company
to alter the product mix within its woven and nonwoven product lines in response
to market demand or to take advantage of specific profit opportunities.
The Company's plants are run on a continuous 24-hour per day basis, seven
days a week, 350 days per year. Orders are typically filled from inventory.
RESEARCH AND DEVELOPMENT
The Company's research and development is focused primarily on development
and as such the Company engages in product design, development and performance
validation to improve existing products and to create new products. The Company
expended approximately $2.0 million (approximately 0.7% of sales) and $1.9
million (approximately 0.7% of sales) on Company-sponsored research and
development activities in fiscal 1996 and fiscal 1995, respectively.
INTERNATIONAL OPERATIONS
The Company conducts its foreign sales operations through subsidiaries in
Europe and a network of distributors worldwide. In fiscal 1996, the aggregate
sales (principally of construction and civil engineering products) by such
foreign subsidiaries and marketing divisions were approximately $5.5 million.
International sales from United States operations in fiscal 1996 were $31.4
million, or 10.5% of net sales.
RAW MATERIALS
The Company currently purchases polypropylene in pellet form principally
from four suppliers, with Fina Oil & Chemical Company being the Company's
largest supplier of polypropylene. These purchases are generally made pursuant
to long-standing arrangements.
Polypropylene purchases account for approximately 50% of the Company's cost
of sales. Increases in the price of polypropylene without offsetting increases
in selling prices could have a significant negative effect on the Company's
results of operations and financial condition. The Company believes that the
sales prices of its products will adjust over time to reflect changes in
polypropylene prices although such price changes favorably affected operating
results for fiscal 1994 and adversely affected operating results for fiscal
1995.
The price of polypropylene is primarily a function of manufacturing
capacity, the demand for polypropylene and prices of petrochemical feedstocks,
crude oil and natural gas liquids. The average market price of polypropylene was
approximately 8% lower in fiscal 1996 than in fiscal 1995. The Company has not
experienced production curtailment due to shortages of polypropylene supply at
any time. According to Chemical Data, Inc. ("Chem Data"), a monthly
petrochemical and plastics analysis publication, current annual capacity in
North America will rise 11% in calendar 1997 over calendar 1996 levels.
Historically, the creation of additional facilities has helped to relieve supply
pressures although there can be no assurance that this will continue to be the
case.
REGULATION
The Company is subject to federal, state and local laws and regulations
affecting its business, including those promulgated under the Occupational
Safety and Health Act and by the Environmental Protection Agency or similar
state agencies. Many of the Company's construction and civil engineering
products have applications that are subject to building code association
guidelines and specifications and highway department guidelines. Obtaining the
necessary approvals can delay new product introductions in some areas. Moreover,
the enactment of new legislation or the issuance of new guidelines may require
the Company to modify its existing geotextile and erosion control fabric
products and may also delay the Company's introduction of new geotextiles and
erosion control fabric products.
The Company's expenditures to date in connection with such federal, state
and local laws and regulations have not been material to its operations. The
Company believes it is currently in substantial compliance with applicable
governmental regulations.
ORDER BACKLOG
The Company generally sells its products pursuant to customer orders
which are either satisfied out of inventory or from the shipment of newly
manufactured products promptly following receipt of an order. Accordingly, the
dollar amount of backlog orders believed to be firm is not significant or
indicative of the Company's future sales and earnings.
EMPLOYEES
As of September 30, 1996, the Company employed 2,071 persons in the
United States, of whom 446 were salaried employees and the remainder were hourly
employees. None of the Company's employees are unionized. The Company has never
experienced any strikes and believes its relations with employees to be
satisfactory. The Company employs 13 persons in the United Kingdom.
PATENTS AND TRADEMARKS
The Company owns or is licensed under several United States and foreign
patents. While these patents are helpful to the Company's business, it is
believed that a loss of patent exclusivity would not be materially adverse to
the Company's business.
The Company has registered several of its trademarks, including
FIBERGRIDS(r) , FIBERMESH(r) and LANDLOK(r), with the United States Patent and
Trademark office and with several foreign trademark offices.
ITEM 2. PROPERTIES
The following table sets forth certain information concerning the Company's
manufacturing and distribution facilities.
SQUARE ACREAGE OF
LOCATION FEET PRINCIPAL FUNCTION PROPERTY
OWNED FACILITIES
Chickamauga, Georgia 738,800 Manufactures carpet backing,
certain fabrics, geotextiles
and fibers 86.8
Chattanooga, Tennessee 126,432 Manufactures specialty yarns and
construction products 10.5
Dalton, Georgia 216,000 Distribution center and
multi-product warehouse 13.6
Dalton, Georgia 44,945 Needlepunching of carpet backing 5.0
Ringgold, Georgia 183,750 Manufactures geotextiles and
certain nonwoven fabrics 68.5
Alto, Georgia 92,400 Manufactures certain yarns 42.7
LEASED FACILITIES LEASED THROUGH
Chickamauga, Georgia 143,736 Manufactures carpet backing, January 2009
certain fabrics, geotextiles
and fibers
Gainesville, Georgia 200,000 Manufactures and warehouses
certain fabrics December 2000
Westside, Georgia 86,440 Carpet backing warehouse January 1996
Dalton, Georgia
Florence 36,000 Geosynthetic products
warehouse July 1997
Dalton, Georgia
124 Keene 185,000 Woven, nonwoven and
geotextile warehouse January 1997
Dalton, Georgia
1408 Coronet 31,500 Geosynthetic products
warehouse July 1997
Dalton, Georgia
120 Keene 168,000 Geosynthetic products,
fiber warehouse April 1998
Dalton, Georgia
2908 North Dug Gap 85,000 Carpet backing warehouse February 1996
Cornelia, Georgia 76,000 Assembly of certain fabrics February 1998
Dalton, Georgia
Cleveland Highway 104,827 Specialty yarn warehouse July 1997
Tupelo, Mississippi 13,500 Nonwoven fabrics warehouse April 1997
Chattanooga, Tennessee 4,800 Corporate support offices December 2000
Claremont,
North Carolina 14,000
Liberty Hill Church Road Nonwoven fabrics warehouse May 1997
The Company has the option to renew its leases expiring in 1996 and 1997 for
additional periods.
Indebtedness under the Company's Fourth Amended and Restated Revolving
Credit and Security Agreement, dated as of October 20, 1995, as subsequently
amended (the "Credit Facility") is secured by a lien on, and a security interest
in, substantially all of the Company's assets, including all real estate,
plants, equipment, inventory, accounts receivable and cash. Under the terms of
the Credit Facility, the lenders thereunder may exercise certain remedies,
including foreclosure, in the event of a default.
ITEM 3. 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 or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's sole stockholder during
fiscal 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
At September 30, 1996, there was no trading market for the Company's Common
Stock. All of the issued and outstanding Common Stock of the Company was then
owned by the Partnership. On November 1, 1996, the Company sold 2,875,000
shares of its Common Stock in an underwritten public offering. The Common Stock
trades on Nasdaq under the symbol "SIND".
The Company has never paid cash dividends on its Common Stock. The
Company's ability to pay dividends on its Common Stock is currently restricted
by both the Credit Facility and the indenture (the "Indenture") relating to the
Company's 12-3/4% Senior Subordinated Debentures due 2002 (the "Debentures").
See Note 9 to the financial statements for a description of the Credit Facility
and the Indenture.
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
SUMMARY OF OPERATIONS DATA:
Net sales $299,532 $271,427 $234,977 $210,516 $195,739
Gross profit 91,211 76,721 82,672 68,335 62,049
Operating income 38,474 28,687 40,770 29,921 27,656
Income from continuing
operations before
provision for income
taxes 15,002 5,436 20,020 8,134 8,155
Income from continuing
operations 8,102 1,936 11,420 3,662 3,595
Income (loss) from
discontinued operations - - - 1,420 (7,567)
Extraordinary item - loss
from early extinguishment
of debt - - - (8,892) -
Cumulative effect of
accounting change - - - (8,500) -
Net income (loss) 8,102 1,936 11,420 (12,310) (3,972)
Income per share
Continuing operations 1.37 .33 1.93 .63 .62
EBITDA (1) 54,074 42,877 52,425 41,051 36,937
(1) The Company believes that earnings before interest, taxes, depreciation and
amortization (`EBITDA') is helpful in understanding cash flow from operations
that is available for debt service, taxes and capital expenditures. EBITDA is
not a concept contained in Generally Accepted Accounting Principles and is not a
substitute for operating income, net income or cash flows from operating
activities.
AS OF SEPTEMBER 30,
1996 1995 1994 1993 1992
(THOUSANDS OF DOLLARS)
BALANCE SHEET DATA:
Working Capital $64,077 $69,039 $44,114 $42,055 $33,980
Total assets 324,058 312,300 287,933 260,372 254,581
Long-term debt 194,353 192,048 172,490 164,723 158,638
Stockholder's Equity 65,844 57,756 55,817 44,423 56,700
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (IN 000'S)
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships to net sales of
certain income statement items. See "Selected Financial Data", as well as the
Consolidated Financial Statements and the notes thereto for more detailed
financial information.
Fiscal Year ended September 30,
1996 1995 1994
Net sales..................... 100.0% 100.0% 100.0%
Cost of sales................. 69.5 71.7 64.8
----- ----- ------
Gross profit............... 30.5 28.3 35.2
Selling expenses.............. 9.2 9.0 9.3
General and administrative
expenses.............. 7.6 7.8 7.5
Amortization of intangibles... 0.9 0.9 1.0
----- ---- -----
Operating income............ 12.8 10.6 17.4
Interest expense.............. 7.6 8.3 8.5
Amortization of deferred
financing costs...... 0.2 0.3 0.3
----- ---- ------
Income before provision for taxes 5.0 2.0 8.6
Provision for income taxes.... 2.3 1.3 3.7
----- ----- ------
Net income.................. 2.7% 0.7% 4.9%
===== ===== ======
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for the year ended September 30, 1996 were $299,532 compared to
$271,427 for the same period of fiscal 1995, an increase of $28,105, or 10.4%.
This increase was primarily due to increased sales of carpet backing and
construction and civil engineering products. Carpet backing sales for the year
ended September 30, 1996 were $146,491 compared to $133,025 for the same period
of fiscal 1995, an increase of $13,466, or 10.1%. 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 year ended September 30, 1996 were $97,043 compared to $82,933 for
the same period of fiscal 1995, an increase of $14,110, or 17.0%. This increase
was due to an increase in sales of geotextile and erosion control fabrics of
$13,018, or 30.7%, resulting primarily from nonwoven sales in the landfill and
roadway and building site markets. Technical textiles sales for the year ended
September 30, 1996 were $55,998 compared to $55,469 for fiscal 1995, a increase
of $529, or 1.0%.
While the Company's sales have grown in each year, the Company's gross
profit has fluctuated due to a variety of factors, primarily related to changes
in the price of polypropylene. 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, although such price changes favorably affected
gross profit for fiscal 1994 and adversely affected gross profit for fiscal
1995. In fiscal 1996, polypropylene prices decreased an average of 8% from
fiscal 1995 levels. The benefit of this average cost decrease was only
partially offset by reduced average selling prices, which, coupled with higher
sales volume, resulted in a gross profit improvement of $14,490, or 18.9%, from
$76,721 in fiscal 1995 to $91,211 in fiscal 1996. As a percentage of sales,
gross profit increased to 30.5% from 28.3%.
The Company believes that average polypropylene prices will decline in
the first quarter of fiscal 1997 as a result of continued expansion of
polypropylene capacity. According to a September 1996 report by Chem Data, a
monthly petrochemical and plastics analysis publication, current annual capacity
in North America will rise 11% to 14.0 billion pounds per year in calendar 1997
from a projected 12.6 billion pounds per year at December 1996. 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.
Selling expenses for the year ended September 30, 1996 were $27,488 compared
to $24,273 for the same period of fiscal 1995, an increase of $3,215, or 13.2%.
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 1997 resulting from the
completion of the 1996 capacity expansion program. As a percentage of sales,
selling expenses increased from 9.0% to 9.2%.
General and administrative expenses for the year ended September 30, 1996
were $22,657 compared to $21,195 for the same period of fiscal 1995, an increase
of $1,462, or 6.9%. As a percentage of sales, general and administrative
expenses decreased from 7.8% to 7.6%. In fiscal 1995, general and administrative
expenses included a pre-tax charge of $2,852 related to an increase in the
allowance for doubtful accounts taken to establish a reserve for a carpet
backing customer who experienced severe financial difficulties. Without this
charge, fiscal 1995 general and administrative expenses as a percentage of sales
would have been 6.8% 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 company
growth.
Operating income for fiscal 1996 was $38,474 as compared to $28,687 for
fiscal 1995, an increase of $9,787, or 34.1%. As a percentage of sales,
operating income increased to 12.8% in fiscal 1996 from 10.6% in fiscal 1995.
This was primarily due to factors discussed above.
Total interest expense for fiscal 1996 was $22,773 compared to $22,514 for
fiscal 1995, an increase of $259, or 1.2%, due to higher average total debt
outstanding.
The effective income tax rate was 46% and 64% in fiscal 1996 and 1995,
respectively. The decrease was primarily due to the effect of nondeductible
expenses, including the amortization of goodwill, on higher taxable income in
fiscal 1996.
Net income for fiscal 1996 was $8,102 compared to net income of $1,936 for
fiscal 1995, an increase of $6,166, or 318.5%. Earnings before interest, taxes,
depreciation and amortization ("EBITDA") for fiscal 1996 was $54,074 compared to
$42,887 for fiscal 1995, an increase of $11,187, or 26.1%. The increase in net
income, as well as EBITDA, was primarily due to higher sales volumes and lower
average raw material cost offset by slightly lower average selling prices,
higher manufacturing costs associated with plant shutdowns as a result of the
winter ice storms in 1996 and increased selling and general and administrative
costs.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for fiscal 1995 were $271,427 compared to $234,977 for fiscal
1994, an increase of $36,450, or 15.5%. This increase was primarily due to unit
volume growth in certain product lines and higher average selling prices. Carpet
backing sales for fiscal 1995 were $133,025 compared to $117,791 for fiscal
1994, an increase of $15,234, or 12.9%. This increase was primarily due to
higher unit volume due in part to increased market share in both primary and
secondary carpet backing as well as higher selling prices as compared to fiscal
1994. Construction and civil engineering product sales for fiscal 1995 were
$82,933 compared to $68,706 for fiscal 1994, an increase of $14,227, or 20.7%.
This increase was primarily due to a significant growth in sales of geosynthetic
products as well as an increase in sales of Fibermesh(r) fibers. Technical
textiles sales for fiscal 1995 were $55,469 compared to $48,480 for fiscal 1994,
an increase of $6,989, or 14.4%. This increase was primarily due to unit volume
growth in the furniture and bedding markets.
Gross profit for fiscal 1995 was $76,721 compared to $82,672 for fiscal
1994, a decrease of $5,951, or 7.2%. As a percentage of sales, gross profit
decreased to 28.3% from 35.2%. This decrease was primarily due to higher
polypropylene costs, offset partially by higher average selling prices. The
average market price of polypropylene increased approximately 50% per pound in
fiscal 1995 over fiscal 1994.
Selling expenses for fiscal 1995 were $24,273 compared to $21,815 for
fiscal 1994, an increase of $2,458, or 11.3%. This increase was primarily due to
increased marketing efforts in the construction and civil engineering products
lines as a direct result of increased sales. However, as a percentage of sales,
selling expenses decreased from 9.3% to 8.9%.
General and administrative expenses for fiscal 1995 were $21,195 compared
to $17,588 for fiscal 1994, an increase of $3,607, or 20.5%. As a percentage of
sales, general and administrative expenses increased from 7.5% to 7.8%. This
increase was primarily due to a charge of $2,852 related to an increase in the
allowance for doubtful accounts during the fourth quarter of fiscal 1995. The
charge was taken to establish a reserve for accounts receivable for a carpet
backing customer who experienced severe financial difficulties.
Operating income for fiscal 1995 was $28,687 compared to $40,770 for fiscal
1994, a decrease of $12,083, or 29.6%. As a percentage of sales, operating
income decreased to 10.6% from 17.4%. This decrease was primarily due to the
change in gross profit associated with higher raw material costs.
Total interest expense for fiscal 1995 was $22,514 compared to $20,011 for
fiscal 1994. This increase was due to a higher average total debt outstanding
and a higher base rate for the Credit Facility.
The effective income tax rate for fiscal 1995 was 64.3% compared to 43% for
fiscal 1994. The increase was primarily due to the effect of nondeductible
expenses, including the amortization of goodwill, on lower taxable income in
fiscal 1995.
Net income for fiscal 1995 was $1,936 compared to $11,420 for fiscal 1994,
a decrease of $9,484, or 83%. This decrease was primarily due to increased raw
material and interest costs.
LIQUIDITY AND CAPITAL RESOURCES
To finance its capital expenditures 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
(used in) operating activities was $31,421, (35), and 23,962 for the years ended
September 30, 1996, 1995 and 1994, respectively.
Cash provided by (used in) operating activities in fiscal 1996, 1995 and
1994 resulted primarily from net income of $8,102, $1,936 and $11,420,
respectively, after deducting non-cash charges of $20,723, $17,945 and $16,703
and net working capital charges of approximately $2,596, ($19,916) and ($4,161),
for each respective period. The increase in cash provided by operating
activities for fiscal 1996 as compared to fiscal 1995 was principally due to
fluctuations in net income and the Company's working capital requirements. The
changes included reduced inventory and accounts payable balances in 1996
resulting primarily from lower inventory quantities and lower polypropylene
costs. The decrease in cash provided by operating activities in fiscal 1995 as
compared to fiscal 1994 was principally due to lower net income and fluctuations
in working capital requirements. Working capital requirements increased
primarily due to increases in accounts receivable, inventory and accounts
payable. The increase in accounts receivable resulted from increased sales over
the prior year particularly in certain seasonal product lines. The increases in
inventory and accounts payable resulted from the effects of higher polypropylene
costs, as well as increased units in finished goods and raw materials. Working
capital amounted to $64,077, $69,039 and $44,114 at September 30, 1996, 1995 and
1994, respectively.
Capital expenditures in fiscal 1996, 1995 and 1994 were approximately
$34,200, $13,300 and $31,900, respectively. Capital expenditures in fiscal 1996
and 1995 were primarily to increase woven manufacturing capacity at its largest
facility. In fiscal 1994, the Company expanded its secondary carpet backing and
nonwoven facilities. The Company expects to incur approximately $40,000 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.
The Credit Facility provides for potential borrowing capacity of up to
$85,000 and is comprised of 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) and a revolving
credit loan portion (the "Revolver") of up to $40,000. 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. The
Credit Facility expires on October 1, 2001.
On December 14, 1992, the Company issued $140,000 of the Debentures, which
represent unsecured obligations of the Company. The Debentures are redeemable at
the option of the Company at any time on or after December 1, 1997, at an
initial redemption price of 106.375% of their principal amount together with
accrued interest, with declining redemption prices thereafter. Interest on the
Debentures is payable semi-annually on June 1 and December 1.
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 commissions and expenses) were
$34,020, which will be used to repay certain outstanding indebtedness.
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 Credit Facility and lease agreements, permit
anticipated capital expenditures and fund the Company's working capital
requirements for the next twelve months.
INFLATION AND SEASONALITY
The Company does not believe that its operations have been materially
affected by inflation during the three most recent fiscal years. While the
Company does not expect that inflation will have a material impact upon
operating results, there is no assurance that its business will not be affected
by inflation in the future.
The Company's sales and income from continuing operations have historically
been higher in the third and fourth quarters of its fiscal year. While sales and
operating income in the carpet backing and technical textile product lines are
not greatly affected by seasonal trends, sales of construction and civil
engineering products are lower in the first and second quarters of any given
fiscal year due to the impact of adverse weather conditions on the construction
and civil engineering markets. Consequently, as sales from construction and
civil engineering products continue to increase as a percentage of the Company's
total sales, the seasonality of these products' sales will affect total sales of
the Company to a greater degree.
FORWARD LOOKING STATEMENTS
The discussion of the Company's business and operations in this report
includes in several instances 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 pronouncements, including those contained in all future reports
and other documents filed by the Company with the Securities and Exchange
Commission.
ACCOUNTING CHANGES
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.
Management believes that the adoption of this standard will have no effect on
the consolidated financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" which is effective for the Company as of 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the financial statements, together with the auditors' report thereon,
appearing immediately after Part IV, Item 14 hereof.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth certain information concerning each of the
executive officers and directors of the Company:
NAME AGE POSITION AND OFFICES HELD
Leonard Chill 64 President, Chief Executive
Officer and Director
W. Wayne Freed 60 Vice President -- Market
Development
Ralph Kenner 52 Vice President -- Manufacturing
William Gardner Wright, Jr. 67 Vice President -- General
Manager Carpet Backing Group
Robert J. Breyley 67 Vice President -- Fibermesh(r)
Division
W.O. Falkenberry 53 Vice President -- Human
Resources
C. Ted Koerner 47 Vice President--General Manager
Construction/Civil Engineering
Products Group
John Michael Long 53 Vice President -- General
Manager Technical Textiles Group
Joseph Sinicropi 42 Chief Financial Officer and
Secretary
Bobby Callahan 54 Controller
Joseph F. Dana (1) 49 Director
Lee J. Seidler (1) 61 Director
William J. Shortt (1) 71 Director
Robert L. Voigt (1) 78 Director
(1) Member of Compensation Committee and Audit Committee.
Directors of the Company are elected each year at the annual meeting of
stockholders. The Company's officers serve at the discretion of the Board.
~Leonard~Chill~~joined the Company in December 1973 as President and was
appointed Chief Executive Officer in 1986. He has been a director since 1986.
From 1967 until joining the Company, he held a number of positions with Thiokol
Corporation in its Fibers Division, including that of General Manager. Mr. Chill
is also the sole director and sole stockholder of one of the general partners of
Synthetic Management G.P., the entity which is the sole general partner of the
general partner of the Partnership. See "Certain Relationships and Related
Transactions".
~W.~Wayne~Freed~joined the Company in 1981 and became Vice President --
Market Development in 1987. Prior thereto, he had 28 years experience in the
textile industry. Mr. Freed is also the sole director and sole stockholder of
one of the general partners of Synthetic Management G.P.
~Ralph~Kenner~has been Vice President -- Manufacturing since 1984. He
joined the Company in 1974 as Director, Industrial Relations and served in that
capacity until 1976. In 1976, he was appointed Plant Manager and served in that
capacity until 1984. Mr. Kenner is also the sole director and sole stockholder
of one of the general partners of Synthetic Management G.P.
~William~Gardner~Wright,~Jr.~was Vice President -- Marketing and Sales from
1983 to 1996 at which time he was named Vice President-General Manager of the
Carpet Backing Group. From 1977 until 1983, he was President of Synca Marketing
Corp., a textile sales agency which served as a sales agent for the Company's
primary carpet backing, as well as the products of other manufacturers. Mr.
Wright is a director of the Sun Trust Bank of Northwest Georgia. Mr. Wright is
also the sole director and sole stockholder of one of the general partners of
Synthetic Management G.P.
~Robert~J.~Breyley~joined the Company in 1984 and became Vice President --
Fibermesh(r) Division in December 1984. Prior thereto, he held a variety of
managerial positions with Master Builders, Inc., a leading concrete admixtures
supplier. During his last six years with Master Builders, he was Senior Vice
President of Sales and Marketing.
~W.O.~Falkenberry~joined the Company in 1993 as Vice President of Human
Resources. Prior thereto, he was Director of Human Resources with the Champion
Products Division of the Sara Lee Corporation from 1989 to 1993.
~C.~Ted~Koerner~joined the Company in 1990 and became Vice President --
Construction Products Division in 1993. He was named Vice President and General
Manager -- Construction/ Civil Engineering Products Group in 1995. Prior
thereto, Mr. Koerner was an engineer with the Ohio Department of Transportation;
a Sales Engineer, Product Supervisor and Regional Engineer with Armco Steel
Corporation; and a Sales Manager with National Seal Corporation.
~John~Michael~Long~was Vice President -- Nonwoven Fabrics from 1991 to 1996
at which time he was named Vice President -- General Manager of the Technical
Textiles Group. Prior thereto, he held a variety of managerial positions with
Spartan Mills, a manufacturer of nonwoven geotextile fabrics. During his last
five years at Spartan, he was Vice President and General Manager.
~Joseph~Sinicropi~joined the Company in 1995 as Chief Accounting Officer.
He was named Chief Financial Officer and Secretary in February 1996. Prior to
joining the Company, he was an audit senior manager with the international
accounting firm of Deloitte & Touche LLP.
~Bobby~Callahan~joined the Company in 1977 and has been Controller since
1980. Prior thereto, he held a variety of financial management positions in the
carpet industry.
~Joseph~F.~Dana~has been engaged in the private practice of law for over
twenty years and has been a member of the law firm Watson & Dana, LaFayette,
Georgia, since its formation in 1978. Mr. Dana has served as general counsel to
the Company since 1987 and has been a Director since 1993.
~Lee~J.~Seidler~was Senior Managing Director at Bear, Stearns & Co. Inc.
from 1981 to 1989. He is presently associated with Bear, Stearns & Co. Inc. as
Managing Director Emeritus. Mr. Seidler is a director of the Shubert Foundation,
The Shubert Organization, and Players International, Inc. and has been a
director of SafeCard Services, Inc. and Eastbank, N.A. He has been a Director
since 1993.
~William~J.~Shortt~retired from Johnson & Johnson in 1989. From 1977 to
1989, he was Director of Government and Trade Relations, Southeast at Johnson &
Johnson. Mr. Shortt is also a director of Standard Telephone Company and
Standard Group Inc., and has been a director of First National Bank of
Habersham. He has been a Director since 1993.
~Robert~L.~Voigt~served as a consultant to Dixie Yarns Inc. from 1985 until
his retirement at the end of 1991. Mr. Voigt also served as a director of Dixie
Yarns, Inc. from 1981 to 1987. He has been a Director since 1993.
Each of the executive officers, except Mr. Breyley, has an Employment
Agreement with the Company. There are no family relationships between any of the
above officers or directors of the Company.
TEM 11. RENUMERATION OF DIRECTORS AND OFFICERS
DIRECTORS' COMPENSATION
Outside directors receive $15,000 per annum for services as a director and
$800 per meeting attended. Directors who are members of management do not
receive any meeting attendance fees or additional compensation for service as a
director or service on committees of the Board. All directors are reimbursed for
reasonable out-of-pocket expenses incurred in connection with their attendance
at meetings of the Board and its committees on which they serve.
Under the Company's 1994 Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"), Messrs. Dana, Seidler, Shortt and Voigt were granted non-
qualified stock options (the "Directors' Options") to purchase 28,906, 57,813,
19,271 and 19,271 shares of Common Stock, respectively. The Directors' Plan does
not provide for any further grants of options thereunder.
The purchase price of the shares of Common Stock subject to the Directors'
Options was determined by reference to the fair market value of the Common
Stock, as determined by the Compensation Committee, at the time Messrs. Dana,
Seidler, Shortt and Voigt became members of the Board. As of October 1, 1996,
100% of the number of shares of Common Stock subject to each Director Option are
vested and are exercisable. As a Company employee, Mr. Chill is not eligible to
participate in the Directors' Plan. In the event that the outstanding shares of
Common Stock are changed by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split, combination or exchange of
shares and the like, or dividends payable in Common Stock, an appropriate
adjustment shall be made by the Committee in the aggregate number of shares of
Common Stock available under the Directors' Plan and in the number of shares and
price per share subject to outstanding Directors' Options. The term of each
Directors' Option is ten years from the date of grant.
BOARD COMMITTEES
The Board has established a Compensation Committee, composed of Messrs.
Dana, Seidler, Shortt and Voigt, which establishes salary, incentives and other
forms of compensation and administers the Company's 1994 Stock Option Plan and
1996 Stock Option Plan and other incentive compensation and benefit plans
applicable to the Company's officers. The Board has also established an Audit
Committee, composed of Messrs. Dana, Seidler, Shortt and Voigt, which recommends
to the Board the selection of independent auditors, and reviews the scope and
results of the audit and other services provided by the independent auditors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the compensation paid
during each of the Company's last three completed fiscal years to the Chief
Executive Officer of the Company and each of the other four most highly
compensated executive officers of the Company as of September 30, 1996
(collectively, the "Named Executive Officers").
Long-Term
Compensation
Awards
------------
Fiscal Annual Compensation Securities
Name and Year ------------------------ Underlying All Other
Principal Ended Other Options Compensation
Position Sep. 30, Salary($) Bonus($) ($) (#) ($)
- ----------- -------- --------- --------- ------ ------ --------
Leonard Chill 1996 254,871 118,119 - - 9,924 (1)
Chief Executive
Officer 1995 254,871 89,939 4,668 - 10,044 (1)
and President 1994 247,447 127,260 3,989 - 9,921 (1)
Ralph Kenner 1996 145,973 55,063 - - 4,170 (2)
Vice President- 1995 145,973 41,926 2,344 - 4,482 (2)
Manufacturing 1994 125,973 66,660 2,300 - 4,497 (2)
William Gardner
Wright, Jr. 1996 235,664 81,920 - - 4,170 (2)
Vice President-
General 1995 235,664 70,238 304 - 4,005 (2)
Manager-Carpet
Backing Group 1994 235,664 99,384 339 - 4,497 (2)
Robert J. Breyley 1996 141,720 48,144 - - 4,170 (2)
Vice President- 1995 141,720 49,500 - - 3,329 (2)
Fibermesh (r)
Division 1994 141,720 72,000 - - 4,198 (2)
W. Wayne Freed 1996 152,400 37,123 - - 4,170 (2)
Vice President-
Market 1995 142,000 28,267 1,808 - 4,090 (2)
Development 1994 128,544 29,969 2,109 - 3,808 (2)
(1) These amounts consist of $5,424 of insurance premiums paid by the
Company under a term life insurance policy in each of 1996, 1995 and 1994, and
$4,500, $4,620 and $4,497 contributed by the Company under its 401(k) plan in
1996, 1995 and 1994, respectively.
(2) These amounts represent the annual contribution made by the Company
under its 401(k) plan in the respective year.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth options granted to the Named Executive
Officers during fiscal 1996:
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
for
Individual Grants Option Term (1)
- ----------------------------------------------------------- ------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employeesin Base Price Exp
Name Granted(#) Fiscal Year ($/Sh) Date 5% 10%
----- ---------- --------- ------- -------- ------- --------
Leonard Chill 34,875 17.8% $10.72 12/09/05 $235,058 $595,665
Ralph Kenner 20,458 10.4 10.72 12/09/05 137,887 349,423
William Gardner
Wright, Jr. 20,458 10.4 10.72 12/09/05 137,887 349,423
Robert J. Breyley - - - - - -
W. Wayne Freed 20,458 10.4 10.72 12/09/05 137,887 349,423
(1) These gains are based on arbitrary compounded rates of growth of stock
prices mandated by the Securities and Exchange Commission of 5% and 10% per year
from the date the option was granted over the full option term. These rates do
not represent the Company's estimate or projection of future prices of the
Common Stock. There is no assurance that the values that may be realized by any
Named Executive Officer upon exercise of his options will be at or near the
value estimated in the foregoing table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth option exercises by and the value of the in-
the-money unexercised options held at September 30, 1996:
Shares Number of Securities Value of
Number of Securities Value of Unexercised
Underlying Unexercised In the Money Options
Shares Options at FY-End (1) at FY-End (2)
Acquired ------------------- ------------------
on Value Exercisable Exercisable
Name Exercise Realized Unexercisable Unexercisable
(#) ($)
- ---------- ---------- ---------- ------ ---------- -------- ----------
Leonard Chill - - 27,602 117,680 $ 62,933 $268,310
Ralph Kenner - - 8,353 45,518 19,045 103,781
William Gardner
Wright, Jr. - - 8,353 45,518 19,045 103,781
Robert J. Breyley - - 2,421 7,264 5,520 16,562
W. Wayne Freed - - 8,353 45,518 19,045 103,781
(1) Any shares of Common Stock received upon the exercise of options are
subject to certain "lock-up" agreements with the underwriters of the Offering.
See "Certain Relationships and Related Transactions."
(2) Based on the initial public offering price ($13.00 per share) less the
exercise price ($10.72 per share) payable for such shares.
EMPLOYMENT AGREEMENTS
Each of Messrs. Chill, Freed, Kenner and Wright (the "Executives") are
employed by the Company pursuant to individual employment agreements effective
as of September 6, 1996 (the "Effective Date"). The term of employment under
these agreements is three years from the Effective Date; provided that on each
anniversary of the month following the first Effective Date, and each successive
month, the term is automatically extended for one successive month, providing a
minimum remaining term of two years, unless either party terminates the
agreement by written notice. The current annual salaries for Messrs. Chill,
Freed, Kenner and Wright pursuant to these agreements are $270,163, $161,544,
$154,731 and $249,803, respectively, and are subject to annual review by the
Board.
The Company has the right to terminate the Executive's employment for
"cause" or "without cause", in each case as defined in the applicable employment
agreement. In the event that an Executive is terminated by the Company "without
cause," other than following a "Change in Control" (as defined below), the
Executive is entitled to receive his base salary at the rate in effect on the
date of termination of employment for a period of two years from the date of
termination, any unpaid, accrued amounts under the annual incentive plan, a pro
rata payment under the annual incentive plan for the termination year, a payment
equal to the three year average of incentive payments received under the
Company's annual incentive plan and any stock option rights due through the end
of the term. Under each employment agreement, a Change in Control occurs when
(i) any person or group becomes the beneficial owner of capital stock of the
Company representing 35% of all the voting stock, (ii) the members of the Board
on the Effective Date cease to constitute a majority of the Board, or (iii) the
Company combines with another entity and a person holds more than 35% of the
voting stock of the Company or the Company's directors, as of the date
immediately before such combination, constitute less than a majority of the
board of directors of the combined entity.
If the Executive is terminated by the Company "without cause" prior to the
occurrence of a Change in Control and it can be shown such termination occurred
in connection with, prior to or in anticipation of the Change in Control, or if
the termination resulted from a Change in Control, the Executive is entitled to
(i) a lump sum payment equal to two times the Executive's annual base salary and
annual incentive plan for the year in which the Change in Control occurs or the
prior year, whichever is greater, (ii) unpaid, accrued amounts under the annual
incentive plan and a payment that equals the average of the incentive payment
received by the Executive under the annual incentive plan for the immediately
preceding three years and (iii) certain other supplemental insurance coverages,
for a maximum of 18 months (the "Change in Control Provision"). In the event of
a Change in Control, whether or not the Executive's employment continues with
the Company, all options granted to such Executive under any of the Management
Plans (as defined below) shall vest immediately on the date of the Change in
Control.
In the event that an Executive's employment is terminated for disability or
death, the Executive (or his estate) is to be paid (a) his base salary at the
rate in effect on the date of termination until the earlier of six months from
the date of termination or the date of commencement of long term disability
payments, if applicable, and (b) any unpaid, accrued amounts under the annual
incentive plan, and will receive any stock option rights to which such Executive
would otherwise be entitled. In the case of termination by reason of death, the
executive is also entitled to a payment under the annual incentive plan equal to
the pro rata amount due for the termination year.
OPTION PLANS
The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted by the
Board upon the recommendations of a special committee consisting of Messrs.
Seidler, Shortt and Voigt, and approved by the Company's sole stockholder during
the fourth quarter of fiscal 1994. The Company's 1996 Stock Option Plan (the
"1996 Plan") was similarly adopted on May 15, 1996, as amended as of July 31,
1996.
Under the 1994 Plan and 1996 Plan (collectively, the "Management Plans")
incentive stock options ("ISOs"), as provided in Section 422A of the Internal
Revenue Code, and non-qualified stock options may be granted to any full-time
employee of the Company or its subsidiaries. The maximum aggregate number of
shares of Common Stock that may be issued under the 1994 Plan and 1996 Plan is
491,413 and 289,062, respectively. As of September 30, 1996, options to purchase
an aggregate of 491,413 shares of Common Stock had been granted under the 1994
Plan. Of such amount, Messrs. Chill, Wright, Freed, Kenner and other key
managers hold options to purchase 145,282, 53,870, 53,870, 53,870 and 130,644
shares of Common Stock, respectively. Mr. Beckman holds options for 53,870
common shares. As of September 30, 1996, the only options granted under the 1996
Plan were options to purchase 21,723 shares of Common Stock granted to Mr.
Sinicropi. Options may not be granted under the Management Plans after August
28, 2004.
The purchase price of the shares of Common Stock subject to options under
the Management Plans must be no less than the fair market value of the Common
Stock at the date of grant, as determined by the Company's Compensation
Committee; provided, however, that the purchase price of shares of Common Stock
subject to ISOs granted to any optionee who owns shares possessing more than 10%
of the combined voting power of the Company or any parent or subsidiary of the
Company ("Ten Percent Stockholder") must not be less than 110% of the fair
market value of the Common Stock at the date of the grant. The maximum term of
an option may not exceed ten years from the date of grant, except with respect
to ISOs granted to Ten Percent Stockholders which must expire within five years
of the date of grant.
The Management Plans are administered by the Company's Compensation
Committee. Subject to the express provisions of the Management Plans, the
Compensation Committee has the discretion and authority to determine to whom
from among the eligible employees an option may be granted, the time or times at
which each option may be exercised, the number of shares of Common Stock subject
to each option and the terms and conditions of each stock option agreement
issued pursuant to the Management Plans; provided, however, that shares of
Common Stock subject to any such agreement shall vest and become exercisable at
a minimum rate of 25% per year over a four-year period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996 and 1995, the Company paid legal fees totaling
approximately $232,000 and $135,000, respectively, to the law firm of Watson &
Dana. Mr. Dana, a director of the Company and a member of the Compensation
Committee, is a member of Watson & Dana.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of September 30, 1996 and as
adjusted to reflect the sale of the shares in the Offering: (i) each stockholder
known by the Company to own beneficially 5% or more of the outstanding shares of
Common Stock; (ii) each director of the Company; (iii) each of the Named
Executive Officers; and (iv) all executive officers and directors of the Company
as a group. Unless otherwise indicated, the address for each officer, director
and 5% stockholder is Synthetic Industries, Inc., 309 LaFayette Road,
Chickamauga, Georgia 30707.
Shares Beneficially Shares Beneficially
Owned Number of Owned
Prior to Offering Shares After Offering
--------------------- Being ---------------
Name Number % Offered Number %
- ------------- ------- --- ------- -------- ----
5% STOCKHOLDER:
Synthetic Industries, L.P. 5,781,250 100% -- 5,781,250 68.2%
NAMED EXECUTIVE OFFICERS:
Leonard Chill 37,234 (1)(2)(3) * -- 37,234 *
W. Wayne Freed 17,985 (1)(2)(3) * -- 17,985 *
William Gardner Wright, Jr. 17,985 (1)(2)(3) * -- 17,985 *
Ralph Kenner 17,985 (1)(2)(3) * -- 17,985 *
Robert J. Breyley 3,051 (2)(4) * -- 3,051 *
DIRECTORS:
Joseph F. Dana 28,906 (2) * -- 28,906 *
Lee J. Seidler 57,813 (2) * -- 57,813 *
William J. Shortt 19,271 (2) * -- 19,271 *
Robert L. Voigt 19,271 (2) * -- 19,271 *
All executive officers and
directors as a group
(14 persons) (3)(4)(5) 226,159 3.78% -- 226,159 2.67%
* Less than 1.0%.
(1) Includes 9,632 shares as to which such person may be deemed to have
beneficial ownership as a result of his indirect beneficial ownership of 0.1666%
of a partnership interest in the Partnership.
(2) Includes shares of Common Stock subject to options exercisable within
60 days, as follows: Leonard Chill -- 27,602 shares; W. Wayne Freed -- 8,353
shares; William Gardner Wright, Jr. -- 8,353 shares; Ralph Kenner -- 8,353
shares; Robert J. Breyley -- 2,421 shares; Joseph F. Dana -- 28,906 shares; Lee
J. Seidler -- 57,813 shares; William J. Shortt -- 19,271 shares; Robert L. Voigt
- -- 19,271 shares.
(3) Does not include 5,781,250 shares (other than the 9,632 Shares
described in footnote 2 above) as to which Messrs. Chill, Wright, Kenner and
Freed may be deemed to have beneficial ownership by virtue of their indirect
control of the Partnership. See "Certain Relationships and Related
Transactions".
(4) Includes 630 shares as to which Mr. Breyley may be deemed to have
beneficial ownership as a result of his indirect beneficial ownership of 0.0109%
of a partnership interest in the Partnership.
(5) Does not include (i) an aggregate of 17,433 shares of Common Stock
subject to options exercisable within 60 days that are owned by employees of the
Company other than the executive officers and (ii) an aggregate of 433,963
shares of Common Stock subject to options that are not exercisable within 60
days that are owned by directors, officers and employees of the Company.
Includes an aggregate of 38,528 shares as to which Messrs. Chill, Wright, Kenner
and Freed may be deemed to have beneficial ownership as a result of their
indirect beneficial ownership of 0.1666% each of a partnership interest in the
Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SI Management L.P. (the "General Partner") is the sole general partner of
the Partnership. Synthetic Management G.P. is the sole general partner of SI
Management L.P. By virtue of these relationships, Synthetic Management G.P.
controls the management and affairs of the Partnership and, therefore, the
Company. The Partnership owns 5,781,250 shares of Common Stock, or approximately
67% of the issued and outstanding shares of Common Stock, and will therefore
hold the voting power to determine the outcome of all matters upon which
stockholders vote.
The general partners of Synthetic Management G.P. are the following five
Delaware corporations: Chill Investments, Inc., Beckman Investments, Inc., Freed
Investments, Inc., Kenner Investments, Inc. and W.G. Wright Investments, Inc.
Each of Messrs. Chill, Beckman, Freed, Kenner and Wright is the sole director
and the sole stockholder of one of Synthetic Management G.P.'s general partners.
For further information concerning Messrs. Chill, Freed, Kenner and Wright, see
"Executive Officers and Directors of the Company".
The Company and the Partnership have entered into a Registration Rights
Agreement pursuant to which the Company has agreed that upon request of the
Partnership the Company will register under the Securities Act and applicable
state securities laws the sale of the Common Stock owned by the Partnership and
as to which registration has been requested. The Company's obligation is subject
to certain limitations relating to a minimum amount required for registration,
the timing of a registration and other similar matters. The Company is obligated
to pay any registration expenses incidental to such registration, excluding
underwriters' commissions and discounts. In connection with the November 1, 1996
underwritten public offering, the Company incurred approximately $300,000 of
such incidental registration expenses in the behalf of the Partnership. The
above description is qualified in its entirety by reference to the Registration
Rights Agreement, a copy of which has been filed as an exhibit to Amendment No.
1 to the Company's Registration Statement on Form S-1, filed with the Securities
and Exchange Commission on September 13, 1996. The Partnership, however, is
subject to a lock-up agreement with the underwriters of the Offering pursuant to
which the Partnership has agreed not to offer, sell, agree to sell, grant any
option for the sale of or otherwise dispose of, directly or indirectly, any
shares of Common Stock (or any security convertible into, exercisable for or
exchangeable for Common Stock) without the consent of Bear, Stearns & Co. Inc.
for a period of 270 days after November 1, 1996, and thereafter, until December
31, 1997, only pursuant to an underwritten public offering.
Lee J. Seidler, a director of the Company, is presently associated with
Bear, Stearns & Co. Inc. as Managing Director Emeritus and from time to time
receives fees in connection with consulting and referral services to Bear,
Stearns & Co. Inc.
Jon P. Beckman, a former executive officer of the Company and an affiliate
of the General Partner, is being retained as a consultant to the Company.
Pursuant to his consulting agreement with the Company, Mr. Beckman will receive,
until January 31, 2000, or upon earlier termination of his consulting agreement,
$125,000 per year and various insurance coverages, and will be authorized to
exercise all stock options awarded to him, subject to applicable vesting
provisions. Under this agreement, Mr. Beckman is required to provide the Company
with 20 hours of consultation per month, has released the Company from any
liability resulting from his employment and has also agreed not to compete
against the Company.
The Company leases office space under a five-year lease with William
Gardner Wright, Jr., one of the Company's executive officers. The term of the
lease expires on September 30, 1998 and the rent is approximately $4,000 per
month, which the Company believes is within prevailing market rates.
Pursuant to a licensing agreement with the Company, W. Wayne Freed, an
executive officer of the Company, receives royalties related to the manufacture
and sale of a certain product for which Mr. Freed owns all of the U.S. and
foreign patents. Under this agreement, Mr. Freed received royalties of $3,079
and $12,269 in fiscal 1995 and 1996, respectively, and will continue to receive
such royalties until 2012 or the earlier termination of the licensing agreement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements:
Page No. of
Financial Statement
(1) Financial Statements:
Independent Auditors' Report
F-1
Consolidated Balance Sheets
F-2
Consolidated Statements of Operations
F-3
Consolidated Statements of Changes in
Stockholder's Equity
F-4
Consolidated Statements of Cash Flows
F-5
Notes to Consolidated Financial Statements
F-6
(b) No reports on Form 8-K were filed during the last quarter of the Company's
fiscal year ended September 30,1996.
(c) Exhibits: See exhibit index immediately following Item 14.
(d) No additional financial statements are required to be filed.
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Securities Exchange Act of 1934, as amended, by Registrants Which
Have Not Registered Securities Pursuant to Section 12 thereunder.
No annual reports or proxy materials have been sent to the sole stockholder of
the Company or to the holders of the Debentures.
EXHIBIT INDEX
Location in
Sequential
Page Numbering
System
The following are the Exhibits as required by Item 14 (c).
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).
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
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.
2 21. List of Subsidiaries of Synthetic Industries, Inc.
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.
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 of Form 10-K for the
fiscal year ended September 30, 1996 and incorporated herein by reference.
Deloitte and Touche LLP
Two World Financial Center
New York, New York 10281-1414
Telephone: (212) 436-2000
Facsimile: (212) 436-5000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Synthetic Industries, Inc.
Chickamauga, Georgia
We have audited the accompanying consolidated balance sheets of Synthetic
Industries, Inc. (a wholly-owned subsidiary of Synthetic Industries, L.P.) and
its subsidiaries as of September 30, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholder's equity and cash flows for
each of the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Synthetic Industries, Inc. and
subsidiaries at September 30, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1996 in conformity with generally accepted accounting principles.
/S/ Deloitte and Touche LLP
Deloitte & Touche LLP
November 12, 1996
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
SEPTEMBER 30,
ASSETS 1996 1995
CURRENT ASSETS:
Cash.................................................. $ 101 $ 108
Accounts receivable, net (Note 4)..................... 48,165 47,947
Inventory (Note 5).................................... 39,142 45,597
Other current assets (Note 6)......................... 14,655 14,708
------- -------
TOTAL CURRENT ASSETS.............................. 102,063 108,360
PROPERTY, PLANT AND EQUIPMENT, net (Note 7)............. 137,974 116,729
OTHER ASSETS (Note 8)................................... 84,021 87,211
-------- --------
$324,058 $312,300
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $20,227 $ 24,021
Accrued expenses and other current liabilities....... 9,669 7,378
Income taxes payable (Note 11)....................... 1,407 1,455
Interest payable..................................... 6,024 6,427
Current maturities of long-term debt (Note 9)........ 659 40
------- --------
TOTAL CURRENT LIABILITIES..................... 37,986 39,321
LONG-TERM DEBT (Note 9)................................ 194,353 192,048
DEFERRED INCOME TAXES (Note 11)........................ 25,875 23,175
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Notes 3 and 13)
Common stock ........................................ 5,781 5,781
Additional paid-in capital .......................... 63,519 63,519
Cumulative translation adjustments................... 15 29
Deficit.............................................. (3,471) (11,573)
------- --------
TOTAL STOCKHOLDERS' EQUITY....................... 65,844 57,756
------ -------
$ 324,058 $ 312,300
========= =========
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEAR ENDED SEPTEMBER 30,
1996 1995 1994
Net sales.................................$ 299,532 $ 271,427 $ 234,977
Costs and expenses:
Cost of sales ........................... 208,321 194,706 152,305
Selling expenses......................... 27,488 24,273 21,815
General and administrative expenses...... 22,657 21,195 17,588
Amortization of excess of purchase
price over net assets acquired
and other intangibles................... 2,592 2,566 2,499
-------- -------- -------
261,058 242,740 194,207
Operating income..................... 38,474 28,687 40,770
Other expenses:
Interest expense, net.................... 22,773 22,514 20,110
Amortization of deferred financing costs. 699 737 739
------ ------ ------
23,472 23,251 20,750
Income before provision for income taxes... 15,002 5,436 20,020
Provision for income taxes (Note 11)....... 6,900 3,500 8,600
------ ------ ------
NET INCOME................................. $ 8,102 $ 1,936 $ 11,420
======= ======= =========
Earnings per common share (Note 3) ........ $ 1.37 $ 0.33 $ 1.93
======= ======= ========
Weighted average shares outstanding ......5,930,502 5,930,502 5,930,502
========= ========= =========
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
ADDITIONAL CUMULATIVE
COMMON PAID-IN TRANSLATION
STOCK CAPITAL ADJUSTMENTS DEFICIT TOTAL
------- -------- ----------- ------- -----
Balance, October 1, 1993
(Note 3).................. $ 5,781 $ 63,519 $ 52 $(24,929) $44,423
Net income...................... - - - 11,420 11,420
Foreign currency translation.... - - (26) - (26)
------- ------- ----- ------ ------
Balance, September 30, 1994.... 5,781 63,519 26 (13,509) 55,817
Net income..................... - - - 1,936 1,936
Foreign currency translation... - - 3 - 3
------ ------ ---- ------ -----
Balance, September 30, 1995.... 5,781 63,519 29 (11,573) 57,756
Net income..................... - - - 8,102 8,102
Foreign currency translation... - - (14) - (14)
----- ------ ----- ------- -----
Balance, September 30, 1996....$ 5,781 $ 63,519 $ 15 $ (3,471) $65,844
======== ======== ====== ======== =======
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED SEPTEMBER 30,
1996 1995 1994
----- ------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 8,102 $ 1,936 $11,420
Adjustments to reconcile net income
to net cash provided by
(used in) operations:
Depreciation and amortization............ 16,299 14,937 12,390
Deferred income taxes.................... 3,400 (355) 3,830
Provision for bad debts.................. 1,024 3,363 217
Loss on disposal of equipment............ - - 266
Change in assets and liabilities:
Increase in accounts receivable.......... (1,247) (12,212) (2,861)
Decrease (increase) in inventory......... 6,451 (13,076) (7,255)
Increase in other current assets......... (647) (1,469) (632)
(Decrease) increase in accounts payable.. (3,801) 5,254 5,348
Increase in accrued expenses and
other current liabilities.............. 2,291 434 533
(Decrease) increase in income
taxes payable.......................... (48) 973 482
(Decrease) increase in interest payable. (403) 180 224
------- ------ -------
Cash provided by (used in)
operating activities................ 31,421 (35) 23,962
------- ----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property,
plant and equipment.................... (29,253) (13,313) (31,866)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan............... 19,500 11,000 -
Repayments under term loan............... (500) (6,000) (6,000)
Net (repayment) borrowings
under revolving credit line............ (20,734) 8,598 13,802
Payment of capital lease obligation
and other long term debt............... (342) (36) (31)
Deferred financing costs................. (101) (221) -
------- ----- ------
Cash (used in) provided by
financing activities............... (2,177) 13,341 7,771
Effect of exchange rate changes
on cash............................ 2 (2) (3)
------ ------ ------
NET DECREASE IN CASH....................... (7) (9) (136)
CASH AT BEGINNING OF PERIOD................ 108 117 253
------- ------ ------
CASH AT END OF PERIOD...................... $ 101 $ 108 $ 117
======= ====== ======
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest ................................$ 23,176 $ 22,334 $19,787
Income taxes............................. 3,548 2,882 3,901
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Capital lease obligation incurred
for purchase of equipment..............$ 5,000 $ - $ -
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE INFORMATION)
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.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant
intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of foreign subsidiaries are translated at the
fiscal year-end rates of exchange, and the results of operations are
translated at the average rates of exchange for the years presented. Gains
or losses resulting from translating foreign currency financial statements
are accumulated in the cumulative translation adjustments account in the
stockholder's equity section of the accompanying consolidated balance sheets.
INVENTORY
Inventory is stated at the lower of cost, determined using the first-in,
first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated depreciation
and amortization. Depreciation is provided on the straight-line method based
on estimated useful lives, as follows:
Building and improvements 25 years
Machinery and equipment 14 years
Leasehold improvements are amortized over the shorter of the useful life of
the asset or the term of the lease. Expenses for repairs, maintenance and
renewals are charged to operations as incurred. Expenditures which improve
an asset or extend its useful life are capitalized. When properties are
retired or otherwise disposed of, the related cost and accumulated
depreciation and amortization are removed from the accounts and any gain or
loss is included in the results of operations.
Capitalized interest is charged to machinery and equipment and amortized over
the lives of the related assets. Interest capitalized during fiscal 1996,
1995 and 1994 was $392, $729 and $283, respectively.
INCOME TAXES
The Company accounts for income taxes using an asset and liability approach
in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS
109"). Under SFAS 109, deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in the
statement of operations for the period that includes the enactment date.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
The excess of purchase price over net assets acquired is amortized on a
straight-line basis over a period of 40 years. Excess of purchase price over
net assets acquired is assessed for recoverability on a regular basis. In
evaluating the value and future benefits of goodwill, its carrying value
would be reduced by the excess, if any, of the balance over management's best
estimate of undiscounted future operating income before amortization of the
related intangible assets over the remaining amortization period.
DEFERRED FINANCING AND INTANGIBLE ASSETS
Deferred financing costs are amortized over periods from 5 to 12 years.
Intangible assets consist primarily of a Fibermesh(r) trademark and patents
on civil engineering products, which are amortized on a straight-line basis
over 40 and 15 years, respectively.
EARNINGS PER SHARE
Net earnings per share were computed by dividing net income by the weighted
average number of common shares and common equivalent shares outstanding
during each period, as adjusted for the stock splits. Common equivalent
shares include options calculated using the treasury stock method.
Retroactive restatement has been made to all share and per share amounts for
the 115,741-for-1 stock split effective October 30, 1996 (Note 3).
USE OF ESTIMATES
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.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
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
F-14
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. Management believes that the adoption of this standard will have
no effect on consolidated financial position or results of operations.
STOCK BASED COMPENSATION
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.
RECLASSIFICATION OF PRIOR FINANCIAL STATEMENTS
Certain reclassifications have been made to previous years' financial
statements to conform with 1996 classifications.
3.RECAPITALIZATION AND INITIAL PUBLIC OFFERING
On July 31, 1996, the board of directors (the "Board"), 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 was increased to
25,000,000 shares (the "Recapitalization"). As part of the
Recapitalization, the Board approved a 115,740.74-for-1 stock split of the
issued and outstanding shares of Common Stock. The Recapitalization,
including the stock split, became effective immediately prior to the initial
public offering. All share and per share information included in the
accompanying consolidated financial statements and notes have been adjusted
to give retroactive recognition to the stock split.
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 commissions and expenses) were
approximately $34,020. The net proceeds to the Company will be used to
repay certain outstanding indebtedness. Supplementary pro forma net income
per share, assuming the net proceeds were used to reduce outstanding bank
indebtedness and issued shares were outstanding as of the beginning of
fiscal 1996, would have been $1.12.
4. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of the doubtful allowances of $3,036,
$4,053 and $1,201 for fiscal 1996, 1995 and 1994, respectively. Amounts
written off against established allowances were $2,041, $511 and $217 for the
years ended September 30, 1996, 1995 and 1994, respectively.
Most of the Company's carpet backing sales are with customers located in
Georgia. Net sales to one customer represented 18% of consolidated net sales
for all three fiscal years presented.
5.INVENTORY
SEPTEMBER 30,
1996 1995
Finished goods...................$ 22,555 $ 27,867
Work in process.................. 7,937 5,541
Raw materials.................... 8,650 12,189
-------- -------
$ 39,142 $ 45,597
======== =======
6.OTHER CURRENT ASSETS
SEPTEMBER 30,
1996 1995
Prepaid supplies.................$ 8,283 $ 7,192
Deferred tax assets.............. 4,765 5,465
Other............................ 1,607 2,051
-------- --------
$14,655 $14,708
======== ========
7.PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30,
1996 1995
Land.............................$ 4,458 $ 3,511
Buildings and improvements....... 29,298 23,457
Machinery and equipment and
leasehold improvements......... 179,386 151,921
------- -------
213,142 178,889
Accumulated depreciation......... 75,168 62,160
------- -------
$137,974 $116,729
======== ========
Depreciation expense on property, plant and equipment was $13,008, $11,634 and
$9,152 in fiscal 1996, 1995 and 1994, respectively.
8.OTHER ASSETS
SEPTEMBER 30,
1996 1995
Excess of purchase price
over net assets acquired.......... $99,818 $99,818
Intangible assets.................. 3,546 3,546
Deferred financing costs............ 12,331 12,230
------- -------
115,695 115,594
Accumulated amortization............ 31,674 28,383
------- -------
$ 84,021 $ 87,211
======== ========
The excess of purchase price over net assets acquired arose from the purchase of
the Company's Common Stock. The Company was acquired by the Partnership on
December 4, 1986. This acquisition was accounted for using the purchase method
of accounting. Accordingly, the purchase price was allocated to the net assets
acquired based on estimates by independent appraisals and other valuations of
fair market value as of December 4, 1986, and resulted in a purchase price in
excess of net assets acquired of $99,818.
Amortization expense was $3,291, $3,303 and $3,238 in fiscal 1996, 1995 and
1994, respectively.
9.LONG-TERM DEBT
Long-term debt consists of the following at September 30:
1996 1995
Secured revolving credit facility (a):
Secured revolving credit portion $ 3,993 $24,727
Term loan portion 45,000 26,000
12 3/4% senior subordinated debentures (b) 140,000 140,000
Capital lease obligation (Note 10) 4,698 -
Other 1,321 1,361
------- -------
195,012 192,088
Less current portion 659 40
------- -------
Total long-term portion $ 194,353 $192,048
========= ========
A. THE SECURED REVOLVING CREDIT FACILITY
On October 20, 1995, the Company and its lenders entered into a Fourth
Amended and Restated Revolving Credit Agreement (as amended to date, the
"Credit Facility"). The Company's term loan portion of the Credit
Facility was increased to $45,000. The Credit Facility has a termination
date of October 20, 2001, and provides for term loan repayments of $10,000
in 1999 and $17,500 in each of 2000 and 2001.
The revolving credit loan portion of the 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. The maximum amount available for borrowing under the
revolving credit loan portion is increased to $40,000, of which $34,115 is
available at September 30, 1996.
The Credit Facility permits borrowings which bear interest, at the
Company's option, (i) for domestic borrowings based on the lender's base
rate plus .75% (9.0% at September 30, 1996) or (ii) for Eurodollar
borrowings based on the Interbank Eurodollar rate at the time of
conversion plus 2.5% or 2.75% for term loan or revolver advances,
respectively (8.0938% to 9.25% at September 30, 1996).
The Credit Facility provides for borrowings under letters of credit of up
to $3,000, which borrowings reduce amounts available under the Revolver.
At September 30, 1996, there was $1,892 in letters of credit outstanding
under the facility. The Company is required to pay a .375% fee on this
unused portion of the commitment and an agency fee of $150 per annum.
The Credit Facility is collateralized by substantially all of the
Company's assets and contains covenants related to the maintenance of
certain operating and working capital levels and limitations as to the
amount of capital expenditures. The Company's ability to pay dividends on
its common stock is restricted by both the Credit Facility and the
indenture relating to the Senior Subordinated Debentures discussed below.
B. SENIOR SUBORDINATED DEBENTURES
On December 14, 1992, the Company issued $140,000 of 12-3/4% Senior
Subordinated Debentures due 2002 (the "Debentures"), which represent
unsecured obligations of the Company. The Debentures are redeemable at
the option of the Company at any time on or after December 1, 1997,
initially at 106.375% of their principal amount, together with accrued
interest, with declining redemption prices thereafter. Interest on the
Debentures is payable semi-annually on June 1 and December 1.
The fair value of the Company's Debentures is estimated based on quoted
market prices for the Debentures in the over-the-counter market. The
estimated fair value of the Debentures at September 30, 1996 is 107.0% of
their face amount or $149,800.
Approximate aggregate minimum annual payments due on long term debt and the
capital lease, for the subsequent five years are as follows: 1997, $659; 1998,
$718; 1999, $10,783; 2000, $22,347; 2001, $19,470; and thereafter, $141,036.
10. COMMITMENTS AND CONTINGENCIES
A. LEASE COMMITMENTS
On May 15, 1996, the Company entered into a five year capital lease for
equipment which provides for payments over a five year period at an
interest rate of 8.42%. The Company also leases certain factory and
warehouse buildings and equipment under long-term operating leases
expiring through 2009.
Future minimum lease payments under noncancellable lease obligations at
September 30, 1996 are as follows:
Capital Operating
Year leases leases
1997..................................... $ 986 $ 3,786
1998..................................... 986 2,262
1999..................................... 986 1,622
2000..................................... 986 991
2001..................................... 1,993 362
Thereafter............................... - 817
------ -------
Total minimum lease payments............$ 5,937 $ 9,840
-------- =======
Less amount representing interest....... 1,239
--------
Present value of net minimum
lease payments........................... 4,698
Less current maturities of
capital lease obligation................. 614
-----
Capital lease obligation.................$ 4,084
=======
Total rental expense for the above operating leases and other short-term
leases for the fiscal years 1996, 1995 and 1994 was $4,499, $3,731 and
$4,684, respectively.
B. CAPITAL EXPENDITURES
In fiscal 1997, the Company plans a $40,000 expansion of its manufacturing
facilities, primarily to expand capacity and to continue to reduce
manufacturing costs, subject to prevailing market conditions, of which
$7,084 is committed at September 30, 1996.
C. LITIGATION
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.
11. INCOME TAXES
The provision (benefit) for income taxes is as follows:
YEAR ENDED
SEPTEMBER 30,
1996 1995 1994
Current:
Federal.................... $2,600 $3,180 $3,770
State...................... 600 400 1,000
Foreign.................... 300 275 -
----- ------ -----
3,500 3,855 4,770
Deferred:
Federal.................... 3,200 (218) 3,405
State...................... 200 (137) 425
----- ------ -----
3,400 (355) 3,830
----- ------ -----
Total taxes on income.......... $6,900 $3,500 $8,600
====== ====== ======
A reconciliation of US income tax computed at the statutory rate and actual tax
expense is as follows:
YEAR ENDED SEPTEMBER 30,
1996 1995 1994
Amount computed at statutory rate.... $5,250 $1,900 $7,007
State and local taxes less applicable
federal income tax................. 550 270 747
Amortization of goodwill............. 873 873 871
Other nondeductible expenses......... 115 210 348
Other, net........................... 112 247 (373)
----- ----- -----
$6,900 $3,500 $8,600
====== ====== ======
The tax effects of significant items comprising the Company's net deferred tax
liability are as follows:
YEAR ENDED SEPTEMBER 30,
1996 1995
Property, plant and equipment................. $24,819 $22,121
Trademarks and patents........................ 1,056 1,054
------- -------
Total deferred tax liabilities................ 25,875 23,175
------ ------
Receivables................................... 996 1,609
Inventory..................................... 626 628
Accrued expenses.............................. 1,829 1,581
AMT credit carryforward....................... 1,314 1,647
----- -----
Total deferred tax assets..................... 4,765 5,465
Net deferred tax liability.................... $21,110 $17,710
======= =======
The Company's United States Income Tax returns for fiscal years 1992 and 1993
have been examined and settled without material adjustment.
12. RETIREMENT PROGRAMS
For US employees, the Company maintains a trusteed profit-sharing plan
("Plan") which is qualified under Section 401(k) of the Internal Revenue
Code. All full-time employees over the age of 21 who have been employed
continuously for at least one year are eligible for participation in the
Plan. The Company may, but has not elected to, contribute a portion of its
profits to the Plan, as determined by the Board of Directors. Employer
contributions vest over 1 to 5 years. The Company has elected to match
employee contributions to the Plan on a 50% basis but not to exceed 3% of the
employee's annual compensation. During fiscal years 1996, 1995 and 1994, the
Company contributed $999, $921 and $891, respectively. The Plan provides for
the Company to bear the expense of the administration of the Plan. Pension
expense on the foreign plans is not significant.
13. STOCK OPTIONS
In August 1994, the Company adopted a stock option plan (the "Director's
Plan") pursuant to which non-qualified stock options to purchase an aggregate
of 125,261 shares of Common Stock were granted to the four non-employee
Directors of the Company at an exercise price of $6.83 per share which was
determined by reference to the fair market value of the Company's equity at
the time such Directors joined the Board. The stock options will be fully
vested by October 1, 1996 and have a term which expires on August 4, 2004.
The Director's Plan does not provide for any further grants or options
thereunder.
In August 1994, the Company adopted a stock option plan ( the "1994 Plan")
for its key employees which provides for the grant of incentive stock
options, within the meaning of Section 422A of the Internal Revenue Code, and
non-qualified stock options. The maximum aggregate number of shares of
Common Stock that may be issued under the 1994 Plan is approximately 491,413
shares.
In December 1995 and 1994, stock options for 174,716 and 316,697 shares of
Common Stock were granted to various employees under the 1994 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 September 30, 1996, 79,173 stock options
were exercisable under the 1994 Plan.
In May 1996 as amended on July 31, 1996, the Company adopted a stock option
plan (the "1996 Plan"), which provides for the grant of incentive stock
options and nonqualified 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
289,062 shares. Options to purchase an aggregate of 21,723 shares have been
granted at an exercise price of $10.72 per share.
The purchase price of the shares of Common Stock subject to options under the
1994 and 1996 Plans must be no less than the fair market value of the Common
Stock at the date of grant, provided, however, that the purchase price of
shares of Common Stock subject to Initial Stock Offerings ("ISO") granted to
any optionee who owns shares possessing more than 10% of the combined voting
power of the Company ("Ten Percent Stockholder") must not be less than 110%
of the fair market value of the Common stock at the date of the grant. The
maximum term of an option may not exceed ten years from the date of grant,
except with respect to ISOs granted to Ten Percent Stockholders which must
expire within five years of the date of grant.
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: December 17, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on the behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Leonard Chill
Leonard Chill President and Director
Dated: December 17, 1996
By:/s/ Joseph Sinicropi
Joseph Sinicropi Secretary and Chief Financial
Officer
Dated: December 17, 1996 (Principal Accounting Officer)
By: /s/ Joseph F. Dana
Joseph F. Dana Director
Dated: December 17, 1996
By: /s/ Lee J. Siedler
Lee J. Seidler Director
Dated: December 17, 1996
By:/s/ William J. Shortt
William J. Shortt Director
Dated: December 17, 1996
By:/s/ Robert L. Voigt
Robert L. Voigt Director
Dated: December 17, 1996
F-30
CORPORATION
By /s/ Peter L. Skavla
Name: Peter L. Skavla
Title: Vice President
SOUTHTRUST BANK OF GEORGIA,
N.A.
By: /s/ Melinda M. Bergbom
Melinda M. Bergbom
Vice President
Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia.
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: /s/ Leonard Chill
Name: Leonard Chill
ATTEST: Title: President and Chief
Executive Officer
Joeseph Sinicropi
Secretary
THE FIRST NATIONAL BANK OF
BOSTON, as the Agent and as
a Lender
By: /s/ Thomas R. Sommerfield
Name: Thomas R. Sommerfield
Title: Division Executive
SANWA BUSINESS CREDIT
at least seven copies of this Amendment, each duly executed and
delivered by the Borrower and the Majority Lenders,
a certificate of the president or chief financial officer of the
Borrower to the effect that after giving effect to this Amendment, (i) all
representations and warranties of the Borrower set forth in the Credit Agreement
and the other Loan Documents are true and correct on and as of the date of this
Amendment, and (ii) no Default or Event of Default has occurred and is
continuing, and such statements shall be true, and
such other documents, instruments and certificates as the Agent
may reasonably request in connection with the transactions contemplated by this
Amendment.
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.
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
Amendments to Credit Agreement. The Credit Agreement is hereby
amended, subject to the provisions of Section 3 hereof, by
amending Section 1.1 Definitions by adding thereto in appropriate
alphabetical order the following additional definition:
"IPO" means the initial public offering of the Borrower's common stock
in an underwritten transaction consummated in compliance with Applicable
Law and on or before December 31, 1996.
amending Section 10.6 Restricted Payments and Purchases, Etc. in
its entirety to read as follows:
SECTION 10.6 Restricted Payments and Purchases, Etc. Declare or
make any Restricted Dividend Payment, Restricted Payment or Restricted
Purchase, EXCEPT that the Borrower may, within 60 days after consummation
of the IPO, apply up to $25,000,000 of the net cash proceeds to the
Borrower of the IPO to the repayment or prepayment or acquisition and
cancellation of Senior Subordinated Debt, PROVIDED that at the time of such
repayment or prepayment or acquisition and cancellation, and after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing.
Effectiveness of Amendment. This Amendment shall become
effective as of the date hereof upon receipt by the Agent of the following, each
in form and substance satisfactory to the Agent:
AMENDMENT NO. 5
to
FOURTH AMENDED AND RESTATED REVOLVING
CREDIT AND SECURITY AGREEMENT
dated as of October 20, 1995
THIS AMENDMENT NO. 5 dated as of November 4, 1996 is made by and among
Synthetic Industries, Inc., a Delaware corporation (the "Borrower"), The First
National Bank of Boston ("Bank of Boston"), Sanwa Business Credit Corporation
("Sanwa") and SouthTrust Bank of Georgia, N.A. ("SouthTrust" and together with
Bank of Boston and Sanwa, the "Lenders"), and Bank of Boston as agent (the
"Agent") for the Lenders.
Preliminary Statements
The Borrower, the Lenders and the Agent are parties to a Fourth
Amended and Restated Revolving Credit and Security Agreement dated as of
October 20, 1995, as amended by Amendment No. 1 dated as of December 1, 1995,
Amendment No. 2 dated as of February 14, 1996, Amendment No. 3 dated as of March
15, 1996 and Amendment No. 4 dated as of September 26, 1996 (the "Credit
Agreement"; terms defined therein and not otherwise defined herein being used
herein as therein defined).
The Borrower has requested, and the Lenders and the Agent have agreed,
upon and subject to the terms, conditions and provisions of this Amendment, the
right to prepay principal of Senior Subordinated Debt from the proceeds of an
initial public offering of the Borrower's capital stock.
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