UNITED STATES 5/13/99 6:08 PM
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
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)
Registrant's telephone number, including area code (706) 375-3121
--------------------------
- --------------------------------------------------------------------------------
(Former name,former address and former fiscal year,if changed sincelast report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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____
The number of shares of the Registrant's Common Stock, par value $1.00 per
share, outstanding as of May 13, 1999 was 8,672,382.
<PAGE>
Part I-FINANCIAL INFORMATION SYNTHETIC INDUSTRIES, INC.
Item 1. Financial Information AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1999 1998
---- -----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash ...........................................................................$ 334 $ 285
Accounts receivable, net of allowance for
doubtful accounts of $2,700 and $2,714........................................ 54,674 64,251
Inventory (Note 3).............................................................. 57,636 52,450
Other current assets ........................................................... 18,807 17,309
------- -------
TOTAL CURRENT ASSETS........................................................ 131,451 134,295
PROPERTY, PLANT AND EQUIPMENT, net (Note 4)....................................... 225,801 218,449
OTHER ASSETS...................................................................... 85,962 87,770
-------- -------
$443,214 $440,514
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 18,585 $ 26,438
Accrued expenses and other current liabilities.................................. 13,432 13,653
Income taxes payable............................................................ - 285
Interest payable................................................................ 2,181 2,154
Current maturities of long-term debt (Note 5)................................... 1,235 5,500
-------- ---------
TOTAL CURRENT LIABILITIES................................................... 35,433 41,880
LONG-TERM DEBT (Note 5)........................................................... 249,888 236,843
DEFERRED INCOME TAXES ............................................................ 32,996 32,996
STOCKHOLDERS' EQUITY:
Common stock (par value $1.00 per share, authorized 25,000,000,
Issued 8,672,382 and 8,668,750, respectively)................................ 8,672 8,669
Treasury stock (43,843 and 71,546 shares, respectively)......................... (940) (1,534)
Additional paid-in capital ..................................................... 94,191 94,392
Cumulative translation adjustments.............................................. (37) 171
Retained earnings............................................................... 23,011 20,947
-------- ---------
TOTAL STOCKHOLDERS' EQUITY.................................................. 124,897 122,645
--------------------------
$443,214 $440,514
============================
</TABLE>
See notes to consolidated financial statements
<PAGE>
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31 Six Months Ended March 31
1999 1998 1999 1998
----- ---- -----
<S> <C> <C> <C> <C>
Net sales................................................... $ 84,525 $ 79,271 $171,687 $155,852
-------- -------- -------- --------
Costs and expenses:
Cost of sales............................................. 55,745 54,522 115,539 107,718
Selling expenses.......................................... 9,866 9,074 19,655 17,401
General and administrative expenses....................... 9,539 8,045 18,031 15,233
Plant consolidation costs (Note 8)........................ 1,761 - 3,380 -
Amortization of excess purchase price over net
assets acquired and other intangibles................... 754 663 1,480 1,311
-------- ------- -------- --------
77,665 72,304 158,085 141,663
Operating profit...................................... 6,860 6,967 13,602 14,189
----- ----- ------ ------
Other expenses:
Interest expense ......................................... 4,904 4,716 9,852 9,506
Amortization of deferred financing costs.................. 198 185 394 336
------- ------- -------- --------
............................................................
............................................................ 5,102 4,901 10,246 9,842
Income before income tax provision ......................... 1,758 2,066 3,356 4,347
Income tax provision (Note 7)............................... 640 828 1,292 1,763
------ ------- ---------- --------
NET INCOME ................................................. $1,118 $1,238 $2,064 $2,584
Net income per share:
Basic................................................... $ 0.13 $ 0.14 $ 0.24 $ 0.30
Diluted................................................. 0.13 0.14 0.23 0.28
Average shares outstanding:
Basic.................................................. 8,672,382 8,668,750 8,671,171 8,662,500
Diluted................................................ 8,913,011 9,080,922 8,873,736 9,099,365
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended March 31,
1999 1998
---- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income............................................................ $ 2,064 $ 2,584
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization..................................... 12,771 10,313
Write off of assets in connection with plant consolidation........ 790 -
Provision for bad debts........................................... 260 61
Change in assets and liabilities, net of acquisitions:
Accounts receivable............................................... 9,328 14,867
Inventory......................................................... (5,175) (11,216)
Other assets...................................................... (1,685) (2,341)
Accounts payable.................................................. (7,939) (2,799)
Accrued expenses and other current liabilities.................... (221) (808)
Income taxes payable.............................................. (285) 907
Interest payable.................................................. 27 (198)
----------- ------------
Net cash provided by operating activities........................ 9,935 11,370
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............................ (17,035) (27,405)
Acquisition .......................................................... - (6,000)
------------ ----------
Net cash used in investing activities ............................ (17,035) (33,405)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under term loan............................................ - (25,000)
Borrowings under the Credit Facility.................................. 8,901 55,219
Redemption of 12 3/4% Senior subordinated debentures.................. - (7,403)
Repayments under capital lease obligations and other long-term debt .. (2,004)
Proceeds from sale of treasury stock under the Employee Stock
Purchase Plan....................................................... 358 -
Proceeds from exercise of stock options............................... 38 85
Deferred financing costs.............................................. - (649)
------------ -----------
Net cash provided by financing activities....................... 7,293 21,885
Effect of exchange rate changes on cash........................... (144) 75
---------- ------------
NET CHANGE IN CASH...................................................... 49 (75)
CASH AT BEGINNING OF PERIOD............................................. 285 338
---------- -----------
CASH AT END OF PERIOD................................................... $ 334 $ 263
========= ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid during the year for:
Interest ............................................................. $ 10,518 $ 9,704
Income taxes.......................................................... 3,641 856
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Net capital obligation for purchase of equipment...................... 1,884 -
Acquisition of business:
Fair value of assets acquired......................................... - $5,293
Liabilities assumed and incurred...................................... - 4,880
Cash paid............................................................. - 6,000
</TABLE>
See notes to consolidated financial statement
<PAGE>
SYNTHETIC INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except share and per share information)
(Information as of March 31, 1999 and for the
periods ending March 31, 1999 and 1998 are unaudited)
1. ORGANIZATION
Synthetic Industries, Inc., a Delaware corporation (the "Company"), was a wholly
owned subsidiary of Synthetic Industries L.P. (the "Partnership") until November
1, 1996. On that day, the Company completed the underwritten public offering
(the "Offering") of 2,875,000 shares of its common stock, par value $1.00 per
share ("Common Stock"). The Company manufactures and markets a wide range of
primarily polypropylene-based materials designed for support, strength and
stabilization applications. The Company's products replace commonly used
materials in diverse applications including: floor covering, geotextiles,
erosion control, concrete reinforcement and furniture construction fabrics. The
Company manufactures and sells more than two thousand products in over 65
end-use markets predominately in North America, Europe and the Far East.
2. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of March 31, 1999 and for the periods
ended March 31, 1999 and 1998 included herein have been prepared, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the financial position at March
31, 1999 and 1998, and the results of operations for the three and six months
then ended, have been made on a consistent basis. Certain information and
footnote disclosures included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management believes
that the disclosures herein are adequate to make the information presented not
misleading. It is suggested that these consolidated financial statements be read
in conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated financial statements included in
the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1998. Operating results for the three and six months ended March 31, 1999 may
not necessarily be indicative of the results that may be expected for the full
year.
3. INVENTORY
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---- -------
<S> <C> <C>
Finished goods........................ $42,881 $ 37,689
Work in process....................... 6,901 7,107
Raw materials......................... 7,854 7,654
--------- --------
$ 57,636 $ 52,450
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---- ------
<S> <C> <C>
Land.................................... $ 4,585 $ 4,585
Buildings and improvements.............. 44,966 42,588
Equipment under capital lease........... 12,800 12,500
Machinery and equipment and
leasehold improvements................ 282,064 266,972
------- --------
344,415 326,645
Accumulated depreciation................ 118,614 108,196
------- --------
$225,801 $218,449
</TABLE>
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
----- ----
<S> <C> <C>
Credit facility:
Securitization................................ $24,508 $ 29,162
Revolver...................................... 43,577 30,022
9 1/4% senior subordinated
notes, due 2007................................. 170,000 170,000
Capital lease obligation......................... 11,857 10,647
Other............................................ 1,181 2,512
--------- ---------
251,123 242,343
Less current portion............................. 1,235 5,500
-------- ----------
Total long term portion........................ $249,888 $ 236,843
</TABLE>
At March 31, 1999, interest rates under the Securitization and Revolver
ranged from 5.66% to 7.75%, respectively with letters of credit
outstanding of $356, and availability under the Credit Facility was
approximately $16,000.
On October 4, 1998, the Company entered into a 7.03% eight-year capital
lease for the acquisition of equipment of $5,300 and repaid the balance
of the May 15, 1996 capital lease of $3,416.
6. COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which requires additional disclosure of amounts
comprising comprehensive income. Comprehensive income is broadly defined as
the change in the equity of a business enterprise for translation and other
events and circumstances from nonowner sources. The Company has other
comprehensive income in the form of foreign currency cumulative translation
adjustments which resulted in total comprehensive income, net of tax of
$1,025 and $1,230 for the quarters ended March 31, 1999 and 1998,
respectively, and $1,936 and $2,629 for the six months ended March 31, 1999
and 1998, respectively.
7. INCOME TAXES
The provision for income taxes in the consolidated statements of
operations reflects the effective tax rate of 36.4% and 38.5% for the
three and six months ended March 31, 1999, respectively.
8. PLANT CONSOLIDATION COSTS
On November 18, 1998 the Company announced its plans to combine its
non-woven manufacturing facility in Spartanburg, SC into its modern
facility in Ringgold, GA. As a result, the Company recorded pretax charges
of $1,761 and $3,380 ($0.12 and $0.23 per diluted share on an after tax
basis) for the three and six months ended March 31, 1999, respectively. The
charges reflect severance provisions of $1,132 related to workforce
reductions of approximately 105 employees, equipment relocation costs of
$1,458 and a charge of $790 (net of $479 accumulated depreciation) for the
write off of abandoned assets. As of March 31, 1999, payments of
approximately $3,000 have been made for these charges.
9. LITIGATION
The Company and its subsidiaries are parties to litigation arising out of
their business operations. Such litigation primarily 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 either adequately covered by insurance or do not
involve a risk of material loss to the Company.
In connection with the proposed dissolution of the Partnership, pursuant to
an Agreement and Plan of Withdrawal and Dissolution (the "Plan"), the
Company, its directors and certain other of the Company's officers who are
affiliated with the General Partner have been named in two putative class
and derivative action lawsuits filed by certain limited partners of the
Partnership. In the first action, filed on February 11, 1997 in the
Delaware Court of Chancery and thereafter amended, the plaintiffs have
alleged, among other things, breach of contract with respect to the
Partnership Agreement which governs the Partnership, breach of the
defendants' fiduciary duty to the limited partners and the Company, that
the Plan was unlawfully coercive, that the General Partner has allegedly
failed to satisfy certain conditions precedent to the right of limited
partners to amend the partnership agreement and that certain amendments
necessary to implement the Plan violate the terms of the partnership
agreement. The plaintiffs sought, among other equitable and legal remedies,
removal of the General Partner, dissolution of the Partnership, appointment
of a liquidating trustee, to enjoin the implementation of the Plan and
compensatory damages in an undetermined amount. On October 23, 1997, the
Court preliminarily enjoined the implementation of the Plan, although the
Plan was subsequently approved by limited partners on November 7, 1997. On
November 7, 1997, the Delaware Supreme Court accepted the defendants'
petition for an expedited appeal of this injunction, and briefing and oral
argument on the appeal was completed as of January 6, 1998. On March 19,
1998, the Delaware Supreme Court issued an opinion affirming the Court of
Chancery's grant of a preliminary injunction and remanded the case for
further proceedings. On April 27, 1998, the Court of Chancery granted the
motion of certain pro-Plan intervenors to intervene in the action, but
denied their motion to disqualify plaintiffs' counsel. On May 14, 1998, the
General Partner withdrew the Plan. After the withdrawal of the Plan,
plaintiffs, on June 3, 1998, filed a Consolidated Third Amended and
Supplemental Class and Derivative Complaint (the "Third Amended
Complaint"). The Third Amended Complaint, among other things, eliminated
certain requests for relief related to the Plan and added certain
allegations related to the Company's Employee Stock Purchase Plan and
certain options granted to certain directors and officers of the Company.
In addition to the relief sought in prior complaints, the Third Amended
Complaint seeks declaratory relief with respect to certain provisions of
the Partnership Agreement, the invalidation of the Company's Employee Stock
Purchase Plan, the invalidation of certain options granted to the Company's
directors and officers, and the invalidation of certain amendments to the
Company's certificate of incorporation and bylaws relating to voting by
consent and the calling of special meetings. On July 20, 1998, defendants
filed a motion to dismiss the Third Amended Complaint. The defendants have
denied any allegation of wrongdoing.
The second lawsuit was filed in the U.S. District Court of the Northern
District of California on May 1, 1997, and thereafter amended. The
plaintiff has alleged in his amended complaint various federal securities
and proxy violations allegedly arising out of the joint proxy statement and
prospectus that was mailed to limited partners in connection with the
solicitation of proxies for the vote on the Plan and other related
documents. The plaintiff also added the Company as a named defendant,
alleging that all defendants acted in concert with, and as agents of, each
other; however the plaintiff made no specific independent allegations with
respect to the Company. The plaintiff sought, among other equitable and
legal remedies, to enjoin the implementation of the Plan and unspecified
damages. On November 6, 1997, the Court granted in part the plaintiff's
motion for a temporary restraining order enjoining the implementation of
the Plan. After the withdrawal of the Plan, defendants, on June 19, 1998,
filed a motion to dismiss the claims as moot. On July 17, 1998, plaintiff
moved to amend his complaint purportedly to include an additional plaintiff
and additional claims for relief, including permanent injunctive relief for
any violations of the securities laws in the future. The amended complaint
also adds the Partnership as a nominal defendant. On September 24, 1998,
the Court denied the defendants' motion to dismiss and granted plaintiff's
motion to amend the complaint.
The defendants have denied any allegation of wrongdoing.
On December 29, 1997, a purported derivative action was filed in the
Delaware Chancery Court by a limited partner of the Partnership against
certain of the Company's officers and directors with regard to certain
stock options plans adopted by the Company in 1994. Both the Partnership
and the Company were named as nominal defendants. The plaintiff alleged
that the defendants breached their fiduciary duties by adoption of the
stock option plans. The plaintiff seeks, among other things, a declaration
that the stock options granted under the plans are invalid, the
establishment of a constructive trust over the stock options, unspecified
compensatory damages and reasonable attorneys' fees and expenses. By order
dated June 23, 1998, this action was consolidated with the Delaware action
described above.
On April 16, 1999, preliminary approval of a settlement agreement in
connection with these lawsuits was granted by the United States District
Court for the Northern District of California. The settlement will not
become final until after notice is given to the limited partners of the
Partnership and stockholders of the Company and the Court holds a hearing
at which limited partners and stockholders will be given an opportunity to
object to the terms of the settlement.
If, after the hearing, final approval of the settlement agreement is
granted by the Court, the General Partner will resign, a trustee will be
appointed for the Partnership, and an independent committee of the
Company's Board of Directors (the "Committee") will commence a six-month
sales process during which the committee, with the help of a financial
advisor will seek offers from qualified buyers to purchase the Company. The
primary objective of the sale process will be to maximize value for the
Company's shareholders. If an acceptable offer to acquire the Company is
not received during the process, the Partnership will be liquidated and its
shares of the Company's common stock will be distributed in an orderly
manner (after satisfaction of liabilities). The settlement agreement is not
an admission by the Company of any liability or wrongdoing.
Prior to March 23, 1999, approximately 158 plaintiffs filed claims against
Kaufman and Broad Home Corporation (including its subsidiaries and
affiliates) ("Kaufman and Broad") in two Los Angeles County Superior Court
cases in connections with claims of alleged defects in fiber reinforced
concrete slabs. On or about March 23, 1999, the plaintiffs settled claims
against Kaufman and Broad. On April 29, 1999, the plaintiffs filed amended
complaints naming the Company as a defendant in these actions. The relief
sought has not yet been specified. The Company has denied any allegations
of wrongdoing and intends to vigorously defend against all claims by the
plaintiffs in these complaints.
On October 1, 1998, a class action complaint was filed against Kaufman and
Broad in Los Angeles County Superior Court, again in connection with
alleged defects in fiber reinforcedd concrete slabs. Kaufman and Broad
denied the plaintiffs' allegations and filed a cross-complaint against the
Company. The relief has not yet been specified. The Company answered
Kaufman and Broad cross-complaint, denying generally and specifically the
allegations that Kaufman and Broad had been injured or was entitled to any
relief by any reason, act or omission by or on behalf of the Company. The
Company intends to vigorously defend against all claims by the plaintiffs
in this complaint.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the information contained in the
Consolidated Financial Statements, including the notes thereto. The following
discussion includes forward-looking statements that involve certain risks and
uncertainties. See "Forward Looking Statements." Dollars are in thousands,
except per share data.
Liquidity and Capital Resources
To finance its capital expenditure program and fund its operational
needs, the Company has relied upon cash provided by operations, supplemented as
necessary by bank lines of credit and long-term indebtedness. Cash provided by
operating activities amounted to $9,935 and $11,370 for the six months ended
March 31, 1999 and 1998, respectively. These amounts for the periods ended March
31, 1999 and 1998 reflect net income of $2,064 and $2,584, respectively, after
deducting noncash charges of $13,701 and $10,374 and net working capital changes
of ($5,830) and ($1,588) for each respective period.
Capital expenditures were $17,035 for the six months ended March 31,
1999 as compared to $27,405 for the same period of fiscal 1998. In addition, on
October 4, 1998, the Company entered into a 7.03% eight-year capital lease for
the acquisition of equipment of $5,300 and repaid the balance of the May 15,
1996 capital lease of $3,416. Capital expenditures planned for the balance of
fiscal 1999 are approximately $10,000, primarily to expand the capacity of the
Company's nonwoven manufacturing facilities, subject to prevailing market
conditions.
Other sources of liquidity include the December 18, 1997 five-year
credit facility between the Company and its lenders, with BankBoston as agent
(the "Credit Facility") and the $170,000 aggregate principal amount of 9.25%
Senior Subordinated Notes due February 15, 2007 (the "Notes").
The Credit Facility consists of up to a $40 million asset based
securitization program (the "Securitization") and a $60 million senior secured
revolver facility (the "Revolver"), collateralized by the Company's accounts
receivable and substantially all of the Company's assets, excluding real
property, respectively. At March 31, 1999, the balances under the Securitization
and Revolver were $24,508 and $43,577 at interest rates ranging from 5.66% to
7.75%, respectively with letters of credit outstanding of $356. Availability
under the Credit Facility was approximately $16,000 at March 31, 1998.
The Notes, which represent unsecured obligations of the Company, are
redeemable at the option of the Company at any time on or after February 15,
2002, at an initial redemption price of 104.625% of their principal amount
together with accrued interest, with declining redemption prices thereafter.
Interest on the Notes is payable semi-annually on February 15 and August 15 in
the amount of $7,863.
Based on current levels of operations and anticipated growth, the
Company's management expects net cash from operations and available credit
facilities to be sufficient to fund the Company's short-term and long-term debt
obligations, permit anticipated capital expenditures and fund the working
capital needs of the Company for the next twelve months.
On November 18, 1998 the Company announced plans to combine its non-woven
manufacturing facilities. The Company estimates that $5,000 to $6,000 of pre-tax
costs will be incurred relating to the plant combination. The move is expected
to increase operating efficiencies by reducing overhead costs and centralizing
production in a modern facility resulting in expected pre-tax savings of
approximately $1,500 to $2,000 annually. The Company recorded pre-tax charges of
$1,761 and $3,380 ($0.12 and $0.23 per share on an after tax basis) for the
three and six month period ending March 31, 1999, respectively. These charges
were primarily related to severance and other employee related costs, equipment
relocation costs and a charge for the write off of assets. As of March 31,
1999, approximately $3,000 of payments have been made against these charges.
The Company expects that all remaining costs will be incurred in fiscal 1999.
Results of Operations
The following table sets forth the percentage relationships to net sales of
certain income statement items for the three and six months ended March 31, 1998
and 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 66.0 68.8 67.3 69.1
---- ---- ---- ----
Gross profit........................... 34.0 31.2 32.7 30.9
Selling expenses.......................... 11.7 11.4 11.4 11.2
General and administrative
expenses.......................... 11.3 10.2 10.5 9.8
Plant consolidation costs................. 2.1 0.0 2.0 0.0
Amortization of intangibles............... 0.9 0.8 0.9 0.8
--- --- --- ---
Operating profit....................... 8.0 8.8 7.9 9.1
Interest expense.......................... 5.8 6.0 5.7 6.1
Amortization of deferred
financing costs................... 0.2 0.2 0.2 0.2
--- --- --- ---
Income before
provision for taxes............ 2.0 2.6 2.0 2.8
Provision for
income taxes.................. 0.7 1.0 0.8 1.1
--- --- --- ---
Net income................................ 1.3% 1.6% 1.2% 1.7%
==== ==== ==== ====
</TABLE>
Results of Operations for the Three Months Ended March 31
Net sales for the second quarter of fiscal 1999 were $84,525 compared to
$79,271 for the same period of fiscal 1998, an increase of $5,254, or 6.6%.
Carpet backing sales for the second quarter of fiscal 1999 were $42,312 compared
to $40,960 for the same period of fiscal 1998, an increase of $1,351, or 3.3%,
reflecting a combination of higher unit volume offset by lower average selling
prices. Construction and civil engineering product sales for the second quarter
of fiscal 1999 were $24,758 compared to $20,352 for the same period of fiscal
1998, an increase of $4,406, or 21.6%, including $2,813 contributed by the
acquisition of Novocon International, Inc. Technical textiles sales for the
second quarter of fiscal 1999 were $17,455 compared to $17,959 for the same
period of fiscal 1998, a decrease of $504, or 2.8%.
Gross profit for the second quarter of fiscal 1999 was $28,780 compared to
$24,749 for the same period of fiscal 1998, an increase of $4,031, or 16.3%. As
a percentage of sales, gross profit increased to 34.0% from 31.2%. This increase
was primarily due to increased sales volume, growth of higher margin business
and lower on average polypropylene costs, partially offset by lower average
selling prices.
Selling, general and administrative expenses for the second quarter of
fiscal 1999 were $19,405 compared to $17,119 for the same period of fiscal 1998,
an increase of $2,286, or 13.4%. As a percentage of sales, selling, general and
administrative expenses increased from 21.6% to 23.0%. This increase was
primarily due to increased expenditures for sales and engineering support staff
as well as increased marketing expenses, particularly in Construction and Civil
Engineering.
Operating income for the second quarter of fiscal 1999 was $6,860 as
compared to $6,967 for the same period of fiscal 1998, a decrease of $107, or
1.5%. As a percentage of sales, operating income decreased to 8.1% in fiscal
1999 from 8.8% in fiscal 1998. This decrease was primarily due plant
consolidation costs in the second quarter of fiscal 1999 of $1,761. Operating
income, excluding plant consolidation costs, was $8,621.
Interest expense for the second quarter of fiscal 1999 was $4,904 compared
to $4,716 for the same period of fiscal 1998, an increase of $188, or 4.0%, due
to a lower average interest rate applied on higher outstanding debt. The
effective income tax rate for the second quarter of fiscal 1999 was 36.4%.
Net income for the second quarter of fiscal 1999 was $1,118 compared to
$1,238 for the same period of fiscal 1998, a decrease of $120, or 9.7%.
Excluding the plant consolidation costs, net income would have been $2,238, an
increase of $1,000, or 80.8%, over net income for the same period of fiscal
1998. Earnings before interest, taxes, depreciation and amortization ("EBITDA")1
for the second quarter of fiscal 1999 were $13,719 compared to $12,613 for the
same period of fiscal 1998, an increase of $1,106, or 8.8%. Excluding plant
consolidation costs, EBITDA increased $2,867.
Basic earnings per share for the second quarter of fiscal 1999 were $0.13
compared to $0.14 for the same period of fiscal 1998 based on weighted average
shares outstanding of 8,672,382 and 8,668,750 for fiscal 1999 and 1998,
respectively. Diluted earnings per share for the second quarter of fiscal 1999
were $0.13 compared to $0.14 for the same period of fiscal 1998 based on
weighted average shares outstanding of 8,913,011 and 9,080,922 for fiscal 1999
and 1998, respectively. These decreases were primarily due to the factors
discussed above. Excluding plant consolidation costs, earnings per share would
have been $0.25 per share on a diluted basis.
Results of Operations for the Six Months Ended March 31
Net sales for the first six months of fiscal 1999 were $171,687 compared to
$155,852 for the same period of fiscal 1998, an increase of $15,835 or 10.2%.
Carpet backing sales for the first six months of fiscal 1999 were $83,359
compared to $79,874 for the same period of fiscal 1998, an increase of $3,485,
or 4.4%. Construction and civil engineering product sales for the first six
months of fiscal 1999 were $55,216 compared to $43,168 for the same period of
fiscal 1998, an increase of $12,048, or 27.9%. Technical textiles sales for the
first six months of fiscal 1999 were $33,112 compared to $32,810 for the same
period of fiscal 1998, an increase of $302, or 0.9%.
Gross profit for the first six months of fiscal 1999 was $56,148 compared
to $48,134 for the same period of fiscal 1998, an increase of $8,014, or 16.6%.
As a percentage of sales, gross profit increased to 32.7% from 30.9%.
Selling, general and administrative expenses for the first six months of
fiscal 1999 were $37,686 compared to $32,634 for the same period of fiscal 1998,
an increase of $5,052, or 15.5%, reflecting increased expenditures for sales and
support staff. As a percentage of sales, selling, general and administrative
expenses increased from 20.9% to 22.0% reflecting lower on average selling
prices.
Operating income for the first six months of fiscal 1999 was $13,602 as
compared to $14,189 for the same period of fiscal 1998, a decrease of $587, or
4.1%. As a percentage of sales, operating income decreased to 7.9% in fiscal
1999 from 9.1% in fiscal 1998. Excluding plant consolidation costs, operating
income was $16,982.
Interest expense for the first six months of fiscal 1999 was $9,852
compared to $9,506 for the same period of fiscal 1998, an increase of $346, or
3.6%, due to lower average interest rates on higher outstanding debt. The
effective income tax rate for the six months ended March 31, 1999 was 38.5%.
Net income for the first six months of fiscal 1999, was $2,064 compared to
$2,584 for the same period of fiscal 1998, a decrease of $520, or 20.1%.
Excluding the plant consolidation costs, net income would have been $4,143, an
increase of $1,559, or 60.3%, over net income for the same period of fiscal
1998. EBITDA for the first six months of fiscal 1999 were $25,979 compared to
$24,705 for the same period of fiscal 1998, an increase of $1,274, or 5.2%.
Excluding plant consolidation costs, EBITDA increased $4,645. The increase in
EBITDA was primarily due to higher depreciation expense as compared to the same
period of fiscal 1998.
Basic earnings per share for the first six months of fiscal 1999 were $0.24
compared to $0.30 for the same period of fiscal 1998 based on weighted average
shares outstanding of 8,671,171 and 8,662,500 for fiscal 1999 and 1998,
respectively. Diluted earnings per share for the first six months of fiscal 1999
was $0.23 compared to $0.28 for the same period of fiscal 1998 based on weighted
average shares outstanding of 8,873,736 and 9,099,365 for fiscal 1999 and 1998,
respectively. These decreases were primarily due to the factors discussed above.
Excluding plant consolidation costs, earnings per share would have been $0.47
per share on a diluted basis.
Recent Accounting Pronouncement
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which must be adopted for fiscal years beginning after December
15, 1997. Under the new standard, companies will be required to report certain
information about operating segments in consolidated financial statements.
Operating segments will be determined based on the method that management
organizes its businesses for making operating decisions and assessing
performance. SFAS 131 also requires companies to report certain information
about their products and services, the geographic areas in which they operate,
and their major customers. SFAS 131 will not have a material effect on the
Company's results of operations or financial condition.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which must be adopted for fiscal quarters of fiscal
years beginning after June 15, 1999. SFAS 133 requires the recognition of all
derivatives as either assets or liabilities in the statement of financial
position and measurement of those instruments at fair value. SFAS 133 will not
have a material effect on the Company's results of operations or financial
condition.
Year 2000 Readiness Disclosures
The Company is preparing its computer systems and hardware to deal with
the issues related to the year 2000. This is necessary because certain computer
programs have been written using two digits rather than four to define the
applicable year. As a result, software may recognize a date using the two digits
"00" as the year 1900 rather than the year 2000. Computer programs that do not
recognize the proper date could generate erroneous data or cause systems to
fail. In addition, many of the Company's vendors and service providers are also
faced with similar issues related to the year 2000.
In January 1998, the Company formally implemented a plan to become year
2000 compliant. The Company evaluated and tested business and technical
information system hardware and software as to year 2000 compliance and
functionality. The Company's basic integrated software applications, Infinium
and CAMS, are represented to be year 2000 compliant by their respective vendors.
Internal testing was completed in March 1999 that verified vendor
representations. Minimal code renovations were necessary in CAMS and have been
completed. Validation processes will be ongoing in 1999, thereby providing
sufficient time to address unforeseen issues and develop contingency plans for
external supply chain dependencies that could affect the Company and the
Company's business partners. The inventory process and assigning priorities are
complete for manufacturing process control, instrumentation and embedded
systems. Documentation from respective equipment manufacturers and resources is
99% complete. The Company believes that the repair of this equipment is
approximately 98% complete, with completion scheduled by June 1999. Contingency
plans for production work arounds are in process and scheduled for completion by
October 1999. The Company has been proactive in contacting external business
partners to communicate and exchange status information.
Costs associated with required modification to become year 2000 compliant
have not been material to the company's financial position and have been
expensed as incurred. The Company does not believe that future costs will have a
material adverse effect on the Company's results of operations or financial
condition.
The Company is developing contingency plans to ensure that it will be able
to operate the critical areas of its business. Contingency plans include
developing alternative business processes for our business dependencies with
customers and suppliers who may experience year 2000 interruptions. . These
plans will be monitored for completion as we approach the year 2000. Although
the Company is making every reasonable effort to identify and successfully
resolve any year 2000 issues that are within our control, there can be no
assurance that the efforts or the contingency plans related to the Company's
systems or those of third parties relied upon will be successful or that any
failure to convert, upgrade, or appropriately plan for contingencies would not
have a material adverse effect on the Company's results of operations or
financial condition.
Forward Looking Statements
The discussion of the Company's business and operations in this report
includes several instances of forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See the Company's most recent annual report filed on Form 10-K (Item 7A). There
have been no material changes in the information provided therein from September
30, 1998 to March 31, 1999.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to litigation arising out
of their business operations. Such litigation primarily 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 either adequately covered by insurance or do not
involve a risk of material loss to the Company.
In connection with the proposed dissolution of the Partnership,
pursuant to an Agreement and Plan of Withdrawal and Dissolution (the
"Plan"), the Company, its directors and certain other of the Company's
officers who are affiliated with the General Partner have been named in two
putative class and derivative action lawsuits filed by certain limited
partners of the Partnership. In the first action, filed on February 11,
1997 in the Delaware Court of Chancery and thereafter amended, the
plaintiffs have alleged, among other things, breach of contract with
respect to the Partnership Agreement which governs the Partnership, breach
of the defendants' fiduciary duty to the limited partners and the Company,
that the Plan was unlawfully coercive, that the General Partner has
allegedly failed to satisfy certain conditions precedent to the right of
limited partners to amend the partnership agreement and that certain
amendments necessary to implement the Plan violate the terms of the
partnership agreement. The plaintiffs sought, among other equitable and
legal remedies, removal of the General Partner, dissolution of the
Partnership, appointment of a liquidating trustee, to enjoin the
implementation of the Plan and compensatory damages in an undetermined
amount. On October 23, 1997, the Court preliminarily enjoined the
implementation of the Plan, although the Plan was subsequently approved by
limited partners on November 7, 1997. On November 7, 1997, the Delaware
Supreme Court accepted the defendants' petition for an expedited appeal of
this injunction, and briefing and oral argument on the appeal was completed
as of January 6, 1998. On March 19, 1998, the Delaware Supreme Court issued
an opinion affirming the Court of Chancery's grant of a preliminary
injunction and remanded the case for further proceedings. On April 27,
1998, the Court of Chancery granted the motion of certain pro-Plan
intervenors to intervene in the action, but denied their motion to
disqualify plaintiffs' counsel. On May 14, 1998, the General Partner
withdrew the Plan. After the withdrawal of the Plan, plaintiffs, on June 3,
1998, filed a Consolidated Third Amended and Supplemental Class and
Derivative Complaint (the "Third Amended Complaint"). The Third Amended
Complaint, among other things, eliminated certain requests for relief
related to the Plan and added certain allegations related to the Company's
Employee Stock Purchase Plan and certain options granted to certain
directors and officers of the Company. In addition to the relief sought in
prior complaints, the Third Amended Complaint seeks declaratory relief with
respect to certain provisions of the Partnership Agreement, the
invalidation of the Company's Employee Stock Purchase Plan, the
invalidation of certain options granted to the Company's directors and
officers, and the invalidation of certain amendments to the Company's
certificate of incorporation and bylaws relating to voting by consent and
the calling of special meetings. On July 20, 1998, defendants filed a
motion to dismiss the Third Amended Complaint. The defendants have denied
any allegation of wrongdoing.
The second lawsuit was filed in the U.S. District Court of the Northern
District of California on May 1, 1997, and thereafter amended. The
plaintiff has alleged in his amended complaint various federal securities
and proxy violations allegedly arising out of the joint proxy statement and
prospectus that was mailed to limited partners in connection with the
solicitation of proxies for the vote on the Plan and other related
documents. The plaintiff also added the Company as a named defendant,
alleging that all defendants acted in concert with, and as agents of, each
other; however the plaintiff made no specific independent allegations with
respect to the Company. The plaintiff sought, among other equitable and
legal remedies, to enjoin the implementation of the Plan and unspecified
damages. On November 6, 1997, the Court granted in part the plaintiff's
motion for a temporary restraining order enjoining the implementation of
the Plan. After the withdrawal of the Plan, defendants, on June 19, 1998,
filed a motion to dismiss the claims as moot. On July 17, 1998, plaintiff
moved to amend his complaint purportedly to include an additional plaintiff
and additional claims for relief, including permanent injunctive relief for
any violations of the securities laws in the future. The amended complaint
also adds the Partnership as a nominal defendant. On September 24, 1998,
the Court denied the defendants' motion to dismiss and granted plaintiff's
motion to amend the complaint.
The defendants have denied any allegation of wrongdoing.
On December 29, 1997, a purported derivative action was filed in the
Delaware Chancery Court by a limited partner of the Partnership against
certain of the Company's officers and directors with regard to certain
stock options plans adopted by the Company in 1994. Both the Partnership
and the Company were named as nominal defendants. The plaintiff alleged
that the defendants breached their fiduciary duties by adoption of the
stock option plans. The plaintiff seeks, among other things, a declaration
that the stock options granted under the plans are invalid, the
establishment of a constructive trust over the stock options, unspecified
compensatory damages and reasonable attorneys' fees and expenses. By order
dated June 23, 1998, this action was consolidated with the Delaware action
described above.
On April 16, 1999, preliminary approval of a settlement agreement in
connection with these lawsuits was granted by the United States District
Court for the Northern District of California. The settlement will not
become final until after notice is given to the limited partners of the
Partnership and stockholders of the Company and the Court holds a hearing
at which limited partners and stockholders will be given an opportunity to
object to the terms of the settlement.
If, after the hearing, final approval of the settlement agreement is
granted by the Court, the General Partner will resign, a trustee will be
appointed for the Partnership, and an independent committee of the
Company's Board of Directors (the "Committee") will commence a six-month
sales process during which the committee, with the help of a financial
advisor will seek offers from qualified buyers to purchase the Company. The
primary objective of the sale process will be to maximize value for the
Company's shareholders. If an acceptable offer to acquire the Company is
not received during the process, the Partnership will be liquidated and its
shares of the Company's common stock will be distributed in an orderly
manner (after satisfaction of liabilities). The settlement agreement is not
an admission by the Company of any liability or wrongdoing.
Prior to March 23, 1999, approximately 158 plaintiffs filed
claims against Kaufman and Broad Home Corporation (including its
subsidiaries and affiliates) ("Kaufman and Broad") in two Los Angeles
County Superior Court cases in connections with claims of alleged
defects in fiber reinforced concrete slabs. On or about March 23,
1999, the plaintiffs settled claims against Kaufman and Broad. On
April 29, 1999, the plaintiffs filed amended complaints naming the
Company as a defendant in these actions. The relief sought has not yet
been specified. The Company has denied any allegations of wrongdoing
and intends to vigorously defend against all claims by the plaintiffs
in these complaints.
On October 1, 1998, a class action complaint was filed against
Kaufman and Broad in Los Angeles County Superior Court, again in
connection with alleged defects in fiber reinforcedd concrete slabs.
Kaufman and Broad denied the plaintiffs' allegations and filed a
cross-complaint against the Company. The relief has not yet been
specified. The Company answered Kaufman and Broad cross-complaint,
denying generally and specifically the allegations that Kaufman and
Broad had been injured or was entitled to any relief by any reason,
act or omission by or on behalf of the Company. The Company intends to
vigorously defend against all claims by the plaintiffs in this
complaint.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1 27.0 Financial Data Schedule
1 Amendment 1 dated February 17, 1999, to the Receivables
Purchase Agreement
- --------------
1 Filed herewith
(b) Reports of Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNTHETIC INDUSTRIES, INC.
By: /s/ Leonard Chill
Leonard Chill
President
Dated: May 14, 1999
By: /s/ Joseph Sinicropi
Joseph Sinicropi
Chief Financial Officer
Dated: May 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following table presents financial information for the six months and
period ended March 31, 1999.
</LEGEND>
<CIK> 0000809803
<NAME> Synthetic Industries, Inc
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 334
<SECURITIES> 0
<RECEIVABLES> 57,374
<ALLOWANCES> 2,700
<INVENTORY> 57,636
<CURRENT-ASSETS> 131,451
<PP&E> 344,415
<DEPRECIATION> 118,614
<TOTAL-ASSETS> 443,214
<CURRENT-LIABILITIES> 35,433
<BONDS> 170,000
0
0
<COMMON> 8,672
<OTHER-SE> 116,225
<TOTAL-LIABILITY-AND-EQUITY> 443,214
<SALES> 171,687
<TOTAL-REVENUES> 171,687
<CGS> 115,539
<TOTAL-COSTS> 158,085
<OTHER-EXPENSES> 158,085
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,246
<INCOME-PRETAX> 3,356
<INCOME-TAX> 1,292
<INCOME-CONTINUING> 2,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,064
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.23
</TABLE>
[Execution Copy]
AMENDMENT NO. 1
TO
RECEIVABLES PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO RECEIVABLES PURCHASE AGREEMENT (the
"Amendment") dated as of February 17, 1999, is entered into by and among
SYNTHETIC FUNDING CORPORATION, a Delaware corporation (the "Seller"),
EAGLEFUNDING CAPITAL CORPORATION, a Delaware corporation ("Purchaser"),
BANCBOSTON ROBERTSON STEPHENS INC. (formerly known as BancBoston Securities
Inc.) ("BRSI"), as agent hereunder (in such capacity, the "Deal Agent"), and
SYNTHETIC INDUSTRIES, INC., a Delaware corporation ("Synthetic"), as initial
Collection Agent hereunder (in such capacity, the "Collection Agent").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to such terms in the "Agreement" (as defined below).
WITNESSETH:
WHEREAS, the Seller, the Purchaser, the Deal Agent, Synthetic
and the Collection Agent have entered into that certain Receivables Purchase
Agreement dated as of December 18, 1997 (the "Agreement"), pursuant to which,
among other things, the Seller has agreed to sell to the Purchaser, and the
Purchaser has agreed to purchase from the Seller, undivided percentage interests
in the Seller's Receivables; and
WHEREAS, the parties hereto have agreed to modify certain
terms and provisions of the Agreement as set forth herein;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. Amendments to the Agreement. Effective of the first date on
which each of the conditions set forth in Section 2 hereof shall have been
satisfied, the Agreement is amended as follows:
(A) The definition of "Aggregate Reserves" is hereby amended as
follows:
(1) clause (i) of such definition is deleted in its entirety and the
clause "(i) the Loss Reserve as in effect on such day, and" is substituted
therefor.
(B) The definition of "Concentration Limit" is hereby amended as
follows:
(1) clause (b) of such definition is deleted in its entirety and the
following clause is substituted therefor:
(b) for any single Obligor having an indebtedness rating of at least "A-2" or
its equivalent by each of S&P, Moody's and DCR (if rated by DCR) (but not
satisfying the criteria set forth in clause (a) above), 15.0%;
(2) clause (c) of such definition is deleted in its entirety and the
following clause is substituted therefor:
(c) for any single Obligor having an indebtedness rating of at least "A-3" or
its equivalent by each of S&P, Moody's and DCR (if rated by DCR) (but not
satisfying the criteria set forth in either of clauses (a) or (b) above), 7.5%;
(3) The penultimate sentence of such definition is deleted in its
entirety and the following sentence is substituted therefor:
The parties hereto agree that, as of the date hereof and unless otherwise agreed
to by each of the Deal Agent and the Seller, a "Special Concentration Limit" of
9.0% exists for Shaw Industries Inc.
(C) The definition of "Eligible Receivables Balance" is hereby amended
as follows:
(1) clause (c) of such definition is deleted in its entirety and the
following clause is substituted therefor:
(c) the excess of the Outstanding Balance of Eligible Receivables in respect of
which the Obligor is not a resident of the United States or Canada over 4.0% of
the Outstanding Balance of all Eligible Receivables.
(D) The definition of "Loss Reserve Percentage" is hereby amended as
follows:
(1) clause (a) of such definition is deleted in its entirety and the
following clause is substituted therefor:
(a) the sum of (i) the product (stated as a percentage) of (A) a factor of 2.0,
times (B) the Loss Horizon Factor as of the last day of the most recently ended
calendar month, times (C) the largest Loss Reserve Ratio for any of the next
preceding twelve calendar months, computed as of the last day of each such month
(including, without limitation, the most recently ended calendar month), (ii)
the Dilution Reserve Percentage as of the last day of the most recently ended
calendar month, and (iii) the Yield Reserve Percentage as of the last day of the
most recently ended calendar month;
SECTION 2. Conditions Precedent. This Amendment shall become effective
as of the date first set forth above upon satisfaction of the following
conditions precedent:
(A) The Deal Agent shall have received:
(1) eight fully executed copies of this Amendment; and
(2) such other documents and information as the Deal Agent shall
reasonably request.
(B) The Purchaser shall have obtained confirmation from each of the
three rating agencies rating the Commercial Paper that the amendments herein
will not result in a withdrawal or downgrade of the current rating of the
Commercial Paper; and
(C) All of the fees and expenses referred to in Section 8 below and any
other fees and expenses owing under Section 10.09 of the Agreement or any other
agreement between the parties thereto shall have been paid in full.
SECTION 3. Representations, Warranties and Covenants. Upon the
effectiveness of this Amendment, the Seller hereby remakes and reaffirms all
covenants, representations and warranties made by it (or deemed made by it) in
the Agreement (except, in each case, to the extent that such covenants,
representations or warranties expressly speak as to another date).
SECTION 4. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 5. Severability. Each provision of this Amendment shall be
severable from every other provision of this Amendment for the purpose of
determining the legal enforceability of any provision hereof, and the
unenforceability of any provision hereof in one jurisdiction shall not have the
effect of rendering such provision or provisions unenforceable in any other
jurisdiction.
SECTION 6. Reference to and Effect on the Agreement. Upon the
effectiveness of this Amendment, each reference in the Agreement to "this
Agreement", "here-under", "hereof", "herein" or words of like import shall mean
and be, and references to the Agreement in any other document, in-strument or
agreement executed and/or delivered in connection with the Agreement shall mean
and be, a reference to the Agreement as previously amended and as amended
hereby. Except as otherwise amended by this Amend-ment, the Agreement as
previously amended shall continue in full force and effect and is hereby
ratified and confirmed.
SECTION 7. Counterparts. This Amendment may be exe-cuted in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
SECTION 8. Fees and Expenses. The Seller hereby confirms its agreement
to pay on demand all reasonable costs and expenses in connection with the
preparation, execution and delivery of this Amendment and any of the other
instruments, documents and agreements to be executed and/or delivered in
connection herewith, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel to the Deal Agent with respect thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[Amendment No. 1 to Receivables Purchase Agreement - signature page]
IN WITNESS WHEREOF, the parties have caused this Amendment to
be executed by their respective officers there-unto duly authorized, as of the
date first above written.
THE SELLER: SYNTHETIC FUNDING CORPORATION
By_________________________________
Title:
THE COLLECTION AGENT: SYNTHETIC INDUSTRIES, INC.
By_________________________________
Title:
THE DEAL AGENT: BANCBOSTON ROBERTSON STEPHENS INC.
By_________________________________
Title:
THE PURCHASER: EAGLEFUNDING CAPITAL CORPORATION
By: BancBoston Robertson Stephens Inc., as its attorney-in-fact
By_______________________
Title:
