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 0-21548
SYNTHETIC INDUSTRIES L.P.
(Exact name of Registrant as specified in its charter)
Delaware 13-3397585
(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)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Units of
Limited Partnership Interest.
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
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report on Form 10-K for the fiscal year ended
September 30, 1996 of Synthetic Industries, Inc., a Delaware corporation, are
incorporated by reference herein.
PART I
ITEM 1. BUSINESS
GENERAL
Synthetic Industries, L.P. (the "Partnership") is a limited partnership
organized under the laws of the State of Delaware. In December 1986, the
Partnership acquired (the "Acquisition") all of the issued and outstanding
shares (the "Shares") of the capital stock of Synthetic Industries, Inc., a
Delaware corporation (the "Company"). The Company manufactures and markets a
wide range of polypropylene-based fabric and fiber products designed for
industrial applications. The information set forth under the heading "Business"
in the Form 10-K of the Company for the fiscal year ended September 30, 1996
(the "Form 10-K") is incorporated herein by reference.
Since its organization in 1986, the Partnership has conducted no business
except (I) engaging in the transactions described in a confidential offering
memorandum dated January 16, 1987, as supplemented, relating to the offering and
sale of units of limited partnership interest in the Partnership (the "Units");
and (II) owning and voting the Shares. The Partnership's principal executive
offices are located at 309 LaFayette Road, Chickamauga, Georgia 30707, and its
telephone number is (706) 375-3121.
The sole general partner of the partnership is SI Management L.P., a
Delaware limited partnership ("Management L.P."). The sole general partner of
Management L.P. is Synthetic Management G.P. ("Synthetic G.P."). Synthetic G.P.
is a Georgia general partnership whose partners are controlled by certain
members of the Company's senior management. See "Directors and Executive
Officers--Partners of Synthetic G.P." Since the respective dates of the
formation, neither Synthetic G.P. nor Management L.P. has engaged in any
business, other than Synthetic G.P. acting as the general partner of Management
L.P. and Management L.P. acting as the general partner of Synthetic L.P.
ITEM 2. PROPERTIES
The Partnership does not own or lease any physical properties.
The information set forth under the heading "Properties" in the Form 10-K is
incorporated herein by reference.
ITEM 3. CLAIMS AND LEGAL PROCEEDINGS
The Partnership is not party to litigation arising out of its business
operations.
The information set forth under the heading "Claims and Legal Proceedings" in
the Form 10-K is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the holders of the units during fiscal
1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
There is no established trading market for the Units. In addition, the
limited partnership agreement of the Partnership (the "Limited Partnership
Agreement") places restrictions on the transferability of Units. No transferee
of all or any part of a Unit may be admitted to the Partnership as a limited
partner ("Limited Partner") without the written consent of Management L.P.,
which consent may be withheld in the absolute discretion of Management L.P. The
Limited Partnership Agreement also provides that the transfer of the whole or
any portion of a Unit shall not be effective to entitle the transferee to
receive distributions of cash of other property from the Partnership applicable
to the Unit acquired by reason of such transfer, unless Management L.P. consents
in writing to such transfer.
The Partnership has made no distributions of any kind since its organization
in 1986. The Company is currently restricted under a loan agreement with its
senior lenders and an indenture relating to the Company's senior subordinated
debentures due 2002 from paying cash dividends, or making certain types of
capital distributions.
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 38,318 28,687 41,007 29,921 27,656
Income from continuing
operations before
provision for
income taxes 14,341 5,436 20,257 8,134 8,155
Income from
continuing operations 7,441 1,936 11,657 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) 7,441 1,936 11,657 (12,310) (3,972)
Income per share
Continuing operations 1.25 .33 1.97 .63 .62
EBITDA (1) 53,413 42,877 52,188 41,051 36,937
1996 1995 1994 1993 1992
----- ---- ---- ---- ----
(THOUSANDS OF DOLLARS)
BALANCE SHEET DATA:
Working Capital $63,418 $69,041 $44,116 $42,057 $33,982
Total assets 323,756 312,302 287,935 260,374 254,583
Long-term debt 194,353 192,048 172,490 164,723 158,638
Stockholder's Equity 65,185 57,758 55,819 44,425 56,702
1 The Partnerhsip 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (IN 000'S)
As previously discussed, since its organization in 1986 and subsequent admission
of Limited Partners, the Partnership has conducted no business except owning and
voting the Shares. As a result, the discussion and analysis of financial
condition and results of operations presented below relates to the operations of
the Company, except as disclosed. Accordingly, all references to fiscal year
refer to the Company's fiscal year which ends on September 30th.
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......... 7.8 7.8 7.5
Amortization of intangibles 0.9 0.9 1.0
----- ---- -----
Operating income....... 12.6 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 4.8 2.0 8.6
Provision for income taxes 2.3 1.3 3.7
----- ---- ----
Net income............. 2.5% 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
for the Company 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. Included in general and administrative expenses for
the Partnership is $661 related to a withdrawn common stock offering, such
amount being due to the Company.
Operating income for the Company 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 for the Company was $8,102 compared to net income
of $1,936 for fiscal 1995, an increase of $6,166, or 318.5%. The Company's
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 changes 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
DIRECTORS OF SYNTHETIC G.P.
Synthetic G.P. is the sole general partner of Management L.P., which is the
sole general partner of the Partnership. By virtue of these relationships,
Synthetic G.P. controls the management and affairs of the Partnership.
The general partners of Synthetic G.P. are the following Delaware
corporations: Chill Investments, Inc., Beckman Investments, Inc., Freed
Investments, Inc., Kenner Investments, Inc., and Wright Investments, Inc. Each
of Leonard Chill, Jon P. Beckman, W. Wayne Freed, Ralph A. Kenner and W.
Gardner Wright, Jr. is the sole director and the controlling stockholder of one
of Synthetic G.P.'s general partners, and an executive officer of the Company.
Messrs. Chill and Beckman also serve as directors of the Company.
The information set forth under the heading "Directors and Executive
Officers" in the Form 10-K is incorporated herein by reference.
ITEM 11. RENUMERATION OF DIRECTORS AND OFFICERS
The information set forth under the heading "Remuneration of Directors and
Officers" in the Form 10-K is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As at December 1, 1996, no person or group is known to the Partnership to
be the beneficial owner of more than five percent (5%) of the Units. The
general partners of Synthetic G.P. and their respective stockholders do not own
any Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the heading "Certain Relationships and
Related Transactions" in the Form 10-K are incorporated herein by reference.
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
Partnership'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 Partnership or the holders of the units.
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 on 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 Partners of Synthetic Industries, L.P.
Chickamauga, Georgia
We have audited the accompanying consolidated balance sheets of Synthetic
Industries, L.P. and its subsidiary as of September 30, 1996 and 1995, and the
related consolidated statements of operations, changes in partners' capital 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, L.P. and
subsidiary 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 L.P.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
SEPTEMBER 30,
ASSETS 1996 1995
------- ------
CURRENT ASSETS:
Cash.............................................. $ 103 $ 110
Accounts receivable, net (Note 4)................. 47,861 47,947
Inventory (Note 5)................................ 39,142 45,597
Other current assets (Note 6)..................... 14,655 14,708
------- -------
TOTAL CURRENT ASSETS.......................... 101,761 108,362
PROPERTY, PLANT AND EQUIPMENT, net (Note 7)......... 137,974 116,729
OTHER ASSETS (Note 8)............................... 84,021 87,211
------- --------
$323,756 $312,302
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.................................. $20,227 $ 24,021
Accrued expenses and other current liabilities.... 10,026 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.................. 38,343 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)
PARTNERS' CAPITAL (Notes 3 and 13)
General Partner's Capital......................... 649 575
Limited Partners' Capital,
800 Units issued and outstanding................ 64,536 57,183
------ ------
TOTAL PARTNERS' CAPITAL....................... 65,185 57,758
------ ------
$323,756 $312,302
======== ========
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
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............ 22,318 21,195 17,351
Amortization of excess of purchase price
over net assets acquired and
other intangibles.............................. 2,592 2,566 2,499
------- ------- -------
261,719 242,740 193,970
------- ------- -------
Operating income........................... 37,813 28,687 41,007
------ ------ ------
Other expenses:
Interest expense, net.......................... 22,773 22,514 20,011
Amortization of deferred financing costs....... 699 737 739
------ ------ ------
23,472 23,251 20,750
------ ------ ------
Income before
provision for income taxes................... 14,341 5,436 20,257
Provision for income taxes
(Note 11).................................... 6,900 3,500 8,600
------- ----- ------
NET INCOME...................................... $ 7,441 $ 1,936 $ 11,657
======= ======== =========
NET INCOME ATTRIBUTABLE TO:
General partner..............................$ 74 $ 19 $ 114
Limited partners............................. 7,367 1,917 11,543
------ -------- ---------
$ 7,441 $ 1,936 $ 11,657
======= ======== =========
Net income per limited partnership unit.........$ 9.30 $ 2.42 $ 14.57
======= ======= =========
Limited partnership units outstanding ........... 800 800 800
==== ==== ====
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS OF DOLLARS)
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNER CAPITAL
Balance, September 30, 1993.....$ 442 $ 43,746 $ 44,188
Net income...................... 114 11,543 11,657
Foreign currency translation.... - (26) (26)
---- ------- -------
Balance, September 30, 1994....... 556 55,263 55,819
Net income........................ 19 1,917 1,936
Foreign currency translation...... - 3 3
---- ------ -----
Balance, September 30, 1995....... 575 57,183 57,758
Net income........................ 74 7,367 7,441
Foreign currency translation...... - (14) (14)
---- ------- -------
Balance, September 30, 1996....... $ 649 $ 64,536 $ 65,185
====== ======== =======
See notes to consolidated financial statements
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED SEPTEMBER 30,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.....................................$ 7,441 $ 1,936 $ 11,657
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................ (943) (12,212) (2,861)
Decrease (increase) in inventory............... 6,451 (13,076) (7,255)
Increase in other current assets............... (647) (1,469) (595)
(Decrease) increase in accounts payable........ (3,801) 5,254 5,340
Increase in accrued expenses
and other current liabilities................ 2,648 434 533
(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) 24,228
------ ------ ------
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) (297)
Deferred financing costs....................... (101) (221) -
------ ------ ------
Cash (used in) provided by
financing activities..................... (2,177) 13,341 7,503
Effect of exchange rate changes on cash.... 2 (2) (3)
----- ------ -----
NET DECREASE IN CASH............................. (7) (9) (136)
CASH AT BEGINNING OF PERIOD...................... 110 119 255
--- --- ---
CASH AT END OF PERIOD............................$ 103 $ 110 $ 119
===== ====== ======
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 L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE INFORMATION)
1.ORGANIZATION
Synthetic Industries, L.P. (the "Partnership") is a limited partnership
organized under the laws of Delaware. In December 1986, the Partnership
acquired all of the issued and outstanding shares of Synthetic Industries,
Inc. (the "Company"). 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.
Since its organization in 1986, the Partnership has conducted no business
except (I) engaging in the transactions described in a confidential offering
memorandum dated January 16, 1987, as supplemented, relating to the offering
and sale of units of limited partnership interest in the Partnership (the
"Units"); and (II) owning and voting the Shares.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Partnership
and the Company. 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 improvements25 years
Machinery and equipment14 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
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.
The Partnership attempted a public offering to sell all of its shares in the
Company which was withdrawn. Under an agreement with the Company, the
Company paid the costs associated with the withdrawn public offering of
approximately $660 and the Partnership will reimburse the Company.
Accordingly, the Partnership has expensed the costs, in general and
administrative expenses, and recorded a liability to the Company for all
amounts due.
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 Partnership is not party to litigation arising out of its business
operations.
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 L.P.
By: SI MANAGEMENT L.P.
General Partner
By: SYNTHETIC MANAGEMENT G.P.
General Partner
By: CHILL INVESTMENTS, INC.
Managing General Partner
By: /s/ Leonard Chill
Leonard Chill
President
Dated: December 20, 1996
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