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.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3397585
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
309 LaFayette Road, Chickamauga, Georgia 30707
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(Address of principal executive offices) (Zip Code)
(706) 375-3121
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(Registrant's telephone number, including area code)
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 ____
<PAGE>
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.
<PAGE>
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
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
-------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ----- ------
(thousands of dollars, except limited partnership units outstanding)
Summary of Operations Data:
<S> <C> <C> <C> <C> <C>
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 37,813 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 from continuing operations
attributable to limited partners 7,367 1,917 11,540 3,625 3,559
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 from continuing operations
per limited partnership unit 9.21 2.40 14.43 4.53 4.45
Other Financial Data:
Limited partnership units outstanding 800 800 800 800 800
As of September 30,
1996 1995 1994 1993 1992
----- ------ ------ ------ ------
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
Partners' Capital 65,185 57,758 55,819 44,425 56,702
</TABLE>
<PAGE>
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 of its public offering of Common Stock in
November 1996, the Company currently has 8,656,250 shares of Common Stock
outstanding, of which approximately 67% are owned by the Partnership. As the
Partnership has no independent operations or assets other than its investment in
the Company, the Partnership's financial statements are substantially identical
to those of the Company, with the exception of the minority interest and certain
expenses recognized by the Partnership associated with a withdrawn common stock
offering. As a result, the discussion and analysis of financial condition and
results of operations presented below relates to the operations of the Company,
except as disclosed. Accordingly, all references to fiscal year refer to the
Company's fiscal year which ends on September 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. Operating income for
the Partnership for fiscal 1996 was $37,813, which includes the additional
general and administrative expenses related to a withdrawn common stock offering
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. Net income for fiscal
1996 for the Partnership was $7,441, which includes the general and
administrative expenses related to a withdrawn common stock offering discussed
above.
Fiscal 1995 Compared to Fiscal 1994
Net sales for fiscal 1995 were $271,427 compared to $234,977 for fiscal
1994, an increase of $36,450, or 15.5%. This increase was primarily due to unit
volume growth in certain product lines and higher average selling prices. Carpet
backing sales for fiscal 1995 were $133,025 compared to $117,791 for fiscal
1994, an increase of $15,234, or 12.9%. This increase was primarily due to
higher unit volume due in part to increased market share in both primary and
secondary carpet backing as well as higher selling prices as compared to fiscal
1994. Construction and civil engineering product sales for fiscal 1995 were
$82,933 compared to $68,706 for fiscal 1994, an increase of $14,227, or 20.7%.
This increase was primarily due to a significant growth in sales of geosynthetic
products as well as an increase in sales of Fibermesh (r)fibers. Technical
textiles sales for fiscal 1995 were $55,469 compared to $48,480 for fiscal 1994,
an increase of $6,989, or 14.4%. This increase was primarily due to unit volume
growth in the furniture and bedding markets.
Gross profit for fiscal 1995 was $76,721 compared to $82,672 for fiscal
1994, a decrease of $5,951, or 7.2%. As a percentage of sales, gross profit
decreased to 28.3% from 35.2%. This decrease was primarily due to higher
polypropylene costs, offset partially by higher average selling prices. The
average market price of polypropylene increased approximately 50% per pound in
fiscal 1995 over fiscal 1994.
Selling expenses for fiscal 1995 were $24,273 compared to $21,815 for
fiscal 1994, an increase of $2,458, or 11.3%. This increase was primarily due to
increased marketing efforts in the construction and civil engineering products
lines as a direct result of increased sales. However, as a percentage of sales,
selling expenses decreased from 9.3% to 8.9%.
General and administrative expenses for fiscal 1995 were $21,195
compared to $17,588 for fiscal 1994, an increase of $3,607, or 20.5%. As a
percentage of sales, general and administrative expenses increased from 7.5% to
7.8%. This increase was primarily due to a charge of $2,852 related to an
increase in the allowance for doubtful accounts during the fourth quarter of
fiscal 1995. The charge was taken to establish a reserve for accounts receivable
for a carpet backing customer who experienced severe financial difficulties.
Operating income for fiscal 1995 was $28,687 compared to $40,770 for
fiscal 1994, a decrease of $12,083, or 29.6%. As a percentage of sales,
operating income decreased to 10.6% from 17.4%. This decrease was primarily due
to the change in gross profit associated with higher raw material costs.
Total interest expense for fiscal 1995 was $22,514 compared to $20,011
for fiscal 1994. This increase was due to a higher average total debt
outstanding and a higher base rate for the Credit Facility.
The effective income tax rate for fiscal 1995 was 64.3% compared to 43%
for fiscal 1994. The increase was primarily due to the effect of nondeductible
expenses, including the amortization of goodwill, on lower taxable income in
fiscal 1995.
Net income for fiscal 1995 was $1,936 compared to $11,420 for fiscal
1994, a decrease of $9,484, or 83%. This decrease was primarily due to increased
raw material and interest costs.
Liquidity and Capital Resources
To finance its capital expenditures program and fund its operational needs,
the Company has relied upon cash provided by operations, supplemented as
necessary by bank lines of credit and long-term indebtedness. Cash provided by
(used in) operating activities was $31,421, (35), and 23,962 for the years ended
September 30, 1996, 1995 and 1994, respectively.
Cash provided by (used in) operating activities in fiscal 1996, 1995 and
1994 resulted primarily from net income of $8,102, $1,936 and $11,420,
respectively, after deducting non-cash charges of $20,723, $17,945 and $16,703
and net working capital changes 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.
<PAGE>
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 General Partner is the sole general partner of the Partnership.
Synthetic Management G.P. is the sole general partner of SI Management L.P. By
virtue of these relationships, Synthetic Management G.P. controls the management
and affairs of the Partnership and, therefore, the Company. The Partnership owns
5,781,250 shares of Common Stock, or approximately 67% of the issued and
outstanding shares of Common Stock, and therefore holds the voting power to
determine the outcome of all matters upon which stockholders vote.
The general partners of Synthetic Management G.P. are the following five
Delaware corporations: Chill Investments, Inc., Beckman Investments, Inc., Freed
Investments, Inc., Kenner Investments, Inc., and W.G. Wright Investments, Inc.
Each of Messrs. Chill, Beckman, Freed, Kenner and Wright is the sole director
and the sole stockholder of one of Synthetic Management G.P.'s general partners.
For further information concerning Messrs. Chill, Beckman, Freed, Kenner and
Wright, see "Management--Executive Officers and Directors of the Company" and
"--Executive Compensation".
Jon P. Beckman, a former executive officer of the Company and an
affiliate of the General partner, is being retained as a consultant to the
Company. Pursuant to his consulting agreement with the Company, Mr. Beckman will
receive, until January 31, 2000, or upon earlier termination of his consulting
agreement, $125,000 per year and various insurance coverages, and will be
authorized to exercise all stock options awarded to him, subject to applicable
vesting provisions. Under this agreement, Mr. Beckman is required to provide the
Company with 20 hours of consultation per month, has released the Company from
any liability resulting from his employment and has also agreed not to compete
against the Company.
The Company leases office space under a five-year lease with William
Gardner Wright, Jr., one of the Company's executive officers. The term of the
lease expires on September 30, 1998 and the rent is approximately $4,000 per
month, which the Company believes is within prevailing market rates.
Pursuant to a licensing agreement with the Company, W. Wayne Freed, an
executive officer of the Company, receives royalties related to the manufacture
and sale of a certain product for which Mr. Freed owns all the U.S. and foreign
patents. Under this agreement, Mr. Freed received royalties of $3,079 and
$12,269 in fiscal 1995 and 1996, respectively, and will continue to receive such
royalties until 2012 or the earlier termination of the license agreement.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except unit information)
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 $312,302
See notes to consolidated financial statements
<PAGE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except limited
partnership units outstanding)
Year ended September 30,
1996 1995 1994
-------------- ----------- -------------
Net sales...........................$ 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..................... 23,318 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.......... $ 9.21 $ 2.40 $ 14.43
========== ========== ==========
Limited partnership units
outstanding ............... 800 800 800
========= ======= ========
See notes to consolidated financial statements
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C>
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
</TABLE>
<PAGE>
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. Foreign currency transaction gains and losses are included in
results of operations. Foreign currency realized and unrealized gains and
losses for the years presented were not material.
Inventory
Inventory is stated at the lower of cost, determined using the first-in,
first-out method, or market. Property, plant and equipment Property, plant
and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is provided on the straight-line method based on
estimated useful lives, as follows:
Building and improvements 25 years
Machinery and equipment 14 years
Leasehold improvements are amortized over the shorter of the useful life of
the asset or the term of the lease. Expenses for repairs, maintenance and
renewals are charged to operations as incurred. Expenditures which improve
an asset or extend its useful life are capitalized. When properties are
retired or otherwise disposed of, the related cost and accumulated
depreciation and amortization are removed from the accounts and any gain or
loss is included in the results of operations.
Capitalized interest is charged to machinery and equipment and amortized
over the lives of the related assets. Interest capitalized during fiscal
1996, 1995 and 1994 was $392, $729 and $283, respectively.
Income taxes
The Company accounts for income taxes using an asset and liability approach
in accordance with Statement of Financial Accounting Standards No. 109
("SFAS 109"). Under SFAS 109, deferred income taxes are recognized for the
tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in the statement of operations for the period that includes the
enactment date.
Excess of purchase price over net assets acquired
The excess of purchase price over net assets acquired is amortized on a
straight-line basis over a period of 40 years. Excess of purchase price
over net assets acquired is assessed for recoverability on a regular basis.
In evaluating the value and future benefits of goodwill, its carrying value
would be reduced by the excess, if any, of the balance over management's
best estimate of undiscounted future operating income before amortization
of the related intangible assets over the remaining amortization period.
Deferred financing and Intangible assets
Deferred financing costs are amortized over periods from 5 to 12 years.
Intangible assets consist primarily of a Fibermesh (r) trademark and
patents on civil engineering products, which are amortized on a
straight-line basis over 40 and 15 years, respectively.
Net income per limited partnership unit
Net income per limited partnership unit is based upon the weighted average
number of units outstanding during each respective year. Net income is
allocated to the General Partner and the Limited Partners based on their
respective ownership percentages.
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.
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.
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.
The Company grants uncollateralized trade terms to its customers, most of
whom are located in the state of Georgia. As of September 30, 1996 and
1995, $21,916 and $22, 903, respectively, of the Company's accounts
receivable balances were due from customers located in the state of
Georgia. Net sales to one customer represented 18% of consolidated net
sales for all three fiscal years presented.
5. INVENTORY
September 30,
1996 1995
---- ----
Finished goods............................$ 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% or 1.00% for Revolver or Term Loan advances,
respectively (9.00% and 9.25% at September 30, 1996 and 9.50% and
9.75% at September 30,1995) or (ii) for Eurodollar borrowing, based on
the Interbank Eurodollar rate at the time of conversion plus 2.50% and
2.75% for Revolver or Term Loan advances, respectively (8.06% and
8.09% at September 30, 1996 and 8.50% and 8.625% and September 30,
1995).
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.
<PAGE>
Future minimum lease payments under noncancellable lease obligations
at September 30, 1996 are as follows:
Capital Operating
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.
<PAGE>
11. INCOME TAXES
The sources of income before provision for incomes taxes are presented as
follows:
Fiscal Years Ended September 30,
1996 1995 1994
------ ------- -------
United States.................. $13,422 $ 4,546 $ 19,742
Foreign......................... $ 919 $ 890 $ 515
-------- --------- --------
Earnings before income taxes... $ 14,341 $ 5,436 $ 20,257
-------- -------- --------
The provision for income taxes attributable to the amounts shown above
consists of the following:
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....... $5,020 $1,900 $7,090
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............................. 342 247 (456)
------ ------ -----
$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
(no expiration date)........................... 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.
14. RELATED PARTY TRANSACTIONS
The Partnership owns 5,781,250 shares of the Company's Common Stock, or
approximately 67% of the issued and outstanding shares of Common Stock.
Four of the Company's executive officers, including the chief executive
officer, and a former executive officer are sole stockholders of
corporations which indirectly control the sole general partner of the
Partnership.
The Company and the Partnership entered into a Registration Rights
Agreement pursuant to which the Company has agreed that upon the request
of the Partnership the Company will register under the Securities Act and
applicable state securities laws the sale of the Common Stock owned by the
Partnership and as to which registration has been requested. The Company's
obligation is subject to certain limitations relating to a minimum amount
required for registration, the timing of a registration and other similar
matters. The Company is obligated to pay any registration expenses
incidental to such registration, excluding underwriter's commission and
discounts. In connection with the Common Stock Offering, the Company
incurred approximately $300 in 1996 of such registration expenses on
behalf of the Partnership.
A former executive officer of the Company and an affiliate of the
Partnership is being retained as a consultant to the Company. Pursuant to
a consulting agreement with the Company, the former executive officer will
receive, until January 31, 2000, or upon earlier terminiation of his
consulting agreement, $125 per year and various insurance coverages, and
will be authorized to exercise all stock options awarded to him, subject
to applicable vesting provisions. Under this agreement, the former
executive officer is required to provide the Company with 20 hours of
consultation per month, has released the Company from any liability
resulting from his employment and has also agreed not to compete against
the Company.
The Company leases office space under a five-year lease with one of the
Company's executive officers. The term of the lease expires on September
30, 1998 and the rent is approximately $48 per year, which the Company
believes is within prevailing market rates.
Pursuant to a licensing agreement with the Company, an executive officer
of the Company receives royalties related to the manufacture and sale of a
certain product for which the executive officer owns all of the United
States and foreign patents. Under the agreement, the Company paid
royalties of $3 and $12 to the executive officer in fiscal 1995 and 1996,
respectively, and will continue to pay such royalties until 2012 or the
earlier termination of the license agreement.
During fiscal 1996 and 1995, the Company paid fees of approximately $232
and $135, respectively, to a law firm in which a director of the Company
was a partner.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SYNTHETIC INDUSTRIES L.P.
By: SI MANAGEMENT L.P.
General Partner
By: SYNTHETIC MANAGEMENT G.P.
General Partner
By: CHILL INVESTMENTS, INC.
Managing General Partner
By: /s/ Leonard Chill
Leonard Chill
President
Dated: December 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedile contains summary financial information extracted fron
the condensed consolidated balance sheet of Synthetic Industries L.P.
as of September 30, 1996 and the related condensed consolidated
statement of income and cash flows for the twelve months ended
September 30, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000901175
<NAME> Synthetic Industries LP Annual Report
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