UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSACTION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 1999
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission File Number 33-11479
SYNTHETIC INDUSTRIES 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:
Title of Class: Name of each exchange on which
None Title of class registered
None
Securities registered pursuant to Section
12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
None.
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 all of the issued and outstanding shares (the "Shares") of
the capital stock of Synthetic Industries, Inc., a Delaware corporation (the
"Company"). As of September 30, 1999, the Partnership owned approximately 66% of
the Company's common stock, par value $1.00 per share (the "Common Stock"). The
Company manufactures and markets a wide range of polypropylene-based fabric and
fiber products designed for industrial applications.
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." or the "General Partner"). 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 their 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.
Recent Events
On November 5, 1999 the Partnership entered into a Stockholder Agreement
with SIND Holdings, Inc., a company organized by Investcorp, a global investment
group, and SIND Acquisition, Inc., a wholly-owned subsidiary of SIND Holdings,
Inc. (SIND Holdings and SIND Acquisition being hereafter referred to as the
"Purchasers"). Pursuant to the Stockholder Agreement the Partnership agreed to
tender all of the shares of common stock (the "Shares") it owned in Synthetic
Industries, Inc. (the "Company") to the Purchasers pursuant to a cash tender
offer that would be made to stockholders of the Company in accordance with a
Merger Agreement, dated November 5, 1999, between the Purchasers and the
Company. The cash tender offer was commenced on November 12, 1999, the
Partnership tendered the Shares and on December 15, 1999 the Partnership
received approximately $188,000 in cash in payment for the Shares. The
Liquidating Trustee promptly invested these proceeds in U.S. Treasury Bills,
which now comprise all of the assets of the Partnership.
Pursuant to the Stipulation and Agreement of Settlement approved by the
United States District Court for the Northern District of California to which
the Partnership is subject, the Liquidating Trustee has made application to the
Court to make a cash distribution to the partners of the Partnership and has
sent Payment Direction Letters to all limited partners of the Partnership. Upon
approval by the Court and return of the Payment Direction Letters, the
Liquidating Trustee intends to distribute $160,000 in cash in accordance with
the terms governing liquidating distributions set forth in the Partnership
Agreement. The remainder of the cash now held by the Partnership in U.S.
Treasury Bills will be retained in that form by the Liquidation Trustee pending
satisfaction of all of the Partnership's liabilities, including, without
limitation, the attorneys' fees payable to plaintiff's counsel in the litigation
that was the subject of the Stipulation and Agreement of Settlement, amounts
owed to the Company and the incidental expenses and liabilities incurred in
connection with the liquidation. On December 30, 1999, the United States
District Court for the Northern District of California awarded $6,839 in fees
and $237 in expenses to plaintiff's counsel, and directed an additional $13, 678
to be held in reserve by the Liquidating Trustee, subject to the exhaustion of
any appeals or further court order. In addition, at December 30, 1999, the
Partnership owed the Company $1,396 incurred in connection with plans of
dissolution that were not consummated. The Liquidating Trustee expects that all
liabilities of the Partnership will not exceed the amount of assets retained by
the Partnership. The Liquidating Trustee can give no assurances, however, as to
when and what amount of the reserve will be released by the Court, and,
therefore, no prediction can be made as to when and in what amount a final
liquidating distribution of the Partnership will be made.
The following discussion on business relates to the Company.
Products
The Company manufactures and sells a wide array of polypropylene-based
industrial fibers and fabrics along three principal product lines: carpet
backing, construction materials products and technical textiles. The Company
manufactures five basic yarn and fiber types, from which approximately 2,000
products are manufactured to serve in excess of 65 end-use markets. The
following table sets forth the Company's net sales attributable to each product
line, and the percentage of total net sales represented by each, for the past
five fiscal years:
<TABLE>
Year Ended September 30,
1999 1998 1997 1996 1995
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carpet Backing $172,024 44.7% $168,998 45.8% $166,219 48.1% $146,491 48.9% $133,025 49.0%
Construction 139,835 36.3 128,318 34.8 114,611 33.2 97,043 32.4 82,933 30.6
Materials
Technical Textiles 72,963 19.0 71,680 19.4 64,742 18.7 55,998 18.7 55,469 20.4
------ ---- ------ ---- ------- ---- ------ ---- ------ ----
Net Sales $384,822 100.0% $368,996 100.0% $345,572 100.0% $299,532 100.0% $271,427 100.0%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
Carpet Backing
Carpet backing is the Company's oldest and largest product line consisting
of primary and secondary fabrics in a variety of styles and widths that are
manufactured from polypropylene raw materials. Primary carpet backing is a
tightly woven material into which carpet yarn is tufted in the manufacture of
broadloom floorcoverings. Secondary carpet backing, which forms the base of the
carpet, is the coarser woven fabric that is laminated to the back of tufted
broadloom to insure both carpet integrity and dimensional stability. In addition
to its broad range of primary and secondary backing, the Company produces
SoftBac(TM), a revolutionary carpet backing system co-developed with Shaw
Industries, Inc. ("Shaw"), the Company's largest customer. SoftBac is a soft,
flexible carpet backing with a "fleecy" texture that makes it easier to handle
and provides for more efficient installation. Along with the ease of handling,
SoftBac requires fewer seams since it can bend and fold through problem areas
such as tight corners, passageways and closets. The Company entered the modular
carpet tile backing market in February 1997 through the Spartan Acquisition.
Construction Materials
The Company's construction materials product line offers two distinct
product lines to the construction industry: geosynthetic products and concrete
reinforcement fibers. Construction materials has achieved rapid growth since
1993 when the Company enhanced its channels of distribution for Fibermesh(R) and
expanded into the production of nonwoven geotextiles. In 1999, the Company
completed the BonTerra Acquisition, broadening the geosynthetic product line to
include natural erosion control fabrics. Within the construction material
product line, geotextile products principally serve the environmental and
infrastructure markets, with end uses such as landfill waste containment,
erosion control and soil stabilization, separation and reinforcement.
Fibermesh(R) and Novocon provide reinforcement of conventional and pre-cast
concrete.
Geosynthetic Products. The Company's geosynthetic product line consists of
erosion control fabrics, geotextiles, and soil fibers. These products control
erosion and capture sediment; provide filtration, separation and reinforcement
of soils; improve engineering properties of native soils; protect landfill
liners; and extend pavement life. The specifications of the Company's
geosynthetic fabrics and fibers vary depending on specific site conditions,
including such factors as slope angles, water flow velocities, climate, runoff,
soil profile and ultimate land use. The Company's geosynthetic products
generally comply with state agency guidelines pertaining to geosynthetic
products issued to date.
The Company produces a variety of nonwoven and woven geotextiles for use in
landfill, roadway and mining construction. The Company's LANDLOK(R) erosion
control products are used in storm water drainage channels, steep slopes and
shoreline protection. These products hold the soil in place, while allowing and
supporting vegetative growth. LANDLOK(R) products are an environmentally
friendly and aesthetically pleasing alternative to rock or concrete erosion
control methods.
Concrete Reinforcement. The Company pioneered the practical use of
polypropylene fibers as a secondary reinforcement for concrete with the
development and introduction of Fibermesh(R) to the concrete industry in
1983. The Company offers both steel fibers for primary reinforcement and
Fibermesh(R) polypropylene fibers for secondary reinforcement and plastic
shrinkage crack minimization. The addition of Fibermesh(R) polypropylene fibers
to concrete inhibits the formation of early cracking while providing greater
impact, abrasion, and shattering resistance from external forces. The hardened
fibrous concrete has lower permeability and a level of toughness (residual
strength) not found in plain concrete. Primary applications for Fibermesh(R) are
residential and commercial slabs, elevated decks, pre-cast products, shotcrete
tunnels, canals and pools, and whitetopping restoration of deteriorated asphalt
pavements and parking areas. Specific applications for Novocon's steel fibers
include industrial slabs on grade, airport runways, blast resistant structures,
and road and water tunnels.
Technical Textiles
Technical textiles produced by the Company are products and systems that
offer high performance solutions for niche markets consisting primarily of
specialty fabrics, industrial yarns and fibers. The specialty fabrics are
manufactured in a variety of widths, weights, permeability ranges and
dimensional configurations primarily from polypropylene and other synthetic
fibers. Customers use these fabrics to manufacture products used in diverse
applications such as furniture and bedding construction, filtration, and
agriculture. Furniture and bedding construction products consist of woven and
nonwoven decking and padding, mattress ticking, dust covers, spring insulators
and flange materials.
The Company also sells its industrial yarns and fibers directly to weavers,
knitters, and non-woven manufacturers who produce niche market products such as
automobile upholstery and air and water filtration media.
Marketing and Sales
Carpet Backing. The Company sells its carpet backing products to customers
in the carpet industry, most of whom are carpet manufacturers located in the
United States. In fiscal 1999, the Company's five largest carpet backing
customers accounted for approximately 84.8% of its total net sales to the carpet
industry. In fiscal 1999, sales to Shaw Industries, Inc. accounted for
approximately 58.4% of net carpet backing sales and approximately 26.1% of the
Company's total net sales.
The Company's carpet backing products are sold primarily through the
Company's sales force that is directed from a central sales office in Calhoun,
Georgia. All of the sales managers have significant industry experience and
monitor ongoing product requirements, styling changes and competitive trends
affecting their customers.
Construction Materials. The Company's broad product line is marketed in
conjunction with its industry expertise in application and material engineering,
as well as expertise in construction design and installation, as cost effective,
longer lasting alternatives to traditional construction methods. Its ongoing
marketing communications program for owners, architects, specifying agencies,
including both the public and private sectors, and the engineering community as
a whole, is designed to continue to build awareness of both product capabilities
and in-house and technical expertise, and to expand interest in and use of
concrete reinforcing fibers and geosynthetics.
The Company's geosynthetic products are sold primarily in North America to
regional and national distributors, installers of landfill liners and various
governmental transportation departments, port authorities and waterway
commissions. International sales, which comprise approximately 8% of
geosynthetic sales, are sold through worldwide distribution networks. In fiscal
1999, the five largest geosynthetic product customers accounted for
approximately 24.3% of the Company's total net sales in this product line.
Fibermesh(R) and Novocon concrete reinforcing fibers are sold through a
direct sales force to ready-mix concrete companies and precast concrete product
manufacturers located primarily in North America and the United Kingdom. The
sales force operates out of eleven regional offices in the United States and in
Chesterfield, England. In addition, Fibermesh(R) is sold through a contract with
Master Builders, Inc., a worldwide leader in concrete technology.
Internationally, in addition to the United Kingdom sales force, construction
industry product distributors market concrete reinforcing fibers in over 50
countries. In fiscal 1999, the ten largest concrete reinforcing fiber customers
accounted for approximately 12.5% of the Company's total net sales of this
product line.
Technical Textiles. The Company sells its specialty fabrics to a diverse
group of approximately 400 manufacturers located primarily in North and Central
America and the Pacific Rim countries. The Company sells its industrial yarns
and fibers to a diverse group of approximately 100 manufacturers located in
North America and Europe. In fiscal 1999, the Company's five largest technical
textile customers accounted for approximately 16.1% of the Company's total net
sales of technical textiles. The Company's technical textiles are marketed by
salespersons through sales offices in Gainesville and Calhoun, Georgia, Hickory
and High Point, North Carolina, Tupelo, Mississippi and Chesterfield, England.
Competition
The markets for the Company's products are highly competitive. In the
manufacture and sale of carpet backing, which represented approximately 45% and
46% of the Company's total sales in fiscal 1999 and 1998, respectively, the
Company competes primarily with BP Amoco p.l.c. ("BPAmoco") and certain other
companies. BPAmoco has the dominant position in the carpet backing market
worldwide. In the United States, only the Company and BPAmoco produce a broad
range of primary and secondary carpet backing in a variety of styles and widths.
The Company competes in the carpet backing market primarily on the basis of
quality, availability, service, price and product line variety, providing carpet
manufacturers with a reliable alternative source of supply to BPAmoco.
In the manufacture and sale of the Company's other products, the Company
generally competes with a number of other companies, some of which are
significantly larger and have substantially greater resources than the Company.
The Company's primary competitors in the construction materials market are
BPAmoco and T.C. Mirafi Corporation with respect to geotextiles, North American
Green, Inc. with respect to environmental and erosion control products, and W.R.
Grace & Co., which markets but does not manufacture concrete reinforcement
fibers, with respect to concrete reinforcement. The Company competes in the
concrete reinforcement fiber market primarily on the basis of product design and
technical service. In some applications, Fibermesh(R) and Novocon steel fibers
also compete with welded wire fabric on the basis of product performance and
cost. The Company competes in the construction materials market on the basis of
product line breadth and quality, price, and the custom design, engineering and
other services it provides to customers. With respect to technical textiles,
competitors vary depending upon the specific market niche. The Company competes
in each segment of the technical textiles market primarily on the basis of
service, quality, innovation and product line variety.
Manufacturing Process
Polypropylene, a chemically inert plastic derived from petroleum, is the
basic raw material used in the manufacture of primarily all of the Company's
products today. The Company believes it is a technological leader in the
conversion of polypropylene into woven and nonwoven polypropylene products. The
expertise of the Company's research and development and marketing staff has
enabled the Company to develop innovative products, frequently in response to
specific customer needs.
Woven fabrics are produced by interlacing thousands of strands of extruded
yarn at right angles to one another. The manner in which the yarn is interlaced
determines the type of weave. Woven fabrics are characterized by strength and
dimensional stability. The Company's woven fabric products include primary and
secondary carpet backing, geotextiles, erosion control fabrics and specialty
fabrics for the filtration, construction and agricultural markets.
Nonwoven fabrics are produced by first stacking several layers of webbed
short length fibers and then entangling the layers by punching barbed needles
through the layers. The Company's nonwoven fabric products include geotextiles,
erosion control fabrics, furniture and bedding construction fabrics and spill
control fabrics.
The Company believes that it has state-of-the-art manufacturing capability
in both its woven and nonwoven product lines and is one of the most
cost-efficient producers in the markets in which it participates. The Company's
three primary manufacturing processes are extrusion, weaving and needlepunched
nonwovens.
Extrusion. Much of the Company's expertise has been developed in its
extrusion processes. Engineering the polymeric raw materials during the
extrusion process creates many of the product's specification properties. In
addition to yarns and fibers for conventional end-uses, the Company has also
developed value-added products through the use of additives including those that
resist sunlight degradation. The Company owns and operates several of the
world's largest polypropylene staple fiber lines. Most of the Company's extruded
products are consumed internally and become value-added woven and nonwoven
fabrics, but some are sold to weavers, knitters, nonwoven producers and
convertors.
Weaving. The yarns produced in the Company's extrusion and yarn spinning
operations are woven on looms to produce the wide variety of fabrics that the
Company sells through all of its marketing divisions. Fabric properties are
engineered to industry specifications by altering constituent yarns and weave
patterns. Looms are generally interchangeable to weave carpet backing,
geotextiles and certain agricultural fabrics.
Needlepunched Nonwovens. The Company has a state-of-the-art needlepunched
nonwoven fabric facility. This modern plant produces a new generation of
engineered cost-effective fabrics for the geotextile, furniture and bedding
construction and chemical spill cleanup markets.
The Company maintains a complete rigorous quality control program centered
on statistical process control and customer key measures. Each stage of the
process from the raw material to the final product is monitored using standard
procedures and test methods which satisfy the quality control and consistency
standards of ISO 9002 established by the International Standards Organization.
In 1997, the Company received ISO 14001 certification for complying with
internationally recognized environmental standards - one of the first companies
in the United States to achieve such certification.
The Company's production equipment is capable of manufacturing a variety of
woven and nonwoven polypropylene products. This versatility enables the Company
to alter the product mix within its woven and nonwoven product lines in response
to market demand or to take advantage of specific product opportunities.
The Company's plants are run on a continuous 24-hour per day basis, seven
days a week, 350 days per year. Orders are typically filled from inventory.
Research and Development
The Company's research and market development is focused primarily on
development and as such the Company engages in product design, development and
performance validation to improve existing products and to create new products.
The Company expended approximately $9.9 million (approximately 2.6% of sales)
and $8.1 million (approximately 2.2% of sales) on Company-sponsored research and
market development activities in fiscal 1999 and fiscal 1998, respectively.
International Operations
The Company conducts its foreign sales operations through subsidiaries in
Europe and a network of distributors worldwide. The aggregate sales (principally
of construction materials products) by such foreign subsidiaries and marketing
divisions were approximately $8.3 million, $8.0 million, and $6.6 million in
fiscal year 1999, 1998 and 1997, respectively. International sales from United
States operations were approximately $31.8 million, $27.0 million and $30.1
million in fiscal years 1999, 1998 and 1997, respectively. Total international
sales were approximately 10.4%, 9.4% and 10.6% of net sales for fiscal 1999,
1998 and 1997, respectively.
Raw Materials
Polypropylene, which is a petroleum derivative, is the basic raw material
used in the manufacture of substantially all of the Company's products. The
Company currently purchases polypropylene in pellet form principally from five
suppliers, with Fina Oil & Chemical Company being the Company's largest supplier
of polypropylene. These purchases are generally made pursuant to long-standing
arrangements.
Regulation
The Company is subject to federal, state and local laws and regulations
affecting its business, including those promulgated under the Occupational
Safety and Health Act and by the Environmental Protection Agency or similar
state agencies. Many of the Company's construction materials products have
applications that are subject to building code association guidelines and
specifications and highway department guidelines. Obtaining the necessary
approvals can delay new product introductions in some areas. Moreover, the
enactment of new legislation or the issuance of new guidelines may require the
Company to modify its existing geotextile and erosion control fabric products
and may also delay the Company's introduction of new geotextiles and erosion
control fabric products.
The Company's expenditures to date in connection with such federal, state
and local laws and regulations have not been material to its operations. The
Company believes it is currently in substantial compliance with applicable
governmental regulations.
Environmental Compliance
The Company is subject to a broad range of federal, state, and local laws
and regulations relating to the pollution and protection of the environment.
Among the many environmental requirements applicable to the Company are laws
relating to air emissions, wastewater discharges, and the handling, disposal or
release of solid and hazardous substances and wastes. Based on continuing
internal review and advice from independent consultants, the Company believes
that it is currently in substantial compliance with applicable environmental
requirements.
The Company is also subject to laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), that
may impose liability retroactively and without fault for releases or threatened
releases of hazardous substances at on-site or off-site locations. The Company
is not aware of any releases for which it may be liable under CERCLA or any
analogous provision.
Actions by federal, state, and local governments in the United States and
abroad concerning environmental matters could result in laws or regulations that
could increase the cost of producing the products manufactured by the Company or
otherwise adversely affect demand for its products. For example, certain local
governments have adopted ordinances prohibiting or restricting the use or
disposal of certain polypropylene products. Widespread adoption of such
prohibitions or restrictions could adversely affect demand for the Company's
products and thereby have a material adverse effect upon the Company. In
addition, a decline in consumer preference for polypropylene products due to
environmental considerations could have a material adverse effect upon the
Company.
Most of the Company's manufacturing processes are mechanical and are
therefore considered to be environmentally benign. Polypropylene resins are
readily recyclable, and the Company recycles post-industrial waste for certain
of its products. In addition, each of the Company's manufacturing sites has
equipment and procedures for reclaiming a majority of internally generated
scrap, thus reducing the amount of waste sent to local landfills. As a result,
the Company does not currently anticipate any material adverse effect on its
operations, financial condition, or competitive position as a result of its
efforts to comply with environmental requirements. Some risk of environmental
liability is inherent in the nature of the Company's business, and there can be
no assurance that material environmental liabilities will not arise. It is also
possible that future developments in environmental regulation could lead to
material environmental compliance or cleanup costs.
Order Backlog
The Company generally sells its products pursuant to customer orders that
are either satisfied out of inventory or from the shipment of newly manufactured
products promptly following receipt of an order. Accordingly, the dollar amount
of backlog orders believed to be firm is not significant or indicative of the
Company's future sales and earnings.
Employees
As of September 30, 1999, the Company employed 2,844 persons in the United
States, of whom 631 were salaried employees and the remainder were hourly
employees. None of the Company's employees are unionized. The Company has never
experienced any strikes and believes its relations with employees to be
satisfactory. The Company employs 15 individuals in the United Kingdom.
Patents and Trademarks
The Company owns or is licensed under several United States and foreign
patents. While these patents are helpful to the Company's business, it is
believed that a loss of patent exclusivity would not be materially adverse to
the Company's business.
The Company has registered several of its trademarks, including
FIBERGRIDS(R) , FIBERMESH(R) , LANDLOK(R), and NOVOCON with the United States
Patent and Trademark office and with several foreign trademark offices.
ITEM 2. PROPERTIES
The Partnership does not own or lease any physical properties.
ITEM 3. CLAIMS AND LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to litigation arising out
of their business operations. Such litigation primarily involves claims for
personal injury, property damage, breach of contract and claims involving
employee relations and certain administrative proceedings. The Company believes
such claims are either adequately covered by insurance or do not involve a risk
of material loss to the Company.
In connection with a dissolution of the Partnership, the Company's
majority stockholder, that was proposed in 1997, the Company, its directors and
certain other of the Company's officers who were affiliated with the general
partner of the Partnership (the "General Partner") were named in two putative
class and derivative action lawsuits filed in California federal court and
Delaware state court by certain limited partners of the Partnership. On April
16, 1999, preliminary approval of a settlement agreement in connection with
these lawsuits was granted by the United States District Court for the Northern
District of California. On May 24, 1999, the settlement was granted final
approval by the United States District Court for the Northern District of
California and the California action was dismissed with prejudice. On July 31,
1999, the Delaware action was dismissed with prejudice by the Delaware Court of
Chancery.
Pursuant to the settlement agreement, an independent committee of the
Company's Board of Directors (the "Committee") commenced in June 1999 a sales
process during which the Committee, with the help of a financial advisor, sought
offers from qualified buyers to purchase the Company. On August 31, 1999, in
accordance with the terms of the settlement agreement, the General Partner
resigned, which caused the dissolution of the Partnership, and a liquidating
trustee was appointed to wind up the affairs of the Partnership in connection
with the aforementioned sales process. On November 5, 1999, at the conclusion of
the sales process, the Company entered in an agreement and plan of merger with
SIND Holdings, Inc., a company organized by Investcorp, S.A., a global
investment group, and SIND Acquisition, Inc., a wholly owned subsidiary of SIND
Holdings, Inc. Pursuant to the merger agreement, on November 12, 1999, SIND
Acquisition, Inc. commenced a cash tender offer for all outstanding shares of
the Company's common stock. The Partnership, which owned approximately 66% of
the outstanding common stock of the Company, tendered its shares to SIND
Acquisition, Inc. pursuant to an agreement that was entered into at the same
time as the merger agreement. On December 14, 1999, pursuant to the merger
agreement, following the tender offer, SIND Acquisition, Inc. merged with and
into the Company, resulting in the Company becoming a wholly owned subsidiary of
SIND Holdings, Inc.
Acosta and Alvarez Matters
Prior to March 23, 1999, approximately 158 plaintiffs had filed claims
against Kaufman and Broad Home Corporation Including its subsidiaries and
affiliates ("Kaufman and Broad") in two separate Los Angeles County Superior
Court cases (the "Acosta and Alvarez Matters") each of which alleged defects in
fiber reinforced concrete slabs. On or about March 23, 1999, the Company,
Kaufman and Broad and the plaintiffs entered into a settlement agreement which
resulted in the settlement of all claims against Kaufman and Broad. On April 29,
1999, the plaintiffs in the Acosta and Alvarez Matters filed amended complaints
which named the Company as a defendant in those respective actions and which
consolidated the actions in connection with claims that Fibermesh(R) used in
concrete slabs at the plaintiffs' homes was defective. In the amended complaint,
the plaintiffs claimed causes of action based upon strict liability, fraud,
negligence, intentional infliction of emotional distress, and breach of implied
warranty. In response to a demurrer filed on behalf of the Company, the court
dismissed the intentional infliction of emotional distress claim. Thereafter, in
July , 1999, the plaintiffs filed an amended complaint in which they set out
claims for strict liability, fraud, negligence, and breach of express warranty.
In September , 1999, in response to a demurrer filed on behalf of the Company,
the court dismissed the breach of express warranty claim.
Extensive sampling and testing is being done on behalf of the Company
of all homes involved in this litigation. That testing has shown that
approximately forty of the plaintiffs do not have any Fibermesh(R) in the
concrete which was used in connection in the construction of their homes. The
Company anticipates these plaintiffs will be dismissed from the lawsuit. After
the sampling is completed, off site testing will be done which will assist in
determining the cause of any construction defects in the concrete in the
plaintiffs' homes. Minimal discovery has been done pending the completion of
sampling and testing at the plaintiffs homes. Depositions of the plaintiffs will
begin in late January, 2000. Therefore, it is too early to predict the outcome
of these cases except for approximately forty plaintiffs who the Company
anticipates will be dismissed because the concrete in their homes did not
contain Fibermesh(R). The Company intends to vigorously defend against all
claims by the plaintiffs in these matters.
Hicks Matter
On October 1, 1998, three individuals filed a lawsuit against Kaufman
and Broad in Los Angeles County Superior Court (the "Hicks Matter") and
requested that the court grant class action status to the lawsuit. In response
to the complaint, Kaufman and Broad denied the plaintiffs' allegations and filed
a cross-complaint against the Company. The Company has answered the Kaufman and
Broad cross-complaint and denied generally and specifically the allegations that
Kaufman and Broad had been injured or was entitled to any relief by any reason,
act or omission by or on behalf of the Company. Subsequently, at a hearing which
as held on November 8, 1999, the court announced that it would deny class action
certification to the complaint and dismiss all class action claims in this case.
The effect of this ruling is to leave three plaintiffs in this litigation
involving two homes. Based on the limited discovery which has been done as of
this time, it appears that there are no personal injury claims on behalf of the
plaintiffs and that their property damage claims are limited. While it is too
early to predict the outcome of this case, if there were an adverse outcome, it
would not have a material effect on the Company's results of operations or
financial condition. The Company intends to vigorously defend against all claims
by the plaintiffs in this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's security holders
during the fourth quarter of the fiscal year covered by this Annual Report.
<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 or 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 prohibited under a loan agreement with its
senior lenders from paying cash dividends, or making certain types of capital
distributions.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for, and as of the
end of, each of the fiscal years in the five year period ended September 30,
1999 have been derived from the Partnership's audited consolidated financial
statements. The consolidated financial statements as of September 30, 1999 and
1998 and for the three-year period ended September 30, 1999 and the accountant's
report thereon are included in Item 8 of this Form 10-K. Dollars are in
thousands, except share and per share data.
<TABLE>
Year Ended September 30,
1999 1998 1997 1996 1995
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Summary of Operations Data:
Net sales $384,822 $368,996 $345,572 $299,532 $271,427
Gross profit 133,042 122,319 112,385 91,211 76,721
Operating income 44,821 48,695 50,291 37,813 28,687
Income from continuing operations
before provision for income taxes,
minority interest in subsidiary net income
and extraordinary item 24,391 29,451 29,552 14,341 5,436
Income from continuing operations
before minority interest in subsidiary net
income and extraordinary item 14,737 17,596 17,011 7,441 1,936
Income from continuing operations
attributable to limited partners 9,357 11,314 3,165 7,367 1,917
Extraordinary item - loss from early
extinguishment of debt - - (11,950) - -
Net income 9,451 11,429 3,197 7,441 1,936
Income from continuing operations
per limited partnership unit $11,696 $14,143 $3,956 $9,209 $2,396
Limited partnership units outstanding 800 800 800 800 800
As of September 30,
1998 1998 1997 1996 1995
----- ------ ------ ------ ------
Balance Sheet Data:
Working capital $92,230 $85,602 $88,032 $63,418 $69,041
Total assets 459,938 439,851 394,795 323,756 312,302
Long-term debt 231,221 236,843 220,464 194,353 192,048
Partners' Capital 90,478 80,545 68,876 65,185 57,758
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 had 8,682,067 shares of Common Stock outstanding
as of September 30, 1999, of which approximately 66% was 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 amounts due the Company for expenses paid by the Company
on behalf of the Partnership. 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.
The following discussion of the financial condition and results of
operations of the Partnership does not give effect to the sale of the Company as
described in recent events aand relates only to the results of the Company as of
September 30, 1999 and should be read in conjunction with the information
contained in the Consolidated Financial Statements, including the notes thereto.
The following discussion includes forward-looking statements that involve
certain risks and uncertainties. See "Forward-Looking Statements." Dollars are
in thousands.
Overview
The Company's net sales in recent years have increased due to a variety of
factors, including generally increasing sales volumes as a result of growing a
demand for the Company's products, the Company's ability to expand its markets
through development of new products and acquisitions.
The Company's gross profit has increased due primarily to increasing sales
volumes, continued diversification of its product line into higher margin
businesses and lower on average polypropylene costs, partially offset by lower
average selling prices due to the decreases in the price of polypropylene.
Polypropylene is the basic raw material used in the manufacture of substantially
all of the Company's products today, which can account for up to 50% of the
Company's cost of sales. The Company believes that the selling prices of many of
its products have adjusted over time to reflect changes in polypropylene prices.
The following table sets forth the Partnership's percentage relationships
to net sales of certain statements of operations items:
<TABLE>
Year Ended September 30,
1999 1998 1997
<S> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0%
Cost of sales............................. 65.4 66.9 67.5
---- ---- ----
Gross profit........................... 34.6 33.1 32.5
Selling expenses.......................... 11.2 10.6 9.2
General and administrative
expenses.......................... 9.8 8.5 8.0
Plant consolidation....................... 0.6 - -
Equipment relocation costs................ 0.6 - -
Amortization of intangibles............... 0.8 0.8 0.8
--- --- ---
Operating income........................ 11.6 13.2 14.5
Interest expense.......................... 5.1 5.0 5.8
Amortization of deferred
financing costs.................. 0.2 0.2 0.2
--- --- ---
Income before provision for income
taxes, minority interest in subsidiary
net income and extraordinary item 6.3 8.0 8.5
Provision for income taxes................ 2.5 3.2 3.6
--- --- ---
Income before minority interest in
subsidiary net income and
extraordinary Item.... 3.8% 4.8% 4.9%
==== ==== ====
</TABLE>
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
Net sales for fiscal 1999 were $384,822 compared to $368,996 for fiscal
1998, an increase of $15,826, or 4.3%. Carpet backing sales for fiscal 1999 were
$172,024 compared to $168,998 for fiscal 1998, an increase of $3,026, or 1.8%,
reflecting unit volume increases of 8.4%, partially offset by lower average
selling prices. Construction materials sales for fiscal 1999 were $139,835
compared to $128,318 for fiscal 1998, an increase of $11,517, or 9.0%. Within
construction materials, geosynthetic sales increased 1.5%, reflecting a unit
volume increase of 18.8% offset by a decrease in average selling prices and a
change in mix to lighter weight materials, which have lower on average selling
prices. Fiber reinforced concrete sales increased 14.2%, reflecting a full
year's contribution from the March 18, 1998, acquisition of Novocon
International, Inc. (the "Novocon Acquisition") and continued increases in
market penetration. Technical textile sales for fiscal 1999 were $72,963
compared to $71,680 for fiscal 1998, an increase of $1,283, or 1.8%. Within
technical textiles, sales of furniture and bedding construction products
increased approximately 9.8%, reflecting continued market share gains. In
addition, agricultural and filtration product sales increased approximately
7.1%. These increases were offset by lower sales of specialty yarn and fiber
products as the Company de-emphasizes these product lines.
Gross profit for fiscal 1999 was $133,042, compared to $122,319 for fiscal
1998, an increase of $10,723, or 8.8%. As a percentage of sales, gross profit
increased to 34.6% in fiscal 1999 from 33.1% in fiscal 1998. This increase was
primarily due to lower on average polypropylene costs, efficiencies realized
through the Company's streamlined supply chain, and a 13.9% increase in sales
volume, partially offset by lower average selling prices.
The Company expects that sales of construction material products will
continue to be of increasing importance to the Company's overall sales.
Reflecting the success of this strategy, sales of carpet backing, although
growing, continue to decrease as a percentage of total sales and now represent
44.7% of fiscal 1999 total net sales as compared to 45.8% of fiscal 1998 total
net sales. In addition, the Company continues to diversify its product offerings
and, with the BonTerra Acquisition, now includes natural erosion control
products within its urban storm-water management product line.
Selling expenses for fiscal 1999 were $42,940 compared to $39,358 for
fiscal 1998, an increase of $3,582, or 9.1%. As a percentage of sales, selling
expenses increased from 10.6% in fiscal 1998 to 11.2% in fiscal 1999. Excluding
certain charges associated with the sale of the Company (see below), general and
administrative expenses for the Company for fiscal 1999 were $34,393 compared to
$30,857 for fiscal 1998, an increase of $3,536, or 11.5%. As a percent of sales,
general and administrative expenses, excluding sale process expenses, increased
from 8.3% in fiscal 1998 to 8.9% in fiscal 1999. The increase in selling,
general and administrative expenses, excluding sale process charges, was
primarily due to an increase in research and market development costs from
approximately $8,100 in fiscal 1998 to approximately $9,900 in fiscal 1999, an
approximately $2,000 increase in engineering support staff to continue to
educate the marketplace about the benefits of the Company's products and
increased costs associated with higher unit volume sales. Included in general
and administrative expenses for the Partnership was $679, which is due the
Company for expenses incurred on behalf of the Partnership.
In fiscal 1999, the Company consolidated its non-woven manufacturing
facility in Spartanburg, SC into its modern facility in Ringgold, GA. As a
result, the Company recorded pretax charges of $4,300 for the year ended
September 30, 1999. These charges reflect plant combination costs of
approximately $2,200 (severance provisions of approximately $1,100 related to
workforce reductions of approximately 105 employees and a charge of
approximately $1,100 for the write off of abandoned assets) and equipment
relocation costs of approximately $2,100. The costs related to the plant
consolidation and equipment relocation have been fully paid or charged off
during fiscal 1999.
Included within general and administrative expenses for fiscal 1999 are
charges associated with the sale of the Company, conducted by an independent
committee of the Company's Board of Directors. These charges include investment
banking, legal and advisory costs of $1,038 and compensation expenses of $1,688
earned during fiscal 1999 in connection with the implementation of a retention
bonus plan, designed to preserve and protect the Company's management during the
sale process.
Operating income for the Company for fiscal 1999 was $45,500 compared to
$49,317 for fiscal 1998, a decrease of $3,817, or 7.7%. Excluding the charges
related to the Company's sale process and plant consolidation efforts, operating
income for fiscal 1999 was $52,526 as compared to $49,317 for fiscal 1998, a
increase of $3,209, or 6.5%. As a percentage of sales, operating income
excluding such charges increased to 13.6% in fiscal 1999 from 13.4% in fiscal
1998.
Interest expense for fiscal 1999 was $19,626 compared to $18,515 for fiscal
1998, an increase of $1,111, or 6.0%, primarily due to higher average interest
rates during fiscal 1999 and the lower capitalization of interest costs related
to machinery and equipment installation in fiscal 1999 as compared to 1998. The
effective income tax rate decreased to 38.5% in fiscal year 1999 from 39% in
fiscal 1998, primarily due to reduced state income taxes resulting from tax
planning strategies implemented in fiscal 1999.
Fiscal 1998 Compared to Fiscal 1997
Net sales for fiscal 1998 were $368,996 compared to $345,572 for fiscal
1997, an increase of $23,424, or 6.8%. Carpet backing sales for fiscal 1998 were
$168,998 compared to $166,219 for fiscal 1997, an increase of $2,779, or 1.7%,
reflecting higher unit volume, partially offset by lower average selling prices.
Construction materials product sales for fiscal 1998 were $128,318 compared to
$114,611 for fiscal 1997, an increase of $13,707, or 12.0%, reflecting increased
unit volume in fiber reinforced concrete and geosynthetic product sales. The
Novocon Acquisition contributed approximately $7,000 of this revenue. Technical
textiles sales for fiscal 1998 were $71,680 compared to $64,742 for fiscal 1997,
an increase of $6,938, or 10.7%.
Gross profit for fiscal 1998 was $122,319, compared to $112,385 for fiscal
1997, an increase of $9,934, or 8.8%. As a percentage of sales, gross profit
increased to 33.1% in fiscal 1998 from 32.5% in fiscal 1997. This increase was
primarily due to lower on average polypropylene costs and higher sales volume,
partially offset by lower average selling prices.
The Company's improvement in gross profit performance also reflects its
diversification strategy for its products as well as its primary raw material.
The Company expects that sales of construction materials products will continue
to be of increasing importance to the Company's overall sales. Reflecting the
success of this strategy, sales of carpet backing, although growing, continue to
decrease as a percentage of total sales and now represent 45.8% of fiscal 1998
total net sales. In addition, the Company continues to expand its
polyester-based product offerings and, with the Novocon Acquisition, now
includes steel fibers in its line of concrete reinforcing fibers.
Selling expenses for fiscal 1998 were $39,358 compared to $31,801 for
fiscal 1997, an increase of $7,557, or 23.8%. As a percentage of sales, selling
expenses increased from 9.2% in fiscal 1997 to 10.6% in fiscal 1998. General and
administrative expenses for the Company for fiscal 1998 were $30,857 compared to
$26,562 for fiscal 1997, an increase of $4,295, or 16.2%. As a percentage of
sales, general and administrative expenses increased from 7.7% in fiscal 1997 to
8.3% in fiscal 1998. The increase in selling, general and administrative
expenses was primarily due to an increase in research and market development
costs from approximately $4,200 in fiscal 1997 to approximately $8,100 in fiscal
1998, a $2,000 increase in engineering support staff to continue to educate the
marketplace about the benefits of the Company's products, and a $1,500 increase
in advisory and consulting fees to improve operating efficiencies. Included in
general and administrative expenses for the Partnership is $622, which is due
the Company, for expenses incurred on behalf of the Partnership.
Operating income for the Company for fiscal 1998 was $49,317 as compared to
$51,430 for fiscal 1997, a decrease of $2,113, or 4.1%. As a percentage of
sales, operating income decreased to 13.4% in fiscal 1998 from 14.9% in fiscal
1997. This decrease was primarily due to higher selling, general and
administrative costs which offset improved gross margins.
Interest expense for fiscal 1998 was $18,515 compared to $20,085 for fiscal
1997, a decrease of $1,570, or 7.8%, due to lower average interest rates on an
increased level of outstanding debt and the capitalization of interest related
to machinery and equipment installation. The effective income tax rate was 39%
in fiscal year 1998 and 41% in fiscal 1997 before the effect of the
extraordinary item. The provision for income taxes includes the recognition of
additional state income tax credits of approximately $600 during fiscal 1998.
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, long-term indebtedness and capital lease
obligations. Net cash provided by operating activities was $35,470, $42,344, and
$25,129 for the fiscal years ended September 30, 1999, 1998 and 1997,
respectively. The reduction in net cash provided by operating activities during
fiscal 1999 as compared to 1998 was primarily due to the costs associated with
the Company's plant combination efforts and costs associated with the sale of
the Company, as well as an increase in inventory to support increased sales
volumes. The increase in net cash provided by operating activities in fiscal
1998 as compared to 1997 was primarily due to reduced working capital charges
over the prior year.
On November 1, 1996, the Company received net proceeds of approximately
$34,000 (after payment of underwriting discounts and commissions and expenses)
from the sale of 2,875,000 shares of Common Stock in an underwritten public
offering. On February 11, 1997, the Company issued $170,000 aggregate principal
amount of 9 1/4% Senior Subordinated Notes due February 15, 2007 (the "Notes"),
which represent unsecured obligations of the Company. The Notes are redeemable
at the option of the Company at any time on or after February 15, 2002, at an
initial redemption price of 104.625% of their principal amount together with
accrued interest, with declining redemption prices thereafter. Interest on the
Notes is payable semi-annually on February 15 and August 15 in the amount of
$7,863. The net proceeds from the public offering and the sale of the Notes were
utilized primarily to retire approximately $133,000 of the Company's 12 3/4%
Senior Subordinated Debentures due 2002 (the "Debentures"), pay the related call
premium and prepayment costs and fees associated with the refinancing of
$15,920, pay debt issuance costs of $5,525 and to repay approximately $21,900 of
certain outstanding indebtedness under the Company's Fourth Amended and Restated
Revolving Credit and Security Agreement, dated as of October 20, 1995, as
subsequently amended, among the Company, the lenders party thereto and
BankBoston, as agent. In connection therewith, the Company recorded an
extraordinary loss of $11,950 during fiscal 1997. On December 1, 1997, the
Company redeemed the remaining $7,403 aggregate principal amount of the
Debentures at a redemption price of 106.375% of the principal amount thereof,
together with accrued interest as of the redemption date.
On December 18, 1997, the Company and its lenders, with BankBoston as
agent, entered into a new five year credit facility (the "Credit Facility"). The
Credit Facility consists of up to a $40 million asset based securitization
program, with amounts borrowed through a wholly owned subsidiary, Synthetic
Funding Corporation (the "Securitization"), and a $60 million senior secured
revolver facility (the "Revolver"). Securitization and Revolver borrowings are
collateralized by the Company's accounts receivables and substantially all of
the assets of the Company, excluding real property, respectively. Interest on
the Securitization is based on the applicable commercial paper rate in effect
plus a spread. The Revolver permits borrowings which bear interest, at the
Company's option, (i) for domestic borrowings based on the lender's base rate or
(ii) for Eurodollar borrowings based on a spread over the Interbank Eurodollar
rate at the time of conversion. Spreads for the Securitization and the Revolver
borrowings are determined by the operational performance of the Company. At
September 30, 1999, the balances under the Securitization and the Revolver were
$33,601 and $17,640, respectively, at interest rates ranging from 5.63% to
8.25%.
The Revolver provides for borrowings under letters of credit of up to
$10,000, which borrowings reduce amounts available under the Revolver. At
September 30, 1999, letters of credit of $304 were outstanding.
The Credit Facility contains covenants related to the maintenance of
certain operating ratios 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 New Credit Facility and the Notes. At September 30, 1999,
the availability under the Credit Facility was approximately $26,400.
On October 4, 1998, the Company entered into an eight-year capital
lease for $5,300, at an interest rate of 7.03%. On August 17, 1999 the Company
sold certain assets for $12,608 and entered into a leaseback from the purchaser
over a period of 8 years at an interest rate of 6.4%.
At September 30, 1999, the Company's total outstanding indebtedness
amounted to $233,610. Such indebtedness consists of borrowings under the Credit
Facility of $51,241, $170,000 aggregate principal amount of the Notes,
outstanding capital lease obligations and a mortgage. Cash interest paid during
fiscal 1999, 1998 and 1997 was $21,195, $21,232, and $23,642, respectively.
The proceeds from financing and operating activities in fiscal 1999
were utilized to fund capital expenditures of approximately $32,166 and
acquisitions of approximately $3,327, respectively. On July 7, 1999, the Company
acquired all of the outstanding shares of BonTerra America, Inc., certain assets
of an affiliated company and rights to the international name of BonTerra for
$2,727 net of cash received and a note payable of $317. On August 1, 1999, the
Company acquired all the outstanding shares of High Point Fabrics, Inc. for $600
net of cash received.
Capital expenditures planned for fiscal 2000 are approximately $36,000,
primarily to expand the capacity of the Company's manufacturing facilities,
subject to prevailing market conditions. Capital expenditures, including the
Novocon Acquisition, were approximately $52,000 in fiscal 1998 and $63,000 in
fiscal 1997.
Sale of Company Shares and Liquidation Expenses
On November 5, 1999 the Partnership entered into a Stockholder Agreement
with SIND Holdings, Inc., a company organized by Investcorp, a global investment
group, and SIND Acquisition, Inc., a wholly-owned subsidiary of SIND Holdings,
Inc. (SIND Holdings and SIND Acquisition being hereafter referred to as the
"Purchasers"). Pursuant to the Stockholder Agreement the Partnership agreed to
tender all of the shares of common stock (the "Shares") it owned in Synthetic
Industries, Inc. (the "Company") to the Purchasers pursuant to a cash tender
offer that would be made to stockholders of the Company in accordance with a
Merger Agreement, dated November 5, 1999, between the Purchasers and the
Company. The cash tender offer was commenced on November 12, 1999, the
Partnership tendered the Shares and on December 15, 1999 the Partnership
received approximately $188,000 in cash in payment for the Shares. The
Liquidating Trustee promptly invested these proceeds in U.S. Treasury Bills,
which now comprise all of the assets of the Partnership.
Pursuant to the Stipulation and Agreement of Settlement approved by the
United States District Court for the Northern District of California to which
the Partnership is subject, the Liquidating Trustee has made application to the
Court to make a cash distribution to the partners of the Partnership and has
sent Payment Direction Letters to all limited partners of the Partnership. Upon
approval by the Court and return of the Payment Direction Letters, the
Liquidating Trustee intends to distribute $160,000 in cash in accordance with
the terms governing liquidating distributions set forth in the Partnership
Agreement. The remainder of the cash now held by the Partnership in U.S.
Treasury Bills will be retained in that form by the Liquidation Trustee pending
satisfaction of all of the Partnership's liabilities, including, without
limitation, the attorneys' fees payable to plaintiff's counsel in the litigation
that was the subject of the Stipulation and Agreement of Settlement, amounts
owed to the Company and the incidental expenses and liabilities incurred in
connection with the liquidation. On December 30, 1999, the United States
District Court for the Northern District of California awarded $6,839 in fees
and $237 in expenses to plaintiff's counsel, and directed an additional $13, 678
to be held in reserve by the Liquidating Trustee, subject to the exhaustion of
any appeals or further court order. In addition, at December 30, 1999, the
Partnership owed the Company $1,396 incurred in connection with plans of
dissolution that were not consummated. The Liquidating Trustee expects that all
liabilities of the Partnership will not exceed the amount of assets retained by
the Partnership. The Liquidating Trustee can give no assurances, however, as to
when and what amount of the reserve will be released by the Court, and,
therefore, no prediction can be made as to when and in what amount a final
liquidating distribution of the Partnership will be made.
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 have historically been higher in the third
and fourth quarters of its fiscal year. While sales and income in the carpet
backing and technical textile product lines are not greatly affected by seasonal
trends, sales of construction materials 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 materials markets. Consequently, as sales from
construction materials products continue to increase as a percentage of the
Company's total sales, the seasonality of these products' sales will affect
total sales and income of the Company to a greater degree.
Year 2000 Readiness Disclosures
The Company's expenditures for addressing year 2000 issues were not
material nor does the Company expect to incur any significant costs in
addressing year 2000 issues in the future.
Recent Accounting Pronouncement
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which must be adopted for fiscal quarters of fiscal years beginning after
June 15,1999. SFAS 133 requires the recognition of all derivatives as either
assets or liabilities in the statement of financial position and measurement of
those instruments at fair value. SFAS 133 will not have a material effect on the
Company's results of operations or financial condition
Forward Looking Statements
The discussion of the Company's business and operations in this report
includes in several instances forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are based upon management's
good faith assumptions relating to the financial, market, operating, and other
relevant environments that will exist and affect the Company's business and
operations in the future. No assurance can be made that the assumptions upon
which management based its forward-looking statements will prove to be correct,
or that the Company's business and operations will not be affected in any
substantial manner by other factors not currently foreseeable by management or
beyond the Company's control. All forward-looking statements involve risks and
uncertainties, including those described in this report, and such statements
shall be deemed in the future to be modified in their entirety by the Company's
public pronouncements, including those contained in all future reports and other
documents filed by the Company with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from
changes in interest rates and commodity prices.
Interest Rate Risk
The Company faces minimal interest rate risk exposure in relation to its
outstanding debt of $233,610 at September 30, 1999. Of this amount $51,241,
under the Credit Facility, is subject to interest rate fluctuations. A
hypothetical 10% change in interest rates applied to the fair value of debt
would not have a material impact on earnings or cash flows of the Company.
Commodity Price Risk
The Company is a purchaser of certain commodities, primarily polypropylene.
The Company does not use commodity futures for hedging purposes. Polypropylene
is the basic raw material used in the manufacture of substantially all of the
Company's products, historically accounting for approximately 50% of the
Company's cost of goods sold.
The price of polypropylene is determined by the supply and demand for the
product. Historically, the creation of additional capacity has helped to relieve
supply and pricing pressures although there can be no assurance that this will
continue to be the case. According to a September 1999 report by Chemical Data
Inc., a monthly petrochemical and plastics analysis publication, annual
polypropylene capacity in North America is expected to rise from 15.0 billion
pounds per year for 1998 to 16.4 billion pounds per year for 1999, and to 20.2
billion pounds per year by the year 2001.
An increase in the price of polypropylene for a prolonged period without an
increase in the selling prices of the Company's products could have a material
effect on the Company's earnings and cash flows. The Company believes that the
selling prices of many of its products have adjusted over time to reflect
changes in polypropylene prices.
Currency Risk
The Company faces currency risk exposure that arises from translating the
results of its United Kingdom operations to the U.S. dollar. The currency risk
exposure is not material as the United Kingdom division's operations do not have
a material impact on the Company's earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this Item is contained in the Partnership's
consolidated financial statements indicated in the Index in Part IV, Item 14 of
this Annual Report on Form 10-K and is incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. Executive Officers and Directors of the Company
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. Messrs. Chill and Kenner are executive
officers of the Company. Mr. Chill also served as director of the Company.
The following table sets forth certain information concerning each of the
executive officers and directors of the Company as at September 30, 1999:
<TABLE>
Name Age Position and Offices Held
<S> <C>
Leonard Chill 67 Chairman of the Board, Chief Executive Officer and Director
Joseph F. Dana 52 President, General Counsel and Director
Joseph Sinicropi 45 Chief Financial Officer and Secretary
Ralph Kenner 55 Vice President - Manufacturing
C. Ted Koerner 50 Vice President - General Manager Construction/Civil
Engineering Products Group
John Michael Long 56 Vice President - General Manager Technical Textiles
Group
Bobby Callahan 56 Controller
Lee J. Seidler 64 Director
William J. Shortt 74 Director
Robert L. Voigt 81 Director
</TABLE>
Directors of the Company are elected each year at the annual meeting of
stockholders. The Company's officers serve at the discretion of the Board.
Leonard Chill, Chairman and Chief Executive Officer, joined the Company
in December 1973 as President. He has been a director since 1986. From 1967
until joining the Company, he held a number of positions with Thiokol
Corporation in its Fibers Division, including that of General Manager. In
addition, Mr. Chill is a director of Synthetic Textiles Ltd.
Joseph F. Dana, President and General Counsel, joined the Company in
May 1997. Prior to joining the Company, Mr. Dana had been engaged in the private
practice of law for over twenty years and had been a member of the law firm
Watson, Dana & Gottlieb L.P., LaFayette, Georgia, since its formation in 1978,
serving as general counsel to the Company since 1987. He has been a Director
since 1993.
Joseph Sinicropi joined the Company in 1995 as Chief Accounting
Officer. He was named Chief Financial Officer and Secretary in February 1996.
Prior to joining the Company, he was an audit senior manager in the
international accounting firm of Deloitte & Touche LLP from 1985 to 1995.
Ralph Kenner has been Vice President -- Manufacturing since 1984. He
joined the Company in 1974 as Director, Industrial Relations and served in that
capacity until 1976. In 1976, he was appointed Plant Manager and served in that
capacity until 1984.
Charles T. Koerner joined the Company in 1990 and became Vice President
- -- Construction Materials Division in 1993. He was named Vice President --
General Manager of the Construction Materials Division in 1995. Prior thereto,
Mr. Koerner was an engineer with the Ohio Department of Transportation; a sales
engineer, product supervisor and regional engineer with Armco Steel Corporation;
and a sales manager with National Seal Corporation.
John Michael Long was Vice President -- Nonwoven Fabrics from 1991 to
1996 at which time he was named Vice President -- General Manager of the
Technical Textiles Group. Prior thereto, he held a variety of managerial
positions with Spartan Mills, a manufacturer of nonwoven geotextile fabrics.
During his last five years at Spartan, he was Vice President and General
Manager.
Bobby Callahan joined the Company in 1977 and has been Controller since
1980. Prior thereto, he held a variety of financial management positions in the
carpet industry.
Lee J. Seidler was professor of accounting and Price Waterhouse professor
of auditing at New York University. Dr. Seidler was Senior Managing Director at
Bear, Stearns & Co. Inc. from 1981 to 1989. He is presently associated with
Bear, Stearns & Co. Inc. as Managing Director Emeritus. Dr. Seidler is a
director of the Shubert Foundation, The Shubert Organization, and Players
International, Inc. and has been a director of SafeCard Services, Inc. and
Eastbank, N.A. He has been a Director since 1993.
William J. Shortt retired from Johnson & Johnson in 1989. From 1977 to
1989, he was Director of Government and Trade Relations, Southeast at Johnson &
Johnson. Mr. Shortt is also been a director of First National Bank of Habersham.
He has been a Director since 1993.
Robert L. Voigt served as a consultant to Dixie Yarns Inc. from 1985 until
his retirement at the end of 1991. Mr. Voigt also served as a director of Dixie
Yarns, Inc. from 1981 to 1987. He has been a Director since 1993.
ITEM 11. Remuneration of Directors and Officers
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board establishes salary, incentives
and other forms of compensation and administers the Company's 1994 Stock Option
Plan, 1996 Stock Option Plan and Employee Stock Option Plan and other incentive
compensation and benefit plans applicable to the officers. During the year ended
September 30, 1999, the Compensation Committee was composed of Messrs.
Seidler, Shortt and Voigt.
During the year ended September 30, 1999, none of our executive
officers served on the board of directors or on the compensation committee of
any other entity which has one or more executive officers serving as a member of
the Company's Board of Directors or the Compensation Committee.
Director Compensation
Prior to the consummation of the Transactions, outside directors
received $15,000 per annum for services as a director and $800 per meeting
attended. Directors who are members of management did not receive any meeting
attendance fees or additional compensation for service as a director or service
on committees of the Board. All directors were reimbursed for reasonable
out-of-pocket expenses incurred in connection with their attendance at meetings
of the Board and its committees on which they served.
Under the Company's 1994 Stock Option Plan for Non-Employee Directors
(the "Directors' Plan"), Messrs. Dana, Seidler, Shortt and Voigt were granted
non-qualified stock options (the "Directors' Options") to purchase 28,906,
57,813, 19,271 and 19,271 shares of Common Stock, respectively. The Directors'
Plan does not provide for any further grants of options thereunder.
The purchase price of the shares of Common Stock subject to the
Directors' Options was determined by reference to the fair market value of the
Common Stock, as determined by the Compensation Committee, at the time Messrs.
Dana, Seidler, Shortt and Voigt became members of the Board. As of October 1,
1996, 100% of the number of shares of Common Stock subject to each Director
Option were vested and were exercisable. As a Company employee, Mr. Chill was
not eligible to participate in the Directors' Plan.
Executive Compensation
The following table sets forth information regarding aggregate cash
compensation, stock option awards and other compensation earned by the Company's
Chief Executive Officer and the four other most highly compensated executive
officers for services rendered in all capacities to the Company and its
subsidiaries in the fiscal years 1997 to 1999.
<TABLE>
Annual Compensation
Long-Term
CompensationAwards
Fiscal Other Securities
Year Annual Underlying All Other
Name and Ended Compen- Options (#) Compen-
Principal Position Sept. 30 Salary($) Bonus($) sation($) sation($)
--------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Leonard Chill 1999 325,738 338,100 14,674 -- 9,424(1)
Chairman and Chief Executive 1998 280,000 137,058 7,360 -- 10,424(1)
Officer 1997 270,163 144,720 2,168 -- 10,174(1)
Joseph F. Dana-- 1999 269,380 246,300 21,669 -- 4,000(2)
President 1998 225,000 77,580 12,932 -- 5,000(2)
and General Counsel 1997(3) 118,100 75,000 6,586 -0-
Joseph Sinicropi-- 1999 205,433 193,200 17,417 --
Chief Financial Officer and 1998 170,000 72,408 12,932 -- 4,000(2)
Secretary 1997 132,500 51,840 5,312 -- 5,000(2)
4,750(2)
Ralph Kenner 1999 171,000 80,180 6,320 -- 4,000(2)
Vice President-- Manufacturing 1998 171,000 71,546 5,577 -- 4,800(2)
1997 154,731 69,768 5,771 -- 4,750(2)
Charles T. Koerner 1999 150,750 62,830 14,398 -- 4,000(2)
Vice President-- General Manager 1998 140,603 58,240 8,241 -- 4,218(2)
- --Construction Materials Division 1997 135,839 52,577 8,177 -- 4,075(2)
- ---------------------
</TABLE>
(1) These amounts consist of $5,424 of insurance premiums paid by the Company
under a term life insurance policy in each of 1999, 1998 and 1997, and
$4,000, $5,000 and $4,750 contributed by the Company under its 401(k) plan
in 1999, 1998 and 1997, respectively.
(2) These amounts represent the annual contribution made by the Company under
its 401(k) Plan in the respective year.
(3) Mr. Dana assumed his duties as Chief Operating Officer and General Counsel
on June 1, 1997. He was named President and General Counsel in August 1999.
Option Grants
There were no grants of options to the executive officers named in the
Summary Compensation Table made under the Company's 1994 and 1996 Stock Option
Plans during fiscal 1999.
Option Exercises and Holdings
The following table sets forth information with respect to the
executive officers named in the Summary Compensation Table concerning the
exercise of options during fiscal 1998 and unexercised options held as of the
end of fiscal 1998, which include grants made under the Company's 1994 and 1996
Stock Option Plans.
<TABLE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Shares
Acquired Number of Securities Value of Unexercised
on Value Underlying Unexercised In-the-Money Options at FY-End
Name Exercise (#) Realized ($) Options at FY-End (1)
------------ ------------ ---------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Leonard Chill -- -- 136,563 8,719 $ 2,274,457(1) $145,215(1)
Joseph F. Dana -- -- 169,506 -- 1,958,611(2) --
Joseph Sinicropi -- -- 45,440 7,247 543,805(3) 120,699(1)
Ralph Kenner -- -- 48,757 5,115 812,048(1) 85,190(1)
Charles T. Koerner -- -- 30,037 12,451 443,246(4) 142,875(5)
</TABLE>
(1) Based on the September 30, 1999 price ($27.375 per share) less the exercise
price of $10.72 per share payable for such shares.
(2) Based on the September 30, 1999 price ($27.375 per share) less the exercise
prices of $6.83 for 28,906 shares, $17.875 for 130,500 shares and $15.00 for
10,100 shares.
(3) Based on the September 30, 1999 price ($27.375 per share) less the exercise
prices of $10.72 for 21,740 shares, $21.375 for 17,500 shares and $15.00 for
6,200 shares.
(4) Based on the September 30, 1999 price ($27.375 per share) less the exercise
prices of $10.72 for 24,162 shares, $21.375 for 5,000 shares and $15.00 for 875
shares.
(5) Based on the September 30, 1999 price ($27.375 per share) less the exercise
prices of $10.72 for 4,862 shares, $21.375 for 5,000 shares and $15.00 for 2,625
shares.
Description of Certain Employment Agreements
Each of Messrs. Chill, Dana and Sinicropi (the "Executives") are
employed by the Company pursuant to individual employment agreements entered
into as of September 24, 1998, as amended. The term of employment under these
agreements is twenty-five months from January 1, 1999 (the "Effective Date") in
the case of Mr. Chill, four years from the Effective Date in the case of Mr.
Dana and three years from the Effective Date in the case of Mr. Sinicropi;
provided that on the first day of the second month following the Effective Date
in the case of Mr. Chill, on each anniversary of the month following the second
Effective Date in the case of Mr. Dana and on each anniversary of the month
following the first Effective Date in the case of Mr. Sinicropi, and in each
case each successive month, the term is automatically extended for one
successive month, providing a minimum remaining term of two years, unless either
party terminates the agreement by written notice. The maximum term of employment
under these agreements is 25 years. The current annual salaries for Messrs.
Chill, Dana and Sinicropi pursuant to these agreements are $325,000, $275,000
and $210,000,respectively, and are subject to annual review by the Board.
The Company has the right to terminate the Executive's employment for
"cause" or "without cause," in each case as defined in the applicable employment
agreement. In the event that an Executive is terminated by the Company "without
cause," other than following a "Change in Control" (as defined below), the
Executive is entitled to receive (a) his base salary accrued through the date of
termination, (b) any unpaid, accrued amounts under the annual incentive plan and
(c) certain other supplemental insurance coverages in the case of Mr. Dana, or
lump sum payments in lieu thereof in the case of Messrs. Chill and Sinicropi.
Under these employment agreements, a "Change in Control" occurs when (i) any
person or group becomes the beneficial owner of capital stock of the Company
representing 35% or more of all the voting stock,(ii) the members of the Board
on the Effective Date cease to constitute a majority of the Board, (iii) the
Company combines with another entity and a person holds 35% or more of the
voting stock of the surviving entity or the Company's directors, as of the date
immediately before such combination, constitute less than a majority of the
board of directors of the combined entity, (iv) the Company's stockholders
approve a merger, consolidation or share exchange that results in (A) the
conversion or exchange of the Company's voting stock or (B) the Company's
stockholders holding less than 50% of the combined voting power of the surviving
entity, or (v) upon the occurrence of any event that would be required to be
reported in response to Item 6(e) of Regulation 14A of the Securities Act of
1933, as amended.
If an Executive is terminated by the Company "without cause" prior to
the occurrence of a Change in Control and it can be shown such termination
occurred in connection with, prior to or in anticipation of the Change in
Control or, if following a Change in Control, an Executive is terminated by the
Company other than for "cause," or he terminates his employment within 120 days
following the Change in Control or thereafter terminates his employment for
"good reason" (as defined in the applicable employment agreement), he is
entitled to (i) all accrued and unpaid compensation and benefits, (ii) unpaid,
accrued amounts under the annual incentive plan and a payment under the annual
incentive plan equal to the pro rata amount that would have been due in the
termination year,(iii) certain other supplemental insurance coverages in the
case of Mr. Dana, or lump sum payments in lieu thereof in the case of Messrs.
Chill and Sinicropi and (iv) reimbursement of excise taxes, if any, payable in
the event that any compensation be deemed "parachute payments" under the
Internal Revenue Code. In the event of a Change in Control, whether or not an
Executive's employment continues with the Company, all options granted to him
under any of the Company's stock option plans shall vest immediately on the date
of the Change in Control.
In the event that an Executive's employment is terminated for
disability or death, he (or his estate) is to be paid (a) his base salary
accrued through the date of termination and (b) any unpaid, accrued amounts
under the annual incentive plan. In the case of termination by reason of death,
the Executive is also entitled to a payment under the annual incentive plan
equal to the prorata amount that would have been due in the termination year.
Each of these employment agreements also provides that the Executive is
restricted from soliciting customers or employees or engaging in certain
restricted activities on behalf of any entity which engages in businesses
similar to that of the Company until two years after the date his employment
ends for any reason, for which he will be paid an amount equal to twice his base
salary as in effect on the date of termination of employment plus twice the
payment made under the annual incentive plan in either the termination year or
the immediately preceding year, whichever is greater.
Mr. Kenner is employed by the Company pursuant to an employment
agreement effective as of September 24, 1998 (the "Kenner Effective Date"). The
term of employment under this agreement is twenty-five months from the Kenner
Effective Date; provided that on the first day of the second month following the
Kenner Effective Date, and in each successive month, the term is automatically
extended for one successive month, providing a minimum remaining term of two
years, unless Mr. Kenner terminates the agreement by written notice. The current
annual salary for Mr. Kenner pursuant to this agreement is $171,000, and is
subject to annual review by the Board.
The Company has the right to terminate Mr. Kenner's employment for
"cause" or "without cause," as defined in the employment agreement. In the event
that Mr. Kenner is terminated by the Company "without cause," other than
following a "Change in Control" (as defined below), he is entitled to receive
(a) his base salary at the rate in effect on the date of termination of
employment for a period of one and one-half years from the date of termination,
(b) any unpaid, accrued amounts under the annual incentive plan, (c) a pro rata
payment under the annual incentive plan for the termination year, (d) a payment
equal to the three year average of incentive payments received under the
Company's annual incentive plan and (e) certain other supplemental insurance
coverages. Under Mr. Kenner's employment agreement, a "Change in Control" occurs
when (i) any person or group becomes the beneficial owner of capital stock of
the Company representing 35% of all the voting stock, (ii) the members of the
Board on the Kenner Effective Date cease to constitute a majority of the Board,
(iii) the Company combines with another entity and a person holds more than 35%
of the voting stock of the Company or the Company's directors, as of the date
immediately before such combination, constitute less than a majority of the
board of directors of the combined entity, (iv) the Company's stockholders
approve a merger, consolidation or share exchange that results in the conversion
or exchange of the Company's voting stock or the Company's stockholders holding
less than 50% of the combined voting power of the surviving entity, (v) any
event that would constitute a change of control (as defined under Regulation 14A
of the Securities Act of 1933, as amended) of the Partnership, (vi) the removal
of the general partner of the Partnership or the appointment of a liquidating
trustee not approved by the general partner or the Board or (vii) any event that
would be required to be reported in response to Item 6(e) of Regulation 14A of
the Securities Act of 1933, as amended.
If Mr. Kenner is terminated by the Company "without cause" prior to the
occurrence of a Change in Control and it can be shown such termination occurred
in connection with, prior to or in anticipation of the Change in Control or, if
following a Change in Control, Mr. Kenner is terminated by the Company other
than for "cause," he is entitled to (i) all accrued and unpaid compensation and
benefits, (ii) a lump sum payment equal to one and one-half times his annual
base salary, plus two times the incentive payments under the annual incentive
plan for the year in which the Change in Control occurs or the prior year,
whichever is greater, (iii) unpaid, accrued amounts under the annual incentive
plan and a payment that equals the average of the incentive payment received by
him under the annual incentive plan for the immediately preceding three years
and (iv) certain other supplemental insurance coverages. In the event of a
Change in Control, whether or not Mr. Kenner's employment continues with the
Company, all options granted to him under any of the Company's stock option
plans shall vest immediately on the date of the Change in Control.
In the event that Mr. Kenner's employment is terminated for disability
or death, he (or his estate) is to be paid (a) his base salary accrued through
the date of termination and (b) any unpaid, accrued amounts under the annual
incentive plan. In the case of termination by reason of death, the Executive is
also entitled to a payment under the annual incentive plan equal to the prorata
amount due for the termination year. This employment agreement also provides
that Mr. Kenner is restricted from soliciting customers or employees or engaging
in certain restricted activities on behalf of any entity which engages in
businesses similar to that of the Company until two years after the date his
employment ends for any reason, for which he will be paid an amount equal to
one-half his base salary as in effect on the date of termination of employment.
Mr. Koerner is employed by the Company pursuant to an employment
agreement effective as of September 24, 1998 (the "Koerner Effective Date"). The
term of employment under this agreement is three years from the Koerner
Effective Date; provided that on the first day of the month following the
Koerner Effective Date, and in each successive month, the term is automatically
extended for one successive month, providing a minimum remaining term of two
years, unless Mr. Koerner terminates the agreement by written notice. The
maximum term of employment under this agreement is 25 years. The current annual
salary for Mr. Koerner pursuant to this agreement is $151,000, and is subject to
annual review by the Board.
The Company has the right to terminate Mr. Koerner's employment for
"cause" or "without cause," as defined in the employment agreement. In the event
that Mr. Koerner is terminated by the Company "without cause," other than
following a "Change in Control" (as defined below), he is entitled to receive
(a) his base salary at the rate in effect on the date of termination of
employment for a period of one and one-half years from the date of termination,
(b) any unpaid, accrued amounts under the annual incentive plan, (c) a pro rata
payment under the annual incentive plan for the termination year and (d) a
lump-sum payment equal to certain supplemental insurance premiums. Under Mr.
Koerner's employment agreement, a "Change in Control" occurs when (i) any person
or group becomes the beneficial owner of capital stock of the Company
representing 35%of all the voting stock, (ii) the members of the Board on the
Effective Date cease to constitute a majority of the Board, (iii) the Company
combines with another entity and a person holds more than 35% of the voting
stock of the Company or the Company's directors, as of the date immediately
before such combination, constitute less than a majority of the board of
directors of the combined entity, (iv) the Company's stockholders approve a
merger, consolidation or share exchange that results in the conversion or
exchange of the Company's voting stock or the Company's stockholders holding
less than 50%of the combined voting power of the surviving entity, (v) any event
that would constitute a change of control (as defined under Regulation 14A of
the Securities Act of 1933, as amended) of the Partnership, (vi) the removal of
the general partner of the Partnership or the appointment of a liquidating
trustee not approved by the general partner or the Board or (vii) any event that
would be required to be reported in response to Item 6(e) of Regulation 14A of
the Securities Act of 1933, as amended.
If Mr. Koerner is terminated by the Company "without cause" prior to
the occurrence of a Change in Control and it can be shown such termination
occurred in connection with, prior to or in anticipation of the Change in
Control or, if following a Change in Control, Mr. Koerner is terminated by the
Company other than for "cause," he is entitled to (i) all accrued compensation
and benefits,(ii) a lump sum payment equal to one and one-half times his annual
base salary, plus two times the incentive payments under the annual incentive
plan for either the year in which the Change in Control occurs or the prior
year, whichever is greater, (iii) unpaid, accrued amounts under the annual
incentive plan, (iv) a payment that equals the average of the incentive payments
received by him under the annual incentive plan for the immediately preceding
three years, (v) certain other supplemental insurance coverages and
(vi)reimbursement of excise taxes, if any, payable in the event that any
compensation be deemed "parachute payments" under the Internal Revenue Code. In
the event of a Change in Control, whether or not Mr. Koerner's employment
continues with the Company, all options granted to him under any of the
Company's stock option plans shall vest immediately on the date of the Change in
Control.
In the event that Mr. Koerner's employment is terminated for disability
or death, he (or his estate) is to be paid (a) his base salary accrued through
the date of termination and (b) any unpaid, accrued amounts under the annual
incentive plan. In the case of termination by reason of death, the Executive is
also entitled to a payment under the annual incentive plan equal to the prorata
amount due for the termination year. This employment agreement also provides
that Mr. Koerner is restricted from soliciting customers or employees or
engaging in certain restricted activities on behalf of any entity which engages
in businesses similar to that of the Company until two years after the date his
employment ends for any reason, for which he will be paid an amount equal to
one-half his base salary as in effect on the date of termination of employment.
Additional Compensation
The Board adopted a retention bonus plan on October 15, 1999, pursuant
to which 30 of the Company's employees, including Messrs. Chill, Dana,
Sinicropi, Kenner and Koerner, became eligible to receive bonuses in the
aggregate amount of $1,688,000 as of November 5, 1999 (the "Retention Payment
Date"), provided that such employees did not previously leave their employment
with the Company voluntarily or that such executives were not terminated by the
Board for "cause" prior to the Retention Payment Date.
The Board also adopted as success bonus plan on October 15, 1999,
pursuant to which certain executive officers, including Messrs. Chill, Dana,
Sinicropi, Kenner and Koener, became eligible to receive base payments in the
aggregate amount of $2,500,000 on the date of consummation of a sale of the
Company (the "Success Payment Date") as long as prior to the Success Payment
Date each executive officer has not left his respective employment voluntarily
or has not been terminated by the Company Board for "cause." Under the success
bonus plan, the members of the Special Committee may receive bonus payments on
the Success Payment Date. Such bonus payments will not in the aggregate exceed
$300,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As at December 10, 1999, 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
On August 31, 1999, in accordance with the terms ofb the bsettlement of
two putative class derivative action lawsuits resulting from the
Partnership's proposed plan of sissolution, SI Management L.P. resigned as
general partner of the Partnership, resulting in the dissolution of the
Partnership. Until that time, however, SI Management L.P. was 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. controlled the management and affairs of the Partnership and
therefore, the Company. At September 30, 1999, the Partnership owned 5,699,194
shares of Common Stock, or approximately 66% 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 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 partners. For
further information concerning Messrs. Chill and Kenner see "Executive Officers
and Directors of the Company."
During fiscal 1999, 1998 and 1997, the Company paid for expenses
incurred by the Partnership in connection with the Partnership's (I) proposed
plan of dissolution in 1997, (ii) defense of two putative class and derivative
action lawsuits resulting from its proposed plan of dissolution, and (iii)
dissolution, liquidation and winding up of its affairs in connection with the
sale process of the Company. During fiscal 1999, 1998 and 1997, the Company
incurred $679, $622 and $1,139, respectively, of such expenses on behalf of the
Partnership. At September 30, 1999, 1998 and 1997, the amounts receivable from
the Partnership for such costs were $1,342, $663 and $1,800, respectively. In
May 1998, the Company acquired 82,056 shares of its Common Stock from the
Partnership in exchange for $1,759 of amounts receivable from the Partnership,
in partial settlement of expenses paid by the Company on behalf of the
Partnership during the last two fiscal years. The shares were acquired at their
fair market value and are held in treasury for issuance under the Employee Stock
Purchase Plan. Upon the liquidation of the Partnership in connection with the
settlement, the Company will be repaid in cash all amounts due from the
Partnership.
Jon P. Beckman, a former executive officer of the Company and an
affiliate of the general partner, has been retained as a consultant to the
Company. Pursuant to his consulting agreement with the Company, the former
executive officer will receive, until January 31, 2000, or upon earlier
termination 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 William
Gardner Wright, Jr. one of the Company's former executive officers. The term of
the lease expires on September 30, 2003 and the rent is approximately $52 per
year, 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 the executive officer owns all of the
U.S. and foreign patents. Under this agreement, the Company paid royalties of
approximately $19 and $10 in fiscal 1999 and 1998, respectively, and will
continue to pay such royalties until 2012 or the earlier termination of the
licensing agreement.
During fiscal 1999 and 1998 the Company paid fees of approximately $211
and $125, respectively, to a law firm in which Mr. Joseph Dana, an officer and a
director of the Company, was a member until May 21, 1997. Effective May 21,
1997, Mr. Dana became employed as Chief Operating Officer and General Counsel of
the Company. On August 6, 1999, Mr. Dana was named President of the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements:
(1) Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in
Partners' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
(b) The Partnership did not file a Current Report on Form 8-K during the last
quarter of the fiscal year covered by this Annual Report.
(c) Exhibits: See Exhibit Index immediately following Item 14.
(d) No additional financial statements are required to be filed.
<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.
16 2.4 Agreement and Plan of Merger, dated November 5, 1999,
among SIND Holdings, Inc., and Synthetic Industries,
Inc.
6 3.1 Certificate of Incorporation of Synthetic Industries,
Inc. (including all amendments to date) filed with
the Secretary of the State of Delaware.
6 3.2 Amended and Restated By-Laws of Synthetic Industries,
Inc. (including all amendments to date).
10 4.4 Indenture dated as of February 11, 1997 between
Synthetic Industries, Inc. and United Stated Trust Company
of New York, Trustee, with respect to the 9 1/4% Senior
Subordinated Notes due 2007.
10 4.5 Registration Rights Agreement, dated as of February
11, 1997, between Synthetic Industries, Inc. and Bear
Stearns & Co. Inc.
8 4.6 Registration Rights Agreement, dated as of October
31, 1996, between Synthetic Industries, Inc. and
Synthetic Industries, L.P.
16 4.7 Supplemental Indenture dated as of November 29, 1999,
between Synthetic Industries, Inc. and United States Trust
Company of New York, trustee with respect to the 9 1/4%
senior subordinated Notes due 2007.
2 10.1 US Patent No. 4,867,614, Reinforced Soil and Method
(Exp. December 13, 2003).
2 10.2 US Patent No. 4,790,691, Fiber Reinforced Soil and
Method (Exp. December 13, 2003).
2 10.3 US Patent No. 5,007,766, Shaped Barrier for Erosion
Control and Sediment Collection (Exp. April 16, 2008).
1 10.4 Lease agreement dated November 22, 1971 between
Murray Sobel and Synthetic Industries, Inc. (including
all amendments to date).
1 10.5 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 10.6 Lease agreement dated December 17, 1990 between
Chicopee and Synthetic Industries, Inc.
2 10.7 Lease agreement dated January 17, 1991 between
Herchel L. Webster and Allie Ree Webster and Synthetic
Industries, Inc. (the "Lumite Lease").
3 10.8 Amendment to the Lumite Lease dated October 1, 1992.
2 10.9 Consulting Agreement dated July 23, 1991 between
Texpro Limitada y Cia S.C.A. and Synthetic Industries,
Limited.
4 10.10 Supply Contract between Eastman Chemical Products,
Inc. and Synthetic Industries, Inc. dated December
13, 1991.
15 10.11 Agreement dated September 24, 1998 between Leonard
Chill and Synthetic Industries, Inc.
15 10.12 Agreement dated September 24, 1998 between W. Wayne
Freed and Synthetic Industries, Inc.
15 10.13 Agreement dated September 24, 1998 between Ralph A.
Kenner and Synthetic Industries, Inc.
9 10.14 Agreement dated September 6, 1996 between W. Gardner
Wright, Jr. and Synthetic Industries, Inc.
9 10.15 Agreement dated September 6, 1996 between John M.
Long and Synthetic Industries, Inc.
15 10.16 Agreement dated September 24, 1998 between Charles
T. Koerner and Synthetic Industries, Inc.
15 10.17 Agreement dated September 24, 1998 between Joseph
Sinicropi and Synthetic Industries, Inc.
15 10.18 Agreement dated September 24, 1998 between Bobby
Callahan and Synthetic Industries, Inc.
15 10.19 Agreement dated September 24, 1998 between Joseph F.
Dana and Synthetic Industries, Inc
15 10.20 Agreement dated August 10, 1998 between Richard
Hingson and Synthetic Industries, Inc.
5 10.21 1994 Stock Option Plan for Non-Employee Directors
5 10.22 1994 Stock Option Plan
7 10.23 1996 Stock Option Plan
7 10.24 Incentive Compensation Plan Fiscal Year 1994/1995
7 10.25 Incentive Compensation Plan Fiscal Year 1995/1996
15 10.26 Incentive Compensation Plan Fiscal Year 1996/1997
15 10.27 Incentive Compensation Plan Fiscal Year 1997/1998
16 10.28 Incentive Compensation Plan Fiscal Year 1999/2000
11 10.29 Asset Sale Agreement by and between Spartan Mills
and Synthetic Industries, Inc. dated as of February
27, 1997.
11 10.30 Lease Agreement by and between Spartan Mills and
Synthetic Industries, Inc. dated as of February 27,
1997.
12 10.31 Receivable Purchase and Sale Agreement dated as of
December 18, 1997 among Synthetic Industries, Inc.,
BankBoston and other Lenders , and BankBoston, as agent on
behalf of the Lenders.
15 10.32 Loan and Security Agreement dated dated as of
December 18, 1997.
15 10.33 Amendment No.1 to the Loan and Security Agreement
dated as of December 18, 1997.
13 10.34 Amendment No. 2 to the Loan and Security Agreement
dated as of December 18, 1997.
14 10.35 Amendment No. 3 to the Loan and Security Agreement
dated as of December 18, 1997
15 10.36 Amendment No. 4 to the Loan and Security Agreement
dated as of December 18, 1997.
15 10.37 Supplemental Savings Plan
15 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 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.
4 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.
5 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.
6 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.
7 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.
8 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.
9 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.
10 Filed as an exhibit to the Company's Registration Statement on Form S-4
(File No. 333-23167) as filed with the Securities and Exchange Commission
on March 12, 1997 and incorporated herein by reference.
11 Filed as an exhibit to Amendment No. 3 to the Company's Registration
Statement on Form S-4 (File No. 333-28817) as filed with the Securities and
Exchange Commission on September 17, 1997.
12 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998 and incorporated herein by reference.
13 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and incorporated herein by reference.
14 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference.
15 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998 and incorporated herein by reference.
16 Filed as an exhibit to the Company's Solicitation/Registration Statement on
Schedule 14D-9 and incorporated herein by reference.
<PAGE>
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 subsidiary as of September 30, 1999 and 1998, 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, 1999.
These financial statements are the responsibility of the Partnership'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
misstatement. 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1999 in conformity with generally accepted accounting principles.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
November 30, 1999
(Except for Note 21, as to which
the date is December 14, 1999)
<PAGE>
<TABLE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except limited partnership units outstanding)
September 30,
ASSETS 1999 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash....................................................................... $ 189 $ 287
Accounts receivable, net (Note 4).......................................... 65,491 64,251
Inventory (Note 5)......................................................... 60,591 52,450
Other current assets (Note 6).............................................. 19,595 16,644
--------- --------
TOTAL CURRENT ASSETS................................................... 145,866 133,632
PROPERTY, PLANT AND EQUIPMENT, net (Note 7).................................. 222,307 218,449
OTHER ASSETS (Note 8)........................................................ 91,765 87,770
--------- --------
$459,938 $439,851
........LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable........................................................... $ 30,862 $ 26,438
Accrued expenses and other current liabilities............................. 15,487 13,653
Income taxes payable (Note 12)............................................. 2,738 285
Interest payable........................................................... 2,160 2,154
Current maturities of long-term debt (Note 9).............................. 2,389 5,500
---------- -----------
TOTAL CURRENT LIABILITIES........................................... 53,636 48,030
LONG-TERM DEBT (Note 9)...................................................... 231,221 236,843
DEFERRED INCOME TAXES (Note 12).............................................. 37,628 32,996
MINORITY INTEREST IN SUBSIDIARY.............................................. 46,975 41,437
COMMITMENTS AND CONTINGENCIES (Note 18)
PARTNERS' CAPITAL
General Partner Capital ................................................... 904 805
Limited Partners' Capital, 800 Units issued and outstanding................ 89,574 79,740
--------- ---------
TOTAL PARTNERS' CAPITAL................................................ 90,478 80,545
--------- ---------
$459,938 $439,851
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except per partnership unit amounts)
Year ended September 30,
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Net sales............................................................... $ 384,822 $368,996 $345,572
--------- -------- --------
Costs and expenses:
Cost of sales ........................................................ 251,780 246,677 233,187
Selling expenses...................................................... 42,940 39,358 31,801
General and administrative expenses (Note 10)......................... 37,798 31,479 27,701
Plant combination costs (Note 11)..................................... 2,200 - -
Equipment relocation costs (Note 11).................................. 2,100 - -
Amortization of excess of purchase price over net
assets acquired and other intangibles............................. 3,183 2,787 2,592
-------- -------- --------
340,001 320,301 295,281
------- -------- --------
Operating income........................................................ 44,821 48,695 50,291
-------- --------- --------
Other expenses:
Interest expense...................................................... 19,626 18,515 20,085
Amortization of deferred financing costs.............................. 804 729 654
-------- ------- --------
20,430 19,244 20,739
------- -------- --------
Income before provision for income taxes, minority interest in
Subsidiary net income and extraordinary item............................ 24,391 29,451 29,552
Provision for income taxes (Note 12).................................... 9,654 11,855 12,541
-------- -------- ---------
Income before minority interest in subsidiary net income and
extraordinary item...................................................... 14,737 17,596 17,011
Minority interest in subsidiary net income.............................. 5,286 6,167 1,864
----- ----- -----
Income before extraordinary item........................................ 9,451 11,429 15,147
Extraordinary item - Loss from early extinguishment of debt (net of tax
benefit of $7,481) (Note 9)........................................... - - 11,950
------------ ------------ ---------
NET INCOME.............................................................. $ 9,451 $ 11,429 $ 3,197
======= ======== =======
Net income attributable to:
General partner..................................................... $ 94 $ 115 $ 32
Limited partner..................................................... 9,357 11,314 3,165
----- ------ ------
$9,451 $11,429 $ 3,197
======= ======= =======
Income per limited partnership unit (basic and diluted)................. $11,696 $14,143 $3,956
Limited partnership units outstanding (basic and diluted)............... 800 800 800
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(In thousands of dollars)
Total
General Limited Partners'
Partner Partner Capital
<S> <C> <C> <C>
Balance, September 30, 1996............................. 649 64,536 65,185
Net income.............................................. 32 3,165 3,197
Equity from the Offering................................ 5 424 429
Foreign currency translation............................ 2 63 65
------- ----------- -----------
Balance, September 30, 1997............................. 688 68,188 68,876
Net income.............................................. 115 11,314 11,429
Foreign currency translation............................ - 39 39
Exercise stock options.................................. 1 52 53
Stock transfer.......................................... 1 147 148
------- ---------- ----------
Balance, September 30, 1998............................. 805 79,740 80,545
Net income.............................................. 94 9,357 9,451
Foreign currency translation............................ - (21) (21)
Exercise stock options.................................. (1) (157) (158)
Stock transfer.......................................... 6 655 661
------- --------- --------
Balance, September 30, 1999............................. $ 904 $89,574 $90,478
===== ======= =======
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Year ended September 30,
1999 1998 1997
------ ----- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income............................................................ $ 9,451 $ 11,429 $ 3,197
Adjustments to reconcile net income to cash provided by operations:
Minority interest in subsidiary net income.......................... 5,286 6,167 1,864
Extraordinary loss on early extinguishment of debt.................. - - 19,431
Depreciation and amortization....................................... 24,734 21,261 18,236
Loss on disposal of assets ......................................... 1,282 - -
Deferred income taxes............................................... 2,701 4,977 2,270
Provision for (recoveries of) bad debts............................. 324 (13) 520
Change in operating assets and liabilities, net of acquisition:
Accounts receivable................................................. (344) (2,478) (9,993)
Inventory........................................................... (7,076) 3,343 (13,634)
Other assets........................................................ (8,157) (1,232) 236
Accounts payable....................................................... 3,808 (3,166) 6,803
Accrued expenses and other current liabilities...................... 1,233 2,046 1,111
Income taxes payable................................................ 2,222 323 (1,355)
Interest payable.................................................... 6 (313) (3,557)
---------- ----------- ------------
Net cash provided by operating activities......................... 35,470 42,344 25,129
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................ (32,166) (46,112) (53,980)
Proceeds from assets sold............................................. 13,249 - -
Acquisition of businesses, net of cash acquired....................... (3,327) (6,000) (9,354)
------- ------- ---------
Net cash used in investing activities .............................. (22,244) (52,112) (63,334)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under term loan............................................ - (25,000) (20,000)
Net borrowings (repayments) under the credit facility................. (7,943) 43,607 9,427
Repayments of capital lease obligation and other long-term debt....... (6,090) (1,002) (660)
Issuance of 9 1/4% Senior subordinated notes.......................... - - 170,000
Redemption of 12 3/4% Senior subordinated debentures.................. - (7,403) (132,597)
Prepayment costs on early extinguishment of debt...................... - - (15,920)
Proceeds from underwritten public offering............................ - - 33,681
Proceeds from exercise of stock options............................... 142 85 -
Proceeds from sale of treasury stock under the Employee Stock
Purchase Plan....................................................... 624 130
Debt issuance costs................................................... - (792) (5,525)
---------- ------- --------
Net cash provided by (used in) financing activities................. (13,267) 9,625 38,406
Effect of exchange rate changes on cash........................... (57) 90 36
-------- ----------- ---------
NET (DECREASE) INCREASE IN CASH......................................... (98) (53) 237
CASH AT BEGINNING OF PERIOD............................................. 287 340 103
--------- --------- --------
CASH AT END OF PERIOD................................................... $ 189 $ 287 $ 340
======== ======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid during the year for:
Interest ............................................................. $ 21,195 $ 21,232 $ 23,642
Income taxes.......................................................... 7,201 5,927 4,145
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Capital lease obligation incurred for purchase of equipment............. $ 5,300 $ 7,500 $ -
Treasury stock conversion............................................... - 1,759 -
Payable incurred for acquisition of business............................ - 1,302 -
Acquisition of business:
Fair value of assets acquired, net of cash............................ $ 4,122 $ 5,293 $ 9,830
Liabilities assumed and incurred...................................... 1,576 4,880 476
Cash paid............................................................. 3,327 6,000 9,354
See notes to consolidated financial statements
</TABLE>
<PAGE>
SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except share and per 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 and subsequent admission of limited
partners, the Partnership has conducted no business except owning and
voting the shares of the Company. As a result of its public offering of
Common Stock in November 1996, the Company had 8,682,067 shares of Common
Stock outstanding at September 30, 1999, of which approximately 66% are
owned by the Partnership. As the Partnership has no independent operations
or assets other than its investment in the Company, the Partnership's
financial statements are substantially identical to those of the Company,
with the exception of the minority interest and certain expenses recognized
by the Partnership associated with a withdrawn common stock offering. As a
result, the footnote information presented below relates to that of the
Company, except as disclosed. Accordingly, all references to fiscal year
refer to the Company's fiscal year which ends on September 30th.
On November 5, 1999, the Company announced that it entered into a
definitive merger agreement with SIND Holdings, Inc., a company organized
by Investcorp S.A., together with certain affiliated entities and other
international investors (the "Merger"). In connection with the Merger, the
Partnership was liquidated. See "Subsequent Event" (Note 21).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Revenue recognition
Revenue from product sales is recognized at the time of shipment.
Research and development
The Company's research and market development is focused primarily on
development and as such the Company engages in product design, development
and performance validation to improve existing products and to create new
products. The Company expended approximately $9,900, $8,100, and $4,200 in
fiscal 1999, 1998, and 1997, respectively. Research and market development
costs are expensed as incurred and included in general and administrative
expenses.
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.
Unrealized gains or losses resulting from translating foreign currency
financial statements are accumulated in the other comprehensive income
account in the stockholders' 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.
Comprehensive income (loss)
In 1999, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" which requires the
display of comprehensive income (loss) and its components in the financial
statements. The Company's comprehensive income includes net earnings and
unrealized gains and losses from foreign currency translation. The
components of the Company's comprehensive income and the effects on
earnings, for the three years ended September 30, 1999, are detailed in the
Company's accompanying Consolidated Statements of Changes in Stockholders'
Equity.
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
1999, 1998 and 1997 was $1,575, $2,404 and $838, respectively.
Income taxes
The Company accounts for income taxes using an asset and liability approach
in accordance with SFAS No. 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 20 to 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 cash flows before
amortization of the related intangible assets over the remaining
amortization period.
Software development costs
During fiscal 1999, the Company adopted the AICPA's Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use". Accordingly, certain computer software project costs
incurred during the application development stage have been capitalized and
are being amortized on a straight line basis over a period of 3 years. Such
costs include external direct costs of materials and services consumed in
developing internal-use software, payroll costs for employees who are
directly associated with the internal-use computer software project and
interest costs incurred during development, and are included in other
assets in the consolidated balance sheet.
Deferred financing and intangible assets
Deferred financing costs are amortized over periods from 5 to 10 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.
Fair value disclosures
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments,"
requires certain disclosures of financial instruments. Cash, accounts
receivable, accounts payable and accrued expenses are reflected in the
consolidated financial statements at cost, which approximates fair value,
because of the short-term maturity of these instruments. See note 9 for the
fair value of long-term debt.
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.
Recent accounting pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
must be adopted for fiscal quarters of fiscal years beginning after June
15, 1999, (in 1999 the FASB delayed the effective date of SFAS 133 by one
year). SFAS 133 requires the recognition of all derivatives as either
assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. Management believes that
SFAS 133 will not have a material effect on the Company's results of
operations or financial position.
3. BUSINESS ACQUISITIONS
Acquisitions are accounted for using the purchase method of accounting, and
accordingly, the purchase price has been allocated to the assets acquired,
net of any acquired cash, and liabilities assumed, if any, based upon the
fair market value at the date of acquisition. Any excess purchase price
over the fair values of the net assets acquired has been recorded as
goodwill, which is being amortized on a straight-line basis over 20 years.
The operating results of the acquired businesses have been included in the
consolidated statement of operations from the date of acquisition.
On August 1, 1999, the Company acquired all of the outstanding shares of
High Point Fabrics and Supplies, Inc., a converter and marketer of
furniture and bedding construction fabrics, for $600 (of which $100 is in
escrow), net of cash acquired. The purchase price has been allocated to the
assets acquired of $742 and the liabilities assumed of $372. Goodwill of
$230 was recorded.
On July 7,1999, the Company acquired all of the outstanding shares of
BonTerra America, Inc., certain assets of an affiliated company and rights
to the international name for $3,044 (of which $250 is in escrow), net of
cash acquired and including repayment of $1,198 for a note payable and
assumption of a note payable of $317. BonTerra America, Inc., is a
manufacturer and marketer of natural erosion control products. The purchase
price has been allocated to the assets acquired, net of acquired cash, of
$3,381 (primarily accounts receivable of $923, inventory of $764 and
property, plant and equipment of $1,424) and the liabilities assumed of
$888 (primarily accounts payable of $499). Goodwill of $551 was recorded.
On March 18, 1998, pursuant to a Stock Purchase Agreement, as subsequently
amended, the Company acquired all of the outstanding shares of Novocon
International, Inc. (the "Novocon Acquisition"), a manufacturer and
marketer of steel concrete reinforcing fibers, for $7,302. The purchase
price has been allocated to the assets acquired of $5,293 (primarily
accounts receivable and inventory of $1,731 and $1,654, respectively) and
the liabilities assumed of $4,880 (primarily accounts payable and other
debt of $2,545 and $2,335, respectively). Goodwill of $7,564 was recorded.
On February 27, 1997, the Company acquired certain assets of the Spartan
Technologies division of Spartan Mills (the "Spartan Acquisition") for
$9,354. The purchase price has been allocated to the assets acquired of
$9,830 (primarily accounts receivable, inventory, and property, plant and
equipment of $2,635, $1,363 and $5,138, respectively) and the liabilities
assumed of $476.
4. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of the allowance for doubtful
accounts of $2,700 and $2,714 at September 30, 1999 and 1998, respectively.
The Company had amounts written off against established allowances for the
year ended September 30, 1999 of $324 and net recoveries of $20 for the
year ended September 30, 1998 and amounts written off against established
allowances of $849 for the year ended September 30, 1997.
The Company grants uncollateralized trade terms to most U.S. customers. A
majority of the Company's carpet backing sales are with customers located
in the state of Georgia. As of September 30, 1999 and 1998, $28,925 and
$27,766, respectively, of the Company's accounts receivable balances were
due from customers located in this state.
5. INVENTORY
September 30,
1999 1998
---- ----
Finished goods............................$ 44,351 $ 37,689
Work in process......................... 6,810 7,107
Raw materials........................... 9,430 7,654
------- -------
$ 60,591 $ 52,450
6. OTHER CURRENT ASSETS
September 30,
1999 1998
---- ----
Prepaid supplies........................ $10,028 $ 9,603
Deferred tax assets (Note 12)........... 6,461 4,639
Insurance receivable.................... 1,663 1,110
Other................................... 1,443 1,292
--------- ---------
$19,595 $16,644
7. PROPERTY, PLANT AND EQUIPMENT
September 30,
1999 1998
---- ----
Land.................................... $ 4,585 $ 4,585
Buildings and improvements.............. 46,061 42,588
Equipment under capital leases.......... 12,800 12,500
Machinery and equipment and
leasehold improvements................ 287,214 266,972
------- --------
350,660 326,645
Accumulated depreciation................ 128,353 108,196
$222,307 $218,449
Depreciation expense on property, plant and equipment was $20,747, $17,745 and
$14,990 in fiscal 1999, 1998 and 1997, respectively.
8. OTHER ASSETS
September 30,
1999 1998
---- ----
Excess of purchase price
over net assets acquired................. $108,160 $107,379
Intangible assets................. .............4,236 3,698
Software development costs......................6,405 -
Deferred financing costs.................... 12,701 12,443
--------- ---------
131,502 123,520
Accumulated amortization.................... 39,737 35,750
-------- -------
$ 91,765 $ 87,770
======== ========
Amortization expense was $3,987, $3,516 and $3,246 in fiscal 1999, 1998 and
1997, respectively.
9. LONG-TERM DEBT
September 30,
1999 1998
Credit facility:
Securitization $ 33,601 $29,162
Revolver 17,640 30,022
9 1/4% senior subordinated notes, due 2007 170,000 170,000
Capital lease obligations (Note 19) 11,216 10,647
Other 1,153 2,512
-------- -------
233,610 242,343
Less current portion 2,389 5,500
-------- -------
Total long-term portion $ 231,221 $236,843
========= ========
Credit Facility
On December 18, 1997, the Company and its lenders, with BankBoston as
agent, entered into a five-year credit facility (the "Credit Facility").
Proceeds from the Credit Facility were used to repay the Fourth Amended and
Restated Revolving Credit Agreement dated October 20, 1995. The Credit
Facility consists of up to a $40 million asset based securitization program
(the "Securitization"), with amounts borrowed through a wholly owned
subsidiary, Synthetic Funding Corporation, and a $60 million senior secured
revolver facility (the "Revolver"). In conjunction with the Securitization,
the Company entered into a five-year agreement with its subsidiary
providing for the sale of substantially all of its receivables on a
revolving basis. Securitization and Revolver borrowings are collateralized
by the Company's accounts receivable and substantially all of the assets of
the Company, excluding real property, respectively.
Interest on the Securitization is based on the applicable commercial paper
rate in effect plus a spread. The Revolver permits borrowings which bear
interest, at the Company's option, (i) for domestic borrowings based on the
lender's base rate or (ii) for Eurodollar borrowings based on a spread over
the Interbank Eurodollar rate at the time of conversion. Spreads for the
Securitization and the Eurodollar borrowings are determined by the
operational performance of the Company. At September 30, 1999, the balances
under the Securitization and Revolver were $33,601 and $17,640,
respectively, at interest rates ranging from 5.63% to 8.25%.
The Revolver provides for borrowings under letters of credit of up to
$10,000, which borrowings reduce amounts available under the Revolver. At
September 30, 1999, letters of credit of $304 were outstanding.
The Credit Facility contains covenants related to the maintenance of
certain operating ratios and limitations as to the amount of capital
expenditures. The Company's ability to pay dividends on Common Stock is
prohibited under the Credit Facility.
Senior Subordinated Debentures and Notes
On February 11, 1997, the Company issued $170,000 in aggregate principal
amount of 9 1/4% Senior Subordinated Notes due 2007 (the "Notes"), which
represent unsecured obligations of the Company. The Notes are redeemable at
the option of the Company at any time on or after February 15, 2002,
initially at 104.625% of their amount, together with accrued interest, with
declining redemption prices thereafter. Interest on the Notes is payable
semi-annually on February 15 and August 15.
In connection with the issuance of the Notes, the Company redeemed
approximately $132,600 principal amount of its 12 3/4% Senior Subordinated
Debentures due 2002 (the "Debentures") at a redemption price of 111.07% of
the principal amount thereof. In addition, the Company repaid $20,000 of
its outstanding term loan borrowings as of March 5, 1997. In connection
with the early extinguishment of debt, the Company recorded an
extraordinary loss of $11,950 (representing call premium and prepayment
fees of $15,920 and write off of deferred financing costs of $3,511, net of
an income tax benefit of $7,481) during fiscal 1997.
On December 1, 1997, the Company redeemed the remaining $7,403 aggregate
principal amount of Debentures outstanding at a redemption price of
106.375% of the principal amount thereof, together with accrued interest as
of the redemption date.
Aggregate Minimum Payments and Fair Value
Approximate aggregate minimum annual payments due on long term debt and
capital leases (see Note 19), for the subsequent five fiscal years, are as
follows: 2000, $2,389; 2001, $1,444; 2002, $1,550; 2003, $52,906; 2004,
$1,789; and thereafter, $173,532.
The fair value of the Company's Notes was estimated to be $169,150 at
September 30, 1999 and 1998. The fair values are based on quoted market
prices for the Notes in the over-the-counter market.
In connection with the sale of the Company, substantially all of the
Company's debt will be refinanced. See "Subsequent Event" (Note 22).
10. GENERAL AND ADMINISTRATIVE EXPENSES
Included in general and administrative expenses for the year ended
September 30, 1999 are the following charges:
a. Sale Expenses - In connection with the sale process of the Company
conducted by an independent committee of the Company's Board of
Directors (Note 20), the Company incurred investment banking, legal and
advisory costs of $1,038 during fiscal 1999.
b. Employee Retention Costs - In connection with the Merger, the Company
implemented a retention bonus plan to preserve and protect the
Company's management during the sale process. In connection with the
retention plan, the Company recorded compensation expense of $1,688
earned during fiscal 1999.
Included in general and administrative expenses for the Partnership was
$679 for expenses incurred by the Company on behalf of the Partnership
11. PLANT CONSOLIDATION AND EQUIPMENT RELOCATION COSTS
In fiscal 1999, the Company consolidated its non-woven manufacturing
facility in Spartanburg, SC into its modern facility in Ringgold, GA. As a
result, the Company recorded pretax charges of $4,300 for the year ended
September 30, 1999. These charges reflect plant consolidation costs of
$2,200 (severance provisions of $1,100 related to workforce reductions of
approximately 105 employees and a charge of $1,100, for the write off of
abandoned assets) and equipment relocation costs of $2,100. The costs
related to the plant consolidation and equipment relocation have been fully
paid or charged off during fiscal 1999.
12. INCOME TAXES
The sources of income before provision for income taxes are as follows:
Year Ended September 30,
1999 1998 1997
---- ---- ----
United States $23,570 $28,575 $29,609
Foreign 1,500 1,498 1,082
-------- ------- -------
Earnings before income taxes $25,070 $30,073 $30,691
======= ======= =======
The provision for income taxes attributable to the amounts shown above
consists of the following:
Year Ended September 30,
1999 1998 1997
---- ---- ----
Current:
Federal................ $6,468 $ 4,875 $8,796
State.................. 82 591 1,120
Foreign................ 496 500 355
------ ------- ------
7,046 5,966 10,271
------ ------- ------
Deferred:
Federal................ 2,594 6,594 1,900
State.................. 14 (705) 370
------ ------- ------
2,608 5,889 2,270
------ ------- ------
Total ...................... $9,654 $11,855 $12,541
====== ======= =======
As described in Note 9, the Company recorded a current tax benefit of
$7,481 in fiscal 1997 as a result of the early extinguishment of debt.
A reconciliation of US income tax computed at the statutory rate and actual
tax expense is as follows:
Year Ended September 30,
1999 1998 1997
---- ---- ----
Amount computed at statutory rate.....$8,775 $10,526 $10,742
State and local taxes less applicable
federal income tax benefit.......... 268 978 998
Amortization of goodwill.............. 1,002 942 873
Tax credits........................... (569) (991) (405)
Other nondeductible expenses.......... 233 202 181
Other, net............................ (55) 198 152
------ ------ ------
$9,654 $11,855 $12,541
====== ======= =======
The tax effects of significant items comprising the Company's net deferred
tax liability are as follows:
September 30,
1999 1998
---- ----
Property, plant and equipment........$36,708 $31,754
Trademarks and patents............... 920 1,242
------- -------
Total deferred tax liabilities....... 37,628 32,996
------ ------
Accounts receivable.................. 1,038 968
Inventory............................ 925 749
Accrued expenses..................... 2,576 1,869
State tax credit carryforward........ 1,922 1,053
------ ------
Total deferred tax assets............ 6,461 4,639
------- ------
Net deferred tax liability...........$31,167 $28,357
======= =======
At September 30, 1999, the Company has available state income tax credits
of $1,922 which are available to reduce future state income taxes, subject
to statutory limitations, expiring between 2007 and 2009.
13. RETIREMENT PROGRAMS
For U.S. 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 ratably over 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 1999, 1998 and
1997, the Company contributed $1,131, $1,117 and $1,098, 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.
On July 1, 1998, the Company's Board of Directors approved the
establishment of the Synthetic Industries, Inc. Supplemental Savings Plan (
the "SSP"), a non-qualified plan designed to provide highly compensated
employees, as defined by the Internal Revenue Service, the opportunity to
defer any portion of their pre-tax compensation that is ineligible for
deferral under the Plan. Company matching of qualified deferred amounts is
limited to 3% of a participant's compensation less any amount actually
contributed by the Company under the Plan. Vesting under the SSP is based
upon years of service. Life insurance contracts have been purchased which
may be used to fund the Company's portion of the SSP. In fiscal 1999, the
charge to expense was $97.
14. EMPLOYEE STOCK PURCHASE PLAN
On February 25, 1998, the stockholders approved the Synthetic Industries,
Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), reserving
325,000 shares of Common Stock for issuance under this Plan. The Company
adopted the Stock Purchase Plan with an initial option period commencing
effective April 1, 1998, and continuing in three-month option periods
thereafter. The Stock Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions or lump sum contributions, which
may not individually exceed $25 in a calendar year, at a price equal to 85%
of the Common Stock price as reported by the NASDAQ National Market at the
beginning or end of each option period, whichever is lower. At September
30, 1998 and 1999, the Stock Purchase Plan had acquired 46,959 and 10,510
shares, respectively, from the Company's treasury stock.
15. STOCK OPTIONS
Director's plan
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 were fully vested as of 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.
Management plan
The Company's 1994 and 1996 Stock Option Plans (collectively, the
"Management Plans") for its key employees, provides for the granting of
incentive stock options ("ISOs"), as provided in 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 and the 1996 Plan is 491,413 and 289,062 , respectively.
Stock option transactions during 1999, 1998 and 1997 are summarized as
follows:
<TABLE>
Shares
reserved for Shares
issuance under Shares available for Weighted
the Management granted grant Price average
Plans price
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1996 905,736 638,397 267,339 $6.83-$10.72 $9.96
Options granted 175,500 $17.875-$21.375 $18.77
- -
------------------------------------ -------------- ------------ --------------- ------------------- ------------
Balance at September 30, 1997 905,736 813,897 91,839 $6.83-$21.375 $11.86
Options granted 80,900 - $15.00 $15.00
Options exercised - (12,500) - $6.83 $6.83
-
------------------------------------ -------------- ------------ --------------- ------------------- ------------
Balance at September 30, 1998 905,736 882,297 10,939 $6.83-$21.375 $12.22
Options granted - 7,500 - $16.50 $16.50
Options exercised - (13,317) - $6.83-$10.72 $7.89
Options retired (10,632) - $10.72-$15.00 $13.54
------------------------------------ -------------- ------------ --------------- ------------------- ------------
Balance at September 30, 1999 905,736 865,848 3,439 $6.83-$21.375 $12.26
</TABLE>
At September 30, 1999, 757,403 options were exercisable at exercise prices
ranging from $6.83 to 21.375 per share.
The purchase price of the shares of Common Stock subject to options under
the Management Plans must be no less than the fair market value of the
Common Stock at the date of grant; provided, however, that the purchase
price of shares of Common Stock subject to ISOs granted to any optionee who
owns shares possessing more than 10% of the combined voting power of the
Company ("Ten Percent Shareholder') 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 the grant, except
with respect to ISOs granted to Ten Percent Shareholders, which must expire
within five years of the date of grant.
The Company has elected to continue measuring stock-based compensation
using the intrinsic value approach under APB Opinion No. 25 and has adopted
the disclosure-only provision of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
Accordingly, no compensation expense has been recognized for the options
described above. Had compensation costs for the options been determined
based on the fair value on the grant date consistent with the provisions of
SFAS 123, the Company's net income and diluted income per share would have
been changed to the following pro forma amounts:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma net income $14,888 $17,640 $6,009
Pro forma income per share - basic 1.72 2.04 0.69
Pro forma income per share - diluted 1.66 1.96 0.69
</TABLE>
The fair values for the years presented were determined using a
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividend yield None None None
Volatility 44% 64% 33%
Risk-free interest rate 6.0% 5.5% to 6.8% 6.4% to 6.8%
Expected life 4 years 4 years 4 years
</TABLE>
The weighted average fair value of options granted in fiscal 1999, 1998 and
1997 was $6.95, $8.04 and $10.30, respectively.
For options outstanding and exercisable at September 30, 1999, the exercise
price ranges and average remaining lives were:
<TABLE>
Options Outstanding Options Exercisable
Weighted Average
Shares Remaining Average Shares Average
Outstanding Contractual Life Exercise Outstanding At Exercise Price
Exercise Prices At 9/30/99 Price 9/30/99
<S> <C> <C> <C> <C> <C> <C>
$ 6.83 112,761 5.20 $6.830 112,761 $ 6.83
$10.72 496,187 5.60 10.720 452,192 10.72
$15.00 73,900 8.80 15.000 30,700 15.00
$16.50 7,500 9.25 16.500 - -
$17.875 130,500 7.60 17.875 130,500 17.875
$21.375 45,000 7.75 21.375 31,250 21.375
</TABLE>
16. RELATED PARTY TRANSACTIONS
SI Management L.P. 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. At September 30,
1999, the Partnership owned 5,699,194 shares of Common Stock, or approximately
66% 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 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 partners.
For further information on the Partnership see Notes 19 and 21.
A former executive officer of the Company and an affiliate of the general
partner of the Partnership, has been retained as a consultant to the
Company. Pursuant to his consulting agreement with the Company, the former
executive officer will receive, until January 31, 2000, or upon earlier
termination 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 and an affiliate of the general partner of the
Partnership. The term of the lease expires on September 30, 2003 and the
rent is approximately $52 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 and an affiliate of the Partnership, receives royalties related
to the manufacture and sale of a certain product for which the executive
officer owns all of the U.S. and foreign patents. Under this agreement, the
Company paid royalties of approximately $19 and $9 in fiscal 1999 and 1998,
respectively, and will continue to pay such royalties until 2012 or the
earlier termination of the licensing agreement.
During fiscal 1999 and 1998 the Company paid fees of approximately $211 and
$125, respectively, to a law firm in which Mr. Joseph Dana, an officer and
a director of the Company, was a member until May 21, 1997. Effective May
21, 1997, Mr. Dana became employed as Chief Operating Officer and General
Counsel of the Company. On August 6, 1999, Mr. Dana was named President of
the Company.
During fiscal 1999, 1998 and 1997, the Company paid for expenses incurred
by the Partnership in connection with the Partnership's (i) proposed plan
of dissolution in 1997, (ii) defense of two putative class and derivative
action lawsuits resulting from its proposed plan of dissolution, and (iii)
dissolution, liquidation and winding up of its affairs in connection with
the settlement of lawsuits. During fiscal 1999, 1998 and 1997, the Company
incurred $679, $622 and $1,139, respectively, of such expenses on behalf of
the Partnership. At September 30, 1999, 1998 and 1997, the amounts
receivable from the Partnership for such costs were $1,342, $663 and
$1,800, respectively. In May 1998, the Company acquired 82,056 shares of
its Common Stock from the Partnership in exchange for $1,759 of amounts
receivable from the Partnership, in partial settlement of expenses paid by
the Company on behalf of the Partnership during the last two fiscal years.
The shares were acquired at their fair market value and are held in
treasury for issuance under the Employee Stock Purchase Plan. Upon the
liquidation of the Partnership in connection with the settlement, the
Company will be repaid in cash all amounts due from the Partnership.
17. INDUSTRY SEGMENT INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was adopted by the Company in the fourth quarter of fiscal
1999. The standard requires disclosure of segment information on the same
basis used internally for evaluating segment performance and deciding how
to allocate resources to segments. The Company has three reportable
operating segments organized by product line: carpet backing, construction
materials, and technical textiles. Major products by segment include:
carpet backing (primary and secondary backing), construction materials
(fabrics and fibers for use in reinforced concrete applications,
geotextiles and erosion control) and technical textiles (fabrics for
furniture and bedding construction, agriculture and filtration
applications).
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on earnings before income taxes. The Company allocated
interest and corporate overhead based on each segment's total assets. The
Company does not transfer products between segments and, therefore, has no
intersegment sales.
The Company has a large and diverse customer base, which includes customers
located in foreign countries. Net sales to one customer in the carpet
backing segment represented approximately 26%, 25% and 20% of consolidated
net sales for 1999, 1998 and 1997, respectively.
The Company conducts its foreign sales operations through subsidiaries in
Europe and a network of distributors worldwide. Sales to foreign markets in
1999, 1998, and 1997 were 10.4%, 9.4% and 10.6% of consolidated net sales,
respectively. These sales were primarily to customers in Canada, Europe,
Asia and Latin America. Information for the Company's operations in foreign
markets is as follows:
<TABLE>
Year ended September 30,
<S> <C> <C> <C>
Net sales* 1999 1998 1997
United States $344,687 $333,996 $308,872
Foreign countries 40,135 35,000 36,700
=============== ============== ==============
Total sales $384,822 $368,996 $345,572
=============== ============== ==============
*Net sales are attributed to countries based on location of customer.
</TABLE>
Because a substantial portion of the Company's foreign revenues are derived
from the sale of U.S. produced products, assets located outside the U.S. are not
material.
<TABLE>
Carpet Construction Technical
Backing Materials Textiles Total
1999
<S> <C> <C> <C> <C>
Total Segment Sales $172,024 $139,835 $72,963 $384,822
Earnings Before Taxes1 17,155 9,004 1,637 27,796
Interest Expense 10,206 5,691 3,729 19,626
Depreciation and Amortization 11,608 9,644 3,482 24,734
Total Assets2 227,970 127,885 85,763 441,618
Expenditures for Long-lived Assets3 16,959 1,576 13,631 32,166
----------------------------------------------- ------------- ------------------ --------------- --------------
1998
Total Segment Sales $168,998 $128,318 $71,680 $368,996
Earnings Before Taxes 20,660 7,403 2,010 30,073
Interest Expense 9,627 5,740 3,148 18,515
Depreciation and Amortization 10,120 8,111 3,030 21,261
Total Assets2 222,654 132,135 73,570 428,359
Expenditures for Long-lived Assets3 13,960 27,926 4,226 46,112
----------------------------------------------- ------------- ------------------ --------------- --------------
1997
Total Segment Sales $166,219 $114,611 $64,742 $345,572
Earnings Before Taxes 20,490 7,530 2,671 30,691
Interest Expense 11,449 5,021 3,615 20,085
Depreciation and Amortization 8,655 6,281 3,300 18,236
Total Assets2 221,498 94,784 67,792 384,074
Expenditures for Long-lived Assets3 18,710 24,712 10,558 53,980
----------------------------------------------- ------------- ------------------ --------------- --------------
</TABLE>
1 Earnings before taxes for operating segments presented above exclude
costs associated with the sale process of the Company of $2,726, which have
not been allocated to the operating segments.
2 A reconciliation of the total assets reported for the operating segments
to the applicable line items on the consolidated financial statements is as
follows: Total segment assets exclude $19,662, $12,155 and $12,517 for
fiscal years ended 1999, 1998 and 1997, respectively, consisting
principally of deferred tax assets, capitalized deferred financing costs
and systems development costs.
3 Expenditures for long-lived assets exclude acquisitions of businesses and
sales of assets.
18. COMMITMENTS AND CONTINGENCIES
a. Lease commitments
On April 7, 1998, the Company entered into an eight-year capital lease
agreement to finance $7,500 of equipment at 7.25%. On October 4, 1998,
the Company entered into an eight-year capital lease of $5,300 at an
interest rate of 7.03%. On August 17, 1999, the Company entered into a
sale-leaseback transaction whereby the Company sold certain machinery
and equipment for $12,608 and agreed to lease the assets back from the
purchaser over a period of 8 years at a rate of 6.4%. The leaseback
has been accounted for as an operating lease and the future minimum
lease payments are included below.
The Company also leases certain factory and warehouse buildings and
equipment under long-term operating leases expiring periodically
through 2009.
Future minimum lease payments under noncancelable lease obligations at
September 30, 1999:
<TABLE>
Capital Operating
Year leases leases
<S> <C> <C> <C>
2000........................................................ $1,935 $ 8,874
2001..................................................... 2,111 6,633
2002..................................................... 2,111 5,261
2003....................................................... 2,111 3,982
2004................................................ 2,111 2,686
Thereafter................................................. 3,779 6,910
------ -----
Total minimum lease payments................................ 14,158 $ 34,346
====== ========
Less amount representing interest............................ 2,942
Present value of net minimum lease payments................. 11,216
Less current maturities of capital
lease obligation....................................... 1,236
--------
Long-term capital lease obligation............................$9,980
</TABLE>
Total rental expense for the above operating leases and other short-term
leases for the fiscal years 1999, 1998 and 1997 was $7,163, $5,813 and $4,112,
respectively.
19. LITIGATION
The Company and its subsidiaries are parties to litigation arising out of
their business operations. Such litigation primarily involves claims for
personal injury, property damage, breach of contract and claims involving
employee relations and certain administrative proceedings. The Company
believes such claims are either adequately covered by insurance or do not
involve a risk of material loss to the Company.
In connection with a dissolution of the Partnership, the Company's majority
stockholder, that was proposed in 1997, the Company, its directors and
certain other of the Company's officers who were affiliated with the
general partner of the Partnership (the "General Partner") were named in
two putative class and derivative action lawsuits filed in California
federal court and Delaware state court by certain limited partners of the
Partnership. On April 16, 1999, preliminary approval of a settlement
agreement in connection with these lawsuits was granted by the United
States District Court for the Northern District of California. On May 24,
1999, the settlement was granted final approval by the United States
District Court for the Northern District of California and the California
action was dismissed with prejudice. On July 31, 1999, the Delaware action
was dismissed with prejudice by the Delaware Court of Chancery.
Pursuant to the settlement agreement, an independent committee of the
Company's Board of Directors (the "Committee") commenced in June 1999 a
sales process during which the Committee, with the help of a financial
advisor, sought offers from qualified buyers to purchase the Company. On
August 31, 1999, in accordance with the terms of the settlement agreement,
the General Partner resigned, which caused the dissolution of the
Partnership, and a liquidating trustee was appointed to wind up the affairs
of the Partnership in connection with the aforementioned sales process. On
November 5, 1999, at the conclusion of the sales process, the Company
entered into an agreement and plan of merger with SIND Holdings, Inc., a
company organized by Investcorp, S.A., a global investment group, and SIND
Acquisition, Inc., a wholly owned subsidiary of SIND Holdings, Inc.
Pursuant to the merger agreement, on November 12, 1999, SIND Acquisition,
Inc. commenced a cash tender offer for all outstanding shares of the
Company's common stock. The Partnership, which owned approximately 66% of
the outstanding common stock of the Company, tendered its shares to SIND
Acquisition, Inc. pursuant to an agreement that was entered into at the
same time as the merger agreement. On December 14, 1999, pursuant to the
merger agreement , SIND Acquisition, Inc. merged with and into the Company,
resulting in the Company becoming a wholly owned subsidiary of SIND
Holdings, Inc.
Acosta and Alvarez Matters
Prior to March 23, 1999, approximately 158 plaintiffs had filed claims
against Kaufman and Broad Home Corporation Including its subsidiaries and
affiliates ("Kaufman and Broad") in two separate Los Angeles County
Superior Court cases (the "Acosta and Alvarez Matters") each of which
alleged defects in fiber reinforced concrete slabs. On or about March 23,
1999, the Company, Kaufman and Broad and the plaintiffs entered into a
settlement agreement which resulted in the settlement of all claims against
Kaufman and Broad. On April 29, 1999, the plaintiffs in the Acosta and
Alvarez Matters filed amended complaints which named the Company as a
defendant in those respective actions and which consolidated the actions in
connection with claims that Fibermesh(R) used in concrete slabs at the
plaintiffs' homes was defective. In the amended complaint, the plaintiffs
claimed causes of action based upon strict liability, fraud, negligence,
intentional infliction of emotional distress, and breach of implied
warranty. In response to a demurrer filed on behalf of the Company, the
court dismissed the intentional infliction of emotional distress claim.
Thereafter, in July , 1999, the plaintiffs filed an amended complaint in
which they set out claims for strict liability, fraud, negligence, and
breach of express warranty. In September , 1999, in response to a demurrer
filed on behalf of the Company, the court dismissed the breach of express
warranty claim.
Extensive sampling and testing is being done on behalf of the Company of
all homes involved in this litigation. That testing has shown that
approximately forty of the plaintiffs do not have any Fibermesh(R) in the
concrete which was used in connection in the construction of their homes.
The Company anticipates these plaintiffs will be dismissed from the
lawsuit. After the sampling is completed, off site testing will be done
which will assist in determining the cause of any construction defects in
the concrete in the plaintiffs' homes. Minimal discovery has been done
pending the completion of sampling and testing at the plaintiffs homes.
Depositions of the plaintiffs will begin in late January, 2000. Therefore,
it is too early to predict the outcome of these cases except for
approximately forty plaintiffs who the Company anticipates will be
dismissed because the concrete in their homes did not contain Fibermesh(R).
The Company intends to vigorously defend against all claims by the
plaintiffs in these matters.
Hicks Matter
On October 1, 1998, three individuals filed a lawsuit against Kaufman and
Broad in Los Angeles County Superior Court (the "Hicks Matter") and
requested that the court grant class action status to the lawsuit. In
response to the complaint, Kaufman and Broad denied the plaintiffs'
allegations and filed a cross-complaint against the Company. The Company
has answered the Kaufman and Broad cross-complaint and denied generally and
specifically the allegations that Kaufman and Broad had been injured or was
entitled to any relief by any reason, act or omission by or on behalf of
the Company. Subsequently, at a hearing which as held on November 8, 1999,
the court announced that it would deny class action certification to the
complaint and dismiss all class action claims in this case. The effect of
this ruling is to leave three plaintiffs in this litigation involving two
homes. Based on the limited discovery which has been done as of this time,
it appears that there are no personal injury claims on behalf of the
plaintiffs and that their property damage claims are limited. While it is
too early to predict the outcome of this case, if there were an adverse
outcome, it would not have a material effect on the Company's results of
operations or financial condition. The Company intends to vigorously defend
against all claims by the plaintiffs in this matter.
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
Presented below is a summary of the unaudited consolidated quarterly
financial information for the Partnership for the years ended September 30,
1999 and 1998:
<TABLE>
Three Months Ended
Fiscal 1999 December 31 March 31 June 30 September 30
----------- ----------- -------- ------- ------------
<S> <C> <C> <C> <C>
Net sales $87,162 $84,525 $103,976 $109,159
Operating income1 6,640 6,579 16,245 15,357
Net income 520 454 4,801 3,676
Income per limited partnership unit 645 559 5,945 4,545
Weighted average limited partnership units 800 800 800 800
outstanding
Fiscal 1998
Net sales $76,581 $79,271 $104,531 $108,613
Operating income 7,034 6,788 17,730 17,143
Net income 710 647 5,122 4,950
Income per limited partnership unit 879 801 6,339 6,124
Weighted average limited partnership units 800 800 800 800
outstanding
</TABLE>
1 Operating income by quarter for fiscal 1999 include pre-tax charges for
plant consolidation costs and other charges relating to the sale of the
Company as follows: Quarter ended December 31, 1998, $1,619; quarter ended
March 31, 1999, $1,761; quarter ended June 30, 1999, $920; and quarter
ended September 30, 1999, $2,726.
21. SUBSEQUENT EVENT
On November 5, 1999 the Partnership entered into a Stockholder Agreement
with SIND Holdings, Inc., a company organized by Investcorp, a global
investment group, and SIND Acquisition, Inc., a wholly-owned subsidiary of
SIND Holdings, Inc. (SIND Holdings and SIND Acquisition being hereafter
referred to as the "Purchasers"). Pursuant to the Stockholder Agreement the
Partnership agreed to tender all of the shares of common stock (the
"Shares") it owned in Synthetic Industries, Inc. (the "Company") to the
Purchasers pursuant to a cash tender offer that would be made to
stockholders of the Company in accordance with a Merger Agreement, dated
November 5, 1999, between the Purchasers and the Company. The cash tender
offer was commenced on November 12, 1999, the Partnership tendered the
Shares and on December 15, 1999 the Partnership received approximately
$188,000 in cash in payment for the Shares. The Liquidating Trustee
promptly invested these proceeds in U.S. Treasury Bills, which now comprise
all of the assets of the Partnership.
Pursuant to the Stipulation and Agreement of Settlement approved by the
United States District Court for the Northern District of California to
which the Partnership is subject, the Liquidating Trustee has made
application to the Court to make a cash distribution to the partners of the
Partnership and has sent Payment Direction Letters to all limited partners
of the Partnership. Upon approval by the Court and return of the Payment
Direction Letters, the Liquidating Trustee intends to distribute $160,000
in cash in accordance with the terms governing liquidating distributions
set forth in the Partnership Agreement. The remainder of the cash now held
by the Partnership in U.S. Treasury Bills will be retained in that form by
the Liquidation Trustee pending satisfaction of all of the Partnership's
liabilities, including, without limitation, the attorneys' fees payable to
plaintiff's counsel in the litigation that was the subject of the
Stipulation and Agreement of Settlement, amounts owed to the Company and
the incidental expenses and liabilities incurred in connection with the
liquidation. On December 30, 1999, the United States District Court for the
Northern District of California awarded $6,839 in fees and $237 in expenses
to plaintiff's counsel, and directed an additional $13, 678 to be held in
reserve by the Liquidating Trustee, subject to the exhaustion of any
appeals or further court order. In addition, at December 30, 1999, the
Partnership owed the Company $1,396 incurred in connection with plans of
dissolution that were not consummated. The Liquidating Trustee expects that
all liabilities of the Partnership will not exceed the amount of assets
retained by the Partnership. The Liquidating Trustee can give no
assurances, however, as to when and what amount of the reserve will be
released by the Court, and, therefore, no prediction can be made as to when
and in what amount a final liquidating distribution of the Partnership will
be made.
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 Chief Executive Officer
Date: January 13, 1999
By: /s/ Joseph Sinicropi Secretary and Chief Financial Officer
Dated: January 13, 1999 (Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of Synthetic Industries, L.P. as of
September 30, 1997, and the related condensed consolidated statement of income
and cash flows for the twelve months ended September 30, 1998, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000901175
<NAME> Synthetic Industrie
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1.0
<CASH> 189
<SECURITIES> 0
<RECEIVABLES> 68,191
<ALLOWANCES> 2,700
<INVENTORY> 60,591
<CURRENT-ASSETS> 145,866
<PP&E> 350,660
<DEPRECIATION> 128,353
<TOTAL-ASSETS> 459,938
<CURRENT-LIABILITIES> 53,636
<BONDS> 170,000
0
0
<COMMON> 0
<OTHER-SE> 90,478
<TOTAL-LIABILITY-AND-EQUITY> 459,938
<SALES> 384,822
<TOTAL-REVENUES> 384,822
<CGS> 251,780
<TOTAL-COSTS> 340,001
<OTHER-EXPENSES> 20,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,626
<INCOME-PRETAX> 24,391
<INCOME-TAX> 9,654
<INCOME-CONTINUING> 14,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,451
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
