Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

FOR THE YEAR ENDED DECEMBER 31, 2004

FOR THE TRANSITION PERIOD FROM              TO             

Commission File Number 333-122829

Propex Fabrics Inc.

(Exact name of registrant as specified in its charter)

260 The Bluffs, Austell, Georgia 30168

(Address of Principal Executive Offices)

(770) 941-1711

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b2).    Yes  ¨    No  x

The Registrant is a wholly owned subsidiary of Propex Fabrics Holdings Inc., and there is no public market for the Registrant’s common stock.

Number of shares of common stock outstanding at March 30, 2005: 100 shares

Table of Contents

Propex Fabrics Inc.

Table of Contents to Form 10-K

For the Year Ended December 31, 2004

2

Table of Contents

GLOSSARY

The following are definitions of certain terms commonly used in the polypropylene synthetic fabrics industry and this annual report.

“Backing” refers to a reinforcing material for the back layer of carpet.

“Broadloom” refers to a carpet woven on a wide loom to mitigate the need for seams.

“FIBCs” means flexible intermediate bulk containers.

“Fiber” is a unit of matter, synthetic or natural, that forms the basic element of fabrics and other textile structures. Fiber is characterized by a very high ratio of length-to-width. Fiber is typically twisted together to make spun yarn or formed into a batt and bonded to make nonwoven fabric.

“Jute” is a natural fiber used for sacking burlap and twine and as a backing for tufted carpeting.

“Nonwoven” means a fabric consisting of an assembly of textile fibers, oriented in one direction or in a random manner, held together by mechanical interlocking; by fusing of thermoplastic fibers; or by bonding with a rubber, starch, glue, casein, latex, or a cellulose derivative or synthetic resin.

“Polypropylene” is a thermoplastic compound obtained by the polymerization of propylene. The catalysts used in polymerization determine the stereochemical structure of the polymer, yielding a wide product range with highly diverse applications. Polypropylene is a primary component of our woven and nonwoven fabrics and is typically supplied in the form of solid pellets.

“Primary backing” is a woven or nonwoven fabric through which yarn is inserted by tufting needles. Primary backing allows for positioning of the tufts and holds the tufts in place during processing prior to the application of the secondary backing.

“Secondary backing” is a woven or nonwoven fabric reinforcement that is laminated to the back of the carpet to enhance dimensional stability, strength, stretch resistance and stiffness.

“Tufted” means a method of manufacturing carpet. Tufts of fiber are inserted through a carpet backing to create a pile of cut and/or loop ends. Tufts of pile yarn are created by inserting the yarn through primary backing with a needle, forming a loop, then removing the needle. The tufts can then be either cut to form two ends or left as loops.

“Woven” means a fabric which is constructed by weaving interlacing threads or strips of material or other elements into a whole.

3

Table of Contents

PART I

Forward-Looking Statements

This document contains forward-looking statements. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management, based on information currently available to management. Forward-looking statements are those that do not relate strictly to historical or current facts, and can be identified by the use of the future tense or other forward-looking words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “should,” “may,” “objective,” “projection,” “forecast,” “management believes,” “continue,” “strategy,” “position” or the negative of those terms or other variations of them or by comparable terminology. In particular, statements, express or implied, concerning future actions, conditions or events, future operating results or the ability to generate sales, income or cash flow are forward-looking statements. Forward-looking statements include the information concerning possible or assumed future results of our operations set forth under “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond management’s ability to control or predict. Specific factors that could cause actual results to vary from those in the forward-looking statements include:

You are cautioned not to put undue reliance on any forward-looking statements, and we undertake no obligation to update those statements.

4

Table of Contents

Item 1. BUSINESS

Prior to December 1, 2004, we were owned by BP p.l.c. and operated under the name of Amoco Fabrics and Fibers Company in the U.S. and other names in our international locations (hereafter referred to as the “Predecessor” company during the periods prior to December 1, 2004). We were acquired by an investor group that includes the investment entities affiliated with The Sterling Group, L.P., Genstar Capital, L.P., and Laminar Direct Capital, L.P., which we refer to collectively as the “sponsors,” BNP Paribas Private Capital Group, through Paribas North America Inc., certain members of our senior management and certain other investors on December 1, 2004, and became a stand-alone company operating under the name Propex Fabrics Inc. (hereafter referred to as the “Successor” company during the subsequent period beginning on December 1, 2004).

Throughout the body of this 10-K filing, words such as “we,” “our,” and “us” are used in reference to both the Predecessor and Successor.

Our Company

We are the world’s largest producer of primary and secondary carpet backing, and a leading manufacturer and marketer of polypropylene-based synthetic fabrics used in a variety of other industrial applications. We pioneered the introduction of synthetic woven polypropylene carpet backing as a replacement to jute carpet backing, as well as the development of woven and nonwoven fabrics for other applications. We have been engaged in the textile industry since 1884.

For year ended December 31, 2004, we sold 2.8 billion square yards of fabric on a global basis, generating total revenues of $609.6 million.

We operate globally in the three geographic regions of North America, Europe and Brazil, from which we market our products to over 40 countries. In North America, our largest region, our operations are divided into two product segments: furnishings and industrial fabrics. Our Europe and Brazil regions operate as geographic segments.

We primarily sell our products to leading carpet manufacturers, well-known furniture and bedding manufacturers and distributors of industrial fabrics. We market our products under a variety of brands, including Polybac^® and Actionbac^®, and we believe that many of our products are among the most recognized in the industry and are highly respected for their quality and performance. We have excellent relationships with our over 300 customers, and we have served many of our key customers for over 30 years.

Our Strategy

We seek to increase revenues and cash flows by continuing to be the preferred supplier in our furnishings segment, particularly as a supplier of primary and secondary carpet backing in North America and Europe, while also growing sales in industrial fabrics across our various geographic regions, particularly Brazil.

5

Table of Contents

Capitalize on favorable growth dynamics. We anticipate continued strength in new sales and remodeling of residential and commercial properties across the U.S. housing and commercial construction industries. We expect this to translate into growth in demand for carpet backings. In addition, we believe that relative to traditional building products, our geotextile products are cost-effective and enhance performance in civil engineering projects, and that these synthetic fabrics will continue to displace and supplement traditional construction materials.

Maintain low cost position. We believe our extensive industry experience in furnishings, particularly in carpet backing, and the locations of our manufacturing facilities provide us with a low cost position. We intend to pursue selected opportunities to reduce our cost base by expanding our operations in low cost areas, such as Hungary and Brazil.

Expand our operations in regions with favorable growth dynamics. Our international presence, manufacturing advantage and broad product offering provide us with a competitive advantage across our markets. We believe there is a significant opportunity to increase Brazilian sales by adding additional capacity. Within the European secondary carpet backing business, we see opportunities to increase sales to our existing customers, due to our low cost manufacturing advantage.

Develop new products. We are committed to developing new products that improve upon our existing sales and generate new sources of revenue and profitability. We also intend to focus our efforts on supporting customers in key applications. As an example, we developed LOCBAC XP^® for leading carpet manufacturer Mohawk Industries, Inc., a carpet backing product which is featured on Mohawk’s fashion brands such as Karastan^® and Customweave^®.

Our Products

We manufacture synthetic yarn and fibers, which we use to produce our products for specific applications for our two primary product segments: furnishings and industrial fabrics.

Furnishings

Carpet backing:

Carpet backing is our largest product category. We produce both primary and secondary carpet backing in all of our geographic locations. Primary carpet backing is a tightly woven synthetic fabric into which carpet face fibers are tufted in the manufacture of broadloom floor coverings. Secondary carpet backing forms the base of a carpet and is an open-weave fabric that is adhered to the back of tufted broadloom to ensure both carpet integrity and dimensional stability.

Primary and secondary carpet backing are key components in the manufacturing of carpet and represent approximately 5.7% of the cost to produce carpeting. To meet the needs of our customers, we have a strong track record of successfully commercializing premium carpet backings. Polybac^® is the leading synthetic primary backing in the

6

Table of Contents

industry and is the most recognized product by our customers. It is a highly durable synthetic woven product with moisture and mildew resistance not present in natural fiber alternatives. The majority of our primary carpet backing product revenues result from sales of the following three product lines: Polybac^® fabric, Polybac^® Guideline fabric and Polybac^® FLW. Polybac^® Guideline provides a visual guideline that allows carpet manufacturers to monitor straightness during the manufacturing process. Our customers’ demand for this product has increased steadily since its introduction in 2000. Our Polybac^® FLW and Polybac^® CLW are designed with a layer of nylon fiber that is dyed with the carpet. We developed this multi-layered product to provide additional bulk, allowing carpet manufacturers to improve their cost structure by using less face yarn.

Our secondary carpet backing products primarily consist of a range of woven Actionbac^® fabrics, along with a number of specialty higher value-added secondary fabrics, such as Raschel^™ knitted secondary backing sold in Europe. Actionbac^® fabrics are the industry standard in secondary backing, known in our industry for stability over the life of the carpet. We are the sole provider of the LOCBAC XP^® carpet-backing product, which we developed for leading carpet manufacturer Mohawk Industries, Inc. and which is exclusive to Mohawk.

Furniture and bedding:

Our furniture and bedding line of products is sold primarily in North America. We offer a broad line of synthetic fabric products used primarily in the internal construction of furniture and bedding. Our polypropylene fabrics are tough with lightweight materials utilized as internal construction fabrics in bedding, upholstered furniture and automotive seating. We sell fabrics directly to bedding manufacturers and customers who convert our bulk products to the many different widths, shapes and roll lengths required by their customers.

Industrial Fabrics

Geotextiles:

Our geotextile fabrics are tough, versatile materials that lower the cost, enhance the performance and extend the life of civil engineering projects, with end use applications such as road construction, erosion control, drainage and soil reinforcement. We have a broad range of woven and nonwoven polypropylene geotextile products that meet the specifications for application and design of our customers. The proven chemical stability of polypropylene is a key reason for the widespread use of these fabrics. Woven and nonwoven geotextiles are utilized in drainage channels, shorelines, silt fences, and bridge and pier protection systems to prevent subgrade soil erosion and extend the life of these structures.

Our geotextile fabrics are also used in transportation and construction applications, including paving, reinforcement and stabilization. Geotextiles provide consistent and continuous filtering, reduced excavation, reduced environmental impact, simplified, higher quality construction, and a substantial reduction in material costs

7

Table of Contents

compared to traditional soil filters. In paving applications, nonwoven specialty paving fabrics, such as our Petromat^® paving fabric, and repair membranes are engineered to reduce water infiltration and reflective cracking, thereby saving on costly repaving cycles and extending the life of paved surfaces. In reinforcement applications, geotextiles are utilized as reinforcement in soil wall and slope systems. In stabilization applications, which represent the largest geotextile application, geotextiles are utilized to separate the aggregate base from subgrade soils in roadway and railroad construction. In this application, geotextiles can increase the effective bearing strength of low-strength subgrade soils.

Our geotextile fabrics are sold primarily in North America and Europe.

Packaging and protective coverings:

From North America and Brazil, we sell a wide variety of other industrial synthetic fabrics including protective covers, FIBCs, cotton and synthetic fiber bale covers and other agricultural applications. We market industrial fabrics for the following applications:

Our Markets

North America

In North America, as in all of the geographic regions we serve, we manufacture and produce polypropylene synthetic fabrics. We primarily sell our products to leading carpet manufacturers, well known furniture and bedding manufacturers and distributors of industrial fabrics. Our 2004 sales of $477.6 million to North American carpet backing, furniture and bedding and other industrial customers accounted for 78.3% of our total worldwide sales.

Furnishings

Carpet backing.

Carpet and carpet backing are part of the broader floor covering industry, which includes carpets and rugs, hardwood floors, ceramic floor and wall tiles, vinyl sheet and

8

Table of Contents

floor tile, rubber floor coverings and laminate floorings. Carpet represents the largest product in the overall floor covering market, accounting for approximately 68% of U.S. floor covering sales in 2003. Because of the importance of carpet backing in the production of carpet, the demand for carpet backing is closely linked to the demand for carpet. We sell our products for residential and commercial applications, which we estimate account for approximately 75% and 25% of the North American carpet backing volume demand, respectively.

Carpet sales are driven by the factors that influence the broader market for floor coverings. Floor covering demand is driven largely by home remodeling expenditures, which are frequently related to existing home sales, new housing starts and commercial property construction. These demand drivers are influenced by interest rates, consumer and business income growth and consumer confidence. While carpeting lost some ground to other floor covering products throughout the 1990’s, this trend has slowed recently. We believe carpeting should continue to perform well relative to other types of floor coverings due to carpet manufacturers’ commitment to utilizing new innovative patterns, designs and textures.

The carpet backing business differs regionally. Tufted carpet and rugs account for approximately 90% of all carpets and rugs manufactured in North America and approximately 60% in Europe. Virtually all tufted carpet and rugs utilize primary carpet backing. Secondary carpet backing is used in over 86% of tufted carpet and rugs in North America. Woven synthetic materials account for over 90% of all carpet backing sold in North America and approximately 77% in Europe. A wider range of materials is used in secondary carpet backing than in primary carpet backing. For example, woven synthetic fabrics are used in approximately 41% of all European secondary carpet backing.

We believe we are the largest provider of carpet backing in each of our regions.

Furniture and bedding. We manufacture a variety of needle punched, nonwoven internal construction fabrics for use in furniture and bedding applications in North America. In 2004, approximately 65% of our sales to furniture and bedding customers were attributable to bedding products and 35% to furniture products.

The principal macroeconomic factors influencing furniture and bedding sales are housing turnover, the directional movement of consumer confidence expectations and personal income levels. Despite the beneficial trend in home sales, other factors have adversely impacted furniture sales. Due largely to poor consumer economic confidence, limited discretionary expenditures and the increase of foreign imports into the U.S. furniture market, domestic furniture factory shipments in the United States have decreased at an average rate of 3% per year since 2000.

We believe we are the largest supplier of furniture and bedding construction fabrics in North America.

9

Table of Contents

Industrial fabrics

Geotextiles. We sell geotextile fabrics for civil engineering projects, road construction and landfill applications. Demand for woven and nonwoven polypropylene fabrics utilized in geotextile applications has increased over the past decade. A portion of this growth has come from the continued development of new applications for these products. We believe that demand for geotextiles will continue to grow at rates in excess of GDP driven by expected growth in civil construction activity and increased penetration of geotextiles due to their project life cycle cost advantages, as well as environmental regulations related to improving stormwater management and other drainage enhancements.

We believe we are one of the largest providers of geotextile fabrics in North America.

Packaging and protective coverings. We sell our synthetic fabrics to customers for use in various packaging and protective covering applications. We expect continued growth in the sales of our higher-end products, such as our specialty FIBCs. We believe demand for protective covering products will grow steadily with the U.S. economy as the construction industry continues to learn more about the benefits and applications of these synthetic fabrics.

Europe

In Europe our synthetic fabric is sold primarily to two groups of customers, carpet manufacturers and consumers of geotextiles. Our $93.0 million of sales from Europe accounted for 15.3% of our global sales in 2004.

Carpet backing. Tufted carpeting sales in Western Europe have declined steadily since 1999 due to a weakening economy and consumer preference. However, we believe tufted carpeting has started to regain share in floor coverings as the carpeting industry as a whole has focused on promoting the advantages of tufted carpets, including the added comfort, warmth, design and even safety. We believe there are growth opportunities in Eastern Europe and other countries of the former Soviet Union as these economies develop.

In Europe, alternative secondary backings, such as foam, jute and felt, are sometimes utilized to provide cushioning; however, we believe polypropylene secondary carpet backing offers several advantages such as ease of removal/replacement and enabling faster carpet manufacturing speeds than with natural jute fibers.

We believe we are the leading supplier of carpet backing within Western Europe.

Geotextiles. Use of woven geotextiles in Europe has been roughly flat over the last five years. Similar to the geotextile industry in the United States, there are significant opportunities for increased penetration of these products in the construction industry. We believe we are the leading supplier for the geotextile applications we serve.

10

Table of Contents

Brazil

In Brazil, we manufacture the same types of synthetic fabric products as in our other regions, but the end uses are more diversified. The majority of our products sold in Brazil serve needs in various industrial applications including shipping, packaging and agricultural uses. Our $39.0 million of sales from Brazil accounted for 6.4% of our global sales in 2004.

Due to the growth of agricultural and industrial business in Brazil, we are experiencing strong demand for our industrial fabrics. For example, our fabric is used to make one to two-ton FIBCs, which are replacing smaller sacks and containers. We expect that this product replacement will continue to drive significant growth for our industrial fabrics for the foreseeable future.

Due to regional preference differences, carpeting is much less common in Brazil than in the other parts of the world in which we market our fabrics. We believe we are currently the only domestic producer of carpet backing in the southern portion of South America.

Sales, Marketing and Distribution

As a global producer of synthetic fabrics, we market, sell and distribute all of our products to a broad range of customers. To address the needs of our diverse customer base, we employ a range of marketing, sales and distribution approaches. We believe our multiple marketing, sales and distribution approaches allow us to maximize our ability to serve our diverse customers.

We have three direct sales forces to serve the needs of our carpet backing customers. Our North American sales force is located primarily in Dalton, Georgia, our European sales force is located in Gronau, Germany and our Brazilian sales force is located in Curitiba, Brazil. Each sales force is located near major carpet manufacturing regions in North America and Europe, respectively. In North America, our sales force leverages our long-term relationships to work collaboratively with our carpet backing customers. Our sales people work with our customers at their sites to meet their needs as they evolve, including developing new carpet backing products in conjunction with our customers.

We sell our furniture and bedding fabrics directly to manufacturers of mattresses and upholstered furniture components. We have developed a strategy of aligning our sales and distribution efforts with key customers that are leaders in their respective fields. We work closely with key customers to develop new products and applications to enable them to meet new safety regulations for their products.

We sell our geotextiles primarily to distributors in both North America and Europe. In North America, we have a network of regional distributors and two primary resellers. In Europe, we typically work with one distributor in each country in which we sell our products.

11

Table of Contents

Customers

We derive a significant amount of our revenues from a relatively small number of primary customers. Our top ten customers accounted for 50.3% of our total revenues in 2004. Of those top ten customers, nine were North American customers and six were carpet backing customers.

Our top two customers collectively represented 31.7% of our total sales in 2004. We have been supplying carpet backing to these customers for over 30 years.

We sell most of our furniture and bedding products to two primary customers. We have long-standing relationships with these two key customers, developed over the last 25 years.

Our top ten customers in Europe accounted for 41.4% of our European sales in 2004.

Our top ten customers in Brazil accounted for 58.7% of our Brazilian sales in 2004.

Competition

We believe we are either the largest or a leading producer of our primary products, and we are the only multinational producer of our products. In North America, we compete with a variety of industrial fabric producers, although only one other North American manufacturer offers a variety of products comparable to ours. We compete with a number of other local and regional fabrics producers in other countries.

Raw Materials

Polypropylene, a product of the petrochemical industry, is the base material in all of our products. The cost of manufacturing our products is highly dependent upon polypropylene prices. Generally, we have been able to pass through raw material price increases to our furnishings customers. However, unlike furnishings, it has been more difficult to pass through raw material price fluctuations to customers for our industrial products. During 2004, U.S. polypropylene prices increased by approximately 33%, to some of the highest levels in 25 years.

Major Suppliers

Polypropylene resin for our manufacturing process is supplied primarily by six vendors. Over the last two years, we have transitioned from purchasing most of our required resin from a single source, BP, to now purchasing from six vendors, including BP. We have renewable multi-year contracts. The minimum and maximum volume requirements in all of our contracts correlate to our forecasted polypropylene needs, helping to ensure security of polypropylene supply.

12

Table of Contents

Patents and Trademarks

We own or license several United States and foreign patents and have several patent applications currently under file with the United States and foreign patent offices. We have patented positions used in the manufacture of Matrix^® and Locbac^® carpet backing. We also have several registered trademarks that are well recognized by the customers we serve, such as Polybac^® and Actionbac^® in carpet backing, Petromat^® and Petrotac^® in geotextiles, and Duon^® in furniture fabrics.

Regulations and Environmental Matters

Our business operations, and our ownership and operation of real property, are subject to a broad range of federal, state, local and foreign environmental, health and safety laws and regulations pertaining to the release, emission and discharge of substances, the remediation of contaminated soil and groundwater, the handling and disposition of wastes, the safety and health of employees, or otherwise relating to pollution, preservation, remediation and protection of the environment, natural resources and human health and safety. To address these detailed and increasingly complex requirements, we have developed and integrated a Health, Safety and Environmental Management System that includes periodic reviews of policies, practices, operations and compliance at our manufacturing facilities, as well as procedures to take corrective or preventive action where necessary. We believe that we are currently in material compliance with these laws and regulations, and capital expenditures relating to environmental matters during 2003 and 2004 were not material.

The nature of our current and historical operations and ownership and operation of property also expose us to the risk of claims with respect to such laws and regulations, as well as claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, and there can be no assurance that material costs or liabilities will not be incurred in the future as a result of such claims. For example, we are subject to the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or “CERCLA,” which may impose strict, joint and several liability retroactively on past and present owners or operators of facilities at, from or to which a release of hazardous substances has occurred, on parties who generated hazardous substances that were released at such facilities and on parties who arranged for the transportation of hazardous substances to such facilities. We are currently alleged to be a responsible party at the Old Hazlehurst Solid Waste Disposal Site, the Old City Landfill, the Decatur County Landfill and the ITL/Cook Site. Pursuant to the terms of the stock purchase agreement with BP p.l.c., we have been indemnified by BP Amoco Chemical Holding Company for environmental liabilities arising from these sites, and for off-site disposal liabilities arising from activities or businesses conducted prior to the closing of the acquisition.

We do not currently anticipate any material adverse effect on our operations, financial condition, capital expenditures or competitive position as a result of our efforts

13

Table of Contents

to comply with environmental, health and safety requirements. Nevertheless, our business inherently has some risk of environmental liability, and we could become subject to material environmental claims in the future. Further, future actions by federal, state, local and foreign governments concerning environmental matters could result in new laws or regulations, changes to existing laws or regulations, new interpretations of existing laws or regulations, or more vigorous enforcement that could materially increase the cost of compliance, cleanup or production activities or otherwise adversely affect demand for our products.

Employees and Labor Relations

As of December 31, 2004, we had 3,736 employees, of whom 2,671 were located in North America, 741 in Europe and 324 in Brazil. 592 of our employees are salaried, and the remainder is hourly. All of our operators and some of our professional employees located in Germany, Mexico, Brazil, and Hungary are subject to collective bargaining agreements.

We are currently conducting negotiations with the German Works Council in an attempt to obtain a more favorable labor agreement, however, it is too early to predict the outcome of these negotiations.

14

Table of Contents

Item 2. PROPERTIES

We conduct manufacturing, distribution, and administrative activities in eleven owned and two leased facilities. We operate ten North American facilities and three abroad. We believe our facilities and equipment are in good condition and are suitable for our needs. Information about our properties in use as of December 31, 2004 is summarized in the following table:

15

Table of Contents

Item 3. LEGAL PROCEEDINGS

From time to time, we are a party to litigation and legal proceedings that we consider generally to be a part of the ordinary course of business. While no assurance can be given, we believe that, taking into account the indemnification by BP Amoco Chemical Holding Company, as discussed below and under “Item 1. Business-Regulations and Environmental Matters,” and current insurance coverage, none of the litigation or legal proceedings in which we are currently involved could reasonably be expected to have a material adverse effect on our business, financial condition or results of operations.

We are subject to potential loss contingencies pursuant to various federal, state, and local environmental laws and regulations. These include possible obligations to remove or mitigate the effects of the environment of the placement, storage, disposal, or release of certain chemical or petroleum substances by us or other parties.

Environmental remediation liabilities amounted to $0.9 million at December 31, 2003. This liability was nil at December 31, 2004 due to indemnification from BP as part of the stock purchase agreement. These liabilities are included within “Other non-current liabilities” in the balance sheet.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders during the 2004 calendar year.

16

Table of Contents

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

We are a wholly owned subsidiary of Propex Fabrics Holdings Inc., and there is no public market for our common stock. See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for a detail of the ownership of our parent’s common equity.

No dividends were declared in 2004, and we did not repurchase any common stock in 2004.

Item 6. SELECTED FINANCIAL DATA

The selected historical consolidated financial information presented below as of and for the one month ended December 31, 2004 is derived from the audited consolidated financial statements of Propex Fabrics Inc. (“Successor”). The selected historical combined financial information presented below as of and for each of the years ended December 31, 2001, 2002, 2003 and for the eleven months ended November 30, 2004 is derived from the audited combined financial statements of the Predecessor company. The selected historical combined financial information presented below for the year ended December 31, 2000 is derived from the historical unaudited combined financial statements of the Predecessor. In the opinion of our management, the unaudited historical combined financial statements include all adjustments necessary for a fair presentation of our financial position and results of operations for such periods. The information presented below should be read in conjunction with “Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined and consolidated financial statements and the related notes to those financial statements included under “Item 8. Financial Statements and Supplementary Data.”

Because Propex Fabrics Inc. is a wholly owned subsidiary of Propex Fabrics Holdings Inc. and its stock is not publicly traded, earnings/loss per common share data is excluded from the following presentation of selected financial data.

17

Table of Contents