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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

FOR THE TRANSITION PERIOD FROM              TO             

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)

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 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 May 13, 2005: 100 shares

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Propex Fabrics Inc.

Table of Contents to Form 10-Q

For the Quarter Ended March 31, 2005

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PART I

1. Condensed Consolidated Financial Statements

Propex Fabrics Inc.

Condensed Consolidated Balance Sheets

(In Millions)

The accompanying notes are an integral part of these financial statements.

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Propex Fabrics Inc.

Condensed Consolidated Statements of Income

(Unaudited)

(In Millions)

The accompanying notes are an integral part of these financial statements.

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Propex Fabrics Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In Millions)

The accompanying notes are an integral part of these financial statements.

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Propex Fabrics Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of the Business and Summary of Significant Accounting Policies

Description of the Business

Propex Fabrics Inc. (the “Company” or the “Successor”), formerly Amoco Fabrics and Fibers Company, which together with its affiliates were collectively known as the BP Fabrics and Fibers Business (the “Business” or the “Predecessor”) is the world’s largest producer of primary and secondary carpet backing and a leading manufacturer and marketer of polypropylene synthetic fabrics used in a variety of other industrial applications such as geotextile end-uses, fabric bags/containers, and protective coverings. The Company has been engaged in the textile industry since 1884 and was wholly-owned by its former parent company BP p.l.c. (“BP”) until November 30, 2004.

On December 1, 2004, the Company acquired the Business from BP and became a stand-alone company. The condensed consolidated financial statements of the Company included herein reflect the accounts of the Company for the presented periods subsequent to the acquisition on December 1, 2004. The condensed combined statements of income and cash flows of the Predecessor for the three month period ended March 31, 2004 are presented for comparative purposes and reflect the cash flows and results of operations of the Business prior to its acquisition by Propex Fabrics Inc.

Basis of Presentation

Predecessor

The predecessor financial statements include amounts that have been derived from the financial statements and accounting records of BP using the historical results of operations and historical cost basis of the assets and liabilities of the Predecessor. The condensed combined statements include all revenues and costs attributable to the Predecessor including charges or an allocation of the costs for BP provided support services and BP corporate costs.

Successor

Subsequent to the acquisition on December 1, 2004, the condensed consolidated financial statements of the Company include the wholly-owned and majority-owned foreign subsidiaries and, together with the predecessor statements, are prepared in conformity with generally accepted accounting principles in the United States of America. All significant intercompany accounts and transactions have been eliminated.

Interim Financial Statements

The accompanying consolidated balance sheet as of March 31, 2005, the statements of income and cash flows for the three months ended March 31, 2005 and 2004, and related notes are unaudited and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations of the Company. The operating results

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for the interim periods are not necessarily indicative of the operating results to be expected for a full year or for other interim periods. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the Securities and Exchange Commission (“SEC”). Although management believes that the disclosures provided are adequate to make the information presented not misleading, management recommends that these unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements and the related footnotes for the period ended December 31, 2004.

Earnings Per Share Data

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and disclosures in the notes to the combined/consolidated financial statements. Actual results could differ from the estimates and assumptions used.

Goodwill and Other Intangible Assets

Intangible assets created as a result of the acquisition have been recorded in accordance with the requirements of Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS 141”), which required their valuation to fair value as of the December 1, 2004 acquisition date with amortization to occur over their useful lives. The fair value calculations were prepared with the assistance of an independent third party valuation specialist. However, as the Company continues to evaluate and refine certain estimates, the allocation of their fair value across assets and segments could be adjusted.

Parent Company Investment – Predecessor

For periods on or before November 30, 2004, the parent company investment included in the balance sheet reflected BP’s investment in the Predecessor, accumulated earnings and losses of the Predecessor, less dividends paid, and accumulated other comprehensive income. Debt instruments issued to BP affiliates and trade payables related to resin purchases from BP affiliates are recognized as liabilities in the combined balance sheet; all other balances with BP affiliates are included within parent company investment. The operations of the Predecessor in the United States participated in BP’s centralized cash management programs. Disbursements were made through centralized accounts payable systems, which were operated by BP. Cash receipts were transferred to centralized accounts, also maintained by BP. As cash was disbursed and received by BP, it was accounted for through parent company investment. The predecessor financial statements include direct charges for certain BP provided services and allocations of BP’s expenses for general corporate expenses, income taxes, and non-charged services provided by BP, which are discussed in Note 13 of the Company’s annual report on Form 10-K for the year ended December 31, 2004.

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Stockholders’ Equity – Successor

On October 4, 2004, the Successor entered into a stock purchase agreement with BP Amoco Chemical Holding Company, an indirect subsidiary of BP p.l.c. For purposes of this disclosure, BP p.l.c. and BP Amoco Chemical Holding Company and certain of its affiliates are collectively referred to as “BP.” Pursuant to the stock purchase agreement, BP sold all the outstanding capital stock of the entities comprising the fabrics business of BP to the Company. BP also sold to the Company specified assets comprising BP’s Canadian fabrics business, various intellectual property assets and various other assets associated with the fabrics business. The closing date of this transaction was December 1, 2004. As of December 1, 2004, the Company reports the financial statements on a consolidated basis with stockholders’ equity or deficit and reorganized the Business’ corporate structure and began operating under the name of Propex Fabrics Inc. The Company also formed two domestic subsidiary holding companies (“Propex Fabrics International Holdings I Inc.” and “Propex Fabrics International Holdings II Inc.”, collectively the “Guarantors”) to own a portion of the capital stock of its foreign subsidiaries.

Reclassifications

Certain prior period financial statement amounts have been reclassified to conform to the current year presentation.

2. Accounts Receivable

Accounts receivable consisted of the following:

3. Inventories

Inventories are stated at the lower of cost or market value. Beginning December 1, 2004, all work in process and finished goods are valued using the first in, first out (FIFO) method both domestically and internationally. All raw materials, storehouse stock, process material, and packaging inventories are carried at average cost.

Predecessor: Prior to December 1, 2004, cost was determined using the last in first out (LIFO) method for substantially all domestically held raw materials, work in process, and finished goods.

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Inventories consist of the following:

4. Restructuring and Other Similar Costs

The Successor recognized no expense in the three months ended March 31, 2005 and 2004. These transactions resulted in a $0.7 million unpaid balance at March 31, 2005. These restructuring activities continue under the Successor’s ownership.

Restructuring accruals are summarized as follows:

5. Comprehensive Income

The following table sets forth the reconciliation of net income to comprehensive income (in millions):

6. Pension Benefits

The Company sponsors two defined benefit pension plans in the U.S. for employees who have completed a qualifying length of service. The Company operates an unfunded defined benefit pension plan in Germany and a funded defined benefit plan in Brazil, which are available to all employees after meeting certain service levels. Benefits for all plans are generally based on employees’ years of service and salary levels. For the U.S. plans, contribution amounts are determined by independent actuaries using an actuarial method that has an objective of providing an adequate fund to meet pension obligations as they mature. Prior to December 1, 2004, pension costs were derived using

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the projected unit credit method and were based on a combination of BP and Company-specific assumptions. Beginning December 1, 2004, all assumptions reflect the Company as a stand-alone entity.

In Europe at the time of the divestiture, BP split the German pension plan between active and retired employees and BP retained the retiree portion of the plan along with the associated liabilities.