About EDGAR Online | Login
 
Enter your Email for a Free Trial:
The following is an excerpt from a S-4/A SEC Filing, filed by SYNTHETIC INDUSTRIES INC on 8/28/1997.
Next Section Next Section Previous Section Previous Section
SYNTHETIC INDUSTRIES INC - S-4/A - 19970828 - MANAGEMENTS_DISCUSSION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the information contained in the Consolidated Financial Statements, including the notes thereto, and the other financial information appearing elsewhere in this Proxy Statement/Prospectus. Dollar amounts are in thousands. The following discussion includes forward-looking statements that involve certain risks and uncertainties. See "Risk Factors."

INTRODUCTION

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 demand for the Company's products and the Company's ability to expand its markets through development of new products.

The Company's products are sold along three principal product lines: carpet backing, construction and civil engineering products, and technical textiles. The following table summarizes net sales growth for each of these product lines during the fiscal years ended September 30, 1994, 1995 and 1996 and the nine month periods ended June 30, 1996 and 1997:

                                          FISCAL YEAR ENDED SEPTEMBER 30,                   NINE MONTHS ENDED JUNE 30,
                               ------------------------------------------------------   -----------------------------------
                                     1994               1995               1996               1996               1997
                               ----------------   ----------------   ----------------   ----------------   ----------------
Carpet backing...............  $117,791    50.1%  $133,025    49.0%  $146,491    48.9%  $106,376    50.2%  $122,090    49.8%
Construction and civil
  engineering................    68,706    29.3     82,933    30.6     97,043    32.4     64,981    30.6     75,930    31.0
Technical textiles...........    48,480    20.6     55,469    20.4     55,998    18.7     40,703    19.2     47,307    19.2
                               --------   -----   --------   -----   --------   -----   --------   -----   --------   -----
Net sales....................  $234,977   100.0%  $271,427   100.0%  $299,532   100.0%  $212,060   100.0%  $245,327   100.0%
                               ========   =====   ========   =====   ========   =====   ========   =====   ========   =====

The Company's carpet backing business has grown at a faster rate than that of the industry as a whole, principally due to recent market share gains in the consumer carpet backing market and increased penetration of the commercial carpet backing market. The Company's construction and civil engineering business has grown significantly over the past three years due to increased acceptance of the Company's proprietary concrete reinforcement products, the expansion of this product line to offer a full range of geosynthetic products to the markets the Company serves and other innovative product offerings. Over the past three years, the Company has streamlined its technical textile business and exited several product lines which did not meet the Company's strategic sales and profitability objectives. The Company believes that it has positioned its technical textile business for increased sales and profitability, further supported by the acquisition of certain assets of the Spartan Technologies division of Spartan Mils in February 1997.

While the Company's sales have grown in each of the past three years, the Company's gross profit has fluctuated due to a variety of factors, primarily related to changes in the price of polypropylene. Polypropylene is the basic raw material used in the manufacture of substantially all of the Company's products, accounting for approximately 50% of the Company's costs of goods sold. The Company believes that the selling prices of its products have adjusted over time to reflect changes in polypropylene prices, although such price changes favorably affected gross profit for fiscal 1994 and adversely affected gross profit for fiscal 1995. Gross profit for the first nine months of fiscal 1997 was $78,399, compared to $60,839 for the same period of fiscal 1996, an increase of $17,560, or 28.9%. As a percentage of sales, gross profit increased to 32.0% from 28.7%. This increase was primarily due to increased sales volume, slightly higher average selling prices and growth of higher margin business, coupled with comparable average polypropylene costs to the prior period. Gross profit for fiscal 1996 was $91,211, compared to $76,721 for the same period of fiscal 1995, an increase of $14,490, or 18.9%. As a percentage of sales, gross profit increased to 30.5% from 28.3%.

The Company has not experienced any shortage of supply of polypropylene; however, continuous increases in demand or major supply disruptions without offsetting increases in manufacturing capacities could cause future supply shortages. Higher prices of polypropylene, however, without offsetting selling price

42

increases could have a significant negative effect on the Company's results of operations and financial condition.

According to a June 1997 report by Chemical Data Inc. ("Chem Data"), a monthly petrochemical and plastics analysis publication, annual polypropylene capacity in North America as of December 31, 1996 was 12.6 billion pounds per year, up from 11.4 billion pounds at December 31, 1995. Total average annual capacity will rise to 14.1 billion pounds per year for 1997, and to 18.2 billion pounds per year by 2000. Historically, the creation of additional capacity has helped to relieve supply pressures although there can be no assurance that this will continue to be the case.

The Company historically has operated at or near full capacity on a 24-hour per day, seven days per week, 350 days per year schedule. Reflecting this level of capacity utilization, the Company invested approximately $113,000 on its six manufacturing facilities during the five year period ended September 30, 1996, and approximately $35,000 for the nine month period ended June 30, 1997.

The following table sets forth the percentage relationships to net sales of certain income statement items. See "Selected Consolidated Financial Information", as well as the Consolidated Financial Statements, the notes thereto and other financial information included elsewhere in the Prospectus for more detailed financial information.

                                                                     NINE MONTHS    THREE MONTHS
                                                                        ENDED           ENDED
                                         YEAR ENDED SEPTEMBER 30,     JUNE 30,        JUNE 30,
                                         ------------------------   -------------   -------------
                                          1994     1995     1996    1996    1997    1996    1997
                                         ------   ------   ------   -----   -----   -----   -----
Net sales..............................   100.0%   100.0%   100.0%  100.0%  100.0%  100.0%  100.0%
Cost of sales..........................    64.8     71.7     69.5    71.3    68.0    66.6    66.4
                                          -----    -----    -----   -----   -----   -----   -----
  Gross profit.........................    35.2     28.3     30.5    28.7    32.0    33.4    33.6
Selling expenses.......................     9.3      9.0      9.2     9.1     9.2     8.8     8.4
General and administrative expenses....     7.5      7.8      7.6     7.6     7.9     6.3     6.6
Amortization of intangibles............     1.0      0.9      0.9     0.9     0.8     0.8     0.6
                                          -----    -----    -----   -----   -----   -----   -----
  Operating income.....................    17.4     10.6     12.8    11.1    14.1    17.5    18.0
Interest expense.......................     8.5      8.3      7.6     8.1     6.4     7.1     5.0
Amortization of deferred financing
  costs................................     0.3      0.3      0.2     0.3     0.2     0.2     0.2
                                          -----    -----    -----   -----   -----   -----   -----
  Income (loss) before provision
     (benefit) for income taxes and
     extraordinary item................     8.6      2.0      5.0     2.7     7.5    10.2    12.8
Provision (benefit) for income taxes...     3.7      1.3      2.3     1.4     3.1     4.1     5.1
                                          -----    -----    -----   -----   -----   -----   -----
  Income (loss) before extraordinary
     item..............................     4.9%     0.7%     2.7%    1.3%    4.4%    6.1%    7.7%
                                          =====    =====    =====   =====   =====   =====   =====

RESULTS OF OPERATIONS

Three Months Ended June 30, 1997 as Compared to Three Months Ended June 30, 1996

Net sales for the third quarter of fiscal 1997 were $99,112 compared to $82,843 for the same period of fiscal 1996, an increase of $16,269, or 19.6%. Carpet backing sales for the third quarter of fiscal 1997 were $44,962 compared to $37,487 for the same period of fiscal 1996, an increase of $7,475, or 19.9%. Construction and civil engineering product sales for the third quarter of fiscal 1997 were $35,183 compared to $30,525 for the same period of fiscal 1996, an increase of $4,658, or 15.3%. Technical textiles sales for the third quarter of fiscal 1997 were $18,967 compared to $14,831 for the same period of fiscal 1996, an increase of $4,136, or 27.9%, of which the acquisition of certain assets of the Spartan Technologies division of Spartan Mills (the "Spartan Acquisition") contributed approximately $3,500.

Gross profit for the third quarter of fiscal 1997 was $33,350 compared to $27,709 for the same period of fiscal 1996, an increase of $5,641, or 20.4%. As a percentage of sales, gross profit increased to 33.6% from

43

33.4%. This increase was primarily due to increased sales volume, slightly higher average selling prices and continued growth of higher margin business, coupled with comparable polypropylene costs to the prior period. See "-- Introduction."

Selling expenses for the third quarter of fiscal 1997 were $8,296 compared to $7,307 for the same period of fiscal 1996, an increase of $989, or 13.5%. This increase was primarily due to increased expenditures associated with higher sales volume. As a percentage of sales, selling expenses decreased from 8.8% to 8.4%.

General and administrative expenses for the third quarter of fiscal 1997 were $6,583 compared to $5,233 for the same period of fiscal 1996, an increase of $1,350, or 25.8%. As a percentage of sales, general and administrative expenses increased from 6.3% to 6.6%. The increase in general and administrative expenses was primarily due to infrastructure expenditures, which included an increased investment in the Company's information technology department, to support anticipated Company growth.

Operating income for the third quarter of fiscal 1997 was $17,823 as compared to $14,521 for the same period of fiscal 1996, an increase of $3,302, or 22.7%. As a percentage of sales, operating income increased to 18.0% in fiscal 1997 from 17.5% in fiscal 1996. This increase was primarily due to higher sales volume as well as growth of higher margin business, partially offset by slightly increased selling, general and administrative costs.

Interest expense for the third quarter of fiscal 1997 was $4,947 compared to $5,863 for the same period of fiscal 1996, a decrease of $916, or 15.6%, due to lower average interest rates on the outstanding debt. The effective income tax rate for the three months ended June 30, 1997 and 1996 was approximately 40%.

Net income for the third quarter of fiscal 1997 was $7,676 compared to $5,093 for the same period of fiscal 1996, an increase of $2,583, or 50.7%. Earnings before interest, taxes, depreciation and amortization ("EBITDA")(1) for the third quarter of fiscal 1997 were $22,331 compared to $18,576 for the same period of fiscal 1996, an increase of $3,755, or 20.2%. The increase in net income, as well as EBITDA, was primarily due to higher sales volumes and continued growth of higher margin business, partially offset by slightly increased selling, general and administrative costs.

Earnings per share for the third quarter of fiscal 1997 was $0.86 compared to $0.86 for the same period of fiscal 1996 on increased weighted shares outstanding of 3,038, or 51.2%, as a result of the Company's initial public offering of Common Stock in November 1996 (the "Common Stock Offering"). Supplemental pro forma net income per share for the third quarter of fiscal 1996, assuming the net proceeds from the Common Stock Offering and the bond refinancing were used to reduce outstanding bank indebtedness and the shares issued in the Common Stock Offering were outstanding as of the beginning of the third quarter of fiscal 1996, would have been $0.66.

Nine Months Ended June 30, 1997 as Compared to Nine Months Ended June 30, 1996

Net sales for the first nine months of fiscal 1997 were $245,327 compared to $212,060 for the same period of fiscal 1996, an increase of $33,267, or 15.7%. Carpet backing sales for the first nine months of fiscal 1997 were $122,090 compared to $106,376 for the same period of fiscal 1996, an increase of $15,714, or 14.8%. Construction and civil engineering product sales for the first nine months of fiscal 1997 were $75,930 compared to $64,981 for the same period of fiscal 1996, an increase of $10,949, or 16.8%. Technical textiles sales for the first nine months of fiscal 1997 were $47,307 compared to $40,703 for the same period of fiscal 1996, an increase of $6,604, or 16.2%, of which the Spartan Acquisition contributed approximately $4,800.

Gross profit for the first nine months of fiscal 1997 was $78,399 compared to $60,839 for the same period of fiscal 1996, an increase of $17,560, or 28.9%. As a percentage of sales, gross profit increased to 32.0% from


(1) The Company believes that EBITDA is helpful in understanding cash flow from operations that is available for debt service, taxes and capital expenditures. EBITDA is not a concept recognized under generally accepted accounting principles and is not a substitute for operating income, net income or cash flows from operating activities.

44

28.7%. This increase was primarily due to increased sales volume, slightly higher average selling prices and growth of higher margin business, coupled with comparable average polypropylene costs to the prior period. See "-- Introduction."

Selling expenses for the first nine months of fiscal 1997 were $22,480 compared to $19,259 for the same period of fiscal 1996, an increase of $3,221, or 16.7%. This increase was primarily due to increased expenditures associated with higher sales volume as well as increased marketing expenses. As a percentage of sales, selling expenses increased from 9.1% to 9.2%.

General and administrative expenses for the first nine months of fiscal 1997 were $19,474 compared to $16,024 for the same period of fiscal 1996, an increase of $3,450, or 21.5%. As a percentage of sales, general and administrative expenses increased from 7.6% to 7.9%. The increase in general and administrative expenses was primarily due to infrastructure expenditures, which included an increased investment in the Company's information technology department, to support anticipated Company growth.

Operating income for the first nine months of fiscal 1997 was $34,501 as compared to $23,612 for the same period of fiscal 1996, an increase of $10,889, or 46.1%. As a percentage of sales, operating income increased to 14.1% in fiscal 1997 from 11.1% in fiscal 1996. This increase was primarily due to higher sales volumes as well as the growth of higher margin business, partially offset by slightly increased selling, general and administrative costs.

Interest expense for the first nine months of fiscal 1997 was $15,722 compared to $17,253 for the same period of fiscal 1996, a decrease of $1,531, or 8.9%, due to lower average interest rates on the outstanding debt.

The effective income tax rate before the effect of the extraordinary item for the nine months ended June 30, 1997 and 1996 was approximately 41% and 52%, respectively. The higher rate for 1996 was due primarily to the effect of nondeductible expenses, including the amortization of goodwill, on lower income in fiscal 1996.

Income before extraordinary item for the first nine months of fiscal 1997 was $10,740 compared to $2,786 for the same period of fiscal 1996, an increase of $7,954. EBITDA for the first nine months of fiscal 1997 were $47,694 compared to $35,350 for the same period of fiscal 1996, an increase of $14,344, or 43.0%. The increase in income before extraordinary item, as well as EBITDA, was primarily due to higher sales volumes and continued growth of higher margin business, partially offset by slightly increased selling, general and administrative costs.

Earnings per share before extraordinary item for the first nine months of fiscal 1997 was $1.25 compared to $0.47 for the same period of fiscal 1996 on increased weighted average shares outstanding of 2,668 shares, or 45.0%, as a result of the Common Stock Offering. Supplemental pro forma net income per share before extraordinary item, assuming the net proceeds from the Common Stock Offering and the bond refinancing were used to reduce outstanding indebtedness and the shares issued in the Common Stock Offering were outstanding as of the beginning of each respective period, would have been $1.28 and $0.60 per share for the nine months ended June 30, 1997 and 1996, respectively.

Fiscal 1996 Compared to Fiscal 1995

Net sales for fiscal 1996 were $299,532 compared to $271,427 for fiscal 1995, an increase of $28,105, or 10.4%. This increase was primarily due to increased sales of carpet backing and construction and civil engineering products. Carpet backing sales for fiscal 1996 were $146,491 compared to $133,025 for fiscal 1995, an increase of $13,466, or 10.1%. This increase was the result of higher unit volume in primary and secondary carpet backing, partially offset by lower average selling prices. Construction and civil engineering product sales for fiscal 1996 were $97,043 compared to $82,933 for fiscal 1995, an increase of $14,110, or 17.0%. This increase was due to an increase in sales of geotextile and erosion control fabrics of $13,018, or 30.7%, resulting primarily from nonwoven sales in the landfill and roadway and building site markets. Technical textiles sales for fiscal 1996 were $55,998 compared to $55,469 for fiscal 1995, an increase of $529, or 1.0%.

45

Gross profit for fiscal 1996 was $91,211, compared to $76,721 for the same period of fiscal 1995, an increase of $14,490, or 18.9%. As a percentage of sales, gross profit increased to 30.5% from 28.3%. This increase was primarily due to increased sales volume as well as lower average polypropylene costs. See "-- Introduction."

Selling expenses for fiscal 1996 were $27,488 compared to $24,273 for the same period of fiscal 1995, an increase of $3,215, or 13.2%. This increase was primarily due to increased expenditures associated with higher sales volume as well as increased marketing expenses. These expenses are related to the Company's expectation of higher sales in 1997 resulting from the completion of the 1996 capacity expansion program. As a percentage of sales, selling expenses increased from 9.0% to 9.2%.

General and administrative expenses for fiscal 1996 were $22,657 compared to $21,195 for the same period of fiscal 1995, an increase of $1,462, or 6.9%. As a percentage of sales, general and administrative expenses decreased from 7.8% to 7.6%. In fiscal 1995, general and administrative expenses included a pre-tax charge of $2,852 related to an increase in the allowance for doubtful accounts taken to establish a reserve for a carpet backing customer who experienced severe financial difficulties. Without this charge, fiscal 1995 general and administrative expenses as a percentage of sales would have been 6.8%. The increase in general and administrative expenses was primarily due to infrastructure expenditures, which included an increased investment in the Company's Management Information System, to support anticipated Company growth.

Operating income for fiscal 1996 was $38,474 as compared to $28,687 for fiscal 1995, an increase of $9,787, or 34.1%. As a percentage of sales, operating income increased to 12.8% in fiscal 1996 from 10.6% in fiscal 1995. This was primarily due to factors discussed above.

Total interest expense for fiscal 1996 was $22,773 compared to $22,514 for fiscal 1995, an increase of $259, or 1.2%, due to higher average total debt outstanding.

The effective income tax rate was 46% and 64% in fiscal 1996 and 1995, respectively. The decrease was primarily due to the effect of nondeductible expenses, including the amortization of goodwill, on higher taxable income in fiscal 1996.

Net income for fiscal 1996 was $8,102 compared to net income of $1,936 for fiscal 1995, an increase of $6,166, or 318.5%. EBITDA for fiscal 1996 was $54,074 compared to $42,887 for fiscal 1995, an increase of $11,187, or 26.1%. The increase in net income, as well as EBITDA, was primarily due to higher sales volumes and lower average raw material cost partially offset by slightly lower average selling prices, higher manufacturing costs associated with plant shutdowns as a result of the winter ice storms in 1996 and increased selling and general and administrative costs.

Fiscal 1995 Compared to Fiscal 1994

Net sales for fiscal 1995 were $271,427 compared to $234,977 for fiscal 1994, an increase of $36,450, or 15.5%. This increase was primarily due to unit volume growth in certain product lines and higher average selling prices. Carpet backing sales for fiscal 1995 were $133,025 compared to $117,791 for fiscal 1994, an increase of $15,234, or 12.9%. This increase was primarily due to higher unit volume due in part to increased market share in both primary and secondary carpet backing as well as higher selling prices as compared to fiscal 1994. Construction and civil engineering product sales for fiscal 1995 were $82,933 compared to $68,706 for fiscal 1994, an increase of $14,227, or 20.7%. This increase was primarily due to a significant growth in sales of geosynthetic products as well as an increase in sales of Fibermesh(R) fibers. Technical textiles sales for fiscal 1995 were $55,469 compared to $48,480 for fiscal 1994, an increase of $6,989, or 14.4%. This increase was primarily due to unit volume growth in the furniture and bedding markets.

46

Gross profit for fiscal 1995 was $76,721 compared to $82,672 for fiscal 1994, a decrease of $5,951, or 7.2%. As a percentage of sales, gross profit decreased to 28.3% from 35.2%. This decrease was primarily due to the higher polypropylene costs, offset partially by higher average selling prices. See "-- Introduction."

Selling expenses for fiscal 1995 were $24,273 compared to $21,815 for fiscal 1994, an increase of $2,458, or 11.3%. This increase was primarily due to increased marketing efforts in the construction and civil engineering products lines as a direct result of increased sales. However, as a percentage of sales, selling expenses decreased from 9.3% to 8.9%.

General and administrative expenses for fiscal 1995 were $21,195 compared to $17,588 for fiscal 1994, an increase of $3,607, or 20.5%. As a percentage of sales, general and administrative expenses increased from 7.5% to 7.8%. This increase was primarily due to a charge of $2,852 related to an increase in the allowance for doubtful accounts during the fourth quarter of fiscal 1995. The charge was taken to establish a reserve for accounts receivable for a carpet backing customer who experienced severe financial difficulties. The Company believes the reserve provided is adequate for this account to cover any future potential losses and in the opinion of management, no significant future loss of revenue is anticipated.

Operating income for fiscal 1995 was $28,687 compared to $40,770 for fiscal 1994, a decrease of $12,083, or 29.6%. As a percentage of sales, operating income decreased to 10.6% from 17.4%. This decrease was primarily due to the change in gross profit associated with higher raw material costs.

Total interest expense for fiscal 1995 was $22,514 compared to $20,011 for fiscal 1994. This increase was due to a higher average total debt outstanding and a higher base rate for the Credit Facility.

The effective income tax rate for fiscal 1995 was 64.3% compared to 43% for fiscal 1994. The increase was primarily due to the effect of nondeductible expenses, including the amortization of goodwill, on lower taxable income in fiscal 1995.

Net income for fiscal 1995 was $1,936 compared to $11,420 for fiscal 1994, a decrease of $9,484, or 83%. This decrease was primarily due to increased raw material and interest costs.

LIQUIDITY AND CAPITAL RESOURCES

To finance its capital expenditures program and fund its operational needs, the Company has relied upon cash provided by operations, supplemented as necessary by bank lines of credit and long-term indebtedness. Cash provided by (used in) operating activities was $17,740 and $18,353 for the nine months ended June 30, 1997 and 1996, respectively, and $31,421 and ($35) for fiscal 1996 and 1995, respectively.

Cash provided by operating activities for the nine months ended June 30, 1997 consisted primarily of $10,740 earnings before extraordinary item and noncash charges of $14,751, as well as an increase in accounts payable of $9,507, with financed increases in accounts receivable and inventories of $24,762.

Cash provided by (used in) operating activities in fiscal 1996 and 1995 resulted primarily from net income of $8,102 and $1,936, respectively, after deducting non-cash charges of $20,723 and $17,945 and net working capital changes of approximately $2,596 and ($19,916), for each respective period. The increase in cash provided by operating activities for fiscal 1996 as compared to fiscal 1995 was principally due to fluctuations in net income and the Company's working capital requirements. The changes included reduced inventory and accounts payable balances in 1996 resulting primarily from lower inventory quantities and lower polypropylene costs. The decrease in cash provided by operating activities in fiscal 1995 as compared to fiscal 1994 was principally due to lower net income and fluctuations in working capital requirements. Working capital requirements increased primarily due to increases in accounts receivable, inventory and accounts payable. The increase in accounts receivable results from increased sales over the prior year particularly in certain seasonal product lines. The increases in inventory and accounts payable resulted from the effects of higher polypropylene costs, as well as increased units in finished goods and raw materials. Working capital amounted to $82,945 and $66,802 at June 30, 1997 and 1996, respectively, and $64,077 and $69,039 at September 30, 1996 and 1995, respectively.

47

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 are payable semi-annually on February 15 and August 15.

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. These proceeds, together with the proceeds received from the issuance 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 $5,540 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 (the "Credit Facility"). In connection therewith, the Company recorded an extraordinary loss of $11,950 net of tax benefit of $7,481.

The net proceeds from financing and operating activities were also utilized to fund capital expenditures of $35,253 and to acquire certain assets of the Spartan Technologies division of Spartan Mills for approximately $9,400. Additional capital expenditures planned for fiscal 1997 and 1998 are approximately $15,000 and $40,000, respectively, primarily to expand the capacity of the Company's manufacturing facilities, subject to prevailing market conditions. Capital expenditures in fiscal 1996 and 1995 were approximately $34,200 and $13,300, respectively.

The Credit Facility provides for potential borrowing capacity of up to $85,000 and is comprised of term loan borrowings of $45,000 and a revolving credit loan portion (the "Revolver") of up to $40,000. The term loan balance at March 31, 1997 was $25,000, of which $10,000 is payable in 1999 and $15,000 is payable in 2000. The Lenders under the Credit Facility are BankBoston, Sanwa Business Credit Corporation and South Trust Bank of Georgia, N.A. The Revolver provides for availability based on a borrowing formula consisting of 85% of eligible accounts receivable and 50% of eligible inventory, subject to certain limitations and reserves. These reserves include the remaining balance due under the Debentures of approximately $7,400. At June 30, 1997, the maximum amount available for borrowing under the Revolver was $27,477. The Credit Facility expires on October 1, 2001.

The Credit Facility permits borrowings which bear interest, at the Company's option, (i) for domestic borrowings based on the lender's base rate plus .75% (8.5% at June 30, 1997 and 9.0% at September 30, 1996) or (ii) for Eurodollar borrowings, based on the Interbank Eurodollar rate at the time of conversion plus 2.5% or 2.75% for term loan or Revolver advances, respectively (7.6875% to 8.1875% at June 30, 1997 and 8.0938% to 9.25% at September 30, 1996). The Credit Facility provides for borrowings under letters of credit of up to $3,000, which borrowings reduce amounts available under the Revolver. The letters of credit outstanding under the Credit Facility were $197 and $1,892 at June 30, 1997 and September 30, 1996, respectively. The Company is required to pay a .375% fee on the unused portion of the commitment and an agency fee of $150 per annum.

The Company is currently in the process of renegotiating the Credit Facility, primarily to increase borrowing flexibility, reduce interest costs and extend the term, which is due to expire on October 1, 2001. As part of the renegotiations, effective July 1, 1997, the Lenders agreed to reduce the borrowing rate of the Credit Facility for (A) domestic borrowings from the lender's base rate plus .75% to the lender's base rate and (B) the term loan and Revolver advances from the Interbank Eurodollar rate plus 2.75% or 2.50% to 2.00% or 1.75%, respectively.

At June 30, 1997, the Company's total outstanding indebtedness amounted to $210,059. Such indebtedness consists primarily of borrowings under the Credit Facility of $27,126, $170,000 aggregate principal amount of the Notes, $7,403 aggregate principal amount of the Debentures and an outstanding capital lease obligation of $4,242 dated as of May 28, 1996. Cash interest paid during the nine months ended June 30, 1997

48

and 1996 was $15,657 and $21,125, respectively, and during fiscal 1996, 1995 and 1994 was $23,176, $22,334 and $19,787, respectively.

Based on current levels of operations and anticipated growth, the Company's management expects cash from operations to provide sufficient cash flow to satisfy the debt service requirements of the long-term obligations, including the Credit Facility and lease agreements, permit anticipated capital expenditures and fund the Company's working capital requirements for the next twelve months.

INFLATION AND SEASONALITY

The Company does not believe that its operations have been materially affected by inflation during the three most recent fiscal years. While the Company does not expect that inflation will have a material impact upon operating results, there is no assurance that its business will not be affected by inflation in the future.

The Company's sales and income from continuing operations have historically been higher in the third and fourth quarters of its fiscal year. While sales and operating income in the carpet backing and technical textiles product lines are not greatly affected by seasonal trends, sales and operating income of construction and civil engineering products are lower in the first and second quarters of any given fiscal year due to the impact of adverse weather conditions on the construction and civil engineering markets. Consequently, as sales and operating income from construction and civil engineering products continue to increase as a percentage of the Company's total sales, the seasonality of these products' sales will affect total sales and quarterly operating results of the Company to a greater degree.

RECENT ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standard Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" which is effective for the Company's fiscal year ending September 30, 1997. SFAS No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. The Company will account for stock-based compensation awards under the provisions of Accounting Principles Board Opinion No. 25, as permitted by SFAS No. 123. In accordance with SFAS No. 123, beginning in the fiscal year ending September 30, 1997, the Company will make pro forma disclosures relative to stock-based compensation as part of the accompanying footnotes to the consolidated financial statements.

In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This new standard requires presentation of both basic and diluted earnings per share ("EPS") on the face of the statements of operations and requires a reconciliation of the numerators and denominators of basic and diluted EPS calculations. This statement will be effective for the Company's first quarter 1998 consolidated financial statements. The adoption of this statement is not expected to have a material impact on the Company's consolidated financial statements.

BUSINESS

THE COMPANY

The Company is one of the world's leading producers of polypropylene fabrics and fibers for the home furnishing, construction, environmental, recreational and agricultural industries. The Company manufactures and sells more than 2,000 products in over 65 end-use markets. The Company believes that it is the second largest producer of carpet backing in the world and is the largest producer of synthetic fiber additives for concrete reinforcement through its Fibermesh(R) line of products. SI also produces polypropylene products for the geotextile and erosion control markets and is a leader in designing innovative products for specialty applications. The Company's products are engineered to meet specific customer criteria such as strength, flexibility, resistance to sunlight and water/air permeability. The Company aims to compete in markets in which it can be the primary or secondary provider of such products, with over 93% of its products meeting this criterion. The Company's consolidated sales have grown from $196 million in fiscal 1992 to $300 million in fiscal 1996.

The Company's products are sold along three principal product lines: carpet backing, construction and civil engineering products, and technical textiles. The Company has a worldwide presence in carpet backing, a woven fabric used in all modern tufted carpets, and is one of the two leading manufacturers in the U.S. that

49

produce a broad range of primary and secondary carpet backing. Carpet backing accounted for approximately 49% of the Company's fiscal 1996 sales. The Company's construction and civil engineering products are its fastest growing product line and include fiber additives for concrete reinforcement and environmental and geotextile products used in roadways, landfills and building sites to stabilize soils and control erosion. The Company's sales to the construction and civil engineering market have grown from approximately $35 million in fiscal 1992 to approximately $97 million in fiscal 1996. These products represented approximately 32% of the Company's total sales in fiscal 1996, up from approximately 18% of total sales in fiscal 1992. The Company's technical textile products are comprised of specialty fabrics, industrial yarns and fibers used in diverse applications such as filtration (e.g., wastewater treatment, air filtration and bauxite mining), agriculture (e.g., shade cloth and ground cover) and recreation (e.g., swimming pool covers and trampoline mats). These products are highly engineered to meet niche customer applications and represented approximately 19% of fiscal 1996 sales. The Company's products are principally sold through direct sales to customers by the Company's sales force and through a broad network of distributors located across North and South America, Europe and the Pacific Rim.

Management believes that the Company has a reputation in its markets as a high quality, cost-efficient manufacturer. The Company is committed to maintaining its market leadership and reputation for innovation through capital investment in facilities and state-of-the-art equipment, by hiring and training skilled employees and through process control standards and productivity improvements. SI invested approximately $113 million in capital improvements in its facilities and equipment during the five year period ended September 30, 1996, including the completion in August 1996 of a major $35 million, 130,000 square foot expansion of its largest manufacturing facility. Based on existing product prices and demand, this expansion should increase the Company's sales by as much as $30 million for fiscal 1997. The Company anticipates that ongoing maintenance capital expenditures will be less than $5 million per year. Additional capital expenditures, if any, will be focused on expansion opportunities, subject to market conditions. The Company is one of the largest independent consumers of polypropylene in the world. The Company also believes its position as a vertically-integrated manufacturer -- performing each step in the conversion of polypropylene into value-added end products -- provides a competitive advantage by allowing the Company to manufacture high quality products to customer's specifications, while controlling manufacturing costs.

The Company's principal business strategy is to leverage its market presence in its core businesses into additional growth while maintaining its market position as a high quality, cost-efficient manufacturer. The primary components of this strategy are to expand penetration of existing markets, develop innovative products, strengthen market position in carpet backing, continue to improve manufacturing efficiencies and expand manufacturing capacity and pursue strategic acquisitions.

HISTORY

The Company was founded in 1969 to produce polypropylene-based primary carpet backing. Following the acquisition of the Company in 1976 by a group of private investors, the Company diversified into the manufacture and sale of polypropylene-based industrial fabrics and specialty yarns. Between 1981 and 1983, the Company entered the construction and civil engineering products market, initially by manufacturing woven geotextiles and later through its introduction of Fibermesh(R) fibers for concrete reinforcement. In 1985, the Company added secondary carpet backing to its product offerings. In fiscal 1991, the Company purchased a technical synthetic fabrics operation located in Gainesville, Georgia, from Chicopee, a subsidiary of Johnson & Johnson (the "Chicopee Acquisition"). In addition to broadening the Company's line of geosynthetic products, the acquisition gave the Company access to new markets for high performance geotextiles. As a result of improved fiber technology and increased fiber manufacturing capabilities, the Company opened its sixth facility, the nonwoven geotextile plant in Ringgold, Georgia in 1992, enabling the Company to offer a full line of geotextile products.

On February 27, 1997, the Company acquired certain assets of the Spartan Technologies division of Spartan Mills. The assets will be used primarily in the manufacturing of nonwoven fabrics used in the geotextile and furniture and bedding markets.

50

The Company was acquired by the Partnership in December 1986. Immediately prior to the completion of the Common Stock Offering, all of the issued and outstanding capital stock of the Company was owned by the Partnership. SI Management L.P. (the "General Partner") is the sole general partner of the Partnership. Synthetic Management G.P. is the sole general partner of SI Management L.P. By virtue of these relationships, Synthetic Management G.P. controls the management and affairs of the Partnership and, therefore, the Company. See "Certain Relationships and Related Transactions."

On November 1, 1996, the Company sold 2,875,000 shares of Common Stock in the Common Stock Offering. The net proceeds to the Company from the sale (after payment of underwriting discounts and commissions and expenses) were approximately $34 million. Immediately following the Common Stock Offering, the Partnership owned 5,781,250 shares of Common Stock, or approximately 67% of the issued and outstanding shares of Common Stock. Employees, officers and directors have been granted options to purchase an additional 6.9% of Common Stock on a fully diluted basis. See "The Company," "Principal Stockholders" and "Certain Relationships and Related Transactions."

INDUSTRY OVERVIEW

The Company manufactures polypropylene fiber, most of which it consumes internally to manufacture its products. Polypropylene fiber is the second largest polymeric material used in synthetic fabrics, representing approximately 30% of the total U.S. synthetic fiber market, behind polyester and ahead of nylon. According to the Society for the Plastics Industry ("SPI"), total domestic production of polypropylene fiber was approximately 3 billion pounds in 1995 and grew at an annual rate of approximately 9.3% per year in the period from 1993 to 1995.

The Company believes it is one of the largest manufacturers of polypropylene fiber in the U.S. with approximately 8% of total domestic output. The top ten manufacturers of polypropylene fiber in the United States generate approximately 70% of the annual domestic output of polypropylene fiber. Most of the large producers of polypropylene fiber, including the Company, are vertically integrated, converting polypropylene into fiber which can be used to manufacture fabrics or can be sold directly to other manufacturers. These large producers often have significant shares of the markets in which they compete, such as the Company's share of the primary and secondary carpet backing markets and concrete fiber reinforcement market.

Most of the products manufactured by the Company are woven and nonwoven polypropylene fabrics. Woven polypropylene fabrics are produced by weaving narrow tapes of slit film, which are made by extruding polypropylene into long sheets. Such fabrics are characterized by high strength to weight ratios. All of the Company's carpet backing products and approximately 42% of its civil engineering products are woven polypropylene fabrics. Nonwoven polypropylene fabrics are produced by mechanically interlocking fibers with barbed needles. Several of the Company's technical textile products and 58% of its civil engineering products, principally for waste containment, roadway and building site applications, are nonwoven polypropylene fabrics.

Approximately 45% of the polypropylene fiber manufactured by the Company is used by the Company to make carpet backing. The Carpet and Rug Institute ("CRI") estimates that 1996 U.S. shipments of primary polypropylene carpet backing were approximately 1.72 billion square yards. The Company believes that 1996 U.S. shipments of secondary polypropylene carpet backing were 1.63 billion square yards, or approximately 95% of primary carpet backing shipments. According to CRI, growth of total domestic primary carpet backing shipments averaged 2.8% in the period from 1993 to 1996. The growth rate of the Company's primary and secondary carpet backing shipments has generally exceeded that of the market, with an average annual increase in shipments of 8% for the period from fiscal 1993 to fiscal 1996.

Approximately 33% of the polypropylene fiber manufactured by the Company is used to make construction and civil engineering products, of which approximately 22% and 11% are geotextiles and concrete reinforcing fibers, respectively. According to Industrial Fabrics Association International, approximately 414 million square yards of woven and nonwoven geotextiles were shipped domestically in 1995 for the civil engineering fabric market. According to industry sources, domestic shipments of woven and nonwoven geotextiles are expected to grow at an average annual rate of approximately 6% over the next five years. The growth rate of the Company's civil engineering product lines has outpaced that of the market with average

51

annual growth in shipments of 27% for the period from fiscal 1994 to fiscal 1996. In addition, the Company believes that its Fibermesh(R) products currently have a 65% share of the fiber reinforced concrete market. Fibermesh(R) concrete reinforcing fiber shipments grew at an average annual rate of 8% for the period from fiscal 1994 to fiscal 1996.

Approximately 22% of the polypropylene fiber manufactured by the Company is used to make technical textiles. The technical textiles market consists of a large number of relatively stable product lines with annual sales in each product line of approximately $10 million to $12 million. The Company expects to generate growth in its technical textiles sales through new products such as building product components and nonwoven furniture construction fabrics.

BUSINESS STRATEGY

The Company's goals are to maintain steady growth in its core business, develop innovative and value-added products to expand its product lines, penetrate new international markets, and continue to create new high margin niche products out of engineered fabrics and fibers. The Company seeks to be the leading or second supplier in its chosen markets by delivering high-quality products at competitive prices. Key elements of the Company's strategy to achieve these goals are:

Expand Penetration of Existing Markets

The Company is committed to expanding sales in markets where it currently has a leadership position by increasing market penetration through the offering of a broader product line to meet its customers' varied needs and by expanding its customer base. The Company is pursuing this goal through (i) the expansion of geographical coverage of its sales effort; (ii) the development of applications-oriented marketing efforts that focus on the Company's product solutions as alternatives to traditional industry practices; (iii) increased customer acceptance of its products created through stringent quality standards and industry accreditation for its test labs; and (iv) the use of in-house technical consultants to educate industry leaders as to the cost savings offered by the Company's products as compared to traditional solutions.

The Company believes that it has significant expansion opportunities for its existing products. The Company is developing comprehensive marketing efforts to increase sales of its products in existing markets and to penetrate new domestic and international markets, particularly Europe and the Pacific Rim, by increasing awareness of its products among existing and potential customers. The Company focuses on education of its customers' engineering support personnel, advertising and application-oriented marketing efforts as it seeks to expand acceptance of its products. The Company has experienced success with this strategy, as evidenced by the growth of its civil engineering product line for which sales have increased from $31.4 million in fiscal 1994 to $55.4 million in fiscal 1996. Within this product line, the Company has focused on the roadway and building site, erosion control and waste containment sectors. Among the Company's other products, nonwoven geotextile sales to the roadway and building site markets have grown from $12.5 million in fiscal 1994 to $19.2 million in fiscal 1996.

The Company has also expanded its presence in international markets primarily through additional distribution arrangements, increased marketing efforts focused primarily on major international construction projects and the expansion of its international sales force. As a result, total international sales increased from $25.0 million in fiscal 1994 to $33.3 million in fiscal 1996.

Develop Innovative Products

The Company seeks to develop innovative products and modify existing products in response to specific customer needs and to establish new markets through the development of novel applications for its existing products. By increasing its expenditures for research, product development and marketing, the Company believes it will be able to capitalize on its manufacturing strengths and distribution network to introduce new value added products and extend product lines to complement its existing product base. For example, within the Company's Fibermesh(R) product line, a specially designed Fibermesh(R) MD product provides after-crack

52

strength retention to concrete, thus mitigating immediate failure of the concrete. Since its introduction in 1991, sales of Fibermesh(R) MD have grown to $26.5 million in fiscal 1996.

The redesign and enhancement of its core products have also resulted in the development of high strength geotextiles and the Company's building material products. These developments utilize existing weaving technology to permit construction over extremely weak soils and to replace fiberglass in certain construction applications such as wallboard. The Company's soil reinforcement fibers are used in roadway construction and maintenance and its biotechnical composite three dimensional mats enable vegetation to be grown on steep slopes and in high-flow water channels. The Company believes that these products are environmentally friendly, aesthetically pleasing and low-cost alternatives to crushed rock. The Company has also developed a new line of products that are manufactured using the same production techniques as nonwoven geotextiles but are used as vinyl substrates and spill control products.

Strengthen Market Position in Carpet Backing

The Company intends to increase its carpet backing market share through (i) continued capital investment in state-of-the-art equipment for additional carpet backing production capacity, (ii) expansion of sales in the growing commercial carpet sector of the domestic market and (iii) the continued development and strengthening of its relationships with key customers. The Company's sales of primary and secondary carpet backing have grown from $117.8 million in fiscal 1994 to $146.5 million in fiscal 1996. To support this growth, beginning in fiscal 1994, the Company introduced a new production initiative supported by capital expenditures in each of fiscal 1994, 1995 and 1996. Recent expenditures include investments to expand capacity and improve production output through installation of state-of-the-art equipment, including the Company's 88 loom, $35 million expansion at its largest manufacturing facility completed in August 1996 that has increased the Company's current capacity in carpet backing by approximately 16.0%.

Despite the Company's recent strong growth, customer demand for the Company's products has exceeded capacity. The Company believes it is well positioned, based upon its relationships with its customers, the quality of its products and its planned expansion in manufacturing capacity, to gain market share. While the Company estimates that its share of the domestic residential carpet backing market is 25%, in the growing commercial carpet segment of the U.S. market, which currently represents approximately 25% of the total U.S. carpet market, its share is less than 10%.

The Company has successfully cultivated long-term relationships with key customers, which include nine of the top ten largest carpet manufacturers in the world. The Company's success in developing and strengthening its relationships with these and other key customers is attributable to its commitment to product quality, dedication to customer technical service and sensitivity and responsiveness to changing customer needs.

Continue to Improve Manufacturing Efficiencies and Expand Manufacturing Capacity

The Company is committed to implementing improvements throughout its manufacturing system that will increase product volume and lower costs. The Company's product design teams continuously seek to incorporate new operating capabilities that enhance or maintain performance specifications while lowering the cost of manufacturing its products. State-of-the-art equipment, much of which has been developed with direct input from internal engineers, has been modified and installed to exceed manufacturing processing specifications, to continuously measure process parameters and to maintain very narrow tolerances, resulting in less product variation. As a result, the Company has been able to improve its manufacturing processes to utilize less labor and material and produce higher quality fabrics. In addition, the Company maintains a human resource program aimed at capturing productivity gains through team building, formal training and employee empowerment.

The Company also believes that its sales are enhanced as a result of its reputation for quality control and process improvement (especially in markets where product reliability is critical, such as waste containment). For example, the Company was the first geosynthetic manufacturer to have its own test laboratories accredited

53

by the Geosynthetic Research Institute which assures that a quality system and laboratory infrastructure is in place to perform specific tests required in the industry.

The Company believes that increasing manufacturing capacity at its existing plants will provide the capability to gain market share in its current markets and to continue to expand into new markets. The Company has invested approximately $113 million in capital improvements and new facilities during the five year period ended September 30, 1996 and continuously evaluates opportunities to expand its existing production capacity, add new capabilities and enhance production technologies. Specifically, in response to opportunities in the nonwoven market, the Company constructed a state-of-the-art nonwoven facility in 1992 which management believes to be one of the largest such facilities in the United States. This facility today generates sales exceeding $35 million per year as its products support the geotextile, furniture and building materials markets. The Company's recently completed $35 million capital expenditure will increase capacity for carpet backing and woven geotextile production, thus expanding the Company's market base and should increase consolidated sales over the next twelve months by a projected $30 million. Included in this expansion is a 130,000 square foot building addition to the Company's largest manufacturing facility, 88 new looms and related equipment to support these looms. The Company plans to continue to spend additional capital to increase its manufacturing capability for primary and secondary carpet backing, and woven and nonwoven geotextiles, subject to prevailing market conditions.

Pursue Strategic Acquisitions

The Company is continually evaluating the potential acquisition of companies, technologies or products which will complement its existing product lines and manufacturing and distribution strengths. Acquisition opportunities will be evaluated based on the strategic fit, the expected return on capital invested and the ability of management to improve the profitability of acquired operations through cost reductions and other synergies with existing operations.

PRODUCTS

The Company develops, manufactures and sells a wide array of polypropylene-based industrial fibers and fabrics along its three principal product lines: carpet backing, construction and civil engineering, which comprises environmental/geotextile products and concrete reinforcement 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 Company aims to compete in markets in which it can be the primary or secondary provider of such products, with over 93% of its products meeting this criterion. Although end-use applications are diverse, the Company has been able to leverage its manufacturing expertise to introduce new products that often define industry standards. Through research, internal developments, marketing and acquisitions, the Company has developed or acquired new technologies to capitalize on a broad range of new niche product opportunities, enabling it to expand beyond its traditional primary carpet backing business. Since 1981, the following product lines have been added to the Company's portfolio: filtration, specialty yarns, geotextiles, Fibermesh(R) concrete reinforcing fibers, secondary carpet backing, staple fibers, erosion control fibers, soil reinforcing fibers and high performance wovens and nonwovens. This diversification has contributed to average annual sales increases of 23.4% for the period from fiscal 1987 to fiscal 1991 and 9.8% for the period from fiscal 1992 to fiscal 1996.

Carpet Backing

Carpet backing is the Company's oldest and largest product line. Carpet backing represented approximately 50.1%, 49.0% and 48.9%, or $117.8 million, $133.0 million and $146.5 million of the Company's fiscal 1994, 1995 and 1996 net sales, respectively. The technology utilized in the Company's carpet backing business has provided the basic woven fabric technology for the Company's other product lines. For example, certain geotextiles, agriculture fabrics and furniture construction fabrics are woven on the same looms used to weave carpet backing.

54

The Company's carpet backing product line consists of woven 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. The Company produces a broad range of primary and secondary backing.

The Company believes it is the second largest producer of carpet backing in the United States, where carpeting is the most popular floor covering material. The total market for carpeting in the United States has grown approximately 4% per year over the past decade. In recent years, the growth rate of the Company's carpet backing sales has generally outpaced that of the market due to the Company's ability to gain market share. Management believes that the Company's growth rate has been limited by its production capacity.

Construction and Civil Engineering

The Company's construction and civil engineering division has two distinct product lines: environmental and geotextile products and concrete reinforcement fibers. Construction and civil engineering has achieved rapid growth since 1993 when the Company enhanced its channels of distributions for Fibermesh(R) and expanded into production of nonwoven geotextiles. Construction and civil engineering products represented approximately 29.3%, 30.6% and 32.4%, or $68.7 million, $82.9 million and $97.0 million of the Company's fiscal 1994, 1995 and 1996 net sales, respectively. Within this product line, geotextile products principally serve the environmental market, with end uses such as landfill containment and stabilization, erosion control and soil stabilization, separation and reinforcement. The construction market includes subbase reinforcement and stabilization for highway and commercial construction and reinforcement of conventional and pre-cast concrete. Growth in sales in the environmental/geotextiles sector for the period fiscal 1993 to fiscal 1996 averaged 48.3% annually. Fibermesh(R) concrete reinforcing fiber sales grew at an average annual rate of 10.5% for the period from fiscal 1993 to fiscal 1996.

Environmental/Geotextile Products. The Company's environmental/geotextile 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 geotextiles for use in landfill construction, asphalt roadway construction and drainage systems. The Company's woven geotextiles are typically used in road and building construction to form a separation barrier between unstable soils and aggregate foundations. The Company's LANDLOK(R) erosion control products are used in water runoff channels and in areas of exposed soil and shoreline erosion. 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.

The Company has developed a strong market position in environmental/geotextile products on the basis of sales growth and engineering strengths. The Company believes it is now the fastest growing supplier of geotextiles to this market, and has the broadest environmental/geotextile product line in North America.

Environmental and economic concerns have contributed to an increase in government mandates as well as industry practices to control surface runoff and soil erosion and improve water quality. Geotextiles tend to be more durable, easier to use, and more cost effective as compared to similar products made of conventional materials. In highly populated urban areas with high concentrations of roads and buildings the need for good conservation practices is becoming increasingly acute. The Company believes that this market will continue to expand as environmental concerns continue to grow, thereby increasing demand for the Company's products. The Company believes its strength as a cost-effective manufacturer of geotextiles will allow it to continue to increase sales of current products, and introduce new products to this market.

55

Concrete Reinforcement. The Company pioneered the concept of using polypropylene fibers as a secondary reinforcement for concrete and developed and introduced Fibermesh(R) to the concrete industry in 1983. The Company believes that its Fibermesh(R) products have a 65% share of the fiber treated segment of the concrete industry. All concrete reinforcement fibers, including Fibermesh(R), have only approximately 9% penetration of the total concrete industry. Growth in this market will be based on increased acceptance of the use of synthetic fibers for concrete reinforcement as a replacement for conventional wire mesh. The Company estimates that 250 million cubic yards of concrete poured annually in the United States could potentially benefit from the use of Fibermesh(R) fibers.

The addition of Fibermesh polypropylene fibers to the concrete mixture gives the concrete greater crack resistance and improved impact strength. Primary applications for fiber reinforced concrete are commercial and residential slabs, precast pipe and other products, shotcrete installations, and whitetopped highways. Fibermesh(R) provides a cost-effective replacement for the nonstructural wire mesh traditionally used in concrete construction and improves the concrete's durability. Fibermesh(R) complies with construction guidelines and specifications issued by all of the national building code associations. Of the three synthetic fiber types used in fiber reinforced concrete, polypropylene is recognized for its superior properties over nylon and polyester. Fibermesh(R) is sold in fibrillated, monofilament and multi-denier designs, the latter of which is protected by a U.S. patent.

Technical Textiles

Technical textiles produced by the Company are products and systems that offer high performance solutions for niche markets. Technical textiles represented approximately 20.6%, 20.4% and 18.7%, or $48.5 million, $55.5 million and $56.0 million of the Company's fiscal 1994, 1995 and 1996 net sales, respectively. Technical textiles are sold to several niche markets, including the furniture, filtration, agricultural and recreational industries, and each product in those markets generally accounts for $10 to $12 million or less in sales. The Company's technical textile products are generally differentiated on the basis of product uniqueness, quality and service rather than price.

The Company's technical textiles consist 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, to a minor extent, other synthetic fibers. Customers use these fabrics to manufacture products used in diverse applications such as filtration (e.g., bauxite mining, wastewater treatment, electrostatic-air filters and chemical separation), agriculture (e.g., shade for foliage protection and environmental screening), and recreation (e.g., swimming pool covers and trampoline mats).

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, coat linings, geotextiles, air filters and water filtration media.

Recent product line repackaging has created new business programs for the Company, which programs are currently in the new product launch phase. These programs include professional landscaping products, livestock maintenance fabrics and building product components.

MARKETING AND SALES

Carpet Backing. The Company sells its carpet backing products to 91 customers in the carpet industry, most of whom are carpet manufacturers located in the United States. In fiscal 1996, the Company's ten largest carpet backing customers accounted for approximately 78% of its total net sales to the carpet industry. In fiscal 1996, sales to Shaw, the Company's largest customer, accounted for approximately 36% of net carpet backing sales and approximately 18% of the Company's total net sales. Shaw is estimated to have 27% of the United States carpet market.

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

56

experience and monitor ongoing product requirements, styling changes and competitive trends affecting their customers.

Construction and Civil Engineering. 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. In fiscal 1996, the ten largest geosynthetic product customers accounted for approximately 30% of the Company's total net sales in this product line.

The Company's geosynthetic products are marketed by full-time salespeople with expertise in civil engineering and agronomy who are directed from a central office in Chattanooga, Tennessee. These salespeople, along with a technical support staff at Company headquarters, provide design and field engineering services to customers. They also are integral to the process of obtaining required governmental permits for use of the products by end-users. In addition, the Company has an ongoing marketing communications program to build awareness of product capabilities and expand interest in and use of geotextiles.

Fibermesh(R) is sold through a direct sales force to ready-mix concrete companies and precast concrete product manufacturers located primarily in the United States and the United Kingdom. The Fibermesh(R) sales force operates out of divisional offices in Austin, Texas, Denver, Colorado, Chattanooga, Tennessee and Chesterfield, England. In addition, Fibermesh(R) is sold through a contract with Master Builders, Inc., a construction industry product distributor. Other construction industry product distributors market Fibermesh(R) in over 50 foreign countries. In fiscal 1996, the ten largest Fibermesh(R) customers accounted for approximately 12% of the Company's total net sales of Fibermesh(R).

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 1996, the Company's ten largest technical textile customers accounted for approximately 26% of the Company's total net sales of technical textiles. The Company's technical textiles are marketed by salespersons through sales offices in Gainesville, Ringgold and Calhoun, Georgia 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 49% of the Company's total net sales for each of fiscal 1996 and 1995, the Company competes primarily with Amoco, and, to a lesser extent, Wayn-Tex Inc. and certain other companies. Amoco has the dominant position in the carpet backing market worldwide. In the United States, only the Company and Amoco 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 Amoco.

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 and civil engineering market are Amoco and Nicolon 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) also competes with welded wire fabric on the basis of product performance and cost. The Company competes in the construction and civil engineering 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.

57

The pricing policies of the Company's competitors have at certain times in the past limited the Company's ability to increase the prices or caused the Company to lower the prices of certain of its products. See " -- Products," " -- Marketing and Sales" and " -- Raw Materials".

MANUFACTURING PROCESS

Polypropylene, a chemically inert plastic derived from petroleum, is the basic raw material used in the manufacture of substantially all of the Company's products. SI 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, recreational, 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. Nonwoven fabrics provide extensibility without rupture and dimensionality. 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 needlepunching.

Extrusion. Much of the Company's expertise has been developed in its extrusion processes. Many of the product's specification properties are created by engineering the polymeric raw materials during the extrusion process. 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 which resist sunlight degradation. The Company owns and operates one 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, nonwovens 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. The breadth of the Company's woven product offerings was enhanced by the Chicopee Acquisition.

Needlepunching. In 1993, the Company constructed a state-of-the-art needlepunched nonwovens fabric facility. This modern plant produces a new generation of engineered cost-effective fabrics for the geotextile, furniture construction and chemical spill cleanup markets. In February 1997, the Company acquired certain assets of the Spartan Technologies division of Spartan Mills to be used primarily in the manufacturing of needlepunched nonwoven fabrics used in the geotextile and furniture and bedding markets.

The Company maintains a complete rigorous quality control program centered around 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 standards established by the International Standards Organization.

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 profit 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.

58

RESEARCH AND DEVELOPMENT

The Company's research and 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 $2.0 million (approximately 0.7% of sales) and $1.9 million (approximately 0.7% of sales) on Company-sponsored research and development activities in fiscal 1996 and fiscal 1995, respectively. As part of a recently completed strategic review, the Company expects to increase research and development expenses in fiscal 1997 to approximately $5.2 million.

INTERNATIONAL OPERATIONS

The Company conducts its foreign sales operations through subsidiaries in Europe and a network of distributors worldwide. In fiscal 1996, the aggregate sales (principally of construction and civil engineering products) by such foreign subsidiaries and marketing divisions were approximately $5.5 million. International sales from United States operations in fiscal 1996 were $27.8 million. Total international sales were 9.3% of consolidated net sales.

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 four suppliers, with Fina Oil & Chemical Company being the Company's largest supplier of polypropylene. These purchases are generally made pursuant to long-standing arrangements.

Polypropylene purchases account for approximately 50% of the Company's cost of sales. Increases in the price of polypropylene without offsetting increases in selling prices could have a significant negative effect on the Company's results of operations and financial condition. The Company believes that the sales prices of its products will adjust over time to reflect changes in polypropylene costs. The Company has not experienced production curtailment due to shortages of polypropylene supply at any time.

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 agencies. Many of the Company's construction and civil engineering 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, foreign, 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. A cease-and-desist order was issued by the U.S. Army Corps of Engineers on June 13, 1996, concerning the Chickamauga, Georgia facility and the deposit of filling material into national wetlands without a permit. The Company is working with the Army Corps of Engineers to create an

59

equivalent wetland area. The Company does not anticipate that such order will have a material adverse effect on its operations.

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 the 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, however, 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.

60

PROPERTIES

The Company operates the following principal domestic manufacturing and distribution facilities. All of the Company's owned properties are subject to liens in favor of the lenders under the Credit Facility.

                                                                       APPROXIMATE
                                                                         SQUARE      OWNED
                                                                       FOOTAGE OF      OR
             LOCATION                       PRINCIPAL FUNCTION          FACILITY     LEASED
             --------                       ------------------         -----------   ------
Chickamauga, Georgia...............  Manufacturing of carpet backing,     738,800     Owned
                                     geotextiles and fibers
Dalton, Georgia....................  Distribution center and multi-       216,000     Owned
                                     product warehouse
Ringgold, Georgia..................  Manufacturing of geotextiles         183,750     Owned
Chattanooga, Tennessee.............  Manufacturing of specialty yarns     126,432     Owned
Alto, Georgia......................  Manufacturing of certain yarns        92,400     Owned
Dalton, Georgia....................  Needlepunching of carpet backing      44,945     Owned
Gainesville, Georgia...............  Manufacturing of certain fabrics     200,000    Leased
Dalton, Georgia....................  Woven, nonwoven and geotextile
124 Keene Street                     warehouse                            185,000    Leased
Dalton, Georgia....................  Geosynthetic products and fiber
120 Keene Street                     warehouse                            168,000    Leased
Chickamauga, Georgia...............  Manufacturing of carpet backing,
Dalton, Georgia                      geotextiles and fibers               143,736    Leased
Cleveland Highway..................  Specialty yarn warehouse             104,827    Leased
Cornelia, Georgia..................  Assembly of certain fabrics           76,000    Leased
Westside, Georgia..................  Carpet backing warehouse              86,440    Leased
Dalton, Georgia
North Dug Gap......................  Carpet backing warehouse              85,000    Leased
Dalton, Georgia....................  Geosynthetic products warehouse       36,000    Leased
Florence
Dalton, Georgia....................  Geosynthetic products warehouse       31,500    Leased
1408 Coronet
Claremont, North Carolina..........  Nonwoven fabrics warehouse            14,000    Leased
Tupelo, Mississippi................  Nonwoven fabrics warehouse            13,500    Leased
Chattanooga, Tennessee.............  Corporate support offices              4,800    Leased
                                                                       -----------
  Total............................                                     2,551,130
                                                                        =========

ORDER BACKLOG

The Company generally sells its products pursuant to customer orders which are satisfied either out of inventory or by the manufacture and shipment of the product 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, 1996, the Company employed 2,212 persons in the United States, of whom 458 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 13 persons in the United Kingdom.

61

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) and LANDLOK(R), with the United States Patent and Trademark office and with several foreign trademark offices.

CLAIMS AND LEGAL PROCEEDINGS

The Company and its subsidiaries are parties to litigation arising out of their business operations. Most of such litigation involves claims for personal injury, property damage, breach of contract and claims involving employee relations and certain administrative proceedings. The Company believes such claims are adequately covered by insurance or do not involve a risk of material loss to the Company.

The General Partner, Synthetic Management G.P., Leonard Chill, Jon P. Beckman, W. Wayne Freed, Ralph Kenner, W. Gardner Wright, Chill Investments, Inc., Beckman Investments, Inc., Freed Investments, Inc., Kenner Investments, Inc. and Wright Investments, Inc., as defendants, and the Partnership, as a nominal defendant, have been named in two putative class action lawsuits filed by a limited partner of the Partnership on behalf of himself, the other limited partners and the Partnership. In the first action, filed on February 11, 1997 in the Delaware Court of Chancery and amended on June 11, 1997, the plaintiff has alleged, among other things, breach of the defendants' fiduciary duty to achieve the highest possible value for the limited partners in connection with the November 1, 1996 Common Stock Offering of the Company and the Plan by failing to explore alternative transactions that could potentially threaten their positions with and control over the Company and the benefits derived therefrom. The plaintiff seeks, among other things, removal of the General Partner, dissolution of the Partnership, appointment of a receiver, rescission of certain stock option grants and employment agreements and compensatory damages in an undetermined amount. On June 25, 1997, defendants filed a motion to dismiss the amended complaint, which motion is currently being briefed. The second lawsuit was filed in the U.S. District Court of the Northern District of California on May 1, 1997. In connection with a letter sent by the General Partner to the limited partners, the plaintiff has alleged that the defendants have violated federal securities laws by mailing a proxy solicitation to the limited partners without first filing with the Commission, mailing out the solicitation without filing or disseminating a proxy statement and failing to disclose numerous material facts in the solicitation. The complaint seeks an injunction to remedy the alleged violations of securities regulations and a declaratory judgment stating that the defendants violated securities regulations. On May 23, 1997, plaintiff filed a motion for a preliminary injunction. By order dated August 4, 1997, plaintiff's motion was denied. Plaintiff filed a notice of appeal of the August 4, 1997 order on August 15, 1997. The Partnership is a principal stockholder of the Company and certain members of the Company's management control the General Partner. See "Certain Relationships and Related Transactions." The Company is not named as a defendant in either lawsuit and the Company does not believe that the ultimate resolutions will have a material adverse effect on the Company.

62

BROKERAGE PARTNERS