~~Table~~UNITED ofSTATES ~~Contents~~

~~UNITED~~SECURITIES ~~STATES~~AND EXCHANGE COMMISSION

~~SECURITIES~~Washington, ~~AND~~D.C. ~~EXCHANGE~~20549 ~~COMMISSION~~

~~Washington,~~FORM ~~D.C.~~10-Q ~~20549~~

~~FORM~~(Mark ~~10-Q~~One)

~~(Mark~~x ~~One~~ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

xFOR THE QUARTERLY ~~REPORT~~PERIOD ~~PURSUANT~~ENDED TOAPRIL ~~SECTION~~1, 132007 ~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~FOR~~¨ ~~THE~~TRANSITION ~~QUARTERLY~~REPORT ~~PERIOD~~PURSUANT ~~ENDED~~TO ~~JUNE~~SECTION ~~30,~~13 ~~2006~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨FOR ~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF~~ THE ~~SECURITIES~~TRANSITION ~~EXCHANGE~~PERIOD ~~ACT OF 1934~~FROM TO

~~FOR~~Commission ~~THE~~File ~~TRANSITION~~Number ~~PERIOD~~333-122829 ~~FROM TO~~

~~Commission~~Propex ~~File~~Inc. ~~Number 333-122829~~

~~Propex~~(Exact ~~Inc.~~name of registrant as specified in its charter)

(Exact name of registrant as specified in its charter)

Delaware

2221

36-2692811

(State or Other Jurisdiction of

Incorporation or Organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

Delaware		2221		36-2692811
(State or Other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

6025 Lee Highway, Suite 425, Chattanooga, Tennessee 37421

~~6025~~(Address ~~Lee~~of ~~Highway,~~Principal ~~Suite~~Executive ~~425,~~Offices) ~~Chattanooga, Tennessee 37421~~

(~~Address of Principal Executive Offices~~423) 855-1466

(~~423)~~Registrant’s ~~855-1466~~Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (~~Registrant’s~~1) has ~~Telephone~~filed ~~Number,~~all ~~Including~~reports ~~Area~~required ~~Code~~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 ~~(1) has~~is ~~filed~~a large ~~all~~accelerated ~~reports~~filer, ~~required~~an toaccelerated befiler, ~~filed by Section 13~~ or ~~15(d)~~a ofnon-accelerated ~~the~~filer. ~~Securities~~See ~~Exchange~~definition ~~Act~~ of ~~1934~~“accelerated ~~during~~filer ~~the~~and ~~preceding~~large 12accelerated ~~months~~filer” ~~(or~~in ~~for~~Rule ~~such~~12b-2 ~~shorter~~of ~~period that~~ the ~~registrant~~Exchange ~~was~~Act. ~~required~~(Check ~~to file such reports~~one),: ~~and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x~~

~~Indicate~~Large ~~by check mark whether the registrant is a large~~ accelerated filer, ¨ Accelerated ~~an accelerated~~ filer~~, or a non~~ ¨ Non-accelerated filer. x ~~See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):~~

~~Large~~Indicate ~~accelerated~~by ~~filer ¨ Accelerated~~check ~~filer~~mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ ~~Non-accelerated filer~~No x

~~Indicate~~The byRegistrant ~~check~~is ~~mark~~a ~~whether~~wholly ~~the~~owned ~~registrant~~subsidiary isof aPropex ~~shell~~Holdings ~~company~~Inc., ~~(as~~and ~~defined~~there inis ~~Rule~~no ~~12b-2~~public ofmarket for the ~~Exchange Act)~~Registrant’s common stock. ~~Yes ¨ No x~~

~~The~~Number ~~Registrant~~of isshares aof ~~wholly~~common ~~owned~~stock ~~subsidiary~~outstanding ofat ~~Propex Holdings Inc.~~May 11, ~~and~~2007: ~~there~~10 ~~is no public market for the Registrant’s common stock~~shares.

~~Number~~Propex ~~of shares of common stock outstanding at August 14, 2006: 10 shares~~Inc.

Table of Contents to Form 10-Q

~~Propex~~For ~~Inc.~~the Quarter Ended April 1, 2007

Table of Contents to Form 10-Q


		Page
	PART I

FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Cash Flows	5

	Notes to the Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures Regarding Market Risk	42

Item 4.	Controls and Procedures	43

Note regarding forward-looking statements		44

	PART II

OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Submission of Matters to a Vote of Security Holders	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

SIGNATURES		48

~~For~~2 ~~the Quarter Ended June 30, 2006~~

PART I
FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures Regarding Market Risk	54
Item 4.	Controls and Procedures	55
Note regarding forward-looking statements		56
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Submission of Matters to a Vote of Security Holders	58
Item 5.	Other Information	58
Item 6.	Exhibits	59
SIGNATURES		60

PART I

2ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Table~~ Propex ofInc. ~~Contents~~

~~PART~~Condensed IConsolidated Balance Sheets

~~ITEM 1.~~(In ~~CONDENSED~~Millions) ~~CONSOLIDATED FINANCIAL STATEMENTS~~

Propex Inc.


	April 1, 2007		December 31, 2006
	(Unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	44.5	$	56.9
Restricted cash		0.9		0.9
Accounts receivable, net		98.5		86.4
Inventories, net (Note 3)		106.3		102.5
Deferred income taxes		9.6		9.6
Prepaid expenses and other current assets		10.4		8.2
Assets held for sale		12.6		12.6

Total current assets		282.8		277.1

Other assets:
Goodwill (Note 4)		37.1		37.1
Intangible assets, net (Note 4)		32.0		34.5
Deferred income taxes		11.4		6.2
Other assets		14.5		15.4

		95.0		93.2
Property, plant and equipment, net		237.4		240.0

Total assets	$	615.2	$	610.3

Liabilities and stockholder’s equity:
Current liabilities:
Accounts payable	$	46.8	$	25.2
Accrued liabilities		24.3		21.0
Current portion of debt and accrued interest		19.2		37.0
Restructuring and other similar costs (Note 5)		1.8		2.1
Other current liabilities		2.3		2.6

Total current liabilities		94.4		87.9

Debt, less current portion (Note 10)		354.9		357.8
Deferred income taxes		3.3		2.5
Accrued pension and other postretirement benefit liabilities (Notes 7 & 8)		49.5		49.8
Other non-current liabilities		3.3		1.1

		411.0		411.2
Total stockholder’s equity		109.8		111.2

Total liabilities and stockholder’s equity	$	615.2	$	610.3

~~Condensed~~The ~~Consolidated~~accompanying ~~Balance~~notes ~~Sheets~~are an integral part of these financial statements.

~~(In~~3 ~~Millions)~~

	June 30, 2006		December 31,2005
	(Unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	26.2	$	58.3
Accounts receivable, net (Note 3)		128.6		92.6
Inventories, net (Note 4)		131.0		94.6
Deferred income taxes		9.0		3.5
Prepaid expenses and other current assets		15.4		9.3
Assets held for sale (Note 6)		5.0		26.7
Total current assets		315.2		285.0
Other assets:
Goodwill (Note 7)		37.1		—
Intangible assets, net (Note 7)		36.6		8.4
Deferred income taxes		27.5		15.8
Other assets		14.2		12.9
		115.4		37.1
Property, plant and equipment, net (Note 5)		253.2		164.3
	$	683.8	$	486.4
Liabilities and stockholder’s equity:
Current liabilities:
Accounts payable	$	49.4	$	42.5
Accrued liabilities		26.7		19.1
Current portion of debt and accrued interest		15.0		11.1
Restructuring and other similar costs (Note 8)		2.6		1.7
Other current liabilities		3.8		3.2
Total current liabilities		97.5		77.6
Debt, less current portion (Note 13)		383.0		244.8
Deferred income taxes		9.0		8.6
Accrued pension and other postretirement benefit liabilities (Notes 10 & 11)		51.5		52.5
Other non-current liabilities		23.1		1.1
		466.6		307.0
Total stockholder’s equity		119.7		101.8
Total liabilities and stockholder’s equity	$	683.8	$	486.4

Propex Inc.

~~The~~Condensed ~~accompanying~~Consolidated ~~notes~~Statements ~~are an integral part~~ of ~~these~~Operations ~~financial statements.~~

3(In Millions)

~~Table of Contents~~(Unaudited)

Propex Inc.


	Three months ended April 1, 2007			Three months ended March 31, 2006
Net revenue	$	154.2		$	191.2
Cost of sales		126.6			162.8

Gross profit		27.6			28.4

Operating expenses:
Selling, general and administrative		23.8			26.0
In-process research and development (Note 2)		—			3.7
Restructuring and similar costs (Note 5)		0.5			3.0
Impairment of long-lived assets		—			5.5

Operating income (loss)		3.3			(9.8	)
Other (income) expense, net		0.1			(0.3	)

Income (loss) before interest and income taxes		3.2			(9.5	)
Interest expense, net		8.4			12.1

Loss before income taxes		(5.2	)		(21.6	)
Income tax benefit (Note 9)		(1.1	)		(8.2	)

Net loss	$	(4.1	)	$	(13.4	)

~~Condensed~~The ~~Consolidated~~accompanying ~~Statements~~notes are an integral part of ~~Operations~~these financial statements.

~~(In~~4 ~~Millions)~~

~~(Unaudited)~~ Propex Inc.

	Three months endedJune 30,						Six months endedJune 30,
	2006			2005			2006			2005
Net revenue	$	205.5		$	168.1		$	396.6		$	329.6
Cost of sales		165.3			140.6			328.1			277.3
Gross profit		40.2			27.5			68.5			52.3
Operating expenses:
Selling, general and administrative		25.6			14.1			51.6			28.3
In-process research and development (Note 2)		—			—			3.7			—
Pension curtailment gain (Note 10)		(0.4	)		—			(0.4	)		—
Restructuring and similar costs (Note 8)		3.4			—			6.4			—
Impairment of long-lived assets (Note 5)		—			—			5.5			—
Gain from sale of Roanoke plant		(44.5	)		—			(44.5	)		—
Operating income		56.1			13.4			46.2			24.0
Other (income)		(0.5	)		(0.3	)		(0.8	)		(0.2	)
Income before interest and income taxes		56.6			13.7			47.0			24.2
Interest expense, net		8.5			5.7			20.5			10.9
Income before income taxes		48.1			8.0			26.5			13.3
Income tax provision (Note 12)		18.4			2.6			10.3			4.7
Net income	$	29.7		$	5.4		$	16.2		$	8.6

Condensed Consolidated Statements of Cash Flows

~~The~~(In ~~accompanying~~Millions) ~~notes are an integral part of these financial statements.~~


	Three months ended April 1, 2007			Three months ended March 31, 2006
	(Unaudited)
Cash flows from operating activities
Net loss	$	(4.1	)	$	(13.4	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		7.4			6.6
Non-cash interest on debt		0.6			0.3
Net gain on dispositions of property and equipment		(0.1	)		—
Impairment of long-lived assets		—			5.5
Stock-based compensation		0.2			—
Pension and postretirement benefit		0.6			(0.6	)
Deferred income taxes		(4.4	)		(9.1	)
In-process research and development		—			3.7
Changes in operating assets and liabilities		11.6			3.5

Net cash provided (used) by operating activities		11.8			(3.5	)

Cash flows from investing activities
Capital expenditures		(2.1	)		(0.9	)
Proceeds from sale of property and equipment		0.1			—
Acquisition of business (net of cash acquired)		—			(229.6	)

Net cash used in investing activities		(2.0	)		(230.5	)

Cash flows from financing activities
Payments of long-term debt		(22.8	)		(104.5	)
Proceeds from issuance of debt		—			310.0
Debt issuance costs		—			(5.3	)

Net cash provided by (used in) financing activities		(22.8	)		200.2

Effect of changes in foreign exchange rates on cash and cash equivalents		0.6			0.2

Change in cash and cash equivalents		(12.4	)		(33.6	)
Cash and cash equivalents – Beginning of period		56.9			58.3

Cash and cash equivalents – End of period	$	44.5		$	24.7

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

~~Propex~~5 ~~Inc.~~

~~Condensed~~ Propex ~~Consolidated~~Inc. ~~Statements of Cash Flows~~

~~(In~~Notes ~~Millions)~~to the Condensed Consolidated Financial Statements

	Six months endedJune 30,
	2006			2005
	(Unaudited)
Cash flows from operating activities
Net income	$	16.2		$	8.6
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		14.5			9.4
Non-cash interest on debt		5.3			0.4
Gain on sale of Roanoke plant		(44.5	)		—
Impairment of long-lived assets		5.5			—
Pension and postretirement benefit costs		(2.6	)		0.9
Deferred income taxes		(12.7	)		3.3
In-process research and development charges		3.7			—
Changes in operating assets and liabilities		5.9			(18.2	)
Net cash provided by (used in) operating activities		(8.7	)		4.4
Cash flows from investing activities
Capital expenditures		(2.3	)		(1.3	)
Proceeds from sale of Roanoke plant		73.0			—
Acquisition of business (net of cash acquired)		(229.7	)		—
Net cash used in investing activities		(159.0	)		(1.3	)
Cash flows from financing activities
Payments of long-term debt principal		(169.1	)		(2.8	)
Debt issuance costs		(5.3	)		—
Dividends		(0.4	)		(0.5	)
Proceeds from issuance of debt		310.5			—
Net cash provided by (used in) financing activities		135.7			(3.3	)
Effect of changes in foreign exchange rates on cash and cash equivalents		(0.1	)		(0.3	)
Change in cash and cash equivalents		(32.1	)		(0.5	)
Cash and cash equivalents – Beginning of period		58.3			24.1
Cash and cash equivalents – End of period	$	26.2		$	23.6

(Unaudited)

~~The~~1. ~~accompanying~~Description ~~notes~~of ~~are~~the anBusiness ~~integral~~and Summary ~~part~~ of ~~these~~Significant ~~financial~~Accounting ~~statements.~~Policies

5Description of the Business

~~Table~~Propex Inc. (the “Company”), formerly Propex Fabrics Inc. until its name change on June 13, 2006, was, prior to November 30, 2004, Amoco Fabrics and Fibers Company, which together with its affiliates were collectively known as the BP Fabrics and Fibers Business (the “Business”). Propex Inc. is the world’s largest independent producer of ~~Contents~~primary and secondary carpet backing and a leading manufacturer and marketer of woven and nonwoven polypropylene fabrics and fibers used in geosynthetic applications and a variety of other industrial applications such as fabric bags/containers, fabric protective coverings and concrete fiber reinforcement. We have been engaged in the textile industry since 1884 and were wholly-owned by our former parent company BP p.l.c. (BP p.l.c. together with BP Amoco Chemical holding Company, an indirect subsidiary of BP p.l.c., and certain of its affiliates is collectively referred to as “BP”) until November 30, 2004.

On January 31, 2006, we acquired all the outstanding capital stock of SI Concrete Systems Corporation (now known as Propex ~~Inc~~Concrete Systems Corporation) and, SI Geosolutions Corporation (now known as Propex Geosolutions Corporation), collectively referred to as SI, for approximately $232.6 million, comprised of the $227.6 million cash price, net of cash accounts included in the purchased assets and including adjustments, and $5.0 million of direct acquisition and other related costs (the “SI acquisition”). We financed the purchase price with borrowings under a refinanced senior credit facility and approximately $28.1 million of cash on-hand. The details of the SI acquisition are discussed further in Note 2.

~~Notes~~Basis toof ~~the~~Presentation ~~Condensed Consolidated Financial Statements~~

The unaudited interim condensed consolidated financial statements of the Company, including its wholly owned subsidiaries, are prepared in conformity with U.S. generally accepted accounting principles 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 unaudited interim condensed consolidated financial statements exclude the accounts of Propex Holdings Inc., the Company’s parent. The operating results 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 (~~Unaudited~~“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 herein are adequate to make the information presented not misleading, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related footnotes included in the Company’s Form 10-K filing for the period ended December 31, 2006. All significant intercompany accounts and transactions have been eliminated.

1.6 ~~Description of the Business and Summary of Significant Accounting Policies~~

~~Description~~Change of ~~the~~Fiscal ~~Business~~Year

~~Propex~~On ~~Inc.~~January 3, (2007, the ~~“Company”),~~Board ~~formerly~~of Propex ~~Fabrics~~Holdings Inc. ~~until~~(“Propex ~~its~~Holdings”) ~~name~~changed ~~change~~the onaccounting ~~June 13,~~period ~~2006,~~of ~~and~~Propex ~~previously~~Holdings ~~Amoco~~and ~~Fabrics~~its ~~and~~wholly-owned ~~Fibers Company~~subsidiaries, ~~which~~including ~~together~~Propex ~~with~~Inc., ~~its~~effective January 1, ~~affiliates~~2007. ~~were~~The ~~collectively~~fiscal ~~known~~quarters asof ~~the~~Propex BPHoldings ~~Fabrics~~ and ~~Fibers~~its ~~Business~~subsidiaries ~~(the~~were ~~“Business”),~~changed isfrom ~~the~~calendar ~~world’s~~quarters ~~largest~~to ~~independent~~successive ~~producer~~13-week ofperiods, ~~primary~~as ~~and~~a ~~secondary~~result ~~carpet~~of ~~backing~~which ~~and~~the afiscal ~~leading~~quarters ~~manufacturer and marketer~~ of ~~woven~~Propex ~~and~~Holdings ~~nonwoven polypropylene fabrics~~ and ~~fibers~~its ~~used~~subsidiaries inwill ~~geosynthetic~~close ~~applications~~at ~~and~~the end aof ~~variety~~each ofsuccessive ~~other~~13-week ~~industrial~~period ~~applications~~(each such as13-week ~~fabric~~period ~~bags/containers,~~to ~~fabric~~begin ~~protective~~on ~~coverings~~a Monday and ~~concrete~~end ~~fiber~~on ~~reinforcement~~a Sunday). The ~~Company~~ ~~has~~2007 ~~been~~quarters ~~engaged~~will inend ~~the~~on ~~textile~~April 1, July 1, September 30 ~~industry since 1884~~ and ~~was wholly owned by its former parent company BP p.l.c. (“BP”) until November~~December 30~~, 2004~~.

OnEarnings ~~December 1,~~Per ~~2004,~~Share ~~the~~Data ~~Company acquired the Business from BP and became a stand-alone company. This transaction is referred to as the “BP Acquisition.”~~

OnBecause ~~January 31,~~Propex ~~2006,~~Inc. ~~pursuant~~is to a ~~stock purchase agreement dated December 30, 2005, as amended, by and among the Company, SI Concrete Systems~~ ~~Corporation~~wholly ~~(“SICSC”~~owned –subsidiary ~~now~~of ~~known as~~ Propex ~~Concrete~~Holdings ~~Systems Corporation), SI Geosolutions Corporation~~ (~~“SIGC”~~formerly ~~– now~~ known as Propex ~~Geosolutions~~Fabrics ~~Corporation~~Holdings Inc.), and ~~the~~its ~~holders of the capital~~ stock ofis ~~SICSC~~not ~~and~~publicly ~~SIGC~~traded, ~~the Company~~we ~~acquired~~have ~~all~~not ~~the~~presented ~~outstanding~~earnings ~~capital~~per ~~stock~~common ofshare ~~SICSC~~data ~~and SIGC, collectively known~~ as ~~SI,~~it ~~for approximately $232.6 million, comprised of the $228.0 million cash price, including adjustments, paid to the seller and $4.6 million of direct acquisition related costs. This transaction~~ is ~~referred~~not ~~to as the “SI Acquisition~~meaningful.” ~~Note 2 to the condensed consolidated financial statements includes a preliminary purchase price allocation for the SI Acquisition.~~

~~Basis~~Use of ~~Presentation~~Estimates

The ~~condensed~~preparation ~~consolidated~~of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements ofas well as the ~~Company,~~reported ~~including~~amounts of revenues and expenses during the ~~wholly~~reported ~~owned~~period. ~~subsidiaries,~~Although these estimates and assumptions are ~~prepared~~based on our knowledge of current events and actions we may take in ~~conformity~~the ~~with~~future, ~~U.S.~~actual ~~generally~~results ~~accepted~~could ~~accounting~~ultimately ~~principles.~~differ from ~~All~~those ~~significant~~estimates ~~intercompany~~and ~~accounts~~assumptions and ~~transactions~~the ~~have~~differences ~~been~~could ~~eliminated~~be material.

~~Stock-Based~~Reclassifications ~~Compensation~~

~~For~~Certain ~~stock-based compensation effected~~ prior toperiod ~~December 31,~~financial ~~2005,~~statement ~~the~~amounts ~~Company~~have ~~accounted~~been ~~for~~reclassified ~~stock-based~~to ~~compensation~~conform using the minimum value method as prescribed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and provided the disclosure-only provisions of SFAS No. 123, as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – An Amendment to ~~FASB No. 123” (“SFAS No. 148”), providing alternative methods of accounting and requiring more prominent and frequent disclosures of~~ the ~~effects~~current ofyear ~~stock-based compensation under the fair value-based method~~presentation. ~~As described in Note 17 to the condensed consolidated financial statements, effective~~

6Recent Accounting Standards

~~Table~~In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of ~~Contents~~Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities, including not-for-profit organizations. Most of the provisions in SFAS No. 159 are elective; however, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity

~~January 1,~~7 ~~2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No.~~

~~123(R)~~ makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of Statement of Financial Accounting Standards Statement No. 157, “~~Share-Based~~Fair ~~Payment~~Value Measurements” (“SFAS No. ~~123(R)~~157”). ~~using~~We have not elected early adoption and are currently evaluating the ~~prospective~~potential ~~method.~~impact, if any, of the adoption of SFAS No. ~~123(R)~~159 ison ~~applied~~our ~~to awards~~consolidated ~~granted~~financial position, ~~modified,~~results orof ~~settled~~operations ~~after~~and ~~January 1,~~cash ~~2006~~flows. The impact of the adoption ~~did~~of ~~not~~SFAS ~~have~~No. 159 awill ~~material~~be ~~impact~~dependent on ~~our~~the ~~financial~~extent ~~condition~~to orwhich ~~results~~the ofCompany ~~operations~~elects to measure eligible items at fair value.

~~There~~In ~~were~~September no2006, ~~grants~~the FASB issued Statement of ~~stock-based~~Financial ~~compensation~~Accounting Standards Statement No. 158, Employers’ Accounting for ~~the~~Defined ~~six~~Benefit Pension ~~months~~and ~~ended~~Other ~~June~~Postretirement Plans-an amendment of FASB Statements No. 3087, ~~2006; however~~88, 106 and 132(R) (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize the ~~options~~overfunded or underfunded status of ~~the~~a ~~Chief~~defined ~~Financial~~benefit postretirement ~~Officer~~plan ~~were~~(other ~~modified~~than a multiemployer plan) as an asset or liability in ~~conjunction~~its ~~with~~balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a ~~separation~~business ~~agreement~~entity. ~~dated May 3,~~In ~~2006~~addition, the asStatement ~~previously~~requires ~~reported~~an onemployer to measure the funded status of a ~~Form~~plan 8as of the date of its year-Kend ~~filed~~balance sheet, with limited exceptions. For employers without publicly traded equity securities, as is the ~~Securities~~case of Propex, the recognition of the funded status and ~~Exchange~~presentation ~~Commission~~of ~~(“SEC”)~~required ondisclosures ~~May~~will be as of December 831, ~~2006~~2007. The ~~expense~~Statement ~~recorded~~encourages ~~under~~early ~~SFAS No~~adoption. ~~123(R)~~ inWe ~~connection~~are ~~with~~currently ~~this~~evaluating ~~modification,~~whether iswe ~~included~~will ~~in selling,~~adopt ~~general~~SFAS ~~and~~No. 158 ~~administrative~~prior ~~expenses~~to inDecember 31, ~~the~~2007. ~~condensed~~As ~~consolidated~~of ~~statement~~the date of ~~operations~~this ~~for~~report, the ~~quarter~~Company’s ~~ended~~postretirement ~~June 30,~~plans ~~2006~~are underfunded.

~~Interim~~ In September 2006, the FASB issued Statement of Financial Accounting ~~Statements~~Standards Statement No. 157, Fair Value Measurements. The Statement defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles, and expands disclosures about fair value measurements. The changes to current practice as a result of the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosure about fair value measurements. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, although early application is encouraged. We are currently evaluating the potential impact, if any, of the adoption of SFAS No. 157 on our consolidated financial position, results of operations and cash flows.

The accompanying condensed consolidated balance sheet as of June 30, 2006, the statements of operations for the three and six months ended June 30, 2006 and 2005, the statements of cash flows for the six months ended June 30, 2006 and 2005 and the 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 Company2. ~~The operating results for the interim periods are not necessarily indicative of the operating results to be~~SI ~~expected~~Acquisition 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 condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the related footnotes included in the Company’s Form 10-K filing for the period ended December 31, 2005.

~~Earnings~~On ~~Per~~January 31, ~~Share~~2006, ~~Data~~we acquired all the outstanding capital stock of SI for approximately $232.6 million, comprised of the $227.6 million cash price, net of cash accounts included in the purchased assets and including adjustments, and $5.0 million of direct acquisition and other related costs. We financed the total purchase price with borrowings under a refinanced senior credit facility as described more fully in Note 10 and approximately $28.1 million of cash on-hand. The results of SI have been included in the North America furnishing, geosynthetics, industrial and concrete fiber segments since the acquisition date.

~~Because~~In ~~Propex~~accordance ~~Inc~~with SFAS No. 141, iswe aallocated ~~wholly~~the ~~owned~~total ~~subsidiary~~purchase price of ~~Propex~~the ~~Holdings~~SI ~~Inc~~Acquisition to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. ~~(formerly~~The ~~known~~excess aspurchase ~~Propex~~price ~~Fabrics~~over ~~Holdings~~those ~~Inc~~fair values is recorded as goodwill.) ~~and~~The ~~its~~fair ~~stock~~value assigned to intangible assets acquired is ~~not~~based ~~publicly~~on ~~traded,~~valuations ~~earnings~~prepared ~~per~~by ~~common~~independent ~~share~~third ~~data~~party appraisal firms using estimates and assumptions provided by management. The goodwill recorded as a result of the SI Acquisition is ~~excluded~~expected ~~from~~to ~~presentation~~be deductible for tax purposes. Purchased intangible assets with finite lives are amortized on a straight-line basis over their respective useful lives.

~~Use~~8 ~~of Estimates~~

~~The~~Purchase ~~preparation~~Price ofAllocation financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures in the notes to the condensed consolidated financial statements. Actual results could differ from the estimates and assumptions used.

~~Goodwill~~The allocation of the total purchase price of SI’s net tangible and ~~Other~~intangible ~~Intangible~~assets ~~Assets~~was based on their estimated fair values as of January 31, 2006. These initial estimates were based on a preliminary valuation and were subject to change during 2006 as the valuation was finalized and the final allocation of the purchase price was determined. The final allocation of purchase price did not materially differ from the preliminary estimates. The excess of the purchase price over the net tangible and identifiable intangible assets was allocated to goodwill. Goodwill was allocated among the reporting units in the final purchase price allocation as follows:

On January 31, 2006, the Company acquired all the outstanding capital stock of SI. Intangible assets created as a result of the SI Acquisition have been recorded in accordance with


	*(in millions)*
Furnishings	$	13.7
Geosynthetics		10.9
Concrete		5.0
Industrial products		7.5

Total	$	37.1

7We finalized the purchase price allocation under the purchase method of accounting in accordance with the provision of SFAS No. 141. Management allocated the purchase price to the assets acquired and liabilities assumed based on their fair values. The fair value calculations were prepared with the assistance of an independent third party valuation specialist. The following table summarizes the final allocation of the purchase price to the assets and liabilities at January 31, 2006 (in millions):


	*(in millions)*
Tangible assets acquired and liabilities assumed:
Cash	$	3.0
Accounts receivable		26.5
Inventory		46.7
Deferred income tax assets		4.9
Other current assets		5.7
Property, plant and equipment		99.9
Other non-current assets		3.4
Goodwill		37.1
Other intangible assets		32.7
In-process research and development		3.7
Current liabilities		(28.6	)
Deferred income tax liability		(2.4	)

Total purchase price	$	232.6

~~the~~Approximately ~~requirements~~$3.7 ofmillion ~~Statement~~was ofallocated ~~Financial~~to ~~Accounting~~in-process ~~Standards~~research ~~No. 141,~~and ~~“Business~~product ~~Combinations”~~development and ~~(“SFAS~~charged ~~No. 141”),~~to ~~which~~expense ~~required~~during ~~their~~the ~~valuation~~first toquarter ~~fair value as~~ of ~~the~~2006 ~~acquisition~~and ~~date~~$7.7 ~~The~~million ~~Company~~was ~~has~~allocated ~~provided a preliminary purchase price allocation in Note 2~~ to ~~the~~inventory ~~condensed~~as ~~consolidated~~a ~~financial statements. The~~ fair value ~~calculations~~ ~~were~~adjustment ~~completed~~related ~~with~~to ~~the~~purchase ~~assistance~~accounting ofand anwas ~~independent~~charged ~~third~~to ~~party~~cost ~~valuation~~of ~~specialist.~~sales ~~However,~~during as the ~~Company~~first ~~continues~~quarter toof ~~evaluate~~2006 ~~and~~when ~~refine certain estimates,~~ the ~~allocation~~inventory ofwas ~~fair value across assets and segments could be adjusted~~sold.

~~Goodwill~~9 is the excess of the purchase price over the fair value of the net assets acquired. It is not amortized but is tested for impairment annually. Intangibles, which include customer relationships, patents and trade names, are amortized over their estimated useful lives.

~~Deferred~~Other ~~Financing~~intangible ~~Costs~~assets

~~Deferred~~The ~~financing~~fair ~~costs~~value ~~represent~~of ~~certain~~other ~~capitalized~~intangible ~~costs~~assets ~~incurred~~was byestimated through the ~~Company~~use toof ~~finance its~~an ~~long-term~~independent third party valuation firm that used the discounted debt-free ~~obligations.~~cash ~~These~~flow ~~costs~~method to value these identifiable intangible assets, which are ~~amortized~~subject to ~~interest~~amortization. ~~expense~~The ~~over~~following ~~the~~table ~~life~~sets offorth the ~~related~~components ~~debt~~of ~~using~~these ~~the~~other ~~effective~~intangible ~~interest~~assets ~~method.~~resulting ~~These~~from ~~capitalized~~the ~~costs~~SI ~~have~~acquisition ~~been~~and ~~recorded~~their ~~within~~weighted ~~“Other~~average ~~Assets”~~estimated inuseful ~~the~~lives ~~balance~~at ~~sheets.~~ January 31, 2006:

Reclassifications


	Final Fair Value		Weighted-Average Useful Life (in years)
	*(in millions)*
Customer relationships	$	24.2	8
Trademarks and trade names		3.4	20
Patents		5.1	15

Other intangible assets	$	32.7

~~Certain~~The ~~prior period~~following ~~financial~~is ~~statement~~a ~~amounts~~brief ~~have~~description ~~been~~of ~~reclassified~~the totypes ~~conform~~of tointangibles ~~the~~identified ~~current~~as ~~year~~a ~~presentation.~~result of the SI Acquisition:

~~New~~• ~~Accounting~~Customer ~~Standards~~relationships. SI has developed a number of long-standing customer relationships that have a probability of continuing into the future.

In• ~~July~~Trademarks ~~2006,~~and ~~the~~trade ~~Financial~~names. ~~Accounting~~SI ~~Standards~~has ~~Board~~established ~~(“FASB”)~~several ~~issued~~leading ~~FASB~~trademarks ~~Interpretation~~and ~~No.~~trade ~~48,~~names ~~“Accounting~~primarily ~~for~~focused ~~Uncertainty~~on ingeosynthetic ~~Income Taxes”~~and ~~(“Interpretation~~concrete ~~No.~~reinforced ~~48”~~fibers ~~or “FIN No~~applications. ~~48”).~~In ~~FIN No. 48 clarifies~~ the ~~accounting~~geosynthetic ~~for~~product ~~uncertainty~~area, inSI ~~income~~has ~~taxes~~Geotex®, ~~recognized~~Landlok® inand anPyramat® ~~enterprise’s~~fabrics ~~financial~~which ~~statements~~are indesigned ~~accordance~~to ~~with~~help ~~FASB~~drain, ~~Statement No. 109~~separate, ~~“Accounting~~ ~~for~~and ~~Income~~stabilize ~~Taxes.”~~soils ~~This~~in ~~interpretation~~civil ~~prescribes~~engineering ~~a recognition threshold~~ and ~~measurement~~environmental ~~attribute~~applications. ~~for~~In the ~~financial~~concrete ~~statement~~fiber ~~recognition~~product ~~and~~area, ~~measurement~~SI ofhas aFibermesh® ~~tax~~polypropylene ~~position~~fibers ~~taken~~for oruse ~~expected~~as ~~to be taken in~~ a ~~tax~~secondary ~~return.~~reinforcement ~~FIN No.~~for 48concrete ~~also~~and ~~provides~~Novocon® ~~guidance~~steel onfibers ~~derecognition, classification, interest~~ and ~~penalties,~~Novomesh® ~~accounting~~blends inof ~~interim~~polypropylene ~~periods, disclosure,~~ and ~~transition.~~steel Wefibers ~~are~~for ~~currently~~use ~~evaluating~~in ~~the~~more ~~impact~~demanding ~~this~~applications ~~interpretation~~such ~~will~~as ~~have~~composite onmetal ~~our~~decks ~~financial~~and ~~statements.~~industrial ~~For the Company, this interpretation will be effective beginning January 1, 2007~~slabs.

2• Patents. SI ~~Acquisition~~has patented several of its fibers or products such as its X3® technology for use in Landlok® and Pyramat®. These patents have strengthened the market position of SI’s Geotex®, Landlok® and Pyramat® geosynthetic fabric trademarks.

OnTangible ~~January 31,~~assets ~~2006, the Company~~ acquired ~~all the outstanding capital stock of SI for approximately $232.6 million, comprised of the $228.0 million~~ cash price, including adjustments, paid to the seller and $4.6 million of direct acquisition related costs. We financed the total purchase price with borrowings under a refinanced senior credit facility as described more fully in Note 13 and approximately $29.2 million of cash on-hand.

8The following table summarizes the estimated fair value of the property, plant and equipment acquired in the SI acquisition and their estimated useful lives at January 31, 2006:


	Final Fair Value		Weighted-Average Useful Life (in years)
	*(in millions)*
Land	$	2.3	N/A
Buildings and land improvements		22.9	35
Machinery, equipment and other		73.9	6
Construction in progress		0.8	N/A

Total tangible assets	$	99.9

~~The~~10 Company acquired SI because of SI’s complementary product offering in existing and new products, its complementary low-cost non-wovens manufacturing position, and the potential value related to the significant synergies upon combining the two complementary companies.

InPro ~~accordance~~forma ~~with~~results SFAS No. 141, the Company allocated the total purchase price of the SI Acquisition to the tangible assets, liabilities and intangible assets acquired based on their estimated fair values. The excess purchase price over those fair values, which is due primarily to a portion of the forecasted synergies value possible upon combining the two companies, is recorded as goodwill. The fair value assigned to intangible assets acquired is based on valuations prepared by independent third party appraisal firms using estimates and assumptions provided by management. The goodwill recorded as a result of the SI Acquisition is expected to be deductible for tax purposes. In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”(“SFAS No. 142”), goodwill will be reviewed at least annually for impairment. Purchased intangible assets with finite lives are amortized on a straight-line basis over their respective useful lives.

~~Preliminary~~The ~~Purchase~~following ~~Price~~unaudited ~~Allocation~~pro forma financial information presents the results of operations as if the SI acquisition had occurred as of the beginning of 2006. Pro forma adjustments increasing net income by $31.8 million for the quarter ended March 31, 2006 have been reflected in the pro forma results presented below. The unaudited pro forma adjustments exclude $22.0 million of SI costs related to the disposition of the Chickamauga facility included in the historical SI financial statements, as well as $3.7 million of charges related to in-process research and development and $7.7 million of charges related to the excess of the fair value of inventory over its historical cost recognized in connection with the SI acquisition, each expensed in the first quarter of 2006. The unaudited pro forma financial information is not intended to represent or be indicative of the results of operations or financial condition of the Company that would have been reported had the SI Acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition.

~~The~~Pro ~~preliminary~~forma ~~allocation~~results ofwere ~~the~~as ~~total~~follows ~~purchase~~for ~~price~~the ofthree ~~SI’s~~months ~~net~~ended ~~tangible and intangible assets was based on their estimated fair values as of January~~March 31, 2006. These estimates are based on a preliminary valuation and are subject to change as the valuation is finalized. The excess of the purchase price over the net tangible and intangible assets was allocated to goodwill. The total purchase price of $232.6 million has been allocated as follows:

	(in millions)
	Quarter EndedMarch 31, 2006
Tangible assets acquired and liabilities assumed:
Net revenue	$	206.3
Cash	$	3.0
Net income (loss)	$	(7.0	)
Accounts receivable		26.5
Inventory		46.7
Deferred income tax assets		4.9
Other current assets		5.7
Property, plant and equipment		99.9
Other non-current assets		3.4
Goodwill		37.1
Other intangible assets		32.7
In-process research and development		3.7
Current liabilities		(28.6	)
Deferred income tax liability		(2.4	)
Total purchase price	$	232.6

An11 estimate of $3.7 million has been allocated to in-process research and product development and charged to expense in the quarter ended March 31, 2006. During the second quarter of 2006, the property, plant and equipment fair value was increased by $2.3 million due to further valuation analysis and the offset was recorded to goodwill. However, as the Company continues to identify additional minor acquisition-related costs, the total purchase price and related allocation of their fair value across assets and segments may be adjusted.

93. Inventories

~~Table~~Inventories consisted of ~~Contents~~the following:

Other intangible assets


	April 1, 2007		December 31, 2006
	*(in millions)*
Raw materials	$	15.1	$	21.0
Work in progress		18.6		18.9
Finished goods		63.8		53.9

		97.5		93.8
Storehouse stock and other		8.8		8.7

Total inventories, net	$	106.3	$	102.5

The fair value of other intangible assets has been estimated through the use of an independent third party valuation firm that used the discounted debt-free cash flow method to value these identifiable intangible assets, which are subject to amortization4. ~~The~~Goodwill ~~following table sets forth the components of these other intangible assets resulting from the SI Acquisition~~ and ~~their~~Other ~~weighted~~Intangible ~~average~~Assets ~~estimated useful lives at January 31, 2006:~~

	PreliminaryFair Value		Weighted-AverageUseful Life (in years)
	(in millions)
Customer relationships	$	24.2	7
Trademarks and trade names		3.4	20
Patents		5.1	15
Other intangible assets	$	32.7

Intangibles consist of the following:

The following is a brief description of the types of intangibles identified as a result of the SI Acquisition:


	April 1, 2007							December 31, 2006
	Cost		Accumulated Amortization			Total		Cost		Accumulated Amortization			Total
	*(in millions)*
Intangible assets not subject to amortization:
Goodwill	$	37.1	$	—		$	37.1	$	37.1	$	—		$	37.1

Intangible assets subject to amortization:
Customer relationships		27.0		(6.1	)		20.9		27.2		(5.1	)		22.1
Software licenses		0.9		(0.4	)		0.5		0.9		(0.3	)		0.6
Patents		5.4		(0.5	)		4.9		5.4		(0.4	)		5.0
BP non-compete agreement		6.2		(3.7	)		2.5		7.0		(3.4	)		3.6
Trademarks and trade names		3.4		(0.2	)		3.2		3.4		(0.2	)		3.2

Total Intangible assets subject to amortization	$	42.9	$	(10.9	)	$	32.0	$	43.9	$	(9.4	)	$	34.5

•The ~~Customer~~Goodwill ~~relationships.~~relates SIto ~~has~~our ~~developed~~acquisition ~~a number~~ of ~~long-standing~~SI ~~customer~~on ~~relationships~~January 31, ~~that have a probability of continuing into the future~~2006.

•Amortization ~~Trademarks~~of ~~and~~intangibles ~~trade~~totaled ~~names~~$1.5 SImillion ~~has~~for ~~established~~each ~~several leading trademarks and trade names primarily focused on geosynthetic and concrete reinforced fibers applications. In~~ the ~~geosynthetic~~three ~~product~~months ~~area,~~ended ~~SI has Geotex®~~April 1, ~~Landlok®~~2007 and ~~Pyramat® fabrics which are designed to help drain~~March 31, ~~separate~~2006, ~~and stabilize soils in civil engineering and environmental applications~~respectively. InThe following presents the ~~concrete~~estimated ~~fiber~~amortization ~~product~~expense ~~area, SI has Fibermesh® polypropylene fibers~~ for ~~use~~intangible asassets ~~a secondary reinforcement~~ for ~~concrete~~each ~~and Novocon® steel fibers and Novomesh® blends~~ of ~~polypropylene~~the ~~and~~next ~~steel~~five ~~fibers~~years ~~for use in more demanding applications such as composite metal desks~~ and ~~industrial~~thereafter: ~~slabs.~~

• Patents. SI has patented several of its fibers or products such as its X3® technology for use in Landlok® and Pyramat®. These patents have strengthened the market position of SI’s Geotex®, Lanlok® and Pyramat® geosynthetic fabric trademarks.


	*(in millions)*
Remainder 2007	$	4.1
2008		5.4
2009		5.3
2010		4.1
2011		4.0
Thereafter		9.2

	$	32.1

~~Tangible~~12 ~~assets acquired~~

~~The~~5. ~~following~~Restructuring ~~table summarizes the estimated fair value of the property plant~~ and ~~equipment~~Other ~~acquired~~Similar inCosts ~~the SI Acquisition and their estimated useful lives at January 31, 2006:~~

	PreliminaryFair Value		Weighted-AverageUseful Life (in years)
	(in millions)
Land	$	2.3	N/A
Buildings and land improvements		22.9	35
Machinery, equipment and other		73.9	6
Construction in progress		0.8	N/A
Total tangible assets	$	99.9

For the three months April 1, 2007, we recognized $0.5 million in restructuring expense related to the North America plant consolidation.

10Restructuring reserves as of April 1, 2007 are summarized as follows:


	April 1, 2007
	*(in millions)*
Balance at January 1	$	2.1
Cash payments		(0.8	)
Accrual for new committed/announced program		0.5

Balance at period end	$	1.8

~~Pro~~Restructuring ~~forma~~reserves ~~results~~by program:

The following unaudited pro forma financial information presents the results of operations of the Company as if the SI Acquisition had occurred as of the beginning of the periods presented. Pro forma adjustments decreasing net income by nil and $0.9 million for the three months and six months ended June 30, 2006, respectively, and pro forma adjustments decreasing net income by $3.3 million and $4.8 million for the three months and six months ended June 30, 2005, respectively, have been reflected in the combined unaudited pro forma results presented below. The unaudited pro forma financial information is not intended to represent or be indicative of the results of operations or financial condition of the Company that would have been reported had the SI Acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition of the Company. Pro forma results were as follows for the three months and six months ended June 30, 2006 and 2005:


	Restructuring Liabilities From SI Acquisition			S,G & A Redundancies			Early Retirement Program in Germany			North America Plant Consolidation			Total
	*(in millions)*
Balance at December 31, 2006	$	0.6		$	1.1		$	0.4		$	—		$	2.1

Severance, relocation and restructuring accruals		—			—			—			0.5			0.5

Severance, relocation and restructuring payments		(0.1	)		(0.1	)		(0.1	)		(0.5	)		(0.8	)

Balance at April 1, 2007	$	0.5		$	1.0		$	0.3		$	—		$	1.8

	Three months endedJune 30,				Six months ended June 30,
	2006		2005		2006			2005
	(in millions)
Net revenue	$	205.5	$	233.6	$	411.7		$	462.8
Net income (loss)	$	29.7	$	0.3	$	(10.3	)	$	1.3

Restructuring Liabilities from SI Acquisition

3With the SI acquisition, $1.7 ~~Accounts~~million ~~Receivable~~in restructuring liabilities were included on the January 31, 2006 opening balance sheet related to the former SI restructuring activities. The majority of the related severance payments were completed during 2006, with the final payments expected to be paid during 2010.

~~Accounts~~Selling, ~~receivable~~General ~~consisted~~and ofAdministrative ~~the~~Redundancy ~~following:~~

	June 30,2006			December 31,2005
	(in millions)
Trade accounts receivable, gross	$	133.0		$	95.8
Less:
Allowance for discounts and returns		(0.7	)		(0.4	)
Allowance for doubtful accounts		(3.7	)		(2.8	)
Accounts receivable, net	$	128.6		$	92.6

Beginning in the first quarter of 2006, as part of integrating the newly acquired SI with the Company and as part of relocating our headquarters to Chattanooga, Tennessee, most of the Austell, Georgia employees were made redundant, including our former chief executive officer and former chief financial officer. At December 31, 2006, we had accrued $1.1 million related

1113

~~Table~~ to severance for redundancies primarily for selling, general and administrative positions, including approximately $0.9 million related to future payments due to the former chief executive and chief financial officers. For the quarter ended April 1, 2007, we made payments of ~~Contents~~$0.1 million related to the former chief executive officer and chief financial officer. Payments of $0.7 million are expected to be paid during the remaining quarters of 2007 and $0.3 million is expected to be paid in 2008.

4.Early ~~Inventories~~Retirement Program in Germany

~~Inventories~~At ~~are~~April 1, ~~stated~~2007 at the ~~lower~~reserve of ~~cost~~$0.3 ormillion ~~market~~relates ~~value.~~primarily ~~All~~to ~~work~~liabilities inunder ~~process~~a ~~and~~government ~~finished~~regulated ~~goods~~early-retirement program ~~are~~for ~~valued~~certain ~~using~~qualifying ~~the~~employees ~~first~~ in, ~~first~~our ~~out~~Germany ~~(FIFO)~~location. ~~method~~The ~~both~~amounts ~~domestically~~will ~~and~~be ~~internationally,~~paid ~~except~~over ~~for~~several ~~Brazil~~years, ~~which~~ ~~uses~~dependent upon the ~~average~~retirement ~~cost~~dates ~~method.~~of ~~All~~the ~~raw~~applicable ~~materials, storehouse stock, process material, and packaging inventories are carried at average cost~~employees.

~~Inventories~~North ~~consist~~America ofPlant ~~the~~Consolidation ~~following:~~

	June 30,2006		December 31,2005
	(in millions)
Raw materials	$	16.4	$	13.0
Work in progress		23.3		20.3
Finish goods		80.6		53.6
		120.3		86.9
Storehouse stock and other		10.7		7.7
Total inventories, net	$	131.0	$	94.6

During the first quarter of 2006, we developed a plan to restructure our North America operations. Restructuring charges recorded during the first quarter of 2007 relate to severance payments in connection with facility optimization efforts.

~~Inventory~~For ~~balances~~the ~~are~~three ~~shown~~months ~~net~~ended ofMarch 31, ~~reserves~~2006, ~~for~~the ~~obsolescence~~Company ofhad $4developed a plan to restructure its Seneca, South Carolina plant.3 ~~million~~As atsuch, ~~June~~during the quarter ended March 3031, 2006, ~~and~~the Company recorded a $15.45 million atnon-cash ~~December 31~~impairment charge to write down the net book value to fair market value of the excess equipment, ~~2005~~which will not be relocated.

The ~~increase~~following intable ~~reserves~~represents, ~~for~~by ~~obsolescence~~reportable ~~is due to management’s revised practice of selling aged inventory to an external polypropylene reclaim company upon reaching an aged level of 12 months~~segment, ~~versus~~restructuring ~~the~~reserves ~~Company’s past practice of selling aged inventory~~ at aApril 1, ~~minor~~2007 ~~discount~~and ~~into~~payments for the ~~fabrics~~three ~~marketplace~~months inended ~~order to move the~~April 1, ~~inventory.~~2007:

5. Property, Plant and Equipment


	Concrete Fiber			Furnishings			Geosynthetics			Industrial Products		Europe			Total
	*(in millions)*
Balance at December 31, 2006	$	0.1		$	0.9		$	0.5		$	0.2	$	0.4		$	2.1
Severance, relocation and restructuring accruals		—			0.3			0.2			—		—			0.5
Severance, relocation and restructuring payments		(0.1	)		(0.3	)		(0.3	)		—		(0.1	)		(0.8	)

Balance at April 1, 2007	$	—		$	0.9		$	0.4		$	0.2	$	0.3		$	1.8

~~Property~~On November 28, ~~plant~~2005, ~~and~~Propex ~~equipment~~Fabrics ~~consisted~~GmbH, a subsidiary of Propex Inc., agreed with the ~~following~~local Works atCouncil ~~June 30~~to a restructuring program for its Gronau, ~~2006~~Germany production facility. This restructuring eliminated excess capacity and ~~December 31~~reduced costs in response to lower European sales demand. The program reduced the production schedule to five days per week from seven days per week, ~~2005:~~thereby eliminating the weekend production shift. The completion of the transition in February 2006 to a five-day per week production schedule reduced the workforce by approximately 60 employees.

	June 30,2006			December 31,2005
	(in millions)
Land	$	15.6		$	13.2
Buildings and land improvements		77.5			54.2
Machinery, equipment and other		177.9			107.9
Construction in process		5.5			3.1
Total property, plant and equipment		276.5			178.4
Less: Accumulated depreciation		(23.3	)		(14.1	)
Property, plant and equipment, net	$	253.2		$	164.3

~~During the first quarter, the Company developed a plan to restructure its Seneca, South Carolina plant~~6. ~~The~~Comprehensive ~~plan~~Loss involves closing the facility and relocating the manufacturing activities and certain manufacturing assets to the Company’s Ringgold, Georgia facility. In connection with this decision, the Company determined that certain assets would not be relocated and

12The following table sets forth the reconciliation of net income (loss) to comprehensive income (loss):


	Three months ended April 1, 2007			Three months ended March 31, 2006
	*(in millions)*
Net loss	$	(4.1	)	$	(13.4	)
Foreign currency translation gain		2.4			3.4

Comprehensive loss	$	(1.7	)	$	(10.0	)

~~determined that the values of these assets had been diminished as a result of this decision~~7. AsPension ~~such,~~Benefits during the quarter ended March 31, 2006, the Company recorded a $5.5 million non-cash impairment charge to write down the net book value to fair market value for the excess equipment, which will not be relocated.

~~The~~We ~~property,~~sponsor ~~plant~~two ~~and~~defined ~~equipment~~benefit atpension ~~June 30,~~plans ~~2006~~in the U.S. for salaried and ~~December 31~~hourly employees who have completed a qualifying length of service. However, ~~2005~~there ~~exclude~~is no defined benefit pension plan applicable to employees of the ~~Austell~~newly acquired SI. We operate an unfunded defined benefit pension plan in Germany and a funded defined benefit plan in Brazil, ~~Georgia~~which ~~assets~~are ~~held~~available to all employees after meeting certain service levels. Benefits for ~~sale,~~all asplans ~~described~~are ~~more~~generally ~~fully~~based ~~below~~on inemployees’ ~~Note~~years 6of toservice and salary levels. For the ~~condensed~~U.S. ~~consolidated~~plans, ~~financial~~contribution ~~statements~~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.

6.Components ~~Assets~~of ~~Held~~net ~~for~~periodic ~~Sale~~pension costs (benefits) were as follows:

During the fourth quarter of 2005, management decided it would be more economical to relocate the Company’s Austell, Georgia headquarters to smaller leased office facilities and to relocate the research and development-scale manufacturing equipment to its plant locations. In addition, selling the Austell building would generate significant cash for the business as well as generate operating expense savings. Subsequent to the SI Acquisition, the Company decided to relocate its headquarters to SI’s existing headquarters in Chattanooga, Tennessee. This decision has no effect on the prior decision to relocate and sell its headquarters and research and development activities or the related impairment.


	Three months ended April 1, 2007			Three months ended March 31, 2006
Components of net periodic pension cost	*(in millions)*
Service cost	$	0.2		$	0.5
Interest cost		1.3			1.5
Expected return on plan assets		(1.0	)		(1.3	)
Amortization of unrecognized actuarial loss		—			0.1
Special termination benefits		—			—

Net periodic pension cost	$	0.5		$	0.8

OnDuring ~~December 31, 2005,~~ the ~~Company~~three ~~determined~~month ~~that~~periods ~~the~~ended ~~held for sale criteria in FASB Statement of Financial Accounting Standards No.~~April ~~144~~1, ~~“Accounting~~2007 ~~for~~and ~~the Impairment or Disposal of Long-Lived Assets~~March 31,” ~~had been met. Accordingly~~2006, the ~~carrying value of the Austell facility was adjusted to its~~Company ~~fair~~contributed ~~value less costs to sell, amounting to~~ $51.02 million, ~~which~~and ~~was determined based on quoted market prices of similar assets. The resulting~~ $51.93 million, ~~impairment loss~~respectively, ~~comprised~~to ofthe $0U.9S. ~~million~~pension ~~related~~plans. toThe ~~the~~Company ~~Austell~~expects ~~facility~~to ~~and~~contribute $54.08 million ~~related~~ to ~~the~~its ~~Austell~~U.S. ~~research~~pension ~~and~~plans ~~development-scale~~during ~~manufacturing assets and software, was recorded in~~ the ~~fourth~~remainder ~~quarter~~ of ~~2005~~2007.

~~On April 3,~~Beginning ~~2006,~~in the ~~Company~~second ~~completed~~quarter ~~the~~of ~~sale~~2006, ofwe ~~its~~increased ~~Roanoke,~~matching ~~Alabama~~contributions ~~carpet-backing~~for ~~manufacturing~~salaried ~~facility~~employees to ~~Aladdin~~100% ~~Manufacturing~~of ~~Corporation~~employee ~~for~~contributions ~~$73.0~~up ~~million~~to 6% of pay, ~~including~~as pay ~~price~~is ~~adjustments.~~defined ~~Given~~in the ~~existence~~401(k) ofplan. ~~the~~In ~~March 1~~addition, ~~2006~~we ~~asset sale~~match ~~agreement~~50% ~~and~~of ~~the~~hourly ~~scheduled~~employee ~~closing~~contributions ~~for~~up ~~the~~to ~~beginning~~6% of ~~April~~eligible ~~2006~~pay, as pay is defined in the ~~Roanoke~~401(k) ~~facility~~plan. ~~assets~~We ~~were~~paid ~~reported~~$ as0.4 million ~~assets~~and ~~held~~$1.2 ~~for~~million ~~sale~~in onmatching 401(k) contributions in the ~~December~~three months ended April 311, ~~2005~~2007 ~~condensed~~and ~~consolidated~~March 31, ~~balance~~2006, ~~sheet~~respectively.

1315

~~Table~~8. ofOther ~~Contents~~Postretirement Benefits

The ~~following~~Company ~~table~~provides ~~shows~~certain health care and life insurance benefits for retired Propex Inc. employees in the ~~components~~United ofStates. ~~Assets~~Costs ~~Held~~borne by the Company for ~~Sale~~retirees asare based on age and length of ~~June 30,~~service at ~~2006~~retirement. The health care benefits are provided through the Company’s medical benefit plan and ~~December 31~~a group term life insurance plan. For U.S. employees of the newly acquired SI, ~~2005:~~there are no postretirement benefits.

	June 30,2006		December 31,2005
	(in millions)
Austell Facility
Land	$	1.0	$	1.0
Buildings and land improvements		4.0		4.0
		5.0		5.0
Roanoke Facility
Land		—		0.3
Buildings and land improvements		—		9.1
Machinery, equipment and other		—		12.3
		—		21.7
Total assets for sale	$	5.0	$	26.7

Components of net periodic benefit cost were as follows:

7. Goodwill and Other Intangible Assets


	Three months ended Apri1 1, 2007		Three months ended March 31, 2006
Components of net periodic benefit cost	*(in millions)*
Service cost	$	—	$	—
Interest cost		0.1		0.1

Net periodic benefit cost	$	0.1	$	0.1

	June 30, 2006					December 31, 2005
	Cost		AccumulatedAmortization			Cost		Accumulated Amortization
	(in millions)
Intangible assets not subject to amortization:
Goodwill	$	37.1		N/A			N/A		N/A
Intangible assets subject to amortization:
Customer relationships		27.0		(3.4	)		3.3		(1.9	)
Software licenses		1.0		(0.2	)		1.2		(0.1	)
Patents		5.3		(0.3	)		0.3		(0.1	)
BP non-compete agreement		6.4		(2.5	)		7.6		(1.9	)
Trademarks and tradenames		3.4		(0.1	)		—		—
Total intangible assets	$	80.2	$	(6.5	)	$	12.4	$	(4.0	)

9. Income Taxes

~~Amortization~~The Company adopted the provisions of ~~intangibles~~Financial ~~totaled~~Accounting $1Standards Board ("FASB") Interpretation ("FIN") No.0 ~~million~~48, ~~and~~Accounting ~~$2.5~~for Uncertainty in Income Taxes, on January ~~million~~1, 2007. FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the ~~three~~financial statements and ~~six months~~provides ~~ended~~guidance ~~June 30~~on derecognition, ~~2006~~measurement, ~~respectively~~classification, interest and penalties, accounting in interim periods, disclosure and transition issues. As a result of the adoption of FIN 48, the Company reclassified approximately $02.94 million ~~and~~from deferred tax liabilities to reserves for uncertain tax positions predominately related to federal timing items. The total amount of reserves related to uncertain tax positions is $2.48 million. inOf this total $0.6 million represents the ~~three~~amounts ~~and~~of ~~six~~unrecognized ~~months~~tax ~~ended~~benefits ~~June 30~~that, ~~2005~~if recognized, ~~respectively~~would favorably impact the effective tax rate. The ~~following~~Company's ~~presents~~policy ~~the~~is ~~estimated~~to ~~amortization~~recognize interest ~~expense~~and ~~for~~penalties ~~intangible~~accrued ~~assets~~on ~~for~~any ~~each~~unrecognized tax benefits as a component of income tax expense. As of the ~~next~~date of adoption, the Company has not accrued any interest nor penalties on the uncertain positions since there are net operating losses ~~five~~which ~~years~~would offset penalties and ~~thereafter:~~interest.

	(in millions)
2006	$	2.7
2007		5.4
2008		5.4
2009		5.3
2010		4.9
Thereafter		12.9
	$	36.6

The Company files numerous consolidated and separate income tax returns in the United States and in several state and foreign jurisdictions. The Company is no longer subject to United States federal and state income tax examinations for the years prior to 2004 and, with few exceptions, is not subject to foreign income tax examinations by tax authorities prior to 2002. The Company does not currently anticipate that the total amount of unrecognized tax benefits will significantly change over the next twelve months.

1416

~~Table~~10. ofLong-Term ~~Contents~~Debt

8.Total ~~Restructuring~~long-term debt at April 1, 2007 and ~~Other~~December 31, ~~Similar~~2006, ~~Costs~~consisted of the following:

Restructuring reserves for the six months ended June 30, 2006 and 2005 are summarized as follows:


	April 1, 2007			December 31, 2006
	*(in millions)*
10% senior notes due 2012	$	150.0		$	150.0
Senior secured term loan		216.3			239.2

Total		366.3			389.2
Less: current maturities of senior secured term loan		(11.4	)		(31.4	)

Total long-term debt	$	354.9		$	357.8

	June 30, 2006			June 30, 2005
	(in millions)
Balance at January 1	$	1.7		$	0.9
Cash payments		(7.2	)		(0.2	)
Accrual for new committed/announced program		6.4			—
Reserves acquired through SI acquisition		1.7			—
Balance at period end	$	2.6		$	0.7

10% Senior Notes due 2012

~~Selling~~On December 1, ~~General~~2004, we issued an aggregate of $150.0 million of 10% Senior Notes pursuant to an indenture among us, our subsidiary guarantors and ~~Administrative~~Wells ~~Redundancy~~Fargo Bank, N.A., as trustee. These notes will mature on December 1, 2012. Interest on these notes accrues at 10% per annum and is payable on June 1 and December 1 of each year. All of our domestic subsidiaries jointly and severally guarantee the 10% Senior Notes. We used the proceeds from the issuance of the 10% Senior Notes to finance a portion of the acquisition of the Business from BP on December 1, 2004.

~~For~~Senior ~~the~~Secured ~~three and six months ended June 30, 2006, the Company recognized $2.7 million and $5.7 million in restructuring expense related to severance~~Term ~~benefits~~Loan for certain Austell, Georgia facility employees. Beginning in the first quarter, as part of integrating the newly acquired SI with the Company and as part of relocating the Company headquarters to Chattanooga, Tennessee, most of the Austell, Georgia employees were made redundant. The Company currently estimates it will accrue an additional $0.8 million related to severance for these redundancies primarily in the selling, general and administrative area over the remainder of the year. Total payments of approximately $1.9 million are expected to be paid out during the remainder of 2006 and early 2007.

~~Shift~~On ~~Reduction~~January 31, 2006, we entered into a new Credit Agreement by and among the Company, as borrower, the lenders named in the ~~Germany~~agreement and BNP Paribas, as Administrative Agent, to refinance our credit facility and to raise additional funds for the SI Acquisition. The new Credit Agreement, which matures on July 31, 2012, provides for a $360.0 million senior credit facility, comprised of a $260.0 million term loan facility, a $50 million revolving credit facility and a $50 million bridge loan facility. This Credit Agreement replaced the credit agreement dated as of December 1, 2004, among the Company, Amoco Fabrics and Fibers Company, the lenders named therein and BNP Paribas, as Administrative Agent. Similar to the prior credit facility, the new credit facility is guaranteed by Propex Holdings, and our domestic subsidiaries. It is also secured by a first priority lien on our domestic subsidiaries’ real and personal property including a pledge of all the capital stock of our domestic subsidiaries and 66.0% of the capital stock of our foreign subsidiaries.

~~Cash~~On ~~payments~~January 26, of2007, ~~$0.1~~we ~~million~~entered into the Second Amendment to Credit Agreement and ~~$1.1~~Limited ~~million~~Waiver ~~for~~with the ~~three~~lenders, BNP Paribas, as Administrative Agent, and ~~six~~Propex ~~months~~Holdings ~~ended~~and ~~June 30~~certain of its subsidiaries, as Credit Support Parties. The Second Amendment waived our compliance with the financial covenants contained in the Credit Agreement for the fourth quarter of 2006, ~~relate~~adjusted ~~primarily~~the tofinancial ~~payments~~covenants ~~under~~for the ~~Germany~~following ~~facility~~five quarters ending March 31, 2008, increased the interest rate by 0.75% to, at management’s ~~restructuring~~discretion, ~~program~~LIBOR ~~which~~plus ~~eliminated~~3% or a base rate plus 2%, where the ~~weekend~~base ~~production~~rate ~~shift~~equals the higher of the prime rate or the Federal Funds interest rate, and ~~trimmed~~we ~~certain~~voluntarily ~~benefits~~prepaid to$20 ~~better~~million ~~reflect~~of debt outstanding under the ~~current~~credit ~~market~~facility ~~situation~~from cash on hand.

~~Seneca~~17 ~~Restructuring~~

InUnder the ~~first~~credit ~~quarter of 2006~~agreement, ~~the~~mandatory ~~Company~~prepayments ~~developed~~are arequired ~~plan~~under tocertain ~~restructure~~conditions ~~its~~and ~~Seneca,~~voluntary prepayments ~~South~~are ~~Carolina~~allowed ~~plant~~at no premium. The ~~Company~~Credit ~~estimates~~Agreement ~~the~~contains ~~total~~affirmative ~~restructuring~~and ~~costs~~negative tocovenants becustomary ~~approximately~~for ~~$12.5~~this ~~million,~~type ~~consisting~~ of ~~severance and employee relocation costs of approximately $1.5 million~~financing, ~~equipment~~including ~~relocation~~but ~~costs~~not oflimited ~~approximately $5.5 million~~to, ~~comprised~~financial ofcovenants ~~$3.0~~related ~~million~~to ina ~~expense~~minimum ~~and~~interest ~~$2.5~~coverage, ~~million~~maximum in capital expenditures, ~~and~~minimum ~~non-cash~~fixed ~~equipment~~charge ~~impairment~~coverage, ~~charges~~minimum ~~of approximately $5.5 million. The impairment charges were recorded in the first quarter of 2006~~EBITDA, asand ~~the~~a ~~diminished~~maximum ~~values~~total ofleverage ~~the assets became apparent~~ratio. The ~~restructuring~~Credit ~~charges~~Agreement ~~will~~includes benegative ~~recorded~~covenants ~~during~~that ~~the~~restrict ~~remainder~~our ofability ~~2006~~to, asamong ~~the~~other ~~criteria~~things, ~~for~~incur ~~recognition~~additional ~~under~~indebtedness, ~~Statement~~incur ofliens, ~~Financial Accounting Standards~~guarantee ~~No. 146;~~obligations, ~~“Accounting~~pay ~~for~~dividends ~~Costs~~or ~~Associated~~make ~~with~~redemption ~~Exit~~ or ~~Disposal~~make ~~Activities”~~voluntary ~~have~~payments ~~not~~on ~~yet~~subordinated ~~been~~debt, ~~met.~~engage ~~The~~in ~~plant~~mergers ~~closure~~ and ~~relocation~~make ~~process~~acquisitions, issell ~~scheduled~~assets, toenter ~~begin~~into insale ~~July~~leaseback ~~2006~~transactions, and isengage ~~expected~~in tocertain betypes ~~completed~~of ~~around~~transactions ~~year-end~~with ~~2006~~affiliates.

15As required by our new Credit Agreement, on May 1, 2006, we entered into an interest rate swap agreement to lock in the interest rate on a portion of our bank term loan over the initial three years of the new Credit Agreement. The notional amount of the interest rate swap equaled $49.3 million on May 1, 2006, and gradually declines consistent with the Credit Agreement repayment schedule to the notional amount of $30.6 million in June 2009 when the swap contract expires. We have not applied hedge accounting treatment to the interest rate swap under SFAS 133, Accounting for Derivative Instruments and Hedging Activities, but rather are recording all interest rate swap related income and expenses to interest expense in the Condensed Consolidated Statement of Operations as they occur. After taking into consideration our $61.5 million debt repayment on April 4, 2006, the $20 million credit facility repayment on January 26, 2007, and the interest rate swap principal as of April 1, 2007, $183.2 million of our total $366.3 million indebtedness, or 50%, is subject to a variable interest rate. The fair value of the interest rate swap is included in current liabilities on the balance sheet.

~~Table~~Revolving ofloan ~~Contents~~agreement

SIThe ~~Acquisition~~Credit Agreement provides a revolving line of credit of $50 million subject to a monthly borrowing base calculation based on inventories and receivables. Interest accrues and is payable under the same terms as the senior secured term loan. Commitment fees, assessed at 0.5% of the unused borrowings less open letters of credit, are payable quarterly. The credit facility also includes a sublimit of $20.0 million for the issuance of letters of credit, subject to the limits of the borrowing base. As of April 1, 2007, there were no amounts drawn on the revolver and there were $7.5 million of letters of credit outstanding. In accordance with our monthly borrowing base calculation, we had $42.5 million of availability as of April 1, 2007 under our $50 million revolving line of credit.

~~With the SI Acquisition, $1~~11.7 ~~million~~Commitments inand ~~restructuring~~Contingencies liabilities were included on the January 31, 2006 opening balance sheet related to the former SI restructuring activities. In October 2005, the former SI Corporation sold its Chickamauga, Georgia plant to Shaw Industries. At January 31, 2006, $1.1 million in severance reserves were accrued related to the Shaw transaction. The majority of the related cash payments will be completed during 2006, with the final payments by March 2007.

InFrom ~~June~~time ~~2005~~to time, the ~~former~~Company SIis ~~Corporation~~subject ~~closed~~to ~~its~~lawsuits, ~~Genesee~~claims, investigations ~~Idaho~~and ~~plant.~~proceedings, Atincluding ~~June 30~~product liability, ~~2006 there~~personal ~~were~~injury, $0patent and intellectual property, commercial, contract, environmental, health and safety, and employment matters.6 ~~million~~Such inlitigation, ~~reserves~~claims, ~~related~~investigations toand ~~existing~~proceedings are ~~contracts~~handled and ~~closing~~defended in the ~~site.~~ordinary ~~The~~course ~~related~~of ~~cash~~business. ~~payments~~While ~~will~~no assurance can be ~~made~~given, ~~over~~the Company believes that, taking into account the ~~next~~indemnification ~~several~~by ~~years~~BP Amoco Chemical Holding Company under the BP Acquisition purchase agreement for certain potential pre-closing liabilities, ~~ending~~and ~~2010.~~the Company’s current insurance coverage, none of the litigation or legal proceedings in which the Company is

~~The~~18 ~~following tables represent restructuring reserves and payments by activity and segment at June 30, 2006 (in millions):~~

~~Restructuring~~ currently ~~reserves~~involved bycould reasonably be expected to have a material adverse effect on its business, financial condition or results of operations. As a part of its litigation management program:, the Company maintains general liability insurance coverage for product liability and other similar claims in amounts the Company believes are adequate.

	RestructuringLiabilitiesAcquiredthrough SIAcquisition			Relocationof HQFacilities			ShiftReduction inGermany			EarlyRetirementProgram inGermany			PlantConsolidation			Total
Balance at January 1, 2006	$	—		$	—		$	1.0		$	0.7		$	—		$	1.7
Reserves acquired through SI acquisition		1.7			—			—			—						1.7
Severance, relocation and restructuring accruals		0.1			5.7			—			—			0.6			6.4
Severance, relocation and restructuring payments		(0.9	)		(4.6	)		(1.0	)		(0.1	)		(0.6	)		(7.2	)
Balance at June 30, 2006	$	0.9		$	1.1		$	—		$	0.6		$	—		$	2.6

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

~~Restructuring~~In ~~reserves~~connection bywith ~~reportable~~the ~~segment:~~BP Acquisition, BP retained responsibility and has indemnified the Company for certain identified environmental liabilities upon selling the Business on December 1, 2004. These indemnified liabilities were estimated at $0.6 million at April 1, 2007 and December 31, 2006. This estimate may change as future events become realized. A long-term liability and corresponding receivable from BP is recorded on the balance sheet as of April 1, 2007 and December 31, 2006 to reflect both the liability and the indemnity. BP also retained limited responsibility for future remediation costs associated with other environmental conditions existing at the Company's facilities at December 1, 2004. Environmental liabilities related to events originating subsequent to December 1, 2004 are generally the responsibility of the Company. At April 1, 2007, the Company is not aware of any material environmental liabilities beyond the above-indemnified liabilities.

	ConcreteFiber			Furnishings			Geosynthetics			IndustrialProducts			Europe			Total
Balance at January 1, 2006	$	—		$	—		$	—		$	—		$	1.7		$	1.7
Reserves acquired through SI acquisition		—			1.1			0.6			—			—			1.7
Severance, relocation and restructuring accruals		0.5			3.7			1.6			0.5			—			6.4
Severance, relocation and restructuring payments		(0.4	)		(3.7	)		(1.4	)		(0.5	)		(1.1	)		(7.2	)
Balance at June 30, 2006	$	0.1		$	1.1		$	0.8		$	—		$	0.6		$	2.6

SI Concrete Systems, Inc., a subsidiary of the Company, is a named defendant in a lawsuit filed in southern California relating to Fibermesh^{^®} polypropylene fibers, one of the fiber product lines. The case alleged that Fibermesh^{^®} polypropylene fibers were defective when used as a substitute for steel wire mesh as reinforcement in concrete, and that SI Concrete Systems, Inc. falsely represented its suitability for that use. On March 19, 2007, the presiding judge entered an order that approved a settlement on the claim and directed that all cross-complaints pending against Propex, whether actually filed or deemed to be filed, were dismissed with prejudice. The settlement approved by the court provided that Propex is to deliver data and test results which Propex had obtained in connection with the case. We are not required to pay any money to any party in connection with the settlement of this claim. The order is subject to certain appeal rights by parties who were adversely affected by the order.

16If management believes that a loss arising from such claims and legal proceedings is probable and can reasonably be estimated, the Company records the amount of the loss (including estimated legal costs), or the minimum estimated liability when the loss is estimated using a range. As management becomes aware of additional information concerning such contingencies, any potential liability related to these matters is assessed and the estimates are revised, if necessary. If management believes that a loss arising from such claims and legal proceedings is either (i) probable but cannot be reasonably estimated or (ii) reasonably possible but not probable, the Company does not record the amount of the loss, but does make specific disclosure of such matter. Based upon currently available information and with the advice of counsel, management believes that the ultimate outcome of its current claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company's financial position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and rulings unfavorable to the Company could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on the Company's financial position, cash flows or results of operations.

~~Table~~19 ~~of Contents~~

912. ~~Comprehensive~~Business ~~Income~~Segment and Geographic Area Information

The ~~following~~Company ~~table~~operates ~~sets~~as ~~forth~~a collection of regional businesses, and within the ~~reconciliation~~North ofAmerica ~~net~~region, ~~income~~further breaks down its operations into several reportable segments. Due to ~~comprehensive~~the ~~income:~~SI acquisition, in the first quarter of 2006, the Company reevaluated and revised its North American reportable segments.

	Three months endedJune 30,					Six months ended June 30,
	2006			2005		2006		2005
	(in millions)
Net income	$	29.7		$	5.4	$	16.2	$	8.6
Foreign currency translation gain (loss)		(1.2	)		1.0		2.1		(1.4	)
Comprehensive income	$	28.5		$	6.4	$	18.3	$	7.2

Within North America, the business operates with four segments: furnishings, geosynthetics, industrial products and concrete fiber. The Furnishings segment includes the manufacture and sale of various woven and non-woven fabrics to primarily carpet and furniture and bedding manufacturers for incorporation into their various manufactured furnishing products. The Geosynthetics segment includes the manufacture and sale of woven and non-woven fabrics into various geosynthetic end-uses. The Industrial Products segment includes the manufacture and sale of woven and non-woven fabrics and fibers into a broad range of industrial applications such as fabric bags/containers, protective coverings, filtration products, and intermediate fibers for use by other manufacturers to produce similar products. The Concrete Fiber segment includes the manufacture and outsourced supply and sale of fibers for use as a crack-reduction reinforcing material in concrete applications.

~~10.~~The ~~Pension~~Europe ~~Benefits~~regional segment primarily sells furnishing carpet backing products, which account for more than 85% of its revenues, along with some industrial fabric geosynthetic products and minor revenues related to a new developmental product.

The Company sponsors two defined benefit pension plans in the U.S. for Propex Inc. employees who have completed a qualifying length of service. However, there is no defined benefit pension plan applicable to employeesBrazil ofregional ~~the~~segment ~~newly~~primarily ~~acquired~~sells ~~SI.~~industrial ~~The~~fabrics ~~Company operates an unfunded defined benefit pension plan in Germany and a funded defined benefit plan in Brazil~~products, which ~~are~~account ~~available to all employees after meeting certain service levels. Benefits~~ for ~~all~~more ~~plans~~than ~~are generally~~80% ~~based on employees’ years~~ of ~~service~~its ~~and salary levels. For the U.S. plans~~revenues, ~~contribution~~along ~~amounts~~with ~~are~~some ~~determined~~furnishing bycarpet ~~independent~~backing ~~actuaries using an actuarial method that has an objective of providing an adequate fund to meet pension obligations as they mature~~products.

InSegment ~~2005,~~sales ~~the~~are ~~Company~~based ~~restructured~~on ~~its~~the ~~retirement~~location ~~compensation~~of ~~for its U.S. salaried employees. In July 2005,~~ the ~~Company~~selling ~~amended~~entity ~~its~~rather ~~U.S.~~than ~~Cash Value Retirement Plan (~~the ~~“Cash~~location ~~Value Plan”) for salaried employees to curtail earned benefits under such plan as~~ of ~~August 31,~~the ~~2005~~customer. ~~The~~For ~~Cash~~example, ~~Value~~European ~~Plan~~export ~~was~~sales ~~closed~~ to ~~new~~customers ~~participants~~in ~~on June 10,~~Egypt ~~2005.~~or ~~The~~other ~~Company’s~~non-European ~~U.S.~~locations ~~Cash~~are ~~Balance~~included ~~Retirement~~in ~~Plan (~~the Europe ~~“Cash~~regional ~~Balance~~segment ~~Plan”) for hourly employees was not changed, but that plan was also closed to new participants on June 10, 2005~~results.

~~During~~Measure ~~the second quarter~~ of ~~2006,~~Segment asProfit ~~part~~or ofLoss ~~harmonizing employee benefits between Propex Inc.~~ and SISegment ~~employees,~~Assets the Company amended the Cash Balance Plan for hourly employees to curtail earned benefits under such plan as of August 1, 2006. During the second quarter 2006, the Company recognized a curtailment gain of $0.4 million related to this pension plan curtailment.

~~Components~~Segment ofprofitability is measured by pre-tax earnings from continuing operations excluding net ~~periodic~~interest ~~pension~~expense. ~~costs~~Intersegment ~~(benefits)~~sales and transfers are recorded at cost plus an agreed upon intercompany profit on intersegment sales or transfers. There were asno ~~follows:~~material intersegment sales in the three months ended April 1, 2007.

	Three months endedJune 30,						Six months ended June 30,
	2006			2005			2006			2005
	(in millions)
Components of net periodic pension cost
Service cost	$	0.5		$	1.0		$	1.1		$	2.0
Interest cost		1.5			1.6			3.0			3.2
Expected return on plan assets		(1.3	)		(1.4	)		(2.6	)		(2.8	)
Amortization of transition amount		—			0.1			—			0.2
Amortization of unrecognized actuarial loss		0.1			—			0.1			—
Periodic pension cost before curtailment		0.8			1.3			1.6			2.6
Curtailment gain, net		(0.4	)		—			(0.4	)		—
Net period pension cost	$	0.4		$	1.3		$	1.2		$	2.6

The Company’s assets, which are recorded by country, are not allocated to product segments within the North America regional segment because many of the Company’s productive assets are used to produce products in multiple segments and the utilization of many assets can be shifted among segments depending on the market demand for different products.

1720


	Three months ended April 1, 2007		Three months ended March 31, 2006
	*(in millions)*
Net revenue:
North America (including U.K. for concrete fiber)
Furnishings	$	62.0	$	98.1
Geosynthetics		23.8		25.5
Industrial Products		15.1		24.3
Concrete Fiber		15.2		10.3
Europe (excluding U.K. for concrete fiber)		27.2		24.4
Brazil		10.9		8.6

Total net revenue	$	154.2	$	191.2

During the six month period ended June 30, 2006, the Company contributed $3.5 million to the U.S. pension plans. Under the present plans, the Company expects to contribute $5.6 million to its U.S. pension plans during the remainder of 2006.


	Three months ended April 1, 2007		Three months ended March 31, 2006
	*(in millions)*
Depreciation and amortization expense:
North America (including U.K. for concrete fiber)
Furnishings	$	3.0	$	2.7
Geosynthetics		2.2		1.0
Industrial Products		0.8		0.9
Concrete Fiber		0.7		1.5
Europe (excluding U.K. for concrete fiber)		0.4		0.2
Brazil		0.3		0.3

Total depreciation and amortization	$	7.4	$	6.6

In the second quarter of 2006, as part of harmonizing employee benefits between Propex Inc. and SI employees, the Company approved an enhancement for the SI salaried employees to receive a 100% match from the Company on the contributions they make up to 6% of pay, as pay is defined in the 401(k) plan, consistent with Propex U.S. salaried employees. Previously, the SI U.S. salaried employees received a 50% match on the contributions up to 6%, or a maximum matching payment of 3% of pay. In addition, as part of harmonizing employee benefits between the two companies, the Company increased the Company match for Propex Inc. U.S. hourly employees from a 50% matching contribution up to 3% of eligible pay, to a 50% matching contribution up to 6% of eligible pay consistent with the SI U.S. hourly employee 401(k) plan. The Company contributed $2.3 million in employer matching 401(k) contributions in the six months ended June 30, 2006.


	Three months ended April 1, 2007			Three months ended March 31, 2006
	*(in millions)*
Segment income (loss):
North America (including U.K. for concrete fiber)
Furnishings	$	6.5		$	3.4
Geosynthetics		(2.0	)		(5.4	)
Industrial Products		(2.1	)		(1.0	)
Concrete Fiber		(1.6	)		(8.9	)
Europe (excluding U.K. for concrete fiber)		1.8			1.6
Brazil		0.6			0.8

Total segment income (loss)		3.2			(9.5	)

Reconciling items:
Interest expense, net		8.4			12.1

Total consolidated loss before income taxes	$	(5.2	)	$	(21.6	)


Other data:
Worldwide sales volumes (million square yards for fabric sales)		434			637
Worldwide sales volumes (million lbs for fiber sales)		10			15
Unit net spread, $ per square yard (1)	$	0.189		$	0.173
Unit net spread, $ per lb (1)	$	0.584		$	0.628

~~11.~~(1) ~~Other~~– ~~Postretirement~~Unit ~~Benefits~~net spread is defined as revenue less raw material cost on a per square yard basis for predominately polypropylene based fabric sales and a per pound basis for polypropylene based fiber sales.

~~The~~21 Company provides certain health care and life insurance benefits for retired Propex Inc. employees in the United States. Costs borne by the Company for retirees are based on age and length of service at retirement. The health care benefits are provided through the Company’s medical benefit plan and a group term life insurance plan. For U.S. employees of the newly acquired SI, there are no postretirement benefits.

~~Components~~Enterprise ofWide ~~net~~Information ~~periodic benefit cost were as follows:~~

	Three months endedJune 30,				Six months ended June 30,
	2006		2005		2006		2005
	(in millions)
Components of net periodic pension cost
Service cost	$	0.1	$	—	$	0.1	$	0.1
Interest cost		—		0.1		0.1		0.1
Amortization of unrecognized actuarial loss		—		—		—		—
Net periodic pension cost	$	0.1	$	0.1	$	0.2	$	0.2

Net revenue is attributed to countries and regions based on the Company’s selling location rather than the customers’ buying location. However, given the small magnitude of exports, the following table also provides a close approximation of net revenue by customers’ locations.

12. Income Taxes


	Three months ended April 1, 2007		Three months ended March 31, 2006
	*(in millions)*
Revenues:
Net revenues by geography:
United States	$	103.8	$	145.8
Other North America		12.3		12.4

Total North America		116.1		158.2
Europe		27.2		24.4
Brazil		10.9		8.6

Total net revenues	$	154.2	$	191.2

~~The~~Total ~~Company’s~~assets ~~effective~~by ~~income~~country ~~tax~~are ~~rate~~listed ~~was~~as 38.3% and 38.9% for the three and six months ended June 30, 2006, respectively, and 32.5% and 35.3% for the three and six months ended June 30, 2005, respectively. The effective income tax rate for the remainder of 2006 is expected to be consistent with the first six months of 2006. The income tax provision consists of the followingfollows:

	Three months endedJune 30,						Six months ended June 30,
	April 1, 2007			December 31, 2006
	2006			2005			2006			2005
	(in millions)
	(in millions)
Total assets by country:
Income tax at statutory rate	$	18.5		$	2.7		$	11.0		$	4.5
North America
Permanent income tax disallowance		—			—			0.2			0.1
United States	$	825.5		$	825.4
State taxes, net of federal benefit		(0.2	)		0.2			(0.7	)		0.3
Other North America		27.6			19.7
Foreign tax rate differences		0.1			(0.3	)		(0.2	)		(0.1	)
Total North America		853.1			845.1
Valuation allowances		—			—			—			(0.1	)
Europe		88.2			76.1
Income tax provision	$	18.4		$	2.6		$	10.3		$	4.7
Brazil		41.1			37.8
Eliminations		(367.2	)		(348.7	)
Total assets	$	615.2		$	610.3

1813. Condensed Consolidating Financial Information

~~Table~~The Company operates under the name of ~~Contents~~Propex Inc. The Company’s corporate structure includes two domestic subsidiary holding companies (Propex Fabrics International Holdings I Inc. and Propex Fabrics International Holdings II Inc.), which own a portion of the capital stock of its foreign subsidiaries. With the SI Acquisition, the Company added the SI companies as subsidiaries. The Company’s domestic subsidiaries (Propex Fabrics International Holdings I Inc., Propex Fabrics International Holdings II Inc. and the SI domestic subsidiaries, collectively the “Guarantors”) guarantee the Company’s 10% Senior Notes due 2012 (the “Notes”) on a joint and several basis. The Company’s foreign subsidiaries, including the newly acquired SI foreign subsidiaries, do not guarantee the Notes, and these subsidiaries are included in the following on a consolidated basis as the Non-guarantor subsidiaries.

A22 ~~reconciliation of current and deferred taxes for the three and six months ended June 30, 2006 and 2005 is as follows:~~

	Three months endedJune 30,					Six months ended June 30,
	2006			2005		2006			2005
	(in millions)
Current:
Federal	$	19.7		$	—	$	19.7		$	—
State		2.4			—		2.4			—
Non-US		0.4			0.4		0.9			1.1
		22.5			0.4		23.0			1.1
Deferred:
Federal		(4.9	)		2.0		(13.7	)		3.3
State		—			0.2		—			0.3
Non-US		0.8			—		1.0			—
	$	(4.1	)	$	2.2	$	(12.7	)	$	3.6
Total	$	18.4		$	2.6	$	10.3		$	4.7

The following tables set forth the condensed consolidating balance sheets as of April 1, 2007 and December 31, 2006, the condensed consolidating statements of operations for the three months ended April 1, 2007 and March 31, 2006, and the condensed consolidating statements of cash flows for three months ended April 1, 2007 and March 31, 2006. Amounts are shown separately for the Company’s parent company, Propex Holdings Inc., the Company (“Issuer”), the collective Guarantor domestic subsidiaries, and the collective Non-guarantor subsidiaries of the Company. Intercompany eliminating amounts have been presented to derive the condensed consolidated financial information for the Issuer for all periods presented.

~~The~~Separate ~~above~~financial ~~current~~statements ~~taxes~~of ~~include~~the ~~certain~~Company’s ~~timing~~parent ~~contingencies~~or the Guarantors are not presented because the Guarantors’ guarantees are full and unconditional and joint and several, and the Company believes separate financial statements and other disclosures regarding the parent and Guarantors are not meaningful to investors.

~~13.~~23 ~~Long-Term Debt~~

OnCondensed ~~January 31,~~Consolidating ~~2006,~~Balance ~~the Company~~Sheet entered into a credit agreement (the “Credit Agreement”) by and among the Company, as borrower, the lenders named therein and BNP Paribas, as Administrative Agent. The Credit Agreement provides for a $360.0 million senior credit facility, comprised of a $260.0 million term loan facility, a $50.0 million revolving credit facility and a $50.0 million bridge loan facility. This agreement replaces the credit agreement dated as of December 1, 2004, among the Company, Amoco Fabrics and Fibers Company, the lenders named therein and BNP Paribas, as Administrative Agent.

19April 1, 2007

~~Table~~(Unaudited) ~~of Contents~~

~~Total~~(In ~~long-term~~Millions) ~~debt at June 30, 2006 and December 31, 2005 consisted of the following:~~

	June 30,2006				December 31,2005
	Parent			Issuer			Guarantors			Non-GuarantorSubsidiaries		Eliminations			Consolidated
	(in millions)
Assets:
10% senior notes due 2012	$	150.0			$	150.0
Current assets:
Senior secured term loan due 2011		—				104.5
Cash and cash equivalents	$	1.5		$	30.9		$	—		$	13.6	$	(1.5	)	$	44.5
Senior secured term loan due 2012		245.4				—
Restricted cash		—			—			—			0.9		—			0.9
Revolving line of credit		—				—
Accounts receivable, net		—			59.4			29.0			35.6		(25.5	)		98.5
Less: current maturities of senior secured term loan		(12.4	)			(9.7	)
Inventories, net		—			65.1			7.8			33.4		—			106.3
Total long-term debt	$	383.0			$	244.8
Deferred income taxes		—			8.2			0.4			1.0		—			9.6
Prepaid expenses and other current assets		—			4.8			(0.3	)		5.9		—			10.4
Assets held for sale		—			12.6			—			—		—			12.6
Total current assets		1.5			181.0			36.9			90.4		(27.0	)		282.8
Other assets:
Goodwill		—			—			37.1			—		—			37.1
Intangible assets, net		—			3.1			28.0			0.9		—			32.0
Deferred income taxes		1.3			6.5			4.9			—		(1.3	)		11.4
Intercompany loan receivable		—			—			37.7			—		(37.7	)		—
Investment in subsidiaries		109.8			241.6			50.7			—		(402.1	)		—
Other assets		—			10.7			—			3.8		—			14.5
Property, plant and equipment, net		—			90.5			90.6			56.3		—			237.4
Total assets	$	112.6		$	533.4		$	285.9		$	151.4	$	(468.1	)	$	615.2
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	—		$	51.6		$	4.2		$	16.5	$	(25.5	)	$	46.8
Accrued liabilities		—			16.2			1.1			7.0		—			24.3
Current portion of debt and accrued interest, including Intercompany loans		—			19.2			—			—		—			19.2
Restructuring and other similar costs		—			1.4			—			0.4		—			1.8
Other current liabilities		—			2.3			—			—		—			2.3
Total current liabilities		—			90.7			5.3			23.9		(25.5	)		94.4
Debt		31.3			354.9			—			—		(31.3	)		354.9
Intercompany loan payable		—			26.8			—			10.9		(37.7	)		—
Deferred income taxes		—			—			—			3.3		—			3.3
Accrued pension and other postretirement benefit liabilities		—			25.5			—			24.0		—			49.5
Other non-current liabilities		—			2.8			—			0.5		—			3.3
		31.3			410.0			—			38.7		(69.0	)		411.0
Total stockholders’ equity		81.3			32.7			280.6			88.8		(373.6	)		109.8
Total liabilities and stockholders’ equity	$	112.6		$	533.4		$	285.9		$	151.4	$	(468.1	)	$	615.2

~~The~~24 ~~$50.0 million bridge loan was fully repaid in April 2006 with a portion of the after-tax proceeds from the Roanoke, Alabama facility sale.~~

~~Prior~~Condensed ~~Credit~~Consolidating ~~Facility~~Balance Sheet

~~The prior credit facility was entered into with a syndicate of lenders on~~ December 1, 2004. The prior credit facility provided for a $110.0 million senior secured term loan due 2011 and a $65.0 million revolving line of credit, which had a $104.5 million balance outstanding on the term loan and no balance outstanding on the revolving line of credit as of the January 31, 2006 refinancing date. The credit facility also included a sublimit of $20.0 million for the issuance of letters of credit, of which $0.5 million was issued and outstanding as of the January 31, 2006 refinancing date.

~~New~~(In ~~Credit~~Millions) ~~Facility~~

• Senior secured term loan due 2012. The Credit Agreement provides a senior secured term loan of $260.0 million maturing on July 31, 2012. At management’s discretion, the loan bears interest at either LIBOR plus 2.25% or a base rate plus 1.25%, where the base rate equals the higher of the prime rate or the Federal Funds interest rate. Mandatory prepayments are required under certain conditions and voluntary prepayments are allowed at no premium. Certain financial covenants must be met on a quarterly basis including a specified fixed charge coverage ratio, a specified interest coverage ratio, a minimum EBITDA requirement, maximum senior secured and total leverage ratios, and a maximum capital expenditures test. On April 4, 2006, pursuant to the Credit Agreement, the Company used the estimated after-tax proceeds from the April 3, 2006 sale of its Roanoke, Alabama facility to repay its entire $50.0 million bridge loan and to repay $11.5 million of this term loan.


	Parent		Issuer		Guarantor		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1.5	$	44.4	$	—	$	12.5		$	(1.5	)	$	56.9
Restricted cash		—		—		—		0.9			—			0.9
Accounts receivable, net		—		48.3		19.4		34.5			(15.8	)		86.4
Inventories, net		—		65.8		6.5		30.2			—			102.5
Deferred income taxes		—		8.2		0.4		1.0			—			9.6
Intercompany loan receivable		—		—		—		—			—			—
Prepaid expenses and other current assets		—		2.9		0.2		5.1			—			8.2
Assets held for sale		—		12.6		—		—			—			12.6

Total current assets	$	1.5		182.2		26.5		84.2			(17.3	)		277.1
Other assets:
Goodwill		—		—		37.1		—			—			37.1
Intangible assets, net		—		4.2		29.1		1.2			—			34.5
Deferred income taxes		1.1		2.1		4.9		(0.8	)		(1.1	)		6.2
Intercompany loan receivable		—		—		41.0		—			(41.0	)		—
Investment in subsidiaries		111.2		315.5		50.8		—			(477.5	)		—
Other non-current assets		—		11.8		—		3.6			—			15.4

		112.3		333.6		162.9		4.0			(519.6	)		93.2
Property, plant and equipment, net		—		90.9		93.7		55.4			—			240.0

Total assets	$	113.8	$	606.7	$	283.1	$	143.6		$	(536.9	)	$	610.3


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	—	$	27.3	$	2.3	$	11.4		$	(15.8	)	$	25.2
Accrued liabilities		2.2		13.6		1.4		6.0			(2.2	)		21.0
Current portion of debt and accrued interest		—		37.0		—		—			—			37.0
Intercompany loan payable		—		—		—		—			—			—
Restructuring and other similar costs		—		1.7		—		0.4			—			2.1
Other current liabilities		—		2.6		—		—			—			2.6

Total current liabilities		2.2		82.2		3.7		17.8			(18.0	)		87.9
Debt, less current portion		28.4		357.8		—		—			(28.4	)		357.8
Deferred income taxes		—		—		—		2.5			—			2.5
Intercompany loan payable		—		27.8		—		13.3			(41.1	)		—
Accrued pension and other postretirement benefit liabilities		—		26.6		—		23.2			—			49.8
Other non-current liabilities		—		1.1		—		—			—			1.1

		28.4		413.3		—		39.0			(69.5	)		411.2
Total stockholders’ equity		83.2		111.2		279.4		86.8			(449.4	)		111.2

Total liabilities and stockholders’ equity	$	113.8	$	606.7	$	283.1	$	143.6		$	(536.9	)	$	610.3

~~Scheduled~~25 ~~repayments on the remaining $245.4 million senior secured term loan at June 30, 2006 are as follows (in millions):~~

2006	$	6.2
2007		12.4
2008		12.4
2009		12.4
2010		12.4
Thereafter		189.6

Condensed Consolidating Statement of Operations

20For the Three Months Ended April 1, 2007

~~Table~~(Unaudited) ~~of Contents~~

•(In ~~Revolving~~Millions) loan agreement. The Credit Agreement provides a revolving line of credit of $50.0 million. Interest accrues and is payable under the same terms as the senior secured term loan. Commitment fees, assessed at 0.5% of the unused borrowings less open letters of credit, are payable quarterly. The credit facility also includes a sublimit of $20.0 million for the issuance of letters of credit. As of June 30, 2006, there were no amounts drawn on the revolver and there were $5.8 million of letters of credit outstanding.

14. Commitments and Contingencies


	Parent			Issuer			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net revenue	$	—		$	96.2		$	12.9		$	57.4		$	(12.3	)	$	154.2
Cost of sales		—			78.3			9.7			50.5			(11.9	)		126.6

Gross profit		—			17.9			3.2			6.9			(0.4	)		27.6

Operating expenses:
Selling, general and administrative		—			14.9			5.5			3.8			(0.4	)		23.8
Pension curtailment gain and settlement loss		—			—			—			—			—			—
Restructuring and similar costs		—			0.5			—			—			—			0.5
Impairment of long-lived assets		—			—			—			—			—			—

Operating income (loss)		—			2.5			(2.3	)		3.1			—			3.3

Other (income) expense:
Other (income) expense, net		—			—			—			0.1			—			0.1
Interest expense, net		0.7			8.7			(0.1	)		(0.2	)		(0.7	)		8.4
Equity (income) loss from earnings of subsidiaries		4.1			(0.7	)		(1.8	)		—			(1.6	)		—

Income (loss) before income taxes		(4.8	)		(5.5	)		(0.4	)		3.2			2.3			(5.2	)
Income tax provision (benefit)		(0.2	)		(1.4	)		(0.5	)		0.8			0.2			(1.1	)

Net income (loss)	$	(4.6	)	$	(4.1	)	$	0.1		$	2.4		$	2.1		$	(4.1	)

~~From~~26 time to time, the Company is subject to lawsuits, claims, investigations and proceedings, including product liability, personal injury, patent and intellectual property, commercial, contract, environmental, health and safety, and employment matters. Such litigation, claims, investigations and proceedings are handled and defended in the ordinary course of business. While no assurance can be given, the Company believes that, taking into account the indemnification by BP Amoco Chemical Holding Company under the BP Acquisition purchase agreement for certain potential pre-closing liabilities, and the Company’s current insurance coverage, none of the litigation or legal proceedings in which the Company is currently involved could reasonably be expected to have a material adverse effect on its business, financial condition or results of operations.

~~The~~Condensed ~~Company~~Consolidating isStatement subject to potential loss contingencies pursuant to various federal, state, and local environmental laws and regulations. These include possible obligations to remove or mitigate the effects on the environment of ~~the~~Operations ~~placement, storage, disposal, or release of certain chemical or petroleum substances by the Company or other parties.~~

InFor ~~connection with~~ the BPThree ~~Acquisition,~~Months BPEnded ~~retained responsibility and has indemnified the Company for certain identified environmental liabilities upon selling the Business on December~~March ~~1, 2004. These indemnified liabilities were estimated at $1.1 million at June 30, 2006 and December~~ 31, ~~2005. This estimate may change as future events become realized. A long-term liability and corresponding receivable from BP is recorded on the balance sheet as of June 30,~~ 2006 and December 31, 2005 to reflect both the liability and the indemnity. BP also retained limited responsibility for future remediation costs associated with other environmental conditions existing at the Company’s facilities at December 1, 2004. Environmental liabilities related to events originating subsequent to December 1, 2004 are generally the responsibility of the Company. At June 30, 2006, the Company is not aware of any material environmental liabilities beyond the above-indemnified liabilities.

~~At June 30,~~(Unaudited) 2006, the Company had contracts with two U.S. suppliers for polypropylene resin raw materials for less than 50% of the Company’s projected domestic needs. One contract is cancelable anytime with 90 days notice, and the other contract extends to year-end 2006. Under these contracts, monthly pricing is based on monthly negotiations to determine market pricing. Due to the highly volatile nature of polypropylene prices, we cannot reasonably forecast the future spending under this contract with any degree of accuracy.

~~15.~~(In ~~Business~~Millions) ~~Segment and Geographic Area Information~~

The Company operates as a collection of regional businesses, and within the North America region, further breaks down its operations into several reportable segments. Due to the


	Parent			Issuer			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net revenue	$	—		$	114.8		$	35.2		$	48.2		$	(7.0	)	$	191.2
Cost of sales		—			92.0			36.0			41.8			(7.0	)		162.8

Gross profit		—			22.8			(0.8	)		6.4			—			28.4
Operating expenses:
Selling, general and administrative		—			11.9			10.3			3.8			—			26.0
In-process research and development		—			—			3.7			—			—			3.7
Pension curtailment gain and settlement loss		—			—			—			—			—			—
Restructuring and similar costs		—			3.0			—			—			—			3.0
Impairment of long-lived assets		—			5.5			—			—			—			5.5

Operating income (loss)		—			2.4			(14.8	)		2.6			—			(9.8	)
Other (income) expense:
Other (income) expense, net		—			—			—			(0.3	)		—			(0.3	)
Interest expense, net		0.7			12.1			(0.1	)		0.1			(0.7	)		12.1
Equity (income) loss from earnings of subsidiaries		13.4			7.2			(2.6	)		—			(18.0	)		—

		14.1			19.3			(2.7	)		(0.2	)		(18.7	)		11.8

Income (loss) before income taxes		(14.1	)		(16.9	)		(12.1	)		2.8			18.7			(21.6	)
Income tax provision (benefit)		(0.2	)		(3.5	)		(5.3	)		0.6			0.2			(8.2	)

Net income (loss)	$	(13.9	)	$	(13.4	)	$	(6.8	)	$	2.2		$	18.5		$	(13.4	)

2127

~~Table~~Condensed Consolidating Statement of ~~Contents~~Cash Flows

SIFor ~~Acquisition, in~~ the ~~first~~Three ~~quarter~~Months ofEnded ~~2006~~April 1, ~~the~~2007 ~~Company reevaluated and revised its North American reportable segments. The Company’s historical results have been restated to reflect the new reportable segments.~~

• Previously, geotextile fabrics had been combined with Propex’s other industrial fabric product lines/operating segment. However, given the increased size and significance of the geotextile operating segment (~~which now comprises more than 15% of worldwide revenues~~Unaudited) and the increased diversity of products within the industrial products operating segment as a result of the SI Acquisition, it was no longer appropriate to combine these two operating segments. These products have been broken out and now constitute a separate Geosynthetics reporting segment.

• The prior Industrial Fabrics reporting segment was renamed as the Industrial Products reporting segment due to the new inclusion of fiber sales. This segment continues to include products for use in various industrial applications such bags/packaging for carrying chemicals, commodities and protective membrane for home construction, filtration, trampoline fabrics and with the SI Acquisition, now includes intermediate fibers sold to other manufacturers to make similar products. This segment continues to include all of the Company’s Mexico business activity because of its relatively small size (~~accounting~~In ~~for less than 5% of Propex’s worldwide revenues~~Millions) ~~and because its products are predominantly industrial products.~~

• Concrete Fiber was added as a new reporting segment. Although the Concrete Fiber operating segment represents less than 10% of worldwide revenues, this operating segment is managed independently from the other current operating segments and has certain differences in business attributes versus the other operating segments. Notwithstanding its grouping as one of the four North America reporting segments, this segment also includes the Company’s concrete fiber sales in Europe.


	Parent			Issuer			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities

Net income (loss)	$	(4.6	)	$	(4.1	)	$	0.1		$	2.4		$	2.1		$	(4.1	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		—			2.5			4.1			0.8			—			7.4
Non-cash interest on debt		—			0.6			—			—			—			0.6
Gain on sale of property and equipment		—			—			—			(0.1	)		—			(0.1	)
Impairment of long-lived assets		—			—			—			—			—			—
Pension curtailment gain and settlement loss		—			—			—			—			—			—
Stock Based Compensation		—			0.2			—			—			—			0.2
Pension and postretirement benefit costs		—			0.1			—			0.5			—			0.6
Deferred income taxes		(0.2	)		(4.8	)		—			0.4			0.2			(4.4	)
Undistributed earnings of subsidiaries		4.1			(0.7	)		(1.8	)		—			(1.6	)		—
In-process research and development		—			—			—			—			—			—
Changes in operating assets and liabilities		(2.1	)		9.6			0.7			1.3			2.1			11.6

Net cash provided by (used in) operating activities		(2.8	)		3.4			3.1			5.3			2.8			11.8

Investing activities
Capital expenditures		—			(1.8	)		—			(0.3	)		—			(2.1	)
Proceeds from sale of property, plant and equipment		—			—			—			0.1			—			0.1
Acquisition of business (net of cash acquired)		—			—			—			—			—			—

Net cash used in investing activities		—			(1.8	)		—			(0.2	)		—			(2.0	)

Financing activities
Net receipts from (payments to) issuer and subsidiaries		—			7.4			(3.2	)		(4.2	)		—			—
Payments of long-term debt		2.8			(22.8	)		—			—			(2.8	)		(22.8	)
Proceeds from issuance of debt		—			—			—			—			—			—
Debt issuance costs		—			—			—			—			—			—
Dividends		—			—			—			—			—			—
Proceeds from sale of stock		—			—			—			—			—			—

Net cash provided by (used in) financing activities		2.8			(15.4	)		(3.2	)		(4.2	)		(2.8	)		(22.8	)

Effect of changes in foreign exchange rates on cash and cash equivalents		—			0.3			0.1			0.2			—			0.6
Change in cash and cash equivalents		—			(13.5	)		—			1.1			—			(12.4	)
Cash and cash equivalents – Beginning of period		1.5			44.4			—			12.5			(1.5	)		56.9

Cash and cash equivalents – End of period		1.5			30.9			—			13.6			(1.5	)		44.5

•28 ~~There were no changes to the Company’s prior North America Furnishings segment or the two international segments – Europe and Brazil.~~

AsCondensed ofConsolidating ~~the~~Statement ~~first quarter~~ of ~~2006,~~Cash ~~the~~Flows ~~Company’s reportable segments are summarized as follows:~~

•For ~~North~~the ~~America~~Three Months Ended March 31, 2006

•(Unaudited) ~~Furnishings~~

•In ~~Geosynthetics~~Millions)

• Industrial Products


	Parent			Issuer			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities
Net income (loss)	$	(13.8	)	$	(13.4	)	$	(6.8	)	$	2.2		$	18.4		$	(13.4	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		—			3.2			2.9			0.5			—			6.6
Non-cash interest on debt		0.6			0.6			—			(0.3	)		(0.6	)		0.3
Impairment of long-lived assets		—			5.5			—			—			—			5.5
Pension and postretirement benefit		—			(1.1	)		—			0.5			—			(0.6	)
Deferred income taxes		(0.2	)		(3.6	)		(5.3	)		(0.2	)		0.2			(9.1	)
Undistributed earnings of subsidiaries		13.4			7.2			(2.6	)		—			(18.0	)		—
In-process research and development		—			—			3.7			—			—			3.7
Changes in operating assets and liabilities		—			0.4			5.7			(2.6	)		—			3.5

Net cash provided by (used in) operating activities		—			(1.2	)		(2.4	)		0.1			—			(3.5	)

Investing activities
Capital expenditures		—			(0.3	)		(0.3	)		(0.3	)		—			(0.9	)
Acquisition of business (net of cash acquired)		—			(232.5	)		2.2			0.7			—			(229.6	)

Net cash used in investing activities		—			(232.8	)		1.9			0.4			—			(230.5	)

Financing activities
Net (payments to) receipts from parent company		—			1.2			3.8			(5.0	)		—			—
Payments of long-term debt		—			(104.5	)		—			—			—			(104.5	)
Debt issuance costs		—			(5.3	)		—			—			—			(5.3	)
Proceeds from issuance of debt		—			310.0			—			—			—			310.0

Net cash provided by (used in) financing activities		—			201.4			3.8			(5.0	)		—			200.2

Effect of changes in foreign exchange rates on cash		—			—			—			0.2			—			0.2

Change in cash and cash equivalents		—			(32.6	)		3.3			(4.3	)		—			(33.6	)
Cash and cash equivalents – Beginning of period		1.5			44.8			—			13.5			(1.5	)		58.3

Cash and cash equivalents – End of period	$	1.5		$	12.2		$	3.3		$	9.2		$	(1.5	)	$	24.7

•29 ~~Concrete Fiber~~

•14. ~~Europe~~Stock Compensation Plan

•Propex ~~Brazil~~Holdings has a stock-based compensation plan for the benefit of the directors, officers and certain employees and consultants of Propex Inc., the 2005 Stock Awards Plan (the “2005 Plan”). The plan is designed to attract able persons to the Company and its affiliates and to provide a means whereby those employees can acquire and maintain stock ownership, thereby strengthening their concern for the welfare of the Company and their desire to remain in its employ or service. The 2005 Plan provides for granting incentive stock options, options which do not constitute incentive stock options, stock appreciation rights, non-vested (restricted) stock awards, performance awards, phantom stock awards, or any combination thereof. The terms and conditions of awards under the 2005 Plan are determined by the Compensation Committee for each grant. The 2005 Plan limits the aggregate number of shares of stock (irrespective of class) that may be issued to an individual under the 2005 Plan not to exceed 57,750 shares. The grant date of options is determined in accordance with Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS No. 123(R)”), and our policy is to consider the date of communication of the grant to the grantee, which is within a reasonable time following the approval of the grant by the Board, as the grant date.

~~Within~~Options ~~North~~granted ~~America,~~during ~~the~~2006 ~~business~~and ~~operates~~2007 ~~with four~~under ~~segments:~~the ~~furnishings,~~2005 ~~geosynthetics,~~Plan ~~industrial~~vest ~~products~~in ~~and~~increments ~~concrete~~of ~~fiber~~25% per year. ~~The~~Both ~~Furnishings~~the ~~segment~~stock ~~includes~~options and the ~~manufacture~~non-vested ~~and~~stock ~~sale~~awards granted ofin ~~various~~2005 ~~woven~~have 5-year vesting periods and ~~non-woven~~the ~~fabrics~~stock tooptions ~~primarily~~under ~~carpet~~the ~~and~~2005 ~~furniture~~Plan ~~and~~have ~~bedding~~10-year ~~manufacturers~~maximum ~~for incorporation~~terms. ~~into~~Compensation ~~their~~expense ~~various~~is ~~manufactured~~recognized ~~furnishing~~straight-line ~~products.~~over ~~The~~the ~~Geosynthetics~~vesting ~~segment~~period. ~~includes~~In February 2006, the ~~manufacture~~board ~~and~~of ~~sale~~directors increased the number of ~~woven~~shares ~~and~~available ~~non-woven~~for issuance under the 2005 Plan to 105,000.

22For purposes of determining estimated fair value under SFAS 123(R), we have computed the estimated fair values of stock options using the Black-Scholes-Merton pricing model. For options granted in 2006, we chose the Uniform method to evaluate any partial life cycle adjustment to be made to the historical expected term estimate. The Uniform method assumes that any outstanding and unexercised share-based payment awards will be exercised evenly over the remaining life cycle years for each year’s grant. For options granted in 2007, we used the simplified method to calculate the expected life of the option. Expected volatility for awards granted in fiscal 2006 and 2007 was based on the daily historical trading data of similar companies for a period equivalent to the expected term of the award. Our risk-free interest rate assumption is based on implied yields of U.S. Treasury zero-coupon bonds having a remaining term equal to the expected term of the stock awards. Our credit agreements preclude us from declaring shareholder dividends, resulting in a zero expected dividend yield in our valuation model. The fair value of each option grant was estimated on the date of grant using the following weighted average assumptions:


	2007 Grants		2006 Grants
Risk-free interest rate	4.39	%	4.52	%

Expected dividend yield	0	%	0	%

Expected volatility factor	56.1	%	54.9	%

Expected option term (in years)	7.0		5.5

~~fabrics~~30 into various geosynthetic end-uses. The Industrial products segment includes the manufacture and sale of woven and non-woven fabrics and fibers into a broad range of industrial applications such as fabric bags/containers, protective coverings, filtration products, and intermediate fibers for use by other manufacturers to produce similar products. Consistent with management of the business, the Industrial Products segment also includes all of our Mexico manufacturing and selling activity because the majority of its activities relate to industrial products. The Concrete Fiber segment includes the manufacture and outsourced supply and sale of fibers for use as a crack-reduction reinforcing material in concrete applications.

The ~~Europe~~ ~~regional~~following ~~segment~~table ~~primarily~~summarizes ~~sells~~the ~~furnishing~~activity ~~carpet backing products, which account for more than 85%~~ of ~~its~~nonqualified ~~revenues,~~stock ~~along~~options ~~with~~awarded ~~some~~under ~~industrial~~the ~~fabric geosynthetic products and minor revenues related to a new developmental product.~~Plan:

The Brazil regional segment primarily sells industrial fabrics products, which account for more than 80% of its revenues, along with some furnishing carpet backing products.


	Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding, January 1, 2007	96,350		$	105	$	307,600
Granted at fair market value on dates of grant	1,000		$	108		—
Forfeited	(1,500	)	$	100		(12,000	)

Outstanding, April 1, 2007	95,850		$	105	$	295,600

Exercisable, April 1, 2007	25,275		$	105	$	86,400

~~Segment~~During ~~sales~~the ~~are~~first ~~based~~quarter onof ~~the~~2007, ~~location~~we ofgranted ~~the~~1,000 ~~selling~~options. ~~entity~~Total ~~rather~~compensation ~~than~~cost ~~the~~to ~~location~~be recognized ofover the ~~customer~~ vesting period for options granted during 2006 and 2007 is $3.5 ~~For~~million, ~~example~~and $0.2 million of this amount was recorded in selling, ~~European~~general ~~export~~and ~~sales~~administrative toexpense ~~customers~~as compensation expense in ~~Egypt~~the orfirst ~~other~~quarter ~~non-European~~of ~~locations~~2007. ~~are~~Options granted ~~included~~during 2007 vest in four equal tranches over four years from the ~~Europe~~date ~~regional~~of ~~segment~~grant. ~~results~~The first 25% will vest on February 12, 2008 and will continue to vest 25% each year through 2011.

~~Measure~~The offollowing ~~Segment~~table ~~Profit~~summarizes orthe ~~Loss~~activity ~~and~~of ~~Segment~~non-vested ~~Assets~~stock awarded under the Plan:

Segment profitability is measured by pre-tax earnings from continuing operations excluding net interest expense and, in 2006, the Roanoke gain. Intersegment sales and transfers are recorded at cost plus an agreed upon intercompany profit on intersegment sales or transfers. There were no material intersegment sales in the three and six months ended June 30, 2006.


	Shares	Weighted Average Grant Date Fair Value
Outstanding, January 1, 2006	3,800	$	100
Granted	—		—
Forfeited	—
Redeemed	—		—

Outstanding, April 1, 2007	3,800	$	100

The Company’s ~~assets,~~did ~~which are recorded by country, are~~ not ~~allocated~~grant tonon-vested ~~product segments~~awards ~~within~~during ~~the~~2006 ~~North~~or ~~America~~during ~~regional segment because many of~~ the ~~Company’s~~first ~~productive~~quarter ~~assets are used to produce products in multiple segments and the utilization~~ of ~~many assets can be shifted among segments depending on the market demand for different products~~2007.

2331

~~Table~~ITEM of2. ~~Contents~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

	Three months endedJune 30,				Six months ended June 30,
	2006		2005		2006		2005
	(in millions)
Net revenue:
North America
Furnishings	$	86.9	$	99.8	$	184.8	$	195.5
Geosynthetics		45.5		21.4		71.0		38.6
Industrial Products		18.3		11.3		42.6		26.1
Concrete Fiber		19.4		—		29.7		—
Europe		26.3		25.5		50.8		50.5
Brazil		9.1		10.1		17.7		18.9
Total net revenue	$	205.5	$	168.1	$	396.6	$	329.6

The following discussion should be read in conjunction with the financial statements and the notes to those statements included under “Item 1. Condensed Consolidated Financial Statements.” References to “we”, “us”, “our” and “the Company” mean Propex Inc. and its consolidated subsidiaries.

	Three months endedJune 30,				Six months ended June 30,
	2006		2005		2006		2005
	(in millions)
Depreciation and amortization expense:
North America
Furnishings	$	3.8	$	3.2	$	6.9	$	6.3
Geosynthetics		1.5		0.8		2.6		1.2
Industrial Products		1.0		0.3		2.6		0.5
Concrete Fiber		1.0		—		0.9		—
Europe		0.5		0.3		0.7		0.7
Brazil		0.5		0.3		0.8		0.7
Total depreciation and amortization	$	8.3	$	4.9	$	14.5	$	9.4

Overview

	Three months endedJune 30,						Six months ended June 30,
	2006			2005			2006			2005
	(in millions)
Segment income (loss):
North America
Furnishings	$	11.5		$	11.5		$	14.7		$	20.7
Geosynthetics		0.7			1.4			(4.6	)		1.5
Industrial Products		(1.3	)		(0.5	)		(2.2	)		0.1
Concrete Fiber		(1.2	)		—			(10.1	)		—
Europe		2.1			0.4			3.7			0.2
Brazil		0.3			0.9			1.0			1.7
Total segment income		12.1			13.7			2.5			24.2
Reconciling items:
Gain from Roanoke plant sale		(44.5	)		—			(44.5	)		—
Interest expense, net		8.5			5.7			20.5			10.9
Total consolidated income before income taxes	$	48.1		$	8.0		$	26.5		$	13.3
Other data:
Worldwide sales volumes (million square yards for fabric sales)		573			655			1,206			1,293
Worldwide sales volumes (million lbs for fiber sales)		27			N/A			41			N/A
Unit net spread, $ per square yard (1)	$	0.201		$	0.139		$	0.185		$	0.136
Unit net spread, $ per lb (1)	$	0.672			N/A		$	0.657			N/A

We are the world’s largest independent producer of primary and secondary carpet backing, and a leading manufacturer and marketer of woven and nonwoven polypropylene fabrics and fibers used in geosynthetic applications and a variety of other industrial applications such as fabric bags/containers, fabric protective coverings and concrete fiber reinforcement. We operate globally in the three geographic regions of North America, Europe and Brazil, from which we market our products to over 40 countries. Within North America, we divide our business among furnishings, geosynthetics, industrial products and concrete fiber. During the first quarter of 2006, in response to our product changes as a result of the SI acquisition, we subdivided our previous industrial fabrics reporting segment into two reporting segments – geosynthetics and industrial products – and we added the concrete fiber reporting segment. In our furnishings segment, we are the largest independent producer of carpet backing in North America and a leading supplier of furniture and bedding internal construction fabrics. In our geosynthetics segment, we are one of North America’s largest suppliers of geosynthetic products which we offer and have a leading position in certain erosion control products. In our industrial products segment, we sell fabrics for various industrial applications such as bags/packaging for carrying chemicals, commodities and protective membrane for home construction, filtration, trampoline fabrics and with the SI acquisition, now sell intermediate fibers to other manufacturers to make similar products. In our concrete fiber segment, we are the largest supplier of synthetic concrete reinforcement products in North America and we also sell these products in Europe.

~~(1)~~In –Europe ~~Unit~~and ~~net~~Brazil, ~~spread~~we isprimarily ~~defined~~market ascarpet ~~revenue~~backing ~~less~~and ~~raw~~industrial ~~material~~products, ~~cost~~respectively, onand we are a ~~per~~leading ~~square~~supplier ~~yard~~of ~~basis~~those ~~for~~products ~~fabric~~in ~~sales~~those ~~and~~regions. Although primarily a ~~per~~regional ~~pound~~business ~~basis~~in ~~for~~terms ~~fiber~~of ~~sales~~differing customers, competitive issues, and economic and other drivers, we have significant overlap of product offerings across all regions.

~~N/A~~Demand –for ~~Concrete~~our ~~fiber~~furnishings ~~sales~~products ~~were~~is ~~acquired~~driven ~~with~~by factors that influence the SIbroader ~~Acquisition;~~market ~~therefore~~for floor coverings and furniture and bedding applications. Floor covering demand is driven largely by home remodeling expenditures, nofrequently ~~volume~~related ~~measures~~to existing home sales, new housing starts and commercial property construction. The principal macroeconomic factors influencing furniture and bedding sales are ~~presented~~housing ~~for~~turnover, the ~~prior~~directional ~~year~~movement of consumer confidence expectations and personal income levels.

24Demand for our geosynthetic and concrete fiber products is driven primarily by civil construction activity, including civil engineering projects and road construction, commercial and industrial construction and single-family and multi-family residential construction as well as general economic conditions.

~~Table~~32 ~~of Contents~~

~~The~~Demand ~~composition~~for ofour ~~the~~industrial ~~Company’s~~products ~~segment~~is ~~assets,~~driven ~~consisting~~by ofgeneral ~~intangible~~economic ~~assets~~conditions ~~including~~which ~~goodwill,~~influence housing ~~property,~~construction ~~plant~~in ~~and~~which ~~equipment~~our ~~and~~housewrap ~~other~~products ~~assets~~are ~~between~~used, ~~those~~and inchemical ~~the United States~~ and ~~those~~agricultural activity, in ~~other~~which ~~countries~~our asbag offabrics ~~the~~are ~~end~~used. ~~of each period is set forth below:~~

	June 30,2006		December 31,2005
	(in millions)
Long-lived assets by segment:
North America
United States	$	286.3	$	131.6
Other North America		3.8		3.9
Total North America		290.1		135.5
Europe		32.0		32.0
Brazil		19.0		18.1
Total long-lived assets	$	341.1	$	185.6

Our primary raw material is polypropylene resin and resin costs comprise approximately 65% percent of our cost of goods sold. We are one of the world’s largest consumers of polypropylene, buying over 400 million pounds annually. We believe our scale affords us attractive pricing on these raw materials relative to our competitors.

~~The~~Polypropylene ~~reconciliation~~prices fluctuate based on the industry supply and demand balance, the price of ~~segment~~crude ~~assets~~oil and other factors beyond our control. For the three months ended April 1, 2007, general polypropylene resin prices in the U.S. were relatively flat compared to ~~consolidated~~the ~~total~~average ~~assets~~price atfor ~~June~~the twelve months of 2006, but increased by approximately 2.0% when compared to the three months ended March 3031, 2006. Generally, we have been able to pass through raw material price increases and ~~2005~~decreases to our furnishings customers, and in 2006 iswe aswere ~~follows:~~successful in passing through resin increases to our geosynthetic customers. However, it has been more difficult to pass through raw material price fluctuations to customers for certain of our industrial products and concrete fiber products. Our earnings are affected by the timing and the extent to which we are able to pass through higher polypropylene raw material pricing costs to our customers.

	June 30,2006		December 31,2005
	(in millions)
Segment assets for total reportable business segments	$	341.1	$	185.6
Items excluded from segment assets:
Current assets		315.2		285.0
Long-term deferred tax assets		27.5		15.8
Total assets	$	683.8	$	486.4

In order to remain competitive, we maintain a comparatively low manufacturing cost structure. Our management team has developed a culture of continuous cost improvement aimed at monitoring and controlling our conversion and administrative expenses.

~~Enterprise~~Acquisition ~~Wide~~of ~~Information~~SI

~~Net~~On ~~revenue~~January 31, is2006, ~~attributed~~the Company acquired 100% of the outstanding stock of SI (hereafter referred to ~~countries~~as the “SI acquisition”), which previously was our largest competitor and ~~regions~~a ~~based~~leader onin ~~the~~providing woven and nonwoven polypropylene fabrics and fiber products for various geosynthetic, industrial products and concrete fiber reinforcement end-uses. The Company’s ~~selling~~retains ~~location~~its ~~rather~~position ~~than~~as the ~~customers~~world’s ~~buying~~leading ~~location~~independent producer of carpet backing and continues to have significant woven polypropylene operations in Europe and Brazil. ~~However~~As a result of the SI acquisition, ~~given~~it positions itself as the ~~small~~leading ~~magnitude~~North American producer of ~~exports,~~needle-punch ~~the~~nonwoven ~~following~~fabrics ~~table~~for ~~also~~furniture and bedding applications. The SI acquisition also enhances the Company’s position in geosynthetic fabrics and provides the Company with a ~~close~~leading ~~approximation~~sales ofposition ~~net~~in ~~revenue~~the concrete fiber reinforcement business. Further, the Company’s strength in woven fabrics manufacturing is complemented by ~~customers~~SI’s ~~locations~~strength in non-woven fabric manufacturing.

	Three months endedJune 30,				Six months ended June 30,
	2006		2005		2006		2005
	(in millions)
Revenues:
Net revenues by geography:
U.S.	$	149.2	$	121.7	$	294.8	$	236.9
Other North America		13.3		10.8		25.7		23.3
Total North America		162.5		132.5		320.5		260.2
Europe		33.9		25.5		58.4		50.5
Brazil		9.1		10.1		17.7		18.9
Total net revenues	$	205.5	$	168.1	$	396.6	$	329.6

The historical results section below presents a discussion of our consolidated operating results using the historical results of the Company prepared in accordance with GAAP for the three months ended April 1, 2007 and March 31, 2006, including SI’s results of operations from January 31, 2006.

2533

~~Table~~Results of ~~Contents~~Operations for the Three Months Ended April 1, 2007 Compared to the Three Months Ended March 31, 2006

Total assets by country are listed as follows:


	Three months ended April 1, 2007			Three months ended March 31, 2006
	*(in millions)*
Net revenue (1)	$	154.2		$	191.2
Cost of sales		126.6			162.8

Gross profit		27.6			28.4

Operating expenses:
Selling, general and administrative		23.8			26.0
In-process research and development		—			3.7
Restructuring and similar costs		0.5			3.0
Impairment of long-lived assets		—			5.5

Operating income (loss)		3.3			(9.8	)
Other (income) expense, net		0.1			(0.3	)

Income (loss) before interest and income taxes		3.2			(9.5	)
Interest expense, net		8.4			12.1

Income (loss) before income taxes		(5.2	)		(21.6	)
Income tax provision (benefit)		(1.1	)		(8.2	)

Net income (loss)	$	(4.1	)	$	(13.4	)

	June 30, 2006			December 31,2005
	(in millions)
Total assets by country:
North America
U.S.	$	647.5		$	447.5
Other North America		24.1			26.2
Total North America		671.6			473.7
Europe		88.0			75.2
Brazil		39.4			36.6
Eliminations		(115.2	)		(99.1	)
Total assets	$	683.8		$	486.4

(1)	Net revenue represents gross sales less product returns, customer allowances and discounts, all generated in the ordinary course of business.

~~16.~~Net ~~Condensed~~revenue ~~Consolidating Financial Information~~

~~The~~For ~~Company~~the ~~operates~~three ~~under~~months ~~the~~ended ~~name~~April 1, 2007, oftotal ~~Propex~~net ~~Inc.~~revenue ~~The~~decreased ~~Company’s~~$37 ~~corporate~~million, ~~structure~~or ~~includes~~19.4%, ~~two~~to ~~domestic~~$154.2 ~~subsidiary~~million ~~holding~~from ~~companies~~$191.2 ~~(Propex Fabrics~~million ~~International~~in ~~Holdings~~the Icorresponding ~~Inc.~~period ~~and~~of ~~Propex~~the ~~Fabrics~~prior ~~International~~year. ~~Holdings~~This IInet ~~Inc.),~~revenue ~~which~~decrease ~~own~~is due to a ~~portion~~decrease ofin ~~the~~North ~~capital~~America ~~stock~~furnishings ofnet ~~its~~revenue ~~foreign~~of ~~subsidiaries~~$36.1 ~~With~~million, ~~the~~a decrease SIin ~~Acquisition,~~North ~~the~~America ~~Company~~industrial ~~added~~products ~~the~~net SIrevenue ~~companies~~of ~~as subsidiaries~~$9.2 ~~The Company’s~~million, ~~domestic~~and ~~subsidiaries~~a ~~(Propex~~decrease ~~Fabrics~~in ~~International~~North ~~Holdings~~America Igeosynthetics ~~Inc.,~~net ~~Propex~~revenue ~~Fabrics~~of ~~International~~$1.7 ~~Holdings~~million. IIThe ~~Inc.~~segment ~~and~~decreases ~~the~~were SIpartially ~~domestic~~offset ~~subsidiaries,~~by ~~collectively~~an ~~the~~increase ~~“Guarantors”)~~in ~~guarantee~~concrete ~~the~~fiber ~~Company’s~~net ~~10%~~revenue ~~Senior~~of $4.9 ~~Notes~~million, ~~due~~an ~~2012~~increase ~~(the~~in ~~“Notes”)~~Europe onnet arevenue ~~joint~~of $2.8 million and ~~several~~an ~~basis.~~increase ~~The~~in ~~Company’s~~Brazil ~~foreign~~net ~~subsidiaries,~~revenue ~~including~~of ~~the~~$2.3 ~~newly~~million ~~acquired~~from SIthe ~~foreign~~corresponding ~~subsidiaries,~~period doin ~~not~~the ~~guarantee~~prior year. For the ~~Notes,~~quarter ~~and~~ended ~~these~~March 31, ~~subsidiaries~~2006, ~~are~~all ~~included~~segments in ~~the~~North ~~following~~America included only ~~tables~~two onmonths aof ~~consolidated~~revenue ~~basis~~from the acquired SI operations as compared to three months of revenue for the ~~Non-guarantor~~quarter ~~subsidiaries~~ended April 1, 2007.

~~The~~For the ~~following~~three ~~tables~~months ~~set~~ended ~~forth~~April 1, ~~the~~2007, ~~condensed~~North ~~consolidating~~America ~~balance sheets~~furnishings asnet ofrevenue ~~June 30,~~decreased ~~2006~~$36.1 ~~and December 31~~million, ~~2005~~or 36.8%, ~~the~~to ~~condensed~~$62.0 ~~consolidating~~million ~~statements~~from $98.1 million in the corresponding period of ~~operations~~the prior year. The net revenue decrease for the ~~three~~quarter ~~months~~was primarily ~~and~~due ~~six~~to ~~months~~volume ~~ended~~decreases ~~June 30,~~in ~~2006~~carpet ~~and~~backing ~~June 30,~~resulting ~~2005,~~primarily ~~and~~from the ~~condensed~~backward ~~consolidating~~integration ~~statements~~efforts of ~~cash flows~~Shaw ~~for~~Industries ~~six~~and ~~months~~Mohawk ~~ended~~Industries, ~~June 30~~Inc., ~~2006~~which ~~and~~began ~~June 30,~~in 2005., ~~Amounts~~and ~~are~~have ~~shown~~impacted ~~separately~~revenues ~~for~~since ~~the~~that ~~Company’s~~time. ~~parent~~Previous ~~company,~~to ~~Propex~~the ~~Holdings Inc.~~backward integration, ~~the~~these ~~Company~~companies ~~(“Issuer”),~~were ~~the~~two ~~collective~~of ~~Guarantor~~our ~~domestic~~largest ~~subsidiaries,~~customers and the ~~collective~~ ~~Non-guarantor~~backward ~~subsidiaries~~integration ofefforts reduced the ~~Company.~~potential ~~Intercompany~~merchant ~~eliminating~~market ~~amounts~~demand ~~have~~for ~~been~~our ~~presented~~furnishings toproducts. ~~derive~~In addition, the ~~condensed~~furnishings ~~consolidated~~segment ~~financial~~has ~~information~~experienced ~~for~~a general market decline in line with the ~~Issuer~~downturn ~~for~~in ~~all~~housing ~~periods~~construction, ~~presented.~~negatively impacting revenues

~~Separate~~34 financial statements of the Company’s parent or the Guarantors are not presented because the Guarantor’s guarantees are full and unconditional and joint and several, and the Company believes separate financial statements and other disclosures regarding the parent and Guarantors are not meaningful to investors.

26 for the first quarter of 2007. Partially offsetting these effects was the successful partial pass-through of higher raw material costs during the first quarter of 2007 and the inclusion of SI’s furniture and bedding and carpet backing revenues for the post January 31, 2006 period.

~~Table~~For the three months ended April 1, 2007, North America geosynthetics net revenue decreased $1.7 million, or 6.7%, to $23.8 million from $25.5 million in the corresponding period of ~~Contents~~the prior year. The net revenue decrease for the period was due primarily to a volume decrease in certain of our existing geotextile products due to two large customers being acquired and subsequently realigning their suppliers. Also, this segment was negatively impacted by a reduction in demand in line with the decline in the segment’s general economic climate. Partially offsetting these effects was the inclusion of SI’s geosynthetics revenues for the post January 31, 2006 period.

~~Condensed~~For ~~Consolidating~~the ~~Balance~~three ~~Sheet~~months ended April 1, 2007, North America industrial products net revenue decreased $9.2 million, or 37.9%, to $15.1 million from $24.3 million in the corresponding period of the prior year. The decrease in net revenue was due to lower demand of certain industrial packaging products as a result of a loss of market share to imports, partially offset by the inclusion of SI’s industrial products revenues for the post January 31, 2006 period.

~~June~~For the three months ended April 301, 2007, North America concrete fiber net revenue increased $4.9 million, or 47.6%, to $15.2 million from $10.3 million in the corresponding period of the prior year. This increase relates primarily to the fact that this segment was acquired as part of the SI acquisition on January 31, 2006 and the quarter ended March 31, 2006 includes only two months of revenues, while the current quarter includes three months of net revenues. Partially offsetting this is the negative impact of lower overall market demand in line with general economic conditions for the concrete segment.

~~(Unaudited)~~For the three months ended April 1, 2007, Europe net revenue increased $2.8 million, or 11.5% to $27.2 million from $24.4 million in the corresponding period of the prior year. The increase in net revenue for the three months ended April 1, 2007 compared to the corresponding prior year period was driven predominantly by currency fluctuation. Net revenue for the first quarter of 2007 in local currency was approximately the same as prior year net revenues. Europe continues to experience favorable product mix changes, the beginnings of improvement in the European economy with improved consumer spending, and the partial pass-through of higher raw material costs. These benefits were somewhat offset by lower volumes due to a reduction in our capacity, in line with restructuring efforts at our Germany location.

(For the three months ended April 1, 2007, Brazil net revenue increased $2.3 million, or 26.7%, to $10.9 million from $8.6 million in the corresponding period of the prior year. The net revenue increase for the quarter was due primarily to the effect of exchange rates on net revenues and to a lesser extent to the general improvement in the overall economic climate. In ~~Millions)~~addition, general commercial activity positively impacted revenues, specifically the agricultural sector into which many of our products are sold. Due to the improvement in the economic environment, we were able to successfully pass through increased raw material costs to increase average selling prices from the end of the prior year, although the average price for the first quarter of 2007 remains lower than that of first quarter of 2006.

	Parent		Issuer		Guarantor		Non- GuarantorSubsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1.5	$	8.9	$	5.9	$	11.4	$	(1.5	)	$	26.2
Accounts receivable, net		—		63.4		35.6		43.6		(14.0	)		128.6
Inventories, net		—		60.1		36.9		34.0		—			131.0
Deferred income taxes		—		3.7		4.9		0.4		—			9.0
Intercompany loan receivable		—		—		0.3		—		(0.3	)		—
Prepaid expenses and other current assets		—		5.8		3.5		6.1		—			15.4
Assets held for sale		—		5.0		—		—		—			5.0
Total current assets		1.5		146.9		87.1		95.5		(15.8	)		315.2
Other assets:
Goodwill		—		—		37.1		—		—			37.1
Intangible assets, net		—		4.1		31.1		1.4		—			36.6
Deferred income taxes		1.5		19.3		7.0		1.2		(1.5	)		27.5
Intercompany loan receivable		—		—		13.3		—		(13.3	)		—
Investment in subsidiaries		119.7		321.5		56.4		—		(497.6	)		—
Other non-current assets		—		11.9		0.6		1.7		—			14.2
		121.2		356.8		145.5		4.3		(512.4	)		115.4
Property, plant and equipment, net		—		105.6		96.0		51.6		—			253.2
Total assets	$	122.7	$	609.3	$	328.6	$	151.4	$	(528.2	)	$	683.8
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	—	$	26.7	$	24.2	$	12.5	$	(14.0	)	$	49.4
Accrued liabilities		—		7.6		10.0		9.1		—			26.7
Current portion of debt and accrued interest, including Intercompany loans		—		14.5		—		0.8		(0.3	)		15.0
Restructuring and other similar costs		—		1.1		0.9		0.6		—			2.6
Other current liabilities		—		1.4		0.8		1.6		—			3.8
Total current liabilities		—		51.3		35.9		24.6		(14.3	)		97.5
Debt		29.0		383.0		—		—		(29.0	)		383.0
Intercompany loan payable		—		—		—		13.3		(13.3	)		—
Deferred income taxes		—		2.8		2.4		3.8		—			9.0
Accrued pension and other postretirement benefit liabilities		—		29.4		—		22.1		—			51.5
Other non-current liabilities		—		23.1		—		—		—			23.1
		29.0		438.3		2.4		39.2		(42.3	)		466.6
Total stockholders’ equity		93.7		119.7		290.3		87.6		(471.6	)		119.7
Total liabilities and stockholders’ equity	$	122.7	$	609.3	$	328.6	$	151.4	$	(528.2	)	$	683.8

27Cost of sales

~~Table~~For the three months ended April 1, 2007, cost of ~~Contents~~sales decreased 22.2% to $126.6 million from $162.8 million in the corresponding period of the prior year. The decrease in cost of sales primarily reflects volume decreases in carpet backing resulting from the backward integration efforts of Shaw Industries and Mohawk Industries, Inc., formerly two of our largest customers, partially offset by the inclusion of SI operations for the post January 31, 2006 period. As a percentage of net revenue, cost of sales decreased to 82.1% in the three months ended April 1, 2007 from 85.1% in the corresponding period of the prior year, primarily due to the change in our product mix following the backward integration efforts, the partial pass through of raw material costs, and the inclusion of SI results for the post January 31, 2006 period.

~~Condensed~~Selling, ~~Consolidating~~general and ~~Balance~~administrative ~~Sheet~~

~~December~~For the three months ended April 1, 2007, selling, general and administrative expenses decreased to $23.8 million from $26.0 million for the three months ended March 31, ~~2005~~2006. The decrease in selling, general and administrative expenses primarily reflects the lower costs due to the elimination of redundant selling, general and administrative costs as a result of the integration of SI. As a percentage of net revenue, selling, general and administrative expenses increased to 15.4% in the three months ended April 1, 2007 from 13.6% in the prior year primarily as a result of reduced net revenues from the stabilization of the market following the backward integration by Shaw and Mohawk. In addition, the inclusion of the concrete segment for three months ended April 1, 2007 as compared to two months for the quarter ended March 31, 2006, with its higher selling expenses, increased selling, general and administrative expense as a percentage of revenues during the current quarter.

(In-process ~~Millions)~~research and development

	Parent		Issuer		Guarantor		Non-GuarantorSubsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1.5	$	44.8	$	—	$	13.5	$	(1.5	)	$	58.3
Accounts receivable, net		—		64.2		—		32.6		(4.2	)		92.6
Inventories, net		—		63.8		—		30.8		—			94.6
Deferred income taxes		—		3.1		—		0.4		—			3.5
Intercompany loan receivable		—		1.2		0.5		—		(1.7	)		—
Prepaid expenses and other current assets		—		3.8		—		5.6		(0.1	)		9.3
Assets held for sale		—		26.7		—		—		—			26.7
Total current assets		1.5		207.6		0.5		82.9		(7.5	)		285.0
Other assets:
Intangible assets, net		—		6.9		—		1.5		—			8.4
Deferred income taxes		1.0		14.7		—		1.1		(1.0	)		15.8
Intercompany loan receivable		—		—		17.0		—		(17.0	)		—
Investment in subsidiaries		101.8		93.4		48.5		—		(243.7	)		—
Other non-current assets		—		10.7		—		2.2		—			12.9
		102.8		125.7		65.5		4.8		(261.7	)		37.1
Property, plant and equipment, net		—		114.0		—		50.3		—			164.3
Total assets	$	104.3	$	447.3	$	66.0	$	138.0	$	(269.2	)	$	486.4
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	—	$	36.4	$	—	$	10.3	$	(4.2	)	$	42.5
Accrued liabilities		—		12.7		0.1		6.3		—			19.1
Current portion of debt and accrued interest, including Intercompany loans		—		11.1		—		1.7		(1.7	)		11.1
Restructuring and other similar costs		—		—		—		1.7		—			1.7
Other current liabilities		—		1.6		—		1.6		—			3.2
Total current liabilities		—		61.8		0.1		21.6		(5.9	)		77.6
Debt		27.7		244.8		—		—		(27.7	)		244.8
Intercompany loan payable		—		—		—		17.0		(17.0	)		—
Deferred income taxes		—		4.8		—		3.8		—			8.6
Accrued pension and other postretirement benefit liabilities		—		33.0		—		19.5		—			52.5
Other non-current liabilities		—		1.1		—		—		—			1.1
		27.7		283.7		—		40.3		(44.7	)		307.0
Total stockholders’ equity		76.6		101.8		65.9		76.1		(218.6	)		101.8
Total liabilities and stockholders’ equity	$	104.3	$	447.3	$	66.0	$	138.0	$	(269.2	)	$	486.4

For the three months ended April 1, 2007, there were no in-process research and development charges. For the three months ended March 31, 2006, as part of the SI acquisition, there was an in-process research and development charge of $3.7 million.

28Restructuring and other similar costs

~~Table~~For ofthe ~~Contents~~three months ended April 1, 2007, restructuring and other similar costs were $0.5 million related to ongoing facility optimization plans for North America. The restructuring costs for the quarter ended April 1, 2007 are attributable to the furnishings and geosynthetics segments. Restructuring and similar costs totaled $3.0 million in the three months ended March 31, 2006 related to severance costs to eliminate redundant selling, general and administrative overhead costs created by the SI acquisition.

~~Condensed~~Impairment ~~Consolidating Statement~~ of ~~Operations~~long-lived assets

For the ~~Three~~three ~~Months~~months ~~Ended~~ended ~~June~~April 301, 2007, there were no impairments of long-lived assets. Impairment of long-lived assets were $5.5 million in the three months ended March 31, 2006 related to the Seneca, South Carolina facility closure and impairment of equipment, which will not be relocated to another plant.

~~(Unaudited)~~36

~~(In~~Income ~~Millions~~(loss) before interest and income taxes

	Parent			Issuer			Guarantor			Non- GuarantorSubsidiaries			Eliminations			Consolidated
Net revenue	$	—		$	96.8		$	62.7		$	53.6		$	(7.6	)	$	205.5
Cost of sales		—			76.6			49.3			47.0			(7.6	)		165.3
Gross profit		—			20.2			13.4			6.6			—			40.2
Operating expenses:
Selling, general and administrative		—			6.7			15.3			3.6			—			25.6
Pension curtailment gain		—			(0.4	)		—			—			—			(0.4	)
Restructuring and similar costs		—			1.2			2.2			—			—			3.4
Gain from sale of Roanoke plant		—			(44.5	)		—			—			—			(44.5	)
Operating income (loss)		—			57.2			(4.1	)		3.0			—			56.1
Other (income) expense:
Other (income)		—			(0.2	)		—			(0.3	)		—			(0.5	)
Interest expense, net		2.0			8.6			(0.1	)		—			(2.0	)		8.5
Equity (income) loss from earnings of subsidiaries		(29.7	)		0.2			(2.5	)		—			32.0			—
		(27.7	)		8.6			(2.6	)		(0.3	)		30.0			8.0
Income (loss) before income taxes		27.7			48.6			(1.5	)		3.3			(30.0	)		48.1
Income tax provision (benefit)		(0.3	)		18.9			(1.7	)		1.2			0.3			18.4
Net income (loss)	$	28.0		$	29.7		$	0.2		$	2.1		$	(30.3	)	$	29.7

For the three months ended April 1, 2007, income before interest and taxes increased $12.7 million to income of $3.2 million from a loss of $9.5 million for the three months ended March 31, 2006. For the three months ended April 1, 2007, North America furnishings had segment income of $6.5 million, and Europe and Brazil had segment incomes of $1.8 million and $0.6 million, respectively. The segment incomes were partially offset by segment losses for North America industrial products of $2.1 million, North America concrete fiber of $1.6 million and for North America geosynthetics of $2.0 million. The segment results for the three months ended March 31, 2006 were negatively impacted by $3.0 million in restructuring charges, $3.7 million of in-process research and development charges and $5.5 million of asset impairment recognized in operations and by amortization of $7.7 million related to inventory fair value adjustments recorded in cost of sales, all related to the SI acquisition on January 31, 2006. Comparatively, income before interest and taxes for the quarter ended April 1, 2007 included $0.5 million of restructuring costs.

29For the three months ended April 1, 2007, North America furnishings segment income increased $3.1 million, or 91.2%, to $6.5 million from $3.4 million for the three months ended March 31, 2006. The first quarter of 2006 was negatively impacted by $7.5 million in allocations of acquisition integration and restructuring charges recorded in cost of sales and as operating expense. Comparatively, restructuring costs for the quarter ended April 1, 2007 totaled $0.3 million. Excluding acquisition integration and restructuring charges, North America furnishings segment income would have totaled $10.8 million for the three months ended March 31, 2006 compared to segment income of $6.8 million for the quarter ended April 1, 2007. Excluding acquisition integration and restructuring charges for 2006, the segment income decrease for 2007 compared to 2006 was due to lower volumes resulting from the North America carpet industry restructuring, which began in 2005, wherein the two largest carpet manufacturers back-integrated significantly into carpet backing manufacturing. In addition, the furnishings segment continues to experience a decline in the general economic environment related to the declining new housing starts and home remodeling, which impact its market. The change in segment results was partially offset by the inclusion of SI operations in the post January 31, 2006 period.

~~Table~~For the three months ended April 1, 2007, North America geosynthetics segment loss decreased to a segment loss of ~~Contents~~$2.0 million, from a segment loss of $5.4 million for the three months ended March 31, 2006. The first quarter of 2006 was negatively impacted by $5.7 million in allocations of acquisition integration and restructuring charges recorded in cost of sales and as operating expense. Comparatively, restructuring costs for the quarter ended April 1, 2007 totaled $0.2 million. Excluding acquisition integration and restructuring charges, North America geosynthetics would have had segment income of $0.3 million for the three months ended March 31, 2006 compared to segment loss of $1.8 million for the quarter ended April 1, 2007. Excluding acquisition integration and restructuring charges for 2006, the segment income for 2006 compared to segment loss for 2007 was due to the current general weakness in demand and volume losses after two large customers were acquired and subsequently realigned their suppliers. The change in segment income was partially offset by the inclusion of SI operations in the post January 31, 2006 period.

~~Condensed~~37 ~~Consolidating Statement of Operations~~

For the ~~Six~~three ~~Months~~months ~~Ended~~ended ~~June~~April 301, 2007, North America industrial products segment loss increased to $2.1 million from a segment loss of $1.0 million for the three months ended March 31, 2006. The first quarter of 2006 was negatively impacted by $2.0 million in allocations of acquisition integration and restructuring charges recorded in cost of sales and as operating expense. Excluding acquisition integration and restructuring charges for the first quarter of 2006, the North America industrial products segment would have had segment income of $1.0 million for the three months ended March 31, 2006 compared to segment loss of $2.1 million for the quarter ended April 1, 2007. The segment loss for the quarter ended April 1, 2007 was due in part to decreases in certain packaging volumes as a result of loss of market share to imports, partially offset by the inclusion of SI’s industrial products operations for the post January 31, 2006 period.

~~(Unaudited)~~For the three months ended April 1, 2007 North America concrete fiber segment loss was $1.6 million, compared to a loss of $8.9 million for the three months ended March 31, 2006. The concrete fiber segment was acquired on January 31, 2006 as part of the SI acquisition. The first quarter of 2006 was negatively impacted by $4.7 million in allocations of acquisition integration and restructuring charges recorded in cost of sales and as operating expense. Excluding acquisition integration and restructuring charges for the first quarter of 2006, the North America concrete fiber segment would have had segment loss of $4.1 million for the three months ended March 31, 2006 compared to segment loss of $1.6 million for the quarter ended April 1, 2007. The decrease in segment loss for the current quarter compared to the corresponding prior year quarter was due primarily to the inclusion of three months of operations of the concrete segment for three months during 2007 and only two months for 2006, partially offset by lower overall market demand in line with general economic conditions for the concrete segment.

~~(In~~For ~~Millions)~~the three months ended April 1, 2007, Europe segment income increased $0.2 million to $1.8 million from $1.6 million in the corresponding period of the prior year. The segment income for the three months ended April 1, 2007 increased as we continued to benefit from previous restructuring and efficiency initiatives which resulted in increased margins. The current quarter was also positively impacted by the continued improvement in the European economy resulting in increased confidence in consumer spending.

	Parent			Issuer			Guarantor			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net revenue	$	—		$	211.7		$	97.8		$	101.8		$	(14.7	)	$	396.6
Cost of sales		—			168.7			85.3			88.8			(14.7	)		328.1
Gross profit		—			43.0			12.5			13.0			—			68.5
Operating expenses:
Selling, general and administrative		—			18.6			25.6			7.4			—			51.6
In-process research and development charges		—			—			3.7			—			—			3.7
Pension curtailment gain		—			(0.4	)		—			—			—			(0.4	)
Restructuring and similar costs		—			4.2			2.2			—			—			6.4
Impairment of long-lived assets		—			5.5			—			—			—			5.5
Gain from sale of Roanoke plant		—			(44.5	)		—			—			—			(44.5	)
Operating income (loss)		—			59.6			(19.0	)		5.6			—			46.2
Other (income) expense:
Other (income)		—			(0.2	)		—			(0.6	)		—			(0.8	)
Interest expense, net		1.3			20.7			(0.2	)		—			(1.3	)		20.5
Equity (income) loss from earnings of subsidiaries		(16.2	)		7.4			(3.6	)		—			12.4			—
		(14.9	)		27.9			(3.8	)		(0.6	)		11.1			19.7
Income (loss) before income taxes		14.9			31.7			(15.2	)		6.2			(11.1	)		26.5
Income tax provision (benefit)		(0.5	)		15.5			(7.0	)		1.8			0.5			10.3
Net income (loss)	$	15.4		$	16.2		$	(8.2	)	$	4.4		$	(11.6	)	$	16.2

For the three months ended April 1, 2007, Brazil segment income decreased $0.2 million to a segment income of $0.6 million from income of $0.8 million in the corresponding period of the prior year. The segment income decreased for the current quarter compared to the corresponding prior year quarter primarily reflecting higher raw material costs for the first quarter of 2007, negatively impacting margins. Due to the improvement in the economic environment, we were able to partially pass through increased raw material costs, although spreads still remain below the first quarter of 2006 (the term “spread” is defined in Note 12 of the accompanying Notes to Condensed Consolidated Financial Statements).

30Interest expense, net

~~Table~~For the three months ended April 1, 2007, interest expense, net of ~~Contents~~interest income decreased to $8.4 million from $12.1 million in the corresponding period of the prior year. Net interest expense decreased for the quarter ended April 1, 2007 due to the decreased level of outstanding debt compared to the prior year. In April 2006, we used the after-tax proceeds from the sale of the Roanoke, Alabama facility to repay the entire $50 million bridge loan and to repay

~~Condensed~~38 ~~Consolidating Statement of Operations~~

~~For~~ $11.5 million of the ~~Three~~$260 ~~Months~~million ~~Ended~~credit ~~June 30~~facility, ~~2005~~both of which were outstanding during the first quarter of 2006. In addition, in January of 2007, we voluntarily paid an additional $20 million of the credit facility.

~~(Unaudited)~~Income tax benefit

~~(In~~For ~~Millions)~~the three months ended April 1, 2007, the income tax benefit decreased to $1.1 million from an income tax benefit of $8.2 million in the corresponding period of the prior year. The effective tax rate was 21% in the first quarter of 2007 compared to 38% in the first quarter of 2006. We do not expect the full year effective tax rate to change significantly due to the relative contributions of taxable income and loss of our foreign and domestic locations.

	Parent			Issuer			Guarantor			Non- GuarantorSubsidiaries			Eliminations			Consolidated
Net revenue	$	—		$	127.8		$	—		$	46.5		$	(6.2	)	$	168.1
Cost of sales		—			105.7			—			41.1			(6.2	)		140.6
Gross profit		—			22.1			—			5.4			—			27.5
Operating expenses:
Selling, general and administrative		—			10.9			—			3.2			—			14.1
Operating income		—			11.2			—			2.2			—			13.4
Other (income) expense:
Other (income)		—			(0.1	)		—			(0.2	)		—			(0.3	)
Interest expense, net		0.6			5.6			—			0.1			(0.6	)		5.7
Equity (income) loss from earnings of subsidiaries		(5.4	)		(1.8	)		(1.1	)		—			8.3			—
		(4.8	)		3.7			(1.1	)		(0.1	)		7.7			5.4
Income (loss) before income taxes		4.8			7.5			1.1			2.3			(7.7	)		8.0
Income tax provision (benefit)		(0.2	)		2.1			—			0.5			0.2			2.6
Net income (loss)	$	5.0		$	5.4		$	1.1		$	1.8		$	(7.9	)	$	5.4

Liquidity and Capital Resources

31Our primary cash needs are for working capital, capital expenditures, tax payments, debt payments or debt retirement. Our forecasted capital spending for 2007 is approximately $13 million. We believe that our current working capital, cash flows generated from future operations and available capacity under our revolving credit facility, as could become necessary in the future, will be sufficient to meet our working capital and capital spending requirements through December 2007. We may use excess cash balances to repay or retire debt. We finance these cash requirements through cash generated from operations and as could become necessary in the future, with funds from our revolving credit facility. As of April 1, 2007, we had no borrowings from our revolving credit facility.

~~Table~~Net working capital is comprised of ~~Contents~~current assets less restricted cash, minus current liabilities, excluding current maturities of long-term debt and accrued interest. We had net working capital of $206.7 million at April 1, 2007, and $225.3 million at December 31, 2006. Working capital decreased $18.6 million from December 31, 2006 due primarily to increased trade payables at April 1, 2007 compared to December 31, 2006.

~~Condensed~~At ~~Consolidating~~April 1, ~~Statement~~2007, we had $44.5 million of ~~Operations~~cash and cash equivalents.

~~For~~We generated cash from operations of $11.8 million for the ~~Six~~three ~~Months~~months ~~Ended~~ended ~~June~~April 301, ~~2005~~2007 compared to cash used by operations of $3.5 million in the three months ended March 31, 2006. The increase in cash provided by operations is due primarily to the increase in accounts payable.

~~(Unaudited)~~Cash used in investing activities was $2.0 million in the three months ended April 1, 2007 compared to cash used in investing activities of $230.5 million in the three months ended March 31, 2006. Capital expenditures increased to $2.1 million in the three months ended April 1, 2007 from $0.9 million in the three months ended March 31, 2006. For the three months ended April 1, 2007 compared to the comparable prior year period, the decrease in cash used for investing activities relates primarily to the cash used in investing for the acquisition of SI in January 2006.

(Cash provided by financing activities was $22.8 million in the three months ended April 1, 2007 related primarily to repayment of our credit facility, compared to cash provided by financing activities of $200.2 million for the three months ended March 31, 2006. In ~~Millions)~~2006, the cash generated relates to additional indebtedness to fund the SI.

	Parent			Issuer			Guarantor			Non- GuarantorSubsidiaries			Eliminations			Consolidated
Net revenue	$	—		$	250.3		$	—		$	92.8		$	(13.5	)	$	329.6
Cost of sales		—			208.5			—			82.3			(13.5	)		277.3
Gross profit		—			41.8			—			10.5			—			52.3
Operating expenses:
Selling, general and administrative		—			21.6			—			6.7			—			28.3
Operating income		—			20.2			—			3.8			—			24.0
Other (income) expense:
Other income		—			(0.1	)		—			(0.1	)		—			(0.2	)
Interest expense, net		1.2			10.9			(0.1	)		0.1			(1.2	)		10.9
Equity (income) loss from earnings of subsidiaries		(8.6	)		(2.8	)		(1.5	)		—			12.9			—
		(7.4	)		8.0			(1.6	)		—			11.7			10.7
Income (loss) before income taxes		7.4			12.2			1.6			3.8			(11.7	)		13.3
Income tax provision (benefit)		(0.5	)		3.6			—			1.1			0.5			4.7
Net income (loss)	$	7.9		$	8.6		$	1.6		$	2.7		$	(12.2	)	$	8.6

3210% Senior Notes due 2012

~~Table~~On December 1, 2004, we issued an aggregate of ~~Contents~~$150.0 million of 10% Senior Notes pursuant to an indenture among us, our subsidiary guarantors and Wells Fargo Bank, N.A., as trustee. These notes will mature on December 1, 2012. Interest on these notes accrues at 10% per annum and is payable on June 1 and December 1 of each year. All of our domestic subsidiaries jointly and severally guarantee the 10% Senior Notes. We used the proceeds from the issuance of the 10% Senior Notes to finance a portion of our acquisition of the Business from BP p.l.c.

~~Condensed~~Senior ~~Consolidating~~Secured ~~Statement~~Credit ~~of Cash Flows~~ Facility

~~For~~On January 31, 2006, we entered into a new Credit Agreement to refinance our prior credit facility and to raise additional funds for the ~~Six~~SI ~~Months~~acquisition. ~~Ended~~The ~~June~~new Credit Agreement, which matures on July 3031, ~~2006~~2012, provides for a $360.0 million senior credit facility, comprised of a $260.0 million term loan facility, a $50.0 million revolving credit facility and a $50.0 million bridge loan facility. The availability under the credit facility is subject to a monthly borrowing base calculation based upon inventories and accounts receivable. The credit facility is guaranteed by Propex Holdings Inc., our parent corporation, and our domestic subsidiaries. It is also secured by a first priority lien on our domestic subsidiaries’ real and personal property including a pledge of all the capital stock of our domestic subsidiaries and 66.0% of the capital stock of our foreign subsidiaries.

~~(Unaudited)~~On January 26, 2007, we entered into the Second Amendment to Credit Agreement and Limited Waiver with the lenders, BNP Paribas, as Administrative Agent, and the Company’s parent corporation and certain of its subsidiaries, as Credit Support Parties. The Second Amendment waived our compliance with the financial covenants contained in the Credit Agreement for the fourth quarter of 2006, adjusted the financial covenants for the following five quarters ending March 31, 2008, increased the interest rate by 0.75% to LIBOR plus 3% or a base rate plus 2%, and at our option, we repaid $20 million of debt outstanding under the credit facility from cash on hand.

~~(In~~As ~~Millions)~~of April 1, 2007, at management’s discretion, the loan bears interest at either LIBOR plus 3.0% or a base rate plus 2.0%, where the base rate equals the higher of the prime rate or the Federal Funds interest rate. Mandatory prepayments are required under certain conditions and voluntary prepayments are allowed at no premium. The Credit Agreement contains affirmative and negative covenants customary for this type of financing, including but not limited to, financial covenants related to a minimum interest coverage, maximum capital expenditures, minimum fixed charge coverage, minimum EBITDA, as defined in the credit agreement, and a maximum total leverage ratio. The Credit Agreement includes negative covenants that restrict our ability to, among other things, incur additional indebtedness, incur liens, guarantee obligations, pay dividends or make redemption or make voluntary payments on subordinated debt, engage in mergers and make acquisitions, sell assets, enter into sale leaseback transactions, and engage in certain types of transactions with affiliates. We were in compliance with the financial covenants under the Second Amendment as of April 1, 2007 and through the date of this filing.

	Parent			Issuer			Guarantor			Non- GuarantorSubsidiaries			Eliminations			Consolidated
Operating activities
Net income (loss)	$	15.4		$	16.2		$	(8.2	)	$	4.4		$	(11.6	)	$	16.2
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		—			5.7			7.3			1.5			—			14.5
Non-cash interest on debt		1.3			5.1			0.1			0.1			(1.3	)		5.3
Gain on sale of Roanoke plant		—			(44.5	)		—			—			—			(44.5	)
Impairment of long-lived assets		—			5.5			—			—			—			5.5
Pension and postretirement benefit costs		—			(3.7	)		—			1.1			—			(2.6	)
Deferred income taxes		(0.5	)		(6.7	)		(7.0	)		1.0			0.5			(12.7	)
Undistributed earnings of subsidiaries		(16.2	)		7.4			(3.6	)		—			12.4			—
In-process research and development charges		—			—			3.7			—			—			3.7
Changes in operating assets and liabilities		—			2.5			9.2			(5.8	)		—			5.9
Net cash provided by (used in) operating activities		—			(12.5	)		1.5			2.3			—			(8.7	)
Investing activities
Capital expenditures		—			(0.2	)		(1.6	)		(0.5	)		—			(2.3	)
Proceeds from sale of property, plant and equipment		—			73.0			—			—			—			73.0
Acquisition of business (net of cash acquired)		—			(232.6	)		2.2			0.7			—			(229.7	)
Net cash provided by (used in) investing activities		—			(159.8	)		0.6			0.2			—			(159.0	)
Financing activities
Net receipts from (payments to) issuer and subsidiaries		—			1.2			3.8			(5.0	)		—			—
Payment of long-term debt principal		—			(169.1	)		—			—			—			(169.1	)
Debt issuance costs					(5.3	)		—			—						(5.3	)
Dividends		0.4			(0.4	)		—			—			(0.4	)		(0.4	)
Proceeds from issuance of debt		—			310.0			—			0.5			—			310.5
Proceeds from sale of stock		(0.4	)		—			—			—			0.4			—
Net cash provided by (used in) financing activities		—			136.4			3.8			(4.5	)		—			135.7
Effect of changes in foreign exchange rates on cash and cash equivalents		—			—			—			(0.1	)		—			(0.1	)
Change in cash and cash equivalents		—			(35.9	)		5.9			(2.1	)		—			(32.1	)
Cash and cash equivalents – Beginning of period		1.5			44.8			—			13.5			(1.5	)		58.3
Cash and cash equivalents – End of period	$	1.5		$	8.9		$	5.9		$	11.4		$	(1.5	)	$	26.2

33The $50.0 million revolving line of credit accrues interest and is payable under the same terms as the senior secured term loan. Commitment fees, assessed at 0.5% of the unused borrowings, less open letters of credit, are payable quarterly. The credit facility also includes a sublimit of $20.0 million for the issuance of letters of credit. As of April 1, 2007, there were no amounts drawn on the revolver and there were $7.5 million of letters of credit outstanding. The amounts available under our revolving credit facility are subject to a monthly borrowing base calculation, which is based on a portion of outstanding inventory and accounts receivable. As of April 1, 2007, in consideration of our borrowing base calculation and outstanding letters of credit, we had $42.5 million of available borrowings under our $50 million revolving credit line.

~~Table~~As required by our new Credit Agreement, on May 1, 2006, we entered into an interest rate swap agreement to lock in the interest rate on a portion of ~~Contents~~our bank term loan over the initial three years of the new Credit Agreement. The notional amount of the interest rate swap equaled $49.3 million on May 1, 2006, and gradually declines consistent with the Credit Agreement repayment schedule to the notional amount of $30.6 million in June 2009 when the swap contract expires. We have not applied hedge accounting treatment to the interest rate swap under SFAS 133, Accounting for Derivative Instruments and Hedging Activities, but rather are recording all interest rate swap related income and expenses to interest expense in the Condensed Consolidated Statement of Operations as they occur. After taking into consideration our $61.5 million debt repayment on April 4, 2006, the $20 million credit facility repayment on January 26, 2007, and the interest rate swap principal as of April 1, 2007, $183.2 million of our total $366.3 million indebtedness, or 50%, is subject to a variable interest rate. The fair value of the interest rate swap is included in current liabilities on the balance sheet.

~~Condensed~~Critical Accounting ~~Combining~~Policies ~~Statement of Cash Flows~~

~~For~~In preparing our financial statements in conformity with GAAP, management must make decisions that impact the reported ~~Six~~amounts ~~Months~~and ~~Ended~~related ~~June~~disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, our management evaluates its estimates, including those related to retirement benefits, allowance for doubtful accounts, impairment of long-lived assets, impairment of intangibles, income taxes, litigation and contingencies. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and such differences may be material. Management believes monitoring changes in critical accounting policies is important to the fair presentation of our financial condition and results of operations because they can require management’s more significant judgments and estimates in the preparation of our consolidated financial statements. Information regarding our accounting policies and estimates that we consider to be “critical” can be found in our annual report on Form 10-K for the year ended December 3031, ~~2005~~2006. There have not been any significant changes in these policies or estimates since December 31, 2006.

~~(Unaudited)~~41

~~(In~~Item ~~Millions)~~3. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

	Parent			Issuer			Guarantor			Non- GuarantorSubsidiaries			Eliminations			Consolidated
Operating activities
Net income (loss)	$	7.9		$	8.6		$	1.6		$	2.7		$	(12.2	)	$	8.6
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		—			7.9			—			1.5			—			9.4
Non-cash interest on debt		1.2			0.4			(0.1	)		0.2			(1.3	)		0.4
Pension and postretirement benefit costs		—			0.4			—			0.5			—			0.9
Deferred income taxes		(0.5	)		3.6			—			(0.4	)		0.6			3.3
Undistributed earnings of subsidiaries		(8.6	)		(2.8	)		(1.5	)		—			12.9			—
Changes in operating assets and liabilities		—			(16.1	)		—			(2.1	)		—			(18.2	)
Net cash provided by (used in) operating activities		—			2.0			—			2.4			—			4.4
Investing activities
Capital expenditures		—			(0.7	)		—			(0.6	)		—			(1.3	)
Net cash used in investing activities		—			(0.7	)		—			(0.6	)		—			(1.3	)
Financing activities
Net (payments to) receipts from parent company		—			0.1			—			(0.1	)		—			—
Net payment of long-term debt principal		—			(2.8	)		—			—			—			(2.8	)
Dividends		0.5			(0.5	)		—			—			(0.5	)		(0.5	)
Stock repurchase		(0.5	)		—			—			—			0.5			—
Proceeds from stock sale		0.9			—			—			—			(0.9	)		—
Net cash provided by (used in) financing activities		0.9			(3.2	)		—			(0.1	)		(0.9	)		(3.3	)
Effect of changes in foreign exchange rates on cash		—			0.1			—			(0.4	)		—			(0.3	)
Change in cash and cash equivalents		0.9			(1.8	)		—			1.3			(0.9	)		(0.5	)
Cash and cash equivalents – Beginning of period		—			15.8			—			8.3			—			24.1
Cash and cash equivalents – End of period	$	0.9		$	14.0		$	—		$	9.6		$	(0.9	)	$	23.6

We are exposed to various market risks such as fluctuating raw material costs, fluctuating interest rates and changes in foreign currency exchange rates. As of April 1, 2007, we did not utilize any derivative instruments to manage these raw material pricing or foreign exchange risks. However, as discussed in greater detail below, we entered into an interest rate swap agreement to lock in the interest rate on at least 50% of our bank term loan and 10% Senior Notes due 2012 over the initial three years of the Credit Agreement.

34Raw material risk. The cost of our commodity raw materials is volatile and could have a significant impact on our profitability. In particular, our business requires the purchase of large volumes of polypropylene, a petroleum derivative. Increases in the cost of this raw material could materially adversely affect our business, results of operations and financial condition if we are unable to pass these increases through to our customers. We believe we will be successful in increasing prices to pass along much of this increase in polypropylene costs consistent with historical experience; however, we may not be able to successfully recover such increases in cost.

~~Table~~Our polypropylene is purchased from multiple suppliers. We believe there are generally adequate sources of ~~Contents~~polypropylene; however, unanticipated termination or interruption of our arrangements with third-party suppliers of polypropylene could have a material adverse effect on us. Extreme weather conditions such as the 2005 hurricanes affecting the U.S. Gulf Coast can adversely affect our ability to supply products to our customers and negatively impact the availability of polypropylene for certain time periods. In the past, our long-term relationships with a broad base of suppliers has enabled us to obtain all our needed polypropylene supply, even during the aftermath of the 2005 U.S. Gulf Coast hurricanes; however there may be future situations when we may not be able to do so. We currently have established relationships with multiple polypropylene suppliers for all our expected raw material needs, where most pricing is determined by monthly negotiations on market pricing.

17Currency translation. ~~Stock~~The ~~Compensation~~results ~~Plan~~of operations of our foreign companies are translated into U.S. dollars at the average exchange rates for each period concerned. This translation has no impact on cash flow. After re-measuring any non-local currency balances into the local functional currency, the balance sheets of our foreign companies are translated into U.S. dollars at the closing exchange rates. Remeasured or transactional foreign exchange gains or losses are recorded to other income and expense and balance sheet translation adjustments are recorded as other comprehensive income or loss.

InCurrency ~~2005,~~transaction ~~the~~exposure. ~~board~~Currency oftransaction ~~directors~~exposure arises where sales and ~~stockholders~~purchases ofare ~~Propex~~made ~~Holdings~~by ~~Inc.~~a ~~(“Holdings”)~~company ~~approved~~in ~~the~~a ~~2005~~currency ~~Stock~~other ~~Awards~~than ~~Plan~~its own ~~(the~~functional ~~“Plan”)~~currency. The ~~purpose~~majority of ~~the~~our ~~Plan~~companies issource toraw ~~provide~~materials ~~for~~and ~~granting~~sell ~~incentive stock~~their ~~options,~~products ~~nonqualified~~within ~~stock~~their ~~options,~~local ~~stock~~markets ~~appreciation~~in ~~rights~~their ~~(SARs),~~functional ~~restricted~~currencies ~~stock~~and ~~awards,~~therefore ~~performance~~have ~~awards,~~limited ~~phantom~~currency ~~stock~~transaction ~~awards,~~exposure. orHungary ~~any~~sells ~~combination~~most of ~~the~~its products ~~foregoing,~~in euros to ~~selected~~the ~~employees,~~European ~~directors,~~market ~~and~~through ~~consultants of Holdings and~~ its ~~subsidiaries,~~German ~~including the Company~~affiliate. ~~Each~~As ~~award~~a ~~of stock options~~result, ~~stock~~we ~~appreciation~~incur ~~rights,~~limited ~~restricted~~currency ~~stock,~~transaction ~~performance~~exposure ~~awards or phantom stock will be evidenced by an agreement~~ between ~~Holdings and~~ the ~~recipient~~euro ofand the ~~award~~Hungarian forint.

~~There~~Our ~~were~~United noKingdom ~~nonqualified~~concrete ~~stock~~fiber ~~options~~operations orpurchase ~~restricted~~raw ~~stock~~materials ~~awards~~from ~~issued~~our inNorth ~~the~~America ~~second~~concrete ~~quarter~~fiber ofoperations, ~~2006.~~while ~~Except~~our ~~for~~North ~~the~~America ~~stock~~concrete fiber ~~options~~operations ~~which~~purchase ~~were modified~~steel ~~under~~from anour ~~employee~~concrete ~~separation~~fiber ~~agreement,~~operations ~~both~~in the ~~stock~~United ~~options and restricted stock awards have a vesting period over 5 years, or immediate vesting upon change of control~~Kingdom. ~~The~~These ~~stock~~transactions ~~options~~are ~~have a 10-year maximum term and an 8.4 year weighted average remaining life. The restricted stock awards do~~ not ~~have~~settled ain ~~maximum term~~cash.

~~The~~42 ~~following table summarizes the activity of nonqualified stock options awarded under the Plan:~~

	2006
	Shares		Weighed Average Exercise Price
Outstanding, January 1, 2006	64,350		$	100
Granted at fair market value on dates of grant	—			—
Exercised	—			—
Forfeited	(23,200	)	$	100
Outstanding, June 30, 2006	41,150		$	100
Exercisable, June 30, 2006	1,250		$	100

Interest rate risk. A significant amount of our debt bears interest at variable rates. As required by our new Credit Agreement, on May 1, 2006, we entered into an interest rate swap agreement to lock in the interest rate on a portion of our bank term loan over the initial three years of the new Credit Agreement. The notional amount of the interest rate swap equaled $49.3 million on May 1 and gradually declines consistent with the Credit Agreement repayment schedule to the notional amount of $30.6 million in June 2009 when the swap contract expires. We have not applied hedge accounting treatment to the interest rate swap under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, but rather are recording all interest rate swap related income and expenses to interest expense in the Condensed Consolidated Statement of Operations as they occur. After taking into consideration our $61.5 million debt repayment on April 4, 2006, the $20 million credit facility repayment on January 26, 2007, and the interest rate swap principal as of April 1, 2007, $183.2 million of our total $366.3 million indebtedness, or 50%, is subject to a variable interest rate. The fair value of the interest rate swap is included in current liabilities on the balance sheet.

~~The~~A ~~following~~hypothetical ~~table~~10.0% ~~summarizes~~increase or decrease in the ~~activity~~applicable interest rates as of ~~restricted~~April 1, ~~stock~~2007 ~~awarded~~would ~~under~~change the quarterly cost of financing on our ~~Plan:~~variable rate debt by $0.5 million.

Outstanding, January 1, 2006	9,000
Granted	—
Exercised	—
Forfeited	(4,000	)
Redeemed	(200	)
Outstanding, June 30, 2006	4,800

Seasonality. We have historically experienced, and expect to continue to experience, seasonal and quarterly fluctuations in net revenue and operating income. Homebuilding, civil engineering projects and the agricultural cycle all are subject to seasonal influences, characterized by strong sales for the spring and summer months. Pre-season inventory builds along with strong sales during this period combine to favorably impact the first and second quarter results. In addition, our European operations typically experience lower third quarter revenues due to the traditional late-summer holiday.

35Taxes. We are subject to taxation in multiple jurisdictions throughout the world. Our effective tax rate and tax liability will be affected by a number of factors, such as the amount of taxable income in particular jurisdictions, the tax rates in such jurisdictions, tax treaties between jurisdictions, the extent to which we transfer funds between jurisdictions and repatriate income, changes in law and the potential challenge of tax positions taken in our various tax filings.

~~Table~~Inflation. Inflation can affect the costs of ~~Contents~~goods and services we use. In the more mature economies in which we operate, from either a manufacturing or sales viewpoint, we have experienced relatively low price inflation in recent years. In more emerging economies, such as Hungary, we experience more moderate inflation, but in a lower cost environment.

~~ITEM 2~~Item 4. ~~MANAGEMENT’S~~CONTROLS ~~DISCUSSION~~ AND ~~ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~ PROCEDURES

~~The following~~An ~~discussion~~evaluation ~~should~~was performed beunder ~~read~~the insupervision ~~conjunction~~and with the ~~financial~~participation ~~statements~~of ~~and~~ the ~~notes~~Company’s tomanagement, ~~those~~including ~~statements~~the ~~included~~chief ~~under~~executive ~~“Item~~officer ~~1. Condensed Consolidated Financial Statements~~ and ~~Notes to~~ the ~~Condensed~~chief ~~Consolidated~~financial ~~Financial Statements.” References to “we”~~officer, ~~“us”,~~of ~~“our”~~the ~~and~~effectiveness “of the Company”’s ~~mean~~disclosure ~~Propex~~controls ~~Inc.~~ and ~~its~~procedures ~~consolidated~~(as defined ~~subsidiaries.~~in Rules 13a-15(e)

~~Overview~~43

~~We are the world’s largest independent producer of primary and secondary carpet backing, and a leading~~ ~~manufacturer~~ and ~~marketer~~15d-15(e) of ~~woven~~the ~~and~~Exchange ~~nonwoven~~Act) ~~polypropylene fabrics and fibers used in geosynthetic applications and a variety of other industrial applications such~~ as ~~fabric bags/containers, fabric protective coverings and concrete fiber reinforcement. We operate globally in the three geographic regions~~ of North America, Europe and Brazil, from which we market our products to over 40 countries. Within North America, we divide our business among furnishings, geosynthetics, industrial products and concrete fiber. During the ~~first~~end ~~quarter~~ of ~~2006, in response to our product changes as a result of~~ the SIperiod ~~Acquisition,~~covered weby ~~subdivided~~this ~~our previous industrial fabrics reporting segment into two reporting segments – geosynthetics and industrial products – and we added the concrete fiber reporting segment~~report. InBased ~~our~~on ~~furnishings~~such ~~segment~~evaluation, ~~we are~~ the ~~largest~~Company’s ~~independent~~chief ~~producer~~executive ~~of carpet backing in North America~~ officer and ~~the~~chief ~~leading~~financial ~~supplier~~officer ofconcluded ~~furniture~~that ~~and bedding internal construction fabrics. In our geosynthetics segment, we are~~ the ~~largest~~Company’s ~~North~~disclosure ~~America~~controls ~~supplier of the geosynthetic products which we offer~~ and ~~have~~procedures awere ~~leading~~effective ~~position in certain erosion control products. In our industrial products segment, we sell fabrics for various industrial applications such~~ as ~~bags/packaging~~of ~~for carrying chemicals, commodities and protective membrane for home construction, filtration, trampoline fabrics and with~~ the SIdate ~~Acquisition,~~of ~~now sell intermediate fibers to other manufacturers to make similar products. In our concrete fiber segment, we are~~ the ~~largest supplier of synthetic concrete reinforcement products in North America and we also sell these products in Europe~~evaluation.

InThere ~~Europe~~has ~~and~~been ~~Brazil,~~no wechange ~~primarily~~in ~~market~~our ~~carpet~~internal ~~backing~~control ~~and~~over ~~industrial~~financial ~~products,~~reporting ~~respectively,~~during ~~and~~the wequarter ~~are~~ended aApril 1, ~~leading~~2007 ~~supplier~~that ofhas ~~those~~materially ~~products in those regions. Although primarily a regional business in terms of differing customers~~affected, ~~competitive~~or ~~issues,~~is ~~and~~reasonably ~~economic~~likely ~~and~~to ~~other~~materially ~~drivers~~affect, weour ~~have~~internal ~~significant~~control ~~overlap~~over offinancial ~~product offerings across all regions~~reporting.

~~Demand~~Because ~~for~~of ~~our~~their ~~furnishings~~inherent ~~products~~limitations, isthe ~~driven~~Company's bydisclosure ~~factors~~controls ~~that~~and ~~influence~~procedures ~~the~~and ~~broader~~its ~~market~~internal ~~for~~control ~~floor~~over ~~coverings~~financial ~~and~~reporting may ~~furniture~~not ~~and~~prevent ~~bedding~~or ~~applications~~detect all misstatements. ~~Floor~~ ~~covering~~In ~~demand~~designing isand ~~driven~~evaluating ~~largely~~the byCompany’s ~~home~~internal ~~remodeling~~control ~~expenditures~~over financial reporting, ~~frequently~~management ~~related~~recognizes tothat ~~existing~~any ~~home~~such ~~sales~~controls, ~~new~~no ~~housing~~matter ~~starts~~how well designed and ~~commercial~~operated, ~~property~~can ~~construction.~~provide ~~The~~only reasonable ~~principal~~assurance ~~macroeconomic~~of ~~factors~~achieving ~~influencing~~the ~~furniture~~desired control objectives; management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and ~~bedding~~procedures. ~~sales~~Any evaluation of the effectiveness of the ~~are~~Company's ~~housing~~disclosure ~~turnover,~~controls and procedures and internal control over financial reporting is subject to the ~~directional~~risk ~~movement~~that controls and procedures may become inadequate in the future as result of ~~consumer~~changes ~~confidence~~in ~~expectations~~the ~~and~~business ~~personal~~environment ~~income~~in ~~levels.~~which we operate.

~~Demand for our geosynthetic~~ ~~and~~Note ~~concrete~~Regarding ~~fiber products is driven primarily by civil construction activity, including civil engineering projects and road construction, commercial and industrial construction and single~~Forward-~~family~~Looking ~~and~~Statements ~~multi-family residential construction as well as general economic conditions.~~

36This document contains forward-looking statements. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management, based on information currently available to management. Forward-looking statements are those that do not relate strictly to historical or current facts, and can be identified by the use of the future tense or other forward-looking words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “should,” “may,” “objective,” “projection,” “forecast,” “management believes,” “continue,” “strategy,” “position” or the negative of those terms or other variations of them or by comparable terminology. In particular, statements express or implied, concerning future actions, conditions or events, future operating results or the ability to generate sales, income or cash flow are forward-looking statements. Forward-looking statements include the information concerning possible or assumed future results of our operations set forth under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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

~~Demand~~• ~~for~~changes ~~our~~in ~~industrial~~the ~~products~~price isof ~~driven~~polypropylene ~~by general economic conditions which influence housing which uses our housewrap products~~resin, ~~chemical and agricultural activity which uses~~ our ~~bag~~primary ~~fabrics.~~raw material;

~~Our~~• ~~primary~~changes ~~raw~~in ~~material~~levels ~~is polypropylene resin and resin costs comprise approximately 65% percent~~ of ~~our~~building ~~cost~~construction ofand ~~goods~~remodeling ~~sold.~~that Weaffect ~~are one of~~ the ~~world’s~~demand ~~largest~~for ~~consumers of polypropylene, buying over 400 million pounds annually. We believe our scale affords us attractive pricing on these raw materials relative to our competitors.~~ carpet;

~~Polypropylene~~• ~~prices~~our ~~fluctuate~~reliance ~~based~~ on ~~the~~a ~~industry~~limited ~~supply~~number ~~and demand balance, the price~~ of ~~crude~~product oil and other factors beyond our control. For the six months ended June 30, 2006, general polypropylene resin pricing in the U.S. increased by approximately 3.9% versus the twelve months ended December 31, 2005. Generally, we have been able to pass through raw material price increases and decreases to our furnishings customers, and in 2006 we have been successful in passing through resin increases to our geosynthetic customers. However, it has been more difficult to pass through raw material price fluctuations to customers for certain of our industrial products and concrete fiber products. Our earnings are affected by the timing and the extent to which we are able to pass through higher polypropylene raw material pricing costs to our customers. lines;

In44 order to maintain our competitiveness, we maintain a comparatively low manufacturing cost structure. Our management team has developed a culture of continuous cost improvement aimed at monitoring and controlling our conversion and administrative expenses.

~~Company~~• ~~History~~changes in the structure of the North American carpet backing industry as a result of back integration and domestic and foreign competition;

We• ~~have~~our ~~been~~ability ~~engaged~~to inacquire ~~the~~new ~~textile~~businesses ~~industry since 1884~~ and ~~operated~~assets, ~~primarily under the name Amoco Fabrics~~ and ~~Fibers~~integrate ~~Company~~those inoperations ~~the~~into ~~U.S. and under other names internationally from 1968 until the December 1, 2004, BP Acquisition, discussed below, at which time we became Propex Fabrics Inc. In June 2006, we changed~~ our ~~name~~existing to Propex Inc. because the Company now sells fiber products in addition to fabrics. We pioneered the introduction of synthetic woven polypropylene carpet backing as a replacement to jute backing, as well as the development of woven and nonwoven fabrics for industrial applications. operations;

On• ~~December 1,~~our ~~2004,~~ability ~~pursuant~~ to aachieve ~~stock~~cost ~~purchase~~savings ~~agreement~~and ~~with~~revenue BPgrowth ~~Amoco~~in ~~Chemical Holding Company, an indirect subsidiary of BP p.l.c., we~~ acquired ~~all the outstanding capital stock of the entities comprising the fabrics business of BP, specified assets comprising BP’s Canadian fabrics business~~ and ~~various~~existing ~~intellectual property and other assets associated with the fabrics business.~~ operations;

~~Acquisition~~• changes in laws or regulations, third party relations and approvals and decisions of SIcourts, regulators and governmental bodies that may adversely affect our business or the business of the customers we serve;

On• ~~January 31,~~our ~~2006,~~ability ~~the Company acquired 100% of the outstanding stock of SICSC and SIGC (hereafter referred~~ to asretain ~~the “SI Acquisition”), who previously was our largest competitor and~~ a ~~leader~~skilled inlabor providing woven and nonwoven polypropylene fabrics and fiber products for various geosynthetic, industrial products and concrete fiber reinforcement end-uses. As a result of the SI Acquisition, the Company retains its position as the world’s leading force;

37• economic, competitive and regulatory conditions and developments;

~~Table~~• oftechnological ~~Contents~~developments;

~~independent~~• ~~producer~~capital ofmarkets carpet backing, its position as the leading North American producer of needle-punch nonwoven fabrics for furniture and bedding applications and its significant woven polypropylene operations in Europe and Brazil. The SI Acquisition enhances the Company’s position in geosynthetic fabrics and provides the Company with a leading sales position in the concrete fiber reinforcement business. Further, the Company’s strength in woven fabrics manufacturing is complemented by SI’s strength in non-woven fabric manufacturing. conditions;

~~Given~~• the complementary nature of the two businesses, we estimate that over the next two to three years the combined Propex/SI entity will realize more than $18.0 million of annualized cost savings. These savings will be primarily driven by estimated reductions in the duplicative administrative costs between the two stand-alone entities and by taking advantage of both companies’ combined manufacturing strengths and existing capabilities. inflation;

As• aforeign ~~result,~~currency ~~most~~exchange of the fluctuations in the Company’s operating results in 2006 as compared to 2005 are due to the SI Acquisition. The historical results section below presents a discussion of our consolidated operating results using the historical results of the Company prepared in accordance with GAAP for the three months and six months ended June 30, 2006 and 2005, including SI’s results of operations from January 31, 2006 (the SI Acquisition date) to June 30, 2006. In order to provide additional information relating to our operating results, we also present a discussion of our pro forma combined operating results as if the Company and SI had been a consolidated company for the three months and six months ended June 30, 2006 and 2005. We have included this additional information in order to provide further insight into our operating results, prior period trends and current position. This supplemental information is presented in a manner consistent with the disclosure requirements of SFAS No. 141. The operating results for the three months ended June 30, 2006 include SI’s financial results for the same three-month period ended June 30, 2006. However, due to historically different fiscal period-ends for the Company and SI, the pro forma combined operating results for the three months and six months ended June 30, 2005 include SI’s results for their first two fiscal quarters ended March 31, 2005. rates;

38• interest rates;

~~Table~~• supply of ~~Contents~~competitive fabrics and fibers from countries with lower cost structures;

~~Results~~• ofother ~~Operations~~factors ~~for~~affecting ~~the~~business ~~Three and Six Months Ended June 30~~plans, ~~2006~~including ~~Compared to~~ the ~~Three~~timing and ~~Six~~success ~~Months~~of ~~Ended June 30,~~business ~~2005~~development efforts;

~~The~~• ~~following~~our ~~discussion~~ability ~~compares~~to ~~the~~successfully ~~historical~~integrate ~~results of operations for~~ the ~~three~~SI ~~months and six months ended June 30~~acquisition, ~~2006~~which ~~and~~occurred ~~2005.~~on ~~These results include SI’s results of operations from~~ January 31, 2006, ~~(the~~and SIto ~~Acquisition~~realize ~~date).~~the ~~Results~~significant ofprojected ~~operations~~synergies ~~were~~related asto ~~follows:~~the acquisition.

	Three months endedJune 30,						Six months ended June 30,
	2006			2005			2006			2005
	(in millions)
Net revenue (1)	$	205.5		$	168.1		$	396.6		$	329.6
Cost of sales		165.3			140.6			328.1			277.3
Gross profit		40.2			27.5			68.5			52.3
Operating expenses:
Selling, general and administrative		25.6			14.1			51.6			28.3
In-process research and development charges		—			—			3.7			—
Pension curtailment gain		(0.4	)		—			(0.4	)		—
Restructuring and similar costs		3.4			—			6.4			—
Impairment of long-lived assets		—			—			5.5			—
Gain from sale of Roanoke plant		(44.5	)		—			(44.5	)		—
Operating income		56.1			13.4			46.2			24.0
Other (income)		(0.5	)		(0.3	)		(0.8	)		(0.2	)
Income before interest and income taxes		56.6			13.7			47.0			24.2
Interest expense, net		8.5			5.7			20.5			10.9
Income before income taxes		48.1			8.0			26.5			13.3
Income tax provision		18.4			2.6			10.3			4.7
Net income	$	29.7		$	5.4		$	16.2		$	8.6

There is no assurance that any of the actions, events or results of the forward-looking statements will occur, or if any of them do, what impact they will have on our results of operations or financial condition. Because of these uncertainties, you are cautioned not to put undue reliance on any forward-looking statements. See “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2006, and Part II, “Item 1A. Risk Factors” of this report for a more detailed description of these and other factors that may affect the forward-looking statements. When considering forward-looking statements, one should keep in mind such risk factors, as they could cause our actual results to differ materially from those contained in any forward-looking statement. Other than as required by applicable law, we undertake no obligation to update any forward-looking statements to reflect future events or developments.

~~(1)~~45 ~~Net revenue represents gross sales less product returns, customer allowances and discounts, all generated in the ordinary course of business.~~

~~Net~~ PART ~~revenue~~II

~~For~~Item ~~the three months ended June 30, 2006, total net revenue increased $37.4 million, or 22.2%, to $205.5 million from $168.~~1 ~~million in the corresponding period of the prior year~~. ~~This~~LEGAL net revenue increase is due to an increase in North America geosynthetic net revenue of $24.1 million, an increase in North America industrial products net revenue of $7.0 million, an increase in Europe net revenue of $0.8 million and concrete fiber net revenues of $19.4 million. These segment increases were partially offset by a $12.9 million net revenue decrease in North America furnishings and a $1.0 million decrease in Brazil. PROCEEDINGS

~~For~~See ~~the~~Note ~~six~~11 ~~months ended June 30, 2006, total net revenue increased $67.0 million, or 20.3%,~~ to ~~$396.6~~our ~~million from $329.6 million in the corresponding period of the prior year. This net revenue increase is due to an increase in North America geosynthetic net revenue of $32.4~~Condensed ~~million,~~Consolidated anFinancial ~~increase~~Statements inincluded ~~North~~elsewhere ~~America industrial products net revenue of $16.5 million, an increase~~ in ~~Europe~~this ~~net revenue of $0~~report.3 million and concrete fiber net revenues of $29.7 million. These segment increases were partially offset by a $10.7 million net revenue decrease in North America furnishings and a $1.2 million decrease in Brazil.

~~For~~Item ~~the three months ended June 30, 2006, North America furnishings net revenue decreased $12~~1A.9 million, or 12.9%, to $86.9 million from $99.8 million in the corresponding period of the prior year. For the six months ended June 30, 2006, North America furnishings net revenue decreased $10.7 million, or 5.5%, to $184.8 million from $195.5 million in the corresponding period of the prior year. The net revenue decrease for both the quarter and

39Risk Factors

~~Table~~There ofhave ~~Contents~~been no material changes to the risk factors set forth in the Company’s 2006 Annual Report on Form 10-K.

~~year-to-date~~Item ~~periods was primarily due to volume decreases in carpet backing resulting from the back integration efforts of Shaw Industries, our largest customer during 2005~~2. ~~The~~UNREGISTERED ~~decrease~~SALES inOF ~~the~~EQUITY ~~second~~SECURITIES ~~quarter~~AND ~~was~~USE ~~also~~OF due to the sale of the Roanoke, Alabama carpet backing plant on April 3, 2006 to a Mohawk Industries, Inc. affiliate. These back integration moves by our two largest customers, Mohawk and Shaw, reduce the potential merchant market demand for our furnishings products. Partially offsetting these effects was the successful pass-through of higher raw material costs and the inclusion of SI’s furniture and bedding and carpet backing revenues for the post January 31st period. PROCEEDS

~~For~~None the three months ended June 30, 2006, North America geosynthetics net revenue increased $24.1 million, or 112.6%, to $45.5 million from $21.4 million in the corresponding period of the prior year. For the six months ended June 30, 2006, North America geosynthetics net revenue increased $32.4 million, or 83.9%, to $71.0 million from $38.6 million in the corresponding period of the prior year. The net revenue increase for both the quarter and year-to-date periods was primarily due to the inclusion of SI’s geosynthetics revenues for the post January 31st period and the successful pass-through of higher raw material costs. Partially offsetting these effects was a volume decrease in our existing geotextile products due to two large customers being acquired and subsequently realigning their suppliers.

~~For~~Item ~~the three months ended June 30, 2006, North America industrial products net revenue increased $7.0 million, or 61.9%, to $18.~~3 ~~million from $11~~.3 ~~million~~DEFAULTS inUPON ~~the~~SENIOR corresponding period of the prior year. For the six months ended June 30, 2006, North America industrial products net revenue increased $16.5 million, or 63.2%, to $42.6 million from $26.1 million in the corresponding period of the prior year. The net revenue increase for both the quarter and year-to-date periods was primarily due to the inclusion of SI’s industrial products revenue for the post January 31st period and the successful pass-through of higher raw material costs. Partially offsetting these effects was a volume decrease in certain packaging products, especially our cotton bale products due to transition issues associated with changing the Company’s channels to market. SECURITIES

~~For~~None the three months and six months ended June 30, 2006, North America concrete fiber net revenue was $19.4 million and $29.7 million, respectively, as a result of the SI Acquisition. As this segment relates entirely to the business acquired from SI, there is no comparable revenue amount for the three months and six months ended June 30, 2005.

~~For~~Item ~~the three months ended June 30, 2006, Europe net revenue increased $0~~4.8 ~~million,~~SUBMISSION orOF ~~3.1%~~MATTERS toTO ~~$26.3~~A ~~million~~VOTE ~~from~~OF ~~$25.5~~SECURITY million in the corresponding period of the prior year. For the six months ended June 30, 2006, Europe net revenue increased $0.3 million, or 0.6%, to $50.8 million from $50.5 million in the corresponding period of the prior year. The small net revenue increase for both the quarter and year-to-date periods was primarily due to favorable product mix changes, mostly offset by lower carpet industry volumes due to general weakness in the European economy and cautious consumer spending. HOLDERS

~~For~~None the three months ended June 30, 2006, Brazil net revenue decreased $1.0 million, or 9.9%, to $9.1 million from $10.1 million in the corresponding period of the prior year. For the six months ended June 30, 2006, Brazil net revenue decreased $1.2 million, or 6.3%, to $17.7 million from $18.9 million in the corresponding period of the prior year. The net revenue decrease for both the quarter and year-to-date periods was due to the negative impact of Brazil’s

40Item 5. OTHER INFORMATION

~~Table~~None ~~of Contents~~

~~recent~~46 tight monetary policy on general commercial activity and specifically the agricultural sector into which many of our products are sold and capacity additions by our competitors. These effects are partially offset by higher unit selling prices in dollar terms due to the foreign exchange effects of Brazil’s tight monetary policy.

~~Cost~~Item of6. ~~sales~~EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

For the three months ended June 30, 2006, cost of sales increased 17.6% to $165.3 million from $140.6 million in the corresponding period of the prior year. The increase in cost of sales primarily reflects the inclusion of SI results for the post January 31st period. As a percentage of net revenue, cost of sales decreased slightly to 80.4% in the three months ended June 30, 2006 from 83.6% in the corresponding period of the prior year, primarily due to higher margins across most U.S. products and European restructuring-related cost reductions.


Exhibit Number		Description
10.1		Form of Second Amendment to Credit Agreement and Limited Waiver dated as of January 26, 2007, by and among Propex Inc., the financial institutions listed on the signature pages thereto, BNP Paribas, as administrative agent for the Lenders, and the Credit Support Parties. (filed as Exhibit 10.1 to Propex Inc.’s Current Report on Form 8-K, filed on January 26, 2007, and incorporated herein by reference).

10.2		Propex Inc. Supplemental Savings Plan (filed as Exhibit 10.1 to Propex Inc.’s Current Report on Form 8-K, filed on April 18, 2007, and incorporated herein by reference).

31.1		Certification of Chief Executive Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934.

32.1		Certification by the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

~~For~~47 the six months ended June 30, 2006, cost of sales increased 18.3% to $328.1 million from $277.3 million in the corresponding period of the prior year. The increase in cost of sales primarily reflects the inclusion of SI results for the post January 31st period and the effects of the $7.7 million inventory fair value adjustment related to the SI Acquisition purchase accounting during the first quarter, which has been recognized in cost of sales during the six month period ended June 30, 2006. As a percentage of net revenue, cost of sales decreased slightly to 82.7% in the six months ended June 30, 2006 from 84.1% in the corresponding period of the prior year, primarily due to higher margins across most U.S. products and European restructuring-related cost reductions partially offset by the inventory fair value adjustment amortization in the first quarter.

~~For the~~ ~~three~~SIGNATURE and six months ended June 30, 2006, higher margins are the result of improved average selling prices, which increased at a rate greater than that of raw material costs. Also, product mix for the three and six months ended June 30, 2006 shifted toward higher margins products.

~~Selling~~Pursuant to the requirements of the Securities Exchange Act of 1934, ~~general~~the ~~and~~registrant ~~administrative~~has ~~expenses~~duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

For the three months ended June 30, 2006, selling, general and administrative expenses increased to $25.6 million from $14.1 million in the corresponding period of the prior year. As a percentage of net revenue, selling, general and administrative expenses increased to 12.5% in the three months ended June 30, 2006 from 8.4% in the corresponding period of the prior year. The increase in selling, general and administrative expenses primarily reflects the inclusion of SI’s overhead costs for the post January 31st period. We expect these costs to decrease as a percentage of sales with the elimination of redundant selling, general and administrative costs, which was largely completed during the second quarter.


	PROPEX INC.
Date: May 9, 2007

	By:	/s/ Lee McCarter
		Lee McCarter
		Executive Vice President and Chief Financial Officer

~~For~~48 the six months ended June 30, 2006, selling, general and administrative expenses increased to $51.6 million from $28.3 million in the corresponding period of the prior year. As a percentage of net revenue, selling, general and administrative expenses increased to 13.0% in the six months ended June 30, 2006 from 8.6% in the corresponding period of the prior year. The increase in selling, general and administrative expenses primarily reflects the inclusion of SI’s overhead costs for the post January 31st period. We expect these costs to decrease as a percentage of sales with the elimination of redundant selling, general and administrative costs, which was largely completed during the second quarter.

In-process research and development

For the three months ended June 30, 2006 and 2005, there were no in-process research and development charges.

For the six months ended June 30, 2006, as part of the SI Acquisition during the first quarter, there was an in-process research and development charge of $3.7 million. There was no comparable amount for the corresponding period of the prior year.

Pension curtailment gain

For the three months and six months ended June 30, 2006, the Company recorded a $0.4 million curtailment gain for the reduction in the projected benefit obligation related to the U.S. pension plan for hourly employees. There was no comparable amount for the corresponding periods of the prior year.

Restructuring and other similar costs

For the three months ended June 30, 2006, restructuring and other similar costs were $3.4 million related to severance costs to eliminate redundant selling, general and administrative overhead costs created by the SI Acquisition. There was no comparable amount for the corresponding period of the prior year.

For the six months ended June 30, 2006, restructuring and other similar costs were $6.4 million related to severance costs to eliminate redundant selling, general and administrative overhead costs created by the SI Acquisition. There was no comparable amount for the corresponding period of the prior year.

Impairment of long-lived assets

For the three months ended June 30, 2006 and 2005, there were no impairments of long-lived assets.

For the six months ended June 30, 2006, impairment of long-lived assets was $5.5 million related to the Seneca, South Carolina facility closure and impairment of equipment, which will not be relocated to another plant. The amount of the impairment was determined based on the remaining value of the assets in light of the decision to dispose of such assets as compared to the carrying value at the decision to close the Seneca facility. There were no such impairment charges in the corresponding period of the prior year.

Gain from sale of Roanoke plant

For the three and six months ended June 30, 2006, we recorded a $44.5 million gain related to the sale of our Roanoke, Alabama carpet backing plant to a Mohawk Industries, Inc. affiliate in April 2006. This gain results from the excess of the $73.0 million in adjusted sales proceeds over the net book value of $28.5 million. There were no such asset sales the corresponding periods of the prior year.

Income before interest and income taxes

For the three months ended June 30, 2006, income before interest and taxes increased $42.9 million to $56.6 million from $13.7 million in the corresponding period of the prior year. The increase resulted primarily from the $44.5 million gain on the sale of our Roanoke facility, which is not included in our segment income. Partially offsetting the gain were decreases of $0.7 million in North America geosynthetics, $0.8 million in North America industrial products, $0.6 million in Brazil, and losses of $1.2 million in North America concrete fiber. These decreases were partially offset by an increase of $1.7 million in Europe’s income. The quarterly segment results were also impacted by $3.4 million in restructuring costs partially offset by a $0.4 million pension curtailment gain.

For the six months ended June 30, 2006, income before interest and taxes increased $22.8 million, or 94.2%, to $47.0 million from $24.2 million in the corresponding period of the prior year. This increase resulted primarily from the $44.5 million gain on the sale of our Roanoke facility, which is not included in our segment income. In addition to the second quarter non-recurring charges mentioned above, the year-to-date segment results were impacted by several non-recurring acquisition and restructuring related charges in the first quarter, including the $7.7 million amortization of the inventory fair value adjustment related to acquisition purchase accounting, the $3.7 million of in-process research and development charges, the Seneca, South Carolina facility restructuring’s $5.5 million non-cash impairment related to equipment which will not be relocated to another plant, and the $3.0 million acquisition integration-related severance costs. By segment, the change is offset by decreases of $6.0 million in North America furnishings, $6.1 million in North America geosynthetics, $2.3 million in North America industrial products, $0.7 million in Brazil and a $10.1 million loss in concrete fiber, partially offset by an increase of $3.5 million in Europe.

For the three months ended June 30, 2006, North America furnishings segment income was $11.5 million, unchanged versus the corresponding period of the prior year. For the six months ended June 30, 2006, North America furnishings segment income decreased $6.0 million, or 29.0%, to $14.7 million from $20.7 million in the corresponding period of the prior year. The segment income decreased for both the quarter and year-to-date periods due to lower volumes resulting from the North America carpet industry restructuring, which occurred largely in 2005, wherein the two largest carpet manufacturers back-integrated significantly into carpet backing manufacturing and in the second quarter, further volume declines due to the sale of the Roanoke plant on April 3rd. This negative volume effect was offset by increasing margins and the inclusion of SI activity in 2006. However, the year-to-date period was also impacted by a $7.5 million allocation of the above-mentioned non-recurring acquisition integration and restructuring charges in the first quarter.

For the three months ended June 30, 2006, North America geosynthetics segment income decreased $0.7 million, or 50.0%, to $0.7 million from $1.4 million in the corresponding period of the prior year. For the six months ended June 30, 2006, North America geosynthetics segment income decreased $6.1 million to a loss of $4.6 million from $1.5 million in income for the corresponding period of the prior year due to general weakness in demand, volume losses at certain customers who changed suppliers and high

allocated overhead costs prior to eliminating redundant selling, general and administrative overhead, partially offset by the inclusion of SI activity in 2006. In addition, the year-to-date period was impacted by a $5.7 million allocation of the above-mentioned non-recurring acquisition integration and restructuring charges in the first quarter.

For the three months ended June 30, 2006, North America industrial products segment income decreased $0.8 million to $1.3 million loss from a $0.5 million loss in the corresponding period of the prior year. For the six months ended June 30, 2006, North America industrial products segment income decreased $2.3 million to $2.2 million loss from $0.1 million in income for the corresponding period of the prior year. The segment income decreased for both the quarter and year-to-date periods due to decreases in certain packaging volumes and high allocated overhead costs prior to eliminating redundant selling, general and administrative overhead, partially offset by the inclusion of SI activity in 2006. In addition, the year-to-date period was impacted by a $2.0 million allocation of the above-mentioned non-recurring acquisition integration and restructuring charges in the first quarter.

For the three months and six months ended June 30, 2006, the North America concrete fiber segment loss was $1.2 million and $10.1 million, respectively. This segment was acquired as part of the SI acquisition, and there is no comparable amount for the corresponding periods of the prior year. In addition, the year-to-date period was impacted by a $4.7 million allocation of the above-mentioned non-recurring acquisition integration and restructuring charges in the first quarter.

For the three months ended June 30, 2006, Europe segment income increased $1.7 million to $2.1 million from $0.4 million in the corresponding period of the prior year. For the six months ended June 30, 2006, Europe segment income increased $3.5 million to $3.7 million from $0.2 million in the corresponding period of the prior year. The segment income increased for both the quarter and year-to-date periods primarily due to a reduction in manufacturing costs associated with the elimination of the weekend shift at our Gronau, Germany facility.

For the three months ended June 30, 2006, Brazil segment income decreased $0.6 million, or 66.7%, to $0.3 million from $0.9 million in the corresponding period of the prior year. For the six months ended June 30, 2006, Brazil segment income decreased $0.7 million, or 41.2%, to $1.0 million from $1.7 million in the corresponding period of the prior year. The segment income decreased for both the quarter and year-to-date periods because of sales volume declines due to Brazil’s recent tight monetary policy on general commercial activity and specifically the agricultural sector into which many of our products are sold and capacity additions by our competitors. These effects are partially offset by higher unit selling prices in dollar terms due to the foreign exchange effects of Brazil’s tight monetary policy.

Interest expense, net

For the three months ended June 30, 2006, net interest expense increased to $8.5 million from $5.7 million in the corresponding period of the prior year. For the six months ended June 30, 2006, net interest expense increased to $20.5 million from $10.9 million in the corresponding period of the prior year. Net interest expense increased for both the quarter and year-to-date periods due primarily to the additional debt incurred to fund the major portion of the SI Acquisition.

Income taxes

For the three months ended June 30, 2006, the provision for income taxes increased to $18.4 million from $2.6 million in the corresponding period of the prior year. The increase in income tax expense is due primarily to the gain on sale of the Roanoke, Alabama plant in April 2006. The effective tax rate was 38.3% in the second quarter as compared to 38.0% in the first quarter of 2006.

For the six months ended June 30, 2006, the provision for income taxes increased to $10.3 million from $4.7 million in the corresponding period of the prior year. The increase in taxes related to the Roanoke plant gain on sale is partially offset by the effects of the first quarter operating losses primarily related to non-recurring acquisition integration and restructuring charges. The effective tax rate was 38.9% for the six months ended June 30, 2006.

We expect the effective tax rate to remain around 37.6% for the remainder of the year.

Combined Company Results of Operations for the Three and Six Months Ended June 30, 2006 Compared to the Three and Six Months Ended June 30, 2005

The following discussion includes the combined results of operations of the Company including SI as if the SI Acquisition had occurred as of the beginning of each period. Adjustments have been made to the combined results of operations primarily to reflect the following.

For the three and six months ended June 30, 2006:

• Cost of sales was adjusted by nil and $0.2 million in the three and six months ended June 30, 2006, respectively, and $0.1 million and $0.3 million in the three and six months ended June 30, 2005, respectively, due to increases in depreciation related to increases in SI property, plant and equipment to approximate fair value.

• Selling, general and administrative was increased nil and $0.3 million in the three and six months ended June 30, 2006, respectively, and $0.9 million and $1.9 million in the three and six months ended June 30, 2005, respectively, to reflect the amortization of intangible assets established in accordance with SFAS No. 141.

• Interest expense was increased nil and $1.0 million in the three and six months ended June 30, 2006, respectively, and $4.1 million and $5.6 million in the three and six months ended June 30, 2005, respectively, to reflect the SI Acquisition-related additional indebtedness in the periods prior to the acquisition.

Combined Pro Forma Results:

	Three months endedJune 30,					Six months ended June 30,
	2006			2005		2006			2005
	(in millions)
Net revenue	$	205.5		$	233.6	$	411.7		$	462.8
Cost of sales		165.3			189.8		339.0			376.3
Gross profit		40.2			43.8		72.7			86.5
Operating expenses:
Selling, general and administrative		25.6			31.3		56.2			62.7
In-process research and development charges		—			—		3.7			—
Pension curtailment gain		(0.4	)		—		(0.4	)		—
Restructuring and similar costs		3.4			—		6.4			—
Impairment of long-lived assets		—			—		5.5			—
Gain from sale of Roanoke plant		(44.5	)		—		(44.5	)		—
Operating income		56.1			12.5		45.8			23.8
Other (income) expense		(0.5	)		1.5		24.6			4.4
Income before interest and income taxes		56.6			11.0		21.2			19.4
Interest expense, net		8.5			9.8		21.8			18.2
Income (loss) before income taxes		48.1			1.2		(0.6	)		1.2
Income tax provision		18.4			0.9		9.7			(0.1	)
Net income (loss)	$	29.7		$	0.3	$	(10.3	)	$	1.3

Net revenue

On a combined company basis for the three months ended June 30, 2006, net revenue decreased $28.1 million, or 12.0% to $205.5 million from $233.6 million for the corresponding period in the prior year, reflecting a decrease in North America net revenue of $27.9 million, and a decrease of $1.0 million for Brazil, partially offset by an increase of $0.8 million for Europe.

For the six months ended June 30, 2006, combined company net revenue decreased $51.1 million, or 11.0% to $411.7 million from $462.8 million for the corresponding period in the prior year, reflecting a decrease in North America net revenue of $50.2 and a decrease of $1.2 million for Brazil, partially offset by an increase of $0.3 million for Europe.

On a combined company basis, for the three months ended June 30, 2006, North America furnishings net revenue decreased 27.0% to $86.9 million from $119.1 million for corresponding period in the prior year. For the six months ended June 30, 2006, North America furnishings net revenue decreased 18.9% to $188.0 million for the six months ended June 30, 2006 from $231.8 million for the corresponding period in the prior year. The net revenue decrease for both the quarter and year-to-date periods was primarily due to volume decreases in carpet backing resulting from the back integration efforts of Shaw Industries, our largest customer during 2005. The decrease in the second quarter was also due to the sale of the Roanoke, Alabama carpet backing plant on April 3, 2006. Partially offsetting these effects was the successful pass-through of higher raw material costs.

For the three months ended June 30, 2006, North America geosynthetics net revenue increased 12.6% to $45.5 million from $40.4 million from the corresponding period in the prior year. For the six months ended June 30, 2006, North America geosynthetics net revenue increased 0.1% to $76.0 million from $75.9 million for the corresponding period in the prior year. The net revenue increases for both the quarter and year-to-date periods was due primarily to the successful pass-through of higher raw material costs, partially offset by two large customers being acquired and subsequently realigning their suppliers, along with other general weakness in demand.

On a combined company basis, for the three months ended June 30, 2006, North America industrial products net revenue decreased 25.0% to $18.3 million from $24.4 million from the corresponding period in the prior year. For the six months ended June 30, 2006, North America industrial products net revenue decreased 15.3% to $45.5 million from $53.7 million for the corresponding period in the prior year. The net revenue decreases for both the quarter and year-to-date periods was due primarily to lower volumes in cotton bale, performance fabrics and fiber sales, partially offset by the successful pass-through of higher raw material costs.

For the three months ended June 30, 2006 compared to the three months ended June 30, 2005, North America concrete fiber net revenue increased 37.6% to $19.4 million from $14.1 million for the corresponding period in the prior year. For the six months ended June 30, 2006 compared to the corresponding period in the prior year, North America concrete fiber net revenue increased 5.3% to $33.7 million from $32.0 million due to the successful pass-through of higher raw material costs.

For the three months ended June 30, 2006, Europe net revenue increased $0.8 million, or 3.1% to $26.3 million from $25.5 million in the corresponding period of the prior year. For the six months ended June 30, 2006, Europe net revenue increased $0.3 million, or 0.6%, to $50.8 million from $50.5 million in the corresponding period of the prior year. The small net revenue increase for both the quarter and year-to-date periods was primarily due to favorable product mix changes, mostly offset by lower carpet industry volumes due to general weakness in the European economy and cautious consumer spending.

For the three months ended June 30, 2006, Brazil net revenue decreased $1.0 million, or 9.9%, to $9.1 million from $10.1 million in the corresponding period of the prior year. For the six months ended June 30, 2006, Brazil net revenue decreased $1.2 million, or 6.3%, to $17.7 million from $18.9 million in the corresponding period of the prior year. The net revenue decrease for both the quarter and year-to-date periods was due to the negative impact of Brazil’s recent tight monetary policy on general commercial activity and specifically the agricultural sector into which many of our products are sold and capacity additions by our competitors. These effects are partially offset by higher unit selling prices in dollar terms due to the foreign exchange effects of Brazil’s tight monetary policy.

Cost of sales

On a combined company basis, cost of sales decreased 12.9% to $165.3 million for the three months ended June 30, 2006 from $189.8 million for the corresponding period in the prior year. The decrease in cost of sales primarily reflects generally lower North America volumes partially offset by higher resin pricing. As a percentage of net revenue, cost of sales decreased to 80.4% in the three months ended June 30, 2006 from 81.3% in the three months ended June 30, 2005, primarily due to a decrease in non-raw material manufacturing costs.

For the six months ended June 30, 2006, cost of sales decreased 9.9% to $339.0 million from $376.3 million for the corresponding period in the prior year. The decrease in cost of sales primarily reflects generally lower North America volumes partially offset by higher resin pricing and the effects of the $7.7 million inventory fair value adjustment related to the SI Acquisition purchase accounting during the first quarter, which has been recognized in cost of sales during the six month period ended June 30, 2006. As a percentage of net revenue, cost of sales decreased to 82.3% in the six months ended June 30, 2006 from 81.3% for the corresponding period in the prior year, primarily due to a decrease in non-raw material manufacturing costs.

In addition, for the three and six months ended June 30, 2006, higher margins are the result of improved average selling prices, which increased at a rate greater than that of raw material costs. Also, product mix for the three and six months ended June 30, 2006 shifted toward higher margins products.

Selling, general and administrative expenses

On a combined company basis, selling, general and administrative expenses decreased to $25.6 million for the three months ended June 30, 2006 from $31.3 million for the corresponding period in the prior year. As a percentage of net revenue, selling, general and administrative expenses decreased to 12.5% in the three months ended June 30, 2006 from 13.4% for the corresponding period in the prior year.

Selling, general and administrative expenses on a combined company basis decreased to $56.2 million for the six months ended June 30, 2006 from $62.7 million in the corresponding period in the prior year. As a percentage of net revenue, selling, general and administrative expenses increased to 13.7% for the six months ended June 30, 2006 from 13.5% for the corresponding period in the prior year. For the three and six months ended June 30, 2006, selling general and administrative expenses on a combined company basis have decreased from the comparable prior year period as a result of the continued integration of the two companies, eliminating redundant expenses.

In-process research and development charge

For the three months ended June 30, 2006 and 2005, there were no in-process research and development charges.

Pension curtailment gain

For the three months and six months ended June 30, 3006, the Company recorded a $0.4 million curtailment gain for the reduction in the projected benefit obligation related to the U.S. pension plan for hourly employees. There was no comparable amount for the corresponding periods of the prior year.

Restructuring and other similar costs

For the three months and six months ended June 30, 2006, restructuring and other similar costs were $3.4 million and $6.4 million, respectively, related to severance costs to eliminate redundant selling, general and administrative overhead costs created by the SI Acquisition. There was no comparable amount for the corresponding periods of the prior year.

Impairment of long-lived assets

For the three months ended June 30, 2006 and 2005, there were no impairments of long-lived assets.

Gain from sale of Roanoke plant

Income before interest and income taxes

On a combined company basis, income before interest and taxes increased 414.5% to $56.6 million for the three months ended June 30, 2006 from $11.0 million for the corresponding period in the prior year. The increase was primarily due to the $44.5 million gain on sale of the Roanoke plant which is not included within segment income. Partially offsetting the gain was a decrease of $0.6 million in Brazilian segment income, partially offset by increase of $1.7 million in European segment income.

For the six months ended June 30, 2006, income before interest and taxes increased 9.8% to $21.2 million for the six months ended June 30, 2006 from $19.4 million for the corresponding period in the prior year. The increase was primarily due to the $44.5 million gain on sale of the Roanoke plant which was not included within segment income, partially offset by $22.0 million of SI divestiture-related costs recognized by SI in their January 2006 financial results immediately prior to the SI Acquisition and $19.9 million of non-recurring acquisition and restructuring related charges in the first quarter. In addition, income decreased by $45.4 million in North American segment income and $0.7 million for Brazilian segment income, partially offset by an increase of $3.5 million for European segment income.

For the three months ended June 30, 2006, North America furnishings segment income increased $2.4 million to $11.5 million from $9.1 million for the corresponding period in the prior year. For the six months ended June 30, 2006, North America furnishings segment income decreased $12.9 million to $8.4 million from $21.3 million for the corresponding period in the prior year. The segment income decreased for both the quarter and year-to-date periods due to the lower volumes resulting from the North America carpet industry restructuring, which occurred largely in 2005, wherein the two largest carpet manufacturers back-integrated significantly into carpet backing manufacturing and in the second quarter, further volume declines due to the sale of the Roanoke plant on April 3rd. This negative volume effect was partially offset by increasing margins. Finally, income was impacted by a $7.5 million allocation of non-recurring acquisition integration and restructuring charges in the first quarter.

For the three months ended June 30, 2006, North America geosynthetics segment income increased to $0.7 million from $0.5 million for the corresponding period in the prior year. For the six months ended June 30, 2006, North America geosynthetics segment loss increased to a $13.1 million loss from a loss of $1.7 million for corresponding period in the prior year. The segment income decreased for both the quarter and year-to-date periods due to general weakness in demand and volume losses at certain customers who changed suppliers. For the six months ended June 30, 2006, segment income was impacted by a $5.7 million allocation of non-recurring acquisition integration and restructuring charges in the first quarter partially offset by higher margins across our entire geosynthetics product line.

For the three months ended June 30, 2006, North America industrial products segment income decreased $1.4 million to a loss of $1.3 million from a loss of $0.2 million for the corresponding period in the prior year. For the six months ended June 30, 2006, North America industrial segment income decreased to a loss of $7.7 million for the six months ended June 30, 2006 from a loss of $0.7 million for the corresponding period in the prior year. For both the quarter and year-to-date periods, the decrease in segment income was due primarily to lower sales volumes in certain packaging, performance fabrics and fiber applications and in the first quarter, a $2.0 million allocation of non-recurring acquisition integration and restructuring charges, partially offset by higher product margins.

For the three months ended June 30, 2006, the North America concrete fiber segment income decreased $1.4 million to a loss of $1.2 million from income of $0.2 million for the corresponding period in the prior year. For the six months ended June 30, 2006, North America concrete fiber segment income decreased $14.1 million to a loss of $15.6 million from a loss of $1.5 million in the corresponding period of the prior year. The segment income decreased for both the quarter and year-to-date periods due to lower sales volumes. In addition, the year-to-date period was impacted by a $4.7 million allocation of the above-mentioned non-recurring acquisition integration and restructuring charges in the first quarter.

For the three months ended June 30, 2006, Europe segment income increased $1.7 million to $2.1 million from $0.4 million in the corresponding period of the prior year. For the six months ended June 30, 2006, Europe segment income increased $3.5 million to $3.7 million from $0.2 million in the corresponding period of the prior year. The segment income increased for both the quarter and year-to-date periods due to a reduction in manufacturing costs associated with the elimination of the weekend shift at our Gronau, Germany facility.

For the three months ended June 30, 2006, Brazil segment income decreased $0.6 million, or 66.7%, to $0.3 million from $0.9 million in the corresponding period of the prior

year. For the six months ended June 30, 2006, Brazil segment income decreased $0.7 million, or 41.2%, to $1.0 million from $1.7 million in the corresponding period of the prior year. The segment income decreased for both the quarter and year-to-date periods because of sales volume declines due to Brazil’s recent tight monetary policy on general commercial activity and specifically the agricultural sector into which many of our products are sold and capacity additions by our competitors. These effects are partially offset by higher unit selling prices in dollar terms due to the foreign exchange effects of Brazil’s tight monetary policy.

Interest expense, net

On a combined company basis, net interest expense decreased to $8.5 million for the three months ended June 30, 2006 from $9.8 million for the corresponding period of the prior year. The decrease in interest expense for the quarter is primarily due to the debt repayments in April 2006 from the estimated after tax proceeds from the Roanoke plant sale.

Net interest expense increased to $21.8 million for the six months ended June 30, 2006 from $18.2 million for the corresponding period of the prior year. The increase in interest expense for the year-to-date period is due an increase in interest rates.

Income taxes

The provision for income taxes increased to $18.4 million for the three months ended June 30, 2006 from $0.9 million for the corresponding period of the prior year. The provision for income taxes increased to $9.7 million for the six months ended June 30, 2006, from a benefit of $0.1 million for the corresponding period of the prior year. The increase in income taxes for both the quarter and year-to-date periods relates primarily to taxes related to the sale of the Roanoke facility.

Liquidity and Capital Resources as of June 30, 2006

The information discussed below is presented based on the Company’s historical results, which include the results of SI for the period following the January 31, 2006 SI Acquisition date.

Our primary cash needs are for working capital, capital expenditures, tax payments, debt payments or debt retirement, and future acquisition integration activity costs. Our forecasted capital spending for 2006 is approximately $15.0 to $18.0 million with $4.0 to $6.0 million relating to ongoing operations and the balance pertaining to acquisition-related integration and restructuring expenditures. We believe we have adequate liquidity to meet these cash needs. We may use excess cash balances to repay or retire debt. We finance these cash requirements through cash generated from operations and funds borrowed from our revolving credit facility. As of June 30, 2006, we had no borrowings from our revolving credit facility.

Net working capital is comprised of current assets, minus current liabilities, excluding current maturities of long-term debt and accrued interest. We had net working capital of $232.7 million at June 30, 2006, and $218.5 million at December 31, 2005. Working capital increased $14.2 million from December 31, 2005 due to increases associated with the SI Acquisition and normal seasonal increases partially offset by decreases in cash, which was used to fund a portion of the SI Acquisition, and decreases in assets held for sale.

At June 30, 2006, working capital includes $26.2 million of cash and cash equivalents.

The Company had net cash outflows from operations of $8.7 million in the six months ended June 30, 2006 compared to net cash inflows from operations of $4.4 million in the six months ended June 30, 2005. The decrease in cash from operations is due to decreased operating income exclusive of the Roanoke plant sale gain. Proceeds from the sale of our Roanoke plant are included in cash flows from investing activities.

Cash used in investing activities was $159.0 million in the six months ended June 30, 2006 versus $1.3 million in the three months ended June 30, 2005.

Capital expenditures increased to $2.3 million in the six months ended June 30, 2006 from $1.3 million in the six months ended June 30, 2005. The increase in cash used in investing activities relates primarily to the SI Acquisition in January 2006 partially offset by proceeds from the sale of our Roanoke, Alabama carpet backing facility in April 2006.

Cash generated from financing activities was $135.7 million in the six months ended June 30, 2006 compared to cash used in financing activities of $3.3 million for the six months ended June 30, 2005. In 2006, the cash generated relates to additional indebtedness acquired to fund the SI Acquisition partially offset by debt repayments with the after-tax proceeds from sale of our Roanoke facility, whereas in 2005, cash used was primarily related to schedule debt principal repayments.

Senior Credit Facility

On January 31, 2006, the Company entered into a new Credit Agreement to refinance our credit facility and to raise additional funds for the SI Acquisition. The new Credit Agreement provides for a $360.0 million senior credit facility, comprised of a $260.0 million term loan facility, a $50.0 million revolving credit facility and a $50.0 million bridge loan facility. This Credit Agreement replaces the credit agreement dated as of December 1, 2004, among the Company, Amoco Fabrics and Fibers Company, the lenders named therein and BNP Paribas, as Administrative Agent. Similar to the prior credit facility, the new credit facility is guaranteed by Propex Holdings Inc., our parent corporation, and our domestic subsidiaries. It is also secured by a first priority lien on our domestic subsidiaries’ real and personal property including a pledge of all the capital stock of our domestic subsidiaries and 66.0% of the capital stock of our foreign subsidiaries.

At management’s discretion, the loan bears interest at either LIBOR plus 2.25% or a base rate plus 1.25%, where the base rate equals the higher of the prime rate or the Federal Funds interest rate. Mandatory prepayments are required under certain conditions and voluntary prepayments are allowed at no premium. Certain financial covenants must be met on a quarterly basis including a specified fixed charge coverage ratio, a specified interest coverage ratio, a minimum EBITDA requirement, maximum senior secured and total leverage ratios, and a maximum capital expenditures test. We were in compliance with the financial covenants of this agreement as of June 30, 2006 and through the date of this filing.

The credit facility also included a sublimit of $20.0 million for the issuance of letters of credit, of which $5.8 million was issued and outstanding as of June 30, 2006.

The initial use of funds from the new credit facility were as follows: $198.7 million in partial payment toward the SI Acquisition purchase price, $105.2 million to repay the outstanding principal and interest amounts under the prior credit facility and $6.1 million in related transaction costs.

In April 2006, as required by the terms of the new credit facility, we used the estimated after-tax proceeds from the sale of our Roanoke, Alabama plant to repay the entire $50.0 million bridge loan and to repay $11.5 million of the $260.0 million term loan.

The prior credit agreement was entered into with a syndicate of lenders on December 1, 2004. The prior credit agreement provided for a $110.0 million senior term loan and a $65.0 million revolving line of credit, which had a $104.5 million balance outstanding on the term loan and no balance on the revolving line of credit as of the January 31, 2006 refinancing date. The credit facility also included a sublimit of $20.0 million for the issuance of letters of credit, of which $0.5 million was issued and outstanding as of the January 31, 2006 refinancing date.

10% Senior Notes due 2012

On December 1, 2004, we issued an aggregate of $150.0 million of 10% Senior Notes pursuant to an indenture among us, the subsidiary guarantors and Wells Fargo Bank, N.A., as trustee. These notes will mature on December 1, 2012. Interest on these notes accrues at 10% per annum and is payable on June 1 and December 1 of each year. All of our domestic subsidiaries jointly and severally guarantee the 10% Senior Notes. We used the proceeds from the issuance of the 10% Senior Notes to finance a portion of the BP Acquisition.

Critical Accounting Policies

In preparing our financial statements in conformity with GAAP, management must make decisions that impact the reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, our management evaluates its estimates, including those related to retirement benefits, allowance for doubtful accounts, impairment of long-lived assets, impairment of intangibles, income taxes, litigation and contingencies. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes monitoring changes in critical accounting policies is important to the fair presentation of our financial condition and results of operations because they can require management’s more significant judgments and estimates in the preparation of our consolidated financial statements. Information regarding our accounting policies and estimates that we consider to be “critical” can be found in our annual report on Form 10-K for the year ended December 31, 2005. There have not been any significant changes in these policies or estimates since December 31, 2005.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

We are exposed to various market risks such as fluctuating raw material costs, fluctuating interest rates and changes in foreign currency exchange rates. As of June 30, 2006, we did not utilize any derivative instruments to manage these raw material pricing or foreign exchange risks. However, as discussed in greater detail below, we entered into an interest rate swap agreement to lock in the interest rate on at least 50% of our bank term loan and 10% Senior Notes due 2012 over the initial three years of the new Credit Agreement.

Raw material risk. The cost of our commodity raw materials is volatile and could have a significant impact on our profitability. In particular, our business requires the purchase of large volumes of polypropylene, a petroleum derivative. Increases in the cost of this raw material could materially adversely affect our business, results of operations and financial condition if we are unable to pass these increases through to our customers. We believe we will be successful in increasing prices to pass along much of this increase in polypropylene costs consistent with historical experience; however, we may not be able to successfully recover such increases in cost.

Our polypropylene is purchased from multiple suppliers. We believe there are generally adequate sources of polypropylene; however, unanticipated termination or interruption of our arrangements with third-party suppliers of polypropylene could have a material adverse effect on us. Extreme weather conditions such as the 2005 hurricanes affecting the U.S. Gulf Coast can adversely affect our ability to supply products to our customers and negatively impact the availability of polypropylene for certain time periods. In the past, our long-term relationships with a broad base of suppliers has enabled us to obtain all our needed polypropylene supply, even during the aftermath of the 2005 U.S. Gulf Coast hurricanes; however, there may be future situations when we may not be able to do so. We currently have established relationships with multiple polypropylene suppliers for all our expected raw material needs, where most pricing is determined by monthly negotiations about market pricing.

Currency translation. The results of operations of our foreign companies are translated into U.S. dollars at the average exchange rates for each period concerned. This translation has no impact on cash flow. After re-measuring any non-local currency balances into the local functional currency, the balance sheets of our foreign companies are translated into U.S. dollars at the closing exchange rates. Remeasured or transactional foreign exchange gains or losses are recorded to other income and expense and balance sheet translation adjustments are recorded as other comprehensive income or loss.

Currency transaction exposure. Currency transaction exposure arises where sales and purchases are made by a company in a currency other than its own functional currency. The majority of our companies source raw materials and sell their products within their local markets in their functional currencies and therefore have limited transaction exposure. Hungary sells most of its products in euros to the European market through its German affiliate. As a result, we do incur limited transactions exposure between the euro and the Hungarian forint.

The United Kingdom location of SI concrete purchases raw materials from the North America location of SI concrete, while the North American location of SI concrete purchases steel from SI concrete in the United Kingdom. Settlement of purchases is handled through intercompany accounts and not with payment of cash.

Interest rate risk. We have incurred a significant amount of debt in connection with the BP and SI Acquisitions, with a significant portion being at variable rates. As required by our new Credit Agreement, on May 1, 2006, we entered into an interest rate swap agreement to lock in the interest rate on at least 50 percent of our bank term loan and 10% Senior Notes due 2012 over the initial three years of the new Credit Agreement. The notional amount of the interest rate swap equals $49.2 million on May 1 and gradually declines consistent with the Credit Agreement repayment schedule to be notional amount of $30.6 million in June 2009 when the swap contract expires. We have not applied hedge accounting treatment to the interest rate swap under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, but rather are recording all interest rate swap related income and expenses to interest expense in the Condensed Consolidated Statement of Operations as they occur. After taking into consideration our $61.5 million debt repayment on April 4, 2006 and the $47.7 million interest rate swap principal as of June 30, 2006 (discussed earlier), $197.7 million of our total $395.4 million indebtedness, or 50%, is subject to a variable interest rate.

A hypothetical 10.0% increase or decrease in the applicable interest rates as of June 30, 2006 would change the quarterly cost of financing on our variable rate debt by $0.4 million.

Seasonality. We have historically experienced, and expect to continue to experience, seasonal and quarterly fluctuations in net revenue and operating income. Homebuilding, civil engineering projects and the agricultural cycle all are subject to seasonal influences, characterized by strong sales for the spring and summer months. Pre-season inventory builds along with strong sales during this period combine to favorably impact the first and second quarter results. In addition, our European operations typically experience lower third quarter sales due to the traditional late-summer holiday.

Taxes. We are subject to taxation in multiple jurisdictions throughout the world. Our effective tax rate and tax liability will be affected by a number of factors, such as the amount of taxable income in particular jurisdictions, the tax rates in such jurisdictions, tax treaties between jurisdictions, the extent to which we transfer funds between jurisdictions and repatriate income, changes in law and the potential challenge of tax positions taken in our various tax filings.

Inflation. Inflation can affect the costs of goods and services we use. In the more mature economies in which we operate, from either a manufacturing or sales viewpoint, we have experienced relatively low price inflation in recent years. In more emerging economies, such as Hungary, we experience more moderate inflation, but in a lower cost environment.

Item 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the chief executive officer and the chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Company’s management, including its chief executive officer and chief financial officer, concluded that the Company’s disclosure controls and procedures were effective as of the date of the evaluation.

Separately, the Company has engaged specialized consultants to assist the Company in preparing for the requirements of Section 404 of the Sarbanes-Oxley Act. The Company will first be required to comply with such requirements in its Annual Report on Form 10-K for the fiscal year ending December 31, 2007.

Because of their inherent limitations, the Company’s disclosure controls and procedures and its internal control over financial reporting may not prevent or detect all misstatements. In designing and evaluating the Company’s internal control over financial reporting, management recognizes that any such controls, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives; management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Any evaluation of the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting is subject to the risk that controls and procedures may become inadequate in the future as result of changes in the business environment in which we operate.

Note Regarding Forward-Looking Statements

This document contains forward-looking statements. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management, based on information currently available to management. Forward-looking statements are those that do not relate strictly to historical or current facts, and can be identified by the use of the future tense or other forward-looking words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “should,” “may,” “objective,” “projection,” “forecast,” “management believes,” “continue,” “strategy,” “position” or the negative of those terms or other variations of them or by comparable terminology. In particular, statements express or implied, concerning future actions, conditions or events, future operating results or the ability to generate sales, income or cash flow are forward-looking statements. Forward-looking statements include the information concerning possible or assumed future results of our operations set forth under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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

• changes in the price of polypropylene resin, our primary raw material;

• changes in levels of building construction and remodeling that affect the demand for carpet;

• our reliance on a limited number of product lines;

• changes in the structure of the North American carpet backing industry as a result of back integration and domestic and foreign competition;

• our ability to acquire new businesses and assets, and integrate those operations into our existing operations;

• our ability to achieve cost savings and revenue growth in acquired and existing operations;

• changes in laws or regulations, third party relations and approvals and decisions of courts, regulators and governmental bodies that may adversely affect our business or the business of the customers we serve;

• our ability to retain a skilled labor force;

• economic, competitive and regulatory conditions and developments;

• technological developments;

• capital markets conditions;

• inflation;

• foreign currency exchange rates;

• interest rates;

• other factors affecting business plans, including the timing and success of business development efforts;

• our ability to successfully integrate the SI Acquisition, which occurred on January 31, 2006, and to realize the significant projected synergies related to the acquisition.

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

PART II

Item 1. LEGAL PROCEEDINGS

As previously disclosed, as of the end of the first quarter, SI Concrete Systems Corporation, one of the SI companies we acquired on January 31, 2006, was a named defendant in three pending lawsuits filed in southern California relating to Fibermesh® polypropylene fibers, one of its concrete fiber product lines. The Company has recently settled two of the three pending lawsuits. The settlement amounts do not have a material effect on the Company’s financial results. One pending lawsuit remains outstanding. The outstanding lawsuit alleges Fibermesh® polypropylene fibers are defective when used as a substitute for steel wire mesh as a secondary reinforcement in concrete, and that SI Concrete Systems Corporation, falsely represented its suitability for that use. Although the defense costs for the pending case are partially covered by insurance; we are responsible for the difference between the attorney’s standard billing rate and the lower rate agreed to by the insurers. At this time, we believe it is unlikely that resolution of this lawsuit will have a material effect on our business, financial condition or results of operations.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

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

In May 2006, Propex Fabrics Inc.’s shareholder approved the change of the Company’s name to Propex Inc. This name change became effective on June 13, 2006. A copy of the certificate of amendment is attached as Exhibit 3.3 to this Form 10-Q.

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ExhibitNumber		Description
3.1		Certificate of Ownership and Merger Merging Propex Fabrics Inc. into Amoco Fabrics and Fibers Company, filed with the Secretary of State of the State of Delaware on December 1, 2004 (filed as Exhibit 3.1 to Propex Fabrics Inc.’s Form S-4, Registration No. 333-122829, and incorporated herein by reference).
3.2		Amended Bylaws of Propex Fabrics Inc. (filed as Exhibit 3.2 to Propex Fabrics Inc.’s Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference).
3.3		Certificate of Amendment, effective June 13, 2006, filed with the Delaware Secretary of State.
4.1		Indenture, dated as of December 1, 2004, among Propex Fabrics Inc., the guarantors named therein and Wells Fargo Bank, N.A., as Trustee (filed as Exhibit 4.1 to Propex Fabrics Inc.’s Form S-4, Registration No. 333-122829, and incorporated herein by reference).
4.2		Form of 10% Senior Notes due 2012 (contained in the Indenture filed as Exhibit 4.1 to Propex Fabrics Inc.’s Form S-4, Registration No. 333-12829, and incorporated herein by reference).
4.3		First Supplemental Indenture, dated as of June 23, 2006, among Propex, Inc., and the guarantors names therein and Wells Fargo Bank, N.A. as Trustee.
10.1		Separation Agreement and General Release, dated May 3, 2006, among Propex Fabrics Inc., Propex Fabrics Holdings Inc., and Philip D. Barnes (filed as Exhibit 10.1 to Propex Fabrics Inc.’s Form 8-K filed on May 8, 2006 and incorporated herein by reference).
31.1		Certification of Chief Executive Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2		Certification of Chief Financial Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934.
32.1		Certification by the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PROPEX INC. By: /s/ PHILIP D. BARNES Philip D. Barnes Vice President, Chief Financial Officer and Treasurer

Date: August 14, 2006

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