SYNTHETIC INDUSTRIES LP, 10-K, 1997-12-29

SYNTHETIC INDUSTRIES LP
10-K, 1997-12-29
KNITTING MILLS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 1997

[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ________________________

Commission File Number 0-21548

SYNTHETIC INDUSTRIES L.P.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)

Delaware 13-3397585
- -------------------------------- --------------------------- ------------------
(State or other jurisdiction

(I.R.S. Employer
of incorporation or organization)

Identification No.)

309 LaFayette Road, Chickamauga, Georgia 30707
- -------------------- ---------------------------------------------------------
(Address of principal executive offices) (Zip Code)

(706) 375-3121
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on which
Title of class registered
None

Securities registered pursuant to Section 12(g) of the Act:

Units of Limited Partnership Interest
(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The units are not publicly traded. Hence, the aggregate market value is
not determinable.

The number of units outstanding as of December 8, 1997 was 800.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the annual report on Form 10-K for the fiscal year ended
September 30, 1997 of Synthetic Industries, Inc., a Delaware corporation, are
incorporated by reference herein.
<PAGE>

PART I

ITEM 1. BUSINESS

General

Synthetic Industries L.P. (the "Partnership") is a limited partnership
organized under the laws of the state of Delaware. In December 1986, the
Partnership acquired all of the issued and outstanding shares (the "Shares") of
the capital stock of Synthetic Industries, Inc., a Delaware corporation (the
"Company"). The Partnership currently owns approximately 67% of the Company's
common stock, par value $1.00 per share (the "Common Stock"). The Company
manufactures and markets a wide range of polypropylene-based fabric and fiber
products designed for industrial applications. The information set forth under
the heading "Business" in the Form 10-K of the Company for the fiscal year ended
September 30, 1997 (the "Form 10-K") is incorporated herein by reference.

Since its organization in 1986, the Partnership has conducted no
business except (i) engaging in the transactions described in a confidential
offering memorandum dated January 16, 1987, as supplemented, relating to the
offering and sale of units of limited partnership interest in the Partnership
(the "Units"); and (ii) owning and voting the Shares. The Partnership's
principal executive offices are located at 309 LaFayette Road, Chickamauga,
Georgia 30707, and its telephone number is (706) 375-3121.

The sole general partner of the Partnership is SI Management L.P., a
Delaware limited partnership ("Management L.P." or the "General Partner"). The
sole general partner of Management L.P. is Synthetic Management G.P. ("Synthetic
G.P."). Synthetic G.P. is a Georgia general partnership whose partners are
controlled by certain members of the Company's senior management. See "Directors
and Executive Officers - Partners of Synthetic G.P." Since their respective
dates of the formation, neither Synthetic G.P. nor Management L.P. has engaged
in any business, other than Synthetic G.P. acting as the general partner of
Management L.P. and Management L.P. acting as the general partner of Synthetic
L.P.

ITEM 2. PROPERTIES

The Partnership does not own or lease any physical properties.

The information set forth under the heading "Properties" in the Form
10-K is incorporated herein by reference.

ITEM 3. CLAIMS AND LEGAL PROCEEDINGS

In connection with the proposed dissolution of the Partnership, pursuant
to an Agreement and Plan of Withdrawal and Dissolution (the "Plan"), the
Partnership, the General Partner, one director and certain of the Company's
officers who are affiliated with the General Partner have been named in two
putative class action lawsuits filed by certain limited partners of the
Partnership. In the first action, to which the Company is not a party, filed on
February 11, 1997 in the Delaware Court of Chancery and thereafter amended, the
plaintiffs have alleged, among other things, breach of the defendants' fiduciary
duty to the limited partners, that the Plan is unlawfully coercive, that the
General Partner has allegedly failed to satisfy certain conditions precedent to

<PAGE>

the right of limited partners to amend the partnership agreement and that
certain amendments necessary to implement the Plan violate the terms of the
partnership agreement. The plaintiffs seek, among other equitable and legal
remedies, removal of the General Partner, dissolution of the Partnership,
appointment of a liquidating trustee, to enjoin implementation of the Plan and
compensatory damages in an undetermined amount. On October 23, 1997, the Court
preliminarily enjoined the implementation of the Plan, although the Plan was
subsequently approved by limited partners on November 7, 1997. On November 7,
1997, the Delaware Supreme Court accepted the defendants' petition for an
expedited appeal of this injunction, and oral argument on the appeal was heard
on December 2, 1997. The defendants have denied the allegations of the plaintiff
and are vigorously contesting the lawsuit.

The second lawsuit was filed in the U.S. District Court of the Northern
District of California on May 1, 1997, and thereafter amended. The plaintiff has
alleged in his amended complaint various federal securities and proxy violations
allegedly arising out of the joint proxy statement and prospectus that was
mailed to limited partners in connection with the solicitation of proxies for
the vote on the Plan and other related documents. The plaintiff also added the
Company as a named defendant, alleging that all defendants acted in concert
with, and as agents of, each other; however, the plaintiff made no specific
independent allegations with respect to the Company. The plaintiff seeks, among
other equitable and legal remedies, to enjoin the implementation of the Plan and
unspecified damages. On November 6, 1997, the Court granted in part the
plaintiff's motion for a temporary restraining order enjoining the
implementation of the Plan. The plaintiff's motion for a preliminary injunction
has been briefed and an oral argument was heard on December 19, 1997. The
defendants have denied the allegations of the plaintiff and are vigorously
contesting the lawsuit.

The Partnership is a principal stockholder of the Company and certain
members of the Company's management control the General Partner. See "Certain
Relationships and Related Transactions." Based on the Company's review of the
allegations made in the above action to date, the Company does not believe that
the ultimate resolution of either action will have a material adverse effect on
the Company's results of operations or financial condition.

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

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

On November 1, 1997, a special meeting of the limited partners was held to vote
upon the approval of a proposed dissolution of the Partnership pursuant to an
Agreement and Plan of Dissolution (the "Plan"). Out of 800 limited partner units
outstanding, 565.75 units, or 70.72% voted in favor of the Plan, 108.25 units,
or 13.53% voted against the Plan, and 4.875 units, or 0.61%, abstained.

<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

There is no established trading market for the Units. In addition, the
limited partnership agreement of the Partnership (the "Limited Partnership
Agreement") places restrictions on the transferability of Units. No transferee
of all or any part of a Unit may be admitted to the Partnership as a limited
partner ("Limited Partner") without the written consent of Management L.P.,
which consent may be withheld in the absolute discretion of Management L.P. The
Limited Partnership Agreement also provides that the transfer of the whole or
any portion of a Unit shall not be effective to entitle the transferee to
receive distributions of cash or other property from the Partnership applicable
to the Unit acquired by reason of such transfer, unless Management L.P. consents
in writing to such transfer.

The Partnership has made no distributions of any kind since its organization
in 1986. The Company is currently restricted under a loan agreement with its
senior lenders and an indenture relating to the Company's senior subordinated
notes due 2007 from paying cash dividends, or making certain type of capital
distributions.

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data presented below for, and as of the
end of, each of the fiscal years in the five year period ended September 30,
1997 have been derived from the audited consolidated financial statements of
Synthetic Industries L.P. The consolidated financial statements as of September
30, 1997 and 1996 and for the three-year period ended September 30, 1997 and the
independent auditors' report thereon are included in Item 8 of this Form 10-K.
Dollars are in thousands, except limited partnership units outstanding.
<TABLE>
<CAPTION>

Year Ended September 30,
1997 1996 1995 1994 1993
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Summary of Operations Data:
Net sales $345,572 $299,532 $271,427 $234,977 $210,516
Gross profit 112,385 91,211 76,721 82,672 68,335
Operating income 50,291 37,813 28,687 41,007 29,921
Income from continuing operations
before provision for income taxes,
minority interest in subsidiary net income
and extraordinary item 29,552 14,341 5,436 20,257 8,134
Income from continuing operations
before minority interest in subsidiary net
income and extraordinary item 17,011 7,441 1,936 11,657 3,662
Income from continuing operations
attributable to limited partners 3,165 7,367 1,917 11,540 3,625
Income from discontinued operations - - - - 1,420
Extraordinary item - loss from early
extinguishment of debt (11,950) - - - (8,892)
Cumulative effect of accounting change - - - - (8,500)
Net income (loss) 3,197 7,441 1,936 11,657 (12,310)

Income from continuing operations
per limited partnership unit $3.96 $9.21 $2.40 $14.43 $4.53
Limited partnership units outstanding 800 800 800 800 800

As of September 30,
1997 1996 1995 1994 1993
----- ------ ------ ------ ------

Balance Sheet Data:
Working capital $88,032 $63,418 $69,041 $44,116 $42,057
Total assets 394,795 323,756 312,302 287,935 260,374
Long-term debt 220,464 194,353 192,048 172,490 164,723
Partners' Capital 68,876 65,185 57,758 55,819 44,425
</TABLE>
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

As previously discussed, since its organization in 1986 and subsequent
admission of Limited Partners, the Partnership has conducted no business except
owning and voting the Shares. As a result of its public offering of Common Stock
in November 1996, the Company currently has 8,656,250 shares of Common Stock
outstanding, of which approximately 67% are owned by the Partnership. As the
Partnership has no independent operations or assets other than its investment in
the Company, the Partnership's financial statements are substantially identical
to those of the Company, with the exception of the minority interest and $1,800
due the Company for expenses paid by the Company on behalf of the Partnership
relating to the Plan. As a result, the discussion and analysis of financial
condition and results of operations presented below relates to the operations of
the Company, except as disclosed. Accordingly, all references to fiscal year
refer to the Company's fiscal year which ends on September 30th.

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the information
contained in the Consolidated Financial Statements, including the notes thereto.
The following discussion includes forward-looking statements that involve
certain risks and uncertainties. See "Forward-Looking Statements." Dollars are
in thousands, except per share data.

Overview

The Company's net sales in recent years have increased due to a variety of
factors, including generally increasing sales volumes as a result of growing
demand for the Company's products and the Company's ability to expand its
markets through development of new products.

While the Company's sales have grown in each year, the Company's gross
profit has fluctuated due to a variety of factors, primarily related to changes
in the price of polypropylene. Polypropylene is the basic raw material used in
the manufacture of substantially all of the Company's products today, accounting
for approximately 50% of the Company's cost of sales. The Company believes that
the selling prices of many of its products have adjusted over time to reflect
changes in polypropylene prices.

The price of polypropylene is determined by the supply and demand for the
product. Historically, the creation of additional capacity has helped to relieve
supply and pricing pressures although there can be no assurance that this will
continue to be the case. In fiscal 1997 supply increased faster than demand, a
trend that the Company expects to continue into fiscal 1998. According to a
September 1997 report by Chemical Data Inc., a monthly petrochemical and
plastics analysis publication, annual polypropylene capacity in North America as
of December 31, 1996 was 12.6 billion pounds per year, up from 11.4 billion
pounds at December 31, 1995. Total average annual capacity is expected to rise
to 14.1 billion pounds per year for calendar 1997, and to 18.2 billion pounds
per year by the year 2000, a 10% compounded growth rate. Demand is projected to
increase from 4% to 9% from current levels through the year 2000.

<PAGE>

The following table sets forth the Partnership's percentage relationships
to net sales of certain statements of operations items:
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995

<S> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0%
Cost of sales............................. 67.5 69.5 71.7
---- ---- ----
Gross profit........................... 32.5 30.5 28.3
Selling expenses.......................... 9.2 9.2 9.0
General and administrative
expenses.......................... 8.0 7.8 7.8
Amortization of intangibles............... 0.7 0.9 0.9
--- --- ---
Operating income........................ 14.6 12.6 10.6
Interest expense.......................... 5.8 7.6 8.3
Amortization of deferred
financing costs.................. 0.2 0.2 0.3
--- --- ---
Income before provision for income
taxes, minority interest in subsidiary
net income and extraordinary item 8.6 4.8 2.0
Provision for income taxes................ 3.6 2.3 1.3
--- --- ---
Income before minority interest in
subsidiary net income and
extraordinary Item.............. 5.0% 2.5% 0.7%
==== ==== ====
</TABLE>

Results of Operations

Fiscal 1997 Compared to Fiscal 1996

Net sales for fiscal 1997 were $345,572 compared to $299,532 for fiscal
1996, an increase of $46,040, or 15.4%. Carpet backing sales for fiscal 1997
were $166,219 compared to $146,491 for fiscal 1996, an increase of $19,728, or
13.5%. This increase was primarily due to higher unit volume in both primary and
secondary carpet backing. Construction and civil engineering product sales for
fiscal 1997 were $114,611 compared to $97,043 for fiscal 1996, an increase of
$17,568, or 18.1%. This increase was primarily due to an 10.5% increase in
Fibermesh(R) sales and a 22.3% increase in geosynthetic sales. Technical
textiles sales for fiscal 1997 were $64,742 compared to $55,998 for fiscal 1996,
an increase of $8,744, or 15.6%, of which the Spartanburg Acquisition added
approximately $8,600.

Gross profit for fiscal 1997 was $112,385, compared to $91,211 for fiscal
1996, an increase of $21,174, or 23.2%. As a percentage of sales, gross profit
increased to 32.5% from 30.5%. This increase was due to increased sales volume,
slightly higher average selling prices and growth of higher margin business,
coupled with slightly lower average polypropylene costs as compared to the prior
year.

The Company's improvement in gross profit performance also reflects its
diversification strategy for its products as well as its primary raw material.
The Company expects that construction and civil engineering and technical
textiles will continue to be of increasing importance to the Company's overall
sales. Reflecting the success of this strategy, sales of carpet backing, the
Company's core product line, have decreased from 50.5% of total net sales in
fiscal 1993 to approximately 47% of pro forma fiscal 1997 total net sales,
adjusted to reflect for the Spartan Acquisition. In addition, the Company plans
to expand its polyester-based product offerings, particularly in high strength
geotextiles and furniture and bedding construction products.

Selling expenses for fiscal 1997 were $31,801 compared to $27,488 for
fiscal 1996, an increase of $4,313, or 15.7%. This increase was primarily due to
increased expenditures associated with higher sales volume as well as increased
marketing expenses. As a percentage of sales, selling expenses remained at 9.2%.
<PAGE>

General and administrative expenses the Company for fiscal 1997 were
$26,562 compared to $22,657 for fiscal 1996, an increase of $3,905, or 17.2%. As
a percentage of sales, general and administrative expenses increased from 7.6%
to 7.7%. The increase in general and administrative expenses was primarily due
to infrastructure expenditures, to support anticipated Company growth, coupled
with an increase in research and market development costs from $2,942 in fiscal
1996 to $4,208 in fiscal 1997. Any costs associated with modifying the Company's
computer systems to be year 2000 compliant have been expensed as incurred. Costs
incurred to date relating to year 2000 issues have not been material and have
not had a material impact on the financial statements. Future costs associated
with year 2000 issues are not expected to be material. Included in general and
administrative expenses for the Partnership is approximately $1,139, which is
due the Company, for expenses incurred on behalf of the Partnership relating to
the Plan.

Operating income for fiscal 1997 was $51,430 as compared to $38,474 for
fiscal 1996, an increase of $12,956, or 33.7%. As a percentage of sales,
operating income increased to 14.9% in fiscal 1997 from 12.8% in fiscal 1996.
This increase was primarily due to improved gross profits, partially offset by
slightly higher selling, general and administrative costs. Operating income for
the Partnership for fiscal 1997 was $50,291, which includes the additional
general and administrative expenses related to the Plan.

Interest expense for fiscal 1997 was $20,084 compared to $22,773 for fiscal
1996, a decrease of $2,689, or 11.8%, due to lower average interest rates on the
outstanding debt.

The effective income tax rate before the effect of the extraordinary item
was 41% and 46% in fiscal 1997 and 1996, respectively. The higher rate for 1996
was due primarily to the effect of nondeductible expenses, including the
amortization of goodwill, on lower income in fiscal 1996.

Income before extraordinary item for the Company in fiscal 1997 was $18,150
compared to $8,102 for fiscal 1996, an increase of $10,048. Earnings before
interest, taxes, depreciation and amortization ("EBITDA") for fiscal 1997 was
$69,011 compared to $54,074 for fiscal 1996, an increase of $14,937, or 27.6%.
The increase in the Company's income before extraordinary item, as well as its
EBITDA, was primarily due to the factors discussed above. Income before
extraordinary item for the Partnership was $15,147, which includes the
minority's interest in subsidiary net income and the additional general and
administrative expenses related to the Plan.

Fiscal 1996 Compared to Fiscal 1995

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

Gross profit for fiscal 1996 was $91,211 compared to $76,721 in fiscal
1995, an increase of $14,490, or 18.9%. As a percentage of sales, gross profit
increased to 30.5% from 28.3%. This was primarily due to higher sales volume and
lower average polypropylene prices as compared to the prior year, partially
offset by lower average selling prices.

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

General and administrative expenses for fiscal 1996 for the Company were
$22,657 compared to $21,195 for fiscal 1995, an increase of $1,462, or 6.9%. As
a percentage of sales, general and administrative expenses decreased from 7.8%
to 7.6%. In fiscal 1995, general and administrative expenses included a pre-tax
charge of $2,852 related to an increase in the allowance for doubtful accounts
taken to establish a reserve for a carpet backing customer who experienced
severe financial difficulties. Without this charge, fiscal 1995 general and
administrative expenses as a percentage of sales would have been 6.8%. The
increase in general and administrative expenses was primarily due to
infrastructure expenditures, which included an increased investment in the
Company's information technology department to support company growth. Included
in general and administrative expenses for the Partnership was $661 related to a
withdrawn Common Stock offering, such amount being due the Company.

Operating income for the Company for fiscal 1996 was $38,474 as compared to
$28,687 for fiscal 1995, an increase of $9,787, or 34.1%. As a percentage of
sales, operating income increased to 12.8% in fiscal 1996 from 10.6% in fiscal
1995. This was primarily due to factors discussed above. Operating income for
the Partnership for fiscal 1996 was $37,813, which includes the additional
general and administrative expenses discussed above.

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

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

Net income for fiscal 1996 was $8,102 compared to net income of $1,936 for
fiscal 1995, an increase of $6,166, or 318.5%. EBITDA for fiscal 1996 was
$54,074 compared to $42,887 for fiscal 1995, an increase of $11,187, or 26.1%.
The increase in net income, as well as EBITDA, was primarily due to higher sales
volumes and lower average raw material cost offset by slightly lower average
selling prices, higher manufacturing costs associated with plant shutdowns as a
result of the winter ice storms in 1996 and increased selling and general and
administrative costs. Net income for fiscal 1996 for the Partnership was $7,441,
which includes the additional general and administrative expenses discussed
above.

Liquidity and Capital Resources

To finance its capital expenditures program and fund its operational needs,
the Company has relied upon cash provided by operations, supplemented as
necessary by bank lines of credit and long-term indebtedness. Net cash provided
by (used in) operating activities was $25,129, $31,421, and ($35) for the years
ended September 30, 1997, 1996 and 1995, respectively.
<PAGE>

Net cash provided by operating activities for the Company in fiscal 1997
consisted primarily of net income of $6,200, a pretax extraordinary loss of
$19,431, and noncash charges of $21,026, as well as an increase in accounts
payable of $6,803, which financed increases in accounts receivable and inventory
of $9,687 and $13,634, respectively. These working capital requirements
increased primarily due to higher sales volume in the fourth quarter of fiscal
1997 as compared to the comparable period in the prior year, as well as
increased units in finished goods and raw materials, to support continued
anticipated sales growth.

Net cash provided by (used in) operating activities for the Company in
fiscal 1996 and 1995 resulted primarily from net income of $8,102, and $1,936,
respectively, after deducting non-cash charges of $20,723, and $17,945 and net
working capital charges of approximately $2,596, and ($19,916), for each
respective period. The increase in cash provided by operating activities for
fiscal 1996 as compared to fiscal 1995 was principally due to fluctuations in
net income and the Company's working capital requirements. The changes included
reduced inventory and accounts payable balances in 1996 resulting primarily from
lower inventory quantities and lower polypropylene costs.

On February 11, 1997, the Company issued $170,000 aggregate principal
amount of 9 1/4% Senior Subordinated Notes due February 15, 2007 (the "Notes"),
which represent unsecured obligations of the Company. The Notes are redeemable
at the option of the Company at any time on or after February 15, 2002, at an
initial redemption price of 104.625% of their principal amount together with
accrued interest, with declining redemption prices thereafter. Interest on the
Notes are payable semi-annually on February 15 and August 15 in the amount of
$7,863.

On November 1, 1996, the Company received net proceeds of approximately
$34,000 (after payment of underwriting discounts and commissions and expenses)
from the sale of 2,875,000 shares of Common Stock in an underwritten public
offering (the "Offering"). These proceeds, together with the proceeds received
from the issuance of the Notes, were utilized primarily to retire approximately
$133,000 of the Company's 12 3/4% Senior Subordinated Debentures due 2002 (the
"Debentures"), pay the related call premium and prepayment costs and fees
associated with the refinancing of $15,920, pay debt issuance costs of $5,525
and to repay approximately $21,900 of certain outstanding indebtedness under the
Company's Fourth Amended and Restated Revolving Credit and Security Agreement,
dated as of October 20, 1995, as subsequently amended, among the Company, the
lenders party thereto and BankBoston, as agent (the "Credit Facility"). In
connection therewith, the Company recorded an extraordinary loss of $11,950
during the second quarter of fiscal 1997.

On December 1, 1997, the Company redeemed the remaining $7,403 aggregate
principal amount of the Debentures at a redemption price of 106.375% of the
principal amount thereof, together with accrued interest as of the redemption
date.

The net proceeds from financing and operating activities were also utilized
to fund capital expenditures of approximately $54,000 and to acquire certain
assets of the Spartan Technologies division of Spartan Mills for approximately
$9,400. Capital expenditures planned for fiscal 1998 are approximately $41,000
primarily to expand the capacity of the Company's manufacturing facilities,
subject to prevailing market conditions. Capital expenditures in fiscal 1996 and
1995 were approximately $34,200 and $13,300, respectively.

The Credit Facility provides for potential borrowing capacity of up to
$85,000 and is comprised of maximum term loan borrowings of $45,000 and a
revolving credit loan portion (the "Revolver") of up to $40,000. The term loan
balance at September 30, 1997 was $25,000, of which $10,000 is payable in 1999
and $15,000 is payable in 2000. The lenders under the Credit Facility are
BankBoston, Sanwa Business Credit Corporation, and South Trust Bank of Georgia,
N.A. The Revolver provides for availability based on a borrowing formula
consisting of 85% of eligible accounts receivable and 50% of eligible inventory,
subject to certain limitations and reserves which include the remaining balance
due under the Debentures of approximately $7,400. At September 30, 1997, the
maximum amount available for borrowing under the Revolver was $17,838. The
Credit Facility expires on October 1, 2001.

The Credit Facility permits borrowings which bear interest, at the
Company's option, (i) for domestic borrowings based on the lender's base rate
(8.50% at September 30, 1997) or (ii) for Eurodollar borrowings based on the
Interbank Eurodollar rate at the time of conversion plus 2.0% or 1.75% for term
loan or revolver advances, respectively (7.44% to 7.63% at September 30, 1997).
<PAGE>

In fiscal 1996, the Credit Facility permitted borrowings which bore
interest, at the Company's option, (i) for domestic borrowings based on the
lender's base rate plus .75% (9.00% at September 30, 1996) or (ii) for
Eurodollar borrowings based on the Interbank Eurodollar rate at the time of
conversion plus 2.5% or 2.75% for term loan or revolver advances, respectively
(8.09% to 9.25% at September 30, 1996).

The Credit Facility provides for borrowings under letters of credit of up
to $3,000, which borrowings reduce amounts available under the Revolver. At
September 30, 1997, no letters of credit were outstanding under the facility and
$1,892 was outstanding at September 30, 1996.

At September 30, 1997, the Company's total outstanding indebtedness
amounted to $221,182. Such indebtedness consists of borrowings under the Credit
Facility of $38,420, $170,000 aggregate principal amount of the Notes, $7,403
aggregate principal amount of the Debentures, an outstanding capital lease
obligation of $4,083 dated as of May 28, 1996, and a mortgage obligation of
$1,276. Cash interest paid during fiscal 1997, 1996 and 1995 was $23,642,
$23,176, and $22,334, respectively.

On December 18, 1997, the Company and its lenders, with BankBoston as
agent, entered into a new five-year credit facility (the "New Credit Facility").
The New Credit Facility consists of up to a $40 million asset based
securitization program, with amounts borrowed through a newly formed subsidiary,
Synthetic Industries Funding Corporation, (the "Securitization"), and a $60
million senior secured revolver facility (the "New Revolver"). Securitization
and New Revolver borrowings are collateralized by the Company's accounts
receivables and substantially all of the assets of the Company, excluding real
property, respectively.

Interest on the Securitization is based on the applicable commercial paper
rate in effect plus a spread. The New Revolver permits borrowings which bear
interest, at the Company's option, (i) for domestic borrowings based on the
lender's base rate or (ii) for Eurodollar borrowings based on a spread over the
Interbank Eurodollar rate at the time of conversion. Spreads for the
Securitization and the Eurodollar borrowings are determined by the operational
performance of the Company. At September 30, 1997, the interest rates under the
Securitization and the Eurodollar borrowings would have been 6.23% and 7.09%,
respectively.

The New Credit Facility contains covenants related to the maintenance of
certain operating rations and limitations as to the amount of capital
expenditures. The Company's ability to pay dividends on its common stock is
restricted by both the New Credit Facility and the Notes. At September 30, 1997,
the availability under the New Credit Facility would have been approximately
$45,000.

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

Inflation and Seasonality

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

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

Quarterly Financial Information

Presented below is a summary of the Partnership's unaudited consolidated
quarterly financial information for the years ended September 30, 1997 and 1996:
(Amounts in thousands of dollars except limited partnership units outstanding)
<TABLE>
<CAPTION>

Three Months Ended
Fiscal 1997 December 31 March 31 June 30 September 30
- ----------- ----------- -------- ------- ------------
<S> <C> <C> <C> <C>
Net sales $70,857 $75,358 $99,112 $100,245
Operating income 7,332 9,391 17,711 15,857
Income before extraordinary item 589 5,650 5,015 3,893
Net income (loss) 589 (a) (6,300) 5,015 3,893
Income (loss) per limited partnership unit 0.73 (a) (7.80) 6.21 4.82
Weighted average units outstanding 800 800 800 800

Fiscal 1996
Net sales $64,608 $64,609 $82,843 $87,472
Operating income 3,356 5,735 14,521 14,201
Net income (loss) (1,897) (410) 5,093 4,655
Income (loss) per limited partnership unit (2.35) (0.51) 6.30 5.76
Weighted average units outstanding 800 800 800 800

<FN>

(a) Includes an extraordinary loss of $11,950, or $1.37 per share, from the
early extinguishment of debt. See Note 9.

</FN>
</TABLE>

Recent Accounting Pronouncements

In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
("SFAS 128"). Under the new standard, which must be adopted for periods ending
after December 15, 1997, the Company will be required to change the method used
to compute earnings per share and to restate prior periods presented. A dual
presentation of basic and diluted earnings per share will be required. The basic
earnings per share calculation, which will replace primary earnings per share,
will exclude the dilutive impact of stock options and other common share
equivalents. The diluted earnings per share calculation, which will replace
fully diluted earnings per share, will include common share equivalents. The
adoption of SFAS 128 will not have a material impact on earnings per share for
the three years ended September 30, 1998.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which must be adopted for fiscal years beginning after December
15, 1997. Under the new standard, companies will be required to report certain
information about operating segments in consolidated financial statements.
Operating segments will be determined based on the method that management
organizes its businesses for making operating decisions and assessing
performance. SFAS 131 also requires companies to report certain information
about their products and services, the geographic areas in which they operate,
and their major customers. The Company is currently evaluating the effect, if
any, of implementing SFAS 131.

<PAGE>

Forward Looking Statements

The discussion of the Company's business and operations in this report
includes in several instances forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are based upon management's
good faith assumptions relating to the financial, market, operating, and other
relevant environments that will exist and affect the Company's business and
operations in the future. No assurance can be made that the assumptions upon
which management based its forward-looking statements will prove to be correct,
or that the Company's business and operations will not be affected in any
substantial manner by other factors not currently foreseeable by management or
beyond the Company's control. All forward-looking statements involve risks and
uncertainties, including those described in this report, and such statements
shall be deemed in the future to be modified in their entirety by the Company's
public pronouncements, including those contained in all future reports and other
documents filed by the Company with the Securities and Exchange Commission.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this Item is contained in the Company's
consolidated financial statements indicated in the Index in Part IV, Item 14 of
this Annual Report on Form 10-K and is incorporated herein by reference.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

<PAGE>

PART III

ITEM 10. Executive Officers and Directors of the Company

Synthetic G.P. is the sole general partner of Management L.P., which is the
sole general partner of the Partnership. By virtue of these relationships,
Synthetic G.P. controls the management and affairs of the Partnership.

The general partners of Synthetic G.P. are the following Delaware
corporations: Chill Investments, Inc., Beckman Investments, Inc., Freed
Investments, Inc., Kenner Investments, Inc., and Wright Investments, Inc. Each
of Leonard Chill, Jon P. Beckman, W. Wayne Freed, Ralph A. Kenner and W. Gardner
Wright, Jr. is the sole director and the controlling stockholder of one of
Synthetic G.P.'s general partners, and an executive officer of the Company. Mr.
Chill also serves as director of the Company.

The following table sets forth certain information concerning each of the
executive officers and directors of the Company:
<TABLE>
<CAPTION>

Name Age Position and Offices Held

<S> <C> <C>
Leonard Chill 65 President, Chief Executive Officer and Director

Joseph F. Dana 50 Chief Operating Officer, General Counsel and Director

Joseph Sinicropi 43 Chief Financial Officer and Secretary

W. Wayne Freed 62 Vice President - Market Development

Ralph Kenner 53 Vice President - Manufacturing

C. Ted Koerner 48 Vice President - General Manager Construction/Civil
Engineering Products Group

John Michael Long 54 Vice President - General Manager Technical Textiles
Group

William Gardner Wright, Jr. 68 Vice President - General Manager Carpet Backing

Robert J. Breyley 68 Vice President - Fibermesh(R)Division

Bobby Callahan 55 Controller

W. O. Falkenberry, Jr. 55 Vice President - Human Resources

Richard E. Hingson 42 Vice President - Technical Services

Lee J. Seidler (1) 62 Director

William J. Shortt (1) 72 Director

Robert L. Voigt (1) 79 Director
<FN>

(1) Member of Compensation Committee and Audit Committee.
</FN>
</TABLE>

Directors of the Company are elected each year at the annual meeting of
stockholders. The Company's officers serve at the discretion of the Board.

Leonard Chill, age 65, joined the Company in December 1973 as President
and was appointed Chief Executive Officer in 1986. He has been a director since
1986. From 1967 until joining the Company, he held a number of positions with
Thiokol Corporation in its Fibers Division, including that of General Manager.
Mr. Chill is also the sole director and sole stockholder of one of the general
partners of Synthetic Management G.P., the entity which is the sole general
partner of the general partner of the Partnership. In addition, Mr. Chill is a
director of Synthetic Textiles Ltd.

Joseph F. Dana, age 50, was appointed Chief Operating Officer and
General Counsel on May 21, 1997. Prior to joining the Company, Mr. Dana had been
engaged in the private practice of law for over twenty years and had been a
member of the law firm Watson & Dana, LaFayette, Georgia, since its formation in
1978, serving as general counsel to the Company since 1987. He has been a
Director since 1993.

Joseph Sinicropi, age 43, joined the Company in 1995 as Chief
Accounting Officer. He was named Chief Financial Officer and Secretary in
February 1996. Prior to joining the Company, he was an audit senior manager in
the international accounting firm of Deloitte & Touche LLP from 1985 to 1995.

W. Wayne Freed, age 62, joined the Company in 1981 and became Vice
President -- Market Development in 1987. Prior thereto, he had 28 years
experience in the textile industry. Mr. Freed is also the sole director and sole
stockholder of one of the general partners of Synthetic Management G.P.

Ralph Kenner, age 53, has been Vice President -- Manufacturing since
1984. He joined the Company in 1974 as Director, Industrial Relations and served
in that capacity until 1976. In 1976, he was appointed Plant Manager and served
in that capacity until 1984. Mr. Kenner is also the sole director and sole
stockholder of one of the general partners of Synthetic Management G.P.

C. Ted Koerner, age 48, joined the Company in 1990 and became Vice
President -- Construction Products Division in 1993. He was named Vice President
- -- General Manager of the Construction/Civil Engineering Products Group in 1995.
Prior thereto, Mr. Koerner was an engineer with the Ohio Department of
Transportation; a sales engineer, product supervisor and regional engineer with
Armco Steel Corporation; and a sales manager with National Seal Corporation.

John Michael Long, age 54, was Vice President -- Nonwoven Fabrics from
1991 to 1996 at which time he was named Vice President -- General Manager of the
Technical Textiles Group. Prior thereto, he held a variety of managerial
positions with Spartan Mills, a manufacturer of nonwoven geotextile fabrics.
During his last five years at Spartan, he was Vice President and General
Manager.

William Gardner Wright, Jr., age 68, was Vice President -- Marketing
and Sales from 1983 to 1996 at which time he was named Vice President-General
Manager of the Carpet Backing Division. From 1977 until 1983, he was President
of Synca Marketing Corp., a textile sales agency which served as a sales agent
for the Company's primary carpet backing, as well as the products of other
manufacturers. Mr. Wright is a director of the Sun Trust Bank of Northwest
Georgia. Mr. Wright is also the sole director and sole stockholder of one of the
general partners of Synthetic Management G.P.

Robert J. Breyley, age 68, joined the Company in 1984 and became Vice
President -- Fibermesh(R) Division in December 1984. Prior thereto, he held a
variety of managerial positions with Master Builders, Inc., a leading concrete
admixtures supplier. During his last six years with Master Builders, he was
Senior Vice President of Sales and Marketing. Mr. Breyley retired on October 3,
1997.

Bobby Callahan, age 55, joined the Company in 1977 and has been
Controller since 1980. Prior thereto, he held a variety of financial management
positions in the carpet industry.

W.O. Falkenberry, Jr., age 55, joined the Company in 1993 as Vice
President -- Human Resources. Prior thereto, he was Director of Human Resources
with the Champion Products Division of the Sara Lee Corporation from 1989 to
1993.

Richard E. Hingson, age 42, joined the Company in 1984 as Quality
Control Manager and became Technical Director in 1989. He was promoted to Vice
President - Technical Services in 1997. Prior thereto, he held a variety of
managerial positions with Amoco Fabrics Company, a producer of polypropylene and
polyethylene yarns and fabrics.

Lee J. Seidler, age 62, was professor of accounting and Price Waterhouse
professor of auditing at New York University. Dr. Seidler was Senior Managing
Director at Bear, Stearns & Co. Inc. from 1981 to 1989. He is presently
associated with Bear, Stearns & Co. Inc. as Managing Director Emeritus. Dr.
Seidler is a director of the Shubert Foundation, The Shubert Organization, and
Players International, Inc. and has been a director of SafeCard Services, Inc.
and Eastbank, N.A. He has been a Director since 1993.

William J. Shortt, age 72, retired from Johnson & Johnson in 1989. From
1977 to 1989, he was Director of Government and Trade Relations, Southeast at
Johnson & Johnson. Mr. Shortt has also been a director of Standard Telephone
Company, Standard Group Inc., and First National Bank of Habersham. He has been
a Director since 1993.

Robert L. Voigt, age 79, served as a consultant to Dixie Yarns Inc. from
1985 until his retirement at the end of 1991. Mr. Voigt also served as a
director of Dixie Yarns, Inc. from 1981 to 1987. He has been a Director since
1993.

ITEM 11. Renumeration of Directors and Officers

Director Compensation

Outside directors receive $15,000 per annum for services as a director
and $800 per meeting attended. Directors who are members of management do not
receive any meeting attendance fees or additional compensation for service as a
director or service on committees of the Board. All directors are reimbursed for
reasonable out-of-pocket expenses incurred in connection with their attendance
at meetings of the Board and its committees on which they serve.

Under the Company's 1994 Stock Option Plan for Non-Employee Directors
(the "Directors' Plan"), Messrs. Dana, Seidler, Shortt and Voigt were granted
non-qualified stock options (the "Directors' Options") to purchase 28,906,
57,813, 19,271 and 19,271 shares of Common Stock, respectively. The Directors'
Plan does not provide for any further grants of options thereunder.

The purchase price of the shares of Common Stock subject to the
Directors' Options was determined by reference to the fair market value of the
Common Stock, as determined by the Compensation Committee, at the time Messrs.
Dana, Seidler, Shortt and Voigt became members of the Board. As of October 1,
1996, 100% of the number of shares of Common Stock subject to each Director
Option are vested and are exercisable. As a Company employee, Mr. Chill is not
eligible to participate in the Directors' Plan. In the event that the
outstanding shares of Common Stock are changed by reason of reorganization,
merger, consolidation, recapitalization, reclassification, stock split,
combination or exchange of shares and the like, or dividends payable in Common
Stock, an appropriate adjustment shall be made by the Committee in the aggregate
number of shares of Common Stock available under the Directors' Plan and in the
number of shares and price per share subject to outstanding Directors' Options.
The term of each Directors' Option is ten years from the date of grant.

Committees and Meetings of the Board

The Board has established a Compensation Committee, composed of Messrs.
Seidler, Shortt and Voigt, which establishes salary, incentives and other forms
of compensation and administers the Company's 1994 Stock Option Plan and 1996
Stock Option Plan and other incentive compensation and benefit plans applicable
to the Company's officers. The Board has also established an Audit Committee,
composed of Messrs. Seidler, Shortt and Voigt, which recommends to the Board the
selection of independent auditors, and reviews the scope and results of the
audit and other services provided by the independent auditors.

During the year ended September 30, 1997, the Board held a total of 9
meetings, the Audit Committee held 2 meetings and the Compensation Committee
held 2 meetings.

Compensation Committee Interlocks and Insider Participation

During fiscal 1997 and 1996, the Company paid legal fees totaling
approximately $241,000 and $232,000, respectively, to the law firm of Watson &
Dana. Until May 21, 1997, Mr. Dana, a director of the Company, was a member of
Watson & Dana and a member of the Compensation Committee. Effective May 21,
1997, Mr. Dana became employed as Chief Operating Officer and General Counsel of
the Company. Mr. Dana continues to be a director of the Company, but is no
longer a member of the Compensation Committee.

Executive Compensation

The following table sets forth information regarding aggregate cash
compensation, stock option awards and other compensation earned by the Company's
Chief Executive Officer and the four other most highly compensated executive
officers for services rendered in all capacities to the Company and its
subsidiaries in the fiscal years 1995 to 1997.

Summary Compensation Table

The following table sets forth information regarding the compensation
paid during each of the Company's last three completed fiscal years to the Chief
Executive Officer of the Company and each of the other four most highly
compensated executive officers of the Company as of September 30, 1997.
<TABLE>
<CAPTION>

All Other
Compen-
sation($)
Fiscal Annual Compensation Long-Term Comp-
Year Ensation Awards
Name and Ended Other Annual Securities All Other
Principal Position Sep. 30, Salary($) Bonus($) Compensation($) Unerlying Compensation
Options(#)
<S> <C> <C> <C> <C> <C>
Leonard Chill 1997 $270,13 $144,70 $2,168 -- $ 10,1741
Chief Executive Officer and 1996 254,871 118,119 -- -- 9,9241
President 1995 254,871 89,939 4,668 -- 10,0441

Ralph Kenner 1997 $154,71 $ 69,768 $5,771 -- $ 4,7502
Vice President-- Manufacturing 1996 145,973 55,063 -- -- 4,1702
1995 145,973 41,926 2,344 -- 4,4822

William Gardner Wright, Jr.
Vice President-- General Manager-- 1997 $249,83 $ 91,800 $ 427 -- $ 4,7502
Carpet Backing Division 1996 235,664 81,920 -- -- 4,1702
1995 235,664 70,238 304 -- 4,0052

Robert J. Breyley 1997 $141,70 $ 47,656 $ -- -- $ 4,7502
Vice President-- Fibermesh(R) 1996 141,720 48,144 -- -- 4,1702
Division 1995 141,720 49,500 -- -- 3,3292

W. Wayne Freed 1997 $161,54 $ 46,980 $6,842 -- $ 4,7502
Vice President--Market 1996 152,400142,000 37,123 -- -- 4,1702
Development 1995 28,267 1,808 -- 4,0902

- ---------------------
<FN>

(1) These amounts consist of $5,424 of insurance premiums paid by the
Company under a term life insurance policy in each of 1997, 1996 and
1995, and $4,750, $4,500 and $4,620 contributed by the Company under
its 401(k) plan in 1997, 1996 and 1995, respectively.

(2) These amounts represent the annual contribution made by the Company
under its 401(k) Plan in the respective year.
</FN>
</TABLE>

Option Exercises and Holdings

The following table sets forth information with respect to the
executive officers named in the Summary Compensation Table concerning the
exercise of options during fiscal 1997 and unexercised options held as of the
end of fiscal 1997, which include grants made under the Company's 1994 and 1996
Stock Option Plans.
<TABLE>
<CAPTION>

Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-end Option Values

Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised In-the-Money Options
Name Exercise (#) Realized ($) Options at FY-End (1) at FY-End (2)
Unexercisable Exercisable Unexercisable
Exercisable

<S> <C> <C> <C> <C>
Leonard Chill -- -- 63,922 81,360 $1,168,494 $1,487,261
Ralph Kenner -- -- 21,821 32,050 398,888 585,874
William Gardner Wright, Jr -- -- 21,821 32,050 398,888 585,874
Robert J. Breyley -- -- 4,843 4,843 88,530 88,530
W. Wayne Freed -- -- 21,821 32,050 398,888 585,874

- --------------------
<FN>

(1) Any shares of Common Stock received upon the exercise of options are
subject to "lock-up" agreements with the underwriters of the Common
Stock Offering.

(2) Based on the September 30, 1997 price ($29.00 per share) less the
exercise price ($10.72 per share) payable for such shares.
</FN>
</TABLE>

Description of Certain Employment Agreements

Each of Messrs. Chill, Freed, Kenner and Wright (the "Executives") are
employed by the Company pursuant to individual employment agreements effective
as of September 6, 1996 (the "Effective Date"). The term of employment under
these agreements is three years from the Effective Date; provided that on each
anniversary of the month following the first Effective Date, and each successive
month, the term is automatically extended for one successive month, providing a
minimum remaining term of two years, unless either party terminates the
agreement by written notice. The current annual salaries for Messrs. Chill,
Freed, Kenner and Wright pursuant to these agreements are $270,163, $161,544,
$154,731 and $249,803, respectively, and are subject to annual review by the
Board.

The Company has the right to terminate the Executive's employment for
"cause" or "without cause", in each case as defined in the applicable employment
agreement. In the event that an Executive is terminated by the Company "without
cause," other than following a "Change in Control" (as defined below), the
Executive is entitled to receive his base salary at the rate in effect on the
date of termination of employment for a period of two years from the date of
termination, any unpaid, accrued amounts under the annual incentive plan, a pro
rata payment under the annual incentive plan for the termination year, a payment
equal to the three year average of incentive payments received under the
Company's annual incentive plan and any stock option rights due through the end
of the term. Under each employment agreement, a "Change in Control" occurs when
(i) any person or group becomes the beneficial owner of capital stock of the
Company representing 35% of all the voting stock, (ii) the members of the Board
on the Effective Date cease to constitute a majority of the Board, or (iii) the
Company combines with another entity and a person holds more than 35% of the
voting stock of the Company or the Company's directors, as of the date
immediately before such combination, constitute less than a majority of the
board of directors of the combined entity.

If the Executive is terminated by the Company "without cause" prior to
the occurrence of a Change in Control and it can be shown such termination
occurred in connection with, prior to or in anticipation of the Change in
Control, or if the termination resulted from a Change in Control, the Executive
is entitled to (i) a lump sum payment equal to two times the Executive's annual
base salary and annual incentive plan for the year in which the Change in
Control occurs or the prior year, whichever is greater, (ii) unpaid, accrued
amounts under the annual incentive plan and a payment that equals the average of
the incentive payment received by the Executive under the annual incentive plan
for the immediately preceding three years and (iii) certain other supplemental
insurance coverages, for a maximum of 18 months (the "Change in Control
Provision"). In the event of a Change in Control, whether or not the Executive's
employment continues with the Company, all options granted to such Executive
under any of the Management Plans (as defined below) shall vest immediately on
the date of the Change in Control.

In the event that an Executive's employment is terminated for
disability or death, the Executive (or his estate) is to be paid (a) his base
salary at the rate in effect on the date of termination until the earlier of six
months from the date of termination or the date of commencement of long term
disability payments, if applicable, and (b) any unpaid, accrued amounts under
the annual incentive plan, and will receive any stock option rights to which
such Executive would otherwise be entitled. In the case of termination by reason
of death, the executive is also entitled to a payment under the annual incentive
plan equal to the pro rata amount due for the termination year.

REPORT OF THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION

Compensation Program

The Company's compensation program for all executives, including the
executive officers named in the Summary Compensation Table, is administered by
the Compensation Committee (the "Committee") of the Company's Board of
Directors. The Committee currently consists of three members, all of whom are
non-employee directors. Set forth below is a report submitted by the Committee
addressing the Company's executive compensation program for fiscal 1997.

The Committee believes that executive compensation should reward
long-term value created for stockholders and reflect the business strategies and
long-range plans of the Company. The guiding principles with respect to
compensation are (i) to provide a competitive package that enables the Company
to attract, motivate and retain the key executives needed to accomplish its
corporate goals; (ii) to integrate compensation programs with the Company's
annual and long-term business objectives and strategy; and (iii) to provide
variable compensation opportunities that are directly linked with the
performance of the Company and that align executive remuneration with the
interests of the stockholders. In connection with this philosophy, the
compensation package of the executive employees of the Company consists of three
components: a base salary, an annual incentive bonus and long-term incentives in
the form of stock options. The Committee is responsible for reviewing the
Company's compensation program to ensure that pay levels and incentive
opportunities are competitive and reflect the performance of the Company. Each
component of the executive compensation program is described below.

Base Salary

The factors considered in determining the appropriate salary are level
of responsibility, prior experience and accomplishments, and the relative
importance of the job in terms of achieving corporate objectives. Each
executive's salary is reviewed annually. Adjustments may be recommended based
upon individual performance, inflationary and competitive factors and overall
corporate results.

In setting base salaries for fiscal 1997, the Committee attempted to
establish base salary levels consistent with the median base salary for
executives in similar positions within a peer group of approximately 24
companies of similar size and market orientation. The Chief Executive Officer,
after consultation with the senior human resources executive of the Company and
the Chief Financial Officer, reviewed with the Committee a proposed 1997 salary
plan for the Company's executive officers, following which the Committee
approved the proposed 1997 plan at the October 29, 1996 meeting.

Annual Incentive Compensation

Cash bonuses are paid annually based upon individual performance and
relevant corporate performance measures, including operating income and customer
satisfaction. These performance measures vary depending upon the executive and
the related line of business. Bonuses are paid only if the Company has met
certain targets established by the Board at the beginning of the year. Target
awards are established for each position as a percentage of base salary, based
on competitive salary data, and performance is assessed at the end of the year.
Whether or not an executive officer earns a bonus in any year is based upon
actual corporate performance relative to the targets established at the
beginning of the year and on individual performance. Partial bonuses may be
awarded if minimum corporate performance measures are achieved. For executive
officers, the percentage of base salary payable as bonus ranges from 15% to 45%.

The Committee administers the Company's incentive program, recommends
to the Board the aggregate amount of incentive compensation and approves
individual officer awards. The Board approves the aggregate amount of the
incentive compensation awards to all participants.

Stock Options

The Company has, on certain occasions, awarded stock options to
executive officers to provide competitive compensation packages and because the
Company believes it is important that all of its key executive officers have a
strong economic interest in maximizing stock price appreciation, thereby
aligning their interests with the Company's stockholders. Option exercise prices
are set at 100% of fair market value on the date of the grant and options expire
after 10 years. The stock options granted by the Committee vest at a rate of 25%
per year beginning one year after the grant date in order to encourage
management continuity and better tie compensation to long-term stock value. In
fiscal 1997, the Company granted options to certain newly hired or promoted
executive officers and certain other officers who previously had only nominal
stock holdings in the Company. The Company did not grant any of the executive
officers named in the Summary Compensation Table any options in fiscal 1997.

Compensation of Chief Executive Officer

In connection with the Company's initial public offering on November 1,
1996, the Company entered into an employment agreement with Mr. Chill effective
as of September 6, 1996. Accordingly, Mr. Chill's fiscal 1997 compensation was
largely determined by the terms of that employment agreement. The terms of Mr.
Chill's employment agreement provide for a base salary of $270,163 per annum and
a bonus determined by the Committee with reference to the performance of Mr.
Chill and the performance and results of operations of the Company. The
Committee considered certain performance goals and achievements in determining
the bonus for Mr. Chill for fiscal 1997. The Committee's determination of Mr.
Chill's bonus for fiscal 1997 was based on the factors cited above and such
bonus and his salary reflect the overall responsibilities inherent in his
position as President and Chief Executive Officer.

Other Compensation Policies

Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the tax deduction that the Company may take with respect to the
compensation of certain executive officers, unless the compensation is
"performance based" as defined in the Code. The Company has not adopted a policy
with respect to qualifying compensation paid to its executive officers for
deductibility under Section 162(m) since no executive officer currently
receives, or has received, taxable compensation in excess of $1 million per
year.

STOCK PRICE PERFORMANCE GRAPH

Set forth is a line graph comparing the yearly percentage change in the
cumulative total stockholder return (change in year-end stock price plus
reinvested dividends) on the Company's Common Stock against the cumulative total
return of the Standard & Poor's 500 Stock Index and the peer group index from
November 1, 1996 to September 30, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As at December 8, 1997, no person or group is known to the Partnership
to be the beneficial owner of more than five percent (5%) of the Units. The
general partners of Synthetic G.P. and their respective stockholders do not own
any Units.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

SI Management L.P. is the sole general partner of the Partnership.
Synthetic Management G.P. is the sole general partner of SI Management L.P. By
virtue of these relationships, Synthetic Management G.P. controls the management
and affairs of the Partnership and therefore, the Company. The Partnership owns
5,781,250 shares of Common Stock, or approximately 67% of the issued and
outstanding shares of Common Stock, and therefore, holds the voting power to
determine the outcome of all matters upon which stockholders vote.

The general partners of Synthetic Management G.P. are the following five
Delaware corporations: Chill Investments, Inc., Beckman Investments, Inc., Freed
Investments, Inc., Kenner Investments, Inc. and W.G. Wright Investments, Inc.
Each of Messrs. Chill, Beckman, Freed, Kenner and Wright is the sole director
and the sole stockholder of one of Synthetic Management G.P.'s general partners.
For further information concerning Messrs. Chill, Freed, Kenner and Wright, see
"Executive Officers and Directors of the Company."

The Company and the Partnership have entered into a Registration Rights
Agreement pursuant to which the Company has agreed that upon request of the
Partnership the Company will register under the Securities Act and applicable
state securities laws the sale of the Common Stock owned by the Partnership and
as to which registration has been requested. The Company's obligation is subject
to certain limitations relating to a minimum amount required for registration,
the timing of a registration and other similar matters. The Company is obligated
to pay any registration expenses incidental to such registration, excluding
underwriters' commissions and discounts. In connection with the Offering, the
Company incurred approximately $650,000 of such incidental registration expenses
in the behalf of the Partnership. The above description is qualified in its
entirety by reference to the Registration Rights Agreement, a copy of which has
been filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (File No. 333-9377), filed with the Securities and
Exchange Commission on September 13, 1996.

In connection with the Offering on November 1, 1996, the Partnership
entered into a "lock-up" agreement with Bear Stearns & Co., Inc. ("Bear
Stearns") with respect to the sale of its 5,781,250 shares of Common Stock.
Under this "lock-up" agreement, the Partnership agreed, with certain exceptions,
not to sell or otherwise dispose of any shares of Common Stock without the
consent of Bear Stearns for a period of 270 days after November 1, 1996, and
thereafter until December 31, 1997, unless pursuant to an underwritten public
offering. After December 31, 1997, the Partnership is entitled to sell,
distribute or otherwise dispose of its shares of Common Stock. The Company does
not, however, anticipate that the Partnership will sell or distribute any of its
shares of Common Stock unless and until the Agreement and Plan of Withdrawal and
Dissolution (the "Plan") of the Partnership has been implemented or terminated,
as the case may be.

On September 19, 1997, the Company and the Partnership entered into the
Plan. Pursuant to the Plan, the Partnership is to be dissolved in two separate
phases. The first phase is to be an underwritten public offering of the number
of shares of Common Stock that limited partners have elected to sell, and the
second phase is to be one to three liquidating distributions of the unsold
portions of the Partnership's shares of Common Stock, beginning 180 days after
the completion of the public offering. On November 7, 1997, the limited partners
approved the adoption of the Plan. However, the implementation of the Plan has
been enjoined by courts in Delaware and California in connection with two
lawsuits filed by certain limited partners of the Partnership against the
Partnership and its General Partner among others. See "Claims and Legal
Proceedings." Among other equitable and legal remedies, the plaintiff is seeking
the removal of the General Partner and the liquidation of the Partnership. The
Company is not currently involved in these proceedings and does not presently
possess any contractual rights with respect to their ultimate resolution. If, in
connection with these lawsuits, the General Partner is removed or resigns, or
the Partnership is liquidated under a court-appointed receiver, there can be no
assurance that the resulting sale and/or distribution of the Partnership's share
of Common Stock will be made in the same or similar manner as that contemplated
by the Plan. The General Partner has denied the allegations of the plaintiff and
is vigorously contesting the lawsuits; however, in the event of an adverse
ruling, the Company cannot predict the volume and price at which the Common
Stock trades might be affected.

Lee J. Seidler, a director of the Company, is presently associated with
Bear, Stearns & Co. Inc. as Managing Director Emeritus and from time to time
receives fees in connection with consulting and referral services to Bear,
Stearns & Co. Inc., including the Offering and the offering of $170,000,000
aggregate principal amount of the Notes. Dr. Seidler has received from Bear,
Stearns & Co. Inc., in connection with such services, approximately $200,000 in
fiscal 1997.

Jon P. Beckman, a former executive officer of the Company and an
affiliate of the General Partner, is being retained as a consultant to the
Company. Pursuant to his consulting agreement with the Company, Mr. Beckman will
receive, until January 31, 2000, or upon earlier termination of his consulting
agreement, $125,000 per year and various insurance coverages, and will be
authorized to exercise all stock options awarded to him, subject to applicable
vesting provisions. Under this agreement, Mr. Beckman is required to provide the
Company with 20 hours of consultation per month, has released the Company from
any liability resulting from his employment and has also agreed not to compete
against the Company.

The Company leases office space under a five-year lease with William
Gardner Wright, Jr., one of the Company's executive officers. The term of the
lease expires on September 30, 1998 and the rent is approximately $4,000 per
month, which the Company believes is within prevailing market rates.

Pursuant to a licensing agreement with the Company, W. Wayne Freed, an
executive officer of the Company, receives royalties related to the manufacture
and sale of a certain product for which Mr. Freed owns all of the U.S. and
foreign patents. Under this agreement, Mr. Freed received royalties of $12,646
and $12,269 in fiscal 1997 and 1996, respectively, and will continue to receive
such royalties until 2012 or the earlier termination of the licensing agreement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K

(a) Index to Consolidated Financial Statements:
Page No. of
Financial Statement
(1) Financial Statements:

Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in
Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6

(b) The Partnership did not file a Current Report on Form 8-K during the last
quarter of the fiscal year covered by this Annual Report.

(d) No additional financial statements are required to be filed.

EXHIBIT INDEX

Location in
Sequential
Page Numbering
System

The following are the Exhibits as required by Item 14 (c).
1 2.1 Acquisition Agreement dated November 21, 1986 between Synthetic
Industries, Inc., Synthetic Industries Limited, Polyweave Corporation, the
shareholders of Synthetic Industries, Inc., Synthetic Industries Limited
and SI Holding Inc. including exhibits thereto.

1 2.2 Plan and Agreement of Merger dated December 4, 1986.

2 2.3 Asset Purchase Agreement dated October 12, 1990 between Synthetic
Industries, Inc. and Chicopee.

10 3.1 Certificate of Incorporation of Synthetic Industries, Inc. (including
all amendments to date) filed with the Secretary of the State of Delaware.

10 3.2 Amended and Restated By-Laws of Synthetic Industries, Inc. (including
all amendments to date).

4 4.1 Form of Indenture between Synthetic Industries, Inc. and United States
Trust Company of New York, Trustee, in respect to the 12-3/4% Senior
Subordinated Debentures due 2002.

18 4.2 Supplemental Form of Indenture between Synthetic Industries, Inc. and
United States Trust Company of New York, Trustee, in respect to the 12-3/4%
Senior Subordinated Debentures due 2002.

18 4.3 Supplemental Indenture dated as of February 11, 1997 between Synthetic
Industries, Inc. and United States Trust Company of New York, Trustee, with
respect to the 12 3/4% Senior Subordinated Debentures due 2002.

16 4.4 Indenture dated as of February 11, 1997 between Synthetic Industries,
Inc. and United Stated Trust Company of New York, Trustee, with respect to
the 9 1/4% Senior Subordinated Notes due 2007.

16 4.5 Registration Rights Agreement, dated as of February 11, 1997, between
Synthetic Industries, Inc. and Bear Stearns & Co. Inc.

12 4.6 Registration Rights Agreement, dated as of October 31, 1996, between
Synthetic Industries, Inc. and Synthetic Industries, L.P.

9 10.1 Fourth Amended and Restated Revolving Credit and Security Agreement
dated as of October 20, 1995 among Synthetic Industries, Inc., The First
National Bank of Boston and other Lenders listed on Schedule I thereto, and
The First National Bank of Boston, as agent on behalf of the Lenders.

9 10.2 Amendment No. 1 to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated as of December 1, 1995

11 10.3 Amendment No. 2 to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated as of February 14, 1996.

9 10.4 Amendment No. 3 to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated as of March 16, 1996.

2 10.5 US Patent No. 4,867,614, Reinforced Soil and Method (Exp. December 13,
2003).

2 10.6 US Patent No. 4,790,691, Fiber Reinforced Soil and Method (Exp.
December 13, 2003).

2 10.7 US Patent No. 5,007,766, Shaped Barrier for Erosion Control and
Sediment Collection (Exp. April 16, 2008).

1 10.8 Lease agreement dated November 22, 1971 between Murray Sobel and
Synthetic Industries, Inc. (including all amendments to date).

1 10.9 Lease agreement dated February 13, 1969, between Murray Sobel and
wife, Marcela S. Sobel, and Joseph F. Decosimo, Frank M. Thompson and
Murray Sobel, Trustees and Synthetic Industries, Inc. (including all
amendments to date).

2 10.10 Lease agreement dated December 17, 1990 between Chicopee and
Synthetic Industries, Inc.

2 10.11 Lease agreement dated January 17, 1991 between Herchel L. Webster and
Allie Ree Webster and Synthetic Industries, Inc. (the "Lumite Lease").

6 10.12 Amendment to the Lumite Lease dated October 1, 1992.

2 10.13 Consulting Agreement dated July 23, 1991 between Texpro Limitada y
Cia S.C.A. and Synthetic Industries, Limited.

7 10.14 Supply Contract between Eastman Chemical Products, Inc. and Synthetic
Industries, Inc. dated December 13, 1991.

13 10.15 Agreement dated September 6, 1996 between Leonard Chill and Synthetic
Industries, Inc.

13 10.16 Agreement dated September 6, 1996 between W. Wayne Freed and
Synthetic Industries, Inc.

13 10.17 Agreement dated September 6, 1996 between Ralph A. Kenner and
Synthetic Industries, Inc.

13 10.18 Agreement dated September 6, 1996 between W. Gardner Wright, Jr. and
Synthetic Industries, Inc.

13 10.19 Agreement dated September 6, 1996 between John M. Long and Synthetic
Industries, Inc.

13 10.20 Agreement dated September 6, 1996 between Charles T. Koerner and
Synthetic Industries, Inc.

13 10.21 Agreement dated September 6, 1996 between Joseph Sinicropi and
Synthetic Industries, Inc.

13 10.22 Agreement dated September 6, 1996 between W.O. Falkenberry and
Synthetic Industries, Inc.

13 10.23 Agreement dated September 6, 1996 between Bobby Callahan and
Synthetic Industries, Inc.

8 10.24 1994 Stock Option Plan for Non-Employee Directors

8 10.25 1994 Stock Option Plan

11 10.26 1996 Stock Option Plan

11 10.27 Incentive Compensation Plan Fiscal Year 1994/1995

11 10.28 Incentive Compensation Plan Fiscal Year 1995/1996

13 10.29 Amendment No. 4 to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated as of September 27, 1996.

14 10.30 Amendment No. 5 to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated as of October 28, 1996.

15 10.31 Amendment No. 6 to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated as of January 29, 1997.

20 10.32 Amendment No. 7 to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated as of April 30, 1997.

20 10.33 Amendment No. 8 to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated as of June 30, 1997.

21 10.34 Amendment No. 9 to the Fourth Amended and Restated Revolving Credit
and Security Agreement dated as of November 21, 1997.

19 10.35 Asset Sale Agreement by and between Spartan Mills and Synthetic
Industries, Inc. dated as of February 27, 1997.

19 10.36 Lease Agreement by and between Spartan Mills and Synthetic
Industries, Inc. dated as of February 27, 1997.

17 10.37 Agreement of Plan of Withdrawal and Dissolution by and between
Synthetic Industries L.P. and Synthetic Industries, Inc. dated as of
September 19, 1997.

19 10.38 Agreement dated May 21, 1997 between Joseph F. Dana and Synthetic
Industries, Inc.

2 21. List of Subsidiaries of Synthetic Industries, Inc.

22. Consent of Deloitte & Touche LLP

27. Financial Data Schedule

- --------------
1 Filed as an exhibit to the Company's Registration Statement on Form S-1
(33-11479) as filed with the Securities and Exchange Commission on January
23, 1987 and incorporated herein by reference.

2 Filed as an exhibit to the Company's Registration Statement on Form S-1
(33-51206) as filed with the Securities and Exchange Commission on August
24, 1992 and incorporated herein by reference.

3 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993 and incorporated herein by reference.

4 Filed as an exhibit to the Company's Amendment No. 3 to the Registration on
Form S-1 (33-51206) as filed with the Securities and Exchange Commission on
December 4, 1992 and incorporated herein by reference.

5 Filed as an exhibit to the Partnership's Registration Statement on Form 10
(0-21548) as filed with the Securities and Exchange Commission on April 16,
1993 and incorporated herein by reference.

6 Filed as an exhibit to the Partnership's Amendment No. 1 to the
Registration Statement on Form 10 (0-21548) as filed with the Securities
and Exchange Commission on August 10, 1993 and incorporated herein by
reference.

7 Pursuant to an order dated October 19, 1992, the Securities and Exchange
Commission granted confidential treatment with respect to certain portions
of this exhibit under Rule 406 of the Securities Act of 1933, as amended.

8 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994 and incorporated herein by reference.

9 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995 and incorporated herein by reference.

10 Filed as an exhibit to the Company's Registration Statement on Form 8-A
(0-12357) as filed with the Securities and Exchange Commission on October
24, 1996 and incorporated herein by reference.

11 Filed as an exhibit to the Company's Registration Statement on Form S-1
(333-09377) as filed with the Securities and Exchange Commission on August
1, 1996 and incorporated herein by reference.

12 Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (333-09377) as filed with the Securities and Exchange
Commission on September 13, 1996 and incorporated herein by reference.

13 Filed as an exhibit to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (333-09377) as filed with the Securities and Exchange
Commission on October 2,1996 and incorporated herein by reference.

14 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996 and incorporated herein by reference.

15 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996 and incorporated herein by reference.

16 Filed as an exhibit to the Company's Registration Statement on Form S-4
(File No. 333-23167) as filed with the Securities and Exchange Commission
on March 12, 1997 and incorporated herein by reference.

17 Filed as Annex A to the joint Proxy Statement and Prospectus forming a part
of Amendment No. 3 to the Company's Registration Statement on Form S-4
(File No. 333-28817) as filed with the Securities and Exchange Commission
on September 17, 1997.

18 Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-4 (File No. 333-28817) as filed with the Securities and
Exchange Commission on August 8, 1997.

19 Filed as an exhibit to Amendment No. 3 to the Company's Registration
Statement on Form S-4 (File No. 333-28817) as filed with the Securities and
Exchange Commission on September 17, 1997.

20 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference.

21 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 and incorporated herein by reference.

22 Filed herewith

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Partners of Synthetic Industries L.P.
Chickamauga, Georgia

We have audited the accompanying consolidated balance sheets of Synthetic
Industries L.P. and subsidiary as of September 30, 1997 and 1996, and the
related consolidated statements of operations, changes in partners' capital and
cash flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Synthetic Industries L.P. and
subsidiary at September 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1997 in conformity with generally accepted accounting principles.

/S/ Deloitte & Touche LLP

Deloitte & Touche LLP

New York, New York
November 14, 1997

<PAGE>

SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except limited partnership units outstanding)
<TABLE>
<CAPTION>

September 30,
ASSETS 1997 1996
-------- ------

<S> <C> <C>
CURRENT ASSETS:
Cash....................................................................... $ 340 $ 103
Accounts receivable, net (Note 4).......................................... 60,031 47,861
Inventory (Note 5)......................................................... 54,139 39,142
Other current assets (Note 6).............................................. 15,402 14,655
--------- --------

TOTAL CURRENT ASSETS................................................... 129,912 101,761

PROPERTY, PLANT AND EQUIPMENT, net (Note 7).................................. 182,102 137,974

OTHER ASSETS (Note 8)........................................................ 82,781 84,021
--------- --------

$394,795 $323,756

........LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
Accounts payable........................................................... $ 27,030 $ 20,227
Accrued expenses and other current liabilities............................. 11,613 10,026
Income taxes payable (Note 10)............................................. 52 1,407
Interest payable........................................................... 2,467 6,024
Current maturities of long-term debt (Note 9).............................. 718 659
---------- -----------

TOTAL CURRENT LIABILITIES........................................... 41,880 38,343

LONG-TERM DEBT (Note 9)...................................................... 220,464 194,353

DEFERRED INCOME TAXES (Note 10).............................................. 28,430 25,875

MINORITY INTEREST IN SUBSIDIARY.............................................. 35,145 -

COMMITMENTS AND CONTINGENCIES (Note 14)

PARTNERS' CAPITAL (Note 12)
General Partner Capital ................................................... 688 649
Limited Partners' Capital, 800 Units issued and outstanding................ 68,188 64,536
--------- ---------

TOTAL PARTNERS' CAPITAL................................................ 68,876 65,185
--------- ---------

$394,795 $323,756
</TABLE>

See notes to consolidated financial statements

<PAGE>

SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except limited partnership units outstanding)

Year ended September 30,
1997 1996 1995
-------------- -------------- --------
<S> <C> <C> <C>
Net sales............................................................... $ 345,572 $299,532 $271,427
--------- -------- --------
Costs and expenses:
Cost of sales ........................................................ 233,187 208,321 194,706
Selling expenses...................................................... 31,801 27,488 24,273
General and administrative expenses................................... 27,701 23,318 21,195
Amortization of excess of purchase price over net
assets acquired and other intangibles............................. 2,592 2,592 2,566
-------- -------- --------

295,281 261,719 242,740
------- -------- --------

Operating income....................................................... 50,291 38,813 28,687
-------- --------- --------

Other expenses:
Interest expense, net................................................. 20,085 22,773 22,514
Amortization of deferred financing costs.............................. 654 699 737
-------- ------- --------

20,739 23,472 23,251
------- -------- --------
Income before provision for income taxes, minority interest in
subsidiary net income and extraordinary item........................... 29,552 14,341 5,436

Provision for income taxes (Note 10).................................... 12,541 6,900 3,500
-------- -------- --------

Income before minority interest in subsidiary net income and
extraordinary item..................................................... 17,011 7,441 1,936

Minority interest in subsidiary net income.............................. 1,864 - -
-------- ----------- ------------

Income before extraordinary item........................................ 15,147 7,441 1,936

Extraordinary item - Loss from early
extinguishment of debt (net of tax
benefit of $7,481) (Note 9)........................................... 11,950 - -
------ ----------- -----------

NET INCOME.............................................................. $ 3,197 $ 7,441 $ 1,936
======= ======= =======

Net income attributable to:

General partner....................................................... $ 32 $ 74 $ 19
Limited partners...................................................... 3,165 7,367 1,917
--------- -------- --------
$ 3,197 $ 7,441 $ 1,936
========= ======= =======

Net income per limited partnership unit ................................ $ 3.96 $ 9.21 $ 2.40
=========== ======== =========

Limited partnership units outstanding .................................. 800 800 800
=== === ===
</TABLE>

See notes to consolidated financial statements

<PAGE>

SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(In thousands of dollars)

Total
General Limited Partners'
Partner Partner Capital

<S> <C> <C> <C>
Balance, October 1, 1994................................ $ 556 $ 55,263 $ 55,819

Net income.............................................. 19 1,917 1,936

Foreign currency translation............................ - 3 3
-------- ---------- ----------

Balance, September 30, 1995............................. 575 57,183 57,758

Net income.............................................. 74 7,367 7,441

Foreign currency translation............................ - (14) (14)
-------- ----------- -----------

Balance, September 30, 1996............................. 649 64,536 65,185

Net income.............................................. 32 3,165 3,197

Equity from the Offering................................ 5 424 429

Foreign currency translation............................ 2 63 65
------- ----------- -----------

Balance, September 30, 1997............................. $ 688 $ 68,188 $ 68,876
======= ======== ========
</TABLE>

See notes to consolidated financial statements

<PAGE>

SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Year ended September 30,
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 3,197 $ 7,441 $ 1,936
Adjustments to reconcile net income to cash provided by operations:
Minority interest in subsidiary net income.......................... 1,864 - -
Extraordinary loss on early extinguishment of debt.................. 19,431 - -
Depreciation and amortization....................................... 18,236 16,299 14,937
Deferred income taxes............................................... 2,270 3,400 (355)
Provision for bad debts............................................. 520 1,024 3,363
Change in operating assets and liabilities, net of acquisition:
Accounts receivable................................................. (9,993) (943) (12,212)
Inventory........................................................... (13,634) 6,451 (13,076)
Other current assets................................................ 236 (647) (1,469)
Accounts payable.................................................... 6,803 (3,801) 5,254
Accrued expenses and other current liabilities...................... 1,111 2,648 434
Income taxes payable................................................ (1,355) (48) 973
Interest payable.................................................... (3,557) (403) 180
---------- ----------- --------
Net cash provided by (used in) operating activities............... 25,129 31,421 (35)

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............................ (53,980) (29,253) (13,313)
Acquisition of business............................................... (9,354) - -
------- ------------ -----------
Net cash used in investing activities .............................. (63,334) (29,253) (13,313)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan............................................ - 19,500 11,000
Repayments under term loan............................................ (20,000) (500) (6,000)
Borrowings (repayments) under revolving credit line................... 9,427 (20,734) 8,598
Issuance of 9 1/4% Senior subordinated notes.......................... 170,000 - -
Redemption of 12 3/4% Senior subordinated debentures.................. (132,597) - -
Prepayment costs on early extinguishment of debt...................... (15,920) - -
Proceeds from underwritten public offering............................ 33,681 - -
Repayments of capital lease obligation and other long-term debt....... (660) (342) (36)
Debt issuance costs................................................... (5,525) (101) (221)
--------- ---------- ---------
Net cash provided by (used in) financing activities................. 38,406 (2,177) 13,341
Effect of exchange rate changes on cash........................... 36 2 (2)
----------- ----------- ----------

NET INCREASE (DECREASE) IN CASH......................................... 237 (7) (9)

CASH AT BEGINNING OF PERIOD............................................. 103 110 119
--------- --------- --------

CASH AT END OF PERIOD................................................... $ 340 $ 103 $ 110
======== ======== ========

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid during the year for:
Interest ............................................................. $ 23,642 $ 23,176 $ 22,334
Income taxes.......................................................... 4,145 3,548 2,882

SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Capital lease obligation incurred for purchase of equipment.............$ - $ 5,000 $ -
</TABLE>

See notes to consolidated financial statements

<PAGE>

SYNTHETIC INDUSTRIES L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except share and per share information)

1. ORGANIZATION

Synthetic Industries, L.P. (the "Partnership") is a limited partnership
organized under the laws of Delaware. In December 1986, the Partnership
acquired all of the issued and outstanding shares of Synthetic Industries,
Inc. (the "Company"). The Company manufactures and markets a wide range of
polypropylene-based fabric and fiber products designed for industrial
applications. The Company's diverse mix of products are marketed to the
floor covering, construction and technical textile markets for such end-use
applications as carpet backing, geotextiles, erosion control, concrete
reinforcement and furniture construction fabrics.

On June 9, 1997, the Company and the Partnership filed a Joint Proxy
Statement and Prospectus to approve a Plan of Withdrawal and Dissolution
for the Partnership. For a further description, see Part II, Item 5 (Other
Information) which is incorporated herein by reference.

Since its organization in 1986 and subsequent admission of limited
partners, the Partnership has conducted no business except owning and
voting the shares of the Company. As a result of its public offering of
Common Stock in November 1996, the Company currently has 8,656,250 shares
of Common Stock outstanding, of which approximately 67% are owned by the
Partnership. As the Partnership has no independent operations or assets
other than its investment in the Company, the Partnership's financial
statements are substantially identical to those of the Company, with the
exception of the minority interest and certain expenses recognized by the
Partnership associated with a withdrawn common stock offering. As a result,
the footnote information presented below relates to that of the Company,
except as disclosed. Accordingly, all references to fiscal year refer to
the Company's fiscal year which ends on September 30th.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions and balances have been eliminated.

Revenue recognition

Revenue from product sales is recognized at the time of shipment.

Foreign currency translation

The assets and liabilities of foreign subsidiaries are translated at the
fiscal year-end rates of exchange, and the results of operations are
translated at the average rates of exchange for the years presented. Gains
or losses resulting from translating foreign currency financial statements
are accumulated in the cumulative translation adjustments account in the
stockholders' equity section of the accompanying consolidated balance
sheets. Foreign currency transaction gains and losses are included in
results of operations. Foreign currency realized and unrealized gains and
losses for the years presented were not material.

Inventory

Inventory is stated at the lower of cost, determined using the first-
in, first-out method, or market.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation is provided on the
straight-line method based on estimated useful lives, as follows:

Building and improvements 25 years
Machinery and equipment 14 years

Leasehold improvements are amortized over the shorter of the useful life of
the asset or the term of the lease. Expenses for repairs, maintenance and
renewals are charged to operations as incurred. Expenditures which improve
an asset or extend its useful life are capitalized. When properties are
retired or otherwise disposed of, the related cost and accumulated
depreciation and amortization are removed from the accounts and any gain or
loss is included in the results of operations.

Capitalized interest is charged to machinery and equipment and amortized
over the lives of the related assets. Interest capitalized during fiscal
1997, 1996 and 1995 was $838, $392 and $729, respectively.

Income taxes

The Company accounts for income taxes using an asset and liability approach
in accordance with Statement of Financial Accounting Standards No. 109
("SFAS 109"). Under SFAS 109, deferred income taxes are recognized for the
tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in the statement of operations for the period that includes the
enactment date.

Excess of purchase price over net assets acquired

The excess of purchase price over net assets acquired is amortized on a
straight-line basis over a period of 40 years. Excess of purchase price
over net assets acquired is assessed for recoverability on a regular basis.
In evaluating the value and future benefits of goodwill, its carrying value
would be reduced by the excess, if any, of the balance over management's
best estimate of undiscounted future operating income before amortization
of the related intangible assets over the remaining amortization period.

Deferred financing and intangible assets

Deferred financing costs are amortized over periods from 5 to 12 years.
Intangible assets consist primarily of a Fibermesh(R) trademark and
patents on civil engineering products, which are amortized on a
straight-line basis over 40 and 15 years, respectively.

Income per limited partnership unit

Income per limited partnership unit is based upon the weighted average
number of units outstanding during each respective year. Net income is
allocated to the General Partner, the Limited Partners, and the minority
interest based on their respective ownership percentages.

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

Recent accounting pronouncements

In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standard No. 128, "Earnings Per
Share" ("SFAS 128"). Under the new standard, which must be adopted for
periods ending after December 15, 1997, the Company will be required to
change the method used to compute earnings per share and to restate prior
periods presented. A dual presentation of basic and diluted earnings per
share will be required. The basic earnings per share calculation, which
will replace primary earnings per share, will exclude the dilutive impact
of stock options and other common share equivalents. The diluted earnings
per share calculation, which will replace fully diluted earnings per share,
will include common share equivalents. The adoption of SFAS 128 will not
have a material impact on earnings per share for the three years ended
September 30, 1998.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), which must be adopted for fiscal years beginning
after December 15, 1997. Under the new standard, companies will be required
to report certain information about operating segments in consolidated
financial statements. Operating segments will be determined based on the
method that management organizes its businesses for making operating
decisions and assessing performance. SFAS 131 also requires companies to
report certain information about their products and services, the
geographic areas in which they operate, and their major customers. The
Company is currently evaluating the effect, if any, of implementing SFAS
131.

Research and development

The Company's research and market development is focused primarily on
development and as such the Company engages in product design, development
and performance validation to improve existing products and to create new
products. The Company expended $4,208, $2,942, and $2,795 in fiscal 1997,
1996, and 1995, respectively. Research and development costs are expensed
as incurred and included in general and administrative expenses.

Reclassification of prior financial statements

Certain reclassifications have been made to previous years' financial
statements to conform with 1997 classifications.

Proceeds received from the underwritten public offering

The $33,681 net proceeds received from the November 1, 1996 Offering were
used to repay certain outstanding indebtedness.

BUSINESS ACQUISITION

On February 27, 1997, the Company acquired certain assets of the Spartan
Technologies division of Spartan Mills (the "Acquisition") for
approximately $9,400. The acquisition has been accounted for using the
purchase method of accounting, and, accordingly, the purchase price has
been allocated to the net assets acquired (accounts receivable, inventory,
and property, plant and equipment) based on the fair market value (which
approximated cost) at the date of acquisition. The operating results of the
acquired business have been included in the consolidated statement of
operations from the date of acquisition. The Acquisition did not have a
material impact on the Company's financial statements.

4. ACCOUNTS RECEIVABLE

Accounts receivable are presented net of the doubtful allowances of $2,707,
$3,036 and $4,053 for fiscal 1997, 1996 and 1995, respectively. Amounts
written off against established allowances were $849, $2,041 and $511 for
the years ended September 30, 1997, 1996 and 1995, respectively.

The Company grants uncollateralized trade terms to most U.S. customers. A
majority of the Company's carpets backing sales are with customers located
in the state of Georgia. As of September 30, 1997 and 1996, $26,126 and
$21,916, respectively of the Company's accounts receivable balances were
due from customers located in this state. Net sales to one customer
represented approximately 20% of consolidated net sales for 1997 and
approximately 18% of consolidated net sales for 1996 and 1995,
respectively.

5. INVENTORY
<TABLE>
<CAPTION>
September 30,
1997 1996
---- ----

<S> <C> <C>
Finished goods............................$ 33,572 $ 22,555
Work in process......................... 7,427 7,937
Raw materials........................... 13,140 8,650
-------- -------

$ 54,139 $ 39,142
</TABLE>

6. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
September 30,
1997 1996
---- ----

<S> <C> <C>
Prepaid supplies........................ $ 9,003 $ 7,250
Deferred tax assets (Note 10)........... 5,050 4,765
Other................................... 1,349 2,640
--------- ---------
$15,402 $14,655
</TABLE>

7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>

September 30,
1997 1996
---- ----

<S> <C> <C>
Land.................................... $ 4,585 $ 4,458
Buildings and improvements.............. 35,398 29,298
Machinery and equipment and
leasehold improvements................ 232,277 179,386
------- --------

272,260 213,142
Accumulated depreciation................ 90,158 75,168
-------- --------

$182,102 $137,974
</TABLE>

Depreciation expense on property, plant and equipment was $14,990, $13,008 and
$11,634 in fiscal 1997, 1996 and 1995, respectively.

8. OTHER ASSETS
<TABLE>
<CAPTION>

September 30,
1997 1996
---- ----

<S> <C> <C>
Excess of purchase price
over net assets acquired...................... $99,818 $99,818
Intangible assets.............................. 3,546 3,546
Deferred financing costs........................ 11,651 12,331
--------- ---------

115,015 115,695
Accumulated amortization........................ 32,234 31,674
-------- -------

$ 82,781 $ 84,021
======== ========

</TABLE>

The excess of purchase price over net assets acquired arose from the December 4,
1986 purchase of the Company's Common Stock by Synthetic Industries L.P., a
Delaware limited partnership. This acquisition was accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the net assets acquired based on estimates by independent appraisals and other
valuations of fair market value as of December 4, 1986, and resulted in a
purchase price in excess of net assets acquired of $99,818.

In conjunction with refinancing of long-term debt (Note 9), deferred financing
costs of $5,525 were incurred. Previously incurred costs of $6,205 and
associated amortization of $2,686 were written off, the effect of which is
included in the extraordinary loss from early extinguishment of debt.

Amortization expense was $3,246, $3,291 and $3,303 in fiscal 1997, 1996 and
1995, respectively.

9. LONG-TERM DEBT
<TABLE>
<CAPTION>

September 30,
1997 1996
<S> <C> <C>
Credit facility:
Revolving credit portion $ 13,420 $3,993
Term loan portion 25,000 45,000
9 1/4% senior subordinated notes, due 2007 170,000 -
12 3/4% senior subordinated debentures, due 2002 7,403 140,000
Capital lease obligation (Note 14) 4,083 4,698
Other 1,276 1,321
-------- --------
221,182 195,012
Less current portion 718 659
-------- --------

Total long-term portion $ 220,464 $194,353
========= ========
</TABLE>

Credit Facility

On October 20, 1995, the Company and its lenders entered into a Fourth Amended
and Restated Revolving Credit Agreement (as amended to date, the "Credit
Facility"). The Credit Facility, with a termination date of October 1, 2001,
provided for potential borrowing capacity of up to $85,000 comprised of term
loan borrowings of $45,000 and a revolving credit loan portion (the "Revolver")
of $40,000. The term loan balance at September 30, 1997 was $25,000, of which
$10,000 is payable in 1999 and $15,000 is payable in 2000. The Revolver provides
for availability based on a borrowing formula consisting of 85% of eligible
accounts receivable and 50% of eligible inventory, subject to certain
limitations and reserves which include the remaining balance due under the
Debentures of $7,403. At September 30, 1997, availability under the Revolver was
$17,838.

The Credit Facility permits borrowings which bear interest, at the Company's
option, (i) for domestic borrowings based on the lender's base rate (8.50% at
September 30, 1997) or (ii) for Eurodollar borrowings based on the Interbank
Eurodollar rate at the time of conversion plus 2.0% or 1.75% for term loan or
revolver advances, respectively (7.44% to 7.63% at September 30, 1997).

In fiscal 1996, the Credit Facility permitted borrowings which bore interest, at
the Company's option, (i) for domestic borrowings based on the lender's base
rate plus .75% (9.0% at September 30, 1996) or (ii) for Eurodollar borrowings
based on the Interbank Eurodollar rate at the time of conversion plus 2.5% or
2.75% for term loan or revolver advances, respectively (8.09% to 9.25% at
September 30, 1996).

The Credit Facility provides for borrowings under letters of credit of up to
$3,000, which borrowings reduce amounts available under the Revolver. At
September 30, 1997, no letters of credit were outstanding under the facility.

The Credit Facility is collateralized by substantially all of the Company's
assets and contains covenants related to the maintenance of certain operating
and working capital levels and limitations as to the amount of capital
expenditures. The Company's ability to pay dividends on its common stock is
restricted by both the Credit Facility and the indenture relating to the Senior
Subordinated Debentures discussed above.

Senior Subordinated Debentures and Notes

On February 11, 1997, the Company issued $170,000 in aggregate principal amount
of 9 1/4% Senior Subordinated Notes due 2007 (the "Notes"), which represent
unsecured obligations of the Company. The Notes are redeemable at the option of
the Company at any time on or after February 15, 2002, initially at 104.625% of
their amount, together with accrued interest, with declining redemption prices
thereafter. Interest on the Notes is payable semi-annually on February 15 and
August 15.

In connection with the issuance of the Notes, the Company redeemed approximately
$132,600 principal amount of its 12 3/4% Senior Subordinated Debentures due 2002
(the "Debentures") at a redemption price of 111.07% of the principal amount
thereof. In addition, the Company repaid $20,000 of its outstanding term loan
borrowings as of March 5, 1997. In connection with the early extinguishment of
debt, the Company recorded an extraordinary loss of $11,950 (representing call
premium and prepayment fees of $15,920 and write off of deferred financing costs
of $3,511, net of an income tax benefit of $7,481) during the second quarter of
fiscal 1997.

On December 1, 1997 the Company redeemed the remaining $7,403 aggregate
principal amount of Debentures outstanding at a redemption price of 106.375% of
the principal amount thereof, together with accrued interest as of the
redemption date.

Aggregate Minimum Payments and Fair Value

Approximate aggregate minimum annual payments due on long term debt and the
capital lease, for the subsequent five years are as follows: 1998, $718; 1999,
$10,783; 2000, $29,273; 2001, $1,971; 2002, $177,483; and thereafter, $954.

The fair value of the Company's Notes is estimated to be $176,375 at September
30, 1997. The fair value of the Debentures are estimated to be $7,875 and
$149,800 at September 30, 1997 and 1996, respectively. The fair values are based
on quoted market prices for the Notes and Debentures in the over-the-counter
market.

10. INCOME TAXES

The sources of the Company's income before provision for income taxes are as
follows:
<TABLE>
<CAPTION>

Year Ended September 30,
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
United States $29,609 $14,083 $4,546
Foreign 1,082 919 890
----- --- -----
Earnings before income taxes $30,691 $15,002 $5,436
======= ======= ======
</TABLE>

The provision for income taxes contributable to the amounts shown above consists
of the following:
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal............................................ $8,796 $2,600 $ 3,180
State.............................................. 1,120 600 400
Foreign............................................ 355 300 275
-------- -------- --------
10,271 3,500 3,855
------ ------- -------
Deferred:
Federal............................................ 1,900 3,200 (218)
State.............................................. 370 200 (137)
-------- -------- ---------
2,270 3,400 (355)
------- ------- ---------

Total ................................................. $12,541 $6,900 $3,500
======= ====== ======
</TABLE>

As described in Note 9, the Company recorded a current tax benefit of $7,481 in
fiscal 1997 as a result of the early extinguishment of debt.

A reconciliation of US income tax computed at the statutory rate and actual tax
expense is as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
Amount computed at statutory rate...................... $10,742 $5,250 $1,900

State and local taxes less applicable
federal income tax benefit........................... 998 550 270

Amortization of goodwill............................... 873 873 873

Other nondeductible expenses........................... 181 115 210

Other, net............................................. (253) 112 247
----------- -------- --------
$12,541 $6,900 $3,500
======= ====== ======
</TABLE>

The tax effects of significant items comprising the Company's net deferred tax
liability are as follows:
<TABLE>
<CAPTION>

September 30,
1997 1996
---- ----

<S> <C> <C>
Property, plant and equipment.......................... $27,345 $24,819
Trademarks and patents................................. 1,085 1,056
------ ------

Total deferred tax liabilities......................... 28,430 25,875
------ ------

Accounts receivable.................................... 1,018 996
Inventory.............................................. 815 626
Accrued expenses....................................... 2,013 1,829
AMT credit carryforward (no expiration date)........... 1,204 1,314
------- ------

Total deferred tax assets.............................. 5,050 4,765
------- --------

Net deferred tax liability............................. $23,380 $21,110
========== =======
</TABLE>

11. RETIREMENT PROGRAMS

For US employees, the Company maintains a trusteed profit-sharing plan
("Plan") which is qualified under Section 401(k) of the Internal Revenue
Code. All full-time employees over the age of 21 who have been employed
continuously for at least one year are eligible for participation in the
Plan. The Company may, but has not elected to, contribute a portion of its
profits to the Plan, as determined by the Board of Directors. Employer
contributions vest over 1 to 5 years. The Company has elected to match
employee contributions to the Plan on a 50% basis but not to exceed 3% of
the employee's annual compensation. During fiscal years 1997, 1996 and
1995, the Company contributed $1,098, $999 and $921, respectively. The Plan
provides for the Company to bear the expense of the administration of the
Plan. Pension expense on the foreign plans is not significant.

12. STOCK OPTIONS

Director's plan

In August 1994, the Company adopted a stock option plan (the "Director's
Plan") pursuant to which non-qualified stock options to purchase an
aggregate of 125,261 shares of Common Stock were granted to the four
non-employee Directors of the Company at an exercise price of $6.83 per
share which was determined by reference to the fair market value of the
Company's equity at the time such Directors joined the Board. The stock
options are fully vested as of October 1, 1996 and have a term which
expires on August 4, 2004. The Director's Plan does not provide for any
further grants or options thereunder.

Management plan

The Company's 1994 and 1996 Stock Option Plans (collectively, the
"Management Plans") for its key employees, provided for the granting of
incentive stock options ("ISOs"), as provided in Section 422A of the
Internal Revenue Code, and non-qualified stock options. The maximum
aggregate number of shares of Common Stock that may be issued under the
1994 Plan and the 1996 Plan is 491,413 and 289,062 , respectively.

At September 31, 1997 and 1996, there were outstanding options under the
Management Plans for the purchase of 688,636 and 513,136 shares,
respectively, at prices ranging from $10.72 to $21.375 per share. Stock
option transactions during 1997, 1996 and 1995 are summarized as follows:

Shares reserved Shares
for issuance Shares Weighted
under the granted available Price average
Management Plans for price
grant
<S> <C> <C> <C> <C> <C>
Initial grant December 14, 491,413 316,697 174,716 $10.72 $10.72
1994
- --------------------------------- ---------------------- -------------- -------------- -------------------- --------------
Balance at September 30, 491,413 316,697 174,716 $10.72 $10.72
1995
Options granted 289,062 196,439 $10.72 $10.72
- --------------------------------- ---------------------- -------------- -------------- -------------------- --------------
Balance at September 30, 780,475 513,136 267,339 $10.72 $10.72
1996
Options granted - 175,500 $18.77
$17.875-$21.375
- --------------------------------- ---------------------- -------------- -------------- -------------------- --------------
Balance at September 30, 780,475 688,636 91,839 $12.77
1997 $10.720-$21.375
</TABLE>

At September 30, 1997, 207,458 options were exercisable at a weighted
average exercise price of $10.72 per share.

The purchase price of the shares of Common Stock subject to options under
the Management Plans must be no less than the fair market value of the
Common stock at the date of grant; provided, however, that the purchase
price of shares of Common Stock subject to ISOs granted to any optionee who
owns shares possessing more than 10% of the combined voting power of the
Company ("Ten Percent Shareholder') must not be less that 110% of the fair
market value of the Common Stock at the date of the grant. The maximum term
of an option may not exceed ten years from the date of the grant, except
with respect to ISOs granted to Ten Percent Shareholders which must expire
within five years of the date of grant.

The Company has elected to continue measuring stock-based compensation
using the intrinsic value approach under APB Opinion No. 25 and has adopted
the disclosure-only provision of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
Accordingly, no compensation expense has been recognized for the options
described above. Had compensation costs for the options been determined
based on the fair value on the grant date consistent with the provisions of
SFAS 123, the Company's net income and income per share would have been
changed to the following pro forma amounts:

1997 1996
---- ----
Pro forma net income $6,009 $8,012
Pro forma income per share 0.69 1.35

The fair values for both years were determined using a Black-Scholes
option-pricing model with the following weighted average assumptions:

1997 1996
---- ----
Dividend yield None None
Volatility 33% 33%
Risk-free interest rate 6.4% to 6.8% 5.8% to 6.7%
Expected life 4 years 4 years

13. RELATED PARTY TRANSACTIONS

Synthetic Industries, L.P. (the "Partnership") owns 5,781,250 shares of
Common Stock, or approximately 67% of the issued and outstanding shares of
Common Stock. Four of the Company's executive officers, including its chief
executive officer, and a former executive officer are sole stockholders of
corporations which indirectly control the sole general partner of the
Partnership.

The Company and the Partnership entered into a Registration Rights
Agreement pursuant to which the Company has agreed that upon request of the
Partnership the Company will register under the Securities Act and
applicable state securities laws the sale of the Common Stock owned by the
Partnership and as to which registration has been requested. The Company's
obligation is subject to certain limitations relating to a minimum amount
required for registration, the timing of a registration and other similar
matters. The Company is obligated to pay any registration expenses
incidental to such registration, excluding underwriters' commissions and
discounts. In connection with the November 1, 1996 underwritten public
offering the Company incurred approximately $650 of such incidental
expenses.

On September 19, 1997, the Company and the Partnership entered into an
Agreement and Plan of Withdrawal and Dissolution of the Partnership ("the
Plan"). Pursuant to the Plan, the Partnership is to be dissolved in two
separate phases. The first phase is to be an underwritten public offering
of the number of shares of Common Stock that limited partners have elected
to sell, and the second phase is to be one to three liquidating
distributions of the unsold portions of the Partnership's shares of Common
Stock, beginning 180 days after the completion of the public offering. On
November 7, 1997, the limited partners approved the adoption of the Plan.
However, the implementation of the Plan has been enjoined by courts in
Delaware and California in connection with two lawsuits filed by certain
limited partners of the Partnership against the Partnership and its general
partner (the "General Partner"), among others. See "Claims and Legal
Proceedings". Among other equitable and legal remedies, the plaintiff is
seeking the removal of the General Partner and the liquidation of the
Partnership. The Company is not currently involved in these proceedings and
does not presently possess any contractual rights with respect to their
ultimate resolution. If, in connection with these lawsuits, the General
Partner is removed or resigns, or the Partnership is liquidated under a
court-appointed receiver, there can be no assurance that the resulting sale

<PAGE>

and/or distribution of the Partnership's share of Common Stock will be made
in the same or similar manner as that contemplated by the Plan. The General
Partner has denied the allegations of the plaintiff and is vigorously
contesting the lawsuits; however, in the event of an adverse ruling, the
Company cannot predict the volume or price at which the Common Stock trades
might be affected. In connection with the Plan the Company incurred
approximately $1,150 of expenses on the behalf of the Partnership. These
amounts are reimbursable to the Company and included in other current
assets (Note 6).

A former executive officer of the Company and an affiliate of the
Partnership, is being retained as a consultant to the Company. Pursuant to
his consulting agreement with the Company, the former executive officer
will receive, until January 31, 2000, or upon earlier termination of his
consulting agreement, $125 per year and various insurance coverages, and
will be authorized to exercise all stock options awarded to him, subject to
applicable vesting provisions. Under this agreement, the former executive
officer is required to provide the Company with 20 hours of consultation
per month, has released the Company from any liability resulting from his
employment and has also agreed not to compete against the Company.

The Company leases office space under a five-year lease with one of the
Company's executive officers. The term of the lease expires on September
30, 1998 and the rent is approximately $48 per year, which the Company
believes is within prevailing market rates.

Pursuant to a licensing agreement with the Company, an executive officer of
the Company, receives royalties related to the manufacture and sale of a
certain product for which the executive officer owns all of the U.S. and
foreign patents. Under this agreement, the Company paid royalties of
approximately $13 and $12 in fiscal 1997 and 1996, respectively, and will
continue to receive such royalties until 2012 or the earlier termination of
the licensing agreement.

During fiscal 1997 and 1996 the Company paid fees of approximately $241 and
$232, respectively, to a law firm in which Mr. Joseph Dana, a director of
the Company was a member until May 21, 1997. Effective May 21, 1997, Mr.
Dana became employed as Chief Operating Officer and General Counsel of the
Company.

14. COMMITMENTS AND CONTINGENCIES

a. Lease commitments

On May 15, 1996, the Company entered into a five-year capital lease
for equipment which provides for payments over a five-year period at
an interest rate of 8.42%. The Company also leases certain factory and
warehouse buildings and equipment under long-term operating leases
expiring periodically through 2009.
<PAGE>

Future minimum lease payments under noncancelable lease obligations at
September 30, 1997 are as follows:

Capital Operating
Year leases leases

<S> <C> <C>
1998........................................................ $ 986 $ 2,961
1999....................................................... 986 2,399
2000....................................................... 986 1,638
2001....................................................... 1,993 662
2002.................................................... - 307
Thereafter................................................. - 635
------ ------

Total minimum lease payments................................ $4,951 $ 8,602
=======

Less amount representing interest............................ 868
---

Present value of net minimum lease payments.................. 4,083

Less current maturities of capital
lease obligation........................................ 614
-------

Long-term capital lease obligation........................... $3,469
</TABLE>

Total rental expense for the above operating leases and other
short-term leases for the fiscal years 1997, 1996 and 1995 was $4,112,
$4,499 and $3,731, respectively.

b. Capital Expenditures

In fiscal 1998, the Company plans a $41,000 expansion of its existing
manufacturing facilities, primarily to expand capacity, subject to
prevailing market conditions, of which $8,128 is committed at
September 30, 1997.

15. LITIGATION

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

In connection with the proposed dissolution of the Partnership, pursuant
to an Agreement and Plan of Withdrawal and Dissolution (the "Plan"), one
director and certain of the Company's officers who are affiliated with the
General Partner have been named in two putative class action lawsuits filed

<PAGE>

by certain limited partners of the Partnership. In the first action, to
which the Company is not a party, filed on February 11, 1997 in the
Delaware Court of Chancery and thereafter amended, the plaintiffs have
alleged, among other things, breach of the defendants' fiduciary duty to
the limited partners, that the Plan is unlawfully coercive, that the
General Partner has allegedly failed to satisfy certain conditions
precedent to the right of limited partners to amend the partnership
agreement and that certain amendments necessary to implement the Plan
violate the terms of the partnership agreement. The plaintiffs seek, among
other equitable and legal remedies, removal of the General Partner,
dissolution of the Partnership, appointment of a liquidating trustee, to
enjoin the implementation of the Plan and compensatory damages in an
undetermined amount. On October 23, 1997, the Court preliminarily enjoined
the implementation of the Plan, although the Plan was subsequently approved
by limited partners on November 7, 1997. On November 7, 1997, the Delaware
Supreme Court accepted the defendants' petition for an expedited appeal of
this injunction, and oral argument on the appeal was heard on December 2,
1997. The defendants have denied the allegations of the plaintiff and
are vigorously contesting the lawsuit.

The second lawsuit was filed in the U.S. District Court of the Northern
District of California on May 1, 1997, and thereafter amended. The
plaintiff has alleged in his amended complaint various federal securities
and proxy violations allegedly arising out of the joint proxy statement and
prospectus which was mailed to limited partners in connection with the
solicitation of proxies for the vote on the Plan and other related
documents. The plaintiff also added the Company as a named defendant,
alleging that all defendants acted in concert with, and as agents of, each
other; however, the plaintiff made no specific indepndent allegations with
respect to the Company. The plaintiff seeks, among other equitable and
legal remedies, to enjoin the implementation of the Plan and unspecified
damages. On November 6, 1997, the Court granted in part the plaintiff's
motion for a temporary restraining order enjoining the implementation of
the Plan. The plaintiff's motion for a preliminary injunction has been
briefed and an oral argument was heard on December 19, 1997. The defendants
have denied the allegations of the plaintiff and are vigorously contesting
the lawsuit.

The Partnership is a principal stockholder of the Company and certain
members of the Company's management control the General Partner. See
"Certain Relationships and Related Transactions." Based on the Company's
review of the allegations made in the above actions to date, the Company
does not believe that the ultimate resolution of either action will have a
material adverse effect on the Company's results of operations or financial
condition.

16. Subseqent Event

On December 18, 1997, the Company and its lenders, with BankBoston as agent
entered into a new five year credit facility (the "New Credit Facility").
The New Credit Facility consists of up to a $40 million asset based
securitization program, with amounts borrowed through a newly formed
subsidiary, Synthetic Industries Funding Corporation, (the
"Securitization"), and a $60 million senior secured revolver facility (the
"New Revolver"). Securitization and New Revolver borrowings are
collateralized by the Company's accounts receivables and substantially all
of the assets of the Company, excluding real property, respectively.

Interest on the Securitization is based on the applicable commercial paper
rate in effect plus a spread. The New Revolver permits borrowings which
bear interest, at the Company's option, (i)for domestic borrowings based on
the lender's base rate or (ii) for Eurodollar borrowings based on a spread
over the Interbank Eurodollar rate at the time of conversion. Spreads for
the Securitization and the Eurodollar borrowings are determined by the
operational performance of the Company. At September 30, 1997, the interest
rates under the Securitization and the Eurodollar borrowings would have
been 6.23% and 7.09%, respectively.

The New Credit Facility contains covenants related to the maintenance of
certain operating ratios and limitations as to the amount of capital
expenditures. The Company's ability to pay dividends on its common stock is
restricted by both the New Credit Facility and the Notes. At September 30,
1997,the availability under the New Credit Facility would have been
approximately $45,000.

SIGNATURES3

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

SYNTHETIC INDUSTRIES L.P.

By: SI MANAGEMENT L.P.
General Partner

By: SYNTHETIC MANAGEMENT G.P.
General Partner

By: CHILL INVESTMENTS, INC.
Managing General Partner

By: /s/ Leornard Chill
Leonard Chill
President
Dated: December 19, 1997

<ARTICLE> 5
<LEGEND>
The following table presents the fiscal 1997 financial data for Synthetic
Industries L.P.
</LEGEND>
<CIK> 0000901175
<NAME> Synthetic Industries L.P.
<MULTIPLIER> 1,000
<CURRENCY> USD

<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-START> Oct-01-1997
<PERIOD-END> Sep-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 340
<SECURITIES> 0
<RECEIVABLES> 62,738
<ALLOWANCES> 2,707
<INVENTORY> 54,139
<CURRENT-ASSETS> 129,912
<PP&E> 272,260
<DEPRECIATION> 90,158
<TOTAL-ASSETS> 394,795
<CURRENT-LIABILITIES> 41,880
<BONDS> 177,403
0
0
<COMMON> 0
<OTHER-SE> 68,876
<TOTAL-LIABILITY-AND-EQUITY> 394,795
<SALES> 345,572
<TOTAL-REVENUES> 345,572
<CGS> 233,187
<TOTAL-COSTS> 233,187
<OTHER-EXPENSES> 20,739
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,085
<INCOME-PRETAX> 29,552
<INCOME-TAX> 12,541
<INCOME-CONTINUING> 15,147
<DISCONTINUED> 0
<EXTRAORDINARY> (11,950)
<CHANGES> 0
<NET-INCOME> 3,197
<EPS-PRIMARY> 0
<EPS-DILUTED> 3.96

</TABLE>