FEDERAL PRISON INDUSTRIES (FPI) -- WAIVER OF BIVY COVERS FOR FY 1998 Federal Prison Industries (FPI) was initially approached by one military customer to manufacture bivy covers. After examining bivy covers under its interim procedures, FPI concluded that bivy covers are not a new product. The bivy cover is within FPI's current manufacturing capabilities and is closely related to bags and covers manufactured by FPI. This conclusion was approved by FPI's Board of Directors. In spite of the fact that the item is not a new product, sales volume is restricted by FPI's significant expansion guidelines. After an examination of the projections for bags and covers in FY 1998, it is apparent that FPI would exceed the threshold for significant expansion consideration. Therefore, FPI will not proceed to exercise its mandatory source to manufacture bivy covers in the near term and waives all bivy cover work for 1998. FPI reserves the right to reevaluate and assess its position for work available beginning in FY 1999. FPI may decide to seek authorization from its Board of Directors to significantly expand in production of bags and covers. In this event, all interested parties will be notified of FPI's intent. Although FPI's decision not to produce bivy covers at this time is related to the fact that its production would constitute a significant expansion, FPI does not believe its production of bivy covers would significantly impact the industry. Tennier Industries, Inc. is the only current supplier of bivy covers to the Defense Department. Tennier Industries is listed as a manufacturer of military clothing by Dun & Bradstreet. According to the 1995 American Directory of Manufacturers its sales are between $50 and $100 million. Tennier employs more than 500 people and is not considered a small business by the U.S. Small Business Administration. The figures below display a history of Tennier's federal and bivy covers sales. Tennier Industry Sales ($ 000) Sales 1994 1995 1996 Total Federal Sales 3,970 30,856 64,994 Bivy cover sales 0 11,845 17,630 Bivy cover:% of total sales 0 38.4% 27.1% (Source: Federal Procurement Data Center and Federal contracts) Tennier has substantially increased its federal sales during the last three years. Bivy covers have unambiguously contributed to the company's rapid growth. If FPI had decided to enter the bivy cover market in 1998, it may have had some impact on Tennier Industries revenues, but most likely would not have resulted in severe adverse impact. The precise nature of FPI's impact would depend on what bivy contracts are available to FPI and Tennier. In addition, FPI's entrance into the market would promote competition by increasing the number of suppliers available. At this time, FPI is foregoing any bivy cover production based on its current production of bags and covers and its proximity to its significant expansion ceiling.

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