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SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549



FORM 10-Q



|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended October 25, 2003



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



Commission File Number 333-88212



COLLINS & AIKMAN FLOORCOVERINGS, INC.

(Exact name of
registrant as specified in its charter)



|Delaware                                                       |  | 58-2151061                       
|-------------------------------------------------------------- |  | ---------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



|311 Smith Industrial Boulevard, Dalton, Georgia |  | 30721     
|----------------------------------------------- |  | ----------
|(Address of principal executive offices)        |  | (Zip Code)



Registrants telephone
number: (706) 259-9711



Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes x No  ̈.



Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  ̈ No x.



The Registrant has 1,000 shares of
Common Stock, par value $.01 per share, issued and outstanding as of December 7, 2003.



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COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES



INDEX



|          |  |                                                                                                                          |  |                                                                                       |  | Page No.
|--------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------- |  | --------
|          |  |                                                                                                                         
|Part I.   |  | Financial Information                                                                                                    |  |                                                                                      
|          |  |                                                                                                                          | 
|          |  | Item 1.                                                                                                                  |  | Financial Statements                                                                  |  |         
|          |  |                                                                                                                         
|          |  | Consolidated Statements of Operations  Thirteen Weeks and Thirty-Nine Weeks Ended October 26, 2002 and October 25, 2003 |  | 3                                                                                    
|          |  |                                                                                                                         
|          |  | Consolidated Balance Sheets  As of January 25, 2003 and October 25, 2003                                                |  | 4                                                                                    
|          |  |                                                                                                                         
|          |  | Consolidated Statements of Stockholders Equity  Thirty-Nine Weeks Ended October 25, 2003                               |  | 5                                                                                    
|          |  |                                                                                                                         
|          |  | Consolidated Statements of Cash Flows  Thirty-Nine Weeks Ended October 26, 2002 and October 25, 2003                    |  | 6                                                                                    
|          |  |                                                                                                                         
|          |  | Notes to Consolidated Financial Statements                                                                               |  | 7                                                                                    
|          |  |                                                                                                                          | 
|          |  | Item 2.                                                                                                                  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 24      
|          |  |                                                                                                                          | 
|          |  | Item 3.                                                                                                                  |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 32      
|          |  |                                                                                                                          | 
|          |  | Item 4.                                                                                                                  |  | Controls and Procedures                                                               |  | 32      
|          |  |                                                                                                                         
|Part II.  |  | Other Information                                                                                                        |  |                                                                                      
|          |  |                                                                                                                          | 
|          |  | Item 1.                                                                                                                  |  | Legal Proceedings                                                                     |  | 33      
|          |  |                                                                                                                          | 
|          |  | Item 6.                                                                                                                  |  | Exhibits and Reports on Form 8-K                                                      |  | 33      
|          | 
|Signature |  | 34                                                                                                                      



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##### Table of Contents

PART 1  FINANCIAL INFORMATION



|Item 1. |  | Financial Statements
|------- |  | --------------------



COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and In Thousands)



|                                                                                          |  | Thirteen Weeks Ended |        |   | Thirty-Nine Weeks Ended
|----------------------------------------------------------------------------------------- |  | -------------------- | ------ | - | -----------------------
|                                                                                          |  | October 26,2002      |        |   | October 25,2003        
|                                                                                          |  |                      |        |  
|NET SALES                                                                                 |  | $                    | 84,282 |   |                        
|                                                                                          |  |                      |        |   |                        
|                                                                                          |  |                      |        |  
|COST OF GOODS SOLD                                                                        |  |                      | 57,425 |   |                        
|SELLING, GENERAL & ADMINISTRATIVE EXPENSES                                                |  |                      | 17,913 |   |                        
|                                                                                          |  |                      |        |   |                        
|                                                                                          |  |                      | 75,338 |   |                        
|                                                                                          |  |                      |        |   |                        
|OPERATING INCOME                                                                          |  |                      | 8,944  |   |                        
|                                                                                          |  |                      |        |  
|MINORITY INTEREST IN INCOME (LOSS) OF SUBSIDIARY                                          |  |                      | (1     | ) |                        
|EQUITY IN EARNINGS OF AFFILIATE                                                           |  |                      | 484    |   |                        
|NET INTEREST EXPENSE                                                                      |  |                      | 5,464  |   |                        
|                                                                                          |  |                      |        |   |                        
|                                                                                          |  |                      |        |  
|INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |  |                      | 3,965  |   |                        
|INCOME TAX EXPENSE (BENEFIT)                                                              |  |                      | 1,775  |   |                        
|                                                                                          |  |                      |        |   |                        
|                                                                                          |  |                      |        |  
|INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                         |  |                      | 2,190  |   |                        
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                       |  |                      |       |   |                        
|                                                                                          |  |                      |        |   |                        
|                                                                                          |  |                      |        |  
|NET INCOME                                                                                |  | $                    | 2,190  |   |                        
|                                                                                          |  |                      |        |   |                        



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



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COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands)



|                                                                                                                 |  | January 25,2003 |         |   | October 25,2003 |  
|---------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | - | --------------- | -
|                                                                                                                 |  |                 |         |   | (Unaudited)     |  
|                                                                                                                 |  |                
|ASSETS                                                                                                           |  |                 |         |   |                 |  
|CURRENT ASSETS:                                                                                                  |  |                 |         |   |                 |  
|Cash and cash equivalents                                                                                        |  | $               | 20,907  |   |                 | $
|Accounts receivable, net of allowances of $917 and $978 in fiscal 2002 and 2003, respectively                    |  |                 | 38,527  |   |                 |  
|Inventories                                                                                                      |  |                 | 35,721  |   |                 |  
|Deferred tax assets                                                                                              |  |                 | 1,863   |   |                 |  
|Prepaid expenses and other                                                                                       |  |                 | 1,699   |   |                 |  
|                                                                                                                 |  |                 |         |   |                 |  
|Total current assets                                                                                             |  |                 | 98,717  |   |                 |  
|                                                                                                                 |  |                
|PROPERTY, PLANT, AND EQUIPMENT, net                                                                              |  |                 | 66,258  |   |                 |  
|                                                                                                                 |  |                
|DEFERRED TAX ASSETS                                                                                              |  |                 | 870     |   |                 |  
|                                                                                                                 |  |                
|GOODWILL                                                                                                         |  |                 | 98,378  |   |                 |  
|                                                                                                                 |  |                
|OTHER INTANGIBLE ASSETS, net                                                                                     |  |                 | 43,100  |   |                 |  
|                                                                                                                 |  |                
|OTHER ASSETS                                                                                                     |  |                 | 11,090  |   |                 |  
|                                                                                                                 |  |                 |         |   |                 |  
|TOTAL ASSETS                                                                                                     |  | $               | 318,413 |   |                 | $
|                                                                                                                 |  |                 |         |   |                 |  
|                                                                                                                 |  |                
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                             |  |                 |         |   |                 |  
|CURRENT LIABILITIES:                                                                                             |  |                 |         |   |                 |  
|Accounts payable                                                                                                 |  | $               | 15,919  |   |                 | $
|Accrued expenses                                                                                                 |  |                 | 18,714  |   |                 |  
|Current portion of long-term debt                                                                                |  |                 | 12,105  |   |                 |  
|                                                                                                                 |  |                 |         |   |                 |  
|Total current liabilities                                                                                        |  |                 | 46,738  |   |                 |  
|                                                                                                                 |  |                
|OTHER LIABILITIES, including post-retirement benefit obligation                                                  |  |                 | 5,529   |   |                 |  
|                                                                                                                 |  |                
|LONG-TERM DEBT, net of current portion                                                                           |  |                 | 218,666 |   |                 |  
|                                                                                                                 |  |                
|MINORITY INTEREST                                                                                                |  |                 | 330     |   |                 |  
|                                                                                                                 |  |                
|COMMITMENTS AND CONTINGENCIES                                                                                    |  |                 |         |   |                 |  
|                                                                                                                 |  |                
|STOCKHOLDERS EQUITY:                                                                                            |  |                 |         |   |                 |  
|Common stock; $.01 par value per share, 1,000 shares authorized, issued, and outstanding in fiscal 2002 and 2003 |  |                 |        |   |                 |  
|Paid-in capital                                                                                                  |  |                 | 72,648  |   |                 |  
|Retained deficit                                                                                                 |  |                 | (23,480 | ) |                 |  
|Accumulated other comprehensive loss                                                                             |  |                 | (2,018  | ) |                 |  
|                                                                                                                 |  |                 |         |   |                 |  
|Total Stockholders Equity                                                                                       |  |                 | 47,150  |   |                 |  
|                                                                                                                 |  |                 |         |   |                 |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                       |  | $               | 318,413 |   |                 | $
|                                                                                                                 |  |                 |         |   |                 |  



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



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COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 25, 2003

(Unaudited and In Thousands, Except Share Amounts)



|                                        |  |              |  |                  |   |                           |   |        | Accumulated OtherComprehensiveIncome (Loss) |   |         |                         | 
|--------------------------------------- |  | ------------ |  | ---------------- | - | ------------------------- | - | ------ | ------------------------------------------- | - | ------- | ----------------------- | 
|                                        |  | Common Stock |  | Paid - inCapital |   | RetainedEarnings(Deficit) |   |        | ForeignCurrencyTranslationAdjustment        |   |         | MinimumPensionLiability | 
|                                        |  | Shares       |  | Amount           |   |                           |   |        |                                            
|BALANCE, January 25, 2003               |  | 1,000        |  | $                |  |                           | $ | 72,648 |                                             | $ | (23,480 | )                       | 
|Net income                              |  |             |  |                  |  |                           |   |       |                                             |   | 5,016   |                         | 
|Dividends to Tandus Group, Inc.         |  |             |  |                  |  |                           |   |       |                                             |   | (2,263  | )                       | 
|Foreign currency translation adjustment |  |             |  |                  |  |                           |   |       |                                             |   |        |                         | 
|                                        |  |              |  |                  |   |                           |   |        |                                             |   |         |                         | 
|BALANCE, October 25, 2003               |  | 1,000        |  | $                |  |                           | $ | 72,648 |                                             | $ | (20,727 | )                       | 
|                                        |  |              |  |                  |   |                           |   |        |                                             |   |         |                         | 



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COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and In Thousands)



|                                                                                  |  | Thirty-Nine Weeks Ended |         
|--------------------------------------------------------------------------------- |  | ----------------------- | --------
|                                                                                  |  | October 26, 2002        |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                         |         
|Net income                                                                        |  | $                       | 6,634   
|                                                                                  |  |                         |         
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |         
|Depreciation and leasehold amortization                                           |  |                         | 6,543   
|Amortization of other intangible assets                                           |  |                         | 2,946   
|Amortization and write-off of deferred financing fees                             |  |                         | 3,757   
|Deferred income tax expense                                                       |  |                         | 3,842   
|Equity in earnings of affiliate                                                   |  |                         | (1,493  
|Minority interest in income of subsidiary                                         |  |                         | 5       
|Cumulative effect of change in accounting principle                               |  |                         | 3,240   
|Changes in operating assets and liabilities, net of effects of acquisitions:      |  |                         |         
|Accounts receivable                                                               |  |                         | (10,951 
|Inventories                                                                       |  |                         | (4,562  
|Accounts payable                                                                  |  |                         | 2,434   
|Accrued expenses                                                                  |  |                         | 1,165   
|Other, net                                                                        |  |                         | (738    
|                                                                                  |  |                         |         
|Total adjustments                                                                 |  |                         | 6,188   
|                                                                                  |  |                         |         
|Net cash provided by operating activities                                         |  |                         | 12,822  
|                                                                                  |  |                         |         
|                                                                                  |  |                        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                         |         
|Acquisition of a business                                                         |  |                         | (35,132 
|Equity distribution from affiliate                                                |  |                         | 1,678   
|Additions to property, plant, and equipment                                       |  |                         | (5,965  
|                                                                                  |  |                         |         
|Net cash used in investing activities                                             |  |                         | (39,419 
|                                                                                  |  |                         |         
|                                                                                  |  |                        
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                         |         
|Proceeds from issuance of long-term debt                                          |  |                         | 175,000 
|Repayments of long-term debt                                                      |  |                         | (133,957
|Dividends to Tandus Group, Inc.                                                   |  |                         | (2,593  
|Financing costs                                                                   |  |                         | (6,808  
|                                                                                  |  |                         |         
|Net cash provided by (used in) financing activities                               |  |                         | 31,642  
|                                                                                  |  |                         |         
|                                                                                  |  |                        
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                      |  |                         | (598    
|                                                                                  |  |                         |         
|                                                                                  |  |                        
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                           |  |                         | 4,447   
|                                                                                  |  |                        
|CASH AND CASH EQUIVALENTS, beginning of period                                    |  |                         | 6,234   
|                                                                                  |  |                         |         
|                                                                                  |  |                        
|CASH AND CASH EQUIVALENTS, end of period                                          |  | $                       | 10,681  
|                                                                                  |  |                         |         



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



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COLLINS & AIKMAN FLOORCOVERINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | General
|-- | -------



The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Companys Form 10-K which was filed with the Securities and Exchange Commission on April 25, 2003. The
accompanying unaudited consolidated financial statements, in the opinion of management, include all adjustments necessary for fair presentation. All such adjustments are of a normal and recurring nature.



|2. | Organization
|-- | ------------



Based on annual sales and product brands, Collins and Aikman Floorcoverings, Inc. (the Company), a Delaware corporation, is a leading manufacturer of floorcovering products for the North American specified
commercial carpet market. The Companys floorcovering products include (i) vinyl-backed six-foot roll carpet and modular carpet tile, and (ii) high style tufted and woven broadloom carpet. The Company designs, manufactures and markets its
C&A, Monterey and Crossley brands under the Tandus Group name for a wide variety of end markets, including corporate offices, education, healthcare, government facilities and retail stores. Because of the Companys diversity of
its end markets, management believes its business tends to be less cyclical than that of many of its competitors, which rely more heavily on the corporate market. The ability to provide a package of product offerings in various forms,
coupled with flexible distribution channels, allows the Company to provide a wide array of floorcovering solutions for each of its customers. The Company is headquartered in Georgia, with additional locations in California, Canada, the United
Kingdom, and Singapore.



The Company is a wholly owned subsidiary of
Tandus Group, Inc. (Tandus), formerly known as CAF Holdings, Inc. Subsequent to a recapitalization transaction on January 25, 2001, a majority of Tanduss outstanding capital stock is controlled by investment funds managed by
Oaktree Capital Management, LLC and Banc of America Capital Investors.



|3. | Reclassifications
|-- | -----------------



Certain prior period amounts have been reclassified to conform to the current periods presentation.



|4. | Cash and Cash Equivalents
|-- | -------------------------



Cash and cash equivalents include all cash balances and investments with an original maturity of three months or less.



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|5. | Inventories
|-- | -----------



Net inventory balances are summarized below (in thousands):



|                |  | January 25,2003 |        | October 25,2003
|--------------- |  | --------------- | ------ | ---------------
|                |  |                 |        | (Unaudited)    
|                |  |                
|Raw materials   |  | $               | 16,085 |                
|Work in process |  |                 | 5,309  |                
|Finished goods  |  |                 | 14,327 |                
|                |  |                 |        |                
|                |  | $               | 35,721 |                
|                |  |                 |        |                



|6. | Revenue Recognition
|-- | -------------------



Revenue is recognized when carpet products and related accessories are shipped. The terms for these sales are freight on board (FOB) shipping point. For
product installations subject to customer approval, revenue is recognized upon acceptance by the customer.



The Company provides installation services to customers utilizing independent third-party contractors. The billings and expenses for these services are included in
net sales and cost of goods sold, respectively, in the accompanying consolidated statements of operations. These billings and expenses were $9.5 million and $10.0 million for the thirty-nine weeks ended October 25, 2003 and October 26, 2002,
respectively, and $3.8 million and $5.1 million for the thirteen weeks ended October 25, 2003 and October 26, 2002, respectively.



|7. | Accrued Expenses
|-- | ----------------



Accrued expenses are summarized below (in thousands):



|                              |  | January 25,2003 |        | October 25,2003
|----------------------------- |  | --------------- | ------ | ---------------
|                              |  |                 |        | (Unaudited)    
|                              |  |                
|Payroll and employee benefits |  | $               | 5,466  |                
|Accrued taxes                 |  |                 | 390    |                
|Customer claims               |  |                 | 1,817  |                
|Accrued interest              |  |                 | 7,892  |                
|Customer deposits             |  |                 | 515    |                
|Accrued professional fees     |  |                 | 1,412  |                
|Other                         |  |                 | 1,222  |                
|                              |  |                 |        |                
|                              |  | $               | 18,714 |                
|                              |  |                 |        |                





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|8. | Goodwill and Other Intangible Assets
|-- | ------------------------------------



The Company adopted the provisions of Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (SFAS No.
142) on January 27, 2002.



The gross carrying amount and
accumulated amortization of the intangible assets subject to amortization as of October 25, 2003 are as follows:



|                             |  | October 25, 2003     |       
|---------------------------- |  | -------------------- | ------
|                             |  | Gross CarryingAmount |       
|Amortized intangible assets: |  |                      |       
|Non-compete                  |  | $                    | 12,000
|Patent                       |  |                      | 27,000
|Supply Agreement             |  |                      | 8,000 
|                             |  |                      |       
|Total                        |  | $                    | 47,000
|                             |  |                      |       



The patent is being amortized
over an eleven-year period using the straight-line method. The non-compete is being amortized over a seven-year period using the double-declining balance method. The supply agreement is being amortized over a three-year period using the
straight-line method.



|Unamortized intangible assets: |  |   |       
|------------------------------ |  | - | ------
|Trade name                     |  | $ | 23,613
|                               |  |   |       



|                               |  | Thirteen Weeks Ended |     | Thirty-Nine Weeks Ended
|------------------------------ |  | -------------------- | --- | -----------------------
|                               |  | October 26,2002      |     | October 25,2003        
|Aggregate amortization expense |  | $                    | 988 |                        
|                               |  |                      |     |                        



|Estimated amortization expense: |  |   |      
|------------------------------- |  | - | -----
|Fiscal 2003                     |  | $ | 6,229
|Fiscal 2004                     |  | $ | 5,122
|Fiscal 2005                     |  | $ | 3,224
|Fiscal 2006                     |  | $ | 2,455
|Fiscal 2007                     |  | $ | 2,455



Subsequent to quarter end, on
November 12, 2003, The Dixie Group, Inc. (Dixie) completed the previously announced agreement to divest of certain portions of their business. Dixie is the seller from whom the Company acquired the extrusion operations on May 8, 2002.
The impact of the recently completed Dixie divestiture is not yet determinable, but Company management expects a reduction in the requirements of the extrusion operations to Dixie and to the acquirer of portions of the Dixie business that were sold.
Due to this recent completion of the Dixie agreement, the Company is evaluating the carrying value of goodwill and the supply agreement that were recorded at the May 8, 2002 acquisition date. Additional information from Dixie and the successor
purchaser is required for the Company to complete this evaluation. If, after completion of the evaluation it is determined that the carrying value of the goodwill and/or the supply agreement is impaired, a charge to earnings would be recorded in the
Companys financial statements during the fourth quarter. As of October 25, 2003, the net carrying value of the goodwill and supply agreement were $5.6 million and $4.1 million, respectively.



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The changes in the carrying amount of goodwill for the period ended October 25, 2003 are as follows:



|                                  |  | FLOORCOVERINGSSEGMENT |        | EXTRUSIONSEGMENT |   | TOTAL
|--------------------------------- |  | --------------------- | ------ | ---------------- | - | -----
|Balance as of January 25, 2003    |  | $                     | 92,747 |                  | $ | 5,631
|Goodwill acquired during the year |  |                       |       |                  |   |     
|Impairment loss                   |  |                       |       |                  |   |     
|                                  |  |                       |        |                  |   |      
|Balance as of October 25, 2003    |  | $                     | 92,747 |                  | $ | 5,631
|                                  |  |                       |        |                  |   |      



In connection with the adoption of SFAS No. 142,
the Company obtained independent appraisals to determine the fair values of the intangible assets as of January 27, 2002 and compared their fair values with their carrying values. The Company determined that, based upon the appraisals, the goodwill
associated with Crossley Carpet Mills Limited was impaired and recorded a goodwill impairment charge of $3.2 million as a cumulative effect of a change in accounting principal. The impact of a slowing economy and industry specific conditions
affecting Crossleys business resulted in a reduced fair value and gave rise to the non-cash impairment charge.



|9. | Stock Based Compensation
|-- | ------------------------



At October 25, 2003, the Company has one stock-based employee compensation plan, which is described more fully in Note 14 of the audited consolidated financial
statements included in the Companys Form 10-K which was filed with the Securities and Exchange Commission on April 25, 2003. The Company accounts for this plan under the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company will account for these options as variable options and will record expenses and income based on increases and decreases
in the fair market value of the Companys common stock at the end of each reporting period. These options vest only upon the achievement of certain earnings targets, as defined. As of October 25, 2003 and October 26, 2002, the Company has not
recorded any expense as the Company has not achieved its earnings targets and the fair market value of the Companys common stock has not increased from the date of grant. The following table illustrates the effect on net income if the Company
had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to the stock-based employee compensation (in thousands).



|                                                                                                                                |  | Thirteen Weeks Ended |       |   | Thirty-Nine Weeks Ended |  
|------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ----- | - | ----------------------- | -
|                                                                                                                                |  | October 26,2002      |       |   | October 25,2003         |  
|Net income as reported                                                                                                          |  | $                    | 2,190 |   |                         | $
|Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of
tax |  |                      | (6    | ) |                         |  
|                                                                                                                                |  |                      |       |   |                         |  
|Proforma net income                                                                                                             |  | $                    | 2,184 |   |                         | $
|                                                                                                                                |  |                      |       |   |                         |  



|10. | Recent Accounting Pronouncements
|--- | --------------------------------



In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others (FIN 45). FIN 45 supercedes Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others, and provides guidance on the recognition and disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations under certain guarantees. The initial recognition and measurement provisions of FIN 45 are effective for guarantees issued or modified after December 31, 2002, and are to
be applied prospectively. The disclosure requirements are effective for financial statements for interim or annual periods ending after December 15, 2002. The adoption of FIN 45 has had no impact on the Companys consolidated financial
statements beyond the additional disclosures as presented in Note 16.



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In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51 (FIN 46). FIN 46 addresses the consolidation by business enterprises of variable interest entities that have certain characteristics. Generally, a variable interest entity is any legal structure used
for business purposes that either (1) does not have equity investors with voting rights or (2) has equity investors that do not provide sufficient financial resources for the entity to support its operations. FIN 46 requires variable interest
entities to be consolidated by the company if it is subject to a majority of the risk of loss from the variable interest entitys operations or entitled to receive a majority of the entitys residual returns. In FASB Staff Position 46-6,
the implementation date of FIN 46 was deferred until the end of the first interim or annual period ending after December 15, 2003 when an interest in a variable interest entity was created before February 1, 2003. The Company is in the process of
determining the impact of FIN 46 on its financial statements.



Monterey
Carpets, Inc., a wholly-owned subsidiary of the Company, holds a variable interest in a partnership described in further detail in Note 13. The Company currently accounts for the partnership under the equity method of accounting. Consolidated net
income and Adjusted EBITDA for the period and the Companys partnership equity at the end of the period are the same whether the investment in the partnership is accounted for under the equity method or the partnership is consolidated. Any
change in disclosure or presentation has no impact on the Companys debt covenants. The Companys maximum exposure to loss as a result of its involvement with the partnership is limited primarily to its initial investment in the
partnership and its undistributed share of the partnerships earnings. The partners have historically financed the operation of the business of the partnership by utilizing the initial capital contributions of the partners, internally generated
funds and proceeds from third party loans. To the extent that the operations of the partnership cannot be financed in this manner, the partnership agreement allows for a call for additional capital contributions, which is obligatory to the partners.
Historical and current results of the partnerships operations indicate that current sources of funds will continue to be adequate, and that an additional capital contribution should not be required.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity as well as imposes
additional disclosure requirements. For nonpublic entities, mandatorily redeemable financial instruments are subject to the provisions of this Statement for the first fiscal period beginning after December 15, 2003. The Company is in the process of
determining the impact of SFAS No. 150 on its financial statements.



|11. | Long-Term Debt
|--- | --------------



During the thirty-nine weeks ended October 25, 2003 and October 26, 2002, the Company prepaid $20.0 million and $126.5 million, respectively, of its term debt. The $20 million term debt prepayment was funded by cash accumulated
from operations. Of the $126.5 million term prepayment, $125.0 million was funded by a portion of the proceeds of the February 20, 2002 issuance of $175.0 million 9.75% senior subordinated notes due 2010. The remaining $1.5 million term debt
prepayment during Fiscal 2002 was funded by cash accumulated from operations. In connection with these term debt prepayments, the Company recorded the write-off of a pro-rata share of deferred financing costs associated with the term debt. The
amounts of these expenses were $0.4 million and $2.7 million for the periods ended October 25, 2003 and October 26, 2002, respectively. These items are reflected in interest expense in the consolidated statement of operations.



The Company was in compliance with all debt covenants as of October 25, 2003.



Total net interest expense was $5.4 million and $5.5 million for the
thirteen weeks ended October 25, 2003 and October 26, 2002, respectively. Total net interest expense was $16.0 million and $18.8 million for the thirty-nine weeks ended October 25, 2003 and October 26, 2002, respectively, which included interest
income of $0.1 million and $0.2 million, respectively.



11



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##### Table of Contents

|12. | Segment Information
|--- | -------------------



The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131). SFAS No. 131 addresses
reporting of operating segment information and disclosures about products, services, geographic areas, and major customers. The Company operates its business as two reportable segments: Floorcoverings and Extrusion.



Accounting policies of the segments are the same as those described in the summary of
significant accounting policies. Performance of the segments is evaluated on Adjusted EBITDA which represents earnings before interest, taxes, depreciation, amortization and the cumulative effect of change in accounting principle, plus Chroma
Systems Partners (Chroma) cash dividends, minority interest in income of subsidiary and non-recurring costs associated with an unsuccessful acquisition, less equity in earnings of Chroma.



The Floorcoverings segment represents all floorcovering products. These products are
six-foot roll carpet, modular carpet tile and tufted and woven broadloom carpet. The Extrusion segment represents the Companys extrusion plant, which was acquired on May 8, 2002. Products in this segment are nylon or polypropylene extruded
yarn.



No single customer amounted to or exceeded 10.0% of the
Floorcovering segments sales for any period presented. The Extrusion segments largest customer accounted for 87.5% and 80.9% of its sales in the thirteen weeks and thirty-nine weeks ended October 25, 2003, respectively, as a result of a
supply agreement with the seller. See Note 14 for additional information related to the Extrusion operations.



A non-cash goodwill impairment charge of $3.2 million was recorded in the Floorcoverings segment in 2002. The charge resulted from the Companys adoption
of SFAS No. 142 and was recorded retroactively to January 27, 2002 as a cumulative effect of a change in accounting principle. See Note 8 for further discussion.



The table below provides certain financial information by segment (in thousands):



|                                      |  | Thirteen Weeks Ended |        | Thirty-Nine Weeks Ended
|------------------------------------- |  | -------------------- | ------ | -----------------------
|                                      |  | October 26,2002      |        | October 25,2003        
|                                      |  |                      |        |                        
|Net Sales to External Customers       |  |                      |        |                        
|Floorcoverings                        |  | $                    | 75,985 |                        
|Extrusion                             |  |                      | 8,297  |                        
|                                      |  |                      |        |                        
|Total Net Sales to External Customers |  | $                    | 84,282 |                        
|                                      |  |                      |        |                        
|                                      |  |                     
|                                      |  | Thirteen Weeks Ended |        | Thirty-Nine Weeks Ended
|                                      |  | October 26,2002      |        | October 25,2003        
|                                      |  |                      |        |                        
|Adjusted EBITDA                       |  |                      |        |                        
|Floorcoverings                        |  | $                    | 11,867 |                        
|Extrusion                             |  |                      | 1,193  |                        
|                                      |  |                      |        |                        
|Total Adjusted EBITDA                 |  | $                    | 13,060 |                        
|                                      |  |                      |        |                        



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Adjusted EBITDA is presented because it is commonly used by certain investors and analysts to analyze a
companys ability to service debt. The Company utilizes Adjusted EBITDA as (a) a benchmark for its annual budget and long range plan, (b) a valuation method for potential acquisitions, and (c) a measure to determine compliance with senior
credit facility debt covenants. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative to operating income or net income as a measure of operating
performance or to net cash provided by operating activities as a measure of liquidity. Because Adjusted EBITDA is not calculated identically by all companies, the presentation in these statements may not be comparable to those disclosed by other
companies.



A reconciliation of net income to Adjusted EBITDA is as
follows:



|                                                             |  | Thirteen Weeks Ended |        |   | Thirty-Nine Weeks Ended |  
|------------------------------------------------------------ |  | -------------------- | ------ | - | ----------------------- | -
|                                                             |  | October 26,2002      |        |   | October 25,2003         |  
|                                                             |  |                      |        |  
|Net income                                                   |  | $                    | 2,190  |   |                         | $
|Cumulative effect of change in accounting principle          |  |                      |       |   |                         |  
|Income tax expense (benefit)                                 |  |                      | 1,775  |   |                         |  
|Net interest expense                                         |  |                      | 5,464  |   |                         |  
|Depreciation                                                 |  |                      | 2,421  |   |                         |  
|Amortization                                                 |  |                      | 988    |   |                         |  
|Chroma cash dividends                                        |  |                      | 707    |   |                         |  
|Equity in earnings of Chroma                                 |  |                      | (484   | ) |                         |  
|Minority interest in income (loss) of subsidiary             |  |                      | (1     | ) |                         |  
|Non-recurring costs associated with unsuccessful acquisition |  |                      |       |   |                         |  
|                                                             |  |                      |        |   |                         |  
|Adjusted EBITDA                                              |  | $                    | 13,060 |   |                         | $
|                                                             |  |                      |        |   |                         |  



|                          |  | As ofJanuary 25, 2003 |         | As ofOctober 25, 2003
|------------------------- |  | --------------------- | ------- | ---------------------
|Consolidated Assets       |  |                       |         |                      
|Floorcoverings            |  | $                     | 280,418 |                      
|Extrusion                 |  |                       | 37,995  |                      
|                          |  |                       |         |                      
|Total Consolidated Assets |  | $                     | 318,413 |                      
|                          |  |                       |         |                      



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##### Table of Contents

|13. | Investment in Equity Affiliate
|--- | ------------------------------



Monterey Carpets, Inc. has a one-half ownership interest in Chroma Systems Partners (Chroma), which operates a carpet dyeing and finishing plant.
Because the Company does not exercise control over the partnership, the Company currently accounts for the partnership under the equity method of accounting. The audited financial statements and related footnotes of Chroma are included in the
Companys Form 10-K which was filed with the Securities and Exchange Commission on April 25, 2003. In January 2003, the FASB issued FIN 46, which addresses consolidation by business enterprises of variable interest entities that have certain
characteristics. In FASB Staff Position 46-6, the implementation date of FIN 46 was deferred until the end of the first interim or annual period ending after December 15, 2003 for certain registrants. The Company is in the process of determining the
impact of FIN 46 on its financial statements. FIN 46 is discussed in more detail in Note 10.



The condensed financial information of Chroma as of October 26, 2003 and January 25, 2003 and for the thirty-nine weeks ended October 26, 2003 and October 27, 2002, are summarized below:



|                                        |  | As of January 25, 2003  |        | As of October 26, 2003
|--------------------------------------- |  | ----------------------- | ------ | ----------------------
|                                        |  |                        
|Current Assets                          |  | $                       | 1,939  |                       
|Non-current Assets                      |  |                         | 8,433  |                       
|                                        |  |                         |        |                       
|Total Assets                            |  | $                       | 10,372 |                       
|                                        |  |                         |        |                       
|                                        |  |                        
|Current Liabilities                     |  | $                       | 921    |                       
|Long Term Debt                          |  |                         | 5,066  |                       
|Partners Capital                       |  |                         | 4,385  |                       
|                                        |  |                         |        |                       
|Total Liabilities and Partners Capital |  | $                       | 10,372 |                       
|                                        |  |                         |        |                       
|                                        | 
|                                        |  | Thirty-Nine Weeks Ended
|                                        |  | October 27,2002         |        | October 26,2003       
|Net Sales                               |  | $                       | 13,109 |                       
|Cost of Goods Sold                      |  |                         | 9,491  |                       
|                                        |  |                         |        |                       
|Gross Profit                            |  |                         | 3,618  |                       
|Income From Operations                  |  |                         | 2,999  |                       
|Net Income                              |  |                         | 2,970  |                       





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##### Table of Contents

|14. | Acquisition
|--- | -----------



On May 8, 2002, CAF Extrusion, Inc. (Extrusion), a wholly-owned subsidiary, acquired a yarn extrusion manufacturing plant located in Calhoun, Georgia. In addition, Extrusion purchased the real property on which the
plant is located from a third party. The acquisition was funded from cash on hand. The cash purchase price was $34.8 million plus $0.3 million for acquisition related expenses and consisted of $2.4 million for the land and building, $1.4 million for
inventory, $17.7 million for machinery and equipment, $5.6 million for goodwill (which was assigned an indefinite life), and $8.0 million for a supply agreement which is being amortized over its term of three years. The acquisition has been
accounted for by the purchase method of accounting as prescribed by SFAS No. 141, Business Combinations, and, accordingly, the results of operations of Extrusion have been included in the Companys consolidated financial statements
from May 8, 2002.



|15. | Comprehensive Income
|--- | --------------------



Comprehensive income is as follows:



|                                         |  | Thirteen Weeks Ended |       | Thirty-Nine Weeks Ended
|---------------------------------------- |  | -------------------- | ----- | -----------------------
|                                         |  | October 26,2002      |       | October 25,2003        
|Net Income                               |  | $                    | 2,190 |                        
|Other Comprehensive Income (Loss):       |  |                      |       |                        
|Foreign Currency Translation Adjustments |  |                      | 65    |                        
|                                         |  |                      |       |                        
|Comprehensive Income                     |  | $                    | 2,255 |                        
|                                         |  |                      |       |                        



|16. | Condensed Consolidating Financial Statements
|--- | --------------------------------------------



The 9.75% senior subordinated notes of the Company due 2010 (the 9.75% Notes) are guaranteed by certain of the Companys domestic subsidiaries. The
guarantee of the guarantor subsidiaries as of October 25, 2003 arose in conjunction with the Companys issuance of the 9.75% Notes on February 20, 2002 and the $109.0 million senior secured credit facility (Senior Credit Facility)
which was amended by the Company on February 20, 2002. The guarantees terms match the terms of the 9.75% Notes and the Senior Credit Facility. The maximum amount of future payments the guarantors would be required to make under the guarantees
as of October 25, 2003 is $209.8 million. This represents the principal amount outstanding of the Companys Senior Credit Facility, the 9.75% Notes and accrued interest on both obligations.



Separate consolidated financial statements of the guarantor subsidiaries have not been
presented because management believes that such information would not be material to investors. However, condensed consolidating financial information as of October 25, 2003 and January 25, 2003, and for each of the thirteen weeks and thirty-nine
weeks ended October 25, 2003 and October 26, 2002 are presented. The condensed consolidating financial information of the Company and its subsidiaries are as follows:



15



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##### Table of Contents

Guarantor Financial Statements

Condensed Consolidating Statements of Operations

For the Thirteen Weeks Ended October 25, 2003



(Unaudited and In Thousands)



|                                           |  | Issuer |        |   | GuarantorSubsidiaries |   |        | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |       
|------------------------------------------ |  | ------ | ------ | - | --------------------- | - | ------ | ------------------------- |  | - | ------------ | - |  | ----------------- | ------
|                                           |  |        |        |   |                      
|Net Sales                                  |  | $      | 45,410 |   |                       | $ | 23,519 |                           |  | $ | 12,113       |   |  | $                 | (6,903
|                                           |  |        |        |   |                       |   |        |                           |  |   |              |   |  |                   |       
|                                           |  |        |        |   |                      
|Cost of Goods Sold                         |  |        | 29,966 |   |                       |   | 17,941 |                           |  |   | 10,847       |   |  |                   | (6,903
|                                           |  |        |        |   |                      
|Selling, General & Administrative Expenses |  |        | 11,565 |   |                       |   | 5,835  |                           |  |   | 1,194        |   |  |                   |      
|                                           |  |        |        |   |                       |   |        |                           |  |   |              |   |  |                   |       
|                                           |  |        | 41,531 |   |                       |   | 23,776 |                           |  |   | 12,041       |   |  |                   | (6,903
|                                           |  |        |        |   |                       |   |        |                           |  |   |              |   |  |                   |       
|Operating Income (Loss)                    |  |        | 3,879  |   |                       |   | (257   | )                         |  |   | 72           |   |  |                   |      
|                                           |  |        |        |   |                      
|Minority Interest in Income of Subsidiary  |  |        |       |   |                       |   |       |                           |  |   | 10           |   |  |                   |      
|Equity in Earnings of Affiliate            |  |        |       |   |                       |   | 387    |                           |  |   |             |   |  |                   |      
|Equity in Earnings of Subsidiaries         |  |        | 799    |   |                       |   |       |                           |  |   |             |   |  |                   | (799  
|                                           |  |        |        |   |                       |   |        |                           |  |   |              |   |  |                   |       
|Net Interest Expense                       |  |        | 5,334  |   |                       |   |       |                           |  |   | 47           |   |  |                   |      
|                                           |  |        |        |   |                       |   |        |                           |  |   |              |   |  |                   |       
|                                           |  |        |        |   |                      
|Income (Loss) Before Income Taxes          |  |        | (656   | ) |                       |   | 130    |                           |  |   | 15           |   |  |                   | (799  
|                                           |  |        |        |   |                       |   |        |                           |  |   |              |   |  |                   |       
|                                           |  |        |        |   |                      
|Income Tax Expense (Benefit)               |  |        | (691   | ) |                       |   | (691   | )                         |  |   | 37           |   |  |                   |      
|                                           |  |        |        |   |                       |   |        |                           |  |   |              |   |  |                   |       
|Net Income (Loss)                          |  | $      | 35     |   |                       | $ | 821    |                           |  | $ | (22          | ) |  | $                 | (799  
|                                           |  |        |        |   |                       |   |        |                           |  |   |              |   |  |                   |       



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##### Table of Contents

Guarantor Financial Statements

Condensed Consolidating Statement of Operations

For the Thirteen Weeks Ended October 26, 2002



(Unaudited and In Thousands)



|                                           |  | Issuer |        | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |       
|------------------------------------------ |  | ------ | ------ | --------------------- | - | ------------------------- |  | - | ------------ | - |  | ----------------- | ------
|                                           |  |        |        |                       |  
|Net Sales                                  |  | $      | 51,352 |                       | $ | 24,850                    |  | $ | 10,779       |   |  | $                 | (2,699
|                                           |  |        |        |                       |   |                           |  |   |              |   |  |                   |       
|                                           |  |        |        |                       |  
|Cost of Goods Sold                         |  |        | 32,748 |                       |   | 18,353                    |  |   | 9,023        |   |  |                   | (2,699
|                                           |  |        |        |                       |  
|Selling, General & Administrative Expenses |  |        | 11,719 |                       |   | 4,133                     |  |   | 2,061        |   |  |                   |      
|                                           |  |        |        |                       |   |                           |  |   |              |   |  |                   |       
|                                           |  |        | 44,467 |                       |   | 22,486                    |  |   | 11,084       |   |  |                   | (2,699
|                                           |  |        |        |                       |   |                           |  |   |              |   |  |                   |       
|Operating Income (Loss)                    |  |        | 6,885  |                       |   | 2,364                     |  |   | (305         | ) |  |                   |      
|                                           |  |        |        |                       |  
|Minority Interest in Loss of Subsidiary    |  |        |       |                       |   |                          |  |   | (1           | ) |  |                   |      
|Equity in Earnings of Affiliate            |  |        |       |                       |   | 484                       |  |   |             |   |  |                   |      
|Equity in Earnings of Subsidiaries         |  |        | 1,352  |                       |   |                          |  |   |             |   |  |                   | (1,352
|Net Interest Expense                       |  |        | 5,456  |                       |   |                          |  |   | 8            |   |  |                   |      
|                                           |  |        |        |                       |   |                           |  |   |              |   |  |                   |       
|                                           |  |        |        |                       |  
|Income (Loss) Before Income Taxes          |  |        | 2,781  |                       |   | 2,848                     |  |   | (312         | ) |  |                   | (1,352
|                                           |  |        |        |                       |  
|Income Tax Expense                         |  |        | 591    |                       |   | 1,151                     |  |   | 33           |   |  |                   |      
|                                           |  |        |        |                       |   |                           |  |   |              |   |  |                   |       
|Net Income (Loss)                          |  | $      | 2,190  |                       | $ | 1,697                     |  | $ | (345         | ) |  | $                 | (1,352
|                                           |  |        |        |                       |   |                           |  |   |              |   |  |                   |       





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##### Table of Contents

Guarantor Financial Statements

Condensed Consolidating Statement of Operations

For the Thirty-Nine Weeks Ended October 25, 2003



(Unaudited and In Thousands)



|                                           |  | Issuer |         | GuarantorSubsidiaries |   |        | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal
|------------------------------------------ |  | ------ | ------- | --------------------- | - | ------ | ------------------------- |  | - | ------------ | - |  | -----------------
|                                           |  |        |         |                       |  
|Net Sales                                  |  | $      | 154,059 |                       | $ | 68,281 |                           |  | $ | 35,150       |   |  | $                
|                                           |  |        |         |                       |   |        |                           |  |   |              |   |  |                  
|                                           |  |        |         |                       |  
|Cost of Goods Sold                         |  |        | 94,536  |                       |   | 52,075 |                           |  |   | 30,592       |   |  |                  
|                                           |  |        |         |                       |  
|Selling, General & Administrative Expenses |  |        | 37,700  |                       |   | 15,883 |                           |  |   | 4,977        |   |  |                  
|                                           |  |        |         |                       |   |        |                           |  |   |              |   |  |                  
|                                           |  |        | 132,236 |                       |   | 67,958 |                           |  |   | 35,569       |   |  |                  
|                                           |  |        |         |                       |   |        |                           |  |   |              |   |  |                  
|Operating Income (Loss)                    |  |        | 21,823  |                       |   | 323    |                           |  |   | (419         | ) |  |                  
|                                           |  |        |         |                       |  
|Minority Interest in Income of Subsidiary  |  |        |        |                       |   |       |                           |  |   | 26           |   |  |                  
|Equity in Earnings of Affiliate            |  |        |        |                       |   | 1,074  |                           |  |   |             |   |  |                  
|Equity in Earnings of Subsidiaries         |  |        | 1,475   |                       |   |       |                           |  |   |             |   |  |                  
|Net Interest Expense                       |  |        | 15,859  |                       |   |       |                           |  |   | 127          |   |  |                  
|                                           |  |        |         |                       |   |        |                           |  |   |              |   |  |                  
|                                           |  |        |         |                       |  
|Income (Loss) Before Income Taxes          |  |        | 7,439   |                       |   | 1,397  |                           |  |   | (572         | ) |  |                  
|                                           |  |        |         |                       |  
|Income Tax Expense (Benefit)               |  |        | 2,423   |                       |   | (757   | )                         |  |   | 107          |   |  |                  
|                                           |  |        |         |                       |   |        |                           |  |   |              |   |  |                  
|Net Income (Loss)                          |  | $      | 5,016   |                       | $ | 2,154  |                           |  | $ | (679         | ) |  | $                
|                                           |  |        |         |                       |   |        |                           |  |   |              |   |  |                  



18



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##### Table of Contents

Guarantor Financial Statements

Condensed Consolidating Statements of Operations

For the Thirty-Nine Weeks Ended October 26, 2002



(Unaudited and In Thousands)



|                                                                  |  | Issuer |         | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |       
|----------------------------------------------------------------- |  | ------ | ------- | --------------------- | - | ------------------------- |  | - | ------------ | - |  | ----------------- | ------
|                                                                  |  |        |         |                       |  
|Net Sales                                                         |  | $      | 161,567 |                       | $ | 64,486                    |  | $ | 33,589       |   |  | $                 | (9,045
|                                                                  |  |        |         |                       |   |                           |  |   |              |   |  |                   |       
|                                                                  |  |        |         |                       |  
|Cost of Goods Sold                                                |  |        | 97,625  |                       |   | 46,000                    |  |   | 28,064       |   |  |                   | (9,045
|                                                                  |  |        |         |                       |  
|Selling, General & Administrative Expenses                        |  |        | 36,263  |                       |   | 12,969                    |  |   | 4,999        |   |  |                   |      
|                                                                  |  |        |         |                       |   |                           |  |   |              |   |  |                   |       
|                                                                  |  |        | 133,888 |                       |   | 58,969                    |  |   | 33,063       |   |  |                   | (9,045
|                                                                  |  |        |         |                       |   |                           |  |   |              |   |  |                   |       
|Operating Income                                                  |  |        | 27,679  |                       |   | 5,517                     |  |   | 526          |   |  |                   |      
|                                                                  |  |        |         |                       |  
|Minority Interest in Income of Subsidiary                         |  |        |        |                       |   |                          |  |   | 5            |   |  |                   |      
|Equity in Earnings of Affiliate                                   |  |        |        |                       |   | 1,493                     |  |   |             |   |  |                   |      
|Equity in Earnings of Subsidiaries                                |  |        | 1,314   |                       |   |                          |  |   |             |   |  |                   | (1,314
|Net Interest Expense                                              |  |        | 18,728  |                       |   |                          |  |   | 23           |   |  |                   |      
|                                                                  |  |        |         |                       |   |                           |  |   |              |   |  |                   |       
|                                                                  |  |        |         |                       |  
|Income Before Income Taxes                                        |  |        | 10,265  |                       |   | 7,010                     |  |   | 498          |   |  |                   | (1,314
|                                                                  |  |        |         |                       |  
|Income Tax Expense                                                |  |        | 3,631   |                       |   | 2,854                     |  |   | 100          |   |  |                   |      
|                                                                  |  |        |         |                       |   |                           |  |   |              |   |  |                   |       
|Income Before Cumulative Effect of Change in Accounting Principle |  |        | 6,634   |                       |   | 4,156                     |  |   | 398          |   |  |                   | (1,314
|Cumulative Effect of Change in Accounting Principle               |  |        |        |                       |   |                          |  |   | (3,240       | ) |  |                   |      
|                                                                  |  |        |         |                       |   |                           |  |   |              |   |  |                   |       
|Net Income (Loss)                                                 |  | $      | 6,634   |                       | $ | 4,156                     |  | $ | (2,842       | ) |  | $                 | (1,314
|                                                                  |  |        |         |                       |   |                           |  |   |              |   |  |                   |       



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##### Table of Contents

Guarantor Financial Statements

Condensed Consolidating Balance Sheets

October 25, 2003



(Unaudited and In Thousands)



|                                                        |  | Issuer |         |   | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |        
|------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------------------------- |  | - | ------------ | - |  | ----------------- | -------
|ASSETS                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|CURRENT ASSETS:                                         |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Cash and cash equivalents                               |  | $      | 256     |   |                       | $ | 60                        |  | $ | 1,034        |   |  | $                 |       
|Accounts receivable, net                                |  |        | 15,966  |   |                       |   | 12,666                    |  |   | 8,167        |   |  |                   |       
|Inventories                                             |  |        | 18,919  |   |                       |   | 10,727                    |  |   | 10,602       |   |  |                   |       
|Deferred tax assets                                     |  |        | 1,733   |   |                       |   | 587                       |  |   | 107          |   |  |                   |       
|Prepaid expenses and other                              |  |        | 715     |   |                       |   | 376                       |  |   | 989          |   |  |                   |       
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Total current assets                                    |  |        | 37,589  |   |                       |   | 24,416                    |  |   | 20,899       |   |  |                   |       
|                                                        |  |        |         |   |                      
|PROPERTY, PLANT AND EQUIPMENT, net                      |  |        | 33,966  |   |                       |   | 22,343                    |  |   | 10,659       |   |  |                   |       
|DEFERRED TAX ASSETS                                     |  |        |        |   |                       |   | 1,187                     |  |   | 1,721        |   |  |                   | (2,908 
|GOODWILL                                                |  |        | 62,386  |   |                       |   | 35,992                    |  |   |             |   |  |                   |       
|OTHER INTANGIBLE ASSETS, net                            |  |        | 34,376  |   |                       |   | 4,140                     |  |   |             |   |  |                   |       
|INVESTMENT IN SUBSIDIARIES                              |  |        | 71,664  |   |                       |   |                          |  |   |             |   |  |                   | (71,664
|OTHER ASSETS                                            |  |        | 7,436   |   |                       |   | 364                       |  |   | 26           |   |  |                   |       
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|TOTAL ASSETS                                            |  | $      | 247,417 |   |                       | $ | 88,442                    |  | $ | 33,305       |   |  | $                 | (74,572
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|                                                        |  |        |         |   |                      
|LIABILITIES AND STOCKHOLDERS EQUITY                    |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|CURRENT LIABILITIES:                                    |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Accounts payable                                        |  | $      | 3,944   |   |                       | $ | 4,821                     |  | $ | 3,935        |   |  | $                 |       
|Accrued expenses                                        |  |        | 6,308   |   |                       |   | 6,449                     |  |   | 3,266        |   |  |                   |       
|Current portion of long-term debt                       |  |        | 313     |   |                       |   |                          |  |   | 94           |   |  |                   |       
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Total current liabilities                               |  |        | 10,565  |   |                       |   | 11,270                    |  |   | 7,295        |   |  |                   |       
|                                                        |  |        |         |   |                      
|INTERCOMPANY (RECEIVABLE) PAYABLE                       |  |        | (27,989 | ) |                       |   | 7,848                     |  |   | 20,141       |   |  |                   |       
|OTHER LIABILITIES, including post-retirement obligation |  |        | 8,214   |   |                       |   |                          |  |   | 109          |   |  |                   | (2,908 
|LONG-TERM DEBT, net of current portion                  |  |        | 205,937 |   |                       |   |                          |  |   | 3,065        |   |  |                   |       
|MINORITY INTEREST                                       |  |        |        |   |                       |   |                          |  |   |             |   |  |                   | 355    
|                                                        |  |        |         |   |                      
|STOCKHOLDERS EQUITY                                    |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Preferred stock                                         |  |        |        |   |                       |   |                          |  |   | 133          |   |  |                   | (133   
|Common stock                                            |  |        |        |   |                       |   | 2,056                     |  |   | 6,061        |   |  |                   | (8,117 
|Paid-in capital                                         |  |        | 72,648  |   |                       |   | 49,699                    |  |   | 2,365        |   |  |                   | (52,064
|Retained earnings (deficit)                             |  |        | (20,727 | ) |                       |   | 17,569                    |  |   | (5,940       | ) |  |                   | (11,629
|Accumulated other comprehensive income (loss)           |  |        | (1,231  | ) |                       |   |                          |  |   | 76           |   |  |                   | (76    
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Total stockholders equity                              |  |        | 50,690  |   |                       |   | 69,324                    |  |   | 2,695        |   |  |                   | (72,019
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY              |  | $      | 247,417 |   |                       | $ | 88,442                    |  | $ | 33,305       |   |  | $                 | (74,572
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        



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Guarantor Financial Statements

Condensed Consolidating Balance Sheets

January 25, 2003



(In Thousands)



|                                                        |  | Issuer |         |   | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |        
|------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------------------------- |  | - | ------------ | - |  | ----------------- | -------
|ASSETS                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|CURRENT ASSETS:                                         |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Cash and cash equivalents                               |  | $      | 19,047  |   |                       | $ |                          |  | $ | 1,860        |   |  | $                 |        
|Accounts receivable, net                                |  |        | 20,332  |   |                       |   | 10,507                    |  |   | 7,688        |   |  |                   |        
|Inventories                                             |  |        | 17,544  |   |                       |   | 8,245                     |  |   | 9,932        |   |  |                   |        
|Deferred tax assets                                     |  |        | 1,310   |   |                       |   | 461                       |  |   | 92           |   |  |                   |        
|Prepaid expenses and other                              |  |        | 467     |   |                       |   | 222                       |  |   | 1,010        |   |  |                   |        
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Total current assets                                    |  |        | 58,700  |   |                       |   | 19,435                    |  |   | 20,582       |   |  |                   |        
|                                                        |  |        |         |   |                      
|PROPERTY, PLANT AND EQUIPMENT, net                      |  |        | 32,791  |   |                       |   | 23,902                    |  |   | 9,565        |   |  |                   |        
|DEFERRED TAX ASSETS                                     |  |        | 10      |   |                       |   | 356                       |  |   | 1,482        |   |  |                   | (978   
|GOODWILL                                                |  |        | 62,386  |   |                       |   | 35,992                    |  |   |             |   |  |                   |        
|OTHER INTANGIBLE ASSETS, net                            |  |        | 36,997  |   |                       |   | 6,103                     |  |   |             |   |  |                   |        
|INVESTMENT IN SUBSIDIARIES                              |  |        | 69,395  |   |                       |   |                          |  |   |             |   |  |                   | (69,395
|OTHER ASSETS                                            |  |        | 8,777   |   |                       |   | 2,287                     |  |   | 26           |   |  |                   |        
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|TOTAL ASSETS                                            |  | $      | 269,056 |   |                       | $ | 88,075                    |  | $ | 31,655       |   |  | $                 | (70,373
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|                                                        |  |        |         |   |                      
|LIABILITIES AND STOCKHOLDERS EQUITY                    |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|CURRENT LIABILITIES:                                    |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Accounts payable                                        |  | $      | 7,808   |   |                       | $ | 3,475                     |  | $ | 4,636        |   |  | $                 |       
|Accrued expenses                                        |  |        | 9,625   |   |                       |   | 7,001                     |  |   | 2,088        |   |  |                   |       
|Current portion of long-term debt                       |  |        | 10,868  |   |                       |   |                          |  |   | 1,237        |   |  |                   |       
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Total current liabilities                               |  |        | 28,301  |   |                       |   | 10,476                    |  |   | 7,961        |   |  |                   |       
|                                                        |  |        |         |   |                      
|INTERCOMPANY (RECEIVABLE) PAYABLE                       |  |        | (28,766 | ) |                       |   | 10,437                    |  |   | 18,329       |   |  |                   |       
|                                                        |  |        |         |   |                      
|OTHER LIABILITIES, including post-retirement obligation |  |        | 6,380   |   |                       |   |                          |  |   | 127          |   |  |                   | (978   
|LONG-TERM DEBT, net of current portion                  |  |        | 215,991 |   |                       |   |                          |  |   | 2,675        |   |  |                   |       
|MINORITY INTEREST                                       |  |        |        |   |                       |   |                          |  |   |             |   |  |                   | 330    
|                                                        |  |        |         |   |                      
|STOCKHOLDERS EQUITY:                                   |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Preferred stock                                         |  |        |        |   |                       |   |                          |  |   | 133          |   |  |                   | (133   
|Common stock                                            |  |        |        |   |                       |   | 2,056                     |  |   | 6,061        |   |  |                   | (8,117 
|Paid-in capital                                         |  |        | 72,648  |   |                       |   | 49,699                    |  |   | 2,365        |   |  |                   | (52,064
|Retained earnings (deficit)                             |  |        | (23,480 | ) |                       |   | 15,407                    |  |   | (5,285       | ) |  |                   | (10,122
|Accumulated other comprehensive loss                    |  |        | (2,018  | ) |                       |   |                          |  |   | (711         | ) |  |                   | 711    
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|Total Stockholders equity                              |  |        | 47,150  |   |                       |   | 67,162                    |  |   | 2,563        |   |  |                   | (69,725
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY              |  | $      | 269,056 |   |                       | $ | 88,075                    |  | $ | 31,655       |   |  | $                 | (70,373
|                                                        |  |        |         |   |                       |   |                           |  |   |              |   |  |                   |        



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Guarantor Financial Statements

Condensed Consolidating Statements of Cash Flows

For the Thirty-Nine Weeks Ended October 25, 2003



(Unaudited and In Thousands)



|                                                             |  | Issuer |         |   | GuarantorSubsidiaries |   |        | Non-GuarantorSubsidiaries |  |   | ConsolidatedTotal |  
|------------------------------------------------------------ |  | ------ | ------- | - | --------------------- | - | ------ | ------------------------- |  | - | ----------------- | -
|                                                             |  |        |         |  
|CASH FLOWS FROM OPERATING ACTIVITIES                         |  | $      | 8,316   |   |                       | $ | (1,598 | )                         |  | $ | 2,079             |  
|                                                             |  |        |         |   |                       |   |        |                           |  |   |                   |  
|                                                             |  |        |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |  |        |         |   |                       |   |        |                           |  |   |                   |  
|Equity distribution from affiliate                           |  |        |        |   |                       |   | 3,023  |                           |  |   |                  |  
|Additions to property, plant, and equipment                  |  |        | (4,826  | ) |                       |   | (1,365 | )                         |  |   | (1,029            | )
|                                                             |  |        |         |   |                       |   |        |                           |  |   |                   |  
|Net cash provided by (used in) investing activities          |  |        | (4,826  | ) |                       |   | 1,658  |                           |  |   | (1,029            | )
|                                                             |  |        |         |   |                       |   |        |                           |  |   |                   |  
|                                                             |  |        |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |  |        |         |   |                       |   |        |                           |  |   |                   |  
|Proceeds from issuance of long-term debt                     |  |        | 3,500   |   |                       |   |       |                           |  |   |                  |  
|Repayments of long-term debt                                 |  |        | (23,500 | ) |                       |   |       |                           |  |   | (1,912            | )
|Dividends to Tandus Group, Inc.                              |  |        | (2,263  | ) |                       |   |       |                           |  |   |                  |  
|Financing costs                                              |  |        | (18     | ) |                       |   |       |                           |  |   |                  |  
|                                                             |  |        |         |   |                       |   |        |                           |  |   |                   |  
|Net cash used in financing activities                        |  |        | (22,281 | ) |                       |   |       |                           |  |   | (1,912            | )
|                                                             |  |        |         |   |                       |   |        |                           |  |   |                   |  
|                                                             |  |        |         |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |  |        |        |   |                       |   |       |                           |  |   | 36                |  
|                                                             |  |        |         |   |                       |   |        |                           |  |   |                   |  
|                                                             |  |        |         |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                      |  |        | (18,791 | ) |                       |   | 60     |                           |  |   | (826              | )
|                                                             |  |        |         |  
|CASH AND CASH EQUIVALENTS, beginning of period               |  |        | 19,047  |   |                       |   |       |                           |  |   | 1,860             |  
|                                                             |  |        |         |   |                       |   |        |                           |  |   |                   |  
|                                                             |  |        |         |  
|CASH AND CASH EQUIVALENTS, end of period                     |  | $      | 256     |   |                       | $ | 60     |                           |  | $ | 1,034             |  
|                                                             |  |        |         |   |                       |   |        |                           |  |   |                   |  



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Guarantor Financial Statements

Condensed Consolidating Statement of Cash Flows

For the Thirty-Nine Weeks Ended October 26, 2002



(Unaudited and In Thousands)



|                                                             |  | Issuer |          |   | GuarantorSubsidiaries |   |        | Non-GuarantorSubsidiaries |  |   | ConsolidatedTotal |  
|------------------------------------------------------------ |  | ------ | -------- | - | --------------------- | - | ------ | ------------------------- |  | - | ----------------- | -
|                                                             |  |        |          |  
|CASH FLOWS FROM OPERATING ACTIVITIES                         |  | $      | 13,723   |   |                       | $ | (1,075 | )                         |  | $ | 174               |  
|                                                             |  |        |          |   |                       |   |        |                           |  |   |                   |  
|                                                             |  |        |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |  |        |          |   |                       |   |        |                           |  |   |                   |  
|Acquisition of a business                                    |  |        | (35,132  | ) |                       |   |       |                           |  |   |                  |  
|Equity distribution from affiliate                           |  |        |         |   |                       |   | 1,678  |                           |  |   |                  |  
|Additions to property, plant and equipment                   |  |        | (4,107   | ) |                       |   | (652   | )                         |  |   | (1,206            | )
|                                                             |  |        |          |   |                       |   |        |                           |  |   |                   |  
|Net cash provided by (used in) investing activities          |  |        | (39,239  | ) |                       |   | 1,026  |                           |  |   | (1,206            | )
|                                                             |  |        |          |   |                       |   |        |                           |  |   |                   |  
|                                                             |  |        |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |  |        |          |   |                       |   |        |                           |  |   |                   |  
|Proceeds from issuance of long-term debt                     |  |        | 175,000  |   |                       |   |       |                           |  |   |                  |  
|Repayments of long-term debt                                 |  |        | (133,619 | ) |                       |   |       |                           |  |   | (338              | )
|Dividends to Tandus Group, Inc.                              |  |        | (2,593   | ) |                       |   |       |                           |  |   |                  |  
|Financing Costs                                              |  |        | (6,808   | ) |                       |   |       |                           |  |   |                  |  
|                                                             |  |        |          |   |                       |   |        |                           |  |   |                   |  
|Net cash provided by (used in) financing activities          |  |        | 31,980   |   |                       |   |       |                           |  |   | (338              | )
|                                                             |  |        |          |   |                       |   |        |                           |  |   |                   |  
|                                                             |  |        |          |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |  |        |         |   |                       |   |       |                           |  |   | (598              | )
|                                                             |  |        |          |   |                       |   |        |                           |  |   |                   |  
|                                                             |  |        |          |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                      |  |        | 6,464    |   |                       |   | (49    | )                         |  |   | (1,968            | )
|                                                             |  |        |          |  
|CASH AND CASH EQUIVALENTS, beginning of period               |  |        | 2,271    |   |                       |   | 49     |                           |  |   | 3,914             |  
|                                                             |  |        |          |   |                       |   |        |                           |  |   |                   |  
|                                                             |  |        |          |  
|CASH AND CASH EQUIVALENTS, end of period                     |  | $      | 8,735    |   |                       | $ |       |                           |  | $ | 1,946             |  
|                                                             |  |        |          |   |                       |   |        |                           |  |   |                   |  



|17. | Income Taxes
|--- | ------------



The Companys effective tax rate was 26.1% and 40.0% for the thirty-nine weeks ended October 25, 2003 and October 26, 2002, respectively. The reduced rate for
the thirty-nine weeks ended October 25, 2003 was the effect of the Company qualifying for certain state income tax credits not previously obtained. A portion of the credits is available for refund with the remainder to be carried forward. The
Company has completed and filed amended returns for the prior years in which a refund is available. The receivable recorded in the Companys financial statements is $0.4 million, and the deferred amount of credits is $0.9 million, both net of
the effect of federal income taxes. The credits to be carried forward have no expiration date.



|18. | Subsequent Event
|--- | ----------------



Subsequent to the quarter end, on November 17, 2003, Koch Industries, Inc. reached a definitive agreement with Dupont to purchase the business segment that
currently supplies a majority of the Companys requirements for nylon yarn. The closing of this transaction is expected to occur in the first half of 2004, and is subject to regulatory approvals and customary closing conditions. The
Companys management anticipates little or no disruption in shipments that are currently supplied by Dupont.



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|Item  2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|-------- |  | -------------------------------------------------------------------------------------



The following discussion and analysis of the financial condition and results of operations should be read in conjunction with and is
qualified in its entirety by reference to our consolidated financial statements and the accompanying notes. Except for historical information, the discussions in this section contain forward-looking statements that involve risks and uncertainties.
Future results could differ materially from these discussed below for many reasons. See Forward-Looking Statements.



GENERAL



Based on annual sales and product brands, Collins & Aikman Floorcoverings, Inc. (the Company), a Delaware Corporation, is a leading manufacturer of floorcovering products for the North American specified
commercial carpet market. The Companys floorcovering products include (i) vinyl-backed six-foot roll carpet and modular carpet tile and (ii) high style tufted and woven broadloom carpet. The Company designs, manufactures and markets its
C&A, Monterey and Crossley brands under the Tandus Group name for a wide variety of end markets, including corporate offices, education, healthcare, government facilities and retail stores. Because of the Companys diversity of
its end markets, management believes its business tends to be less cyclical than that of many of its competitors, which rely more heavily on the corporate market. The ability to provide a package of product offerings in various forms,
coupled with flexible distribution channels, allows the Company to provide a wide array of floorcovering solutions for each of its customers. The Company is headquartered in Georgia, with additional locations in California, Canada, the United
Kingdom and Singapore.



The Company is a wholly owned subsidiary of
Tandus Group, Inc. (Tandus), formerly known as CAF Holdings, Inc. Subsequent to a recapitalization transaction on January 25, 2001, a majority of Tanduss outstanding capital stock is controlled by investment funds managed by
Oaktree Capital Management, LLC and Banc of America Capital Investors.



During the thirty-nine weeks ended October 25, 2003, the Company prepaid $20.0 million of the term loan with cash generated from operations. In connection with the term debt prepayments, the Company recorded the write-off of a pro-rata
share of deferred financing costs associated with the term debt. The amount of these expenses was $0.4 million and is reflected in interest expense in the consolidated statement of operations.



On May 8, 2002, CAF Extrusion, Inc. (Extrusion), a wholly-owned subsidiary,
acquired a yarn extrusion manufacturing plant located in Calhoun, Georgia. In addition, Extrusion purchased the real property on which the plant is located from a third party. The acquisition was funded from cash on hand. The cash purchase price was
$34.8 million plus $0.3 million for acquisition related expenses and consisted of $2.4 million for the land and building, $1.4 million for inventory, $17.7 million for machinery and equipment, $5.6 million for goodwill (which was assigned an
indefinite life), and $8.0 million for a supply agreement which is being amortized over its term of three years. The acquisition has been accounted for by the purchase method of accounting and, accordingly, the results of operations of Extrusion
have been included in the Companys consolidated financial statements from May 8, 2002.



Subsequent to quarter end, on November 12, 2003, The Dixie Group, Inc. (Dixie) completed the previously announced agreement to divest of certain portions of their business. Dixie is the seller from whom the Company
acquired the extrusion operations on May 8, 2002. The impact of the recently announced Dixie divestiture is not yet determinable, but Company management expects a reduction in the requirements of the extrusion operations to Dixie and to the
successor of the portions of the business that were sold. Due to the recent completion of the Dixie agreement, the Company is evaluating the carrying value of goodwill and the supply agreement that were recorded at the May 8, 2002 acquisition date.
Additional information from Dixie and the successor purchaser is required for the Company to complete this evaluation. If, after completion of the evaluation, it is determined that the carrying value of the



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goodwill and/or the supply agreement is impaired, a charge to earnings would be recorded in the Companys financial statements during the fourth quarter. As of
October 25, 2003, the net carrying value of the goodwill and supply agreement were $5.6 million and $4.1 million, respectively.



RESULTS OF OPERATIONS



The following table sets forth certain operating results as a percentage of net sales for the periods indicated:



|                                           |  | Thirteen Weeks Ended |   |  | Thirty-Nine Weeks Ended |  
|------------------------------------------ |  | -------------------- | - |  | ----------------------- | -
|                                           |  | October 26,2002      |   |  | October 25,2003         |  
|Net Sales                                  |  | 100.0                | % |  | 100.0                   | %
|Cost of Goods Sold                         |  | 68.1                 |   |  | 70.0                    |  
|                                           |  |                      |   |  |                         |  
|Gross Profit                               |  | 31.9                 |   |  | 30.0                    |  
|Selling, General & Administrative Expenses |  | 21.3                 |   |  | 25.1                    |  
|                                           |  |                      |   |  |                         |  
|Operating Income                           |  | 10.6                 |   |  | 4.9                     |  
|Net Interest Expense                       |  | 6.5                  |   |  | 7.3                     |  
|Net Income                                 |  | 2.6                  |   |  | 0.0                     |  



Thirteen Weeks Ended October 25, 2003 As
Compared with the Thirteen Weeks Ended October 26, 2002



Net
Sales.Net sales for the thirteen weeks ended October 25, 2003 were $74.1 million, a decrease of 12.1% from the $84.3 million for the thirteen weeks ended October 26, 2002. Net sales of the Companys floorcovering segment were $67.5 million
for the thirteen weeks ended October 25, 2003 as compared to $76.0 million for the thirteen weeks ended October 26, 2002, a decrease of 11.2%. This decrease in the floorcovering segments net sales was due to the slow demand throughout the
specified commercial market in the United States. In particular, demand in the corporate office market has been slow since 2001. The difficulty in this end market has continued throughout fiscal 2003. For the thirteen weeks ended October 25, 2003,
the Companys sales to the corporate office market decreased by 11.0% as compared to the prior year. Net sales of the extrusion operation for the thirteen weeks ended October 25, 2003 were down approximately 21% as compared to the thirteen
weeks ended October 26, 2002. The decrease was also due to slower demand from its customers who have been impacted by the lower demand for floorcovering products.



Cost of Goods Sold. Cost of goods sold was $51.9 million for the thirteen weeks ended October 25, 2003 as compared to $57.4
million in the thirteen weeks ended October 26, 2002. This decrease resulted from lower net sales. As a percentage of sales, these costs were 70.0% for the thirteen weeks ended October 25, 2003 and 68.1% for the thirteen weeks ended October 26,
2002.



Selling, General and Administrative Expenses.Selling,
general and administrative expenses were $17.1 million, excluding other intangible assets amortization of $1.5 million, for the thirteen weeks ended October 25, 2003, an increase of 1.2% from $16.9 million in the thirteen weeks ended October 26,
2002, which excluded goodwill and other intangible assets amortization of $1.0 million. This was primarily due to increases in salaries and related benefits of $0.3 million, professional services of $0.6 million, sampling expenses of $0.6 million,
marketing and promotional expenses of $0.3 million, partially offset by foreign currency gains of $1.3 million and commissions of $0.4 million. A portion of the increased salary and related benefits, marketing and promotional expenses and
sample expenses are related to the Companys new selling strategy, which was implemented beginning January 26, 2003 and to support a number of new floorcovering product lines which were recently introduced. As a percentage of sales, these
expenses, excluding amortization, increased to 23.1% from 20.1% in the prior year.



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Interest Expense. Net interest expense for the thirteen weeks ended October 25, 2003 and thirteen weeks
ended October 26, 2002 was $5.4 million and $5.5 million, respectively.



Income Taxes.During the thirteen weeks ended October 25, 2003, the Company recognized the benefit of certain state income tax credits that applied to prior as well as future periods. A portion of the credits is available for refund
with the remainder to be carried forward. The Company has completed and filed amended returns for the prior years in which a refund is available. The receivable recorded in the Companys financial statements is $0.4 million, and the deferred
amount of credits is $0.9 million, both net of the effect of federal income taxes. The credits to be carried forward have no expiration date.



Net Income. Net income for the thirteen weeks ended October 25, 2003 was $35 thousand compared to $2.2 million in the thirteen weeks ended October 26, 2002.
This was due to the combined result of the factors described above.



Adjusted EBITDA.Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization and the cumulative effect of change in accounting principle, plus Chroma cash dividends, minority interest in income of
subsidiary and non-recurring costs associated with an unsuccessful acquisition less equity in earnings of Chroma. Adjusted EBITDA for the thirteen weeks ended October 25, 2003 decreased to $9.4 million from $13.1 million in the thirteen weeks ended
October 26, 2002. As a percentage of sales, Adjusted EBITDA was 12.7% in the thirteen weeks ended October 25, 2003 compared to 15.5% in the thirteen weeks ended October 26, 2002. Adjusted EBITDA is presented because it is commonly used by certain
investors and analysts to analyze a companys ability to service debt. The Company utilizes Adjusted EBITDA as (a) a benchmark for its annual budget and long range plan, (b) a valuation method for potential acquisitions, and (c) a measure to
determine compliance with senior credit facility debt covenants. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative to operating income or net income
as a measure of operating performance or to net cash provided by operating activities as a measure of liquidity. Because Adjusted EBITDA is not calculated identically by all companies, the presentation in these statements may not be comparable to
those disclosed by other companies.



A reconciliation of net income to
Adjusted EBITDA is as follows:



|                                                             |  | Thirteen Weeks Ended |       
|------------------------------------------------------------ |  | -------------------- | ------
|                                                             |  | October 26,2002      |       
|Net income                                                   |  | $                    | 2,190 
|Income tax expense (benefit)                                 |  |                      | 1,775 
|Net interest expense                                         |  |                      | 5,464 
|Depreciation                                                 |  |                      | 2,421 
|Amortization                                                 |  |                      | 988   
|Chroma cash dividends                                        |  |                      | 707   
|Equity in earnings in Chroma                                 |  |                      | (484  
|Minority interest in loss of subsidiary                      |  |                      | (1    
|Non-recurring costs associated with unsuccessful acquisition |  |                      |      
|                                                             |  |                      |       
|Adjusted EBITDA                                              |  | $                    | 13,060
|                                                             |  |                      |       



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RESULTS OF OPERATIONS



Thirty-Nine Weeks Ended October 25, 2003 As Compared with the Thirty-Nine Weeks Ended October 26, 2002



Net Sales.Net sales for the thirty-nine weeks ended October 25, 2003 were $239.6 million, a decrease of 4.4% from the $250.6
million for the thirty-nine weeks ended October 26, 2002. Net sales of the Companys floorcovering segment were $218.1 million for the thirty-nine weeks ended October 25, 2003 as compared to $234.7 million for the thirty-nine weeks ended
October 26, 2002, a decrease of 7.1%. The decrease in the floorcovering segments net sales in the thirty-nine weeks ended October 25, 2003 was due to the continued slow demand throughout the specified commercial market in the United States. In
particular, demand in the corporate office market has been slow since 2001. For the thirty-nine weeks ended October 25, 2003, the Companys sales to the corporate office market decreased by 13.0% as compared to the prior year. This decrease was
partially offset by the inclusion of the extrusion operations net sales for the full thirty-nine weeks ended October 25, 2003. The extrusion operation was acquired May 8, 2002.



Cost of Goods Sold. Cost of goods sold was $159.4 million for the thirty-nine weeks ended October 25, 2003 as compared to
$162.6 million in the thirty-nine weeks ended October 26, 2002. This decrease resulted from the lower net sales and management cost reduction initiatives partially offset by inclusion of the costs of the extrusion operation for the full thirty-nine
weeks ended October 25, 2003. As a percentage of sales, cost of goods sold were 66.5% and 64.9%, respectively.



Selling, General and Administrative Expenses.Selling, general and administrative expenses, excluding goodwill and other intangible assets amortization of
$4.6 million, for the thirty-nine weeks ended October 25, 2003 were $54.0 million, an increase of 5.3% from $51.3 million in the thirty-nine weeks ended October 26, 2002 which excluded goodwill and other intangible assets amortization of $2.9
million. The increase was primarily due to increases in salaries and related benefits of $1.6 million, legal and professional services of $0.6 million, sampling expenses of $1.0 million, marketing and promotional expenses of $2.2 million, partially
offset by lower sales commissions of $1.2 million and foreign currency gains of $1.5 million. A portion of the increased salary and benefits, marketing and promotional expenses and sampling expenses are related to the Companys new selling
strategy, which was implemented beginning January 26, 2003 and to support a number of new floorcovering product lines which were recently introduced. As a percentage of sales, these expenses, excluding amortization, were 22.5% and 20.5%,
respectively.



Interest Expense. Net interest expense for the
thirty-nine weeks ended October 25, 2003 and the thirty-nine weeks ended October 26, 2002 was $16.0 million and $18.8 million, respectively, which included interest income of $0.1 million and $0.2 million, respectively. The thirty-nine weeks ended
October 25, 2003 include a charge to interest expense of $0.4 million to reflect the write-off of a pro-rata share of deferred financing costs associated with the prepayment of term debt with cash generated by operations. The thirty-nine weeks ended
October 26, 2002 include a charge to interest expense of $2.7 million to reflect the write-off of a pro-rata share of deferred financing costs associated with the prepayment of term debt from proceeds of the 9.75% Notes offering and from cash
generated by operations.



Income Taxes.The Companys
effective tax rate was 26.1% and 40% for the thirty-nine weeks ended October 25, 2003 and October 26, 2002, respectively. The reduced rate for the thirty-nine weeks ended October 25, 2003 was the effect of the Company qualifying for certain state
income tax credits not previously obtained. A portion of the credits is available for refund with the remainder to be carried forward. The Company has completed and filed amended returns for the prior years in which a refund is available. The
receivable recorded in the Companys financial statements is $0.4 million, and the



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deferred amount of credits is $0.9 million, both net of the effect of federal income taxes. The credits to be carried forward have no expiration date.



Net Income. Net income before the cumulative effect of the change in accounting
principle, for the thirty-nine weeks ended October 25, 2003 decreased to $5.0 million from $9.9 million in the thirty-nine weeks ended October 26, 2002. This was due to the combined result of the factors described above.



Adjusted EBITDA.Adjusted EBITDA represents earnings before interest, taxes,
depreciation, amortization and the cumulative effect of change in accounting principle, plus Chroma cash dividends, minority interest in income of subsidiary and non-recurring costs associated with an unsuccessful acquisition less equity in earnings
of Chroma. Adjusted EBITDA for the thirty-nine weeks ended October 25, 2003 decreased to $37.8 million from $44.9 million in the thirty-nine weeks ended October 26, 2002. As a percentage of sales, Adjusted EBITDA was 15.8% in the thirty-nine weeks
ended October 25, 2003 compared to 17.9% in the thirty-nine weeks ended October 26, 2002. Adjusted EBITDA is presented because it is commonly used by certain investors and analysts to analyze a companys ability to service debt. The
Company utilizes Adjusted EBITDA as (a) a benchmark for its annual budget and long range plan, (b) a valuation method for potential acquisitions, and (c) a measure to determine compliance with senior credit facility debt covenants. Adjusted EBITDA
is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative to operating income or net income as a measure of operating performance or to net cash provided by operating
activities as a measure of liquidity. Because Adjusted EBITDA is not calculated identically by all companies, the presentation in these statements may not be comparable to those disclosed by other companies.



A reconciliation of net income to Adjusted EBITDA is as follows:



|                                                             |  | Thirty-Nine Weeks Ended |       
|------------------------------------------------------------ |  | ----------------------- | ------
|                                                             |  | October 26,2002         |       
|Net income                                                   |  | $                       | 6,634 
|Cumulative effect of change in accounting principle          |  |                         | 3,240 
|Income tax expense                                           |  |                         | 6,585 
|Net interest expense                                         |  |                         | 18,751
|Depreciation                                                 |  |                         | 6,543 
|Amortization                                                 |  |                         | 2,946 
|Chroma cash dividends                                        |  |                         | 1,678 
|Equity in earnings in Chroma                                 |  |                         | (1,493
|Minority interest in income of subsidiary                    |  |                         | 5     
|Non-recurring costs associated with unsuccessful acquisition |  |                         |      
|                                                             |  |                         |       
|Adjusted EBITDA                                              |  | $                       | 44,889
|                                                             |  |                         |       



LIQUIDITY AND CAPITAL RESOURCES



The Companys principal uses of cash have historically been
for operating expenses, working capital, capital expenditures and debt repayment. The Company has financed its cash requirements through internally generated cash flows, borrowings and the offering of the senior subordinated notes.



Net cash provided by operating activities in the thirty-nine weeks ended October 25,
2003 was $8.8 million compared to $12.8 million in the thirty-nine weeks ended October 26, 2002. The change is due to lower net income of $1.6 million, increased deferred tax expense of $3.5 million, the impact of the cumulative effect of a change
in accounting principle of $3.2 million partially offset by a positive impact of $3.5 million in net working capital and $0.4 million in depreciation and amortization.



Net cash used in investing activities in the thirty-nine weeks ended October 25, 2003 was $4.2 million compared to $39.4 million in
the thirty-nine weeks ended October 26, 2002. The decrease in cash used in investing activities was primarily due to the acquisition of the yarn extrusion manufacturing plant



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and the real property on which the plant is located on May 8, 2002. Capital expenditures for the thirty-nine weeks ended October 25, 2003 were $7.2 million compared to
$6.0 million for the thirty-nine weeks ended October 26, 2002.



Net cash
used in financing activities for the thirty-nine weeks ended October 25, 2003 was $24.2 million compared to net cash provided by financing activities of $31.6 million in the thirty-nine weeks ended October 26, 2002. The decrease in cash provided by
financing activities was due primarily to the issuance of the 9.75% Notes and repayment of the Senior Credit Facility with a portion of the proceeds during the thirty-nine weeks ended October 26, 2002 as well as a net repayment of long-term debt of
$21.9 million during the thirty-nine weeks ended October 25, 2003.



The
Company has significant indebtedness, which, as of October 25, 2003, consists of $175.0 million of 9.75% senior subordinated notes due 2010, $31.0 million of senior term debt, $0.7 million in purchase money and other indebtedness and $2.7 million in
sinking fund bonds under Crossley. As of October 25, 2003, the Companys $50.0 million revolving line of credit had no borrowings outstanding and $0.6 million of letters of credit outstanding leaving total availability of $49.4 million. The
Company was in compliance with all debt covenants as of October 25, 2003.



The Companys ability to make scheduled payments of principal, interest, or to refinance its indebtedness, depends on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, and other
factors beyond its control. However, there can be no assurance that the Companys business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable the Company to service
its indebtedness or to make necessary capital expenditures. The Company periodically evaluates potential acquisitions of businesses, which complement its existing operations. Depending on various factors, including, among others, the cash
consideration required in such potential acquisitions, the Company may determine to finance any such transaction with existing sources of liquidity.



Management believes that cash generated by its operations and availability under its $50.0 million revolving credit line will be sufficient to fund the
Companys current commitments and planned requirements.



EFFECTS OF
INFLATION



The impact of inflation on the Companys
operations has not been significant in recent years. However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on the Companys operating results.



SEASONALITY



The Company experiences seasonal fluctuations, with generally lower sales and gross profit in the first and fourth quarters of the
fiscal year and higher sales and gross profit in the second and third quarters of the fiscal year. The seasonality of sales and profitability is primarily a result of disproportionately higher education end market sales during the summer months.



RELIANCE ON PRIMARY THIRD-PARTY SUPPLIER OF NYLON YARN



E. I. DuPont de Nemours and Company (DuPont) currently supplies a majority
of the Companys requirements for nylon yarn, the principal raw material used in the Companys floorcovering products. The unanticipated termination or interruption of the supply arrangement with DuPont could have a material adverse effect
on the Company because of the cost and delay associated with shifting this business to another supplier. Historically, the Company has not experienced significant interruptions in the supply of nylon yarn from DuPont.



Subsequent to the quarter end, on November 17, 2003, Koch Industries, Inc. reached a
definitive agreement with Dupont to purchase the business segment that currently supplies a majority of the Companys requirements for nylon yarn. The closing of this transaction is expected to occur in the first



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half of 2004, and is subject to regulatory approvals and customary closing conditions. The Companys management anticipates little or no disruption in shipments
that are currently supplied by Dupont.



RECENT ACCOUNTING PRONOUNCEMENTS



In November 2002, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 supercedes Interpretation No.
34, Disclosure of Indirect Guarantees of Indebtedness of Others, and provides guidance on the recognition and disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain
guarantees. The initial recognition and measurement provisions of FIN 45 are effective for guarantees issued or modified after December 31, 2002, and are to be applied prospectively. The disclosure requirements are effective for financial statements
for interim or annual periods ending after December 15, 2002. The adoption of FIN 45 has had no impact on the Companys consolidated financial statements beyond the additional disclosures as presented in Note 16.



In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 (FIN 46). FIN 46 addresses the consolidation by business enterprises of variable interest entities that have certain characteristics. Generally, a variable interest entity is any
legal structure used for business purposes that either (1) does not have equity investors with voting rights or (2) has equity investors that do not provide sufficient financial resources for the entity to support its operations. FIN 46 requires
variable interest entities to be consolidated by the company if it is subject to a majority of the risk of loss from the variable interest entitys operations or entitled to receive a majority of the entitys residual returns. FIN 46
requires consolidation of variable interest entities created after January 31, 2003 and initially applied to existing variable interest entities in the first year or interim period beginning after June 15, 2003. In October 2003, a FASB Staff
position, No. FIN 46-6, was issued, which deferred the implementation of FIN 46 until the end of the first interim or annual period ending after December 15, 2003 when an interest in a variable interest entity was created before February 1, 2003.



Monterey Carpets, Inc., a wholly-owned subsidiary of the Company, holds
a variable interest in a partnership described in further detail in Note 13 to the consolidated financial statements. The Company currently accounts for the partnership under the equity method of accounting. As a result, the partnership may be
considered a variable interest entity, and the Company may be required to consolidate the partnership as of October 26, 2003, the beginning of the Companys fourth quarter. Consolidated net income and Adjusted EBITDA for the period and the
Companys partnership equity at the end of the period are the same whether the investment in the partnership is accounted for under the equity method or the partnership is consolidated. Any change in disclosure or presentation has no impact on
the Companys debt covenants. The Company is in the process of determining the impact of FIN 46 on its financial statements. The Companys maximum exposure to loss as a result of its involvement with the partnership is limited primarily to
its initial investment in the partnership and its undistributed share of the partnerships earnings. The partners have historically financed the operation of the business of the partnership by utilizing the initial capital contributions of the
partners, internally generated funds and proceeds from the third party loans. To the extent that the operations of the partnership cannot be financed in this manner, the partnership agreement allows for a call for additional capital contributions,
which is obligatory to the partners. Historical and current results of the partnerships operations indicate that current sources of funds will continue to be adequate, and that no such call for an additional capital contribution should be
required.



In May 2003, the FASB issued SFAS No. 150, Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and
equity as well as imposes additional disclosure requirements. For nonpublic entities, mandatorily redeemable financial instruments are subject to the provisions of this Statement for the first fiscal period beginning after December 15, 2003. The
Company is in the process of determining the impact of SFAS No. 150 on its financial statements.



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CRITICAL ACCOUNTING POLICIES



The Companys significant accounting policies are more fully described in Note 3 to the audited consolidated financial statements
included in the Companys Form 10-K which was filed with the Securities and Exchange Commission on April 25, 2003. Certain of the Companys accounting policies require the application of significant judgment by management in selecting the
appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates. These judgments are based on the Companys
historical experience, terms of existing contracts, current economic trends in the industry, information provided by our customers, and information available from outside sources, as appropriate. The Companys significant accounting policies
include:



Revenue Recognition. Revenue is recognized when goods
are shipped, which is when legal title passes to the customer. For product installations subject to customer approval, revenue is recognized upon acceptance by the customer. The Company provides certain installation services to customers utilizing
independent third-party contractors. The billings and expenses for these services are included in net sales and cost of goods sold, respectively.



Impairment of Goodwill. The Company periodically evaluates acquired businesses for potential impairment indicators. Judgments regarding the existence of
impairment indicators are based on legal factors, market conditions and operational performance of our acquired businesses. Future events could cause the Company to conclude that impairment indicators exist and that goodwill associated with acquired
businesses is impaired. Any resulting impairment loss could have a material adverse impact on the Companys financial condition and results of operations. See Note 8 for further discussion.



Accounts Receivable. The Company provides allowances for expected cash
discounts, returns, claims and doubtful accounts based upon historical experience and periodic evaluation of the financial condition of the Companys customers and collectability of the Companys accounts receivable. If the financial
condition of the Companys customers were to deteriorate, resulting in an impairment of their ability to pay their debts, allowances recorded in the Companys financial statements may not be adequate.



Inventory Reserves. Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out, method. Reserves are established based on percentage markdowns applied to inventories aged for certain time periods and size of lot.



Allowance and/or reserve for customer claims and returns. A customer claims reserve and allowance for product returns is
established based upon best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. While we believe that our customer claims reserve and allowance for product returns is adequate and
that the judgment applied is appropriate based upon our historical experience for these items, actual amounts determined to be due and payable would differ and additional allowances may be required.



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FORWARD-LOOKING STATEMENTS



The Company may from time to time make written and oral forward-looking statements. Written forward-looking statements may appear in documents filed with the
Securities and Exchange Commission, in press releases and in reports to shareholders. The Private Securities Litigation Reform Act of 1995 contains a safe harbor for forward-looking statements. The Company relies on this safe harbor in making such
disclosures. All statements contained in this Quarterly Report on Form 10-Q as to future expectations and financial results including, but not limited to, statements containing the words plans, believes, intend,
anticipates, expects, projects, should, will and similar expressions, should be considered forward-looking statements subject to the safe harbor. The forward-looking statements are based on
managements current beliefs and assumptions about expectations, estimates, strategies and projections for the Company. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are
difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements
whether as a result of new information, future events or otherwise. The risks, uncertainties and assumptions regarding forward-looking statements include, but are not limited to, product demand and market acceptance risks; product development risks,
such as delays or difficulties in developing, producing and marketing new products; the impact of competitive products, pricing and advertising constraints resulting from the financial condition of the Company, including the degree to which the
Company is leveraged; cycles in the construction and renovation of commercial and institutional buildings; failure to retain senior executives and other qualified personnel; unanticipated termination or interruption of the Companys arrangement
with its primary third-party supplier of nylon yarn; debt service requirements and restrictions under credit agreements and indentures; general economic conditions in the United States and in markets outside of the United States served by the
Company; government regulations; risks of loss of material customers; environmental matters; and other risks described in the Companys Securities and Exchange Commission filings.



|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk
|------- |  | ----------------------------------------------------------



Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. Although the
Company is not subject to material foreign currency exchange risk, it is exposed to changes in interest rates. Other than the 9.75% Notes, substantially all of our debt is variable rate debt. Therefore, interest rate changes generally do not affect
the fair market value of such debt but do impact future earnings and cash flows, assuming other factors are held constant. Conversely, for fixed rate debt, interest rate changes do not impact future cash flow and earnings, but do impact the fair
market value of such debt, assuming other factors are held constant. At October 25, 2003, the Company had variable rate debt of $31.0 million and fixed rate debt of $178.4 million. The variable interest rate per annum applicable to borrowings under
the Senior Credit Facility is equal to the Companys choice of (a) an adjusted rate based upon LIBOR plus a Eurodollar margin or (b) an alternative base rate, as defined by the Senior Credit Facility, plus a base rate margin. The Eurodollar
margin and the base rate margin adjust quarterly on a sliding scale based on our leverage ratio for the immediately preceding four fiscal quarters.



|Item 4. |  | Controls and Procedures
|------- |  | -----------------------



As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys
Chief Executive Officer and the Chief Financial Officer, of the design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on this evaluation, the Companys Chief Executive Officer
and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Securities
Exchange Act of 1934, within the time periods specified in the SECs rules and forms. The Chief Executive Officer and Chief Financial Officer also concluded that the



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Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the
Companys periodic SEC filings. In connection with the new rules, the Company is in the process of further reviewing and documenting its disclosure controls and procedures, including its internal controls and procedures for financial reporting,
and may from time to time make changes designed to enhance their effectiveness and to ensure that the Companys systems evolve with its business.



There have been no significant changes in the Companys internal controls or in other factors that could significantly affect internal controls subsequent to
the date of this evaluation.



|PART II |  | Other Information
|------- |  | -----------------



|Item 1. |  | Legal Proceedings
|------- |  | -----------------



The Company from time to time is subject to claims and suits arising in the ordinary course of business, including workers compensation and product
liability claims that may or may not be covered by insurance. The ultimate outcome of all legal proceedings to which the Company is a party will not, in the opinion of the Companys management, based on the facts presently known to it, have a
material adverse effect on the Companys financial condition or results of operations.



The Company is subject to federal, state, and local laws and regulations concerning the environment. In the opinion of the Companys management, based on the facts presently known to it, the ultimate outcome of any
environmental matter is not expected to have a material adverse effect on the Companys financial condition or results of operations.



|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------



| | (a) | Exhibits
| | --- | --------



|     | 
|---- | 
|31.1 | 
|     | 
|31.2 | 
|     | 
|32.1 | 



| | (b) | Reports on Form 8-K
| | --- | -------------------



None



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SIGNATURE



Pursuant to the requirement of
the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on December 8, 2003.



COLLINS & AIKMAN FLOORCOVERINGS, INC. (Registrant)By:

/s/ Darrel V. McCayDarrel V. McCay Chief Financial Officer and Vice President (duly authorized officer and principal financial and accounting officer)




34